<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 STORES COMPANY, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Virginia 5531 54-0118110
(State or other jurisdiction of (Primary Standard Industrial (Employer
incorporation or organization) Classification Code Number) Identification No.)
5673 Airport Road
Roanoke, Virginia 24012
(540) 362-4911
</TABLE>
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
____________________
See Table of Co-Registrant below
____________________
J. O'Neil Leftwich
Senior Vice President and
Chief Financial Officer, Secretary and Treasurer
Advance Stores Company, Incorporated
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 AND THE CO-REGISTRANT HEREBY AMEND THIS REGISTRATION
STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE
UNTIL THE REGISTRANT AND THE CO-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.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(1) OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10.25% Senior Subordinated
Notes due 2008 $200,000,000 100.0% $200,000,000 $59,000
- ------------------------------------------------------------------------------------------------------------
Guarantee of the 10.25% Senior
Subordinated Notes due 2008 -- -- -- None(2)
============================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of the Securities Act of 1933, as amended.
(2) Pursuant to Rule 457(n).
================================================================================
<PAGE>
TABLE OF CO-REGISTRANT
----------------------
<TABLE>
<CAPTION>
PRIMARY STANDARD I.R.S. EMPLOYER
STATE OR OTHER JURISDICTION INDUSTRIAL CLASSIFICATION IDENTIFICATION
NAME OF INCORPORATION CODE NUMBER NUMBER
- ---------------------- ---------------------------- ------------------------- --------------------
<S> <C> <C> <C>
LARALEV, INC.(1) Delaware 6794 51-0340295
</TABLE>
__________________
(1) Address, including zip code and telephone 103 Foulk Road
number, including area code, of principal Suite 200
executive office of co-registrant. Wilmington, Delaware 19803
(302) 427-0421
<PAGE>
PROSPECTUS
ADVANCE STORES COMPANY, INCORPORATED
Offer to Exchange its
10.25% Series B Senior Subordinated Notes due April 15, 2008,
which have been registered under the Securities Act,
for any and all of its outstanding
10.25% Series A Senior Subordinated Notes due April 15, 2008
The Exchange Offer will expire at 5:00 P.M., New York City time, on , 1998,
unless extended.
-------------------
Advance Stores Company, Incorporated (the "Company") 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 $1,000 principal amount of its 10.25% Series B Senior Subordinated
Notes due April 15, 2008 (the "Series B Notes") 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 each $1,000 principal amount of its outstanding 10.25% Series A
Senior Subordinated Notes due April 15, 2008 (the "Series A Notes"), of which
$200.0 million principal amount is outstanding as of the date hereof.
The Company will accept for exchange any and all validly tendered Series A
Notes prior to 5:00 P.M., New York City time, on , 1998,
unless extended (the "Expiration Date"). Series A Notes may be tendered only in
integral multiples of $1,000. Tenders of Series A Notes 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
Notes being tendered for exchange. However, the Exchange Offer is subject to
certain customary conditions. In the event the Company terminates the Exchange
Offer and does not accept for exchange any Series A Notes, the Company will
promptly return the Series A Notes to the holders thereof. The Company will not
receive any proceeds from the Exchange Offer. See "The Exchange Offer."
The Series B Notes will be obligations of the Company evidencing the same debt
as the Series A Notes, and will be entitled to the benefits of the same
indenture (the "Indenture"). See "Description of Series B Notes". The form and
terms of the Series B Notes are the same as the form and terms of the Series A
Notes in all material respects except that the Series B Notes 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 Notes. The
Series A Notes 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 NOTES ON , 1998.
SEE "RISK FACTORS" ON PAGE 13 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 Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement, dated as of
April 15, 1998 (the "Exchange Offer Registration Rights Agreement"), by and
among the Company, the Guarantor (as defined) 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 the Company's obligations under the Exchange Offer
Registration Rights Agreement to register the Series A Notes under the
Securities Act. Once the Exchange Offer is consummated, the Company will have
no further obligations to register any of the Series A Notes not tendered by the
holders of the Series A Notes (the "Holders") for exchange. See "Risk Factors--
Consequences to Non-Tendering Holders of Series A Notes".
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in several no-action letters to third
parties, the Company believes that the Series B Notes issued pursuant to the
Exchange Offer in exchange for Series A Notes 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 the Company or who intended to participate
in the Exchange Offer for the purpose of distributing the Series B Notes (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 Notes 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 Notes, 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 Notes". In addition, each broker-dealer that
receives Series B Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Series B Notes. 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 Notes received in
exchange for Series A Notes where such Series A Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities and not acquired directly from the Company. The Company 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 NOTES.
Series A Notes were initially represented by two Global Series A Notes (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
Notes exchanged for Series A Notes represented by the Global Series A Notes may
be initially represented by one or more global securities ("Global Series B
Note") in fully registered form, each registered in the name of the nominee of
DTC. The Global Series B Note will be exchangeable for Series B Notes in
registered form, in denominations of $1,000 and integral multiples thereof as
described herein. The Series B Notes 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 Notes will therefore settle in
immediately available funds. See "Description of Series B Notes--Form,
Denomination and Book-Entry Procedures".
The Series B Notes will bear interest at a rate equal to 10.25% per annum
from their date of issuance. Interest on the Series B Notes is payable semi-
annually on April 15 and October 15 of each year, commencing October 15, 1998.
Holders whose Series A Notes are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the date of issuance of the
Series B Notes. Such interest will be paid with the first interest payment on
the Series B Notes. Interest on the Series A Notes accepted for exchange will
cease to accrue interest upon cancellation of the Series A Notes and issuance of
the Series B Notes.
(Continued on following page)
i
<PAGE>
(Continuation of cover page)
The Series B Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after April 15, 2003, at the redemption
prices set forth herein plus accrued interest and Liquidated Damages (as defined
herein) 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 Series B 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 (as defined); provided that, in each case, at least 65%
of the initially outstanding aggregate principal amount of the Series B 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. See "Description of Series B Notes--
Optional Redemption." Upon the occurrence of a Change of Control, each holder of
Series B Notes will have the right to require the Company to repurchase all or
any part of such holder's Series B Notes 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. See "Description of
Series B Notes--Repurchase at the Option of Holders--Change of Control." There
can be no assurance that, in the event of a Change of Control, the Company would
have sufficient funds to purchase all Series B Notes tendered. See "Risk
Factors--Possible Inability to Purchase Series B Notes upon Change of Control."
The Series A Notes are, and the Series B Notes will be, general unsecured
obligations of the Company, will rank subordinate in right of payment to all
existing and future Senior Debt (as defined herein) and will rank senior or pari
passu in right of payment to all existing and future subordinated indebtedness
of the Company. The Series B Notes will be effectively subordinated to any
secured indebtedness of the Company. The Series B Notes will be unconditionally
guaranteed, on a senior subordinated basis by each Restricted Subsidiary (as
defined herein) of the Company that guarantees any other indebtedness of the
Company or any Restricted Subsidiary (each, a "Guarantor"). The Subsidiary
Guarantees will be general unsecured obligations of the Guarantors, will rank
subordinate in right of payment to all existing and future Senior Debt of the
Guarantors and will rank senior or pari passu in right of payment to all
existing and future subordinated indebtedness of the Guarantors.
Prior to this offering, there has been no public market for the Series A
Notes. Following completion of the Exchange Offer, the Company does not intend
to list the Series B Notes on a national securities exchange or to seek approval
for quotation through the Nasdaq National Market. The Initial Purchasers have
informed the Company that they currently intend to make a market in the Series B
Notes. 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 Notes. As the Series A Notes were issued and the
Series B Notes will be issued to a limited number of institutions who typically
hold similar securities for investment, the Company does not expect that an
active public market for the Series B Notes will develop. In addition, resales
by certain holders of the Series A Notes or the Series B Notes 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
Notes. To the extent that a market for the Series B Notes should develop, the
market value of the Series B Notes will depend on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition, performance and prospects of the Company. Such factors might cause
the Series B Notes to trade at a discount from face value. See "Risk Factors--
Lack of a Public Market for the Series B Notes". The Company 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 STORES COMPANY, INCORPORATED, 5673 AIRPORT ROAD,
ROANOKE, VIRGINIA 24012, TELEPHONE NUMBER (540) 362-4911.
ii
<PAGE>
AVAILABLE INFORMATION
The Company 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 Notes 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 the
Company and the Series B Notes 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, the Company 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 the Company 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 Notes remain outstanding, the Company will make available, upon
request, to any holder and any prospective purchaser of the Series A Notes the
information required by Rule 144A(d)(4) under the Securities Act during any
period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act. Any such request should be mailed to Advance Stores Company,
Incorporated, 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 Notes are outstanding, the
Company 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. The Company will also,
within 15 days of filing each such report with the Commission, provide the
Trustee and the holders of the Series B Notes 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 Notes remain outstanding, the Company will provide the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act to
holders of the Series B Notes and to securities analysts and prospective
investors upon their request.
iii
<PAGE>
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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 the Company, including the
notes thereto, contained elsewhere in this Prospectus. Unless the context
otherwise requires, the "Company" refers to Advance Stores Company, Incorporated
and its subsidiaries, and "Holding" refers to Advance Holding Corporation, the
Company's parent, and its subsidiaries, including the Company. 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:
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1
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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
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2
<PAGE>
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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.
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3
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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 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 12.875% Senior Discount Debentures due 2009 (the "Debentures
Offering") and the offering of the Company's Series A Notes (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 Notes should consider carefully all of the
information set forth in this Prospectus, and in particular, the information set
forth on page 13 under "Risk Factors" before tendering the Series A Notes in
exchange for the Series B Notes.
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4
<PAGE>
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TERMS OF SERIES B NOTES
Securities Offered... $200.0 million in aggregate principal amount of 10.25%
Series B Senior Subordinated Notes due 2008.
Issuer............... Advance Stores Company, Incorporated
Maturity Date........ April 15, 2008.
Interest Rate........ The Series B Notes 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.
Subordination........ The Series B Notes will be general unsecured obligations
of the Company, will rank subordinate in right of payment
to all existing and future Senior Debt and will rank
senior or pari passu in right of payment to all existing
and future subordinated indebtedness of the Company. As
of April 25, 1998, the Series B Notes were subordinate to
$135.0 million of Senior Debt. In addition, the Company
could have incurred additional indebtedness of up to
$250.0 million under the New Credit Facility, which if
borrowed, would be senior to the Series B Notes. See
"Risk Factors--Subordination of the Series A Notes,
Series B Notes and the Subsidiary Guarantee."
Optional Redemption.. The Series B Notes will be 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 set forth
herein, 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 Series B 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
Series B 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. See
"Description of Series B Notes--Optional Redemption."
Change of Control.... Upon the occurrence of a Change of Control, each holder
of Series B Notes will have the right to require the
Company to repurchase all or any part of such holder's
Series B Notes 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. See "Description of Series B
Notes--Repurchase at the Option of Holders--Change of
Control." There can be no assurance that, in the event of
a Change of Control, the Company would have sufficient
funds to purchase all Series B Notes tendered. See "Risk
Factors--Possible Inability to Purchase Series B Notes
upon Change of Control."
Guarantee............ The Series B Notes will be fully and unconditionally
guaranteed on a senior subordinated basis by each
Restricted Subsidiary of the Company that
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5
<PAGE>
- --------------------------------------------------------------------------------
guarantees any other indebtedness of the Company or any
Restricted Subsidiary. The Subsidiary Guarantees will be
general unsecured obligations of the Guarantors, will
rank subordinate in right of payment to all existing and
future Senior Debt of the Guarantors and will rank senior
or pari passu in right of payment to all existing and
future subordinated indebtedness of the Guarantors.
Certain Covenants..... The Indenture contains certain covenants that limit,
among other things, the ability of the Company and its
Restricted Subsidiaries to: incur additional indebtedness
and 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, sell stock of
Restricted Subsidiaries and restrict the Company from
engaging in certain mergers or consolidations and sell
assets. See "Description of Series B Notes--Certain
Covenants."
Form and
Denomination.......... The Series B Notes initially sold by the Initial
Purchasers will be represented by Global Series B Notes
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
Notes 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 Notes are not entitled to any
exchange rights with respect to the Series B Notes.
Holders of Series A Notes are entitled to certain
exchange rights pursuant to the Exchange Offer
Registration Rights Agreement. Under the Exchange Offer
Registration Rights Agreement, the Company is required to
offer to exchange the Series A Notes for the Series B
Notes having substantially identical terms which have
been registered under the Securities Act. This Exchange
Offer is intended to satisfy such obligation. The form
and terms of the Series B Notes are the same as the form
and terms of the Series A Notes in all material respects
except that the Series B Notes 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
Notes. Once the Exchange Offer is consummated, the
Company will have no further obligations to register any
of the Series A Notes not tendered by the Holders for
exchange. See "Risk Factors--Consequences to Non-
Tendering Holders of Series A Notes."
Use of Proceeds....... The Company will not receive any proceeds from the
Exchange Offer.
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6
<PAGE>
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER
The Exchange Offer.... $1,000 principal amount of Series B Notes in exchange for
each $1,000 principal amount of Series A Notes. As of the
date hereof, $200.0 million in aggregate principal amount
of Series A Notes were outstanding. The Company will
issue the Series B Notes 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,
the Company believes that Series B Notes issued pursuant
to the Exchange Offer in exchange for Series A Notes 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 Notes 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 Notes.
However, the Company 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 the
Company or who intends to participate in the Exchange
Offer for the purpose of distributing the Series B Notes
(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 Notes 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 Notes, 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 Notes".
Each broker-dealer that receives Series B Notes for its
own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such Series B Notes. 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
Notes received in exchange for Series A Notes where such
Series A Notes were acquired by such broker-dealer as a
result of market-making activities or other trading
activities and not acquired directly from the Company.
The Company 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.
Interest on the Series
B Notes; Accrued
Interest on the
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Series A Notes..... The Series B Notes will bear interest from their issuance
date. Holders whose Series A Notes are accepted for
exchange will receive, in cash, accrued interest thereon
to, but excluding, the issuance date of the Series B Notes.
Such interest will be paid with the first interest payment
on the Series B Notes. Interest on the Series A Notes
accepted for exchange will cease to accrue upon
cancellation of the Series A Notes and issuance of the
Series B Notes. Holders of Series A Notes whose Series A
Notes are not exchanged will receive the accrued interest
payable on October 15, 1998 on such date in accordance with
the terms of the Indenture.
Conditions to the
Series B Notes..... 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
the Company to proceed with the Exchange Offer. As of April
25, 1998, none of these events had occurred, and the
Company believes their occurrence to be unlikely. If any
such conditions do exist prior to the Expiration Date, the
Company may (i) refuse to accept any Series A Notes and
return all previously tendered Series A Notes, (ii) extend
the Exchange Offer or (iii) waive such conditions. See "The
Exchange Offer--Conditions."
Procedures for
Tendering Series A
Notes.............. Each Holder of Series A Notes 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 Notes 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 Notes pursuant to the procedures for book-
entry transfer as provided for herein. By executing the
Letter of Transmittal, each Holder will represent to the
Company that, among other things, the Series B Notes
acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving
such Series B Notes, whether or not such person is the
Holder, that neither the Holder nor any such other person
has an arrangement or understanding with any person to
participate in the distribution of such Series B Notes and
that neither the Holder nor any such person is an
"affiliate," as defined in Rule 405 under the Securities
Act, of the Company. Each broker-dealer that receives
Series B Notes for its own account in exchange for Series A
Notes, where such Series A Notes were acquired by such
broker-dealer as a result of market-making activities or
other trading activities and not acquired directly from the
Company, must acknowledge that it will deliver a prospectus
in connection with any resale of such Series B Notes. See
"The Exchange Offer--Procedures for Tendering" and "Plan of
Distribution."
Special Procedures
for Beneficial
Owners............. Any beneficial owner whose Series A Notes are registered in
the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such
Series A Notes 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
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
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 Notes, either make
appropriate arrangements to register ownership of the
Series A Notes in such owner's name or obtain a properly
completed bond power from the registered Holder. The
transfer of registered ownership may take considerable 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 Notes who wish to tender their Series A
Notes and whose Series A Notes are not immediately
available or who cannot deliver their Series A Notes, 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 Notes 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 Notes and Delivery
of Series B Notes... The Company will accept for exchange any and all Series A
Notes 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 Notes issued pursuant to the Exchange
Offer will be delivered promptly following the Expiration
Date. Any Series A Notes 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
The Company'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 Notes, see "Description of
Series B Notes" and "Certain Federal Income Tax Considerations."
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9
<PAGE>
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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 the Company. The summary
consolidated historical financial information of the Company for each of the
five fiscal years presented below has been derived from the audited consolidated
financial statements of the Company which have been audited by Arthur Andersen
LLP. The summary consolidated historical financial information of the Company
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) SIXTEEN WEEKS ENDED
------------------------------------------------ ------------------------------
PRO PRO
FORMA APRIL APRIL FORMA
FISCAL 19, 25, APRIL
1993 1994 1995 1996 1997 1997(2) 1997 1998 25,1998
-------- ------- ------- -------- ------ -------- -------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $365,241 $482,347 $602,559 $705,983 $848,108 $848,108 $239,151 $288,963 $ 288,963
Gross profit................ 137,491 184,903 232,597 268,368 323,522 323,522 92,291 112,586 112,586
Selling, general and
administrative
expenses(3)................ 117,733 155,457 196,153 228,049 279,924 278,039 82,008 99,178 98,441
Expenses associated with
recapitalization........... -- -- -- -- -- -- -- (14,005) --
Operating income (loss)..... 19,758 29,446 36,444 40,319 43,598 45,483 10,283 (597) 14,145
Net income (loss)(4)........ 10,964 22,832 16,705 20,212 20,372 5,528 4,400 (2,439) 1,725
OTHER DATA:
EBITDA(5)................... $ 28,953 $ 42,694 $ 51,243 $ 57,818 $ 65,399 $ 68,166 $ 16,578 $ 6,889 $ 21,631
EBITDAR(6).................. 44,792 64,893 82,427 96,423 113,697 116,476 30,247 24,305 39,047
Pro forma cash interest
expense(7)................. 31,938 10,416
Capital expenditures........ 25,316 25,781 42,939 44,264 48,864 48,864 9,658 15,813 15,813
Percentage increase in
comparable store
sales(8)................... 17.3% 9.5% 1.7% 1.1% 5.1% 5.1% 10.4% 3.9% 3.9%
Net cash provided by
(used in) operating
activities................. 6,697 (5,358) 26,854 22,991 41,484 12,435 15,242
Net cash used in
investing activities....... (25,275) (14,201) (39,855) (44,121) (48,607) (9,603) (11,672)
Net cash provided by
(used in) financing
activities................. 18,578 19,559 22,925 13,777 7,638 (3,376) 25,523
PRO FORMA CREDIT RATIOS:
Ratio of EBITDA to cash
interest expense(7)........ 2.13x 2.08x
SELECTED STORE DATA:
New stores.................. 81 90 104 115 170 170 26 50 50
Number of stores (end of
period).................... 352 437 536 649 814 814 675 863 863
Stores with commercial
delivery program (end of
period).................... -- -- -- 213 421 421 296 468 468
Total store square footage
(000s)(end of period)
(9)........................ 2,408 3,150 3,939 4,710 5,857 5,857 4,895 6,180 6,180
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
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<TABLE>
<CAPTION>
AT APRIL 25,
1998
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(10).................................. $ 36,540
Net working capital(11)........................................ 99,773
Total assets................................................... 562,975
Total debt..................................................... 335,000
Stockholder's deficit.......................................... (56,270)
</TABLE>
______________________
(1) The Company'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. The Company's first fiscal
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 the Company 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
Series A Notes, (ii) the payment of $17.1 million of debt issuance costs,
and (iii) the repayment of $97.1 million of intercompany debt. The pro
forma consolidated statement of operations data excludes non-recurring
management bonuses of $11.5 million and $2.5 million of other expenses 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 the Company's stop loss insurance coverage. The Company
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. In addition, fiscal 1997 amounts exclude $1.0 million of
certain payroll and insurance costs that were allocated to Holding that are
expected to be incurred by the Company in the future.
(4) 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.
(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, the Company has
included it herein to provide additional information with respect to the
Company's ability to meet its future debt service, capital expenditures and
working capital requirements. The Company'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 the elimination 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, other
unusual expenses and allocation of certain costs to Holding (see Note 3
above).
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11
<PAGE>
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The computation of pro forma EBITDA is set forth as follows:
<TABLE>
<CAPTION>
PRO FORMA
SIXTEEN WEEKS
PRO FORMA ENDED
FISCAL 1997 APRIL 25, 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Historical EBITDA........................................................ $65,399 $ 6,889
Private company expenses(a)............................................. 3,056 845
Unusual medical claim(b)................................................ 882 --
Allocation of costs to Holding that are expected to be incurred by the
Company in the future(c)............................................... (1,017) --
Costs incurred at Holding that are expected to be incurred by the
Company in the future(d)............................................... (154) (108)
----------- ----------
Non-recurring Recapitalization expenses(e).............................. -- 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 the Company's stop loss
insurance coverage, net of related increased insurance costs (See Note
3 above).
(c) Represents certain payroll and insurance costs that were allocated to
Holding.
(d) Represents primarily general and administrative costs of Holding
subsidiaries other than the Company.
(e) Represents non-recurring management bonuses and other expenses
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
operation performance among industry competitors. The Company leases
substantially all of its stores. Pro forma EBITDAR includes approximately
$12,000 of lease expense in fiscal 1997 and $1,000 of lease expense in the
sixteen weeks ended April 25, 1998 that is included in the costs incurred
by Holding that are expected to be incurred by the Company in the future
(See Note 5 above).
(7) Cash interest expense represents total interest expense, excluding
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 capital contribution to the
Company of $8.3 million.
(11) Net working capital represents total current assets excluding cash and cash
equivalents, less total current liabilities excluding bank overdrafts and
current maturities of long-term debt.
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12
<PAGE>
RISK FACTORS
In evaluating the Exchange Offer, Holders of the Series A Notes should
carefully consider the following factors in addition to the other information
contained in this Prospectus.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company has substantial indebtedness and debt service obligations. The
Company has entered into the indenture governing the Series A Notes and the
Series B Notes (the "Indenture") pursuant to which it 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) the Company and its
subsidiaries had $135.0 million of indebtedness that constituted Senior Debt and
$258.8 million of trade payables and other accrued liabilities, (ii) the Company
had a stockholder's deficit of $56.3 million, and (iii) the Guarantor had no
outstanding indebtedness other than its guarantee of the Company's obligations
under the New Credit Facility. In addition, the Company is permitted to incur
additional indebtedness of up to $250.0 million under the New Credit Facility
which, if borrowed, would be senior to the Series B Notes. See "Description of
Series B Notes" and "Description of the New Credit Facility."
The level of the Company's indebtedness may have important consequences to
the holders of Series B Notes, including: (i) the ability of 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 the
Company's cash flow must be dedicated to debt service and will not be available
for other purposes; (iii) the Company'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 the Company's debt
instruments, including the Indenture, limit the Company's ability to, among
other things, borrow additional funds, dispose of assets or make investments.
In order to satisfy the Company's obligations under the Series B 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, the Company must generate substantial operating cash
flow. The ability of the Company to meet 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 the Company. In
addition, the New Credit Facility and the IRB will mature prior to the maturity
of the Series B Notes. While the Company believes that, based on current levels
of operations, it will be able to meet its 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, 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 the Company.
SUBORDINATION OF THE SERIES A NOTES, SERIES B NOTES AND THE SUBSIDIARY GUARANTEE
The Series A Notes and the Subsidiary Guarantee are, and the Series B Notes
will be, unsecured senior subordinated obligations of the Company and the
Guarantor, subordinate in right of payment to all existing and future Senior
Debt of the Company and the Guarantor, respectively, which include all present
and future borrowings under the New Credit Facility. Additional indebtedness,
including Senior Debt, may be incurred by the Company and the Guarantor from
time to time subject to certain restrictions contained in the New Credit
Facility and the Indenture.
In the event of a bankruptcy, liquidation or reorganization of the Company,
the assets of the Company will be available to pay obligations on the Series B
Notes only after all Senior Debt has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the Series B
Notes then outstanding. The Company may not pay principal or premium, if any, or
interest or Liquidated Damages, if any, on the Series B
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<PAGE>
Notes if Senior Debt, including indebtedness under the New Credit Facility, is
not paid when due. In addition, if any default occurs with respect to such
Senior Debt, and certain other conditions are satisfied, the Company may not
make any payments on the Series B Notes for a designated period of time.
Finally, if any judicial proceeding is pending with respect to any such default
in payment on any Senior Debt, or other default with respect to certain Senior
Debt, including indebtedness under the New Credit Facility, or if the maturity
of the Series B Notes is accelerated because of a default under the Indenture
and such default constitutes a default with respect to any Senior Debt, the
Company may not be able to make any payment on the Series B Notes. If the
Company incurs any additional pari passu debt, the holders of such debt would be
entitled to share ratably with the holders of Series B Notes in any proceedings
in connection with any insolvency, liquidation, reorganization, dissolution or
other winding up of the Company. See "Description of Series B Notes--
Subordination."
RESTRICTIONS UNDER THE NEW CREDIT FACILITY
The New Credit Facility contains, 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 may be affected by events beyond its control. A failure
to make any required payment under the New Credit Facility or a failure to
comply with any of the financial and operating covenants included in the New
Credit Facility 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. Additionally, the Company's ability to make
scheduled interest payments and/or principal payments, if then due, on the
Series B Notes may be prohibited during the existence of a default under the New
Credit Facility or such other indebtedness. See "Description of Series B Notes--
Subordination" and "--Certain Covenants." If the lenders under the New Credit
Facility 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 and its other indebtedness, including
the Series B Notes.
The indebtedness under the New Credit Facility is secured by a first
priority lien on substantially all of the assets of the Company and the
Guarantor now owned or hereafter acquired and is guaranteed by the Guarantor.
Holding has also issued a guarantee of the loans 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 and Holding's other subsidiaries. The
New Credit Facility matures prior to the maturity of the Series B Notes. See
"Description of the New Credit Facility."
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
14
<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."
POSSIBLE INABILITY TO PURCHASE SERIES B NOTES UPON CHANGE OF CONTROL
Upon a Change of Control (as defined in the Indenture), the Company will be
required to offer to repurchase all of the outstanding Series B Notes 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
the Company will have sufficient funds available or will be permitted by its
other debt agreements to purchase the Series B Notes upon the occurrence of a
Change of Control. In addition, a Change of Control may cause a default under
the New Credit Facility and other Senior Debt of the Company, in which case the
subordination provisions of the Series B Notes would require payment in full of
all such Senior Debt of the Company before repurchase of the Series B Notes. See
"Description of the Series B Notes--Subordination" and "Description of the
Series B Notes--Repurchase at the Option of Holders--Change of Control." The
inability to purchase all of the tendered Series B Notes, would constitute an
event of default under the Indenture which would, in turn, constitute a default
under the New Credit Facility and could constitute a default under other Senior
Debt.
LACK OF A PUBLIC MARKET FOR THE SERIES B NOTES
The Series B Notes are being offered to the Holders of the Series A Notes.
Prior to this Exchange Offer, there has been no public market for the Series A
Notes. The Company does not intend to apply for listing of the Series B Notes
on any securities exchange or for quotation through the Nasdaq National Market.
The Initial Purchasers have informed the Company that they currently intend to
make a market in the Series B Notes. However, the Initial Purchasers are not
obligated to do so and any such market making may be discontinued at any
15
<PAGE>
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 Notes. As
the Series A Notes were issued and the Series B Notes will be issued to a
limited number of institutions who typically hold similar securities for
investment, the Company does not expect that an active public market for the
Series B Notes will develop. In addition, resales by certain holders of the
Series A Notes or the Series B Notes 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 Notes. To the
extent that a market for the Series B Notes should develop, the market value of
the Series B Notes will depend on prevailing interest rates, the market for
similar securities and other factors, including the financial condition,
performance and prospects of the Company. Such factors might cause the Series B
Notes to trade at a discount from face value.
FRAUDULENT CONVEYANCE
The payments made in connection with the Recapitalization to stockholders
of Holding, the repayment of indebtedness of the Company and Holding, and the
related incurrence by the Company of indebtedness under the Series A Notes and
the Series B Notes 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 the Company. Under these laws, if a court were to find
that, after giving effect to the sale of the Series A Notes, the application of
the net proceeds therefrom, and the issuance of Series B Notes, either (a) the
Company 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) the Company
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 the Company 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 the Company, avoid the issuance of
such indebtedness and direct the repayment of any amounts paid thereunder to the
Company'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 Notes would ever be recovered by holders of the Series B Notes.
There can be no assurance that a court would not determine, regardless of
whether the Company was solvent on the date the Series A Notes were issued, that
(i) the payments made in connection with the Recapitalization constituted
fraudulent transfers on another ground or (ii) the Company did not receive fair
consideration or reasonably equivalent value for the incurrence of the
indebtedness evidenced by the Series A Notes and the Series B Notes.
The Company's obligations under the Series A Notes are, and the Series B
Notes will be, guaranteed by the Guarantor. The incurrence by a Guarantor of
the Subsidiary Guarantee may be subject to review under relevant state and
federal fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced
by or on behalf of unpaid creditors of the Guarantor. Under these laws, if a
court were to find that either (a) the Subsidiary Guarantee was incurred by a
Guarantor with the intent of hindering, delaying or defrauding creditors or the
Guarantor contemplated insolvency with a desire to prefer one or more creditors
to the exclusion in whole or in part of others or (b) the Guarantor received
less than reasonably equivalent value or consideration for incurring the
Subsidiary Guarantee 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 the Guarantor 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 the
Subsidiary Guarantee to presently existing and future indebtedness of the
Guarantor, avoid the issuance of the Subsidiary Guarantee and direct the
repayment of any amounts paid thereunder to the Guarantor's creditors or take
other action detrimental to the holders of the Subsidiary Guarantee. A legal
challenge of the Subsidiary Guarantee on fraudulent conveyance grounds, may,
among other things, focus on the benefits, if any, realized by the Guarantor as
a result of the issuance by the Company of the Series A Notes and the Series B
Notes.
To the extent the Subsidiary Guarantee was avoided as a fraudulent
conveyance or held unenforceable for any other reason, or, by the terms of such
Subsidiary Guarantee, the obligations thereunder were reduced as necessary to
prevent such avoidance, holders of the Series A Notes and the Series B Notes
would to such extent cease to have any claim in respect of the Guarantor. In
such event, the claims of the holders of the applicable
16
<PAGE>
Series A Notes and the Series B Notes against the Guarantor would be subject to
the prior payment of all liabilities and preferred stock claims of the
Guarantor. There can be no assurance that, after providing for all prior claims
and preferred stock interests, if any, there would be sufficient assets to
satisfy the claims of the holders of the applicable Series A Notes and the
Series B Notes relating to any voided portions of the Subsidiary Guarantee.
The measure of insolvency for purposes of the foregoing considerations
varies depending upon the law of the jurisdiction which is being applied.
Generally, however, the Company 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 the Company'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 the Company believes that the Series A Notes, the Series B Notes
and Subsidiary Guarantee are being incurred for proper purposes and in good
faith and that at the time the Series A Notes, the Series B Notes, and
Subsidiary Guarantee are issued the Company and the Guarantor 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, the Company 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 the Company would be adopted by a court or that a court would concur with the
Company's conclusions.
CONSEQUENCES TO NON-TENDERING HOLDERS OF SERIES A NOTES
Upon consummation of the Exchange Offer, the Company will have no further
obligation to register the Series A Notes. Thereafter, any Holder of Series A
Notes who does not tender its Series A Notes in the Exchange Offer, including
any Holder which is an "affiliate" (as that term is defined in Rule 405 of the
Securities Act) of the Company which cannot tender its Series A Notes 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 the Company
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 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; the
Company's substantial leverage and debt service obligations; restrictions on 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. The Company
disclaims any obligation to update any such factors or to publicly announce the
results of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
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<PAGE>
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Exchange Offer Registration Rights Agreement. The Company
will not receive any cash proceeds from the issuance of the Series B Notes
offered in the Exchange Offer. In consideration for issuing the Series B Notes
as contemplated in this Prospectus, the Company will receive in exchange Series
A Notes 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 Notes except that
the Series B Notes 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 Notes. The Series A Notes surrendered in
exchange for Series B Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Series B Notes will not result in any increase in
the indebtedness of the Company.
Net proceeds from the Notes Offering were approximately $200.0 million.
Such proceeds, together with the borrowings of $125.0 million under the New
Credit Facility, 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.
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<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of April 25, 1998 and its capitalization on a pro forma basis after giving
effect to the Recapitalization. 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 the
Company 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..................................... $ 36,540(1)
=========
Debt:
Industrial Development Revenue Bonds......................... $ 10,000
New Credit Facility.......................................... 125,000
Notes Offering............................................... 200,000
---------
Total Debt................................................. 335,000
Stockholder's deficit........................................ (56,270)
---------
Total capitalization......................................... $278,730
=========
</TABLE>
_____________________
(1) Amount reflects unused proceeds from the Recapitalization that are available
for working capital needs. Subsequent to April 25, 1998, Holding made a
capital contribution to the Company of $8.3 million.
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<PAGE>
THE EXCHANGE OFFER
PURPOSES OF THE EXCHANGE OFFER
The Series A Notes were issued and sold by the Company on April 15, 1998 to
Donaldson, Lufkin & Jenrette Securities Corporation and Chase Securities Inc.
(collectively, the "Initial Purchasers"), who subsequently resold the Series A
Notes 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 Notes, the Company and the Initial Purchasers
entered into the Exchange Offer Registration Rights Agreement pursuant to which
the Company 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 Notes. However, if the Exchange
Offer is not permitted by applicable law or, under certain circumstances, if the
holders shall so request, the Company will, at its own expense, (a) as promptly
as practicable, file a shelf registration statement covering resales of the
Series A Notes (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 the Company to satisfy its obligations
pursuant to the Exchange Offer Registration Rights Agreement. The form and terms
of the Series B Notes are the same as the form and terms of the Series A Notes
in all material respects except that the Series B Notes 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 Notes. Once the Exchange
Offer is consummated, the Company will have no further obligations to register
any of the Series A Notes not tendered by the Holders for exchange. See "Risk
Factors--Consequences to Non-Tendering Holders of Series A Notes". 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, the Company believes that
Series B Notes issued pursuant to the Exchange Offer in exchange for Series A
Notes 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 Notes 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
Notes. However, the Company 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 the Company or who intends to participate in the
Exchange Offer for the purpose of distributing the Series B Notes (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 Notes 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 Notes, 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 Notes".
In addition, each broker-dealer that receives Series B Notes for its own
account in exchange for Series A Notes, where such Series A Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities and not acquired directly from the Company, must acknowledge that it
will deliver a copy of this Prospectus in connection with any resale of such
Series B Notes. 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 Notes.
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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, the Company will
accept any and all Series A Notes validly tendered and not withdrawn prior to
5:00 p.m., New York City time, on the Expiration Date. The Company will issue
$1,000 principal amount of Series B Notes in exchange for each $1,000 principal
outstanding Series A Notes accepted in the Exchange Offer. Holders may tender
some or all of their Series A Notes pursuant to the Exchange Offer. However,
Series B Notes may be tendered only in integral multiples of $1,000.
As of April 15, 1998, there was $200.0 million aggregate principal amount
of the Series A Notes outstanding and one registered Holder of Series A Notes.
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 Notes, the Company arranged
for the Series A Notes to be issued and transferable in book-entry form through
the facilities of DTC, acting as depository. The Series B Notes also will be
issued and transferable in book-entry form through DTC. See "Description of
Series B Notes--Form, Denomination and Book-Entry Procedures."
The Company shall be deemed to have accepted validly tendered Series A
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders of Series A Notes for the purpose of receiving the Series B Notes from
the Company.
If any tendered Series A Notes 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 Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Holders of Series A Notes 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 Notes pursuant to the Exchange Offer. The Company 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 the
Company 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, the Company will notify the
Exchange Agent and the record Holders of Series A Notes 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 the Company 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 Notes are tendered.
The Company reserves the right to delay accepting any Series A Notes, to
extend the Exchange Offer, to amend the Exchange Offer or to terminate the
Exchange Offer and not accept Series A Notes not previously accepted if any of
the conditions set forth herein under "--Conditions" shall have occurred and
shall not have been waived by the Company 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 the Company to constitute a material
change, the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the Holders of such amendment and the Company 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
21
<PAGE>
disclosure to Holders of the Series A Notes, if the Exchange Offer would
otherwise expire during such five to 10 business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company 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.
ACCRUED INTEREST ON THE SERIES B NOTES AND THE SERIES A NOTES
The Series B Notes will bear interest at a rate equal to 10.25% per annum
from their date of issuance. Interest on the Series B Notes is payable semi-
annually on April 15 and October 15 of each year, commencing on October 15,
1998. Holders whose Series A Notes are accepted for exchange will receive, in
cash, accrued interest thereon to, but excluding, the date of issuance of the
Series B Notes. Such interest will be paid with the first interest payment on
the Series B Notes. Interest on the Series A Notes accepted for exchange will
cease to accrue upon cancellation of the Series A Notes and issuance of the
Series B Notes. Holders of Series A Notes whose Series A Notes are not exchanged
will receive the accrued interest payable on October 15, 1998.
PROCEDURES FOR TENDERING
The tender to the Company of the Series A Notes by a Holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the 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 Notes) who wishes to tender Series A Notes 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
Notes (i) certificates for such Series A Notes 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 Notes into
the Exchange Agent's account at The Depositary 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 NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR SERIES A NOTES
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 NOTES 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 NOTES, EITHER MAKE APPROPRIATE ARRANGEMENTS TO REGISTER OWNERSHIP
OF THE SERIES A NOTES 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.
22
<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 Notes 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 Notes listed therein, such Series A Notes must
be endorsed or accompanied by appropriate bond powers signed as the name of the
registered Holder or Holders appears on the Series A Notes.
If the Letter of Transmittal or any Series A Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company 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 Notes and withdrawal of tendered
Series A Notes 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 Notes not properly tendered or any Series A
Notes 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,
irregularities or conditions of tender as to particular Series A Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Series A Notes 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 Notes, nor shall any of them incur any
liability for failure to give such notification. Tenders of Series A Notes will
not be deemed to have been made until such irregularities have been cured or
waived. Any Series A Notes 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 Notes, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Series A Notes 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 Notes 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 the Company that, among other
things, the Series B Notes 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 Notes, and that such Holder is not an "affiliate", as defined under Rule 405
of the Securities Act, of the Company. If the Holder is a broker-dealer that
will receive Series B Notes for its own account in exchange for Series A Notes
that were acquired as a result of market-making activities or other trading
activities and not acquired directly from the Company, such Holder by tendering
will acknowledge that it will deliver a prospectus in connection with any resale
of such Series B Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series A Notes and (i) whose Series A
Notes are not immediately available, or (ii) who cannot deliver their Series A
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
23
<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 Notes, the certificate number or
numbers of such Series A Notes and the principal amount of Series A Notes
tendered, stating that the tender is being made thereby and guaranteeing that,
within five New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Series A Notes 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 Notes 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 Notes in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at DTC of Series A Notes 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 Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Notes 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 Notes 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 Notes to be withdrawn (the
"Depositor"), (ii) identify the Series A Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Series A Notes),
(iii) be signed by the Holder in the same manner as the original signature on
the Letter of Transmittal by which such Series A Notes 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 Notes register the
transfer of such Series A Notes into the name of the person withdrawing the
tender, and (iv) specify the name in which any such Series A Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Series A Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Series B Notes will
be issued with respect thereto unless the Series A Notes so withdrawn are
validly retendered. Any Series A Notes 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 Notes 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, the Company will not
be required to accept for exchange, or exchange Series B Notes for, any Series A
Notes not theretofore accepted for exchange, and may terminate or amend the
Exchange Offer as provided herein before the acceptance of such Series A Notes,
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
24
<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 the Company, might impair the ability of the Company 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 the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer.
If any such conditions exist, the Company may (i) refuse to accept any
Series A Notes and return all tendered Series A Notes to exchanging Holders,
(ii) extend the Exchange Offer and retain all Series A Notes tendered prior to
the expiration of the Exchange Offer, subject, however, to the rights of Holders
to withdraw such Series A Notes (see "--Withdrawal of Tenders") or (iii) waive
certain of such conditions with respect to the Exchange Offer and accept all
properly tendered Series A Notes which have not been withdrawn or revoked. If
such waiver constitutes a material change to the Exchange Offer, the Company
will promptly disclose such waiver in a manner reasonably calculated to inform
Holders of Series A Notes of such waiver.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
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, the
Company is not permitted to complete the Exchange Offer, then the Company shall
file a Shelf Registration Statement. Thereafter, the Company'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>
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 the Company. 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 the Company and its affiliates.
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company may
25
<PAGE>
also pay brokerage 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 Notes,
and in handling or forwarding tenders for exchange.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company, 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.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Series A Notes pursuant to the Exchange Offer. If, however, certificates
representing Series B Notes or Series A Notes 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 Notes tendered, or if tendered Series A Notes 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 Notes
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 Notes will be recorded at the same carrying value as the
Series A Notes, which is face value as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized 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 Notes.
26
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data (the "Pro
Forma Financial Data") has been prepared by the Company's management from the
consolidated financial statements of the Company and the notes thereto included
elsewhere in this Prospectus. The unaudited pro forma 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 the Company'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 the Company
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........................... 279,924 (1,885)(2) 278,039
--------- -------- -------
Operating income....................................................... 43,598 1,885 45,483
Total interest expense................................................. 7,732 26,625 (3) 34,357
Other expenses, net.................................................... 824 -- 824
--------- -------- -------
Income before provision for taxes...................................... 35,042 (24,740) 10,302
Provision (benefit) for income taxes................................... 14,670 (9,896)(4) 4,774
--------- -------- -------
Net income (loss)...................................................... $ 20,372 $ (14,844) $ 5,528
========= ======== =======
OTHER DATA:
EBITDA(5).............................................................. $ 65,399 $ 2,767 $ 68,166
EBITDAR(6)............................................................. 113,697 2,779 116,476
Pro forma cash interest expense........................................ 31,938
PRO FORMA CREDIT RATIOS:
Ratio of EBITDA to cash interest expense(5)............................ 2.13x
Ratio of earnings to fixed charges(7).................................. 1.20x
</TABLE>
(Footnotes on subsequent page)
27
<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........................... 99,178 (737)(2) 98,441
Expenses associated with the recapitalization of the Parent............ 14,005 (14,005)(8) --
------- ------ -------
Income (loss) from operations.......................................... (597) 14,742 14,145
Total interest expense................................................. 3,414 7,802 (3) 11,216
Other income (expense)................................................. (116) -- (116)
------- ------ -------
Income (loss) before provision for taxes............................... (4,127) 6,940 2,813
(Provision) benefit for income taxes................................... 1,688 (2,776)(4) (1,088)
------- ------ ------
Net income (loss)...................................................... $ (2,439) $ 4,164 $ 1,725
======= ====== ======
OTHER DATA:
EBITDA(5).............................................................. $ 21,631
EBITDAR(6)............................................................. 39,047
Pro forma cash interest expense........................................ 10,416
PROFORMA CREDIT RATIOS:
Ratio of EBITDA to cash interest expense(5)............................ 2.08x
Ratio of earnings to fixed charges(7).................................. 1.17x
</TABLE>
(Footnotes on following page)
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(1) Excludes non-recurring expense 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 expenses incurred of
$2.5 million.
(2) Reflects the elimination of (i) certain 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, (ii) certain payroll and
insurance costs that were allocated to Holding that are expected to be
incurred by the Company in the future and (iii) certain general and
administrative costs that were incurred by Holding that are expected to be
incurred by the Company in the future. The amount is comprised of the
following:
<TABLE>
<CAPTION>
SIXTEEN WEEKS
FISCAL YEAR ENDED ENDED
JANUARY 3, 1998 APRIL 25, 1998
----------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Private company expenses.............................. $ (3,056) $ (845)
Allocation of costs to Holding that are expected to be
incurred by the Company in the future................ 1,017 --
Costs incurred by Holding that are expected to be
incurred by the Company in the future................ 154 108
---------- ----------
$ (1,885) $ (737)
========== ==========
</TABLE>
(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 ENDED
JANUARY 3, 1998 APRIL 25, 1998
----------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest and commitment fees on unused borrowings
related to the New Credit Facility and Series A
Notes(a)............................................. $ 31,938 $ 9,030
Amortization of debt issuance costs related to the New
Credit Facility and Series A Notes................... 2,419 679
Less: Interest expense in historical statement of
operations related to debt extinguished in connection
with the Recapitalization(b)......................... (7,732) (1,907)
---------- ----------
$ 26,625 $ 7,802
========== ==========
</TABLE>
______________________
(a) Reflects (i) pro forma interest expense calculated using an interest rate
of 8.15% per annum on the New Credit Facility and 10.25% per annum on the
Series A Notes and (ii) commitment fees on unused borrowings related to the
New Credit Facility using a rate of 0.5% per annum.
(b) Historical interest expense represents interest on intercompany debt.
(4) Estimated income tax effects of the pro forma adjustments at an effective
tax rate of 40%.
(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 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, the Company has included it herein to provide additional
information with respect to the Company's ability to meet its future debt
service, capital expenditure and working capital requirements. The
Company'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
29
<PAGE>
the Recapitalization, non-recurring management bonuses and other expenses
incurred in connection with the Recapitalization, other unusual expenses
and allocation of certain costs to Holding.
The computation for pro forma EBITDA is set forth as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIXTEEN WEEKS ENDED
JANUARY 3, 1998 APRIL 25, 1998
----------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Historical EBITDA....................................... $ 65,399 $ 6,889
Private company expenses(a)............................. 3,056 845
Unusual medical claim(b)................................ 882 --
Allocation of costs to Holding that are expected to be (1,017) --
incurred by the Company in the future(c)...............
Costs incurred by Holding that are expected to be (154) (108)
incurred by the Company in the future(d)...............
Non-recurring Recapitalization expenses(e).............. -- 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 the Company's stop loss
insurance coverage, net of related increased insurance costs.
(c) Represents certain payroll and insurance costs that were allocated to
Holding.
(d) Represents primarily general and administrative costs of Holding
subsidiaries other than the Company.
(e) Represents non-recurring management bonuses and other expenses 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. Pro forma EBITDAR includes approximately
$12,000 of lease expense in fiscal 1997 and $1,000 of lease expense in the
sixteen weeks ended April 25, 1998 that is included in the costs incurred
by Holding that are expected to be incurred by the Company in the future
(See Note 5 above).
(7) 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
expenses.
(8) 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.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated statement of
operations, balance sheet and other operating data of the Company. 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 the
Company 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 the Company 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) SIXTEEN WEEKS ENDED
----------------------------------------------------------- --------------------------
1993 1994 1995 1996 1997 APRIL 19, APRIL 25,
1997 1998
----------- --------- --------- -------- -------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales..................... $365,241 $482,347 $602,559 $705,983 $848,108 $239,151 $288,963
Cost of sales................. 227,750 297,444 369,962 437,615 524,586 146,860 176,377
Selling, general and
administrative expenses(2)... 117,733 155,457 196,153 228,049 279,924 82,008 99,178
Expenses associated with the
Recapitalization............. -- -- -- -- -- -- 14,005
Operating income (loss)....... 19,758 29,446 36,444 40,319 43,598 10,283 (597)
Interest expense, primarily
related to debt to affiliated
entities..................... 2,031 3,633 6,327 6,221 7,732 2,538 3,414
Other income (expense)........ 27 10,472 (1,764) (151) (824) (177) (116)
Income (loss) before taxes(3). 17,754 36,285 28,353 33,947 35,042 7,568 (4,127)
Income tax expense (benefit).. 6,790 13,453 11,648 13,735 14,670 3,168 (1,688)
Net income (loss)(3).......... 10,964 22,832 16,705 20,212 20,372 4,400 (2,439)
OTHER DATA:
EBITDA(4)..................... $ 28,953 $ 42,694 $ 51,243 $ 57,818 $ 65,399 $ 16,578 $ 6,889
EBITDAR(5).................... 44,792 64,893 82,427 96,423 113,697 30,247 24,305
Capital expenditures.......... 25,316 25,781 42,939 44,264 48,864 9,658 15,813
Ratio of earnings to fixed
charges(6)................... 3.43x 4.29x 2.70x 2.78x 2.47x 2.07x --
Total store square footage
(000s) (at period end)(7).... 2,408 3,150 3,939 4,710 5,857 4,895 6,180
Percentage increase in
comparable store net
sales(8)..................... 17.3% 9.5% 1.7% 1.1% 5.1% 10.4% 3.9%
Net cash provided by (used
in) operating activities..... 6,697 (5,358) 26,854 22,991 41,484 12,435 15,242
Net cash used in investing
activities................... (25,275) (14,201) (39,855) (44,121) (48,607) (9,603) (11,672)
Net cash provided by (used
in) financing activities..... 18,578 19,559 22,925 13,777 7,638 (3,376) 25,523
Stores open at end of period.. 352 437 536 649 814 675 863
BALANCE SHEET DATA:
Net working capital(9)........ $ 54,432 $ 84,061 $ 91,864 $111,142 $112,924 $ 99,773
Total assets.................. 185,594 228,242 287,716 384,620 450,201 562,975
Total debt (including current
maturities).................. 53,279 69,622 92,727 107,920 113,777 335,000
Stockholder's equity
(deficit).................... 49,048 71,880 88,585 108,797 129,169 (56,270)
</TABLE>
31
<PAGE>
______________________
(1) The Company'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. The Company's first fiscal quarter
consists of 16 weeks.
(2) Fiscal 1997 includes an unusual medical claim that exceeded the Company's
stop loss insurance coverage. The Company 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. In
addition, fiscal 1997 amounts excludes $1.0 million of certain payroll and
insurance costs that were allocated to Holding.
(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,
the Company has included it herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditure and working capital requirements. The Company'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,
the Company believes that EBITDAR permits a meaningful comparison of
operating performance among industry competitors. The Company 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 cost) 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 $4,127.
(7) Total store square footage is based on the Company'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 and cash
equivalents, less total current liabilities excluding bank overdrafts, notes
payable and current maturities of long-term debt.
32
<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 the Company, the notes thereto and other data and information
appearing elsewhere in this Prospectus. The Company'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. The Company'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 the Company'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 for the
forseeable future.
EFFECT OF THE RECAPITALIZATION
As a result of the Recapitalization, the Company has incurred approximately
$325.0 million in long-term debt and approximately $19.6 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.
33
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data for the
Company expressed as a percentage of net sales for the 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 33.0 34.3 34.3
Expenses associated with recapitalization -- -- -- -- 4.9
----- ----- ----- ----- -----
Operating profit (loss)....................... 6.0 5.7 5.1 4.3 (0.2)
Interest expense.............................. 1.0 0.9 0.9 1.1 1.2
Other expense, net............................ 0.3 0.0 0.1 0.1 0.0
Income tax expense (benefit).................. 1.9 1.9 1.7 1.3 (0.6)
----- ----- ----- ----- -----
Income (loss)................................. 2.8% 2.9% 2.4% 1.8% (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.
The Company'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 the Company'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 $0.8
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,
the Company opened 50 new stores, relocated 2 stores, remodeled 16 stores, and
closed one store. As of April 25, 1998, the Company 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 $17.2 million, as compared to the sixteen weeks
ended April 19, 1997, and, as a percentage of net sales remained constant at
34.3%.
As part of the Recapitalization, the Company incurred $14.0 million in
expenses which related to the Recapitalization, which includes $1.6 million of
expenses incurred by Holdings on behalf of Stores that have been allocated to
Stores. This expense consisted of $11.5 million of bonuses paid to certain
employees for past
34
<PAGE>
performances, $0.2 million 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 $0.6 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 $13.4 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 $3.4
million compared to $2.5 million, for the sixteen weeks ended April 19, 1997.
The increase in expense is the result of the Recapitalization which the Company
issued $200.0 million of 10.25% Senior Subordinated Notes due 2008 and increased
borrowings under a Senior Credit Facility.
An income tax benefit of $1.7 million for the sixteen weeks ended April 25,
1998 was recorded, as compared to an expense of $3.2 million, for the sixteen
weeks ended April 19, 1997.
As a result of the above factors, the Company incurred a net loss of $2.4
million, for the sixteen weeks ended April 25, 1998, as compared to net income
of $4.4 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 1.8%, 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, the Company opened 170 stores and also relocated 15 stores and
remodeled 27 stores. By fiscal year end 1997, the Company 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, the Company
was able to offset lower gross profit margins in its commercial delivery
business with improved gross profit margins in its DIY business. The Company
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 fiscal 1998.
Selling, general and administrative expenses for fiscal 1997 increased by
$51.9 million as compared to fiscal 1996 and, as a percentage of net sales,
increased from 32.3% to 33.0%. 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 attributable to increases in reserves
for self-insured medical and worker compensation plans.
Interest expense for fiscal 1997 was $7.7 million compared to $6.2 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 $13.8
million for fiscal 1996, with effective tax rates of 41.9% and 40.5%,
respectively. This increase was primarily due to increasing tax reserves.
35
<PAGE>
As a result of the above factors, net income of $20.4 million was recorded
in fiscal 1997 as compared to $20.2 million for fiscal 1996. As a percentage of
sales, net income for fiscal 1997 was 2.4% as compared to 2.9% 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 the
Company'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 Company stores and competitive new store
openings. The Company believes that although "in market" openings cannibalize
sales in existing stores, these openings serve to increase overall market share
and leverage fixed expenses. The Company opened 115 new stores in fiscal 1996
and also relocated three stores and remodeled 35 stores. By fiscal year end
1996, the Company 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, the Company spent considerable resources in
developing and rolling out its reengineered POS system and satellite
communication network.
Interest expense for fiscal 1996 was $6.2 million compared to $6.3 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 $13.7 million as compared to $11.6
million for fiscal 1995, with effective tax rates of 40.5% and 41.1%,
respectively.
As a result of the above factors, net income of $20.2 million was recorded
in fiscal 1996 as compared to $16.7 million for fiscal 1995. As a percent of
sales, net income for fiscal 1996 was 2.9% as compared to 2.8% for fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company'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, the Company opened 389 stores, constructed a new distribution center,
completed approximately 80% of another new distribution center and expanded its
Roanoke distribution center. The Company has financed its growth through a
combination of internally generated funds and borrowings. Net cash provided by
operating activities was $15.2 million in the sixteen weeks ended April 25,
1998, $41.5 million in fiscal 1997, $23.0 million in fiscal 1996, and $26.9
million in fiscal 1995.
The Company'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.
36
<PAGE>
Historically, the Company has negotiated extended payment terms from
suppliers to finance inventory growth, and the Company believes that it will be
able to continue financing much of its inventory growth through such extended
payment terms. The Company anticipates that inventory levels will continue to
increase primarily as a result of new store openings and increased SKU levels.
In fiscal 1995, net cash provided by operating activities was $26.9
million. Of this amount, $16.7 million was due to net income. Depreciation and
amortization provided an additional $14.8 million of funds and $4.6 million was
used for working capital. Net cash used for investing activities was $39.9
million and was comprised primarily of capital expenditures. Net cash provided
by financing activities was $22.9 million and was comprised primarily of net
borrowings.
In fiscal 1996, net cash provided by operating activities was $23.0
million. Of this amount, $20.2 million was due to net income. Depreciation and
amortization provided an additional $17.5 million of funds and $14.7 million was
used for working capital. Net cash used for investing activities was $44.1
million and was comprised primarily of capital expenditures. Net cash provided
by financing activities was $13.8 million and was comprised primarily of net
borrowings.
In fiscal 1997, net cash provided by operating activities was $41.5
million. Of this amount, $20.4 million was due to net income. Depreciation and
amortization provided an additional $21.8 million of funds and $0.7 million was
used for working capital. Net cash used for investing activities was $48.6
million and was comprised of capital expenditures. Net cash provided by
financing activities was $7.6 million and was comprised primarily of payments on
borrowings.
For the sixteen weeks ended April 25, 1998, net cash provided by operating
activities was $15.2 million, which consisted primarily of net working capital
of $10.0 million, depreciation and amortization of $7.6 million, and a net loss
of $2.4 million. Net cash used for investing activities was $11.7 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. Net cash
provided by financing activities was $25.5 million and was primarily the result
of the Recapitalization. See "Summary--The Recapitalization."
The Company believes it will have sufficient liquidity to fund its debt
service obligations and implement its growth strategy over the next several
years. The Company has outstanding indebtedness consisting of $200.0 million of
Series A Notes, $60.0 million of Debentures, borrowings of $125.0 million under
the New Credit Facility and the IRB. The Series A Notes bear, and the Series B
Notes will bear, interest at a rate of 10.25%, payable semiannually, and require
no principal payments until maturity. See "Description of Series B Notes." The
$10.0 million principal amount IRB bears interest at a variable rate and will
require 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 the New
Credit Facility."
37
<PAGE>
QUARTERLY RESULTS AND SEASONALITY
The Company's business is somewhat seasonal in nature, with the highest
sales occurring in the spring and summer months. In addition, the Company'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 the Company 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.. 8,869 12,798 8,646 10,006 10,283 11,966 10,347 11,002
Net Income........ 4,112 6,849 4,278 4,973 4,400 5,726 5,012 5,234
EBITDA............ 14,330 17,072 12,846 13,570 16,578 16,934 15,412 16,475
</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. The Company 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. The Company 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. The Company 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 the Company has not yet completed its
Year 2000 project, the Company does not believe that the Year 2000 issue will
cause any systems problems that could have a material adverse effect on the
operations of the Company. The Company plans on completing its Year 2000
conversion not later than June 30, 1999.
38
<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.
39
<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
40
<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.
41
<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.
42
<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:
<TABLE>
<CAPTION>
Location At April 25, 1998
-------- -----------------
<S> <C>
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
</TABLE>
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.
43
<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
44
<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.
45
<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.
46
<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
47
<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.
48
<PAGE>
An appeal has been taken in connection with the November 1996 and the
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.
49
<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 the Company as of April 25, 1998:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Nicholas F. Taubman 63 Chairman of the Board and Director
Garnett E. Smith 58 President and Chief Executive Officer and Director
Carroll R. Tilley, Jr. 48 Executive Vice President and General Manager
J. O'Neil Leftwich 36 Senior Vice President and Chief Financial Officer, Secretary and Treasurer
Paul W. Klasing 38 Senior Vice President, Merchandising
David R. Reid 35 Senior Vice President, Real Estate and Store Support
S. Lynn Stevens 49 Senior Vice President, Information Services
Jimmie L. Wade 44 Senior Vice President, Logistics
Anthony R. Weatherly 38 Senior Vice President, Store Operations
Kenneth A. Wirth, Jr. 39 Senior Vice President, Sales
Joe H. Vaughn, Jr. 37 Vice President, Finance, Assistant Secretary and Assistant Treasurer
Mark J. Doran 34 Director
John M. Roth 39 Director
J. Frederick Simmons 42 Director
Ronald P. Spogli 50 Director
Timothy C. Collins 41 Director
</TABLE>
Mr. Taubman, Chairman of the Board, joined the Company in 1956. Mr.
Taubman has served as Chairman since January 1985 and as Chief Executive Officer
from January 1985 to July 1997. From 1969 to 1984, Mr. Taubman served as
President. Mr. Taubman has served on numerous business, arts and civic boards.
Mr. Smith, President and Chief Executive Officer and a Director of 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 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.
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.
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.
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.
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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 in October 1997 and Assistant Secretary and Assistant
Treasurer 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.
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 Recapitalization. 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."
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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.
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.
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<PAGE>
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.
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
53
<PAGE>
change in control of Holding or other extraordinary corporate 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.
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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.
55
<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.
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<PAGE>
DESCRIPTION OF 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 NOTES
GENERAL
The Series A Notes were, and the Series B Notes will be, issued under an
Indenture dated as of April 15, 1998 (the "Indenture") among the Company, 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 Notes, the Indendture will be subject to and governed by the Trust Indenture
Act of 1939, as amended (the "TIA"). The terms of the Series B Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the TIA. The Series B Notes are subject to all such terms, and Holders of
Series B Notes 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 "Company" refers only to
Advance Stores Company, Incorporated and not to Holding and its other
subsidiaries.
The Series B Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all current and future Senior Debt.
As of April 25, 1998, the Company had $335.0 million of aggregate principal
amount of Indebtedness, of which $135.0 million was senior to the Series B
Notes, and the Company had a maximum remaining available borrowing capacity
under the New Credit Facility of $250.0 million, which, if borrowed, would be
senior to the Series B Notes.
As of the Issue Date, the Company will have one Subsidiary that will issue
a Subsidiary Guarantee and will be a Restricted Subsidiary. However, under
certain circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not
be subject to many of the restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Series B Notes will be limited in aggregate principal amount to $200.0
million and will mature on April 15, 2008. Interest on the Series B Notes will
accrue at the rate of 10.25% per annum and will be payable semi-annually in
arrears on April 15 and October 15, commencing on October 15, 1998, to Holders
of record on the immediately preceding April 1 and October 1, respectively.
Interest on the Series B Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance.
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, if any, on the Series B Notes will be payable at the office or agency
of the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of principal, premium, interest and
Liquidated Damages, if any, may be made by check mailed to the Holders of the
Series B Notes at their respective addresses set forth in the register of
Holders of Series B Notes; provided that all payments of principal, premium,
interest and Liquidated Damages, if any, with respect to Series B Notes
represented by one or more permanent Global Series B Notes (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 the Company, the Company's office or agency in New York
will be the office of the Trustee maintained for such purpose. The Series B
Notes will be issued in denominations of $1,000 and integral multiples thereof.
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SUBORDINATION
The payment of Obligations in respect of the Series B Notes will be
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Obligations in respect of Senior Debt, whether
outstanding on the Issue Date or thereafter incurred. In addition, as set forth
in "--Subsidiary Guarantees" below, the Subsidiary Guarantees will be general
unsecured obligations of the Guarantors, subordinated in right of payment to the
prior payment in full of all Senior Debt of such Guarantor.
Upon any payment or distribution of any kind to creditors of the Company,
whether in cash, property or securities, in a total or partial liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, whether voluntary or involuntary, the holders of Senior
Debt will be entitled to receive payment in full of all Obligations in respect
of such Senior Debt (including interest accruing after the commencement of any
such proceeding at the rate specified in the applicable Senior Debt whether or
not such interest is an allowed claim enforceable against a debtor in a
bankruptcy case under Title 11 of the United States Code) before the Holders of
Series B Notes will be entitled to receive any payment or distribution of any
kind with respect to the Series B Notes, and until all Obligations with respect
to Senior Debt are paid in full, any payment or distribution to which the
Holders of Series B Notes would be entitled shall be made to the holders of
Senior Debt (except for any distribution of Permitted Junior Securities made
pursuant to a reorganization in which the Senior Debt is not impaired and
payments made from the trust described under "--Legal Defeasance and Covenant
Defeasance").
The Company also may not make any payment upon or distribution in respect
of the Series B Notes (except for any distribution of Permitted Junior
Securities made pursuant to a reorganization in which the Senior Debt is not
impaired or from the trust described under "--Legal Defeasance and Covenant
Defeasance") if (i) any amount of principal, interest or other Obligation in
respect of any Designated Senior Debt (including, without limitation, any amount
due as a result of the acceleration of the maturity thereof) is not paid when
due and remains unpaid (a "Payment Default") or (ii) any other default (a
"Nonpayment Default") occurs and is continuing with respect to any Designated
Senior Debt that permits holders of such Designated Senior Debt or any agent or
trustee therefor to accelerate its maturity and, in the case of any such
Nonpayment Default, the Trustee receives a notice of such default invoking the
following provisions of this paragraph (a "Payment Blockage Notice") from the
holders of any Designated Senior Debt or any agent or trustee therefor.
However, the Company may pay the Series B Notes without regard to the foregoing
if the Company and the Trustee receive written notice approving such payment
from the representative of the Designated Senior Debt affected by such Payment
Default or Nonpayment Default. Payments on the Series B Notes may and shall be
resumed (a) in the case of a Payment Default, upon the date on which all Payment
Defaults have been cured or waived, unless a Payment Blockage Notice has been
delivered commencing a payment blockage period in respect of a Nonpayment
Default, and (b) in case of a Nonpayment Default, the earlier of (i) the date on
which all Payment Defaults and Nonpayment Defaults have been cured or waived or
(ii) the date 179 days after the date on which the applicable Payment Blockage
Notice is received, unless a Payment Default has occurred and is continuing. No
new period of payment blockage may be commenced in respect of a Nonpayment
Default unless and until 180 days have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice. No Nonpayment Default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice
unless such default shall have been cured or waived for a period of not less
than 90 days; provided that if such Nonpayment Default arose from the failure to
comply with a financial covenant and if the condition or performance measured by
such financial covenant has declined further from such condition or performance
as reflected in the most recent financial statements available on the date of
delivery of the original Payment Blockage Notice to the Trustee, such Nonpayment
Default may be, or be made, the basis for a subsequent Payment Blockage Notice.
Whenever the Company is prohibited from making any payment in respect of
the Series B Notes, the Company also shall be prohibited from making, directly
or indirectly, any deposit in the trust described under "--Legal Defeasance and
Covenant Defeasance" and any payment of any kind on account of the redemption,
purchase or other acquisition of the Series B Notes except for payments from the
trust described under "--Legal Defeasance and Covenant Defeasance." If any
Holder receives any payment or distribution that such Holder is not
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entitled to receive with respect to the Series B Notes, such Holder shall be
required to pay the same over to the holders of Senior Debt.
The Indenture will further require that the Company promptly notify holders
of Senior Debt if payment of the Series B Notes is accelerated because of an
Event of Default. The Company is prohibited from making any payment in respect
of the Series B Notes until the earlier of five business days after such notice
is delivered or the date of acceleration of any Designated Senior Debt and,
thereafter, may pay the Series B Notes only if the subordination provisions of
the Indenture otherwise permit payment at that time.
As a result of the subordination provisions described above, in the event
of a liquidation, insolvency or similar proceeding, Holders of Series B Notes
may recover less ratably than creditors of the Company who are holders of Senior
Debt. See "Risk Factors--Subordination of the Series A Notes, Series B Notes
and the Subsidiary Guarantee." As of April 25, 1998, the Company had $135.0
million in aggregate principal amount of Senior Debt, which would rank senior in
right of payment to the Series B Notes and Subsidiary Guarantees. In addition,
the Company may incur additional Senior Debt of up to $250 million under the New
Credit Facility which, if borrowed, would be senior to the Series B Notes and
Subsidiary Guarantees. The Indenture limits, subject to certain financial
tests, the amount of additional Indebtedness, including Senior Debt, that the
Company and its Subsidiaries, respectively, can incur. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Series B Notes will be
guaranteed pursuant to the Subsidiary Guarantee in effect on the Issue Date and
in certain circumstances future Subsidiary Guarantees on a senior subordinated
basis by the initial Guarantor and in certain circumstances Subsidiaries that
become Guarantors after the Issue Date. The Subsidiary Guarantee of each
Guarantor will be subordinated to the prior payment in full of all Senior Debt
of such Guarantor and the amounts for which the Guarantors will be liable under
the guarantees issued from time to time with respect to Senior Debt, which would
rank senior in right of payment to the Series B Notes and the Subsidiary
Guarantees, respectively. The initial Guarantor had no Senior Debt outstanding
as of January 3, 1998.
The obligations of each Guarantor under its Subsidiary Guarantee will be
limited so as not to constitute a fraudulent conveyance under applicable law.
See, however, "Risk Factors--Fraudulent Conveyance."
The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor, pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Indenture and its Subsidiary Guarantee; and (ii) immediately
after giving effect to such transaction, no Default or Event of Default exists.
The Indenture will provide that in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the Capital Stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all or substantially all of the assets of such
Guarantor) will be released and relieved of any obligations under its Subsidiary
Guarantee. See "--Repurchase at the Option of Holders--Asset Sales." In
addition, the Indenture will provide that, in the event the Company designates a
Restricted Subsidiary to be an Unrestricted Subsidiary in accordance with the
Indenture, then such Restricted Subsidiary shall be released from its
obligations under its Subsidiary Guarantee.
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OPTIONAL REDEMPTION
Except as described below with the proceeds of an Equity Offering, the
Series B Notes will not be redeemable at the Company's option prior to April 15,
2003. Thereafter, the Series B Notes will be subject to redemption at any time
at the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period commencing on April 15 in the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
--------------------- ----------
<S> <C>
2003................. 105.125%
2004................. 103.417%
2005................. 101.708%
2006 and thereafter.. 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to April 15, 2001,
the Company 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 Notes
originally issued 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, with the net proceeds of one or more Equity
Offerings; provided that, in each case, at least 65% in aggregate principal
amount of the Series B 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.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Series B Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Series B Notes
will have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Series B 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, if any, thereon to the date
of purchase (the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Series B 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 the Indenture and described in such
notice. The Company 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 Series B 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 of the Indenture relating to such Change of Control Offer, the
Company 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, the Company will, to the extent
lawful, (1) accept for payment all Series B 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 Series
B Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Series B Notes so accepted together
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with an Officers' Certificate stating the aggregate principal amount of Series B
Notes or portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Series B Notes so tendered the Change of Control
Payment for such Series B Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new Series B
Note equal in principal amount to any unpurchased portion of the Series B Notes
surrendered, if any; provided that each such new Series B Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Indenture will
provide that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will either
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the repurchase
of Series B Notes required by this covenant. The Company will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
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 Notes to require that the
Company repurchase or redeem the Series B Notes in the event of a takeover,
recapitalization or similar transaction.
The New Credit Facility will prohibit the Company from purchasing any
Series B Notes and provide that certain change of control events with respect to
the Company would constitute a default thereunder. Any future credit agreements
or other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing Series B
Notes, the Company could seek the consent of its lenders to the purchase of
Series B Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Series B Notes.
In such case, the Company's failure to purchase tendered Series B Notes would
constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the New Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to the
Holders of Series B Notes. In addition, the exercise by the Holders of Series B
Notes of their right to require the Company to repurchase the Series B Notes
could cause a default under such Senior Debt, even if the Change of Control
itself does not, due to the financial effect of such repurchases on the Company.
Finally, the Company's ability to pay cash to the Holders of Series B Notes upon
a repurchase may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when necessary
to make any required repurchases.
The Company 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 the Company and
purchases all Series B Notes validly tendered and not withdrawn under such
Change of Control Offer.
ASSET SALES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in or consummate an Asset Sale
unless (i) the Company (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 the Company or such
Restricted Subsidiary is in the form of cash or Cash Equivalents other than in
the case where the Company or such Restricted Subsidiary is undertaking a
Permitted Asset Swap; provided that the amount of (x) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet), of
the Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Series B Notes or any
Guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary agreement that releases the Company or such Restricted
Subsidiary from further liability and (y) any securities, notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are
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converted within 15 days by the Company 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,
the Company or its Restricted Subsidiaries may, at its option, apply such Net
Proceeds (a) to permanently reduce Senior Debt, 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 the Company 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, the Company or its Restricted Subsidiaries may temporarily
reduce Senior Debt or otherwise invest such Net Proceeds in any manner that is
not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph 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, the Company will be required to make an offer to all
Holders of Series B 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 Series B 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, if any, thereon
to the date of purchase, 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 of Series B Notes and any such Pari Passu
Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company or its Restricted Subsidiaries may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate principal
amount of Series B Notes and any such Pari Passu Indebtedness surrendered by
holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Series B 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. The
Company's ability to repurchase the Series B Notes will be subject to the
covenants contained in the New Credit Facility or any additional or successor
bank facility.
SELECTION AND NOTICE
If less than all of the Series B Notes are to be redeemed or repurchased in
an offer to purchase at any time, selection of Series B 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 Series B Notes
are listed, or, if the Series B Notes 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 Notes 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
Notes to be redeemed or repurchased at its registered address. If any Series B
Note is to be redeemed or repurchased in part only, the notice of redemption or
repurchase that relates to such Series B Note shall state the portion of the
principal amount thereof to be redeemed or repurchased. A new Series B Note 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 Note. On and after the redemption or repurchase date, interest and
Liquidated Damages will cease to accrue on Series B Notes or portions of them
called for redemption or repurchase.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture will provide that the Company 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 the
Company'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 the Company),
other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or dividends or distributions payable to the
Company or any Wholly Owned Subsidiary of the Company; (ii) purchase, redeem or
otherwise acquire or retire for value (including, without limitation, any such
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purchase, redemption, or other acquisition or retirement for value made as a
payment in connection with any merger or consolidation involving the Company)
any Equity Interests of the Company or any Restricted Subsidiary (other than any
such Equity Interests owned by the Company or any Restricted Subsidiary of the
Company); (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 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) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
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 the Company and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted by
clauses (ii), (iii), (v), (vi), (vii), (ix) and (x) of the next succeeding
paragraph), is less than the sum (without duplication) of (i) 50% of the
Consolidated Net Income of the Company 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 the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds
received by the Company from the issue or sale subsequent to the Issue Date of
Equity Interests of the Company (other than Disqualified Stock) or of
Disqualified Stock or debt securities of the Company 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 the Company 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 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 the Company and its
Restricted Subsidiaries, plus (vi) $15.0 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 the Company
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 the Company) of, other Equity Interests of the Company
(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;
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(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 the Company, Holding or any
Restricted Subsidiary of the Company (including Restricted Payments to any
shareholder of the Company in order to permit such shareholder (directly or
indirectly) to repurchase, redeem or otherwise acquire Equity Interests in
Holding), held by any member of the Company'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 the Company from
any issuance of Equity Interests by Holding or the Company to members of
management, employees, directors or consultants of the Company 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 Series B 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 the Company to the
holders of its common Equity Interests on a pro rata basis;
(vi) payments (A) required to be made under the Tax Sharing
Agreement or (B) distributions made by the Company on the date of the Indenture,
the proceeds of which are utilized solely to consummate the Recapitalization;
(vii) the payment of dividends or the making of loans or advances
by the Company to Holding in an aggregate amount not to exceed $1.75 million in
any fiscal year for costs and expenses incurred by Holding in its capacity as a
holding company or for services rendered by Holding on behalf of the Company;
(viii) 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 the Company 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";
(ix) so long as (A) no Default or Event of Default has occurred
and is continuing and (B) immediately before and immediately after giving effect
thereto, the Company would have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in clause (i) under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock", from and after the Issue Date, payments of cash dividends
to Holding in an amount sufficient to enable Holding to make payments of
interest required to be made in respect of the Holding Senior Discount
Debentures in accordance with the terms thereof in effect on the date of the
Indenture, provided such interest payments are made with the proceeds of such
dividends; and
(x) 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 Notes and (B) in all
events, no repurchase or redemption of such Indebtedness may be consummated
unless and until the Company shall have satisfied all repurchase obligations
with respect to any required purchase offer made with respect to the Series B
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 the Company 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
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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 the Company 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, the Company 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
any, required by the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture will provide that the Company 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 the Company 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 the
Company or another Restricted Subsidiary; provided, however, that the Company 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 the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.0 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.
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 the Company 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 the Company 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 the
Company 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 the Company and the Guarantors of
Indebtedness represented by the Series B Notes and the Subsidiary Guarantees;
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(iii) the incurrence by the Company 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 the
Company or any Restricted Subsidiary, in an aggregate principal amount not to
exceed $25.0 million at any time outstanding;
(iv) other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the Issue Date;
(v) the incurrence by the Company 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 the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and any
of its Wholly Owned Subsidiaries or between or among any Wholly Owned
Subsidiaries; provided that (A) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person other
than a Wholly Owned Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Subsidiary will be deemed, in each case, to constitute an incurrence of such
Indebtedness by the Company or such Restricted Subsidiary, as the case may be;
(vii) the incurrence by the Company 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 the Company 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 the Company or any Restricted Subsidiary in
the ordinary course of business;
(ix) Indebtedness arising from guarantees of Indebtedness of the
Company or any Restricted Subsidiary or the agreements of the Company 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 the Company in good faith) actually received by the
Company and its Restricted Subsidiaries in connection with such disposition;
(x) the guarantee by the Company or any of the Restricted
Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary that was
permitted to be incurred by another provision of this covenant;
(xi) the incurrence by the Company 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 the Company or any other Restricted Subsidiary of the Company; and
(xiii) the incurrence by the Company 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.
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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, the
Company 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 the Company 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 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 Series B Notes), 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 the Company 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 the Company 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 the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii) transfer
any of its properties or assets to the Company 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 Indenture and the Series B Notes,
(c) applicable law or any applicable rule, regulation or order, (d) any
agreement or instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company 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, (e) 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, (f) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (e) above on the property so acquired, (g) 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, (h) 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 (i)
customary restrictions in security agreements or mortgages securing Indebtedness
of the Company 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 the Company 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
the Company 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 the Company 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
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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 the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
Person unless (i) the Company is the surviving corporation or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
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 the Company) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company under the Series B Notes 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
the Company with or into a Wholly Owned Subsidiary of the Company, the Company
or the entity or Person formed by or surviving any such consolidation or merger
(if other than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition 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 the Company, which properties and assets,
if held by the Company instead of such Subsidiaries, would constitute all or
substantially all of the properties and assets of the Company on a consolidated
basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company. The foregoing clause (iv) will not
prohibit (a) a merger between the Company and a Wholly Owned Subsidiary of
Holding created for the purpose of holding the Capital Stock of the Company, (b)
a merger between the Company and a Wholly Owned Subsidiary of the Company or (c)
a merger between the Company and an Affiliate incorporated solely for the
purpose of reincorporating the Company in another State of United States so long
as, in the case of each clause (a), (b) and (c), the amount of Indebtedness of
the Company and its Restricted Subsidiaries is not increased thereby.
TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Company 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 the Company or such Restricted Subsidiary, as the case may be, and
are at least as favorable as the terms which could be obtained by the Company 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) the Company
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
the Company or any of its Restricted Subsidiaries
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in the ordinary course of business of the Company or such Restricted Subsidiary
to or with the officers, directors or employees of the Company or its Restricted
Subsidiaries, (x) transactions between or among the Company and/or its
Restricted Subsidiaries, (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 the Company, when such sales are exclusively
for cash.
SENIOR SUBORDINATED DEBT
The Indenture will provide that (i) the Company will not incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Series B Notes, and (ii) no Guarantor will
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is subordinate or junior in right of payment to Senior Debt of
such Guarantor and senior in any respect in right of payment to such Guarantor's
Subsidiary Guarantee. For purposes of this covenant, Indebtedness is deemed to
be senior in right of payment to the Series B Notes or the Guarantees, as the
case may be, if it is not explicitly subordinated in right of payment to Senior
Debt at least to the same extent as the Series B Notes and the Guarantees, as
the case may be, are subordinated to such Senior Debt.
BUSINESS ACTIVITIES
The Indenture will provide that the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, engage to a substantial
extent in any business activity other than a Permitted Business.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture will provide that the Company will not permit any Restricted
Subsidiary to guarantee the payment of any Indebtedness of the Company or any
Indebtedness of any other Restricted Subsidiary (in each case, the "Guaranteed
Debt"), unless (i) if such Restricted Subsidiary is not a Guarantor, such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Subsidiary Guarantee of payment of
the Series B Notes by such Restricted Subsidiary, (ii) if the Series B Notes or
the Subsidiary Guarantee (if any) of such Restricted Subsidiary are subordinated
in right of payment to the Guaranteed Debt, the Subsidiary Guarantee under the
supplemental indenture shall be subordinated to such Restricted Subsidiary's
guarantee with respect to the Guaranteed Debt substantially to the same extent
as the Series B Notes or the Subsidiary Guarantee are subordinated to the
Guaranteed Debt under the Indenture, (iii) if the Guaranteed Debt is by its
express terms subordinated in right of payment to the Series B Notes or the
Subsidiary Guarantee (if any) of such Restricted Subsidiary, any such guarantee
of such Restricted Subsidiary with respect to the Guaranteed Debt shall be
subordinated in right of payment to such Restricted Subsidiary's Subsidiary
Guarantee with respect to the Series B Notes substantially to the same extent as
the Guaranteed Debt is subordinated to the Series B Notes or the Subsidiary
Guarantee (if any) of such Restricted Subsidiary, (iv) such Restricted
Subsidiary subordinates rights of reimbursement, indemnity or subrogation or any
other rights against the Company or any other Restricted Subsidiary as a result
of any payment by such Restricted Subsidiary under its Subsidiary Guarantee to
its obligation under its Subsidiary Guarantee, and (v) such Restricted
Subsidiary shall deliver to the Trustee an opinion of counsel to the effect that
(A) such Subsidiary Guarantee of the Series B Notes has been duly authorized,
executed and delivered, and (B) such Subsidiary Guarantee of the Series B Notes
constitutes a valid, binding and enforceable obligation of such Restricted
Subsidiary, except insofar as enforcement thereof may be limited by bankruptcy,
insolvency or similar laws (including, without limitation, all laws relating to
fraudulent transfers) and except insofar as enforcement thereof is subject to
general principles of equity.
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 Notes are outstanding, the Company will furnish to the
Holders of Series B Notes (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that
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describes the financial condition and results of operations of the Company and
its consolidated Subsidiaries and, with respect to the annual information only,
a report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports, in 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, the Company 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, the Company and the Guarantors have agreed that, for so long
as any Series B Notes remain outstanding, they will furnish to the Holders and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
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 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 Series B Notes
(whether or not prohibited by the subordination provisions of the Indenture);
(iii) failure by the Company 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 Notes 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
the Company 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
Notes then outstanding to comply with any of its other agreements in the
Indenture or the Series B Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by the Company 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 the Company 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; (vii) the
Subsidiary Guarantee of a Significant Subsidiary shall be held in any judicial
proceeding to be unenforceable or invalid or, except as permitted by the
Indenture, shall cease for any reason to be in full force and effect or any
Guarantor that is a Significant Subsidiary, or any Person acting on behalf of
any Guarantor that is a Significant Subsidiary, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; and (viii) certain events of
bankruptcy or insolvency with respect to the Company 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
Notes may declare all the Series B 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 the Company, all
outstanding Series B Notes will become due and payable without further action or
notice. Holders of the Series B Notes may not enforce the Indenture or the
Series B Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Series B Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders of the Series B 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 Series B 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
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paragraph, the declaration of acceleration of the Series B 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 Series B 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
Series B Notes that became due solely because of the acceleration of the Series
B Notes, have been cured or waived.
The Holders of a majority in aggregate principal amount of the Series B
Notes then outstanding by notice to the Trustee may on behalf of the Holders of
all of the Series B Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Series B Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Series B Notes, the Indenture or the Subsidiary Guarantees or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Series B Notes, by accepting a Series B Note, waives and releases
all such liability. The waiver and release are part of the consideration for
issuance of the Series B Notes. Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture will provide that the Company may, at its option and at any
time, elect to have all of its obligations and the obligations of the Guarantors
discharged with respect to the outstanding Series B Notes ("Legal Defeasance")
except for (i) the rights of Holders of outstanding Series B Notes to receive
payments in respect of the principal of, premium, if any, and interest and
Liquidated Damages on such Series B Notes when such payments are due from the
trust referred to below, (ii) the Company's obligations with respect to the
Series B Notes concerning issuing temporary Series B Notes, registration of
Series B Notes, mutilated, destroyed, lost or stolen Series B Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Series B Notes. 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 Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Series B Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Series B Notes on the stated maturity or
on the applicable redemption date, as the case may be, and the Company must
specify whether the Series B Notes are being defeased to maturity or to a
particular redemption date; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the 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 Notes will
not recognize income, gain or loss for federal income tax
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purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that, subject to customary assumptions and exclusions, the Holders of
the outstanding Series B Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the 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 the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an opinion of counsel to the effect
that, 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) the Company shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Series B Notes over the
other creditors of the Company with the intent of defeating, hindering, delaying
or defrauding creditors of the Company or others; and (viii) the Company shall
have delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that all conditions precedent 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 Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Series B Note selected for redemption. Also, the Company is not required to
transfer or exchange any Series B Note for a period of 15 days before a
selection of Series B Notes to be redeemed.
The registered Holder of a Series B Note will be treated as the owner of it
for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Subsidiary Guarantees or the Series B Notes may be amended or supplemented
with the consent of the Holders of at least a majority in principal amount of
the Series B Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Series B Notes), and any existing default or compliance with any provision
of the Indenture, the Subsidiary Guarantees or the Series B Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Series B Notes (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Series B Notes).
Without the consent of each Holder affected, an amendment or waiver may not
with respect to any Series B Notes held by a non-consenting Holder, (i) reduce
the principal amount of Series B Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Series B Note or alter the provisions with respect to the
redemption of the Series B Notes (other than provisions relating to the
covenants described above under the caption "--Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of interest
on any Series B Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Series B Notes (except a
rescission of acceleration of the Series B Notes by the Holders of at least a
majority in aggregate principal amount of the Series B Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Series B
Note payable in money other than that stated in the Series B Notes, (vi) make
any change in the provisions of the
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Indenture relating to waivers of past Defaults or the rights of Holders of
Series B Notes to receive payments of principal of or premium, if any, or
interest on the Series B Notes, (vii) waive a redemption payment with respect to
any Series B Note (other than a payment required by one of the covenants
described above under the caption "--Repurchase at the Option of Holders"),
(viii) except as otherwise permitted by the Indenture release any Guarantor from
any of its obligations under its Subsidiary Guarantee or the Indenture, or amend
the provisions of the Indenture relating to the release of Guarantors, or (ix)
make any change in the foregoing amendment and waiver provisions. In addition,
any amendment to the provisions of Article 10 of the Indenture (which relate to
subordination) or the related definitions will require the consent of the Holder
of at least 75% in aggregate principal amount of the Series B Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Series B Notes.
Notwithstanding the foregoing, without the consent of any Holder of Series
B Notes, the Company, the Guarantors and the Trustee may amend or supplement the
Indenture, the Subsidiary Guarantees or the Series B Notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Series B Notes
in addition to or in place of certificated Series B Notes, to provide for the
assumption of the Company's or a Guarantor's obligations to Holders of Series B
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 Series B 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 Guarantor to guarantee the Series B Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Series B Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default 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 Notes, 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 Notes may be issued in the form of one or more global
securities (collectively, the "Global Series B Note"). The Global Series B Note
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 Note 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
Note 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 the Company 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
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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 the Company that pursuant to procedures established by
it, (i) upon deposit of the Global Series B Notes, DTC will credit the accounts
of Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Series B Notes and (ii) ownership of such
interests in the Global Series B Notes 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 Notes).
Investors in the Global Series B Note 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 Note 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 Note 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 Notes, see "--Exchange
of Book-Entry Series B Notes for Certificated Series B Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL SERIES B NOTES
WILL NOT HAVE SERIES B NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE
PHYSICAL DELIVERY OF SERIES B NOTES 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 Note 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, the Company and the Trustee will
treat the persons in whose names the Series B Notes, including the Global Series
B Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
of the Company, the Initial Purchasers, the Trustee nor any agent of the
Company, 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 Notes, 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 Notes, 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 the Company that its current practice, upon receipt of any
payment in respect of securities such as the Series B Notes (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 Notes will be governed by
standing instructions and customary practices and will not be the responsibility
of DTC, the Trustee or the Company. Neither the Company 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 Notes, and the Company 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 Notes for all
purposes.
Interests in the Global Series B Notes 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
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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 the Company that it will take any action permitted to be
taken by a holder of Series B Notes only at the direction of one or more
Participants to whose account with DTC interests in the Global Series B Notes
are credited and only in respect of such portion of the aggregate principal
amount of the Series B Notes 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 Notes for Certificated Series B Notes" occurs,
DTC reserves the right to exchange the Global Series B Notes for legended Series
B Notes in certificated form and to distribute such Series B Notes to its
Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company 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 Note 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 the Company, the
Initial Purchasers or the Trustee nor any agent of the Company, 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 Notes for Certificated Series B Notes
The Global Series B Note is exchangeable for definitive Series B Notes in
registered certificated form if (i) DTC (x) notifies the Company that it is
unwilling or unable to continue as depository for the Global Series B Note and
the Company thereupon fails to appoint a successor depository or (y) has ceased
to be a clearing agency registered under the Series B Act, (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause the issuance
of the Series B Notes 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
Notes. In all cases, certificated Series B Notes delivered in exchange for any
beneficial interests in the Global Series B Note 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 Notes 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 the Company 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.
"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)
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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 the
Company 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 the
Company and the issue or sale by any of the Restricted Subsidiaries of the
Company of Equity Interests of any of the Company'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 the Company to a Wholly Owned Subsidiary of the Company 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
the Company to the Company or to a Wholly Owned Subsidiary of the Company, (ii)
an issuance of Equity Interests by a Restricted Subsidiary of the Company to the
Company or to a Wholly Owned Subsidiary of the Company, (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 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
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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) 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 the Company (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 the Company (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 the Company than such other "person", (ii) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors or (iii) the Company consolidates with, or
merges with or into, any Person, or any Person consolidates with, or merges with
or into, the Company, in any such event pursuant to a transaction in which any
of the outstanding Voting Stock of the Company is converted into or exchanged
for cash, securities or other property, other than any such transaction where
(A) the Voting Stock of the Company 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) either (1) the
"beneficial owners" (as defined above) of the Voting Stock of the Company
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 or (2) if
immediately prior to such transaction the Company is a direct or indirect
subsidiary of any other Person (such other Person, the "Holding Company"), then
the "beneficial owners" (as defined above) of the Voting Stock of such Holding
Company 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.
"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 a
Restricted Subsidiary of such Person or secured by a Lien on assets of such
Person or one 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
for 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
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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 the Company or one of its
Restricted Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company or any Holding Company of the Company
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 the Company 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 the Company 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.
"Designated Senior Debt" means (i) any Senior Debt outstanding under the
New Credit Facility and (ii) any other Senior Debt permitted under the Indenture
the principal amount of which is or under which the holders thereof are
committed to lend at least $25.0 million or more and that has been designated by
the Company in the instrument creating or evidencing such Senior Debt as
"Designated Senior Debt."
"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 Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
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"Equity Offering" means an offering of Equity Interests (other than
Disqualified Stock) of the Company or 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) provided, that in the case of an Equity Offering by Holding, Holding
contributes to the common equity of the Company the portion of the net cash
proceeds thereof necessary to pay the aggregate redemption price of the Notes to
be redeemed in connection therewith.
"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 the
Company), 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 the Company 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 the
Company 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 the Company and approved by the Company'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 the Company and
approved by the Company'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
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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
the Company 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 the
Company shall provide a written explanation thereof.
"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.
"Guarantors" means, initially, the Subsidiary of the Company on the Issue
Date and thereafter each of the Restricted Subsidiaries of the Company that
executes a Subsidiary Guarantee in accordance with the provisions of the
Indenture, and their respective successors and assigns.
"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.
"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
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 the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
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 Notes 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).
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"Management Note" means any promissory note given by an employee of the
Company 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 the Company 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 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 the Company
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 the Company 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, securing or guaranteeing such Indebtedness.
"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 the
Company 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 the Company) of the property or assets (including cash) being
transferred by the Company 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 the Company) of the property or assets (including
cash) received by the Company 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 the Company) of all property or assets
transferred by the Company 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 the
Company, as described or referred to in this Prospectus) by the Company 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 the Company are reasonably
related businesses, including reasonably related extensions or expansions
thereof.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash and Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary in a
Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of the Company or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys
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substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company; (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 the Company;
(f) Hedging Obligations entered into in the ordinary course of the Company's or
its Restricted Subsidiaries' Businesses and otherwise in compliance with the
Indenture; (g) loans and advances to employees and officers of the Company 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 $10.0 million at any one time outstanding.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Series B Notes are subordinated to Senior Debt pursuant
to the Indenture.
"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 securing Senior Debt or Guarantees of Senior Debt
permitted to be incurred under the Indenture;
(iii) Liens securing the Series B Notes and the Subsidiary
Guarantees;
(iv) Liens in favor of the Company or a Wholly Owned Restricted
Subsidiary on assets of any Restricted Subsidiary of the Company;
(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 the Company 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 the Company 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);
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(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 the Company 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 the Company or any Restricted Subsidiary of the Company other than the
property or assets of the Company or any Restricted Subsidiary of the Company
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 the
Company 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 the
Company or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired Debt by
the Company or a Restricted Subsidiary of the Company and (B) such Liens do not
extend to or cover any property or assets of the Company 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 the
Company or a Restricted Subsidiary of the Company and are not more favorable to
the lienholders than those securing the Acquired Debt prior to the incurrence of
such Acquired Debt by the Company or a Restricted Subsidiary of the Company;
(xviii) leases or subleases granted to others not interfering in any
material respect with the business of the Company or its Restricted
Subsidiaries;
(xix) Liens arising out of consignment or similar arrangements for
the sale of goods entered into by the Company 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
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(xxi) Liens on accounts receivable and any asset related thereto in
connection with a Qualified Receivables Transaction.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
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 the Company 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 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 Series B Notes on terms at least as
favorable to the Holders of Series B Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the 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.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any Restricted
Subsidiary pursuant to which the Company 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 the
Company 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 the Company other than an
Unrestricted Subsidiary.
"Senior Debt" means (i) all Indebtedness of the Company or any Guarantor
under Credit Facilities and all Hedging Obligations with respect thereto, (ii)
other Indebtedness of the Company or any of its Guarantors permitted to be
incurred under the terms of the Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes and (iii) all Obligations with
respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (w) any liability for federal, state,
local or other taxes owed or owing by the Company, (x) any Indebtedness of the
Company to any of its Restricted Subsidiaries or other Affiliates, (y) any trade
payables or (z) any Indebtedness that is incurred in violation of the Indenture.
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"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).
"Subsidiary Guarantees" means each of the Guarantees of the Company's
obligations under the Series B Notes and related obligations entered into by a
Guarantor.
"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 the Company's (or any
Restricted Subsidiary's) payments, if any, to be made thereunder is not less
favorable to the Company than as provided in such agreement as in effect on the
Issue Date, as determined in good faith by the Board of Directors of the
Company.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution; but, only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its 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
the Company 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 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 the Company as of
such date. The Board of Directors of the Company 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 the Company 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, (ii) such Subsidiary
becomes a Guarantor, and (iii) 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
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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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<PAGE>
DESCRIPTION OF HOLDING INDEBTEDNESS
The Debentures have been issued in an aggregate principal amount at
maturity of $112.0 million and will mature on April 15, 2009. The Debentures
have been issued under an Indenture dated as of April 15, 1998 (the "Holding
Indenture") between Holding and United States Trust Company of New York, as
trustee, and constitute senior unsecured obligations of Holding. Cash interest
will not accrue on the Debentures prior to April 15, 2003, and the principal of
the Debentures accretes at a rate of 12.875% per annum. Thereafter, cash
interest on the Debentures will accrue at the rate of 12.875% per annum and will
be payable semiannually in arrears on each April 15 and October 15 of each year,
commencing April 15, 2003, to the holders of record on the immediately preceding
April 1 and October 1, respectively.
On or after April 15, 2003, the Debentures may be redeemed at the option of
Holding, 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, if any, to the redemption date,
if redeemed during the twelve-month period commencing on April 15 in the years
set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- -----------
<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 use the net proceeds of one or more Equity Offerings (as defined in
the Holding Indenture) to redeem up to 35% of the Debentures at a redemption
price equal to 112.875% of the Accreted Value (as defined therein) thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the redemption
date; provided, however, that after any such redemption the aggregate principal
amount of the Debentures outstanding must equal at least 65% of the aggregate
principal amount of the Debentures originally issued; and provided further, that
such redemption shall occur within 90 days of the date of the closing of the
Equity Offering.
In the event of a Change of Control (as defined in the Holding Indenture),
each holder of Debentures has the right to require the repurchase of such
holder's Holding Senior Discount Debentures at a purchase price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
purchase date.
The Holding Indenture contains covenants that, among other things, limit
the ability of Holding to enter into certain mergers or consolidations and sell
assets and of Holding and its subsidiaries, incur additional indebtedness and
issue preferred stock, pay dividends or certain other distributions, engage in
transactions with affiliates, enter into new businesses, sell stock of
Restricted Subsidiaries, issue stock of subsidiaries, make certain investments,
repurchase stock and certain indebtedness and create or incur certain liens.
Under certain circumstances, Holding will be required to make an offer to
purchase Holding Senior Discount Debentures 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 Holding Indenture). The
Holding Indenture contains certain customary events of defaults, which will
include the failure to pay interest and principal, the failure to comply with
certain covenants in the Holding Senior Discount Debentures or the Holding
Indenture, a default under certain indebtedness, the imposition of certain final
judgments or warrants of attachment and certain events occurring under
bankruptcy laws.
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<PAGE>
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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<PAGE>
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 Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Series B Notes received in
exchange for Series A Notes where such Series A Notes were acquired as a result
of market-making activities or other trading activities and not acquired
directly from the Company. The Company has agreed that for a period of 180 days
after the Expiration Date or such shorter period as will terminate when all
Series B Notes 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 Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Series B Notes
by broker-dealers. Series B Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Series B Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or purchasers of any such Series B Notes. Any broker-dealer
that resells Series B Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such Series B Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of Series B
Notes 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, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay the expenses
incident to the Exchange Offer and to the Company'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 Notes 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 the Company 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 the
Company 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 the New Credit Facility."
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LEGAL MATTERS
Certain legal matters with respect to the legality of the Series B Notes
offered hereby will be passed upon for the Company 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 STORES COMPANY, INCORPORATED 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 Stockholder's 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 25, 1998 and April 19, 1997....................................................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of
Advance Stores Company, Incorporated:
We have audited the accompanying consolidated balance sheets of Advance Stores
Company, Incorporated (a Virginia company) and subsidiaries (the Company, and a
wholly owned subsidiary of Advance Holding Corporation), as of January 3, 1998,
and December 28, 1996, and the related consolidated statements of income,
changes in stockholder's 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 Stores
Company, Incorporated 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 11, as to which the date
is March 18, 1998).
F-2
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - JANUARY 3, 1998, AND DECEMBER 28, 1996
<TABLE>
<CAPTION>
ASSETS JANUARY 3, DECEMBER 28,
------
1998 1996
---------- ------------
(dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,447 $ 6,932
Receivables, primarily from vendors 19,117 14,355
Trade Receivables 3,359 -
Inventories 280,267 252,544
Prepaid expenses and other current assets 2,893 1,948
Refundable income taxes 168 -
------- -------
Total current assets 313,251 275,779
PROPERTY AND EQUIPMENT, NET 134,896 108,452
OTHER ASSETS 2,054 389
-------- --------
$450,201 $384,620
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
Current liabilities:
Bank overdrafts $ 7,235 $ 14,267
Borrowings secured by trade receivables 3,359 -
Current portion of long-term debt - 1,850
Current portion of deferred revenue 1,530 1,602
Accounts payable 157,096 130,024
Accrued expenses 27,762 22,911
Deferred income taxes 3,133 3,168
-------- --------
Total current liabilities 200,115 173,822
-------- --------
LONG-TERM DEBT, primarily to affiliates 106,542 91,803
-------- --------
DEFERRED REVENUE 693 426
-------- --------
DEFERRED INCOME TAXES 12,839 9,316
-------- --------
OTHER LONG-TERM LIABILITIES 843 456
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 3,
6, 7, 8 and 9)
STOCKHOLDER'S EQUITY:
Common stock, Class A, voting, $100
par value; 5,000 shares authorized, 1
share issued and outstanding - -
Additional paid-in capital 967 967
Retained earnings 128,202 107,830
-------- --------
Total stocholder's equity 129,169 108,797
-------- --------
$450,201 $384,620
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED 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 279,924 228,049 196,153
------------ ----------- -----------
Operating income 43,598 40,319 36,444
------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (7,732) (6,221) (6,327)
Interest income 23 275 392
Losses on sales of property and equipment, net (362) (97) (1,905)
Other, net (485) (329) (251)
------------ ----------- -----------
Total other income (expense), net (8,556) (6,372) (8,091)
------------ ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 35,042 33,947 28,353
PROVISION FOR INCOME TAXES 14,670 13,735 11,648
------------ ----------- -----------
NET INCOME $ 20,372 $ 20,212 $ 16,705
============ =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED JANUARY 3, 1998,
DECEMBER 28, 1996, AND DECEMBER 30, 1995
<TABLE>
<CAPTION>
COMMON ADDITIONAL TOTAL
STOCK PAID-IN RETAINED STOCKHOLDER'S
CLASS A CAPITAL EARNINGS EQUITY
--------- ----------- ---------- ---------------
(dollars in thousands)
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994 $- $967 $ 70,913 $ 71,880
Net income - - 16,705 16,705
---- ----- -------- --------
BALANCE, December 30, 1995 - 967 87,618 88,585
Net income - - 20,212 20,212
---- ----- -------- --------
BALANCE, December 28, 1996 - 967 107,830 108,797
Net income - - 20,372 20,372
---- ----- -------- --------
BALANCE, January 3, 1998 $- $967 $128,202 $129,169
==== ===== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED 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 $ 20,372 $ 20,212 $ 16,705
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 4,211 5,250 1,913
Net periodic postretirement benefit expense, net of payments made 387 245 211
Net (increase) decrease in:
Receivables, primarily from vendors (4,762) (5,604) (2,531)
Trade receivables (3,359) - -
Inventories (27,723) (72,645) (24,670)
Prepaid expenses and other assets (837) 517 (1,177)
Refundable income taxes (168) - 1,113
Net increase (decrease) in:
Accounts payable 27,072 58,589 9,577
Accrued expenses 4,128 (1,169) 9,009
--------- -------- --------
Net cash provided by operating activities 41,484 22,991 26,854
--------- -------- --------
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
--------- -------- --------
Net cash used in investing activities (48,607) (44,121) (39,855)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in bank overdrafts (7,032) 817 4,749
Proceeds from issuance of long-term debt 13,121 16,116 19,572
Principal payments on long-term debt (232) (1,740) (350)
Borrowings secured by trade receivables 3,359 - -
Restricted escrow funds (1,773) - -
Increase (decrease) in deferred revenue 195 (1,416) (1,046)
--------- -------- --------
Net cash provided by financing activities 7,638 13,777 22,925
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 515 (7,353) 9,924
CASH AND CASH EQUIVALENTS, beginning of year 6,932 14,285 4,361
--------- -------- --------
CASH AND CASH EQUIVALENTS, end of year $ 7,447 $ 6,932 $ 14,285
========= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 8,440 $ 6,354 $ 6,024
Income taxes paid, net of refunds received 12,454 11,212 3,581
========= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED 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 Stores Company, Incorporated and subsidiaries (the Company), a wholly
owned subsidiary of Advance Holding Corporation (the Parent), 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 with original maturities of three months or less.
F-7
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
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.
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.
F-8
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
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 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.
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.
F-9
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
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, receivables, accounts payable, bank overdrafts 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 STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
3. 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 5).
The Company capitalized $169 and $235 of interest incurred on funds used to
construct buildings and improvements during fiscal 1997 and 1996, respectively.
No interest was capitalized during fiscal 1995.
At January 3, 1998, the Company had contractual commitments of approximately
$4,188 to construct facilities or purchase equipment.
4. 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 11,750 9,778
---------- ------------
Total accrued expenses $27,762 $22,911
========== ============
</TABLE>
F-11
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
5. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- -----------
<S> <C> <C>
Revolving note, due December 31, 1999, interest payable quarterly
at the prime rate (8.5% at January 3, 1998) unsecured, payable
to affiliated company $ 46,856 $45,600
Revolving note, due December 31, 1999, interest payable quarterly
at the 90-day LIBOR rate plus 150 basis points (7.4% at January
3, 1998) unsecured, payable to affiliated company 47,764 46,203
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 -
Other notes, payable to affiliated company 1,922 1,850
-------- -------
Total long-term debt 106,542 93,653
Less - Current portion of long-term debt - 1,850
-------- -------
Long-term debt, excluding current portion $106,542 $91,803
======== =======
</TABLE>
At January 3, 1998, the Parent has outstanding borrowings of $91,167 under
revolving credit arrangements and $2,959 under lines of credit in aggregate from
four banks. The Company has guaranteed the Parent's repayment of outstanding
amounts under these arrangements.
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-12
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED 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 cannot 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 cannot 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 aggregate future annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998 $ -
1999 96,986
2000 -
2001 -
2002 10,000
--------
$106,986
========
</TABLE>
F-13
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
6. INCOME TAXES:
Provision for income taxes for fiscal 1997, fiscal 1996 and fiscal 1995 consists
of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
1997-
Federal $ 9,037 $3,737 $12,774
State 1,422 474 1,896
------- ------ -------
$10,459 $4,211 $14,670
======= ====== =======
1996-
Federal $ 7,657 $4,645 $12,302
State 828 605 1,433
------- ------ -------
$ 8,485 $5,250 $13,735
======= ====== =======
1995-
Federal $ 8,556 $1,668 $10,224
State 1,179 245 1,424
------- ------ -------
$ 9,735 $1,913 $11,648
======= ====== =======
</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 3.5 2.7 3.3
Other, net 3.4 2.8 2.8
---- ---- ----
Effective income tax rate 41.9% 40.5% 41.1%
==== ==== ====
</TABLE>
F-14
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
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 $ 5,705 $ 3,272
Deferred tax liabilities (21,677) (15,756)
---------- ----------
Net deferred taxes $(15,972) $(12,484)
========== ==========
</TABLE>
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 DECEMBER 28,
3, 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 236 41
--------- --------
Total current deferred income taxes $ (3,133) $ (3,168)
========= ========
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>
For federal and Virginia state income tax reporting purposes, the taxable income
of the Company is included in the consolidated income tax returns of the Parent.
Accordingly, any current and deferred federal and Virginia state income taxes,
computed on a separate company basis, are payable to or receivable from the
Parent.
The Parent currently has two years that are open to audit by the Internal
Revenue Service. The Parent has also received notices from a certain state's
Department of Revenue asserting income tax deficiencies for 1993 through 1995.
In addition, various Parent and Company 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.
F-15
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
7. 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 10). The
Company accounts for these leases as operating leases.
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 $44,704 $36,675 $29,650
Contingent facility rentals 413 357 442
Equipment rentals 1,523 1,242 1,092
Vehicle rentals 1,658 331 -
------- ------- -------
$48,298 $38,605 $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.
F-16
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
8. 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.
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.
F-17
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
9. 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.
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>
F-18
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
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.
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.
10. 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 7).
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."
The Company allocated certain payroll and insurance costs to the Parent in
fiscal 1997, resulting in a $1,017 reduction in selling, general and
administrative expenses in the accompanying fiscal 1997 statement of income. No
such allocations were made in fiscal 1996 and 1995.
F-19
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998, DECEMBER 28, 1996, AND DECEMBER 30, 1995
11. SUBSEQUENT EVENT:
The Parent entered into an agreement and plan of merger on March 4, 1998, which
provides for the recapitalization of the Parent. In connection with this
transaction, (1) all common and preferred stock of the Parent 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 of the Parent, except for the McDuffie County Authority taxable
industrial revenue bonds discussed in Note 5, will be repaid, (4) new debentures
of $60,000 will be issued by the Parent, (5) new notes of $200,000 will be
issued by the Company and (6) a new term loan and revolving credit facility will
be entered into by the Company and guaranteed by the Parent with aggregate
borrowing availability of $375,000. Proceeds from the new credit arrangements
entered into by the Company will be used to pay existing debt to the Parent and
to pay dividends to the Parent in amounts sufficient for the Parent to fund the
recapitalization. The Company intends to account for these transactions as a
recapitalization for financial reporting purposes.
12. CONSOLIDATED SUBSIDIARY:
The Company has a wholly owned subsidiary, LARALEV, INC., that is expected to
become a full and unconditional guarantor of the new notes, new term loan and
revolving credit facility that the Company will enter into as part of the
recapitalization discussed in Note 11 above. LARALEV, INC. holds certain
trademarks, tradenames, and other intangible assets for which it receives
royalty income from the Company. Unaudited summarized financial information for
this wholly owned subsidiary is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Receivables from the Company $37,651 $25,466 $15,761
Other assets 257 125 81
Total liabilities 293 0 38
Royalty income from the Company 16,962 14,120 12,051
Other income 2,064 1,231 692
Income from operations 18,913 15,163 12,633
Net income 12,024 9,788 8,140
====== ====== ======
</TABLE>
F-20
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED 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 $ 36,540 $ 7,447
Receivables, primarily from vendors 22,740 19,117
Trade receivables 4,857 3,359
Inventories 333,083 280,267
Prepaid expenses and other current assets 3,646 2,893
Refundable income taxes 3,758 168
--------- ---------
Total current assets 404,624 313,251
PROPERTY AND EQUIPMENT, NET 139,056 134,896
OTHER ASSETS 19,295 2,054
--------- ---------
$562,975 $450,201
========= =========
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
----------------------------------------------
CURRENT LIABILITIES:
Bank overdrafts $ - $ 7,235
Borrowings secured by trade receivables 4,857 3,359
Current portion of deferred revenue 1,916 1,530
Accounts payable 219,907 157,096
Accrued expenses 38,933 27,762
Deferred income taxes 2,698 3,133
--------- ---------
Total current liabilities 268,311 200,115
--------- ---------
LONG-TERM DEBT 335,000 106,542
--------- ---------
DEFERRED REVENUE 1,638 693
--------- ---------
DEFERRED INCOME TAXES 13,311 12,839
--------- ---------
POST-RETIREMENT BENEFITS 985 843
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S (DEFICIT) EQUITY:
Common stock, Class A, voting $100 par value; 5,000 shares authorized; 1
share issued and outstanding - -
Additional paid-in capital 967 967
(Accumulated deficit) retained earnings (57,237) 128,202
--------- ---------
Total stockholder's (deficit) equity (56,270) 129,169
--------- ---------
$562,975 $450,201
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-21
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED 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 99,178 82,008
Expenses associated with the recapitalization of the Parent 14,005 -
---------- ----------
Operating income (597) 10,283
---------- ----------
Other income (expense):
Interest expense (3,414) (2,538)
Other (116) (177)
---------- ----------
Total other expense, net (3,530) (2,715)
---------- ----------
(Loss) income before income taxes (4,127) 7,568
Income tax (benefit) expense (1,688) 3,168
---------- ----------
Net (loss) income $ (2,439) $ 4,400
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-22
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998 AND APRIL 19, 1997
<TABLE>
<CAPTION>
APRIL 25, APRIL 19,
1998 1997
----------- ------------
(Unaudited) (Unaudited)
(dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (2,439) $ 4,400
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 101 -
Provision for deferred income taxes 37 516
Net periodic postretirement benefit expense, net of payments made 142 123
Net (increase) decrease in:
Receivables, primarily from vendors (3,623) 903
Trade receivables (1,498) -
Inventories (52,816) (37,733)
Prepaid expenses and other assets (1,388) (1,044)
Refundable income taxes (3,590) -
Net increase in:
Accounts payable 62,811 31,877
Accrued expenses 9,993 7,063
----------- ------------
Net cash provided by operating activities 15,242 12,435
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (15,813) (9,658)
Proceeds from sale of property and equipment 4,141 55
----------- ------------
Net cash used in investing activities (11,672) (9,603)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in bank overdrafts (7,235) (4,783)
Proceeds from issuance of long-term debt 575 638
Payments on long-term debt (97,117) -
Borrowings under new credit facilities 325,000 -
Payment of debt issuance costs (16,082) -
Dividend paid to Advance Holding Corporation (183,000) -
Other 3,382 769
----------- ------------
Net cash provided by (used in) financing activities 25,523 (3,376)
----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,093 (544)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,447 6,932
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,540 $ 6,388
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 3,372 $ 3,036
Income taxes paid, net of refunds received 1,933 1,850
=========== ============
NONCASH TRANSACTION:
Debt issuance costs accrued $ 1,178 $ -
=========== ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-23
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED 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:
Advance Stores Company, Incorporated is a wholly owned subsidiary of Advance
Holding Corporation (the Parent). The accompanying unaudited condensed
consolidated financial statements include the accounts of Advance Stores
Company, Incorporated 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
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 for the full fiscal year.
F-24
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED 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, JANUARY 3,
1998 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 include deferred debt issuance costs of
$17,083, net of accumulated amortization of $64. Such costs are being amortized
over the term of the related debt (6 to 10 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
on accounting for its employees' participation in the Parent's employee stock
options and awards. Under APB 25, compensation expense of stock options is
measured as the excess, if any, of the fair market value of the Parent's common
stock at the measurement date over the exercise price.
F-25
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED 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, Advance Holding Corporation (the Parent) consummated its
recapitalization pursuant to an Agreement and Plan of Merger dated March 4, 1998
(the Merger Agreement). In connection with the Merger, the Parent's Board of
Directors authorized a 12,500 to 1 split of the Parent's common stock and a
change in the par value of the Parent's 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 Parent (the Merger), with the Parent as the surviving
corporation. In the Merger, a portion of the Parent's common stock and all its
preferred stock were converted into the right to receive in the aggregate
approximately $351,000 in cash and certain stock options for 500,000 shares of
the Parent's common stock. Certain shares representing approximately 14% of the
Parent's 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 Parent'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 Parent's outstanding common stock. In connection with the Merger,
management purchased approximately $8,000, or approximately 6%, of the Parent'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 the Parent issued approximately $60,000 of senior
discount debentures. Proceeds from the new bank facility and senior subordinated
notes were used to pay a $183,000 dividend to the Parent and to extinguish a
substantial portion of the Company's long-term debt.
The Merger, the dividend, the retirement of debt, borrowings under the new bank
credit facility, the Parent's issuance of the senior discount debentures and the
Company's issuance of the senior subordinated notes collectively represent the
"Recapitalization".
F-26
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED 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. In addition, the Company
incurred expenses of $2,505, primarily professional services, related to the
Recapitalization, of which $1,600 has been allocated to the Company by the
Parent for expenses incurred by the Parent on behalf of the Company. Such
bonuses and expenses are presented as expenses associated with the
Recapitalization of the Parent in the accompanying unaudited condensed
consolidated statement of operations for the 16-week period ending April 25,
1998.
The Company has deferred $17,060 of debt issuance costs related to the new debt
incurred in connection with the Recapitalization.
As of April 25, 1998, accrued expenses include $2,267 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. Approximately $3,935 of the fee has been recorded by the Company, with
$2,935 classified as deferred debt issuance costs and $1,000 charged to expenses
associated with the Recapitalization of the Parent. Approximately $1,065 of the
fee has been recorded by the Parent.
As of April 25, 1998, receivables, primarily from vendors includes a $775
receivable from the Parent for reimbursement of certain Recapitalization related
costs.
F-27
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998, AND APRIL 19, 1997
6. 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 notes payable to affiliated company, repaid in April 1998 - 46,856
Revolving note payable to affiliated company, repaid in April 1998 - 47,764
McDuffie County Authority taxable industrial development revenue bonds,
interest at an adjustable rate (5.55% at April 25, 1998) 10,000 10,000
Other notes payable to affiliated company, repaid in April 1998 - 1,922
Subordinated Debt-
Subordinated notes payable, interest due semi-annually at 10.25%,
commencing on October 15, 1998, due April 2008 200,000 -
--------- --------
Total long-term debt 335,000 106,542
Less - Current portion of long-term debt - -
--------- --------
Long-term debt, excluding current portion $335,000 $106,542
========= ========
</TABLE>
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.
F-28
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998, AND APRIL 19, 1997
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 Company's trailing Total Debt to EBITDA ratio, as defined.
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 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.
The New Credit Facility is guaranteed by the Parent and is secured by
substantially all of the assets of the Parent and the Company.
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 the Parent 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.
F-29
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998, AND APRIL 19, 1997
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, LARALEV, INC. which holds
certain trademarks and tradenames and other intangible assets for which it
receives royalty income from the Company. The Notes contain certain covenants
that limit, among other things, the ability of the Company 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 the Company from
engaging in certain mergers or consolidations and selling assets.
7. STOCK OPTIONS:
The Parent 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
Parents 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.
F-30
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998, AND APRIL 19, 1997
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.
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
--------
898,750
========
</TABLE>
No options were exercisable at April 25, 1998.
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-31
<PAGE>
ADVANCE STORES COMPANY, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIXTEEN-WEEK PERIODS ENDED APRIL 25, 1998, AND APRIL 19, 1997
8. STOCKHOLDER'S (DEFICIT) EQUITY:
Changes in stockholder's (deficit) equity for the 16-week period ended April 25,
1998, are as follows:
<TABLE>
<CAPTION>
(ACCUMULATED TOTAL
COMMON ADDITIONAL DEFICIT) STOCKHOLDER'S
STOCK PAID-IN RETAINED (DEFICIT)
CLASS A CAPITAL EARNINGS EQUITY
------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, January 3, 1998 $ - $967 $ 128,202 $ 129,169
Dividend to Parent - - (183,000) (183,000)
Net loss - - (2,439) (2,439)
------ ------- ---------- ----------
Balance, April 25, 1998 $ - $967 $ (57,237) $ (56,270)
====== ======= ========== ==========
</TABLE>
9. RELATED-PARTY TRANSACTION:
In April, 1998, the Company sold its airplane to its Chairman of the Board, an
existing stockholder, for its net book value of approximately $4,100.
Subsequent to April 25, 1998, the Parent made a $8,300 contribution of equity to
the Company.
10. CONSOLIDATED SUBSIDIARY:
The Company has a wholly owned subsidiary LARALEV, INC., that is a full and
unconditional guarantor of the new notes, new term loan and revolving credit
facility that the Company entered into as part of the Recapitalization. LARALEV,
INC. holds certain trademarks, tradenames and other intangible assets for which
it receives royalty income from the Company. Unaudited summarized financial
information for this wholly-owned subsidiary is as follows:
<TABLE>
<CAPTION>
APRIL 25, APRIL 19,
1998 1997
--------- ------------
<S> <C> <C>
Royalty income from the Company $5,779 $ 4,783
Other income 798 530
Income from operations 6,570 5,301
Net income 4,239 3,418
====== =======
APRIL 25, 1998
-------------------------
Receivables from the Company $42,599
Other assets 164
Total liabilities 909
=======
</TABLE>
11. CONTINGENCIES:
The employment agreements which existed at January 3, 1998 have been terminated.
The Company entered into new agreements with certain employees that provide
severance pay benefits under certain circumstances.
F-32
<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 THE COMPANY 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 SELL 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.............................................................. 13
Use of Proceeds........................................................... 18
Capitalization............................................................ 19
The Exchange Offer........................................................ 20
Unaudited Pro Forma Consolidated Financial
Data..................................................................... 27
Selected Consolidated Financial Data...................................... 31
Management's Discussion and Analysis
of Financial Condition and
Results of Operations.................................................... 33
Business.................................................................. 39
Management................................................................ 50
Certain Transactions...................................................... 55
Description of the New Credit Facility.................................... 57
Description of Series B Notes............................................. 59
Description of Holding Indebtedness....................................... 89
Certain Federal Income Tax Considerations................................. 90
Plan of Distribution...................................................... 94
Legal Matters............................................................. 95
Index to Consolidated Financial Statements................................ F-1
</TABLE>
$200,000,000
ADVANCE STORES COMPANY,
INCORPORATED
10.25% SENIOR SUBORDINATED
NOTES DUE 2008
, 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 Articles of Incorporation
of the Registrant, as amended, 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
Advance Holding Corporation ("Holding") 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 Holding, its officers, directors and agents
and each person controlling Holding 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 between Nicholas F.
Taubman and Holding (attached as Exhibit 10.26 to this Registration Statement)
which provides for indemnification by Holding of Mr. Taubman to the fullest
extent permitted by law. Holding 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.
II-1
<PAGE>
Pursuant to Section 145 of the Delaware General Corporation Law, Article
FIFTH of the Certificate of Incorporation of the Co-Registrant, as amended, a
copy of which is filed as Exhibit 3.1 to the Registration Statement (the
"Certificate of Incorporation"), provides that to the fullest extent permitted
by the Delaware General Corporation Law, each director of the Co-Registrant
shall incur no personal liability to the Co-Registrant or its stockholders for
monetary damages for any breach of fiduciary duty as a director.
Article SIXTH of the Certificate of Incorporation and Article VIII((S)5) of
the Bylaws of the Co-Registrant provide that to the fullest extent permitted by
Delaware General Corporation Law, each director, officer, employee and agent of
the Co-Registrant shall be indemnified and held harmless by the Co-Registrant.
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 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
- ------- -----------
<S> <C>
1.1 Purchase Agreement dated as of April 7, 1998 among Advance Stores Company,
Incorporated (the "Company"), Donaldson, Lufkin & Jenrette Securities Corporation and
Chase Securities Inc. (the "Initial Purchasers").
2.1 Merger Agreement dated as of March 4, 1998 among AHC Corporation and Advance
Holding Corporation ("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 the Company, as amended to date.
3.2 Bylaws of the Company, as amended to date.
3.3 Certificate of Incorporation of LARALEV, INC. ("LARALEV"), as amended to date.
3.4 Bylaws of LARALEV.
4.1 Indenture dated as of April 15, 1998 among the Company, LARALEV, as guarantor, and
United States Trust Company of New York, as Trustee, with respect to the 10.25% Senior
Subordinated Notes due 2008 (including the form of 10.25% Senior Subordinated Note due
2008).
4.2 Registration Rights Agreement dated as of April 15, 1998 among the Company and the Initial
Purchasers.
5.1 Opinion of Riordan & McKinzie as to the legality of securities registered hereunder.
10.1 Stockholders' Agreement dated 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 Common Stock).
10.2 Credit Agreement dated as of April 15, 1998 among Holding, the Company, as borrower,
the lenders party thereto, and the Chase Manhattan Bank ("Chase"), as administrative agent.
10.3 Pledge Agreement dated as of April 15, 1998 among the Company, Holding, LARALEV,
and Chase, as collateral agent.
10.4 Guarantee Agreement dated as of April 15, 1998 among Holding and LARALEV, as
guarantors, and Chase, as collateral agent.
10.5 Indemnity, Subrogation and Contribution Agreement dated as of April 15, 1998 among the
Company, Holding, LARALEV and Chase, as collateral agent.
10.6 Security Agreement dated as of April 15, 1998 among the Company, Holding, LARALEV
and Chase, as collateral agent.
10.7 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.
10.8 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.
10.9 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").
10.10 Lease Agreement dated as of December 1, 1997 between Development Authority of
McDuffie County and the Company relating to the IRB.
10.11 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.
10.12 Advance Holding Corporation 1998 Senior Executive Stock Option Plan.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.13 Form of Advance Holding Corporation 1998 Senior Executive Stock Option Agreement.
10.14 Advance Holding Corporation 1998 Executive Stock Option Plan.
10.15 Form of Advance Holding Corporation 1998 Stock Option Agreement.
10.16 Advance Holding Corporation 1998 Senior Executive Stock Subscription Plan.
10.17 Form of Advance Holding Corporation Senior Executive Stock Subscription Agreement.
10.18 Advance Holding Corporation 1998 Employee Stock Subscription Plan.
10.19 Form of Advance Holding Corporation Employee Stock Subscription Agreement.
10.20 Form of Secured Promissory Note.
10.21 Form of Stock Pledge Agreement.
10.22 Form of Employment and Non-Competition Agreement between the Company's employee
and the Company (one-year agreement).
10.23 Form of Employment and Non-Competition Agreement between the Company's employee
and the Company (two-year agreement).
10.24 Form of Indemnity Agreement between each of the directors of Holding (other than Nicholas
F. Taubman) and Holding.
10.25 Form of Consulting and Non-Competition Agreement among Nicholas F. Taubman, Holding
and the Company.
10.26 Indemnity Agreement dated as of April 15, 1998 between Nicholas F. Taubman and
Holding.
10.27 Option Agreement dated as of April 15, 1998 between Nicholas F. Taubman and Holding.
10.28 Option Agreement dated as of April 15, 1998 between Arthur Taubman Trust dated July 13,
1968 and Holding.
10.29 Form of Employment and Non-Competition Agreement among Garnett E. Smith, Holding
and the Company.
10.30 Form of Series B Note.
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>
(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:
(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
II-4
<PAGE>
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 STORES COMPANY, INCORPORATED
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 Stores Company,
Incorporated, 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 Stores
Company, Incorporated 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
- --------------------------
Garnett E. Smith and Director (Principal Executive Officer)
/s/ J. O'Neil Leftwich Senior Vice President and Chief June 4, 1998
- --------------------------
J. O'Neil Leftwich Financial Officer, Secretary and
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>
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 Wilmington,
State of Delaware, on June 4, 1998.
LARALEV, INC.
By: /s/ David C. Eppes
-----------------------------------
David C. Eppes
President
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of LARALEV, INC., hereby
severally constitute and appoint David C. Eppes, 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 LARALEV, INC. 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/ David C. Eppes President and Director June 4, 1998
- --------------------------
David C. Eppes (Principal Executive Officer)
/s/ Andrew T. Panaccione Secretary and Treasurer (Principal June 4, 1998
- --------------------------
Andrew T. Panaccione Financial and Accounting Officer)
/s/ J. O'Neil Leftwich Director June 4, 1998
- --------------------------
J. O'Neil Leftwich
</TABLE>
II-7
<PAGE>
EXHIBIT 1.1
ADVANCE STORES COMPANY, INCORPORATED
LARALEV, INC.
$200,000,000
10.25% SENIOR SUBORDINATED NOTES DUE 2008
PURCHASE AGREEMENT
APRIL 7, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES, INC.
<PAGE>
$200,000,000
10.25% Senior Subordinated Notes due 2008
of Advance Stores Company, Incorporated
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 Stores Company, Incorporated, a Virginia corporation (the
"COMPANY"), 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 $200,000,000 in
principal amount of its 10.25% Senior Subordinated Notes due 2008 (the "SERIES A
NOTES"), subject to the terms and conditions set forth herein (the "OFFERING").
The Series A Notes are to be issued pursuant to the provisions of an indenture
(the "INDENTURE"), to be dated as of the Closing Date (as defined below), among
the Company, the Guarantor (as defined below) and United States Trust Company of
New York, as trustee (the "TRUSTEE"). The Series A Notes and the Series B Notes
(as defined below) issuable in exchange therefor are collectively referred to
herein as the "NOTES." The Notes will be guaranteed (the "SUBSIDIARY
GUARANTEE") by the entities listed on Schedule A hereto (the "GUARANTOR").
----------
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Indenture.
The Notes are being issued and sold in connection with the Recapitalization
(as defined below) of the Company's parent, Advance Holding Corporation, a
Virginia corporation ("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"),
<PAGE>
2
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 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 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 $60.0 million from the issuance and sale by Holding of its
12.875% Senior Discount Debentures due 2009 (the "SENIOR DISCOUNT DEBENTURES
OFFERING" and, together with the Offering, the "OFFERINGS") in a separate
offering in which the Initial Purchasers will act as initial purchasers; (iv)
$200.0 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 Notes 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"). The Company and the Guarantor have 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 Notes and the Subsidiary Guarantee.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Series A Notes (and all
securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
<PAGE>
3
"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 ACT
(AN "IAI")), (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
NOTE EXCEPT (A) TO THE COMPANY 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 THE COMPANY 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 THE COMPANY) 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 REGULATIONS UNDER THE SECURITIES ACT.
THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
<PAGE>
4
REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE 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, the Company agrees to
issue and sell to the Initial Purchasers, and the Initial Purchasers agree,
severally and not jointly, to purchase from the Company, the principal amount of
Series A Notes set forth opposite the name of such Initial Purchaser on Schedule
--------
C hereto at a purchase price equal to 97.125% of the principal amount thereof
- -
(the "PURCHASE PRICE").
SECTION 3. TERMS OF OFFERING. The Initial Purchasers have advised the
Company that the Initial Purchasers will make offers (the "EXEMPT RESALES") of
the Series A Notes 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 Notes 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 Notes to Eligible Purchasers initially at a
price equal to 100% of the principal amount thereof. Such price may be changed
at any time without notice.
Holders (including subsequent transferees) of the Series A Notes 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 Notes constitute
---------
"TRANSFER RESTRICTED SECURITIES" (as defined in the Registration Rights
Agreement). Pursuant to the Registration Rights Agreement, the Company and the
Guarantor 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 the Company's 10.25% Senior Subordinated Notes Due 2008 (the "SERIES B
NOTES"), to be offered in exchange for the Series A Notes (such offer to
exchange being referred to as the "EXCHANGE OFFER") and the Subsidiary Guarantee
thereof 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 Notes 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.
SECTION 4. DELIVERY AND PAYMENT. (a) Delivery of, and payment of the
Purchase Price for, the Series A Notes 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 9:00 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
<PAGE>
5
Purchasers and the Company in writing. The time and date of such delivery and
the payment for the Series A Notes are herein called the "CLOSING DATE."
(b) One or more of the Series A Notes 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 Notes (collectively, the "GLOBAL NOTE"), shall
be delivered by the Company to the Initial Purchasers (or as the Initial
Purchasers direct) in each case with any transfer taxes thereon duly paid by the
Company against payment by the Initial Purchasers of the Purchase Price thereof
by wire transfer in same day funds to the order of the Company. The Global Note
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 THE COMPANY AND THE GUARANTOR. Each of the
Company and the Guarantor 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 Notes 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. The Company shall use its best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption of any Series A Notes 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 Notes under any 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.
(b) To furnish the Initial Purchasers and those persons identified by
the Initial Purchasers to the Company, 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' compliance with its
representations and warranties and agreements set forth in Section 7
hereof, the Company 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.
<PAGE>
6
(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 Notes, 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 Notes 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 Notes 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 neither the Company nor the
Guarantor shall 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 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 Notes are outstanding, to mail and make generally
available, within 90 days after the end of the Company's fiscal year and
within 45 days after the end
<PAGE>
7
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 the Company 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 the Company and its consolidated subsidiaries and,
with respect to the annual information only, a report thereon by the
Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports in 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, the
Company 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 the Company or the Guarantor to its security
holders or furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company or the
Guarantor is listed and such other publicly available information
concerning the Company and/or its subsidiaries as the Initial Purchasers
may reasonably request.
(h) So long as any of the Series A Notes remain outstanding and during
any period in which the Company and the Guarantor are 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 Notes in
connection with any sale thereof and any prospective purchaser of such
Series A Notes from such holder, the information ("RULE 144A INFORMATION")
required by Rule 144A(d)(4) under the Act; provided, however, that the
Company'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 Notes for the Series A Notes is consummated or (ii) the date
the Shelf Registration Statement is declared effective by the Commission;
provided further that, notwithstanding the foregoing proviso, the Company
shall be obligated to deliver, upon request, any Rule 144A Information to
prospective purchasers of the Notes 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 the Company and
the Guarantor under this Agreement, including: (i) the fees, disbursements
and expenses of counsel to the Company and the Guarantor and accountants of
the Company and the Guarantor in connection with the sale and delivery of
the Series A Notes 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,
<PAGE>
8
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 Notes 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 Notes, (iv) all expenses in connection with the registration
or qualification of the Series A Notes and the Subsidiary Guarantee 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
Notes and the Subsidiary Guarantee, (vi) all expenses and listing fees in
connection with the application for quotation of the Series A Notes 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, the
Notes and the Subsidiary Guarantee, (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 Notes, (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 the Company and the
Guarantor 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
Notes in PORTAL and to maintain the listing of the Series A Notes on PORTAL
for so long as the Series A Notes are outstanding.
(k) To use its best efforts to obtain the approval of DTC for "book-
entry" transfer of the Notes, and to comply with all of its agreements set
forth in the representation letters of the Company and the Guarantor to DTC
relating to the approval of the Notes 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 the Company or the
Guarantor or any warrants, rights or options to purchase or otherwise
acquire debt securities of the Company or the Guarantor substantially
similar to the Notes and the Subsidiary Guarantee (other than (i) the Notes
and the Subsidiary Guarantee and (ii) commercial paper issued in the
ordinary course of business), without the prior written consent of the
Initial Purchasers.
<PAGE>
9
(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 Notes 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 Notes 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 Notes and
the related Subsidiary Guarantee.
(o) To cause the Exchange Offer to be made in the appropriate form to
permit Series B Notes and guarantees thereof by the Guarantor registered
pursuant to the Act to be offered in exchange for the Series A Notes and
the Subsidiary Guarantee 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 Notes and the Subsidiary
Guarantee.
SECTION 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND
THE GUARANTOR. As of the date hereof, each of the Company and the Guarantor
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 the Company in writing by
the Initial Purchasers expressly for use therein.
(b) Each of the Company 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 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
<PAGE>
10
as a foreign corporation authorized to do business in the jurisdictions set
forth on Schedule D, 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 the Company 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 the Company 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 (i) liens
existing on the indebtedness outstanding on the date hereof which will be
repaid upon the consummation of the Recapitalization and (ii) the pledge of
the shares of the Company to secure the obligations of Holding under the
New Credit Facility.
(d) The entities listed on Schedule B hereto are the only
----------
subsidiaries, direct or indirect, of the Company. All of the outstanding
shares of capital stock of each of the Company's subsidiaries have been
duly authorized and validly issued and are fully paid and non-assessable,
and are owned by the Company, directly or indirectly through one or more
subsidiaries, free and clear of any Lien, other than (i) liens existing on
the indebtedness outstanding on the date hereof which will be repaid upon
the consummation of the Recapitalization and (ii) the pledge of the shares
of each subsidiary of the Company to secure the obligations of the Company
under the New Credit Facility.
(e) This Agreement has been duly authorized, executed and delivered by
the Company and the Guarantor.
(f) The Indenture has been duly authorized by the Company and the
Guarantor and, on the Closing Date, will have been validly executed and
delivered by the Company and the Guarantor. When the Indenture has been
duly executed and delivered by the Company and the Guarantor (assuming the
due authorization, execution and delivery by the Trustee), the Indenture
will be a valid and binding agreement of the Company and the Guarantor,
enforceable against the Company and the Guarantor 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 Notes have been duly authorized and, on the Closing
Date, will have been validly executed and delivered by the Company. When
the Series A Notes 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 Notes will be entitled to the benefits of the
Indenture and will be valid and binding obligations of the Company,
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 Notes will conform in
all material respects to the description thereof contained in the Offering
Memorandum.
(h) On the Closing Date, the Series B Notes will have been duly
authorized by the Company. When the Series B Notes are issued, executed
and authenticated in accordance with the terms of the Exchange Offer and
the Indenture, the Series B Notes will be entitled to the benefits of the
Indenture and will be the valid and binding obligations of the Company,
enforceable against the Company 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 Notes are issued, authenticated and
delivered, the Series B Notes will conform in all material respects to the
description thereof contained in the Offering Memorandum.
(i) The Subsidiary Guarantee to be endorsed on the Series A Notes by
the Guarantor has been duly authorized by the Guarantor and, on the Closing
Date, will have been duly executed and delivered by the Guarantor. When
the Series A Notes have been issued, executed and authenticated in
accordance with the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Subsidiary
Guarantee of the Guarantor endorsed thereon will be entitled to the
benefits of the Indenture and will be the valid and binding obligation of
the Guarantor, enforceable against the Guarantor 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 Subsidiary Guarantee to be endorsed on the Series A Notes will conform
in all material respects to the description thereof contained in the
Offering Memorandum.
<PAGE>
12
(j) The Subsidiary Guarantee to be endorsed on the Series B Notes by
the Guarantor has been duly authorized by the Guarantor and, when issued,
will have been duly executed and delivered by the Guarantor. When the
Series B Notes have been issued, executed and authenticated in accordance
with the terms of the Exchange Offer and the Indenture, the Subsidiary
Guarantee of the Guarantor endorsed thereon will be entitled to the
benefits of the Indenture and will be the valid and binding obligation of
the Guarantor, enforceable against the Guarantor 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). When the Series B
Notes are issued, authenticated and delivered, the Subsidiary Guarantee to
be endorsed on the Series B Notes will conform in all material respects to
the description thereof in the Offering Memorandum.
(k) The Registration Rights Agreement has been duly authorized by the
Company and the Guarantor and, on the Closing Date, will have been duly
executed and delivered by the Company and the Guarantor. When the
Registration Rights Agreement has been duly executed and delivered, the
Registration Rights Agreement will be a valid and binding agreement of the
Company and the Guarantor, enforceable against the Company and the
Guarantor 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.
(l) Neither the Company 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, agreement, covenant or condition contained
in any indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its subsidiaries, taken as a
whole, to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or their respective property
is bound which default would have a Material Adverse Effect.
(m) The execution, delivery and performance of this Agreement and the
other Operative Documents by the Company and the Guarantor, compliance by
the Company and the Guarantor with all provisions hereof and thereof and
the consummation of the transactions contemplated hereby and thereby will
not (i) assuming the Notes are sold in the manner described in this
Agreement, require any consent, approval, authorization or
<PAGE>
13
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 the Company or any of its
subsidiaries or any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company 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
the Company, 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 the Company or
any of its subsidiaries is a party or by which the Company 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 the Company 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.
(n) There are no legal or governmental proceedings pending or, to the
Company's knowledge, threatened to which the Company 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.
(o) Neither the Company 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.
(p) 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.
(q) Each of the Company 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
<PAGE>
14
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 the Company
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 the Company 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.
(r) The Company'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 the Company and the Guarantor, 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.
(s) 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 the
Company 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 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 the Company.
(t) 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 the Company
and its subsidiaries and give effect to reasonable assumptions used in the
preparation thereof (as of the date of the Offering
<PAGE>
15
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.
(u) The Company is not and, after giving effect to the offering and
sale of the Series A Notes and the Recapitalization, will not be, an
"investment company," as such term is defined in the Investment Company Act
of 1940, as amended.
(v) There are no contracts, agreements or understandings between the
Company or the Guarantor and any person granting such person the right to
require the Company or the Guarantor to include any securities of the
Company with the Notes and Subsidiary Guarantee registered pursuant to any
Registration Statement.
(w) Neither the Company 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 Notes 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.
(x) 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 the Company or the Guarantor that it is
considering imposing) any condition (financial or otherwise) on the
Company's or the Guarantor's retaining any rating assigned as of the date
hereof to the Company, the Guarantor or any securities of the Company or
the Guarantor or (ii) has indicated to the Company or the Guarantor 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.
(y) 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 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 the Company 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 the Company or
<PAGE>
16
any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries has incurred any material liability or obligation, direct or
contingent.
(z) 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.
(aa) When the Series A Notes and the Subsidiary Guarantee are issued
and delivered pursuant to this Agreement, neither the Series A Notes nor
the Subsidiary Guarantee will be of the same class (within the meaning of
Rule 144A under the Act) as any security of the Company or the Guarantor
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.
(bb) No form of general solicitation or general advertising (as
defined in Regulation D under the Act) was used by the Company, the
Guarantor or any of their respective representatives (other than the
Initial Purchasers, as to whom the Company and the Guarantor make no
representation) in connection with the offer and sale of the Series A Notes
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 Notes have
been issued and sold by the Company within the six-month period immediately
prior to the date hereof.
(cc) Assuming the Notes 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.
(dd) None of the Company, the Guarantor nor any of their respective
affiliates or any person acting on its or their behalf (other than the
Initial Purchasers, as to whom the Company and the Guarantor make 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 Notes or the Subsidiary Guarantee.
(ee) The sale of the Series A Notes pursuant to Regulation S is not
part of a plan or scheme to evade the registration provisions of the Act.
(ff) The Company, the Guarantor and their respective affiliates and
all persons acting on their behalf (other than the Initial Purchasers, as
to whom the Company and the Guarantor make no representation) have complied
with and will comply with the offering restrictions requirements of
Regulation S applicable to them in connection with the
<PAGE>
17
offering of the Series A Notes outside the United States and, in connection
therewith, the Offering Memorandum will contain the disclosure required by
Rule 902(h).
(gg) No registration under the Act of the Series A Notes or the
Subsidiary Guarantee is required for the sale of the Series A Notes and the
Subsidiary Guarantee 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.
(hh) Each certificate signed by any officer of the Company or the
Guarantor and delivered to the Initial Purchasers or counsel for the
Initial Purchasers shall be deemed to be a representation and warranty by
the Company or the Guarantor to the Initial Purchasers as to the matters
covered thereby.
(ii) The Company 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 the
Company 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 the Company 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.
(jj) The Company 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 the Company 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.
(kk) Except as disclosed in the Offering Memorandum, no relationship,
direct or indirect, exists between or among the Company or any of its
subsidiaries on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company 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.
<PAGE>
18
(ll) There is no (i) significant unfair labor practice complaint,
grievance or arbitration proceeding pending or, to the Company's knowledge,
threatened against the Company or 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 the
Company's knowledge, threatened against the Company or any of its
subsidiaries or (iii) union representation question existing with respect
to the employees of the Company 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 the Company, no collective bargaining organizing activities
are taking place with respect to the Company or any of its subsidiaries.
(mm) The Company 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.
(nn) All material tax returns required to be filed by the Company 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 the Company or any of its subsidiaries have been paid, other
than those being contested in good faith and for which adequate reserves
have been provided.
(oo) The indebtedness represented by the Series A Notes is being
incurred for proper purposes and in good faith and each of the Company and
the Guarantor will be on the Closing Date (after giving effect to the
application of the proceeds from the issuance of the Series A Notes)
solvent, and will have on the Closing Date (after giving effect to the
application of the proceeds from the issuance of the Series A Notes)
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 Notes) able to pay their respective debts
as they mature.
(pp) Upon consummation of the Recapitalization (including the issuance
of the Notes), the present fair salable value of the assets of the Company
and the Guarantor, taken as a whole, will exceed the amount that will be
required to be paid on or in respect of its existing debts and other
liabilities (including contingent liabilities) as they become absolute and
matured. The assets of the Company and the Guarantor, taken as a whole,
upon the issuance of the Notes, will not constitute unreasonably small
capital to carry out
<PAGE>
19
their businesses as now conducted, including the capital needs of the
Company and the Guarantor, taking into account the projected capital
requirements and capital availability of the Company and the Guarantor.
Neither the Company nor the Guarantor (i) is entering into the
Recapitalization with the intent to hinder, delay or defraud any entity to
which it is or will in the Recapitalization become indebted or (ii) will
receive less than reasonably equivalent value in exchange for entering into
the Recapitalization.
The Company 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 the Company and the Guarantor 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
the Company and the Guarantor, 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 Notes.
(b) Such Initial Purchaser (A) is not acquiring the Series A Notes
with a view to any distribution thereof or with any present intention of
offering or selling any of the Series A Notes 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 Notes 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 Notes
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
Notes only from, and will offer to sell the Series A Notes only to,
Eligible Purchasers. Each Initial Purchaser further agrees that it will
offer to sell the Series A Notes only to, and will solicit offers to buy
the Series A Notes 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 Notes purchased by them may be
resold, pledged or otherwise transferred within
<PAGE>
20
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 Notes, only (I) to
the Company or any of its subsidiaries, (II) 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
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 Note (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 Notes less than
$250,000, an opinion of counsel acceptable to the Company 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 the Company) 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 Notes 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 Notes or the Subsidiary Guarantee (it being understood that the
Company may make sales to the Initial Purchasers and offers and sales in
reliance upon Rule 144A under the Act).
(f) The Series A Notes 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 Notes 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 Notes 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 Notes 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 Notes
(including any "tombstone" advertisement) to be published in any newspaper
or
<PAGE>
21
periodical or posted in any public place and will not issue any circular
relating to the Series A Notes, except such advertisements as permitted by
and include the statements required by Regulation S.
(i) Such Initial Purchaser agrees that, at or prior to confirmation of
a sale of Series A Notes 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 Notes 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 Notes by non-U.S. persons or U.S. persons who purchased such
Series A Notes in transactions that were exempt from the registration
requirements of the Act.
Such Initial Purchaser acknowledges that the Company and the Guarantor and,
for purposes of the opinions to be delivered to each Initial Purchaser pursuant
to Section 9 hereof, counsel to the Company and the Guarantor 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) The Company and the Guarantor
agree, jointly and severally, 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 the Company or the
Guarantor to any holder or prospective purchaser of Series A Notes 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 the Company by such Initial Purchaser; provided, however, that the
foregoing indemnity agreement with respect to any Preliminary
<PAGE>
22
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 the Company 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 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 the Company and the Guarantor, and their respective
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 or the
Guarantor, to the same extent as the foregoing indemnity from the Company and
the Guarantor to the Initial Purchasers but only with reference to information
relating to an Initial Purchaser furnished in writing to the Company 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
<PAGE>
23
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 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 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 the Company and the Guarantor, on the one hand, and the
Initial Purchasers, on the other hand, from the offering of the Series A Notes
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 the Company and the Guarantor, 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 the Company and the Guarantor, 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 Notes (after
underwriting discounts and commissions, but before deducting expenses) received
by the Company, and the total discounts and commissions received by the Initial
Purchasers, bear to the total price to investors of the Series A Notes, in each
case as set forth in the table on the cover page of the Offering Memorandum.
The relative fault of the Company and the Guarantor, 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 the
<PAGE>
24
Company or the Guarantor, 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.
The Company and the Guarantor, 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 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 Notes 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 Notes under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and the
Guarantor 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 the Company or the Guarantor or any securities of the
Company or the Guarantor (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
<PAGE>
25
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 the
Company or the Guarantor or any securities of the Company or the Guarantor
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 Notes than that on which the Notes were marketed.
(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 the
Company 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 the Company or any of its
subsidiaries and (iii) neither the Company 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 Notes 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 the Company,
confirming the matters set forth in Sections 6(y), 9(a) and 9(b) and
stating that each of the Company and the Guarantor 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 the Company and the Guarantor, to the effect that:
(i) the statements under the captions "Description of the New
Credit Facility," "Description of Notes," "Description of Holding
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 the Company and the Guarantor,
the compliance by the Company and the Guarantor with all provisions
hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not
<PAGE>
26
(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 the Company 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
judgment, order or decree of any court or any governmental body or
agency having jurisdiction over the Company, any of its subsidiaries
or their respective property which has been identified to such counsel
by the Company on an officer's certificate, except for such matters
listed in clauses (A), (C) or (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 the Company 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) the Company is not and, after giving effect to the
offering and sale of the Series A Notes 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 the
Company and the Guarantor contained in paragraphs (dd) through (ff) of
Section 6, and the Initial Purchasers' representations and warranties
contained in Section 7 of this Agreement, and assuming compliance by
the Company with the covenants of the Company 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 Notes to the Initial Purchasers and the offering, resale and
delivery of the Series A Notes 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
<PAGE>
27
counsel's participation in conferences with officers and other representatives
of the Company and the Guarantor, representatives of the independent public
accountants for the Company and the Guarantor 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 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 the Company and the Guarantor).
The opinion of Riordan & McKinzie, a Professional Corporation, described in
Section 9(e) above shall be rendered to you at the request of the Company and
the Guarantor 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 the Company, 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 the Company and the Guarantor 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 the Company and the Guarantor, to the effect that:
(i) each of the Company and the Guarantor 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 the Company
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;
<PAGE>
28
(iii) all of the outstanding shares of capital stock of the
Guarantor have been duly authorized and validly issued and are fully
paid and non-assessable, and are owned by the Company, free and clear
of any Lien other than the pledge of the shares of the Guarantor to
secure the obligations of the Company under the New Credit Facility;
(iv) the Series A Notes have been duly authorized;
(v) the Subsidiary Guarantee has been duly authorized;
(vi) the Indenture has been duly authorized, executed and
delivered by the Company and the Guarantor;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company and the Guarantor;
(viii) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and the Guarantor;
(ix) the Series B Notes have been duly authorized; and
(x) the execution, delivery and performance of this Agreement
and the other Operative Documents by the Company and the Guarantor,
the compliance by the Company and the Guarantor 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 the Company or any of its
subsidiaries or any indenture, loan agreement, mortgage, lease or
other agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound which has been
identified to such counsel by the Company 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 the Company, any of its subsidiaries or their respective property
which has been identified to such counsel by the Company 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 the Company or any of its subsidiaries is a party
or by which the Company or any
<PAGE>
29
of its subsidiaries or their respective property is bound which has
been identified to such counsel by the Company 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 the Company and
the Guarantor 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 the Company and
the Guarantor, to the effect that:
(i) the Series A Notes, 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 the Company, 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 whether such enforcement is considered in a proceeding at
law or in equity);
(ii) when the Series A Notes are 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 Subsidiary Guarantee endorsed thereon will be
entitled to the benefits of the Indenture and will be valid and
binding obligations of the Guarantor, 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
whether such enforcement is considered in a proceeding at law or in
equity);
(iii) the Indenture is a valid and binding agreement of the
Company and the Guarantor, enforceable against the Company and the
Guarantor 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
<PAGE>
30
(regardless whether such enforcement is considered in a proceeding at
law or in equity);
(iv) the Registration Rights Agreement is a valid and binding
agreement of the Company and the Guarantor, enforceable against the
Company and the Guarantor 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 the Company and the Guarantor 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 Notes 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 the Company, the Guarantor and the Trustee.
(l) The Company and the Guarantor shall have executed the Registration
Rights Agreement and the Initial Purchasers shall have received an original
copy thereof, duly executed by the Company and the Guarantor.
(m) The Equity Investment shall have been consummated as described in
the Preliminary Offering Memorandum and the Offering Memorandum.
<PAGE>
31
(n) Each condition to closing contemplated by the purchase agreement
relating to the Senior Discount Debenture Offering by Holding (other than
the issuance and sale of the Series A Notes pursuant hereto) shall have
been satisfied or waived. On the Closing Date, the closing under the
purchase agreement relating to the Senior Discount Debenture Offering by
Holding 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 Notes 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 Notes
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.
(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.
<PAGE>
32
(s) The Company 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 the Company 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 the Company 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 Notes 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 the Company or the
Guarantor 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
the Company 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 Notes
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 Notes which it or they have agreed to
purchase hereunder on such date and the aggregate principal amount of the Series
A Notes 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 Notes 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 Notes set forth opposite its name in Schedule C bears to the aggregate
----------
principal amount of the Series A Notes 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 Notes which such
defaulting Initial Purchaser or Initial Purchasers, as the case may be, agreed
but failed or refused to purchase on such date; provided that in no event shall
the aggregate principal amount of the Series A Notes 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 Notes without the written consent of such Initial Purchaser. If on
the Closing Date any
<PAGE>
33
Initial Purchaser or Initial Purchasers shall fail or refuse to purchase the
Series A Notes and the aggregate principal amount of the Series A Notes with
respect to which such default occurs is more than one-tenth of the aggregate
principal amount of the Series A Notes to be purchased by all Initial Purchasers
and arrangements satisfactory to the Initial Purchasers and the Company for
purchase of such Series A Notes 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 the Company. In any such case which does not
result in termination of this Agreement, either you or the Company 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 the Company or the
Guarantor, to Advance Stores Company, Incorporated, 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 the Company, the Guarantor 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 Notes, 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, the Company, the Guarantor, the officers or directors of
the Company or the Guarantor, or any person controlling the Company or the
Guarantor, (ii) acceptance of the Series A Notes 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 the Company or the Guarantor 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), the
Company and the Guarantor, jointly and severally, agree 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, the Company 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 the Company, the Guarantor, the
Initial Purchasers, the Initial Purchasers' directors and officers, any
controlling persons referred to herein, the directors of the Company and the
Guarantor 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
<PAGE>
34
of this Agreement. The term "successors and assigns" shall not include a
purchaser of any of the Series A Notes from the Initial Purchasers merely
because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Guarantor and the Initial Purchasers.
Very truly yours,
ADVANCE STORES COMPANY,
INCORPORATED
By: /s/ J. O'Neil Leftwich
_________________________________________
Name: J. O'Neil Leftwich
Title: Senior Vice President and Chief
Financial Officer, Secretary and
Treasurer
LARALEV, INC.
By: /s/ Andrew T. Panaccione
_________________________________________
Name: Andrew T. Panaccione
Title: Secretary
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 2.1
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
AHC CORPORATION
and
ADVANCE HOLDING CORPORATION
with
FS Equity Partners III, L.P.,
FS Equity Partners IV, L.P. and
FS Equity Partners International, L.P.,
as guarantors.
________
DATED AS OF March 4, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS
1.1 Definitions......................................... 2
ARTICLE II
THE MERGER
2.1 The Merger......................................... 12
2.2 Effective Time..................................... 12
2.3 Effects of the Merger.............................. 12
2.4 Articles of Incorporation and By-Laws.............. 13
2.5 Directors.......................................... 13
2.6 Officers........................................... 13
2.7 Conversion of Shares............................... 13
2.8 Conversion of Investor Common Stock................ 17
2.9 Management Purchase of Common Stock................ 17
2.10 Shareholders' Approval............................. 18
2.11 Exchange of Shares; Payment........................ 18
2.12 Closing............................................ 21
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization and Qualification..................... 22
3.2 Capitalization of the Company; Validity
of Shares.......................................... 23
3.3 Authority Relative to this Agreement............... 24
3.4 Consents and Approvals............................. 25
3.5 Non-Contravention.................................. 26
3.6 Environmental Matters.............................. 27
3.7 Licenses and Permits............................... 29
3.8 Compliance with Laws............................... 29
3.9 Financial Statements............................... 30
3.10 Absence of Changes................................. 30
3.11 No Undisclosed Liabilities......................... 31
3.12 Litigation......................................... 32
3.13 Real Property...................................... 33
3.14 Personal Property.................................. 33
3.15 Leases............................................. 33
3.16 Sufficiency of Assets.............................. 34
3.17 Intellectual Property.............................. 35
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.18 Material Contracts.................................. 35
3.19 Insurance........................................... 38
3.20 Labor Matters....................................... 39
3.21 Employee Benefit Plans.............................. 40
3.22 Tax Matters......................................... 43
3.23 Insider Interests................................... 44
3.24 Finders............................................. 45
3.25 Suppliers........................................... 45
3.26 No Other Representations............................ 46
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTOR AND GUARANTOR
4.1 Organization; Qualification......................... 46
4.2 Authority Relative to this Agreement................ 47
4.3 Consents and Approvals.............................. 48
4.4 Non-Contravention................................... 48
4.5 Financing........................................... 49
4.6 Finders............................................. 50
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Conduct of Business................................. 50
5.2 Forbearances........................................ 51
5.3 Negotiations with Others............................ 56
5.4 Investigation of Business and Properties............ 57
5.5 Confidentiality..................................... 57
5.6 Books and Records................................... 57
5.7 Expenses............................................ 58
5.8 HSR Filings......................................... 59
5.9 Public Announcements................................ 59
5.10 Efforts to Consummate............................... 59
5.11 Indemnification of Officers and Directors........... 62
5.12 Employee Matters.................................... 64
5.13 Special Employee Bonus.............................. 65
5.14 Stockholders' Agreement............................. 65
5.15 Amendment and Termination of Affiliate Leases....... 66
5.16 Consulting and Employment Agreements................ 66
5.17 Option Agreement.................................... 66
5.18 Split of Company Shares............................. 67
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF INVESTOR
6.1 Representations and Warranties...................... 67
6.2 Performance of this Agreement....................... 68
</TABLE>
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6.3 Consents and Approvals.............................. 68
6.4 Injunction, Litigation, etc......................... 68
6.5 Legislation......................................... 69
6.6 Proceedings; Certificates........................... 69
6.7 Resignations........................................ 69
6.8 Financing........................................... 69
6.9 Management Purchase of Equity....................... 70
6.10 No Material Adverse Change.......................... 70
6.11 Opinion of Counsel.................................. 70
6.12 Solvency Opinion.................................... 71
6.13 Controlling Shareholder's Agreement................. 71
6.14 Stockholders' Agreement............................. 71
6.15 Election by Shareholders............................ 71
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
7.1 Representations and Warranties...................... 72
7.2 Performance of this Agreement....................... 73
7.3 Consents and Approvals.............................. 73
7.4 Injunction, Litigation, etc......................... 73
7.5 Legislation......................................... 73
7.6 Proceedings; Certificates........................... 74
7.7 Opinion of Counsel.................................. 74
7.8 Solvency Opinion.................................... 74
7.9 Stockholders' Agreement............................. 75
7.10 Employment Agreements............................... 75
7.11 Option Agreement.................................... 75
ARTICLE VIII
TERMINATION
8.1 Termination.......................................... 75
8.2 Procedure: Effect of Termination..................... 76
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices.............................................. 76
9.2 No Survival of Representations and Warranties........ 78
9.3 Interpretation....................................... 78
9.4 Entire Agreement..................................... 79
9.5 Successors and Assigns............................... 79
9.6 Severability......................................... 79
9.7 Amendment............................................ 80
9.8 Extension; Waiver.................................... 80
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9.9 Disclosure Schedules................................. 81
9.10 Counterparts......................................... 82
9.11 Governing Law........................................ 82
9.12 Guarantors........................................... 82
9.13 FS Funds............................................. 84
</TABLE>
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<PAGE>
SCHEDULES
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2.7 Electing Shares
3.1 Organization and Qualification
3.2 Capitalization
3.4 Consents and Approvals
3.5 Violations, Defaults
3.6 Environmental Matters
3.7 Licenses and Permits
3.8 Compliance with Laws
3.10 Absence of Changes
3.11 Undisclosed Liabilities
3.12 Litigation
3.13 Real Property
3.14 Personal Property
3.15 Leases
3.17 Intellectual Property
3.18 Material Contracts
3.19 Insurance
3.20 Labor Matters
3.21 Employee Benefits
3.22 Taxes
3.23 Insider Interests
4.3 Consents and Approvals
4.6 Finders Fees
5.2 Forbearances
6.3 Required Consents and Approvals
7.3 Required Consents and Approvals
9.3 Company's Executive Officers
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<PAGE>
EXHIBITS
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Exhibit A Form of Amended and Restated Articles of Incorporation of the Company
Exhibit B Form of Amended and Restated By-Laws of the Company
Exhibit C Commitment Letter From The Chase Manhattan Bank, DLJ Capital Funding,
Inc., First Union National Bank and Chase Securities, Inc.
Exhibit D Highly Confident Letter From Donaldson, Lufkin & Jenrette
Securities Corporation
Exhibit E Highly Confident Letter From Donaldson, Lufkin & Jenrette
Securities Corporation
Exhibit F Form of Stockholders' Agreement
Exhibit G Amendments to Affiliate Leases
Exhibit H Form of Consulting and Non-competition Agreement
with Nicholas F. Taubman
Exhibit I Terms of Employment Agreement with Garnett E. Smith
Exhibit J Form of Option
Exhibit K Form of Opinion of Counsel to the Company
Exhibit L Form of Opinion of Counsel to Investor
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of March 4,
1998, is made among AHC Corporation, a Virginia corporation ("Investor"),
Advance Holding Corporation, a Virginia corporation (the "Company"), FS Equity
Partners III, L.P., a Delaware limited partnership, FS Equity Partners IV, L.P.
a Delaware limited partnership (collectively, "FS Equity Partners"), and FS
Equity Partners International, L.P., a Delaware limited partnership
(collectively with FS Equity Partners, "Guarantor," and each individually, a
"Guarantor").
RECITALS
A. This Agreement provides for the merger (the "Merger") of Investor into
the Company, with the Company as the surviving corporation in such Merger, all
in accordance with the provisions of this Agreement. Capitalized terms used
herein have the meanings set forth in Section 1.1.
B. The respective Boards of Directors of Investor and the Company have
approved the Merger. The Company will submit immediately to its shareholders
the approval of the Merger and the approval and adoption of this Agreement.
C. It is intended that the Merger be recorded as a recapitalization for
financial reporting purposes.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the following
meanings:
"Action" means any complaint, prosecution, indictment, action, suit,
arbitration or proceeding by or before any Governmental Authority.
"Affiliate" of a Person means a Person who, directly or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, such Person.
"Affiliated Person" has the meaning set forth in Section 3.23.
"ASCI" means Advance Stores Company, Incorporated, a Virginia
corporation and a wholly owned subsidiary of the Company.
"Audited Financial Statements" has the meaning set forth in Section
3.9.
"Benefit Plans" has the meaning set forth in Section 3.21(a).
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<PAGE>
"Business" means the retail auto parts distribution business conducted
by the Company and its Subsidiaries taken as a whole.
"Certificate" means a Common Share Certificate or a Preferred Share
Certificate.
"Class A Common Shares" means the Class A Voting Common Stock, par
value $100 per share, of the Company.
"Class B Common Shares" means the Class B Non-Voting Common Stock, par
value $100 per share, of the Company.
"Closing" has the meaning set forth in Section 2.12.
"Closing Date" has the meaning set forth in Section 2.12.
"Common Share Cash Amount" has the meaning set forth in Section
2.7(b)(i).
"Common Share Certificate" has the meaning set forth in Section
2.11(b).
"Common Share Merger Consideration" has the meaning set forth in
Section 2.7(b)(i).
"Common Shares" means the Class A Common Shares and the Class B Common
Shares.
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<PAGE>
"Company" has the meaning set forth in the Recitals.
"Company Material Adverse Effect" has the meaning set forth in Section
3.1.
"Confidentiality Letter" has the meaning set forth in Section 5.5.
"Controlling Shareholder" means Nicholas F. Taubman.
"Effective Time" has the meaning set forth in Section 2.2.
"Electing Shares" has the meaning set forth in Section 2.7(d).
"Environmental Law" means any statute, law, common law, rule,
regulation, by-law, ordinance, directive or legally binding policy or guideline
of any Governmental Authority dealing with or relating to Hazardous Emissions,
Handling Hazardous Substances, the pollution or protection of natural resources
or the indoor or ambient environment or the protection of public health and
safety or worker health and safety as they may be affected by the environment.
"Environmental Permits" means any permits, licenses and other
authorizations and approvals issued by any Governmental Authority which relate
to any Environmental Law.
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<PAGE>
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.
"Financing" has the meaning set forth in Section 5.10(c).
"Financing Agreements" has the meaning set forth in Section 5.10(c).
"Financing Documentation" has the meaning set forth in Section 4.5.
"Governmental Authority" means any federal, state or local government,
court or tribunal, regulatory or administrative agency, department, bureau,
authority or commission.
"Guarantor" has the meaning set forth in the Recitals.
"Handling Hazardous Substances" has the meaning set forth in Section 3.6.
"Hazardous Emissions" has the meaning set forth in Section 3.6.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
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<PAGE>
"Income Tax" or "Income Taxes" means (a) federal, state, local or foreign
income or capital gains taxes or other taxes measured by reference to income or
capital gains, together with any interest, penalties, charges or fees imposed
with respect thereto, and (b) any obligations under any agreement or
arrangements with respect to Income Taxes described in clause (a) above.
"Income Tax Returns" means federal, state or local Income Tax returns
required to be filed with any Taxing Authority that include the Company or its
Subsidiaries.
"Intellectual Property" means trade names, trademarks and service marks,
patents, patent rights, copyrights, whether domestic or foreign (as well as
applications, registrations or certificates for any of the foregoing),
inventions, trade secrets, proprietary processes, software and other industrial
and intellectual property rights.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
"Investor" has the meaning set forth in the Recitals.
"Investor Common Stock" has the meaning set forth in Section 2.8.
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<PAGE>
"Leases" has the meaning set forth in Section 3.15.
"Licenses and Permits" as used herein means all registrations,
applications, filings, certifications, notices, orders, licenses, permits,
approvals, consents, qualifications, authorizations and waivers of any
Governmental Authority, but does not include Environmental Permits.
"Liens" means all mortgages, liens, security interests, easements,
restrictive covenants, rights-of-way, leases, purchase agreements, options and
other encumbrances.
"Material Contracts" has the meaning set forth in Section 3.18.
"Merger" has the meaning set forth in the Recitals.
"1964 Trust" means the Arthur Taubman Trust dated July 13, 1964.
"Other Taxes" means all Taxes which are not Income Taxes.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plans" has the meaning set forth in Section
3.21(a).
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<PAGE>
"Permitted Encumbrances" means (i) liens for current state and local
property taxes or assessments not yet due or delinquent or which are being
contested in good faith; (ii) mechanics', carriers', workers', repairers' and
other similar liens arising or incurred in the ordinary course of business
relating to obligations as to which there is no default on the part of the
Company or its Subsidiaries; (iii) exceptions shown on the surveys furnished by
the Company to Investor on or before the date hereof and which do not materially
affect the use or occupancy of Real Property; (iv) mortgages on the landlord's
interest in property leased to the Company or the Subsidiaries; (v) liens and
encumbrances reflected in the balance sheet in the Audited Financial Statements;
(vi) liens or encumbrances incurred or created since December 31, 1996 in the
ordinary course of business; and (vii) such other liens, imperfections in title,
charges, easements, restrictions, rights of way, land use ordinances, zoning
plans and encumbrances which do not materially interfere with the current use or
occupancy of such Real Property.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a governmental or
political subdivision or an agency or instrumentality thereof.
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<PAGE>
"Planned Financing" has the meaning set forth in Section 4.5.
"Preferred Share Certificate" has the meaning set forth in Section 2.11(b).
"Preferred Share Merger Consideration" means the par value of one Preferred
Share together with all cumulated, accrued and unpaid dividends thereon.
"Preferred Shares" means the Preferred Stock, par value $10 per share, of
the Company.
"Proceeding" has the meaning set forth in Section 5.11.
"Real Property" means all real property owned in fee, including the
buildings, structures and other improvements located thereon.
"Returns" means returns, reports and forms required to be filed with any
U.S., state or local Taxing Authority.
"Rollover Share" has the meaning set forth in Section 2.7(b)(i).
"Shareholders" means the holders of outstanding Common Shares and
outstanding Preferred Shares.
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<PAGE>
"Single Share Holders" has the meaning set forth in Section 2.7(d).
"Solvency Opinion" has the meaning set forth in Section 6.12.
"Subsidiary" with respect to any of the parties to this Agreement means any
corporation or other business entity, whether or not incorporated, of which at
least 50% of the securities or interests having, by their terms, ordinary voting
power to elect members of the board of directors, or other persons performing
similar functions with respect to such entity, is held, directly or indirectly,
by such party.
"Surviving Corporation" has the meaning set forth in Section 2.1.
"Surviving Corporation Common Stock" means the Class A common stock, par
value $.01 per share, of the Surviving Corporation.
"Tax Law" means the Internal Revenue Code, federal, state or local laws
relating to Taxes and any regulations or official administrative pronouncements
released thereunder.
"Taxes" means (a) all federal, state, local and foreign taxes or
assessments, including Income Taxes and those
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<PAGE>
relating to gross receipts, gross income, capital stock, franchise, profits,
employees and payroll withholding, foreign withholding, social security,
unemployment, disability, real property, personal property, intangibles, stamp,
excise, sales, use, transfer, occupation, value added, ad valorem, customs,
premium, windfall profits, alternative minimum or estimated taxes, together with
any interest, penalties or additions to tax or additional amounts with respect
to the foregoing, whether disputed or not and (b) any obligations under any
agreements or arrangements with respect to any Taxes described in clause (a)
hereof.
"Taxing Authority" means any governmental authority including social
security administration, domestic or foreign, having jurisdiction over the
assessment, determination, collection, or other imposition of Tax.
"Voting Trust Agreement" means that certain Voting Trust Agreement dated
January 30, 1997 among Douglas W. Densmore, as Voting Trustee, and the
Shareholders named therein, as the same may be amended from time to time.
"Voting Trustee" means Douglas W. Densmore, as Voting Trustee under the
Voting Trust Agreement.
"VSCA" means the Virginia Stock Corporation Act.
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<PAGE>
"Welfare Plans" has the meaning set forth in Section 3.21(a).
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the satisfaction or waiver,
if permissible, of the conditions hereof, and in accordance with the VSCA, at
the Effective Time, Investor shall be merged with and into the Company.
Following the Merger, the separate corporate existence of Investor shall cease
and the Company, under the name "Advance Holding Corporation," shall continue as
the surviving corporation (the "Surviving Corporation") and shall be governed by
the laws of the Commonwealth of Virginia.
2.2 Effective Time. As soon as practicable after the satisfaction or
waiver, if permissible, of all the conditions to the Merger, the parties shall
cause the Merger to be consummated by causing articles of merger with respect to
the Merger to be executed and filed in accordance with the relevant provisions
of the VSCA. The Merger shall become effective at the time of the issuance by
the State Corporation Commission of Virginia of a certificate of merger in
accordance with the relevant provisions of the VSCA (the "Effective Time").
2.3 Effects of the Merger. The Merger shall have the effects set forth in
Section 721 of the VSCA.
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<PAGE>
2.4 Articles of Incorporation and By-Laws. The Articles of Incorporation
of the Company, amended and restated in the form attached hereto as Exhibit A,
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter changed or amended as provided therein or by the VSCA.
The By-Laws of Investor, amended and restated in the form attached hereto
as Exhibit B, shall be the By-laws of the Surviving Corporation until thereafter
changed or amended as provided therein or by the VSCA.
2.5 Directors. The directors of Investor immediately prior to the
Effective Time and Nicholas F. Taubman shall be the initial directors of the
Surviving Corporation and shall hold office until their respective successors
are duly elected and qualified, or their earlier death, resignation or removal.
2.6 Officers. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and
shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
2.7 Conversion of Shares.
(a) Each Preferred Share outstanding immediately prior to the
Effective Time (other than Preferred Shares, if
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<PAGE>
any, owned by Investor, the Company or any Subsidiary of the Company or
Investor) shall, by virtue of the Merger and without any action on the part of
the holder thereof, automatically be converted into the right to receive the
Preferred Share Merger Consideration.
(b) (i) Except as otherwise provided herein and subject to Sections
2.7(c) and 2.11(d):
(x) each Electing Share issued and outstanding immediately prior
to the Effective Time as set forth opposite the name of the electing
shareholders on Schedule 2.7 hereto, which also sets forth the number of
Electing Shares (all of which shall be Class A Common Shares), shall remain
outstanding as one fully paid and nonassessable share of Surviving
Corporation Common Stock (a "Rollover Share") which shall remain unaffected
by the Merger, except as expressly provided herein; and
(y) each Common Share issued and outstanding immediately prior to
the Effective Time (other than Electing Shares) ("Nonelecting Shares")
shall be automatically converted into the right to receive in cash the
amount determined by subtracting from $351,000,000 the aggregate amount
payable on the Closing Date for all Preferred Shares (including cumulated,
accrued and unpaid dividends) pursuant to Section 2.7(a) and dividing this
sum by
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<PAGE>
22,537,500 (the "Common Share Cash Amount") from the Surviving
Corporation.
As used herein, "Common Share Merger Consideration" means, in the case of each
Common Share issued and outstanding immediately prior to the Effective Time
(other than Common Shares referred to in Section 2.7(c)), the consideration
described with respect to such share in clause (x) or (y) above, as applicable.
(ii) As of the Effective Time, all Nonelecting Shares (other
than Common Shares referred to in Section 2.7(c)) issued and outstanding
immediately prior to the Effective Time shall no longer be outstanding and
shall be automatically canceled and retired and shall cease to exist, and
each holder of a Common Share Certificate shall, to the extent such Common
Share Certificate immediately prior to the Effective Time represented such
Nonelecting Shares, cease to have any rights with respect thereto, except
the right to receive cash (without interest) in accordance with Sections
2.7(b)(i)(y) and 2.11.
(iii) The Rollover Shares and the Surviving Corporation Common
Stock into which shares of Investor Common Stock are converted pursuant to
Section 2.8 will constitute shares of Class A Common Stock of the Company.
Accordingly, after the Effective Time, the holder of each
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Rollover Share and the holder of each share of Surviving Corporation Common
Stock into which shares of Investor Common Stock are converted pursuant to
Section 2.8 shall be entitled to the same relative rights and privileges
under the VSCA and the Articles of Incorporation and By-laws of the
Surviving Corporation.
(c) Each Common Share and each Preferred Share owned by Investor,
the Company or any Subsidiary of the Company or Investor immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holder thereof, automatically be cancelled and cease to exist at and
after the Effective Time and no consideration shall be paid with respect
thereto.
(d) Each holder of Common Shares has the right to make an unconditional
election to retain whole Common Shares as Rollover Shares, on the basis
hereinafter set forth; provided that the number of Common Shares so elected to
remain outstanding as Rollover Shares ("Electing Shares") shall be 1,750,000 in
the aggregate as set forth on Schedule 2.7 hereto. The Controlling Shareholder
is executing simultaneously herewith an agreement which provides for such
Controlling Shareholder's irrevocable election to retain 1,000,000 Common Shares
as Rollover Shares and the 1964 Trust is executing simultaneously herewith an
agreement which provides for such 1964 Trust's irrevocable
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<PAGE>
election to retain 750,000 Common Shares as Rollover Shares. Each of the two
holders of Common Shares other than the Controlling Shareholder and the 1964
Trust, each of whom owns 12,500 Common Shares (the "Single Share Holders"), will
have elected prior to the Effective Time, and in any event no later than March
31, 1998, to receive cash for such Single Share Holder's Common Shares. All
Nonelecting Shares shall be converted, as of the Effective Time, into the right
to receive the Common Share Merger Consideration described in Section
2.7(b)(i)(y).
2.8 Conversion of Investor Common Stock. The shares of common stock, par
value $.01 per share, of Investor ("Investor Common Stock") issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, automatically
be converted into and thereafter represent 10,250,000 validly issued, fully paid
and nonassessable shares of Surviving Corporation Common Stock so that
immediately following the purchase by Management contemplated by Section 2.9 the
shareholders of Investor will be the owners of 10,250,000 shares (representing
82%) of Surviving Corporation Common Stock outstanding at such time.
2.9 Management Purchase of Common Stock. Certain members of management
will purchase immediately following consummation
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<PAGE>
of the Merger 500,000 shares of Surviving Corporation Common Stock at a price of
$10 per share, such shares to be validly issued, fully paid and non-assessable,
so that upon such purchase such members of management will be the owners of 4%
of Surviving Corporation Common Stock outstanding at such time.
2.10 Shareholders' Approval. The Company, acting through its Board of
Directors (which shall have recommended approval of the Merger and approval and
adoption of this Agreement to its shareholders), shall, in accordance with
applicable law, use its reasonable best efforts to obtain, immediately following
the signing of this Agreement and in any event no later than March 31, 1998, (a)
the approval of the Merger and the approval and adoption of this Agreement by
its shareholders and (b) the elections of the Shareholders contemplated by
Section 2.7(d), in each case other than Mr. Taubman and the 1964 Trust, each of
which is executing simultaneously herewith an agreement which provides for such
approval, adoption and election.
2.11 Exchange of Shares; Payment.
(a) At the Effective Time, Investor will pay the aggregate Common Share
Merger Consideration payable pursuant to Section 2.7(b)(i)(y) and the aggregate
Preferred Share Merger Consideration, in immediately available funds to the
holders of the Preferred Shares and the Nonelecting Shares, in the manner set
forth below.
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<PAGE>
(b) Each holder of Preferred Shares will surrender to the Company at the
Effective Time a certificate or certificates which immediately prior to the
Effective Time represented all Preferred Shares (each, a "Preferred Share
Certificate") held by such Shareholder, together with a duly executed stock
power, and such Shareholder shall be entitled to receive in exchange therefor an
amount, in immediately available funds, equal to the product of the number of
Preferred Shares represented by such Preferred Share Certificate or Certificates
multiplied by the Preferred Share Merger Consideration. Each holder of Common
Shares will surrender to the Company at the Effective Time a certificate or
certificates which immediately prior to the Effective Time represented all of
the Common Shares held by such Shareholder (each, a "Common Share Certificate"),
together with a duly executed stock power, and such Shareholder shall be
entitled to receive in exchange therefor (i) in the case of each Shareholder
other than holders of Electing Shares, an amount, in immediately available
funds, equal to the product of the number of Common Shares represented by such
Common Share Certificate multiplied by the Common Share Cash Amount, and (ii) in
the case of holders of Electing Shares, a certificate or certificates
representing the Rollover Shares and an amount, in immediately available funds,
equal to the product of the number of Nonelecting Shares represented by such
Common Share Certificate multiplied by the Common Share
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<PAGE>
Cash Amount. No interest will be paid or accrued on any amount payable upon the
surrender of a Certificate. If payment is to be made to a Person other than the
Person in whose name a Certificate surrendered is registered, it shall be a
condition of payment that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the Person requesting
such payment shall pay transfer or other taxes required by reason of the payment
to a Person other than the registered holder of the Certificate surrendered, or
establish to the satisfaction of the Company that such tax has been paid or is
not applicable, or provide assurances satisfactory to the Company that any such
tax will be paid by such Person.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of Preferred Shares or Common Shares
(other than Rollover Shares and shares issued pursuant to Section 2.8 and
Section 2.9). If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be cancelled and exchanged for the Common
Share Merger Consideration or the Preferred Share Merger Consideration, as the
case may be, as provided in this Agreement.
(d) Notwithstanding anything to the contrary set forth herein, at the
election of any Shareholder, the payment of the Common Share Merger
Consideration payable pursuant to
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Section 2.7(b)(i)(y) and/or the Preferred Share Merger Consideration, as the
case may be, due to such Shareholder, will be made by wire transfer to a bank
account designated by such Shareholder at least two business days prior to the
Closing Date.
2.12 Closing. On the date on which the last of the unsatisfied conditions
set forth in Sections 6.3, 6.8 or 7.3 hereof is satisfied or waived (or such
other time as the parties may mutually agree), a closing (the "Closing") will be
held at the offices of Wachtell, Lipton, Rosen & Katz (or such other place as
the parties may agree) for the purpose of confirming all of the foregoing,
provided, that nothing herein shall be deemed to affect (i) the conditions to
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the respective parties' obligations hereunder contained in Articles VI and VII
hereof or (ii) Article VIII hereof. The date and time at which such Closing
actually occurs are herein referred to as the "Closing Date." As soon as
practicable after the satisfaction or, if permissible, waiver of the conditions
set forth in Articles VI and VII hereof, the Company and Investor shall execute
in the manner required by the VSCA and deliver to the Clerk of the State
Corporation Commission of Virginia duly executed articles of merger and the
parties shall take such other and further actions as may be required by law to
make the Merger effective.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor and Guarantor that, except
as set forth in the Disclosure Schedule:
3.1 Organization and Qualification.
(a) The Company and each of its Subsidiaries is a corporation or
other entity (as listed in Schedule 3.1) duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization, and has corporate power and authority to own all of its properties
and assets and to carry on its business as now being conducted. The Company and
each of its Subsidiaries is duly qualified and in good standing to transact
business in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be in good standing or to be duly
qualified would not, individually or in the aggregate, have a material adverse
effect on the business, assets, liabilities, financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole (collectively,
a "Company Material Adverse Effect"). Each jurisdiction in which the Company and
each of its Subsidiaries is qualified to do business is set forth in Schedule
3.1. The Company has heretofore delivered or made available to Investor complete
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and correct copies of the Articles of Incorporation and By-laws or equivalent
organizational documents of the Company and each of its Subsidiaries, as
currently in effect.
(b) A complete list of the directors and officers of the Company and
its Subsidiaries is set forth in Schedule 3.1.
3.2 Capitalization of the Company; Validity of Shares.
(a) The authorized capital stock of the Company and the total amount
of such stock which is outstanding and the record and beneficial ownership
thereof by the Shareholders are as set forth in Schedule 3.2 and there are no
Liens, options, agreements, commitments or claims with respect to the record
ownership or beneficial ownership of the capital stock of the Company which will
give rise to claims against the Surviving Corporation. All of the outstanding
Common Shares and Preferred Shares have been duly authorized, are validly
issued, fully paid and nonassessable, were not issued in violation of any
preemptive rights, and are owned beneficially and of record by the Shareholders,
free and clear of any Liens (other than the Voting Trust Agreement and Liens
that will terminate at or before Closing and which are listed on Schedule 3.2).
(b) All of the outstanding shares of capital stock or other equity
interests of the Company's Subsidiaries, as set forth in Schedule 3.2, are duly
authorized, validly issued,
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fully paid and nonassessable, were not issued in violation of any preemptive
rights, and, except as set forth in Schedule 3.2, are owned by the Company or
its Subsidiaries in the amounts set forth in Schedule 3.2, free and clear of any
Liens.
(c) Except as set forth in Schedule 3.2 or as contemplated by this
Agreement, none of the Company or its Subsidiaries has any commitment to issue
or sell any shares of its capital stock or any securities or obligations
convertible into or exchangeable for, or giving any Person any right to acquire
from the Company or its Subsidiaries, any shares of its capital stock and no
such securities or obligations are outstanding.
(d) Except as set forth in Schedule 3.2, none of the Company or the
Subsidiaries directly or indirectly owns any capital stock of or other equity
interest in any corporation, partnership or other entity or other Person.
3.3 Authority Relative to this Agreement. The Company has corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. Pursuant to the Voting Trust Agreement, the
Voting Trustee is duly authorized, and has all the necessary power and
authority, to vote the Common Shares and Preferred Shares in favor of the Merger
and such vote when given is binding on all of the Shareholders. The execution
and delivery of this Agreement by the Company, and the consummation by it of the
transactions
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contemplated hereby, have been duly authorized by the Board of Directors of the
Company and, except for obtaining the requisite approval of the shareholders of
the Company (which shall occur immediately following the signing of this
Agreement), no other corporate proceedings on the part of the Company are
necessary with respect thereto. This Agreement has been duly executed and
delivered by the Company and, assuming that Investor and Guarantor have duly
authorized, executed and delivered this Agreement, this Agreement constitutes a
valid and binding obligation of the Company, enforceable in accordance with its
terms except as such enforceability may be limited by (1) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally or (2) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
3.4 Consents and Approvals. Except as set forth in Schedule 3.4 and
except as may be required under the HSR Act, there is no requirement applicable
to the Company or its Subsidiaries to make any filing with, or to obtain any
permit authorization, consent or approval of any Governmental Authority as a
condition to the lawful consummation of the transactions contemplated by this
Agreement. Except as set forth in Schedule 3.4, there is no requirement that
any party to any contract, Lease
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or loan agreement to which the Company or any of its Subsidiaries is a party or
by which any of them is bound, consent to the execution of this Agreement by the
Company or consummation of the transactions contemplated hereby, except for such
consents, the failure to obtain, individually or in the aggregate, would not
have a Company Material Adverse Effect.
3.5 Non-Contravention. The execution and delivery by the Company of this
Agreement does not, and the consummation of the transactions contemplated hereby
will not (i) violate or result in a breach of any provision of the Articles of
Incorporation, By-laws or similar organizational documents of the Company or any
Subsidiary of the Company, (ii) except as described in Schedule 3.5, result in a
default (or give rise to any right of termination, cancellation or acceleration)
under the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, agreement, lease or other instrument or obligation to which
the Company or its Subsidiaries is a party or by which the Company or its
Subsidiaries are bound, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company excluding from the
foregoing clauses (ii) and (iii) such requirements, defaults, breaches, rights
or violations (A) that would not singularly, or in the aggregate, have a Company
Material Adverse Effect and would not have a material adverse effect on the
ability of the Company to perform its obligations hereunder or (B) that become
applicable
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as a result of (1) the business or activities in which Investor or any of its
Affiliates is or proposes to be engaged, or (2) any acts or omissions by, or
facts pertaining to, Investor.
3.6 Environmental Matters.
(a) Except as set forth in Schedule 3.6, the Company and its
Subsidiaries have obtained all Environmental Permits required for the conduct of
the Business as it is presently being conducted, including those relating to (i)
emissions, discharges, threatened discharges, releases, threatened releases or
disposal of pollutants, contaminants, hazardous or toxic substances or petroleum
into the air, surface water, ground water or the ocean, or on or into the land
("Hazardous Emissions") and (ii) the manufacture, processing, distribution,
release, use, treatment, storage, disposal, transport or handling of pollutants,
contaminants, hazardous or toxic substances, or petroleum ("Handling Hazardous
Substances"), except for such Environmental Permits which would not reasonably
be expected to have a Company Material Adverse Effect. Schedule 3.6 contains a
complete and correct list of all such Environmental Permits. The Company and its
Subsidiaries are in compliance with the terms and conditions set forth in the
Environmental Permits, except such failures to comply that would not reasonably
be expected to have a Company Material Adverse Effect. Except (x) as set forth
in Schedule 3.6 or (y) as
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would not reasonably be expected to have a Company Material Adverse Effect, the
Company, the Subsidiaries and their respective properties are in compliance with
all Environmental Laws. Neither the Company nor its Subsidiaries' past or
current operations, nor their past or current ownership, operation or use of any
real property (x) interfere with or prevent continued compliance with any of the
Environmental Permits or any Environmental Laws, except for such interference or
prevention that would not reasonably be expected to have a Company Material
Adverse Effect, (y) give rise to any liability (whether based in contract, tort,
implied or express warranty, criminal or civil statute or otherwise) under any
Environmental Law, which liability would reasonably be expected, individually or
in the aggregate, to have a Company Material Adverse Effect, or (z) obligate the
Company or any of its Subsidiaries to clean up, remedy or otherwise restore, by
itself or jointly with others, any Hazardous Emissions which obligation would
reasonably be expected to have a Company Material Adverse Effect.
(b) Except as set forth in Schedule 3.6, there are no Actions pending, or
to the knowledge of the Company, threatened, and, to the knowledge of the
Company, neither the Company nor any of its Subsidiaries has received any notice
and there are no investigations pending or threatened, alleging, warning or
notifying the Company that the Company is, has been or may be in violation of or
non-compliance with any Environmental Law
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which would reasonably be expected to have a Company Material Adverse Effect.
(c) The Company has delivered to Investor, true, correct and complete
copies of all environmental audits, assessments, and studies relating to the
business and the properties of the Company and its Subsidiaries which are in the
Company's possession. None of the matters set forth on Schedule 3.6 would
reasonably be expected, individually or in the aggregate, to have a Company
Material Adverse Effect.
3.7 Licenses and Permits. Except as set forth in Schedule 3.7, the
Company and its Subsidiaries have obtained, and are in substantial compliance
with, all of the Licenses and Permits necessary to conduct the Business as it is
presently being conducted, except for such Licenses and Permits the absence of
which, or failure to comply with, either individually or in the aggregate do
not, and so far as could reasonably be foreseen, would not, individually or in
the aggregate, have a Company Material Adverse Effect. Schedule 3.7 contains a
complete and correct list of all material Licenses and Permits issued or granted
to the Company or its Subsidiaries in connection with the operation of the
Business.
3.8 Compliance with Laws. Except as set forth in Schedule 3.8, and in
addition to the representations and warranties contained in Section 3.6 relating
to environmental matters and
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those contained in Section 3.7 relating to Licenses and Permits, the Company and
its Subsidiaries are being, and since December 27, 1994 have been, operated in
compliance with all laws, regulations, orders, judgments or decrees of any
Governmental Authority applicable to the Company or the Business, except such
failures to comply which, individually or in the aggregate, would not reasonably
be expected to have a Company Material Adverse Effect.
3.9 Financial Statements. Investor has previously been furnished true and
complete copies of the audited consolidated financial statements, including the
notes thereto, of the Company for the three years ended January 3, 1998
(collectively, the "Audited Financial Statements") together with the reports on
such statements of the Company's independent certified public accountants. The
Audited Financial Statements present fairly in all material respects the
consolidated financial position of the Company as of such dates and the results
of operations and cash flows for such periods and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis.
3.10 Absence of Changes. Except (a) as contemplated by this Agreement or
(b) as set forth in Schedule 3.10, since January 3, 1998 (or such other date
provided below):
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(i) the Business has been operated in all material respects in the
ordinary and usual course consistent with past practices;
(ii) there has not been any damage, destruction, loss or abandonment
(whether or not covered by insurance) which, individually or in the aggregate
has resulted or would reasonably be expected to result in a Company Material
Adverse Effect;
(iii) the Company has not through the date hereof taken any action,
which if taken as of the date hereof to and through the Closing, would violate
any of clauses (i)-(xix) of Section 5.2 (and there have not been any changes
required by generally accepted accounting principles referred to in clause (xix)
of Section 5.2);
(iv) since January 1, 1997, there have been no amendments to any
Lease between the Company or its subsidiaries and an Affiliated Person; and
(v) the Company has not entered into any agreement to do any of the
things described in the preceding clauses of this Section 3.10.
3.11 No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any material liabilities, whether known or unknown, absolute,
accrued, contingent or otherwise,
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except (i) as and to the extent set forth in the balance sheets included in the
Audited Financial Statements or in the notes thereto, (ii) liabilities incurred
after January 3, 1998 (x) in the ordinary course of business consistent with
past practice and not prohibited by this Agreement or (y) which would not have a
Company Material Adverse Effect and (iii) as set forth in Schedule 3.11.
3.12 Litigation. Except as set forth in Schedule 3.12, there are no
Actions pending or, to the knowledge of the Company, threatened, and, to the
knowledge of the Company, there are no investigations pending or threatened,
against the Company or its Subsidiaries or any of their respective properties,
which (i) individually or in the aggregate have or would reasonably be expected
to have a Company Material Adverse Effect or (ii) would reasonably be expected
to prevent, restrict or delay consummation of the transactions contemplated
hereby or fulfillment of any of the conditions of this Agreement. Except as set
forth on Schedule 3.12, there are no judgments, decrees or orders of any court,
arbitrator, governmental department, commission, agency or instrumentality
outstanding against the Company or its Subsidiaries which individually or in the
aggregate have or would reasonably be expected to have a Company Material
Adverse Effect.
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3.13 Real Property. Schedule 3.13 contains a complete and correct list of
all of the Real Property which is owned by the Company or its Subsidiaries.
Except as set forth in the title policies and surveys listed in Schedule 3.13
and except for Permitted Encumbrances, the Company and its Subsidiaries have
good and insurable title in fee simple to all of the Real Property listed in
Schedule 3.13 free and clear of any Liens.
3.14 Personal Property. Except as set forth in Schedule 3.14, the Company
or its Subsidiaries has good and valid title to all of the material personal
property, tangible and intangible, which it owns and which is reflected in the
consolidated balance sheet of the Company at January 3, 1998 or acquired since
such date (except as may be disposed of in the ordinary course of business after
such date), in each case free of liens, security interests or other
encumbrances, except liens, security interests and other encumbrances which
would not, individually or in the aggregate, have a Company Material Adverse
Effect.
3.15 Leases. Schedule 3.15 sets forth a complete list of each agreement
to lease to which the Company or any of its Subsidiaries is a party, whether as
lessor or lessee, which relates to either real or personal property, other than
monthly leases of personal property which (i) may be canceled without material
penalty upon not more than 30 days' notice or (ii)
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require the payment of not more than $5,000 per month. The agreements listed in
Schedule 3.15 are referred to herein as "Leases." Except as set forth in
Schedule 3.15, (i) none of the Company, its Subsidiaries or, to the knowledge of
the Company, any other party is in default under any material provision of the
Leases, (ii) as of the date hereof, no notice has been received by the Company
or any of its Subsidiaries from, or to the knowledge of the Company threatened
by, any landlord under any Lease that the Company or any of its Subsidiaries is
in default thereunder and (iii) the Company or its Subsidiaries has good
leasehold title to its real properties held under the Leases. The leasehold
estate created by the Leases and the Leases themselves are free and clear from
all Liens other than Permitted Encumbrances and Liens that individually or in
aggregate would not have a Company Material Adverse Effect.
3.16 Sufficiency of Assets. The Real Property listed on Schedule 3.13 or
leased pursuant to the Leases listed on Schedule 3.15 and the personal,
intellectual or other property that will be owned, leased or licensed by the
Company and its Subsidiaries on the Closing Date constitute all of the
properties and assets necessary for, or material to, the Business as currently
conducted.
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3.17 Intellectual Property. Schedule 3.17 sets forth a complete and
correct list of all Intellectual Property registrations (or applications
therefor) used or held for use in the conduct of, or otherwise material to, the
Business. Except as set forth in Schedule 3.17, the Company or its Subsidiaries
owns or is licensed or otherwise has the full and exclusive right to use, as
such are currently being used in the conduct of the Business, free and clear of
conditions, adverse claims or other restrictions or any requirement of any past,
present or future royalty payments, all such Intellectual Property. There is as
of the date hereof no Action pending or, to the knowledge of the Company,
threatened, against the Company or any of its Subsidiaries asserting that the
Company or its Subsidiaries' use of any Intellectual Property infringes the
rights of any third party or otherwise contesting its rights with respect to any
Intellectual Property, and, to the knowledge of the Company, there are no
grounds for any such assertion and no third party is infringing upon the rights
of the Company or its Subsidiaries in the Intellectual Property. All material
licenses granted by the Company or its Subsidiaries for use of Intellectual
Property by others are shown on Schedule 3.17.
3.18 Material Contracts. Schedule 3.18 sets forth, as of the date hereof,
a complete and correct list of each contract,
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agreement or commitment of the Company or its Subsidiaries, other than Leases:
(i) which is a material supply, exclusive dealing, requirements or
take-or-pay agreement;
(ii) which provides for aggregate future payments by the Company or
its Subsidiaries of more than $2,000,000, except (x) as set forth in the
capital expenditure budget provided to Investor and (y) for purchase orders
for the purchase of inventory or sales orders arising in the ordinary and
usual course of business, in which case they are listed only if any party
thereto is obligated to make payments pursuant thereto aggregating more
than $25,000,000;
(iii) which extends more than one year from the date hereof and is
not cancelable by either party on 30 days' notice;
(iv) which provides for the sale or lease after the date hereof of
any of the assets of the Company or its Subsidiaries other than in the
ordinary course of business;
(v) which relates to the employment, retirement or termination of
the services of any officer or employee
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or former officer or employee of the Company or its Subsidiaries;
(vi) which establishes a partnership, agency, joint venture or
other similar contract, arrangement or agreement;
(vii) which relates to indebtedness for borrowed money or the
deferred purchase price of property (whether incurred, assumed, guaranteed
or secured by any asset and including letters of credit and sale-leaseback
arrangements);
(viii) which creates or relates to a license of Intellectual
Property, royalty or franchise agreement or agreement in respect of similar
rights granted to or from or held by the Company or its Subsidiaries;
(ix) which provides for future payments that are conditioned, in
whole or in part, on a change in control of the Company or its
Subsidiaries;
(x) which restricts the right of the Company or its Subsidiaries
to compete in any way with any other Person or which contains covenants
pursuant to which any person has agreed not to compete, or otherwise
restricts a person's ability to engage freely, in any part of the Business;
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(xi) under which the Company has, within the three years preceding
the date of this Agreement, acquired any distribution center or made any
acquisitions of multiple stores previously used by other automotive parts
retailers in a single or related series of transactions, other than those
as to which all material obligations of the parties thereunder for the
benefit of the Company or its Subsidiaries have been discharged; or
(xii) any other contract not covered by items (i) through (x) above
that the Company believes is material to the Business.
Each of the foregoing is referred to in this Agreement as a "Material Contract."
Except as set forth in Schedule 3.18, to the knowledge of the Company, neither
the Company nor its Subsidiaries is in default under any Material Contract,
except for such defaults which, individually or in the aggregate, would not have
a Company Material Adverse Effect.
3.19 Insurance. The Company and its Subsidiaries maintain, in coverages
and amounts believed by the Company to be customary in the industry, property
and casualty insurance with respect to the Business. Schedule 3.19 sets forth a
true and complete list, as of the date hereof, showing the insurance company,
insured and other parties, type and amount of coverage
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and deductibles, of all insurance policies to which the Company or any of its
Subsidiaries is a party covering the Company or its Subsidiaries and their owned
or leased properties or employees. To the Company's knowledge, such insurance
policies are in full force and effect. Neither the Company nor its Subsidiaries
has received, any written notice of cancellation or non-renewal of any such
insurance policy which would reasonably be expected to have a Company Material
Adverse Effect.
3.20 Labor Matters.
(a) Except as set forth on Schedule 3.20, there are no labor unions
or other organizations representing, purporting to represent or attempting to
represent any employees of the Company or its Subsidiaries, and there has been
no such attempt since January 1, 1994 which in any such case would reasonably be
expected to have a Company Material Adverse Effect.
(b) There are no controversies pending or, to the knowledge of the
Company, threatened between the Company or its Subsidiaries and any of their
respective employees which has, or would reasonably be expected to have, a
Company Material Adverse Effect or which relates to any specific effort to
prevent, restrict or delay consummation of the transactions contemplated by this
Agreement. Except as set forth in Schedule 3.20, since January 1, 1994, there
has not occurred or, to the
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knowledge of the Company, been threatened, any strike, slowdown, picketing, work
stoppage, concerted refusal to work overtime, grievance, claim of unfair labor
practice or other similar labor activity with respect to employees of the
Company or its Subsidiaries which would reasonably be expected to have a Company
Material Adverse Effect. The Company and its Subsidiaries are in compliance with
the Decision and Order of the National Labor Relations Board dated January 23,
1997, in the matter involving the Company's Gadsden, Alabama Distribution Center
and the United Steelworkers of America, AFL-CIO.
3.21 Employee Benefit Plans.
(a) Schedule 3.21 lists all of the employee benefit plans and
programs, including, without limitation, all retirement, savings and other
pension plans, whether or not tax qualified ("Pension Plans"), all health,
severance, insurance, disability and other employee welfare plans ("Welfare
Plans") and all incentive, vacation, stock option, stock purchase, stock bonus,
severance, and other similar plans that are maintained by the Company or any of
its Subsidiaries or to which the Company or any of its Subsidiaries have
contributed or are now contributing (collectively referred to as "Benefit
Plans"). Neither the Company nor any of its Subsidiaries is a party to any
multiemployer plan as defined in Section 3(37) of ERISA.
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(b) The Company has delivered to Investor a true and complete copy
of:
(i) The plan document for each Benefit Plan;
(ii) The current Summary Plan Description and Summary of Material
Modifications (if applicable) of each Benefit Plan;
(iii) The most recent Internal Revenue Service determination letter
(if applicable) for each Benefit Plan; and
(iv) The most recent Form 5500 that was filed on behalf of each
Benefit Plan, including the actuarial report (if applicable).
(c) Except as set forth in Schedule 3.21, as to each of the Benefit
Plans, the Company and its Subsidiaries have complied, in all material respects,
with all applicable laws and regulations in administering such plans, including
specifically the provisions of Titles I and IV of ERISA and the Internal Revenue
Code. The Internal Revenue Service has issued a favorable determination letter
with respect to each Pension Plan that is intended to qualify under Section
401(a) of the Code, and, to the knowledge of the Company, no event has occurred
(either before or after the date of the letter) that could reasonably be
expected to result in the disqualification of the Pension Plan, unless such
event could be cured without
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any Company Material Adverse Effect. No prohibited transaction, as defined in
Sections 406 through 411 of ERISA, has occurred with respect to any of the
Pension Plans and none of the Pension Plans has incurred any accumulated funding
deficiency, as defined in Section 302 of ERISA, whether or not waived. There has
not been, with regard to any such Pension Plan, any reportable event, as defined
in Section 4043(b) of ERISA, that is required to be reported to the PBGC by law
or regulation.
(d) As to each of the Welfare Plans and other employee benefit plans
and programs (including without limitation the plans listed in Schedule 3.18),
the Company and its Subsidiaries have complied, in all material respects, with
all applicable laws and regulations in the administration thereof including,
without limitation, the provisions of ERISA.
(e) Except as described in Schedule 3.21, since January 1, 1990,
neither the Company nor any of its Subsidiaries has terminated any Pension Plan
or incurred any liability to the PBGC under Section 4001, et seq. of ERISA and,
to the knowledge of the Company, no condition exists that would reasonably be
expected to cause the Company or any of its Subsidiaries to incur any such
liability. All premiums payable to the PBGC with respect to any such Plan have
been paid when due.
(f) No compensation or benefit that is or will be payable as a
result of the transactions contemplated by this
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Agreement will be characterized as an "excess parachute payment" within the
meaning of Section 280G of the Internal Revenue Code.
(g) None of the persons performing services for the Company or for a
Subsidiary have been improperly classified as independent contractors, leased
employees, or as being exempt from the payment of wages or overtime, except for
any such improper classification as would not reasonably be expected to have a
Company Material Adverse Effect.
(h) For purposes of this Section 3.21, the term "Company" shall
include any entity that is aggregated with the Company or with any of its
Subsidiaries under Internal Revenue Code Section 414(b) or (c).
3.22 Tax Matters. (a) The amounts accrued for taxes in the Audited
Financial Statements are sufficient for the payment of all Taxes of the Company
and its Subsidiaries, whether or not disputed, which are properly accruable.
There are no agreements by the Company or any of its Subsidiaries for the
extension of time for the assessment of any taxes, and all federal or state
Taxes due and payable by the Company or any of its Subsidiaries on or before the
date of this Agreement have been paid or provided for, and are not delinquent.
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(b) Except as set forth in Schedule 3.22, no audit, examination or
proceeding is pending or has been threatened in writing by any taxing authority
with respect to the assessment or collection from the Company and its
Subsidiaries of any Taxes, no unresolved claim for assessment or collection of
any Taxes has been asserted in writing against the Company and its Subsidiaries,
and all resolved assessments of Taxes have been paid. The Company and its
Subsidiaries have delivered to Investor complete copies of all audit reports and
other governmental claims asserting Taxes in addition to those Taxes set forth
on the Tax Returns of the Company and its Subsidiaries.
3.23 Insider Interests. Except as disclosed in Schedule 3.23, no
Affiliate of the Company (other than a Subsidiary), or any shareholder, officer
or director of an Affiliate of the Company (other than a Subsidiary), or any
member of their immediate family (an "Affiliated Person," which definition shall
not include the Voting Trustee), (i) has any interest, direct or indirect, in
any property, real or personal, tangible or intangible, including Intellectual
Property, used in or pertaining to the Business or (ii) provides or causes to be
provided to, or receives from, the Company or a Subsidiary any assets, loans,
advances, services or facilities.
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3.24 Finders. Except for Goldman, Sachs & Co., no broker, finder or
investment banker is entitled to any fee or commission for services rendered on
behalf of the Company in connection with the transactions contemplated by this
Agreement. The Shareholders are solely responsible for the fees and expenses of
Goldman, Sachs & Co. paid from and after October 1, 1997.
3.25 Suppliers. Neither the Company nor its Subsidiaries have received
written notice, and they do not otherwise have knowledge, that any of their
significant suppliers or vendors intends to cancel, terminate or otherwise
materially modify such supplier's or vendor's relationship with the Company or
its Subsidiaries, including with respect to credit terms or any requirement that
the Company or its Subsidiaries provide letters of credit, nor, to the knowledge
of the Company, has any such supplier or vendor threatened such action as a
result of execution of this Agreement or consummation of the transactions
contemplated hereby, which in the case of any of the foregoing would reasonably
be expected have a Company Material Adverse Effect. Except as reflected in the
consolidated balance sheet of the Company at January 3, 1998, the Company is not
and will not be subject to any retroactive billing adjustments, "billbacks,"
additional payment obligations or price increases under any sales or supply
agreement, other than any of the foregoing which would be immaterial.
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3.26 No Other Representations. Except for the representations and
warranties contained in this Article III, neither the Company nor any other
Person makes any express or implied representation or warranty on behalf of the
Company, and the Company disclaims any such representation or warranty, whether
by the Company or any of its respective officers, directors, employees, agents
or representatives or any other Person, with respect to the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby or the Business or assets of the Company and its Subsidiaries,
notwithstanding the delivery or disclosure to Investor, any of its officers,
directors, employees, agents or representatives or any other Person of any
documentation or other information with respect to the foregoing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTOR AND GUARANTOR
Investor represents and warrants to the Company the following, and each
Guarantor represents and warrants to the Company the following only with respect
to itself:
4.1 Organization; Qualification. Investor is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia, and has corporate power and authority to own all of
its properties and assets and to carry on its business as it is presently being
conducted.
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Each Guarantor has been duly formed and is a validly existing limited
partnership under the Delaware Revised Uniform Limited Partnership Act and has
all partnership power and authority to own all its properties and to carry on
its business as it is presently being conducted.
4.2 Authority Relative to this Agreement. Investor has the corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by
Investor of this Agreement, and the consummation by it of the transactions
contemplated hereby, has been duly authorized by the Board of Directors of
Investor and by FS Equity Partners IV, L.P. as the sole shareholder of Investor
and no other corporate proceedings on the part of Investor are necessary with
respect thereto. Each Guarantor has all necessary partnership power and
authority, has taken all partnership action necessary to authorize the execution
and delivery of the Agreement and to consummate the transactions contemplated
hereby, and no other partnership proceedings on the part of such Guarantor are
necessary with respect thereto. This Agreement has been duly executed and
delivered by Investor and each Guarantor and, assuming that the Company has duly
authorized, executed and delivered this Agreement, this Agreement constitutes a
valid and binding obligation of Investor and each Guarantor, enforceable in
accordance with its terms except as such enforceability may be limited by (1)
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bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally or (2) general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
4.3 Consents and Approvals. Except as set forth in Schedule 4.3 and
except as may be required under the HSR Act, there is no requirement applicable
to Investor or a Guarantor to make any filing with, or to obtain any permit,
authorization, consent or approval of any public body in connection with the
consummation of the transactions contemplated by this Agreement. Except as set
forth in Schedule 4.3, there is no requirement that any party to an agreement to
which Investor or a Guarantor is a party or by which either of them is bound
consent to the consummation of the transactions contemplated by this Agreement.
4.4 Non-Contravention. The execution and delivery by Investor and each
Guarantor of this Agreement does not and the consummation of the transactions
contemplated hereby will not (i) violate or result in a breach of any provision
of the Articles of Incorporation or By-laws of Investor or the partnership
agreements of a Guarantor, (ii) result in a default (or give rise to any right
of termination, cancellation or acceleration) under the terms, conditions or
provisions of any note,
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bond, mortgage, indenture, license, agreement, lease or other instrument or
obligation to which Investor or a Guarantor is a party or by which Investor or a
Guarantor, or the business conducted by it may be bound, or (iii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to
Investor or a Guarantor, or to the businesses conducted by it.
4.5 Financing. Investor has received a commitment letter from The Chase
Manhattan Bank, DLJ Capital Funding, Inc., First Union National Bank and Chase
Securities, Inc. with respect to ASCI's bank financing, a "highly confident"
letter from Donaldson, Lufkin & Jenrette Securities Corporation with respect to
an issuance of senior subordinated notes by ASCI and a "highly confident" letter
from Donaldson, Lufkin & Jenrette Securities Corporation with respect to an
issuance of senior discount notes by the Company, which letters together with a
term sheet setting forth the proposed terms of the senior subordinated notes and
the senior discount notes attached to the "highly confident" letters
(collectively, the "Financing Documentation") are attached to this Agreement as
Exhibits C, D and E, respectively. Upon consummation of the Planned Financing,
ASCI shall pay to the Company a dividend in the amount of at least [$221]
million. If the transactions contemplated by the Financing Documentation (the
"Planned Financing") are consummated and the ASCI dividend is paid, Investor and
the Company will have on the Closing Date sufficient available funds to pay the
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Common Share Merger Consideration and the Preferred Share Merger Consideration
and all fees and expenses required to be paid by the Company and Investor in
connection with the Merger and the transactions contemplated hereby, and to
refinance the existing indebtedness of the Company to financial institutions.
Investor has received a commitment letter from Guarantor, conditional only upon
the occurrence of the Closing, pursuant to which Guarantor will purchase or
cause to be purchased immediately prior to the Closing Common Stock of the
Investor for a cash purchase price of at least $102,500,000 in the aggregate.
The Company may rely on such commitment from Guarantor.
4.6 Finders. Except for fees payable in connection with the Planned
Financing and fees payable to an Affiliate of Guarantor, all as set forth on
Schedule 4.6, no broker, finder or investment banker is entitled to any fee or
commission from Investor for services rendered on behalf of Investor in
connection with transactions contemplated by this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Conduct of Business. From the date hereof until the earlier of (i)
the Effective Time or (ii) termination under Article VIII, except as
contemplated by this Agreement, the Company will (i) conduct the Business only
in the ordinary and usual course and in a manner consistent with past practices
and
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(ii) use reasonable efforts to preserve intact its present business organization
and keep available its present officers and employees material to the Business.
The Company will notify Investor (i) of any emergency or change in the normal
conduct of the Business, (ii) of any event, occurrence, fact, condition, change
or effect that, individually or in the aggregate, would have or result in a
Company Material Adverse Effect or breach of a representation or warranty set
forth in Article III or a covenant or agreement set forth in this Article V
which would reasonably be expected to have a Company Material Adverse Effect and
(iii) of the threat or initiation of any litigation against the Company or its
Subsidiaries relating to the Merger.
5.2 Forbearances. Except as contemplated by this Agreement or as set
forth on Schedule 5.2, the Company will not, and will cause its Subsidiaries not
to, from the date hereof until the earlier of (i) the Effective Time or (ii)
termination under Article VIII, without the written consent of Investor:
(i) sell, lease or otherwise dispose of any of its assets, including
Intellectual Property, except in the ordinary course of business consistent with
past practice;
(ii) incur any indebtedness for borrowed money except under credit
facilities existing as of the date hereof in the ordinary course of business
consistent with past practice;
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(iii) mortgage, pledge or otherwise encumber, or permit to exist any new
security interest, lien or encumbrance on, any of its assets except in the
ordinary course of business consistent with past practice;
(iv) enter into, amend, modify or cancel any Material Contract or Lease
except in the ordinary course of business consistent with past practice;
(v) make any material investment in, purchase any material securities
of, or merge with, any Person or, except for purchases of inventory and other
assets in the ordinary course of business consistent with past practice,
purchase any material assets;
(vi) assume, guarantee, endorse or otherwise become responsible for the
obligations of any Person (other than the Company or a Subsidiary), or make
loans or advances to any Person except in the ordinary course of business
consistent with past practice;
(vii) increase in any manner the compensation of any of (a) the employees
of the Company or the Subsidiaries or the directors or officers of the
Subsidiaries other than ASCI, other than increases in compensation in the
ordinary course of business consistent with past practice or (b) the directors
and officers of the Company or ASCI;
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(viii) pay or agree to pay any pension or retirement allowance not
required by an existing plan or agreement to any director, officer or employee,
whether past or present, of the Company or its Subsidiaries, or enter into or
amend (except to terminate) any employment agreement or any incentive
compensation, profit sharing, stock purchase, stock option, stock appreciation
rights, savings, consulting, deferred compensation, severance, retirement,
pension or other benefit plan or arrangement with or for the benefit of any of
its directors, officers, employees or of any other person except as may be
required by applicable law or regulation;
(ix) except (A) as set forth in the capital expenditure budget provided
to Investor and (B) for purchase orders for inventory arising in the ordinary
course of business, enter into any contract which will require an expenditure
after the Effective Time of more than $2,000,000 by the Company or the
Subsidiaries;
(x) declare, set aside or pay any dividend in cash or property,
repurchase or otherwise make any distribution, with respect to its capital stock
other than dividends payable on the Preferred Shares;
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(xi) split, combine or otherwise similarly change its capital stock, or
redeem any of its capital stock;
(xii) authorize the creation or issuance of, or issue or sell, any shares
of its or its Subsidiaries' capital stock or any securities or obligations
convertible into or exchangeable for, or giving any person any right to acquire
from it, any shares of its or its Subsidiaries' capital stock;
(xiii) enter into any joint venture, partnership or other similar
arrangement;
(xiv) enter into any agreement which restricts in any way its ability to
compete with any other Person;
(xv) amend its Articles of Incorporation or By-laws, except as
contemplated by Section 2.4 and to increase the number of authorized Common
Shares to effect the stock split referred to in Section 5.18;
(xvi) cancel or compromise, except compromises of current or former short-
term trade receivables or other current assets in the ordinary course of
business consistent with past practice, any indebtedness owed to it;
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(xvii) settle any material litigation or, except in the ordinary course of
business consistent with past practice, waive or relinquish any material right
or benefit, or write-off any material asset except as required by generally
accepted accounting principles;
(xviii) cancel or allow any of its existing insurance policies to lapse;
(xix) alter in any way the manner in which it has regularly and
customarily maintained its books of account and records, or change any of its
accounting principles or the methods by which such principles are applied for
tax or reporting purposes, except as required by law or by generally accepted
accounting principles;
(xx) change or commit to change the business of the Company and its
Subsidiaries from the Business or add new businesses, or change or commit to
change materially the manner in which the Business is currently conducted;
(xxi) except for items in the categories set forth in Schedule 5.2, make
any payment or distribution to, or loan or advance funds or extend credit to,
sell any asset to or purchase any asset from, or assign or convey any right to,
an Affiliated Person, other than payments made under leases at stores or other
facilities owned by
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Affiliated Persons in the ordinary course of business consistent with past
practice, and pursuant to the terms of such leases as currently in effect;
or
(xxii) agree of commit to do any of the things described in clauses
(i) through (xxi) above.
Except as contemplated by this Agreement, no Shareholder shall sell,
transfer, convey, assign, mortgage, pledge, or hypothecate any Common Share or
Preferred Share, or enter into any agreement or commitment to do the same.
5.3 Negotiations with Others. From the date hereof until the earlier of
(i) the Effective Time or (ii) termination under Article VIII, the Company will
not and the Company will cause its Subsidiaries and its and their directors,
officers, employees, agents and representatives not to, directly or indirectly,
without the written consent of Investor, solicit any inquiries or proposals for,
or enter into negotiations with respect to, or enter into any agreement with
respect to, any acquisition of all, or a substantial part, of the assets or
capital stock of the Company or its Subsidiaries, or similar transaction
involving the Business with any Person other than the parties hereto and their
agents and representatives. The Company will notify Investor promptly following
receipt of any written solicitation (or oral solicitation made to the
Controlling Shareholder or,
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to the extent known to the Company, Goldman, Sachs & Co.) relating to any such
proposed transaction.
5.4 Investigation of Business and Properties. From the date hereof until
the earlier of (i) the Effective Time or (ii) termination under Article VIII,
the Company and its Subsidiaries will afford Investor, any financial institution
providing financing to Investor, and their respective attorneys, accountants,
financial advisors and other representatives, reasonable access at all
reasonable times to their properties, to their senior officers, and to such
other officers and employees as the Company and Investor shall agree; provided
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that any such access shall be conducted, upon reasonable prior notice, at a
reasonable time and in such a manner as not to interfere unreasonably with the
operation of the Business. Investor acknowledges that it is conducting its own
investigation and is making its own evaluation of the Company, its Subsidiaries
and the Business and that the scope of such investigation has been determined by
Investor.
5.5 Confidentiality. The provisions of the Confidentiality Letter (the
"Confidentiality Letter"), between Freeman, Spogli & Co. and the Company are
hereby incorporated herein by reference.
5.6 Books and Records. Investor shall retain all of the books and records
of the Company and its Subsidiaries for a
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period of seven years after the Effective Date or such longer time as may be
required by law and shall make such books and records (or copies thereof)
available to the Shareholders or their agents, at reasonable times and upon
reasonable notice, after the Effective Time to the extent reasonably required by
Sellers in connection with preparing tax returns or complying with other legal
requirements imposed upon the Shareholders.
5.7 Expenses. Subject to the first parenthetical contained in the next
sentence of this Section 5.7, the fees and expenses of Goldman, Sachs & Co.,
Wachtell, Lipton, Rosen & Katz and Flippin Densmore Morse Rutherford & Jessee
relating directly to the sale of the Company pursuant to this Agreement and paid
from and after October 1, 1997, shall be paid by the Shareholders. All fees and
expenses incurred by the Company in connection with this Agreement and the
consummation of the transactions contemplated hereby (which shall include the
fees and expenses of Goldman, Sachs & Co., Wachtell, Lipton, Rosen & Katz and
Flippin Densmore Morse Rutherford & Jessee paid prior to October 1, 1997, plus
approximately $10,000 of fees and expenses of Goldman, Sachs & Co. and
approximately $5,000 of fees and expenses of Flippin Densmore Morse Rutherford &
Jessee incurred prior to October 1, 1997 but not theretofore billed or paid),
shall be paid by the Company, and all fees and expenses incurred by Investor,
Guarantor and Freeman, Spogli & Co., Incorporated (including banking and
accounting fees and expenses
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incurred in connection with the Financing) shall be paid by the Surviving
Corporation or the Investor. If the Closing does not occur, each party hereto
will bear its own costs and expenses.
5.8 HSR Filings. If required by law, the Company and Investor will each
file, or cause to be filed, with the United States Federal Trade Commission and
the Antitrust Division of the United States Department of Justice, pursuant to
the HSR Act, all requisite documents and notifications in connection with the
transactions contemplated by this Agreement.
5.9 Public Announcements. Prior to Closing, except for filings required
by law, neither party will issue any press releases or otherwise make any public
statements with respect to this Agreement and the transactions contemplated
hereby without having first obtained the approval of the other party. Except if
and to the extent required by law, any public announcement shall not disclose
the purchase price. Investor agrees that communications with the employees of
the Company and its Subsidiaries regarding the Merger and communications and
statements made in connection with the Financing are not public announcements
for purposes of this Section 5.9.
5.10 Efforts to Consummate.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use its reasonable
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best efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable to consummate, as promptly as
practicable, the transactions contemplated hereby, including the obtaining of
all necessary consents, waivers, authorizations, orders and approvals of third
parties, whether private or governmental, required of it to enable it to comply
with the conditions precedent to consummating the transactions contemplated by
this Agreement. Each party agrees to cooperate fully with the other party in
assisting it to comply with this Section 5.10.
(b) Investor recognizes that certain consents to the transactions
contemplated hereby may have been or may be required from third parties,
including parties to Material Contracts and Governmental Authorities. Investor
agrees that none of the Company or any of its Affiliates shall have any
liability whatsoever arising out of or relating to the failure to obtain any
such consent or because of termination of any contract, permit, license or
governmental authorization as a result thereof. Investor further agrees that no
representation, warranty, covenant or agreement of the Company herein shall be
breached as a result of (i) the failure to obtain any such consent or any such
termination or (ii) any Action commenced or threatened by or on behalf of any
Person arising out of or relating to the failure to obtain any such consent or
because of any such termination.
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(c) Investor will use its reasonable best efforts to arrange on behalf of
the Company and ASCI the financing needed to effect the transactions
contemplated by this Agreement (the "Financing"). In the event that any portion
of the Planned Financing becomes unavailable, regardless of the reason therefor,
Investor will use its reasonable best efforts to arrange alternative financing
from other sources on and subject to substantially the same terms and conditions
as the portion of the Planned Financing that has become unavailable. Investor
shall use its reasonable best efforts to (i) satisfy on or before the Closing
all requirements of the definitive agreements pursuant to which the Financing
will be obtained (the "Financing Agreements") which are conditions to closing to
be satisfied with respect to all transactions constituting the Financing and to
drawing down the cash proceeds thereunder; (ii) defend all lawsuits or other
legal proceedings challenging the Financing Agreements or the consummation of
the transactions contemplated thereby; and (iii) lift or rescind any injunction
or restraining order or other order adversely affecting the ability of the
parties to consummate the transactions contemplated thereby. Investor shall
keep the Company apprised of all material developments relating to the Planned
Financing. Any fees to be paid by the Company or any other obligations to be
incurred by the Company in connection with the Financing shall be subject to the
occurrence of the Closing. Investor will commence a "road
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show" with respect to the senior subordinated notes of ASCI and the senior
discount notes of the Company contemplated by Section 4.5 as promptly as
reasonably practicable following the elections contemplated by Section 2.7(d)
and the Shareholder approvals contemplated by Section 2.10 having been obtained.
(d) The Company shall, and shall cause ASCI and their respective
officers, employees and representatives to, cooperate with, and use reasonable
best efforts to assist, Investor in connection with its efforts to secure the
Financing, including by making senior executives available to participate in
"road show" investor presentations, and in taking all actions necessary to
authorize the Financing and authorize and cause ASCI to pay the ASCI dividend
contemplated by Section 4.5.
(e) Guarantor agrees that on or prior to the Closing Date it will
purchase or cause to be purchased shares of Investor Common Stock for a cash
purchase price of at least $102,500,000 in the aggregate, subject to the terms
and conditions of, and in accordance with the standards set forth in, the equity
commitment letter of Guarantor dated the date hereof.
5.11 Indemnification of Officers and Directors. The Surviving Corporation
will, and will cause ASCI to, indemnify, defend and hold harmless the present
and former officers and
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directors of the Company and its Subsidiaries against all liabilities incurred
by such individuals arising from any action or inaction by such persons or from
services rendered for or at the request of the Company or any of its
Subsidiaries prior to the Effective Time, to the full extent permitted under
applicable law, including the provisions thereof relating to the advancement of
expenses incurred in the defense of any threatened or pending action, suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative (a "Proceeding"). Any determination required to be made with
respect to whether the conduct of an individual seeking indemnification has
complied with the standards set forth under applicable law shall be made by
independent counsel mutually acceptable to Investor and such individual. For six
(6) years after the Effective Time, the Surviving Corporation will provide
officers' and directors' liability insurance in respect of acts or omissions
occurring on or prior to the Effective Time covering each such person currently
covered by the Company's officers' and directors' liability insurance policy on
terms no less favorable than those of such policy in effect on the date hereof,
provided that in satisfying its obligation under this Section, the Surviving
Corporation shall not be obligated to pay premiums in excess of 175% of the
amount per annum the Company paid in its last full fiscal year, which amount has
been disclosed to Investor, and if the Surviving Corporation is unable
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to obtain the insurance required by this Section 5.11, it shall obtain as much
comparable insurance as possible for an annual premium equal to such maximum
amount. In the event the Surviving Corporation (or any of its successors or
assigns) consolidates with or merges into any other person, or transfers all or
substantially all of its properties and assets to any person, then proper
provision shall be made so that such successors or assigns of the Business shall
assume the obligations set forth in this Section 5.11.
5.12 Employee Matters. Following the Effective Time, the Surviving
Corporation shall, and shall cause the Subsidiaries to, honor all obligations
under all employee benefit plans and agreements, maintained by the Company or
its Subsidiaries and provide the employees of the Company and its Subsidiaries
with employee benefits which are no less favorable in the aggregate than those
currently provided by the Company. In addition, the Surviving Corporation will,
or will cause the Subsidiaries to (i) waive all limitations as to preexisting
conditions, exclusions and waiting periods with respect to participation and
coverage requirements applicable to the employees of the Company and its
Subsidiaries under any Welfare Plan that such employees may be eligible to
participate in after the Effective Time, other than limitations or waiting
periods that are already in effect with respect to such employees and that have
not been satisfied as of the Effective Time under any Welfare
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Plan maintained for such employees immediately prior to the Effective Time, (ii)
provide each employee of the Company and its Subsidiaries with credit for any
co-payments and deductibles paid prior to the Effective Time in satisfying any
applicable deductible or out-of-pocket requirements under, any Welfare Plan that
such employees may be eligible to participate in after the Effective Time, and
(iii) treat all service with the Company and/or any of its Subsidiaries before
the Closing as service with the Surviving Corporation and its Subsidiaries for
all purposes applicable to employees of the Surviving Corporation and its
Subsidiaries.
5.13 Special Employee Bonus. On or prior to the Closing Date, the Company
shall make special bonus payments in an aggregate amount of $11,500,000 (which
amount shall include the amount of any withholding or deduction required by law)
to the employees of the Company who are designated by the Controlling
Shareholder in the amounts designated by him prior to the Closing.
5.14 Stockholders' Agreement. On or prior to the Closing Date, the
Company, the Controlling Shareholder, the 1964 Trust and Investor's shareholders
shall enter into the Stockholders' Agreement in the form attached hereto as
Exhibit F which includes registration rights for the benefit of the parties
thereto.
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5.15 Amendment and Termination of Affiliate Leases. On or prior to the
Closing Date, the leases of the Company's Subsidiary listed on Exhibit G shall
be amended, and leases of real property by Affiliated Persons to the Company's
Subsidiaries for closed stores shall be terminated on the six month anniversary
of the Closing Date with no further liability to the Company or its
Subsidiaries, all pursuant to the terms set forth on Exhibit G.
5.16 Consulting and Employment Agreements. On or prior to the Closing
Date, the Company and the Controlling Shareholder will enter into a Consulting
and Non-Competition Agreement in the form attached hereto as Exhibit H. On or
prior to the Closing Date, the Company and Garnett E. Smith, the current
President and Chief Operating Officer of the Company, will enter into an
Employment and Non-Competition Agreement on substantially the terms set forth in
Exhibit I hereto.
5.17 Option. On or prior to the Closing Date, the Company shall have
delivered to each of Nicholas F. Taubman and the 1964 Trust an Option in the
form attached hereto as Exhibit J providing for the issuance to Mr. Taubman of
options to purchase 250,000 shares of Surviving Corporation Common Stock and to
the 1964 Trust of options to purchase 250,000 shares of Surviving Corporation
Common Stock, in each case at an initial exercise price of $10 per share.
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5.18 Split of Company Shares. Prior to the Effective Time, the Company
shall declare and effect a 12,500 for 1 split of the Class A Common Shares and
Class B Common Shares. Accordingly, all references in this Agreement to amounts
of Common Shares reflect such stock split.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF INVESTOR
The obligation of Investor to consummate the transactions contemplated by
this Agreement shall be subject, to the extent not waived, to the following
conditions.
6.1 Representations and Warranties. The representations and warranties of
the Company contained in Article III hereof shall be true and correct in all
material respects as of the Closing Date, except (i) to the extent such
representations and warranties speak as of an earlier date, in which case they
shall be true and correct in all material respects as of such earlier date, (ii)
for such inaccuracies (without giving effect to any materiality or Company
Material Adverse Effect, qualifications or materiality exceptions contained
therein) that do not in the aggregate result in a Company Material Adverse
Effect, and (iii) for inaccuracies in the representation set forth in the first
sentence of Section 3.2(a), which are covered by the indemnification obligation
of the Controlling Shareholder and the 1964 Trust as provided in the letter
dated
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the date hereof, and Investor shall have been delivered a certificate to that
effect signed on behalf of the Company by the President of the Company and the
Chairman of the Board.
6.2 Performance of this Agreement. The Company and its Subsidiaries shall
have, in all material respects, performed all covenants and agreements and
complied with all conditions required by this Agreement to be performed or
complied with by them prior to or on the Closing Date, and Investor shall have
been delivered a certificate to that effect signed on behalf of the Company by
the President of the Company and the Chairman of the Board.
6.3 Consents and Approvals. All registrations, filings, applications,
notices, consents, orders, approvals, qualifications or waivers listed in
Schedule 6.3 and indicated therein as being a condition to the Closing for
Investor shall have been filed, made or obtained and all waiting periods
specified by law with respect thereto shall have expired or been terminated.
6.4 Injunction, Litigation, etc. No order of any court or governmental
agency shall be in effect which restrains or prohibits the consummation of the
transactions contemplated by this Agreement or which would limit or affect the
ability of Investor or Guarantor to own or control the Company, and there
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shall not be pending any action or proceeding by any governmental agency seeking
to prohibit or delay or challenging the validity of the transactions
contemplated by this Agreement which has a reasonable chance of success.
6.5 Legislation. No statute, rule or regulation shall have been proposed
(and reasonably believed will be enacted) or enacted which prohibits the
consummation of the transactions contemplated by this Agreement.
6.6 Proceedings; Certificates. All corporate or other proceedings of the
Company that are required in connection with the transactions contemplated by
this Agreement shall be reasonably satisfactory in form and substance to
Investor and its counsel, and Investor and its counsel shall have received such
evidence of such corporate or other proceedings, certified if required, as may
be reasonably requested and is customary in transactions of the nature
contemplated hereby.
6.7 Resignations. Such directors of the Company and its Subsidiaries as
Investor shall request shall have submitted resignations effective as of the
Closing.
6.8 Financing. Investor shall have received the proceeds of the Financing
on terms substantially consistent with the terms contemplated by the Financing
Documentation or otherwise reasonably acceptable to Investor; provided that this
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condition
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shall be deemed to have been satisfied if Investor shall not have complied in
all material respects with all of its covenants under Section 5.10(c).
6.9 Management Purchase of Equity. Members of management of the Company
shall have executed agreements in form and substance reasonably satisfactory to
Investor to purchase $5,000,000 in the aggregate of Surviving Corporation Common
Stock immediately following the Effective Time, at $10 per share, the same price
per common share as Guarantor's investment; provided that Investor shall have
offered to provide loans in the aggregate amount of $2,500,000 to assist members
of management to make such investments.
6.10 No Material Adverse Change. Since January 3, 1998, there shall have
been no material adverse change in the business, assets, liabilities or
financial condition of the Company and its Subsidiaries, taken as a whole.
Since January 3, 1998, the Company or its Subsidiaries shall not have suffered
any loss (whether or not insured) which would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect.
6.11 Opinion of Counsel. Investor shall have been furnished with the
opinion of Flippin Densmore Morse Rutherford &
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Jessee, counsel to the Company, dated the Closing Date, addressed to Investor,
in form and substance reasonably satisfactory to Investor, covering the matters
set forth on Exhibit K.
6.12 Solvency Opinion. Investor shall have been furnished with the
opinion of Valuation Research, independent valuation experts, or of another firm
reasonably acceptable to the Controlling Shareholder, dated the Closing Date,
addressed to Investor, in form and substance reasonably satisfactory to
Investor, with respect to the solvency of ASCI on the date of the dividend
contemplated by Section 4.5 and the solvency of the Surviving Corporation and
its Subsidiaries, taken as a whole on a pro forma basis following the Merger
(the "Solvency Opinion").
6.13 Controlling Shareholder's Agreement. In connection with this
agreement, Controlling Shareholder shall have entered into the Employment and
Non-Competition Agreement referred to in Section 5.16.
6.14 Stockholders' Agreement. The Stockholders' Agreement referred to in
Section 5.14 shall have been executed and delivered by the parties thereto.
6.15 Election by Shareholders. The Shareholders shall have made the
elections contemplated by Section 2.7(d).
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ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligation of the Company to consummate the transactions contemplated
by this Agreement shall be subject, to the extent not waived, to the
satisfaction of each of the following conditions.
7.1 Representations and Warranties. The representations and warranties of
Investor contained in Article IV hereof shall be true and correct in all
material respects as of the Closing Date, except (i) to the extent such
representations and warranties speak as of an earlier date, in which case they
shall be true and correct in all material respects as of such earlier date, and
(ii) for such inaccuracies (without giving effect to any materiality or material
adverse effect qualifications or materiality exceptions contained therein) that
do not in the aggregate result in a material adverse effect upon the business,
assets, liabilities, financial condition or results of operations of Investor
and Guarantors, taken as a whole, or the ability of Investor to consummate the
transactions contemplated by this Agreement, and Investor shall have delivered
to the Company a certificate to that effect signed by the President or Vice
President of Investor.
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7.2 Performance of this Agreement. Investor shall have, in all material
respects, performed all covenants and agreements and complied with all
conditions required by this Agreement to be performed or complied with by it
prior to or on the Closing Date, and Investor shall have delivered to the
Company a certificate to that effect signed by the President or Vice President
of Investor.
7.3 Consents and Approvals. All registrations, filings, applications,
notices, consents, orders, approvals, qualifications or waivers listed in
Schedule 7.3 and indicated therein as being a condition to the Closing for the
Company shall have been filed, made or obtained and all waiting periods
specified by law with respect thereto shall have expired or been terminated.
7.4 Injunction, Litigation, etc. No order of any court or governmental
agency shall be in effect which restrains or prohibits the consummation of the
transactions contemplated by this Agreement, and there shall not be pending any
action or proceeding by or before any such court or governmental agency seeking
to prohibit or delay or challenging the validity of any of the transactions
contemplated by this Agreement which has a reasonable chance of success.
7.5 Legislation. No statute, rule or regulation shall have been proposed
(and reasonably believed will be enacted) or
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<PAGE>
enacted which prohibits the consummation of the transactions contemplated by
this Agreement.
7.6 Proceedings; Certificates. All corporate and other proceedings of
Investor and the Guarantors that are required in connection with the
transactions contemplated by this Agreement shall be reasonably satisfactory in
form and substance to the Company and its counsel, and the Company and its
counsel shall have received such evidence of such corporate and other
proceedings, certified if required, as may be reasonably requested and is
customary in transactions of the nature contemplated hereby.
7.7 Opinion of Counsel. Seller shall have been furnished with the opinion
of Hunton & Williams, counsel to Investor, dated the Closing Date, addressed to
Seller, in form and substance reasonably satisfactory to Seller, covering the
matters set forth on Exhibit L.
7.8 Solvency Opinion. The Company, the Board of Directors of ASCI and the
shareholders shall have been furnished with a copy of the Solvency Opinion,
addressed to them, in form and substance reasonably satisfactory to the
Controlling Shareholder.
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<PAGE>
7.9 Stockholders' Agreement. The Stockholders' Agreement referred to in
Section 5.14 shall have been executed and delivered by the parties thereto.
7.10 Employment Agreements. The Employment and Non-Competition Agreements
referred to in Section 5.16 shall have been executed and delivered by the
parties thereto.
7.11 Option Agreement. The Options referred to in Section 5.17 shall have
been executed and delivered by the Company.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated at any time prior to
the Closing without further shareholder action:
(i) by the mutual written consent of the Boards of Directors of the
Company and Investor, and the Controlling Shareholder,
(ii) by the Company if the closing condition set forth in Section 6.8
has not been satisfied or waived by 11:59 p.m. on June 2, 1998; or
(iii) by the Company or Investor if the Closing has not occurred by
11:59 p.m. on August1, 1998; provided, that a party may elect to extend the time
periods set forth in clauses (ii) and (iii) in the event the other
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<PAGE>
party has materially breached its covenants and agreements hereunder.
8.2 Procedure: Effect of Termination. If this Agreement is terminated as
provided in Section 8.1, written notice thereof shall forthwith be given by the
terminating party to the other party, and this Agreement shall thereupon
terminate and become void and of no further force and effect and there shall be
no further liability or obligation on the part of either party hereto except to
pay such expenses as are required of it and to comply with the confidentiality
provisions of Section 5.5; provided that such termination shall not relieve any
--------
party of any liability for willful breach of this Agreement.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices required to be given hereunder shall be in
writing and shall be deemed to have been given if (i) delivered personally or by
documented courier or delivery service, (ii) transmitted by facsimile during
normal business hours or (iii) mailed by registered or certified mail (return
receipt requested and postage prepaid) to the following listed persons at the
addresses and facsimile numbers specified below, or to such other persons,
addresses or facsimile numbers as a party entitled to notice shall give, in the
manner hereinabove described, to the others entitled to notice:
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<PAGE>
(a) If to the Company to:
Advance Holding Corporation
5673 Airport Road
Roanoke, Virginia 24012
Attention: Nicholas F. Taubman
Facsimile No.: (540) 561-1699
with a copy to:
Flippin Densmore Morse
Rutherford & Jessee
300 First Campbell Square
Drawer 1200
Roanoke, Virginia 24006
Attention: Douglas W. Densmore
Facsimile No.: (540) 510-3050
and a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10028
Attention: Daniel A. Neff
Trevor S. Norwitz
Facsimile No.: (212) 403-2000
(b) If to Investor to:
AHC Corporation
c/o Freeman, Spogli & Co. Incorporated
599 Lexington Avenue
New York, NY 10022
Attention: John M. Roth
Facsimile No.: (212) 758-7499
with a copy to:
Riordan & McKinzie
300 S. Grand Ave. 29th Floor
Los Angeles, CA 90071
Attention: Richard J. Welch
If given personally or by documented courier or delivery service, or transmitted
by facsimile, a notice shall be deemed to have been given when it is received.
If given by mail, it
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<PAGE>
shall be deemed to have been given on the third business day following the day
on which it was posted.
9.2 No Survival of Representations and Warranties. The representations
and warranties, covenants and agreements of the Company contained herein and in
any certificate or other writing of the Company delivered pursuant hereto shall
not survive the Effective Time or the termination of the Agreement, provided,
that covenants and agreements contained herein which by their terms are to be
performed in whole or in part subsequent to the Effective Time shall survive the
Merger in accordance with their terms.
9.3 Interpretation. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement. For purposes of this Agreement, the words
"includes" and "including" shall mean "including without limitation." When any
representation or warranty in Article III is made to the knowledge of the
Company, such term shall mean the actual knowledge of the Company's executive
officers identified on Schedule 9.3 hereto. All accounting terms not defined in
this Agreement shall have the meaning determined by generally accepted
accounting principles. All capitalized terms defined herein are equally
applicable to both the singular and plural forms.
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<PAGE>
9.4 Entire Agreement. This Agreement, together with the Confidentiality
Letter, and the Schedules and Exhibits hereto, contain the entire agreement
between the parties with respect to the subject matter hereof and there are no
agreements, understandings, representations or warranties between the parties
other than those set forth or referred to herein. This Agreement is not
intended to confer and shall not confer upon any person not a party hereof (and
their successors and assigns permitted by Section 9.5) any rights or remedies
hereunder other than pursuant to Sections 5.11, 5.12, 5.13 and 9.12.
9.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns; provided that no party hereto will assign its rights or delete its
--------
obligations under this Agreement without the express prior written consent of
each other party hereto, except that Investor may assign its right, title and
interest under this Agreement to a wholly-owned Subsidiary or any lender in
connection with the Financing; provided, that in the event of such assignment,
--------
Investor shall not be released from any obligations under this Agreement.
9.6 Severability. In the event that this Agreement, or any of its
provisions, or the performance of any provision, is found to be illegal or
unenforceable under applicable law now
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<PAGE>
or hereafter in effect, the parties shall be excused from performance of such
portions of this Agreement as shall be found to be illegal or unenforceable
under the applicable laws or regulations without affecting the validity of the
remaining provisions of the Agreement; provided that (i) the remaining
--------
provisions of the Agreement shall in their totality constitute a commercially
reasonable agreement, and (ii) should any method of termination of this
Agreement or a portion thereof be found to be illegal or unenforceable, such
method shall be reformed to comply with the requirements of applicable law so
as, to the greatest extent possible, to allow termination by that method.
Nothing herein shall be construed as a waiver of any party's right to challenge
the validity of such law.
9.7 Amendment. This Agreement may be amended, modified or supplemented at
any time by the parties hereto. This Agreement may be amended only by an
instrument in writing signed by each of the parties hereto.
9.8 Extension; Waiver. At any time prior to the Closing either party to
this Agreement may (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive a breach of a representation
or warranty of the other party hereto, or (iii) waive compliance by the other
party hereto with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid if set
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<PAGE>
forth in a written instrument signed by the party giving the extension or
waiver.
9.9 Disclosure Schedules.
(a) Certain of the representations and warranties set forth in this
Agreement contemplate that there will be attached schedules setting forth
information that might be "material" or have a "Company Material Adverse
Effect." The Company may, at its option, include in such schedules items that
are not material or are not likely to have a Company Material Adverse Effect in
order to avoid any misunderstanding, and any such inclusion shall not be deemed
to be an acknowledgment or representation that such items are material or would
have a Company Material Adverse Effect, to establish any standard of materiality
or Company Material Adverse Effect, or to define further the meaning of such
terms for purposes of this Agreement.
(b) From time to time prior to the Closing, the Company will
supplement or amend the Schedules with respect to matters which, if existing or
occurring at or prior to the date of this Agreement, would have required to be
described or set forth in the Schedules or in any representation or warranty of
the Company which has been rendered inaccurate thereby. For purposes of
determining the satisfaction of the conditions set forth in Section 6.1 hereof,
no such supplement or amendment
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<PAGE>
shall be given effect. If the Company advises Investor that such supplement or
amendment renders it incapable of providing a certificate to the effect set
forth in Section 6.1 and Investor determines not to waive compliance with such
condition due to the matters set forth in such supplement or amendment, Investor
shall so advise the Company; provided that upon the Closing such condition shall
--------
be deemed waived by Investor in respect of the matters set forth in such
supplement or amendment.
9.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.11 Governing Law. This Agreement shall be governed in all respects by
the laws of the Commonwealth of Virginia without regard to its laws or
regulations relating to choice of laws.
9.12 Guarantors.
(a) Each Guarantor hereby unconditionally and irrevocably guarantees
to the Company and the Shareholders the due and punctual performance of each of
the obligations and the undertakings of Investor under this Agreement when and
to the extent the same are required to be performed and subject to all
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of the terms and conditions hereof; provided, that Guarantor shall have no
liability whatsoever under this Guaranty after the Closing, whether based upon
events occurring prior to or after the Closing. If Investor shall fail to
perform fully and punctually any obligation or undertaking of Investor under
this Agreement when and to the extent the same is required to be performed, each
Guarantor will upon written demand from the Shareholders forthwith perform or
cause to be performed such obligation or undertaking, as the case may be. The
obligations of each Guarantor under this guaranty shall constitute an absolute
and unconditional present and continuing guarantee of performance to the extent
provided herein, and shall not be contingent upon any attempt by the Company or
the Shareholders to enforce performance by Investor.
(b) The obligations of each Guarantor under this guaranty are
absolute and unconditional, are not subject to any counterclaim, setoff,
deduction, abatement or defense based upon any claim a Guarantor may have
against the Company or the Shareholders (except for any defense Investor may
have against the Company or the Shareholders under the terms of this Agreement),
and shall remain in full force and effect without regard to (i) any agreement or
modification to any of the terms of this Agreement or any other agreement which
may hereafter be made relating thereto; (ii) any exercise, non-exercise or
waiver by the Company or the Shareholders of any right, power,
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privilege or remedy under or in respect of this Agreement; (iii) any insolvency,
bankruptcy, dissolution, liquidation, reorganization or the like of Investor at
or prior to the Closing; (iv) absence of any notice to, or knowledge by,
Guarantor of the existence or occurrence of any of the matters or events set
forth in the foregoing clauses (i) through (iii); (v) any transfer of shares of
capital stock of Investor, or any assignment by Investor of its rights and
obligations under this agreement, to a wholly-owned subsidiary of Investor or a
Guarantor; or (vi) any other circumstance, whether similar or dissimilar to the
foregoing.
(c) Each Guarantor unconditionally waives (i) any and all notice of
default, non-performance or non-payment by Investor under this Agreement, (ii)
all notices which may be required by statute, rule of law or otherwise to
preserve intact any rights of the Company or the Shareholders against a
Guarantor, including, without limitation, any demand, presentment or protest, or
proof of notice of non-payment under this Agreement, and (iii) any right to the
enforcement, assertion or exercise by the Company or the Shareholders of any
right, power, privilege or remedy conferred in this Agreement or otherwise.
9.13 FS Funds. By written notice to the Company, FS Equity Partners IV,
L.P., may assume all of the obligations of FS
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<PAGE>
Equity Partners III, L.P. and FS Equity Partners International, L.P. as a
Guarantor hereunder, and with respect to the commitment letter issued to
Investor referred to in Section 4.5. Upon receipt by the Company of such notice,
FS Equity Partners III, L.P. and FS Equity Partners International, L.P. shall
have no further liability as a Guarantor, and shall have no further right or
obligation to purchase Investor Common Stock and become a party to the
Stockholders' Agreement.
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<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed and their corporate seals to be hereto affixed and attested by their
duly authorized officers.
AHC Corporation
By: /s/ JOHN M. ROTH
----------------------------------------
Title: President
-------------------------------------
FS Equity Partners III, L.P.
By: FS Capital Partners, L.P.
Its: General Partner
By: FS Holdings, Inc.
Its: General Partner
By: /s/ JOHN M. ROTH
-----------------------------------
Title: Vice President
--------------------------------
FS Equity Partners IV, L.P.
By: FS Capital Partners LLC
Its: General Partner
By: /s/ JOHN M. ROTH
-----------------------------------
Title: Manager
FS Equity Partners International, L.P.
By: FS&Co. International L.P.
Its: General Partner
By: FS International Holdings
Limited
Its: General Partner
By: /s/ JOHN M. ROTH
-----------------------------------
Title: Vice President
--------------------------------
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<PAGE>
ADVANCE HOLDING CORPORATION
By: /s/ NICHOLAS F. TAUBMAN
---------------------------------------
Title: Chairman and Chief Executive
Officer
Douglas W. Densmore, Voting Trustee under a Voting Trust Agreement (the
"Voting Trust Agreement") dated January 30, 1997 among Douglas W. Densmore and
the Shareholders named therein, executes this Agreement to evidence his
agreement to vote all Common Shares and Preferred Shares held by him pursuant to
the Voting Trust Agreement in favor of the transactions contemplated by this
Agreement.
/s/ DOUGLAS W. DENSMORE
----------------------------------------
Douglas W. Densmore, Trustee under a
Voting Trust Agreement, dated January
30, 1997, as amended, among Douglas W.
Densmore and the Shareholders named
therein
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<PAGE>
EXHIBIT 3.1
RESTATED
--------
ARTICLES OF INCORPORATION
-------------------------
OF
--
ADVANCE STORES COMPANY, INCORPORATED
------------------------------------
1. Name. The name of the Corporation is ADVANCE STORES COMPANY,
----
INCORPORATED.
2. Powers. The Corporation shall have, in addition to those powers that
-------
corporations have and may exercise under the laws of the Commonwealth of
Virginia, including the provisions of the Virginia Stock Corporation Act, the
power to act as an agent in soliciting, negotiating, procuring or effecting
contracts of insurance on behalf of an insurer or receiving or sharing, directly
or indirectly, any commission or other valuable consideration arising therefrom.
3. Authorized Shares. The aggregate number of shares of capital stock of
-----------------
the Corporation shall be 5,000 shares of Class A Common Stock, par value $100.00
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 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:
<PAGE>
(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.
(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. Upon any voluntary or involuntary liquidation,
------------------
dissolution or winding up of the Corporation, the shareholders shall be entitled
to share all assets remaining after payment of all debts and other liabilities
of the Corporation.
4. 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.
5. 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
<PAGE>
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 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.
<PAGE>
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:
(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
<PAGE>
(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).
(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
<PAGE>
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.
DATED: May 29, 1998 /s/ J. O'Neil Leftwich
-----------------------------------
J. O'Neil Leftwich
Senior Vice President and Chief Financial
Officer, Secretary and Treasurer
<PAGE>
EXHIBIT 3.2
AMENDED
BYLAWS
OF
ADVANCE STORES COMPANY, INCORPORATED
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 2:00 p.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.
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
<PAGE>
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 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.
<PAGE>
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 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,
<PAGE>
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 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.
<PAGE>
(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 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
<PAGE>
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) 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 the resolutions establishing the
same.
<PAGE>
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.
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
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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 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 determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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,
shall be deemed Directors for such particular meeting below as necessary to
achieve a quorum 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 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.
<PAGE>
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.
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ADTRADE, INC.
AFTER RECEIPT OF PAYMENT FOR STOCK
Adtrade, Inc., a Delaware corporation ("the Corporation") does hereby
certify that the Corporation was originally incorporated under the name of
"Adtrade, Inc." on March 9, 1992.
The Board of Directors of the Corporation, at a meeting held on December
13, 1993, duly adopted a resolution declaring the advisability of amending and
restating the Corporation's Certificate of Incorporation in the manner set forth
below and submitted such proposed amendment and restatement to the stockholders
of the Corporation for approval.
The stockholders of the Corporation unanimously approved in writing such
amendment and restatement of the Certificate of Incorporation.
The following amendment and restatement of the Certificate of Incorporation
of the Corporation restates entirely the Certificate of Incorporation of the
Corporation and has been duly adopted in accordance with the provisions of
(S)242 and (S)245 of the Delaware General Corporation Law:
FIRST: The name of the corporation is LARALEV, INC.
SECOND: The corporation's registered office in the State of Delaware is
located at 4th Street Plaza, Suite 11, 2500 West 4th Street, Wilmington County
of New Castle, Delaware 19805. The registered agent at that address is Entity
Services (Delaware), Inc.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity in which a corporation organized under the Delaware General Corporation
Law may engage; provided, that the corporation shall engage in no activity other
than the maintenance and management of intangible investments and the collection
and distribution of the income from such intangible investments and from
tangible property physically located outside of Delaware.
FOURTH: The corporation shall have the authority to issue One Thousand
Five Hundred (1,500) shares of common stock, having no par value.
FIFTH: To the fullest extent permitted by Delaware General Corporation
Law, as currently in effect or as hereafter enacted, each director of the
corporation shall incur no personal liability to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty as a
director.
<PAGE>
SIXTH: To the fullest extent permitted by Delaware General Corporation
Law, as currently in effect or as hereafter enacted, each director, officer,
employee and agent of the corporation shall be indemnified and held harmless by
the corporation.
SEVENTH: The business and affairs of the corporation shall be managed by
and under the direction of the Board of Directors, the number of members of
which shall be as set forth in the bylaws of the corporation. Unless required
by the bylaws of the corporation, the directors need not be elected by ballot.
EIGHTH: Each meeting of the stockholders of the corporation shall be held
within Delaware.
NINTH: The books of the corporation physically shall be maintained in
Delaware.
TENTH: In furtherance, and not in limitation, of the objects, purposes
and powers set forth in this certificate of incorporation and in the Delaware
General Corporation Law, the Board of Directors may amend and repeal the bylaws
of the corporation.
ELEVENTH: The corporation reserves the right to amend and repeal any
provision of this certificate of incorporation in the manner now or hereafter
provided under the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this restated certificate to
be signed by David C. Eppes, its President, and attested to by Andrew T.
Panaccione, its Secretary, this 16th day of December, 1993.
ATTEST: ADTRADE, INC.
(SEAL)
/s/ Andrew T. Panaccione /s/ David C. Eppes
______________________________ By:______________________________
Andrew T. Panaccione David C. Eppes
Secretary President
<PAGE>
EXHIBIT 3.4
BYLAWS
OF
ADTRADE, INC.
As adopted by the Board of Directors on September 27, 1993
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - STOCKHOLDERS' MEETINGS...................... 1
(S)1. General..................................... 1
(S)2. Annual Meetings............................. 1
(S)3. Special Meetings............................ 1
(S)4. Quorum...................................... 1
(S)5. Proxies..................................... 2
(S)6. Voting...................................... 2
(S)7. Notice of Meetings.......................... 2
(S)8. Written Consent in Lieu of Meetings......... 2
(S)9. List of Stockholders........................ 2
ARTICLE II - DIRECTORS.................................. 3
(S)1. Number and Term............................. 3
(S)1.1 General........................... 3
(S)1.1 Increase in Number of Directors... 3
(S)1.3 Decrease in Number of Directors... 3
(S)1.4 Vacancies......................... 3
(S)2. Regular Meetings............................ 3
(S)3. Special Meetings............................ 3
(S)3.1 General........................... 3
(S)3.2 Notice............................ 4
(S)4. Quorum...................................... 4
(S)5. Written Consent in Lieu of Meeting.......... 4
(S)6. Participation by Conference Telephone....... 4
(S)7. Compensation................................ 4
(S)8. Removal..................................... 4
ARTICLE III - OFFICERS.................................. 4
(S)1. General..................................... 4
(S)2. Salaries.................................... 5
(S)3. Term of Office.............................. 5
(S)4. President................................... 5
(S)5. Vice President.............................. 5
(S)6. Secretary................................... 5
(S)7. Treasurer................................... 5
(S)8. Delegation.................................. 6
ARTICLE IV - CORPORATE RECORDS.......................... 6
ARTICLE V - STOCK CERTIFICATES.......................... 6
(S)1. General..................................... 6
(S)2. Transfers................................... 6
(S)3. Lost Certificates........................... 6
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(S)4. Record Date................................ 7
(S)4.1................................... 7
(S)4.2................................... 7
(S)4.3................................... 7
(S)4.4................................... 7
ARTICLE VI - DIVIDENDS................................. 7
(S)1. Declaration and Payment.................... 7
(S)2. Reserves................................... 8
ARTICLE VII - NOTICE................................... 8
(S)1. General.................................... 8
(S)2. Waiver..................................... 8
ARTICLE VIII - MISCELLANEOUS........................... 8
(S)1. Financial Transactions..................... 8
(S)2. Fiscal Year................................ 8
(S)3. Corporate Seal............................. 8
(S)4. Reliance upon Books and Records............ 9
(S)5. Indemnification............................ 9
Signature by Secretary................................. 9
</TABLE>
<PAGE>
BYLAWS
OF
ADTRADE, INC.
As adopted by the Board of Directors on September 27, 1993
*************
ARTICLE I - STOCKHOLDERS' MEETINGS
(S) 1. General.
-------
Each meeting of stockholders of the corporation shall be held at such place
within Delaware as may be selected from time to time by the Board of Directors.
(S)2. Annual Meetings.
---------------
The annual meeting of the stockholders shall be held in June of each year
on such specific date as determined by the Board of Directors. At the annual
meeting, the stockholders shall elect Directors to succeed those Directors whose
terms expire and shall transact such other business as may properly be brought
before the meeting.
(S)3. Special Meetings.
----------------
Special meetings of the stockholders may be called at any time by the
President, the Board of Directors, a majority of the stockholders or as
otherwise provided by the certificate of incorporation or the Delaware General
Corporation Law ("DGCL") (the certificate of incorporation and DGCL are referred
to hereinafter collectively as "law") and shall be held at such time and place
within Delaware as he or they shall fix. Unless otherwise specified in the
notice of such special meeting, any business may be brought before such meeting.
(S)4. Quorum.
------
A majority of the outstanding shares of the corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
stockholders. If less than a majority of the outstanding shares entitled to vote
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting without further notice. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally noticed. The stockholders present
at a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
-1-
<PAGE>
(S)5. Proxies.
-------
Each stockholder entitled to vote at a meeting of stockholders may vote in
person or by proxy authorized by an instrument in writing filed with the clerk
of the meeting before the beginning of such meeting.
(S)6. Voting.
------
Each stockholder shall have one vote for each share entitled to vote which
is registered in such stockholder's name on the record date for such meeting,
except as otherwise provided in these bylaws or by law. All voting, except as
otherwise provided by law, may be by a voice vote; provided, that any
stockholder may in person or by proxy, demand that a vote be taken by written
ballot. Unless otherwise provided for in these bylaws or by law, all matters
voted upon shall be determined by a majority of shares of stock outstanding that
are entitled to vote on such matter.
(S)7. Notice of Meetings.
------------------
Whenever stockholders are required or permitted to take any action at a
meeting, a written notice of the meeting shall be given which shall state the
place within Delaware, date and time of the meeting. Unless otherwise provided
in these bylaws or by law, written notice of each meeting shall be given not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting.
(S)8. Written Consent in Lieu of Meeting.
----------------------------------
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken without a meeting, without prior notice and
without vote, if a consent in writing, setting forth the action so taken, shall
be signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
(S)9. List of Stockholders.
--------------------
Upon request in writing by a stockholder, the officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. No share of stock upon which any installment is due and unpaid
on the record date for a meeting shall be voted at such meeting. The list shall
be open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the principal office of the corporation. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
-2-
<PAGE>
ARTICLE II - DIRECTORS
(S)1. Number and Term.
---------------
(S)1.1 General.
-------
The number of Directors who shall constitute the
Board of Directors shall be such number as the Board of Directors
shall, in accordance with the provisions provided in these bylaws,
from time to time determine, except that in the absence of any
such determination, such number shall be three (3). A Director
need not be a stockholder in the corporation. The Directors shall
be elected by the stockholders at the annual meeting of
stockholders of the corporation, and each Director shall be
elected for the term of one year, and until his successor shall be
elected and shall qualify or until his earlier resignation or
removal.
(S)1.2 Increase in Number of Directors.
-------------------------------
The Board of Directors may increase the number of
Directors between annual meetings of stockholders upon the
approval of a majority of the Directors then serving. Such
additional Directors shall be elected by a vote of a majority of
those Directors then holding office. Directors so elected shall
serve until the next annual meeting of stockholders and until
their successors are elected and qualified.
(S)1.3 Decrease in Number of Directors.
-------------------------------
Any decrease in the authorized number of Directors shall
only become effective by approval of at least 75 % of the
stockholders of the corporation.
(S)1.4 Vacancies.
---------
If the office of any Director becomes vacant for any
reason, a majority of the Directors remaining in office, even if
less than a quorum, may elect a successor Director for the
unexpired term of the position that was vacated.
(S)2. Regular Meetings.
----------------
Regular meetings of the Board of Directors shall be held without notice at
such time, date and place within Delaware as shall be determined by the Board of
Directors.
(S)3. Special Meetings.
----------------
(S)3.1 General.
-------
Special meetings of the Board of Directors may be called
by any Director, such person whom the Board of Directors may
designate, or a majority of the stockholders of the corporation.
Special meetings of the Board of Directors shall be held at such
time, date and place within Delaware as the person or persons
calling such meeting shall designate.
-3-
<PAGE>
(S)3.2 Notice.
------
Notice of a special meeting of the Board of Directors
shall be given to each Director, by whom it is not waived, not
less than twenty four (24) hours in advance of such meeting.
Unless otherwise indicated in the notice of such meeting, any
business may be transacted at such meeting.
(S)4. Quorum.
------
A majority of the total number of directors then authorized, who are
physically present in Delaware, shall constitute a quorum for the transaction of
any business of the Board of Directors.
(S)5. Written Consent in Lieu of Meeting.
----------------------------------
Any action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board of Directors or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee.
(S)6. Participation in Meeting by Conference Telephone.
------------------------------------------------
One or more Directors may participate in a meeting of the Board of
Directors, of a committee of the Board of Directors or of the stockholders, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in this manner shall constitute presence at such meeting only if
such Director is physically present in Delaware.
(S)7. Compensation.
------------
Directors may receive compensation for their service as Directors of the
corporation in the manner determined by the Board of Directors. Nothing
contained in these bylaws shall be construed to preclude any Director from
serving the corporation in any other capacity and receiving compensation
therefor.
(S)8. Removal.
-------
Any Director may be removed, with or without cause, by the holders of a
majority of the shares then of record.
ARTICLE III - OFFICERS
(S)1. General.
-------
The executive officers of the corporation shall be chosen by the Directors
and shall be a President, Secretary and Treasurer. The Board of Directors shall
also choose a Chairman of the Board of Directors, and may elect such other
officers as it shall deem necessary. Any number of offices may be held by the
same person.
-4-
<PAGE>
(S)2. Salaries.
--------
Salary, if any, of each officer of the corporation shall be fixed by the
Board of Directors.
(S)3. Term of Office.
--------------
The officers of the corporation shall hold office for one year and until
successors are chosen and qualified. Any officer or agent elected or appointed
by the Board of Directors may be removed, with or without cause, by the Board of
Directors whenever in the judgment of the Board of Directors the best interests
of the corporation will be served thereby.
(S)4. President.
---------
The President shall be the chief executive officer of the corporation and
shall have general and active management of the business of the corporation,
shall see that all orders and resolutions of the Board are carried into effect,
subject, however, to the right of the Board of Directors to delegate any
specific powers, except such as may be by law exclusively conferred on the
President, to any other officer or officers of the corporation. The President
shall execute bonds and mortgages requiring a seal, under the seal of the
corporation, and shall have the general power and duties of supervision and
management usually vested in the office of President of a corporation. In the
absence of the Chairman of the Board of Directors, the President shall preside
at the meetings of the stockholders and the Board of Directors.
(S)5. Vice President.
--------------
Each Vice President, if such office is created, shall assist the President
in the carrying out of the President's duties as an officer of the corporation
and shall have such other powers and duties as may be assigned to him by the
Board of Directors. In the absence or disability of the President, the Vice
President shall perform the duties and exercise the powers of the President.
(S)6. Secretary.
---------
The Secretary shall attend all meetings of the Board of Directors and all
meetings of the stockholders and act as clerk thereof, and record all the votes
of the corporation and the minutes of all its transactions in a book to be kept
for that purpose, and shall perform like duties for all committees of the Board
of Directors when required. The Secretary shall be given, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President. The Secretary shall keep in safe custody the corporate seal of the
corporation, and when authorized by the Board of Directors shall affix the same
to such instrument requiring the seal of the corporation. In the absence of the
President and Vice President, the Secretary shall exercise the powers of the
President.
(S)7. Treasurer.
---------
The Treasurer shall have custody of the corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation, and shall keep the moneys of the corporation in a
separate account to the credit of the corporation. The Treasurer, along with
such other properly authorized officer, if appropriate, shall disburse
-5-
<PAGE>
the funds of the corporation as directed by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the President and
Directors, at the regular meetings of the Board, or whenever they may require
it, an account of all transactions and of the financial condition of the
corporation.
(S)8. Delegation.
----------
Each officer shall have the authority to delegate each task and function
required of such officer; provided, however, that such officer delegates such
authority in a manner, determined by such officer's sole and reasonable
discretion, that such officer deems to be necessary or proper in order to carry
out such officer's duties in a reasonably prudent and professional manner.
ARTICLE IV - CORPORATE RECORDS
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records, and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent shall be the person who seeks the
right to inspection, the demand under the oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or such other
agent to so act on behalf of the stockholder. The demand under oath shall be
directed to the corporation at its principal office.
ARTICLE V - STOCK CERTIFICATES
(S)1. General.
-------
The stock certificates of the corporation shall be numbered and registered
as they are issued in the stock ledger and transfer books of the corporation.
They shall bear the corporate seal and shall be signed by the President and
Secretary of the corporation.
(S)2. Transfers.
---------
Transfers of shares of stock shall be made on the books of the corporation
upon surrender of the certificates therefor, endorsed by the person named in the
certificate or by attorney, lawfully constituted in writing. No transfer shall
be made which is inconsistent with law.
(S)3. Lost Certificates.
-----------------
The corporation may issue a new stock certificate in place of any
certificate validly issued, which is alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of such certificate, or his
legal representative, to give the corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
-6-
<PAGE>
(S)4. Record Date.
-----------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days before any other action.
If no record date is fixed:
(S)4.1 the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held.
(S)4.2 the record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by the Board of Directors is necessary, shall be the
day on which the first written consent is expressed.
(S)4.3 the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such matter.
(S)4.4 a determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
ARTICLE VI - DIVIDENDS
(S)1. Declaration and Payment.
-----------------------
The Board of Directors may declare and pay dividends upon the outstanding
shares of the corporation, from time to time and to such extent as they deem
advisable, in the manner, and upon the terms and conditions provided by law.
(S)2. Reserves.
--------
Before payment of any dividend there may be set aside out of the net
profits of the corporation such sum or sums as the Board of Directors, from time
to time, in its sole discretion, determines to be in the best interests of the
corporation. The Board of Directors may abolish any such reserve at any time in
the same manner in which such reserve was created.
-7-
<PAGE>
ARTICLE VII - NOTICE
(S)1. General.
-------
Except as otherwise provided in these bylaws or by law, any notice required
to be given to any stockholder, director, officer, employee or agent of the
corporation shall be in writing and may be delivered by (i) hand, (ii) United
States mail, postage prepaid, (iii) Federal Express (or any other nationally
recognized courier), delivery charge prepaid, or (iv) telecopy or any other
similar facsimile device. Each notice shall be addressed to the recipient at
such recipient's last known address (or telecopy number) as it appears in the
applicable records of the corporation. Such notice shall be effective (i) when
received if hand delivered, mailed or couriered, and (ii) when dispatched if
given by telecopy.
(S)2. Waiver.
------
A written waiver of any notice, signed by the recipient thereof, whether
before or after the time of the event for which notice is to be given, shall be
deemed equivalent to the notice required to have been given to such recipient.
Neither the business nor the purpose of any meeting is required to be specified
in such waiver.
ARTICLE VIII - MISCELLANEOUS
(S)1. Financial Transactions.
----------------------
All financial transactions of the corporation, including the execution of
checks, demands and notes of the corporation, shall be approved by such officer
or officers as the Board of Directors may from time to time determine. Such
approval shall be evidenced by the signature of such officer or officers.
(S)2. Fiscal Year.
-----------
The fiscal year of the corporation shall begin on the Sunday closest to
December 31 in each year.
(S)3. Corporate Seal.
--------------
The Board of Directors shall approve a seal of the corporation, which shall
meet the requirements imposed by law.
(S)4. Reliance upon Books and Records.
-------------------------------
The Directors and officers of the corporation shall, in the performance of
their duties as such, be fully protected in relying in good faith on the books
and records of the corporation.
(S)5. Indemnification.
---------------
The corporation shall indemnify all officers, directors and employees to
the fullest extent
-8-
<PAGE>
permitted by law as currently in effect or as amended from time to time.
The undersigned, Secretary of the corporation, does hereby certify that the
foregoing is a true copy of the bylaws of the corporation that are in effect on
the date hereof.
Dated: September 27, 1993 /s/ [SEAL]
------------------------
-9-
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
================================================================================
ADVANCE STORES COMPANY, INCORPORATED
------------------------------
10.25% SENIOR SUBORDINATED NOTES DUE 2008
------------------------------
-----------------
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
----
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
<S> <C> <C>
Section 1.01. Definitions........................................... 1
Section 1.02. Other Definitions..................................... 16
Section 1.03. Incorporation by Reference of Trust Indenture Act..... 16
Section 1.04. Rules of Construction................................. 17
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating....................................... 17
Section 2.02. Execution and Authentication.......................... 19
Section 2.03. Registrar and Paying Agent............................ 19
Section 2.04. Paying Agent to Hold Money in Trust................... 20
Section 2.05. Holder Lists.......................................... 20
Section 2.06. Transfer and Exchange................................. 20
Section 2.07. Replacement Notes..................................... 28
Section 2.08. Outstanding Notes..................................... 28
Section 2.09. Treasury Notes........................................ 29
Section 2.10. Temporary Notes....................................... 29
Section 2.11. Cancellation.......................................... 29
Section 2.12. Defaulted Interest.................................... 29
Section 2.13. Record Date........................................... 30
Section 2.14. Computation of Interest............................... 30
Section 2.15. CUSIP Number.......................................... 30
ARTICLE 3
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.................................... 30
Section 3.02. Selection of Notes to be Redeemed or Purchased........ 31
Section 3.03. Notice of Redemption or Purchase...................... 31
Section 3.04. Effect of Notice of Redemption or Repurchase.......... 32
Section 3.05. Deposit of Redemption or Purchase Price............... 32
Section 3.06. Notes Redeemed in Part................................ 33
Section 3.07. Optional Redemption................................... 33
Section 3.08. Mandatory Redemption.................................. 33
Section 3.09. Repurchase Offers..................................... 33
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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ARTICLE 4
COVENANTS
<S> <C> <C>
Section 4.01. Payment of Notes..................................... 35
Section 4.02. Maintenance of Office or Agency...................... 36
Section 4.03. Commission Reports................................... 36
Section 4.04. Compliance Certificate and Notices of Default........ 37
Section 4.05. Taxes................................................ 37
Section 4.06. Stay, Extension and Usury Laws....................... 37
Section 4.07. Restricted Payments.................................. 38
Section 4.08. Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries............................. 41
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred
Stock............................................... 41
Section 4.10. Asset Sales.......................................... 43
Section 4.11. Transactions With Affiliates......................... 44
Section 4.12. Liens................................................ 45
Section 4.13. Offer to Purchase Upon Change of Control............. 45
Section 4.14. Corporate Existence.................................. 46
Section 4.15. Business Activities.................................. 46
Section 4.16. Senior Subordinated Debt............................. 46
Section 4.17. Limitation on Issuances of Guarantees of Indebtedness 46
Section 4.18. Limitation on the Sale or Issuance of Capital Stock
of Restricted Subsidiaries........................... 47
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation or Sale of Assets.............. 47
Section 5.02. Successor Corporation Substituted.................... 48
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.................................... 48
Section 6.02. Acceleration......................................... 50
Section 6.03. Other Remedies....................................... 50
Section 6.04. Waiver of Defaults................................... 51
Section 6.05. Control by Majority.................................. 51
Section 6.06. Limitation on Suits.................................. 51
Section 6.07. Rights of Holders of Notes to Receive Payment........ 52
Section 6.08. Collection Suit by Trustee........................... 52
Section 6.09. Trustee May File Proofs of Claim..................... 52
Section 6.10. Priorities........................................... 52
Section 6.11. Undertaking for Costs................................ 53
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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ARTICLE 7
TRUSTEE
<S> <C> <C>
Section 7.01. Duties of Trustee.................................... 53
Section 7.02. Rights of Trustee.................................... 54
Section 7.03. Individual Rights of Trustee......................... 55
Section 7.04. Trustee's Disclaimer................................. 55
Section 7.05. Notice of Defaults................................... 55
Section 7.06. Reports by Trustee to Holders of the Notes........... 56
Section 7.07. Compensation and Indemnity........................... 56
Section 7.08. Replacement of Trustee............................... 57
Section 7.09. Successor Trustee by Merger, etc..................... 58
Section 7.10. Eligibility; Disqualification........................ 58
Section 7.11. Preferential Collection of Claims Against the Company 58
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance.......................................... 58
Section 8.02. Legal Defeasance and Discharge....................... 58
Section 8.03. Covenant Defeasance.................................. 59
Section 8.04. Conditions to Legal or Covenant Defeasance........... 59
Section 8.05. Deposited Money and U.S. Government Securities to be
Held in Trust; Other Miscellaneous Provisions...... 61
Section 8.06. Repayment to the Company............................. 61
Section 8.07. Reinstatement........................................ 61
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of the Notes.............. 62
Section 9.02. With Consent of Holders of Notes..................... 62
Section 9.03. Compliance with Trust Indenture Act.................. 64
Section 9.04. Revocation and Effect of Consents.................... 64
Section 9.05. Notation on or Exchange of Notes..................... 64
Section 9.06. Trustee to Sign Amendments, etc...................... 64
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate............................. 65
Section 10.02. Liquidation; Dissolution; Bankruptcy................. 65
Section 10.03. Default on Designated Senior Debt.................... 65
Section 10.04. Acceleration of Notes................................ 66
Section 10.05. When Distribution Must Be Paid Over.................. 66
Section 10.06. Notice by the Company................................ 66
Section 10.07. Subrogation.......................................... 67
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Section 10.08. Relative Rights....................................... 67
Section 10.09. Subordination May Not Be Impaired by the Company...... 67
Section 10.10. Distribution or Notice to Representative.............. 68
Section 10.11. Rights of Trustee and Paying Agent.................... 68
Section 10.12. Authorization to Effect Subordination................. 69
Section 10.13. Amendments............................................ 69
ARTICLE 11
GUARANTEE OF NOTES
Section 11.01. Subsidiary Guarantee.................................. 69
Section 11.02. Execution and Delivery of Subsidiary Guarantee........ 70
Section 11.03. Guarantors May Consolidate, etc., on Certain Terms.... 70
Section 11.04. Releases Following Sale of Assets, Merger,
Sale of Capital Stock Etc............................ 71
Section 11.05. Additional Guarantors................................. 71
Section 11.06. Limitation on Guarantor Liability..................... 72
Section 11.07. "Trustee" to Include Paying Agent..................... 72
ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTEE
Section 12.02. Liquidation; Dissolution; Bankruptcy.................. 72
Section 12.03. Default on Designated Senior Debt..................... 72
Section 12.04. Acceleration of Notes................................. 73
Section 12.05. When Distribution Must Be Paid Over................... 73
Section 12.07. Subrogation........................................... 74
Section 12.08. Relative Rights....................................... 74
Section 12.09. Subordination May Not Be Impaired by the Guarantors... 75
Section 12.10. Distribution or Notice to Representative.............. 75
Section 12.11. Rights of Trustee and Paying Agent.................... 76
Section 12.12. Authorization to Effect Subordination................. 76
Section 12.13. Amendments............................................ 76
ARTICLE 13
MISCELLANEOUS
Section 13.01. Trust Indenture Act Controls.......................... 76
Section 13.02. Notices............................................... 76
Section 13.03. Communication by Holders of Notes with Other Holders
of Notes............................................. 77
Section 13.04. Certificate and Opinion as to Conditions Precedent.... 77
Section 13.05. Statements Required in Certificate or Opinion......... 78
Section 13.06. Rules by Trustee and Agents........................... 78
Section 13.07. No Personal Liability of Directors, Officers,
Employees and Stockholders........................... 79
Section 13.08. Governing Law......................................... 79
Section 13.09. No Adverse Interpretation of Other Agreements......... 79
Section 13.10. Successors............................................ 79
Section 13.11. Severability.......................................... 79
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 13.12. Counterpart Originals................................. 79
Section 13.13. Table of Contents, Headings, etc...................... 79
Section 13.14. Benefits of Indenture................................. 80
</TABLE>
v
<PAGE>
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
Exhibit D SUBSIDIARY GUARANTEE
Exhibit E FORM OF SUPPLEMENTAL INDENTURE
SCHEDULES
Schedule 4.11 AFFILIATE TRANSACTIONS
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INDENTURE, dated as of April 15, 1998 among Advance Stores Company,
Incorporated (the "Company"), as issuer, LARALEV, INC., as a guarantor (a
"Guarantor") and together with any subsidiary that executes a Subsidiary
Guarantee substantially in the form of Exhibit D attached hereto, (the
"Guarantors") and United States Trust Company of New York, as trustee (the
"Trustee").
The Company, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the holders of
the Company's 10.25% Senior Subordinated Notes due 2008 (the "Senior
Subordinated Notes") and the Exchange 10.25% Senior Subordinated Notes due 2008
(the "Exchange Senior Subordinated Notes" and, together with the Senior
Subordinated Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"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 the
Company and its Restricted Subsidiaries taken as a whole will be governed by the
provisions of this Indenture under Section 5.01 hereto and/or the provisions of
Section 4.13 hereto and not by the provisions of the Asset Sales covenant), and
(ii) the sale by the Company and the issue or sale by any of the Restricted
Subsidiaries of the Company of Equity Interests of any of the Company'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
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other disposition of assets or rights by the Company to a Wholly Owned
Subsidiary of the Company 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 the Company to the Company or to a Wholly
Owned Subsidiary of the Company, (ii) an issuance of Equity Interests by a
Restricted Subsidiary of the Company to the Company or to a Wholly Owned
Subsidiary of the Company, (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 the Company 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
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.
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"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 the Company (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 the Company (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 the Company than such other "person", (ii) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors or (iii) the Company consolidates with, or
merges with or into, any Person, or any Person consolidates with, or merges with
or into, the Company, in any such event pursuant to a transaction in which any
of the outstanding Voting Stock of the Company is converted into or exchanged
for cash, securities or other property, other than any such transaction where
(A) the Voting Stock of the Company 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) either (1) the
"beneficial owners" (as defined above) of the Voting Stock of the Company
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 or (2) if
immediately prior to such transaction the Company is a direct or indirect
subsidiary of any other Person (such other Person, the "Holding Company"), then
the "beneficial owners" (as defined above) of the Voting Stock of such Holding
Company 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
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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 for
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 the Company or one of its
Restricted Subsidiaries.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company or any Holding Company of the Company
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 13.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"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 the Company 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,
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replacing or 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 the Company 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
-----------
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.
"Designated Senior Debt" means (i) any Senior Debt outstanding under the
New Credit Facility and (ii) any other Senior Debt permitted under this
Indenture the principal amount of which is or under which the holders thereof
are committed to lend at least $25.0 million or more and that has been
designated by the Company in the instrument creating or evidencing such Senior
Debt as "Designated Senior Debt."
"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 the Company or 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) provided, that in the case of an Equity Offering by Holding, Holding
contributes to the common equity of the Company the portion of the net cash
proceeds thereof necessary to pay the aggregate redemption price of the Notes to
be redeemed in connection therewith.
"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 the Company to Holders to exchange
Senior Subordinated Notes for Exchange Senior Subordinated Notes.
"Exchange Offer Registration Statement" has the meaning set forth in the
Registration Rights Agreement.
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"Exchange Senior Subordinated Notes" means the Company's 10.25% Senior
Subordinated Notes due 2008, which will be issued in exchange for the Company's
Senior Subordinated 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, 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 the
Company), 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 the Company 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 the
Company 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 the Company and approved by the Company'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 the Company and
approved by the Company'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
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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 the Company 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 the Company 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.
"Guarantors" means, initially, LARALEV, INC. and thereafter each of the
Restricted Subsidiaries of the Company that executes a Subsidiary Guarantee in
accordance with the provisions of this Indenture, and their respective
successors and assigns.
"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
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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 the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
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 the Company or to the creditors
of the Company, as such, or to the assets of the Company or (ii) any
liquidation, dissolution, reorganization or winding up of the Company, 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 the Company.
"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.
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"Management Note" means any promissory note given by an employee of the
Company 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 the Company 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 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 the Company
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 the Company 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, securing or guaranteeing such Indebtedness.
"Offering" means the offer and sale of the Notes of the Company.
"Offerings" means the Offering and the concurrent offering of the 12.875%
Senior Discount Debentures due 2009 by Holding pursuant to an offering
memorandum dated as of April 7, 1998.
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<PAGE>
"Offering Memorandum" means the Offering Memorandum dated April 7, 1998,
relating to the Company'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 the Company
by two Officers of the Company, one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of the Company, that meets the requirements of Section 13.05
hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 13.05 hereof.
The counsel may be an employee of or counsel to the Company, any Subsidiary of
the Company or the Trustee.
"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 the
Company 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 the Company, 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 the Company 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 the Company) of the property or
assets (including cash) received by the Company 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 the Company) of all
property or assets transferred by the Company 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 the
Company, as described or referred to in the Offering Memorandum) by the Company
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 the Company are
reasonably related businesses, including reasonably related extensions or
expansions thereof.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash and Cash
Equivalents; (c) any Investment by the Company or any Restricted Subsidiary in a
Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of the Company 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, the Company or a Restricted Subsidiary of the
Company; (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
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<PAGE>
(other than Disqualified Stock) of the Company; (f) Hedging Obligations entered
into in the ordinary course of the Company's or its Restricted Subsidiaries'
businesses and otherwise in compliance with this Indenture; (g) loans and
advances to employees and officers of the Company 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
$10.0 million at any one time outstanding.
"Permitted Junior Securities" means Equity Interests in the Company or
debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same extent
as, or to a greater extent than, the Notes are subordinated to Senior Debt
pursuant to Article 10 of this Indenture.
"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
securing Senior Debt or Guarantees of Senior Debt permitted to be incurred under
this Indenture; (iii) Liens securing the Notes and the Subsidiary Guarantees;
(iv) Liens in favor of the Company or a Wholly Owned Restricted Subsidiary on
assets of any Restricted Subsidiary of the Company; (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 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 the Company 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 the Company
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 the Company 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
the Company or any Restricted Subsidiary of the Company other than the property
or assets of the Company or any Restricted Subsidiary of the Company other than
the property and assets being
11
<PAGE>
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 the Company 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 the
Company or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired Debt by
the Company or a Restricted Subsidiary of the Company and (B) such Liens do not
extend to or cover any property or assets of the Company 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 the
Company or a Restricted Subsidiary of the Company and are not more favorable to
the lienholders than those securing the Acquired Debt prior to the incurrence of
such Acquired Debt by the Company or a Restricted Subsidiary of the Company;
(xviii) leases or subleases granted to others not interfering in any material
respect with the business of the Company or its Restricted Subsidiaries; (xix)
Liens arising out of consignment or similar arrangements for the sale of goods
entered into by the Company 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 the Company
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 the Company 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 the Company 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.
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<PAGE>
"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 the Company or any Restricted
Subsidiary pursuant to which the Company 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 the
Company 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 the Company, the Guarantors and the Initial
Purchasers.
"Regulation S" means Regulation S promulgated under the Securities Act.
"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
-----------
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
-----------
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.
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<PAGE>
"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 the Company 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 Debt" means (i) all Indebtedness of the Company or any Guarantor
under Credit Facilities and all Hedging Obligations with respect thereto, (ii)
other Indebtedness of the Company or any of its Guarantors permitted to be
incurred under the terms of this Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes and (iii) all Obligations with
respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (w) any liability for federal, state,
local or other taxes owed or owing by the Company, (x) any Indebtedness of the
Company to any of its Restricted Subsidiaries or other Affiliates, (y) any trade
payables or (z) any Indebtedness that is incurred in violation of this
Indenture.
"Senior Discount Debentures" means Holding's 12.875% Senior Discount
Debentures due 2009.
"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).
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<PAGE>
"Subsidiary Guarantees" means each of the Guarantees of the Company's
obligations under the Notes and related obligations entered into by a Guarantor.
"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 the Company's (or any
Restricted Subsidiary's) payments, if any, to be made thereunder is not less
favorable to the Company than as provided in such agreement as in effect on the
Issue Date, as determined in good faith by the Board of Directors of the
Company.
"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 the Company 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 the Company or any Restricted Subsidiary unless the terms of
any such agreement, contract, arrangement or understanding are no less favorable
to the Company or such Restricted Subsidiary than those that might be obtained
at the time from Persons who are not Affiliates of the Company; (c) is a Person
with respect to which neither the Company nor any of its 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 the Company 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 the
Company as of such date. The Board of Directors of the Company 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 the Company 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, (ii) such Subsidiary becomes a Guarantor and (iii) 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.
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"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.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
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
"Guaranteed Debt".................................... 4.17
"incur".............................................. 4.09
"Legal Defeasance"................................... 8.02
"Non-Payment Default"................................ 10.03
"Offer Amount"....................................... 3.09
"Offer Period"....................................... 3.09
"Pari Passu Indebtedness"............................ 4.10
"Payment Blockage Notice"............................ 10.03
"Paying Agent"....................................... 2.03
"Payment Default".................................... 6.01
"Permitted Debt"..................................... 4.09
"Purchase Date"...................................... 3.09
"Registrar".......................................... 2.03
"Representative"..................................... 10.05
"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.
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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 the Company, each Guarantor 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
(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
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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 the Company, the Guarantors
and the Trustee, by their execution and delivery of this Indenture, expressly
agree to such terms and provisions and to be bound thereby.
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(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 the Company 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 the Company 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 the Company 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 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 only to
Rule 144A Global Notes and Regulation S Permanent Global Notes deposited with or
on behalf of the Depositary.
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The Company 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 the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Note for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or 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
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the text referred to in footnotes 1 and 3 thereto).
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer of the Company shall sign the Notes for the Company by manual
or facsimile signature. The Company's seal shall be reproduced on the Notes and
may be in facsimile form.
If an Officer of the Company 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.
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The Trustee shall, upon a written order of the Company signed by an Officer
of the Company, authenticate Notes for up to $200,000,000 in aggregate principal
amount of Notes. The aggregate principal amount 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 the Company
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 the Company or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company 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.
The Company may appoint one or more additional paying agents. The term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent or Registrar without notice to any Holder. The Company shall notify the
Trustee in writing of the name and address of any
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Agent not a party to this Indenture. If the Company fails to appoint or maintain
another entity as Registrar or Paying Agent, the Trustee shall act as such. The
Company or any of its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC") to act
as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes. The
Company 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.
The Company 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 the Company 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. The Company 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 the Company or a Subsidiary) shall
have no further liability for the money. If the Company 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, the Company and the Guarantors 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 the Company shall otherwise comply with TIA (S) 312(a).
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,
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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
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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 (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
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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
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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 of less than $250,000, an Opinion of
Counsel acceptable to the Company 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 the
Company 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):
(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 the Company or any of its
Subsidiaries, a certification to that effect from such Holder
(in substantially the form of Exhibit B-3 hereto); or
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(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
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(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);
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(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 the Company 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 the Company 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
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);
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(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);
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(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 the
Company so requests), a certification to that effect from
such Holder
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(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 the Company 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, the
Company 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 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 the Company 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 the Company within 90 days after delivery of
such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee in
writing that it elects to cause the issuance of Definitive Notes
under this Indenture,
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then the Company 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 THE COMPANY 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 THAT $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY 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 THE COMPANY) 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
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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
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(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 the Company and the Registrar in form and substance
reasonably acceptable to the Company and the Registrar (which
Opinion of Counsel shall also state that the transfer
restrictions contained in the legend are no longer applicable):
(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, the Company shall issue and,
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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 the Company 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 the Company 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.
(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.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
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 the Company 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 the Company,
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
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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 the Company 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 the Company
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 the Company and the
Trustee receives evidence to their satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by an Officer of the Company, shall authenticate a
replacement Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company and the Trustee may
charge for 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.
Every replacement Note is an additional obligation of the Company 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 the Company or an Affiliate of the
Company or any Guarantor 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 the
Company or its Affiliates) in trust or set aside and segregated in trust by the
Company or one of its Subsidiaries (if the Company 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 the Company shall first have
delivered to the Trustee an Officers' Certificate (i) stating the
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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 the
Company or any Guarantor, or by any Affiliate of the Company or any Guarantor
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 the Company or any other obligor upon the
Notes or any Affiliate of the Company or of such other obligor. Notwithstanding
the foregoing, Notes that are to be acquired by the Company or any Guarantor or
an Affiliate of the Company or any Guarantor 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, the Company may prepare and
the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by an Officer of the Company. Temporary Notes shall be
substantially in the form of Definitive Notes but may have variations that the
Company considers appropriate for temporary Notes. Without unreasonable delay,
the Company shall prepare and the Trustee shall upon receipt of a written order
of the Company 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.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver to the Trustee for cancellation any
Notes previously authenticated and delivered hereunder or which the Company 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, the Company 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 the Company,
unless by a written order, signed by an Officer of the Company, the Company
shall direct that cancelled Notes be returned to it.
SECTION 2.12 DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it shall pay
the defaulted interest in any lawful manner plus, to the extent lawful, interest
payable on the defaulted interest, to 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.
The Company shall fix or cause to be fixed each such special
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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, the
Company (or the Trustee, in the name and at the expense of the Company) 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.
The Company 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. The Company shall
promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company 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 the Company 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) the Company 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.
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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 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, interest and Liquidated Damages,
if any, will cease to accrue on Notes or portions of them called for redemption
or repurchase unless the Company defaults in making the redemption or repurchase
payment.
SECTION 3.03. NOTICE OF REDEMPTION OR PURCHASE.
At least 30 days but not more than 60 days before a redemption date or
repurchase date, the Company 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;
(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 the Company defaults in making such payment,
interest and Liquidated Damages, if any, on Notes called for
redemption or repurchase, as the case may be, ceases to accrue on
and after the redemption date or repurchase date, as the case may
be;
(7) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being
redeemed; and
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(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 the Company's request, the Trustee shall give the notice of redemption
or notice of repurchase in the Company's name and at the Company's expense;
provided, however, that the Company 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 on the 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, the Company shall deposit with the Trustee or with the Paying Agent (or,
if the Company 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 the Company upon its written request any money deposited with the Trustee or
the Paying Agent by the Company in excess of the amounts necessary to pay the
redemption price 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 the Company has deposited with the Trustee or
Paying Agent (or, if the Company 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 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). 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 the Company 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.
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SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall issue
and, upon the Company's written request, the Trustee shall authenticate for the
Holder at the expense of the Company 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 Section 3.07(b), the Notes will not be
redeemable at the Company's option prior to April 15, 2003. Thereafter, the
Notes will be subject to redemption at any time at the option of the Company, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth below
plus accrued and unpaid interest and Liquidated Damages, 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.......................................105.125%
2004.......................................103.417%
2005.......................................101.708%
2006 and thereafter........................100.000%
</TABLE>
(b) Notwithstanding the foregoing, at any time on or prior to April 15,
2001, the Company 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 Notes
originally issued 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, with the net proceeds of one or more Equity
Offerings; provided that, in each case, at least 65% in aggregate principal
amount 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.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 3.09, 4.10 and 4.13 hereof, the Company
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 the Company 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," the Company 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 the Company 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"),
the Company 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
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"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, the Company 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;
(d) that, unless the Company 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, after the Purchase Date;
(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 the Company, 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 the
Company, 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, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000,
or integral multiples thereof, 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).
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On or before 10:00 a.m. (New York City time) on each Purchase Date, the
Company 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, the Company 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 the Company in accordance with the terms of this Section 3.09. The
Company, 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 the Company for purchase,
plus any accrued and unpaid interest and Liquidated Damages, if any, thereon to
the Purchase Date, and the Company 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
the Company 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.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company 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. The Company 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 the Company or a Subsidiary thereof holds, as of 10:00 a.m. (New York City
time) money deposited by the Company in immediately available funds and
designated for and sufficient to pay all such principal, premium and Liquidated
Damages, if any, and interest, then due.
The Company shall pay interest (including, to the extent permitted by
applicable law, post-petition interest in any proceeding under any Bankruptcy
Law) on overdue principal 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.
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SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company 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 the Company in
respect of the Notes and this Indenture may be served. The Company 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 the Company 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.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Company 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.
The Company hereby designates the Corporate Trust Office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03 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, the Company 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 the Company 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
the Company and its consolidated Subsidiaries and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports, in
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, the Company 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, the Company and the Guarantors have agreed that,
for so long as any Notes remain outstanding, they 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.
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The Company shall provide the Trustee with a sufficient number of copies of
all reports and other documents and information and, if requested by the Company
and at the Company'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.
The Company 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 the Company 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 the Company'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 the Company 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 the Company is
taking or proposes to take with respect thereto.
The Company 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 the Company is taking or proposes to take with respect thereto.
SECTION 4.05. TAXES.
The Company 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.
The Company and each Guarantor 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 the Company and
each Guarantor (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.
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SECTION 4.07 RESTRICTED PAYMENTS.
From and after the date hereof the Company 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 the
Company'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 the Company),
other than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or dividends or distributions payable to the
Company or any Wholly Owned Subsidiary of the Company; (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 the Company)
any Equity Interests of the Company or any Restricted Subsidiary (other than any
such Equity Interests owned by the Company or any Restricted Subsidiary of the
Company); (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) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clauses (ii), (iii), (v), (vi), (vii), (ix) and (x) of the next
succeeding paragraph), is less than the sum (without duplication) of (i)
50% of the Consolidated Net Income of the Company 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 the Company's most recently
ended fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (ii) 100% of
the aggregate net cash proceeds received by the Company from the issue or
sale subsequent to the Issue Date of Equity Interests of the Company (other
than Disqualified Stock) or of Disqualified Stock or debt securities of the
Company 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 the Company
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
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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 the
Company and its Restricted Subsidiaries, plus (vi) $15.0 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 the
Company 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 the Company) of, other Equity
Interests of the Company (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 the Company, Holding or any
Restricted Subsidiary of the Company (including Restricted Payments to any
shareholder of the Company in order to permit such shareholder (directly or
indirectly) to repurchase, redeem or otherwise acquire Equity Interests in
Holding), held by any member of the Company'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 the Company from any issuance of Equity Interests by Holding or
the Company to members of management, employees, directors or consultants
of the Company 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 the Company 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 the Company on the date of this Indenture, the
proceeds of which are utilized solely to consummate the Recapitalization;
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(vii) the payment of dividends or the making of loans or advances by
the Company to Holding in an aggregate amount not to exceed $1.75 million
in any fiscal year for costs and expenses incurred by Holding in its
capacity as a holding company or for services rendered by Holding on behalf
of the Company;
(viii) 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 the Company or any Restricted
Subsidiary issued after the date of this Indenture in accordance with the
covenant contained in Section 4.09 hereof;
(ix) so long as (A) no Default or Event of Default has occurred and
is continuing and (B) immediately before and immediately after giving
effect thereto, the Company would have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in clause (i) of the first paragraph of Section 4.09
hereof, from and after the Issue Date, payments of cash dividends to
Holding in an amount sufficient to enable Holding to make payments of
interest required to be made in respect of the Holding Senior Discount
Debentures in accordance with the terms thereof in effect on the date of
this Indenture, provided such interest payments are made with the proceeds
of such dividends; and
(x) 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 the Company 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 the Company 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 the Company 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, the Company 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.
The Company 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
the Company 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 the Company or any of its
Restricted Subsidiaries, (ii) make loans or advances to the Company or any of
its Restricted Subsidiaries or (iii) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (a) the New Credit Facility, (b)
this Indenture and the Notes, (c) applicable law or any applicable rule,
regulation or order, (d) any agreement or instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company 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, (e) 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, (f) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (e) above on the property so
acquired, (g) 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, (h) 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 (i) customary restrictions in security agreements or mortgages securing
Indebtedness of the Company 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.
The Company 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 the Company 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 the Company or another Restricted
Subsidiary; provided, however, that the Company 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 the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.0 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.
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"):
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(i) the incurrence by the Company 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 the Company 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 the
Company 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 the Company and the Guarantors of Indebtedness
represented by the Notes and the Subsidiary Guarantees;
(iii) the incurrence by the Company 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 the Company or any Restricted
Subsidiary, in an aggregate principal amount not to exceed $25.0 million at any
time outstanding;
(iv) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date;
(v) the incurrence by the Company 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 the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its Wholly
Owned Subsidiaries or between or among any Wholly Owned Subsidiaries; provided,
that (A) any subsequent issuance or transfer of Equity Interests that results in
any such Indebtedness being held by a Person other than a Wholly Owned
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Subsidiary will be
deemed, in each case, to constitute an incurrence of such Indebtedness by the
Company or such Restricted Subsidiary, as the case may be;
(vii) the incurrence by the Company 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 the Company 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 the Company or any Restricted Subsidiary in the ordinary
course of business;
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(ix) Indebtedness arising from guarantees of Indebtedness of the Company
or any Restricted Subsidiary or the agreements of the Company 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 the
Company in good faith) actually received by the Company and its Restricted
Subsidiaries in connection with such disposition;
(x) the guarantee by the Company or any of the Restricted Subsidiaries of
Indebtedness of the Company or a Restricted Subsidiary that was permitted to be
incurred by another provision of this covenant;
(xi) the incurrence by the Company 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 the
Company or any other Restricted Subsidiary of the Company; and
(xiii) the incurrence by the Company 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, the
Company 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.
SECTION 4.10. ASSET SALES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in or consummate an Asset Sale unless (i) the Company
(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 the Company or such Restricted Subsidiary is in the form of
cash or Cash Equivalents other than in the case where the Company or such
Restricted Subsidiary is undertaking a Permitted Asset Swap; provided that the
amount of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any Guarantee thereof) that are assumed by
the transferee of any such assets pursuant to a customary agreement that
releases the Company or such
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Restricted Subsidiary from further liability and (y) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary from
such transferee that are converted within 15 days by the Company 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,
the Company or its Restricted Subsidiaries may apply such Net Proceeds, at its
option, (a) to permanently reduce Senior Debt, 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 the Company 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, the Company or its Restricted Subsidiaries may temporarily
reduce Senior Debt or otherwise invest such Net Proceeds in any manner that is
not prohibited by this Indenture. Any Net Proceeds from Asset Sales, that are
not 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"), the Company
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, 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 of Notes and any
such Pari Passu Indebtedness tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company or its Restricted Subsidiaries may use any
remaining Excess Proceeds for general corporate purposes. If the aggregate
principal amount of 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 Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company 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
the Company or such Restricted Subsidiary, as the case may be, and are at least
as favorable as the terms which could be obtained by the Company 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) the Company 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
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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 the Company or any of its Restricted
Subsidiaries in the ordinary course of business of the Company or such
Restricted Subsidiary to or with the officers, directors or employees of the
Company or its Restricted Subsidiaries, (x) transactions between or among the
Company 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 the Company, when such sales are exclusively for cash.
SECTION 4.12. LIENS.
The Company 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 the Company to repurchase all or any part (equal to $1,000
principal amount or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase (the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company 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 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. The Company 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, the Company 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, the Company 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 the
Company. The Paying Agent will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. Prior to complying
with the provisions hereof, but in any event within 90 days following a Change
of Control, the Company will either repay all
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outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this Section 4.13. The Company will publicly announce the results of
the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of this Indenture are applicable.
The Company 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 the Company 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, the
Company and each Guarantor 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 the Company or any such Subsidiary and the rights
(charter and statutory), licenses and franchises of the Company and its
Subsidiaries; provided that the Company 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 the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Subsidiaries, taken as a whole,
and that the loss thereof is not adverse in any material respect to the Holders
of the Notes.
SECTION 4.15. BUSINESS ACTIVITIES.
The Company 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.
SECTION 4.16. SENIOR SUBORDINATED DEBT.
Notwithstanding the provisions of Section 4.09 hereof, (i) the Company
shall not incur, create, issue, assume, guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of payment to any Senior
Debt and senior in any respect in right of payment to the Notes, and (ii) no
Guarantor shall incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
Senior Debt of such Guarantor and senior in any respect in right of payment to
such Guarantor's Subsidiary Guarantee. For purposes of this covenant,
Indebtedness is deemed to be senior in right of payment to the Notes or the
Guarantees, as the case may be, if it is not explicitly subordinated in right of
payment to Senior Debt at least to the same extent as the Notes and the
Guarantees, as the case may be, are subordinated to such Senior Debt.
SECTION 4.17. LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS.
The Company shall not permit any Restricted Subsidiary to guarantee the
payment of any Indebtedness of the Company or any Indebtedness of any other
Restricted Subsidiary, (in each case, the "Guaranteed Debt"), unless (i) if such
Restricted Subsidiary is not a Guarantor, such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to this Indenture
providing for a Subsidiary Guarantee of payment of the Notes by such Restricted
Subsidiary, (ii) if the Notes or the Subsidiary
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Guarantee (if any) of such Restricted Subsidiary are subordinated in right of
payment to the Guaranteed Debt, the Subsidiary Guarantee under the supplemental
indenture shall be subordinated to such Restricted Subsidiary's guarantee under
the supplemental indenture shall be subordinated to such Restricted Subsidiary's
guarantee with respect to the Guaranteed Debt substantially to the same extent
as the Notes or the Subsidiary Guarantee are subordinated to the Guaranteed Debt
under this Indenture, (iii) if the Guaranteed Debt is by its express terms
subordinated in right of payment to the Notes or the Subsidiary Guarantee (if
any) of such Restricted Subsidiary, any such guarantee of such Restricted
Subsidiary with respect to the Guaranteed Debt shall be subordinated in right of
payment to such Restricted Subsidiary's Subsidiary Guarantee with respect to the
Notes substantially to the same extent as the Guaranteed Debt is subordinated to
the Notes or the Subsidiary Guarantee (if any) of such Restricted Subsidiary,
(iv) such Restricted Subsidiary subordinates rights of reimbursement, indemnity
or subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee to its obligation under its Subsidiary Guarantee, and (v)
such Restricted Subsidiary shall deliver to the Trustee an opinion of counsel to
the effect that (A) such Subsidiary Guarantee of the Notes has been duly
authorized, executed and delivered, and (B) such Subsidiary Guarantee of the
Notes constitutes a valid, binding and enforceable obligation of such Restricted
Subsidiary, except insofar as enforcement thereof may be limited by bankruptcy,
insolvency or similar laws (including, without limitation, all laws relating to
fraudulent transfers) and except insofar as enforcement thereof is subject to
general principles of equity.
SECTION 4.18. LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES.
The Company 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 the
Company 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 the Company 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.
The Company shall not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another Person unless (i) the Company is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition 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 the Company) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes and this Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately prior to and immediately after such transaction no Default or Event
of Default exists; and (iv) except in the case of a merger of the Company with
or into a Wholly
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Owned Subsidiary of the Company, the Company or the entity or Person formed by
or surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
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 the Company, which properties and assets,
if held by the Company instead of such Subsidiaries, would constitute all or
substantially all of the properties and assets of the Company on a consolidated
basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company. Clause (iv) of the foregoing paragraph
will not prohibit (a) a merger between the Company and a Wholly Owned Subsidiary
of Holding created for the purpose of holding the Capital Stock of the Company,
(b) a merger between the Company and a Wholly Owned Subsidiary of the Company or
(c) a merger between the Company and an Affiliate incorporated solely for the
purpose of reincorporating the Company in another State of the United States so
long as, in the case of each of clause (a), (b) and (c), the amount of
Indebtedness of the Company and its Restricted Subsidiaries is not increased
thereby.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company in accordance with Section 5.01 hereof, the successor corporation formed
by such consolidation or into or with which the Company 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 the "Company" shall refer instead to
the successor corporation and not to the Company), and shall exercise every
right and power of the Company under this Indenture with the same effect as if
such successor Person had been named as the Company 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 the Company 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 (whether or
not prohibited by Article 10 hereof);
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(ii) default in payment when due of the principal of or premium, if any,
on the Notes (whether or not prohibited by Article 10 hereof);
(iii) failure by the Company 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 Notes then outstanding to comply
with the provisions described under Sections 4.07, 4.09, 4.10 or
4.13;
(iv) failure by the Company 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 the Company or any of its
Restricted Subsidiaries (or the payment of which is guaranteed by
the Company 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 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 the Company 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) the Company 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 the Company 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;
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(b) appoints a Custodian of the Company 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 the Company 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 the Company 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.
(ix) the Subsidiary Guarantee of a Significant Subsidiary shall be held
in any judicial proceeding to be unenforceable or invalid or, except
as permitted by this Indenture, shall cease for any reason to be in
full force and effect or any Guarantor that is a Significant
Subsidiary, or any Person acting on behalf of any Guarantor that is
a Significant Subsidiary, shall deny or disaffirm its obligations
under its Subsidiary Guarantee;
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 with respect to the Company,
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 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.
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with this Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
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 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, the
Subsidiary Guarantees 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
the Company;
(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.
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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 the Company (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 the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and 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.
Subject to Articles 10 and 12, 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 reasonable compensation, expense
and liabilities incurred, and all advances made, by the Trustee and the costs
and expenses of collection;
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Second: to the extent provided in Articles 10 and 12, to the holders
of Senior Debt in accordance with such Articles;
Third: 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;
Fourth: without duplication, to the Holders for any other Obligations
owing to the Holders under this Indenture and the Notes; and
Fifth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders 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, the Company, 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.
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
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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.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Company. Money
held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02 RIGHTS OF TRUSTEE.
(a) The Trustee may 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.
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(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 the Company or any Guarantor shall
be sufficient if signed by an Officer of the Company or Guarantor, as
applicable.
(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 the Company'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 other wise deal with the Company, the Guarantors or any Affiliate
of the Company or any Guarantor 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 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 the Company 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, the Subsidiary Guarantees or the
Notes, it shall not be accountable for the Company's use of the proceeds from
the Notes or any money paid to the Company or upon the Company'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
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(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 the Company and filed with the Commission and each stock
exchange on which the Company has informed the Trustee in writing the Notes are
listed in accordance with TIA (S) 313(d). The Company 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.
The Company and the Guarantors 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. The
Company and the Guarantors 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. The Company and the Guarantors 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.
The Company and the Guarantors 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
the Company and the Guarantors (including this Section 7.07) and defending
itself against any claim (whether asserted by the Company and the Guarantors 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 the Company and the
Guarantors promptly of any claim for which it may seek indemnity. Failure by
the Trustee to so notify the Company and the Guarantors shall not relieve the
Company of its obligations hereunder, except to the extent such failure shall
have materially prejudiced the Company or any Guarantor. The Company and the
Guarantors shall defend the claim and the Trustee shall cooperate in the
defense. The Trustee may have separate counsel and the Company and the
Guarantors shall pay the reasonable fees and expenses of such counsel. The
Company and the Guarantors need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
The obligations of the Company and the Guarantors under this Section 7.07
shall survive the resignation and removal of the Trustee and the satisfaction
and discharge of this Indenture.
To secure the Company's and the Guarantors 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
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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 the Company. The Holders of a majority in
aggregate principal amount of the then outstanding Notes may remove the Trustee
by so notifying the Trustee and the Company in writing. The Company may remove
the Trustee if:
(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, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes 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 the
Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in 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 the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and 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.
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Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the
Company'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 the Company 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 THE COMPANY.
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.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company 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 and
Subsidiary Guarantees then outstanding upon compliance with the conditions set
forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and each Guarantor 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 and Subsidiary Guarantees then outstanding on the date the conditions
set forth below are satisfied ("Legal Defeasance"). For this purpose, Legal
Defeasance means that the Company 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 the Company's and Guarantors'
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respective other obligations under such Notes and Subsidiary Guarantees and this
Indenture (and the Trustee, on demand of and at the expense of the Company,
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 of 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) the Company'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 the Company's obligations in connection therewith; and (d) the
provisions of this Section 8.02.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and each Guarantor 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, 4.17, 4.18,
5.01 and 11.01 hereof with respect to the outstanding Notes and Subsidiary
Guarantees on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes and Subsidiary Guarantees
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
and Subsidiary Guarantees, the Company 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 and Subsidiary Guarantees shall be
unaffected thereby. In addition, upon the Company'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.
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 and Subsidiary Guarantees:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust, for
the benefit of the Holders of the Notes, cash in U.S. dollars, non-
callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular
redemption date;
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(b) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received
from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the 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, the Company 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 the
Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound;
(f) the Company 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 shall not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of Notes over the other creditors
of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and
(h) the Company 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.
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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 the Company 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.
The Company 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 the Company from time to time at the Company'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 THE COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, 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 the
Company on its written request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company 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 the Company cause to
be published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.
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 the Company and the
Guarantors under this Indenture, and the Notes and the Subsidiary Guarantees
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
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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 the Company makes any payment of principal of,
premium, if any, interest or Liquidated Damages, if any, on any Note following
the reinstatement of its obligations, the Company 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, the Company, the Guarantors and the Trustee may amend or
supplement this Indenture, the Notes or the Subsidiary Guarantees:
(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 the Company's or a Guarantor's
obligations to the Holders of the Notes in the case of a merger or
consolidation pursuant to Article 5 or Article 11 hereof, as
applicable;
(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;
(e) to comply with requirements of the Commission in order to effect or
maintain the qualification of this Indenture under the TIA; or
(f) to allow any Subsidiary to Guarantee the Notes.
Upon the written request of the Company accompanied by a resolution of its
Board of Directors of the Company 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 the Company or the
Guarantors 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 supple mental indenture that
affects its own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02 WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02 or as provided in Section
10.13 or Section 12.13 of this Indenture, this Indenture, the Notes and the
Subsidiary Guarantees 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, the Notes or the Subsidiary Guarantees may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the then outstanding Notes
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(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 the Company 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 the Company and the Guarantors in the
execution of such amended or supplemental indenture unless such amended or
supplemental indenture 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, the Company shall mail to the Holders of each Note affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver.
Subject to Sections 6.04, 6.07, 10.13 and 12.13 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 the Company or the Guarantors
with any provision of this Indenture or the Notes or the Subsidiary Guarantees.
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);
(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;
(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);
(h) except as otherwise permitted herein, release any Guarantor from any
of its obligations under its Subsidiary Guarantee or this Indenture,
or amend the provisions herein relating to the release of Guarantors;
or
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(i) 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, the Subsidiary Guarantees
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.
The Company 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. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE 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. The
Company and the Guarantors may not sign an amendment or supplemental indenture
until their respective Boards of Directors approve 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 the Company and the Guarantors in accordance with its
terms.
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ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder of Notes by accepting a Note agrees,
that the Indebtedness evidenced by the Note is subordinated in right of payment,
to the extent and in the manner provided in this Article, to the prior payment
in full of all Obligations in respect of Senior Debt (whether outstanding on the
date hereof or hereafter created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the holders of Senior Debt.
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment or distribution of any kind to creditors of the Company,
whether in cash, property or securities, in a total or partial liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, whether voluntary or involuntary, the holders of Senior
Debt will be entitled to receive payment in full of all Obligations in respect
of such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt whether or not
such interest is an allowed claim enforceable against a debtor in a bankruptcy
case under Title 11 of the United States Code) before the Holders of Notes will
be entitled to receive any payment or distribution of any kind with respect to
the Notes, and until all Obligations with respect to Senior Debt are paid in
full, any payment or distribution to which the Holders of Notes would be
entitled shall be made to the holders of Senior Debt (except that Holders of
Notes may receive and retain Permitted Junior Securities made pursuant to a
reorganization in which the Senior Debt is not impaired and payments made from
the trust described under Section 8.02 and 8.03).
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company shall not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities made pursuant to a reorganization in
which the Senior Debt is not impaired or from the trust described under Section
8.02, 8.03 and 8.04(a)) if (i) any amount of principal, interest or other
Obligation in respect of any Designated Senior Debt (including, without
limitation, any amount due as a result of the acceleration of the maturity
thereof) is not paid when due and remains unpaid (a "Payment Default") or (ii)
any other default (a "Nonpayment Default") occurs and is continuing with respect
to any Designated Senior Debt that permits holders of such Designated Senior
Debt or any agent or trustee therefor to accelerate its maturity and, in the
case of any such Nonpayment Default, the Trustee receives a notice of such
default invoking the following provisions of this Section 10.03 (a "Payment
Blockage Notice") from the holders of any Designated Senior Debt or any agent or
trustee therefor. However, the Company may pay the Notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the representative of the Designated Senior Debt affected by such
Payment Default or Nonpayment Default. Payments on the Notes may and shall be
resumed (a) in the case of a Payment Default, upon the date on which all Payment
Defaults have been cured or waived, unless a Payment Blockage Notice has been
delivered commencing a payment blockage period in respect of a Nonpayment
Default, and (b) in case of a Nonpayment Default, the earlier of (i) the date on
which all Payment Defaults and Nonpayment Defaults have been cured or waived or
(ii) the date 179 days after the date on which the applicable Payment Blockage
Notice is received, unless a Payment Default has occurred and is continuing. No
new period of payment blockage may be commenced in respect of a Nonpayment
Default unless and until 180 days have elapsed since the effectiveness of the
immediately prior
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Payment Blockage Notice. No Nonpayment Default that existed or was continuing on
the date of delivery of any Payment Blockage Notice to the Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been cured or waived for a period of not less than 90 days; provided
that if such Nonpayment Default arose from the failure to comply with a
financial covenant and if the condition or performance measured by such
financial covenant has declined further from such condition or performance as
reflected in the most recent financial statements available on the date of
delivery of the original Payment Blockage Notice to the Trustee, such Nonpayment
Default may be, or be made, the basis for a subsequent Payment Blockage Notice.
Whenever the Company is prohibited from making any payment in respect of
the Notes, the Company also shall be prohibited from making, directly or
indirectly, any deposit in the trust described under Section 8.02, 8.03 and
8.04(a) and any payment of any kind on account of the redemption, purchase or
other acquisition of the Notes except for payments from a trust described under
Section 2.08, 3.05, 8.02, 8.03 or 8.04(a). If any Holder receives any payment
or distribution that such Holder is not entitled to receive with respect to the
Notes, such Holder shall be required to pay the same over to the holders of
Senior Debt.
SECTION 10.04 ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of Default, the
Company shall promptly notify holders of Senior Debt of the acceleration. The
Company shall not make any payment in respect of the Notes until the earlier of
five Business Days after such notice is delivered or the date of acceleration of
any Designated Senior Debt and, thereafter, may pay the Notes only if this
Article 10 otherwise permits payment at that time.
SECTION 10.05 WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder of a Note receives any payment
of any Obligations with respect to the Notes at a time when such payment is
prohibited by Sections 10.02 or 10.03 hereof, such payment shall be held by the
Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith
over and delivered, upon written request, to, the holders of Senior Debt as
their interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued (the
"Representative"), as their respective interests may appear, for application to
the payment of all Obligations with respect to Senior Debt remaining unpaid to
the extent necessary to pay such Obligations in full in accordance with their
terms, after giving effect to any concurrent payment or distribution to or for
the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obliga tions with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders of the Notes or
the Company or any other Person money or assets to which any holders of Senior
Debt shall be entitled by virtue of this Article 10, except if such payment is
made as a result of the willful misconduct or gross negligence of the Trustee.
SECTION 10.06. NOTICE BY THE COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of any
facts known to the Company that would cause a payment of any Obligations with
respect to the Notes to violate this Article,
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which notice shall specifically refer to this Article 10, but failure to give
such notice shall not affect the subordination of the Notes to the Senior Debt
as provided in this Article.
SECTION 10.07 SUBROGATION.
After all Senior Debt is paid in full and until the Notes are paid in full,
Holders of the Notes shall be subrogated (equally and ratably with all other
pari passu indebtedness) to the rights of holders of Senior Debt to receive
distributions applicable to Senior Debt to the extent that distributions
otherwise payable to the Holders of the Notes have been applied to the payment
of Senior Debt. A distribution made under this Article to holders of Senior
Debt that otherwise would have been made to Holders of the Notes is not, as
between the Company and Holders of the Notes, a payment by the Company on the
Notes.
SECTION 10.08 RELATIVE RIGHTS.
This Article defines the relative rights of Holders of the Notes and
holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders of the Notes, the
obligations of the Company, which are absolute and unconditional, to pay
principal of and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders of the Notes and creditors
of the Company other than their rights in relation to holders of Senior
Debt; or
(3) prevent the Trustee or any Holder of the Notes from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Debt to receive distributions and
payments otherwise payable to Holders of the Notes.
If the Company fails because of this Article to pay principal of or
interest on a Note on the due date, the failure is still a Default or an Event
of Default.
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY THE COMPANY.
No right of any holder of Senior Debt to enforce the subordination of the
Indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by the Company or any Holder or by any act or failure to act, in good faith,
by any such holder, or by the failure of the Company or any Holder to comply
with this Indenture.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Debt, or any of them, may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the Notes,
without incurring any liabilities to any Holder of any Notes and without
impairing or releasing the subordination and other benefits provided in this
Indenture or the obligations of the Holders of the Notes to the holders of the
Senior Debt, even if any right of reimbursement or subrogation or other right or
remedy of any Holder of Notes is affected, impaired or extinguished thereby, do
any one or more of the following:
(1) change the manner, place or terms of payment or change or extend
the time of payment of, or renew, exchange, amend, increase or alter, the
terms of any Senior Debt, any security therefor or guaranty thereof or any
liability of any obligor thereon (including any guarantor) to such holder,
or any liability incurred directly or indirectly in respect thereof or
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otherwise amend, renew, exchange, extend, modify, increase or supplement in
any manner any Senior Debt or any instrument evidencing or guaranteeing or
securing the same or any agreement under which Senior Debt is outstanding;
(2) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and in any order any property pledged,
mortgaged or otherwise securing Senior Debt or any liability of any obligor
thereon, to such holder, or any liability incurred directly or indirectly
in respect thereof;
(3) settle or compromise any Senior Debt or any other liability of
any obligor of the Senior Debt to such holder or any security therefor or
any liability incurred directly or indirectly in respect thereof and apply
any sums by whomsoever paid and however realized to any liability
(including, without limitation, Senior Debt) in any manner or order; and
(4) fail to take or to record or to otherwise perfect, for any reason
or for no reason, any lien or security interest securing Senior Debt by
whomsoever granted, exercise or delay in or refrain from exercising any
right or remedy against any obligor or any guarantor or any other person,
elect any remedy and otherwise deal freely with any obligor and any
security for the Senior Debt or any liability of any obligor to such holder
or any liability incurred directly or indirectly in respect thereof.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to in
this Article 10, the Trustee and the Holders of the Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of the Notes for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Debt and other Indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
10.
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts that would prohibit the making of any payment to or distribution by
the Trustee, and the Trustee and the Paying Agent may continue to make payments
on the Notes, unless and until the Trustee shall have received at its Corporate
Trust Office at least three Business Days prior to the date of such payment
written notice of facts that would cause the payment of any Obligations with
respect to the Notes to violate this Article, which notice shall specifically
refer to this Article 10. Only the Company or a Representative may give the
notice. Nothing in this Article 10 shall impair the claims of, or payments to,
the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
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SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes, including without limitation the timely filing of a
claim for the unpaid balance of the Notes held by such Holder in the form
required in any Insolvency or Liquidation Proceeding and causing such claim to
be approved. If the Trustee does not file a proper proof of claim or proof of
debt in the form required in any proceeding referred to in Section 6.09 hereof
at least 30 days before the expiration of the time of such claim, the
Representatives of the Designated Senior Debt, including the Credit Agent, are
hereby authorized to file an appropriate claim for and on behalf of the Holders
of the Notes.
SECTION 10.13. AMENDMENTS.
Any amendment to the provisions of this Article 10 (which relate to
subordination or the related definitions) shall require the consent of the
Holders of at least 75% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of the Holders
of Notes.
ARTICLE 11
GUARANTEE OF NOTES
SECTION 11.01. SUBSIDIARY GUARANTEE.
Subject to Section 11.06 and Article 12 hereof, each of the Guarantors
hereby, jointly and severally, unconditionally guarantees to each Holder of a
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Notes and the Obligations of the Company hereunder and
thereunder, that: (a) the principal of, premium, if any, interest and Liquidated
Damages, if any, on the Notes will be promptly paid in full when due, subject to
any applicable grace period, whether at maturity, by acceleration, redemption or
otherwise, and interest on the overdue principal, premium, if any, (to the
extent permitted by law) interest on any interest, if any, and Liquidated
Damages, if any, on the Notes, and all other payment Obligations of the Company
to the Holders or the Trustee hereunder or thereunder will be promptly paid in
full and performed, all in accordance with the terms hereof and thereof; and (b)
in case of any extension of time of payment or renewal of any Notes or any of
such other Obligations, the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, subject to
any applicable grace period, whether at stated maturity, by acceleration,
redemption or otherwise. Failing payment when so due of any amount so
guaranteed for whatever reason the Guarantors will be jointly and severally
obligated to pay the same immediately. An Event of Default under this Indenture
or the Notes shall constitute an event of default under the Subsidiary
Guarantees, and shall entitle the Holders to accelerate the Obligations of the
Guarantors hereunder in the same manner and to the same extent as the
Obligations of the Company. The Guarantors hereby agree that their Obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder with respect to any
provisions hereof or thereof, the recovery of any judgment against the Company,
any action to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a Guarantor. Each
Guarantor hereby waives diligence, presentment, demand of payment, filing of
claims with a court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest, notice and all
demands whatsoever and covenants that this Subsidiary Guarantee will not be
discharged (subject to Section 11.04) except by complete performance
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of the Obligations contained in the Notes and this Indenture. If any Holder or
the Trustee is required by any court or otherwise to return to the Company, the
Guarantors, or any Note Custodian, Trustee, liquidator or other similar official
acting in relation to either the Company or the Guarantors, any amount paid by
either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Guarantor agrees that it shall not be entitled to, and hereby waives, any right
of subrogation in relation to the Holders in respect of any Obligations
guaranteed hereby. Each Guarantor further agrees that, as between the
Guarantors, on the one hand, and the Holders and the Trustee, on the other hand,
(x) the maturity of the Obligations guaranteed hereby may be accelerated as
provided in Article 6 for the purposes of this Subsidiary Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations guaranteed hereby, and (y) in the
event of any declaration of acceleration of such Obligations as provided in
Article 6 hereof, such Obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantors for the purpose of this
Subsidiary Guarantee. The Guarantors shall have the right to seek contribution
from any non-paying Guarantor and the Company so long as the exercise of such
right does not impair the rights of the Holders under the Subsidiary Guarantees.
SECTION 11.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
To evidence its Subsidiary Guarantee set forth in Section 11.01, each
Guarantor hereby agrees that a notation of such Subsidiary Guarantee
substantially in the form of Exhibit D shall be endorsed by an Officer of such
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Guarantor on each Note authenticated and delivered by the Trustee and that this
Indenture shall be executed on behalf of such Guarantor, by manual or facsimile
signature, by an Officer of such Guarantor.
Each Guarantor hereby agrees that its Subsidiary Guarantee set forth in
Section 11.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the Subsidiary
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall
be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof
hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth
in this Indenture on behalf of the Guarantors.
SECTION 11.03. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS
(a) Except as set forth in Articles 4 and 5 hereof, nothing contained in
this Indenture shall prohibit a merger between a Guarantor and another Guarantor
or a merger between a Guarantor and the Company.
(b) Subject to Section 11.04 hereof, no Guarantor may consolidate with or
merge with or into (whether or not such Guarantor is the surviving Person),
another corporation, Person or entity whether or not affiliated with such
Guarantor unless, subject to the provisions of the following paragraph, (i) the
Person formed by or surviving any such consolidation or merger (if other than
such Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under this Indenture and its Subsidiary Guarantees; and (ii)
immediately after giving effect to such transaction, no Default or Event of
Default exists.
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(c) In the case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor Person, by supplemental indenture, executed
and delivered to the Trustee and substantially in the form of Exhibit E hereto,
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of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Guarantor, such successor Person shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor and thereafter the predecessor Guarantor shall be fully
discharged from its Subsidiary Guarantee; provided that, solely for 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 the Company and its Restricted Subsidiaries shall only be included
for periods subsequent to the effective time of such merger, consolidation,
combination or transfer of assets. Such successor Person thereupon may cause to
be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the
Notes issuable hereunder which theretofore shall not have been signed by the
Company and delivered to the Trustee. All of the Subsidiary Guarantees so
issued shall in all respects have the same legal rank and benefit under this
Indenture as the Subsidiary Guarantees theretofore and thereafter issued in
accordance with the terms of this Indenture as though all of such Subsidiary
Guarantees had been issued at the date of the execution hereof.
SECTION 11.04. RELEASES FOLLOWING SALE OF ASSETS, MERGER, SALE OF CAPITAL
STOCK ETC.
In the event (a) of a sale or other disposition of all of the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the Capital Stock of any Guarantor, or (b) that the
Company designates a Guarantor to be an Unrestricted Subsidiary, or such
Guarantor ceases to be a Subsidiary of the Company, then such Guarantor (in the
event of a sale or other disposition, by way of such a merger, consolidation or
otherwise, of all of the Capital Stock of such Guarantor or any such
designation) or the entity acquiring the property (in the event of a sale or
other disposition of all of the assets of such Guarantor) shall be released and
relieved of any obligations under its Subsidiary Guarantee. In the case of a
sale, assignment, lease, transfer, conveyance or other disposition of all or
substantially all of the assets of a Guarantor, upon the assumption provided for
in clause (i) of the Section 11.03(b) hereof, such Guarantor shall be discharged
from all further liability and obligation under this Indenture. Upon delivery
by the Company to the Trustee of an Officers' Certificate to the effect of the
foregoing, the Trustee shall execute any documents reasonably required in order
to evidence the release of any Guarantor from its Obligation under its
Subsidiary Guarantee. Any Guarantor not released from its Obligations under its
Subsidiary Guarantee shall remain liable for the full amount of principal of,
premium, if any, interest and Liquidated Damages, if any, on the Notes and for
the other Obligations of such Guarantor under this Indenture as provided in this
Article 11.
SECTION 11.05. ADDITIONAL GUARANTORS.
Any Person that was not a Guarantor on the date of this Indenture may
become a Guarantor by executing and delivering to the Trustee (a) a supplemental
indenture in substantially the form of Exhibit E, and (b) an Opinion of Counsel
---------
to the effect that such supplemental indenture has been duly authorized and
executed by such Person and constitutes the legal, valid, binding and
enforceable obligation of such Person (subject to such customary exceptions
concerning creditors rights', fraudulent transfers, public policy and equitable
principles as may be acceptable to the Trustee in its discretion).
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SECTION 11.06. LIMITATION ON GUARANTOR LIABILITY.
Notwithstanding any term or provision of this Indenture or any Note to the
contrary, the maximum aggregate amount of the obligations guaranteed hereunder
by any Guarantor shall not exceed the maximum amount that can be hereby
guaranteed by that Guarantor without rendering this Subsidiary Guarantee, as it
relates to such Guarantor, voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
SECTION 11.07. "TRUSTEE" TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article 11 shall in each case (unless the context shall otherwise
require) be construed as extending to and including such Paying Agent within its
meaning as fully and for all intents and purposes as if such Paying Agent were
named in this Article 11 in place of the Trustee.
ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTEE
SECTION 12.01. AGREEMENT TO SUBORDINATE.
The Guarantors agree, and each Holder of Notes by accepting a Note agrees,
that the Indebtedness evidenced by the Note is general unsecured obligations of
the Guarantors, is subordinated in right of payment, to the extent and in the
manner provided in this Article, to the prior payment in full of all Senior Debt
of such Guarantor (whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed), and that the subordination is for the benefit
of the holders of Senior Debt of such Guarantor.
SECTION 12.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment or distribution of any kind to creditors of any Guarantor,
whether in cash, property or securities, in a total or partial liquidation or
dissolution of such Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to any Guarantor or its property, an
assignment for the benefit of creditors or any marshalling of such Guarantor's
assets and liabilities, whether voluntary or involuntary, the holders of Senior
Debt of such Guarantor will be entitled to receive payment in full of all
Obligations in respect of such Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt whether or not such interest is an allowed claim enforceable against
a debtor in a bankruptcy case under Title 11 of the United States Code) before
the Holders of Notes will be entitled to receive any payment or distribution of
any kind with respect to the Notes, and until all Obligations with respect to
such Senior Debt are paid in full, any payment or distribution to which the
Holders of Notes would be entitled shall be made to the holders of Senior Debt
of such Guarantor (except that Holders of Notes may receive and retain Permitted
Junior Securities issued pursuant to a reorganization in which the Senior Debt
of such Guarantor is not impaired and payments made from the trust described
under Section 8.02 and 8.03).
SECTION 12.03. DEFAULT ON DESIGNATED SENIOR DEBT.
No Guarantor shall make any payment upon or in respect of the Notes (except
in Permitted Junior Securities issued pursuant to a reorganization in which the
Senior Debt of such Guarantor is not impaired
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or from the trust described under Sections 2.08, 3.05, 8.02, 8.03 or 8.04(a)) if
(i) any amount of principal, interest or other Obligation in respect of any
Designated Senior Debt (including, without limitation, any amount due as a
result of the acceleration of the maturity thereof) is not paid when due and
remains unpaid (a "Payment Default") or (ii) any other default (a "Nonpayment
Default") occurs and is continuing with respect to any Designated Senior Debt
that permits holders of such Designated Senior Debt or any agent or trustee
therefor to accelerate its maturity and, in the case of any such Nonpayment
Default, the Trustee receives a notice of such default invoking the following
provisions of this Section 12.03 (a "Payment Blockage Notice") from the holders
of any Designated Senior Debt or any agent or trustee therefor. However, the
Guarantors may pay the Notes without regard to the foregoing if the Company and
the Trustee receive written notice approving such payment from the
representative of the Designated Senior Debt affected by such Payment Default or
Nonpayment Default. Payments on the Notes may and shall be resumed (a) in the
case of a Payment Default, upon the date on which all Payment Defaults have been
cured or waived, unless a Payment Blockage Notice has been delivered commencing
a payment blockage period in respect of a Nonpayment Default, and (b) in case of
a Nonpayment Default, the earlier of (i) the date on which all Payment Defaults
and Nonpayment Defaults have been cured or waived or (ii) the date 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless a Payment Default has occurred and is continuing. No new period of
payment blockage may be commenced in respect of a Nonpayment Default unless and
until 180 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice. No Nonpayment Default that existed or was continuing on
the date of delivery of any Payment Blockage Notice to the Trustee shall be, or
be made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been cured or waived for a period of not less than 90 days; provided
that if such Nonpayment Default arose from the failure to comply with a
financial covenant and if the condition or performance measured by such
financial covenant has declined further from such condition or performance as
reflected in the most recent financial statements available on the date of
delivery of the original Payment Blockage Notice to the Trustee, such Nonpayment
Default may be, or be made, the basis for a subsequent Payment Blockage Notice.
Whenever a Guarantor is prohibited from making any payment in respect of
the Notes, the Guarantor also shall be prohibited from making, directly or
indirectly, any deposit in the trust described under Section 8.02, 8.03 and
8.04(a) and any payment of any kind on account of the redemption, purchase or
other acquisition of the Notes except for payments from the trust described
under Section 2.08, 3.05, 8.02, 8.03 and 8.04(a). If any Holder receives any
payment or distribution that such Holder is not entitled to receive with respect
to the Notes, such Holder shall be required to pay the same over to the holders
of Senior Debt.
SECTION 12.04. ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of Default, the
Guarantors shall promptly notify holders of Senior Debt of the acceleration.
The Guarantors shall not make any payment in respect of the Subsidiary
Guarantees until the earlier of five Business Days after such notice is
delivered or the date of acceleration of any Designated Senior Debt and,
thereafter, may pay the Notes only if this Article 12 otherwise permits payment
at that time.
SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder of a Note receives any payment
of any Obligations with respect to the Notes at a time when such payment is
prohibited by Sections 12.02 or 12.03 hereof, such payment shall be held by the
Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith
over and delivered, upon written request, to, the holders of Senior Debt as
their interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations
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with respect to Senior Debt remaining unpaid to the extent necessary to pay such
Obligations in full in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 12, and no implied covenants or obliga tions with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders of the Notes or
the Guarantors or any other Person money or assets to which any holders of
Senior Debt shall be entitled by virtue of this Article 12, except if such
payment is made as a result of the willful misconduct or gross negligence of the
Trustee.
SECTION 12.06. NOTICE BY GUARANTOR
The Guarantors shall promptly notify the Trustee and the Paying Agent of
any facts known to the Guarantors that would cause a payment of any Obligations
with respect to the Notes to violate this Article, which notice shall
specifically refer to this Article 12, but failure to give such notice shall not
affect the subordination of the Notes to the Senior Debt as provided in this
Article.
SECTION 12.07. SUBROGATION.
After all Senior Debt is paid in full and until the Notes are paid in full,
Holders of the Notes shall be subrogated (equally and ratably with all other
pari passu indebtedness) to the rights of holders of Senior Debt to receive
distributions applicable to Senior Debt to the extent that distributions
otherwise payable to the Holders of the Notes have been applied to the payment
of Senior Debt. A distribution made under this Article to holders of Senior
Debt that otherwise would have been made to Holders of the Notes is not, as
between the Guarantor and Holders of the Notes, a payment by the Guarantors on
the Notes.
SECTION 12.08. RELATIVE RIGHTS.
This Article defines the relative rights of Holders of the Notes and
holders of Senior Debt. Nothing in this Indenture shall:
(1) impair, as between the Guarantors and Holders of the Notes, the
obligations of the Guarantors, which are absolute and unconditional, to pay
principal of and interest on the Notes in accordance with their terms;
(2) affect the relative rights of Holders of the Notes and creditors
of the Guarantors other than their rights in relation to holders of Senior
Debt; or
(3) prevent the Trustee or any Holder of the Notes from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Debt to receive distributions and
payments otherwise payable to Holders of the Notes.
If the Guarantors fail because of this Article to pay principal of or
interest on a Note on the due date, the failure is still a Default or an Event
of Default.
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SECTION 12.09. SUBORDINATION MAY NOT BE IMPAIRED BY THE GUARANTORS.
No right of any holder of Senior Debt to enforce the subordination of the
Indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by any Guarantor or any Holder or by any act or failure to act, in good
faith, by any such holder, or by the failure of any Guarantor or any Holder to
comply with this Indenture.
Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Debt, or any of them, may, at any time and from time to time,
without the consent of or notice to the Trustee or the Holders of the Notes,
without incurring any liabilities to any Holder of any Notes and without
impairing or releasing the subordination and other benefits provided in this
Indenture or the obligations of the Holders of the Notes to the holders of the
Senior Debt, even if any right of reimbursement or subrogation or other right or
remedy of any Holder of Notes is affected, impaired or extinguished thereby, do
any one or more of the following:
(1) change the manner, place or terms of payment or change or extend
the time of payment of, or renew, exchange, amend, increase or alter, the
terms of any Senior Debt, any security therefor or guaranty thereof or any
liability of any obligor thereon (including any guarantor) to such holder,
or any liability incurred directly or indirectly in respect thereof or
otherwise amend, renew, exchange, extend, modify, increase or supplement in
any manner any Senior Debt or any instrument evidencing or guaranteeing or
securing the same or any agreement under which Senior Debt is outstanding;
(2) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and in any order any property pledged,
mortgaged or otherwise securing Senior Debt or any liability of any obligor
thereon, to such holder, or any liability incurred directly or indirectly
in respect thereof;
(3) settle or compromise any Senior Debt or any other liability of
any obligor of the Senior Debt to such holder or any security therefor or
any liability incurred directly or indirectly in respect thereof and apply
any sums by whomsoever paid and however realized to any liability
(including, without limitation, Senior Debt) in any manner or order; and
(4) fail to take or to record or to otherwise perfect, for any reason
or for no reason, any lien or security interest securing Senior Debt by
whomsoever granted, exercise or delay in or refrain from exercising any
right or remedy against any obligor or any guarantor or any other person,
elect any remedy and otherwise deal freely with any obligor and any
security for the Senior Debt or any liability of any obligor to such holder
or any liability incurred directly or indirectly in respect thereof.
SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of any Guarantor referred to in
this Article 12, the Trustee and the Holders of the Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of the Notes for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Debt and
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other Indebtedness of the Guarantor, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 12.
SECTION 12.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 12 or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts that would prohibit the making of any payment to or distribution by
the Trustee, and the Trustee and the Paying Agent may continue to make payments
on the Notes, unless and until the Trustee shall have received at its Corporate
Trust Office at least three Business Days prior to the date of such payment
written notice of facts that would cause the payment of any Obligations with
respect to the Notes to violate this Article, which notice shall specifically
refer to this Article 12. Only a Guarantor or a Representative may give the
notice. Nothing in this Article 12 shall impair the claims of, or payments to,
the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior Debt
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
SECTION 12.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of a Note by the Holder's acceptance thereof authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 12, and appoints the Trustee to act as the Holder's attorney-in-fact for
any and all such purposes, including without limitation the timely filing of a
claim for the unpaid balance of the Notes held by such Holder in the form
required in any Insolvency or Liquidation Proceeding and causing such claim to
be approved. If the Trustee does not file a proper proof of claim or proof of
debt in the form required in any proceeding referred to in Section 6.09 hereof
at least 30 days before the expiration of the time of such claim, the
Representatives of the Designated Senior Debt, including the Credit Agent, are
hereby authorized to file an appropriate claim for and on behalf of the Holders
of the Notes.
SECTION 12.13. AMENDMENTS.
Any amendment to the provisions of this Article 12 (which relate to
subordination or the related definitions) shall require the consent of the
Holders of at least 75% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of the Holders
of Notes.
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. 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 13.02. NOTICES.
Any notice or communication by the Company, the Guarantors 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), telecopier
or overnight air courier guaranteeing next day delivery, to the others' address:
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If to the Company:
Advance Stores Company, Incorporated
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
The Company 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.
If the Company mails a notice or communication to Holders, it shall mail a
copy to the Trustee and each Agent at the same time.
SECTION 13.03. 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. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA (S)
312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or the Guarantors to the
Trustee to take any action under this Indenture (other than the initial issuance
of the Notes), the Company or Guarantor shall furnish to the Trustee upon
request:
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(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 13.05 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 13.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 13.05. 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 the Company 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 the Company stating that
the information with respect to such factual matters is in the possession of the
Company, 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 the
Company 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 13.06. 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.
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SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the Company
or the Guarantors, as such, shall have any liability for any obligations of the
Company or any Guarantor under the Notes, this Indenture, the Subsidiary
Guarantees 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 13.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES.
SECTION 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 13.10. SUCCESSORS.
All agreements of the Company and the Guarantors in this Indenture, the
Notes and the Subsidiary Guarantees shall bind their respective successors and
assigns. All agreements of the Trustee in this Indenture shall bind its
successors and assigns.
SECTION 13.11. 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 13.12. 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.
SECTION 13.13. 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.
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SECTION 13.14. 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 Senior Debt
(subject to Articles 10 and 12 hereof) and 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]
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SIGNATURES
Dated as of April 15, 1998
ADVANCE STORES COMPANY, INCORPORATED
By: /s/ J. O'Neil Leftwich
--------------------------------
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer,
Secretary and Treasurer
LARALEV, INC., as Guarantor
By: /s/ David C. Eppes
--------------------------------
Name: David C. Eppes
Title: President
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)
10.25% Senior Subordinated Notes due 2008
No. ___ $[_______________]
CUSIP NO. [______]
ADVANCE STORES COMPANY, INCORPORATED
promises to pay to _________________ or registered assigns, the principal sum of
___________ Dollars ($___________) on April 15, 2008.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
ADVANCE STORES COMPANY, INCORPORATED
By:
---------------------------------
Name:
Title:
This is one of the 10.25% Senior
Subordinated Notes 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)
10.25% Senior Subordinated
Notes due 2008
[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 THE COMPANY 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 THE COMPANY 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 THE COMPANY) 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
- --------------------------
/1/ This paragraph should be included only if the Note is issued in global
form.
A-1-2
<PAGE>
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.]/2/
- --------------------------
/2/ This paragraph should be removed upon the exchange of Senior Subordinated
Notes for Exchange Senior Subordinated Notes in the Exchange Offer or upon
the registration of the Senior Subordinated Notes 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. INTEREST. Advance Stores Company, Incorporated or its successor (the
"Company"), promises to pay interest on the principal amount of this Note
at the rate of 10.25% per annum and shall pay the Liquidated Damages, if
any, payable pursuant to Section 5 of the Registration Rights Agreement
referred to below. The Company 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, 1998, 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, 1998; 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, 1998. The Company shall pay interest (including, to the extent
permitted by applicable law, post-petition interest in any proceeding under
any Bankruptcy Law) on overdue principal 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. The Company 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 the Company maintained for such purpose within or
without the City and State of New York, or, at the option of the Company,
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. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as
of April 15, 1998 ("Indenture") among the Company, the Guarantors and the
Trustee. The terms of the
A-1-4
<PAGE>
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 the
Company limited to $200 million in aggregate principal amount.
5. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the Notes shall not be
redeemable at the Company's option prior to April 15, 2003. Thereafter,
the Notes shall be subject to redemption at any time at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below 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:
YEAR PERCENTAGE
---- ----------
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 (but shall not have the obligation to) redeem, on
one or more occasions, up to an aggregate of 35% of the principal amount of
the Notes originally issued at a redemption price equal to 110.25% of the
principal amount thereof, plus accrued and unpaid interest and 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 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, the Company 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 the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at an
offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, thereon,
to the date of purchase. Within 30 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that
A-1-5
<PAGE>
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, the Company 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, 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 of Notes and any such Pari Passu Indebtedness tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company or its
Restricted Subsidiaries may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of 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 the Company
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, unless all of the Notes held by a Holder are to be
redeemed or repurchased. On and after the redemption date or repurchased
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, unless the Company 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 the Company may require a Holder to
pay any taxes and fees required by law or permitted by the Indenture. The
Company 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-1-6
<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 the provisions of the Indenture, the Indenture, the Notes and the
Subsidiary Guarantees 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, the Notes and the Subsidiary Guarantees 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). Any amendment
to the provisions of Article 10 or 12 shall require the consent of the
Holders of at least 75% in aggregate principal amount of Notes then
outstanding if such amendment would adversely affect the rights of the
Holders of Notes.
Without the consent of any Holder of Notes, the Company, the Guarantors
and the Trustee may amend or supplement the Indenture, the Notes or the
Subsidiary Guarantees to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's or a Guarantor'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 the
Company 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 the Company 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 the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company 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
A-1-7
<PAGE>
by the Company 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; (vii) any Subsidiary Guarantee of a Significant
Subsidiary shall be held in any judicial proceeding to be unenforceable or
invalid or, except as permitted by the Indenture, shall cease for any
reason to be in full force and effect or any Guarantor that is a
Significant Subsidiary, or any Person acting on behalf of any Guarantor
that is a Significant Subsidiary, shall deny or disaffirm its obligations
under its Subsidiary Guarantee; and (viii) certain events of bankruptcy or
insolvency with respect to the Company 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 the
Company, 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 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 COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform
services for the Company, the Guarantors or their respective Affiliates,
and may otherwise deal with the Company, the Guarantors or their respective
Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder, of the Company or any Guarantor, as such,
shall have any liability for any obligations of the Company or any
Guarantor 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
the Company, the Guarantors and the Initial Purchasers (the
"Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company
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-1-9
<PAGE>
The Company 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 Stores Company, Incorporated
5673 Airport Road
Roanoke, Virginia 24012
Telecopier: 540.561.1699
Attention: Chief Financial Officer
A-1-10
<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 the Company. 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-1-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
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 the
Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the
amount you elect to have purchased (which must be $1,000 or integral multiples
thereof): $___________
Date:_______________________ Your Signature:____________________________
(Sign exactly as your name appears on the Note)
Tax Identification No.:____________________
Signature Guarantee.
A-1-12
<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>
- ---------------------------------------------------------------------------------------------------------------------------
Amount of decrease in Amount of increase in Principal Amount of this Signature of authorized
Principal Amount of this Principal Amount of this Global Note following officer of Trustee or
Date of Exchange Global Note Global Note such decrease (or Note Custodian
increase)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- ---------------------
/3/ This should be included only if the Note is issued in global form.
A-1-13
<PAGE>
Exhibit A-2
-----------
(Face of Regulation S Temporary Global Note)
10.25% Senior Subordinated Notes due 2008
No. $[_______________]
CUSIP NO. [___]
ADVANCE STORES COMPANY, INCORPORATED
promises to pay to _________________ or registered assigns, the principal sum of
___________ Dollars ($___________) on April 15, 2008.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
ADVANCE STORES COMPANY, INCORPORATED
By:
------------------------------
Name:
Title:
This is one of the 10.25% Senior Subordinated Notes 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)
10.25% Senior Subordinated Notes due 2008
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND
THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE SENIOR
SUBORDINATED 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 SENIOR DISCOUNT NOTE FOR A REGULATION S TEMPORARY
GLOBAL NOTE AS CONTEMPLATED BY THE INDENTURE.]/1/
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./2/
[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 THE COMPANY 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
- -----------------------
/1/ These paragraphs should be removed upon the exchange of Regulation S
Temporary Global Notes for Regulation S Permanent Global Notes pursuant to the
terms of the Indenture.
/2/ This paragraph should be included only if the Note is issued in global
form.
A-2-2
<PAGE>
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 THE COMPANY 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 THE COMPANY) 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.]/3/
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 Senior Subordinated 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. Interest. Advance Stores Company, Incorporated or its successor (the
"Company"), promises to pay interest on the principal amount of this
Note at the rate of 10.25% per annum and shall pay the Liquidated
Damages, if any, payable pursuant to Section 5 of the
- -----------------------
/3/ This paragraph should be removed upon the exchange of Senior Subordinated
Notes for Exchange Senior Subordinated Notes in the Exchange Offer or upon
the registration of the Senior Subordinated Notes pursuant to the terms of
the Registration Rights Agreement.
A-2-3
<PAGE>
Registration Rights Agreement referred to below. The Company 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, 1998, 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, 1998; 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, 1998. The Company shall pay interest (including, to the extent
permitted by applicable law, post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal 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. The Company 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 the Company maintained for such
purpose within or without the City and State of New York, or, at the
option of the Company, 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. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as of
April 15, 1998 ("Indenture") among the Company, the Guarantors 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 the Company limited to
$200 million in aggregate principal amount.
A-2-4
<PAGE>
5. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the Notes shall not be
redeemable at the Company's option prior to April 15, 2003. Thereafter,
the Notes shall be subject to redemption at any time at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below 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:
YEAR PERCENTAGE
---- ----------
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 (but shall not have the obligation to) redeem,
on one or more occasions, up to an aggregate of 35% of the principal
amount of the Notes originally issued at a redemption price equal to
110.25% of the principal amount thereof, plus accrued and unpaid
interest and 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 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, the Company 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 the Company to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the date of purchase. Within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control
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, the Company 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
A-2-5
<PAGE>
out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of
purchase, in accordance with the procedures set forth in the Indenture
or such Pari Passu Indebtedness, as applicable. To the extent that
the aggregate principal amount of Notes and any such Pari Passu
Indebtedness tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company or its Restricted Subsidiaries may use
any remaining Excess Proceeds for general corporate purposes. If the
aggregate principal amount of 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 the
Company 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, 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, unless the Company 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 the
Company may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Company 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, the Notes and
the Subsidiary Guarantees 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, the
A-2-6
<PAGE>
Notes and the Subsidiary Guarantees 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). Any amendment
to the provisions of Article 10 or 12 shall require the consent of the
Holders of at least 75% in aggregate principal amount of Notes then
outstanding if such amendment would adversely affect the rights of the
Holders of Notes.
Without the consent of any Holder of Notes, the Company, the Guarantors
and the Trustee may amend or supplement the Indenture, the Notes or the
Subsidiary Guarantees to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or a
Guarantor'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 the Company 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 the Company 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 the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company 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 the Company 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; (vii) any Subsidiary Guarantee of a Significant Subsidiary shall
be held in any judicial proceeding to be unenforceable or invalid or,
except as permitted by the Indenture, shall cease for any reason to be
in full force and effect or any Guarantor that is a Significant
Subsidiary, or any Person acting on behalf of any Guarantor that is a
Significant Subsidiary, shall deny or disaffirm its
A-2-7
<PAGE>
obligations under its Subsidiary Guarantee; and (viii) certain events of
bankruptcy or insolvency with respect to the Company 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
the Company, 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 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 COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform
services for the Company, the Guarantors or their respective Affiliates,
and may otherwise deal with the Company, the Guarantors or their
respective Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder, of the Company or any Guarantor, as such,
shall have any liability for any obligations of the Company or any
Guarantor 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).
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
A-2-8
<PAGE>
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 the Company, the
Guarantors and the Initial Purchasers (the "Registration Rights
Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company 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>
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: 10.25% Senior Subordinated Notes due 2008 of Advance Stores Company,
Incorporated
Reference is hereby made to the Indenture, dated as of April 15, 1998 (the
"Indenture"), among the Company, LARALEV, INC., as Guarantor 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 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 the Company 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 Stores Company, Incorporated
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: 10.25% Senior Subordinated Notes due 2008 of Advance Stores Company,
Incorporated
Reference is hereby made to the Indenture, dated as of April 15, 1998 (the
"Indenture"), among the Company, LARALEV, INC., as Guarantor 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
B-2-1
<PAGE>
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
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, (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 the Company 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 the Company 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 Stores Company, Incorporated
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 SUBORDINATED NOTES
(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: 10.25% Senior Subordinated Notes due 2008 of Advance Stores Company,
Incorporated
Reference is hereby made to the Indenture, dated as of April 15, 1998 (the
"Indenture"), among the Company, LARALEV, INC., as Guarantor 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 of Notes which are
evidenced by one or more Definitive Senior Subordinated Notes in the name of
__________________ (the "Transferor"). The Transferor has requested an exchange
or transfer of such Definitive Senior Subordinated Note(s) in the form of an
equal principal amount of Senior Subordinated Notes evidenced by one or more
Definitive Senior Subordinated Notes, to be delivered to the Transferor or, in
the case of a transfer of such Senior Subordinated Notes, to such Person as the
Transferor instructs the Trustee.
In connection with such request and in respect of the Senior Subordinated
Notes surrendered to the Trustee herewith for exchange (the "Surrendered Senior
Subordinated Notes"), the Holder of such Surrendered Senior Subordinated Notes
hereby certifies that:
[CHECK ONE]
[ ] the Surrendered Senior Subordinated Notes are being acquired for the
Transferor's own account, without transfer;
or
[ ] the Surrendered Senior Subordinated Notes are being transferred to the
Company;
or
[ ] the Surrendered Senior Subordinated 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 Senior Subordinated Notes are
being transferred to a Person that the Transferor reasonably believes is
purchasing the Surrendered Senior Subordinated 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
B-3-1
<PAGE>
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
[ ] the Surrendered Senior Subordinated Notes are being transferred in a
transaction permitted by Rule 144 under the Securities Act;
or
[ ] the Surrendered Senior Subordinated 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 Senior Subordinated 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 Senior Subordinated 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 of Senior Subordinated 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
[ ] the Surrendered Senior Subordinated 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
Senior Subordinated 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 the Company and to the Registrar, to the effect
that such transfer is in compliance with the Securities Act;
and the Surrendered Senior Subordinated 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 the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, the initial purchaser of such Senior Subordinated 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 Stores Company, Incorporated
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 SUBORDINATED 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: 10.25% Senior Subordinated Notes due 2008 of Advance Stores Company,
Incorporated
Reference is hereby made to the Indenture, dated as of April 15, 1998 (the
"Indenture"), among the Company, LARALEV, INC., as Guarantor 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 of Senior Subordinated
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 Senior Subordinated Notes evidenced by one or more
Definitive Senior Subordinated Notes, to be delivered to the Transferor or, in
the case of a transfer of such Senior Subordinated Notes, to such Person as the
Transferor instructs the Trustee.
In connection with such request and in respect of the Senior Subordinated
Notes surrendered to the Trustee herewith for exchange (the "Surrendered Senior
Subordinated Notes"), the Holder of such Surrendered Senior Subordinated Notes
hereby certifies that:
[CHECK ONE]
[ ] the Surrendered Senior Subordinated Notes are being transferred to the
beneficial owner of such Senior Subordinated Notes;
or
[ ] the Surrendered Senior Subordinated 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 Senior Subordinated Notes are
being transferred to a Person that the Transferor reasonably believes is
purchasing the Surrendered Senior Subordinated 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
B-4-1
<PAGE>
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
[ ] the Surrendered Senior Subordinated Notes are being transferred in a
transaction permitted by Rule 144 under the Securities Act;
or
[ ] the Surrendered Senior Subordinated Notes are being transferred pursuant to
an effective registration statement under the Securities Act;
or
[ ] the Surrendered Senior Subordinated 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 Senior
Subordinated 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 of
Senior Subordinated 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 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
Senior Subordinated 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 the Company and to the Registrar, to the effect
that such transfer is in compliance with the Securities Act;
and the Surrendered Senior Subordinated 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 the Company and Donaldson, Lufkin & Jenrette
Securities Corporation, the initial purchasers of such Surrendered Senior
Subordinated 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 Stores Company, Incorporated
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: 10.25% Senior Subordinated Notes due 2008 of Advance Stores Company,
Incorporated
Reference is hereby made to the Indenture, dated as of April 15, 1998 (the
"Indenture"), among the Company, LARALEV, INC., as Guarantor 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 Senior
Subordinated 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 the Company 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,
C-1
<PAGE>
notify any purchaser from it of the security evidenced hereby of the resale
restrictions set forth in (A) above."
3. We understand that, on any proposed resale of the Notes or
beneficial interests, we will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the Company 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 the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
______________________________
[Insert Name of Accredited
Investor]
By:___________________________
Name:
Title:
Dated: ______________, ____
C-3
<PAGE>
Exhibit D
---------
SUBSIDIARY GUARANTEE
Subject to Section 11.06 of the Indenture, each of the undersigned and each
other Guarantor hereby and at all times, jointly and severally, unconditionally
guarantees to each Holder of a Note authenticated and delivered by the Trustee
and to the Trustee and its successors and assigns, irrespective of the validity
and enforceability of the Indenture, the Notes and the Obligations of the
Company under the Notes or under the Indenture, that: (a) the principal of,
premium, if any, interest and Liquidated Damages, if any, on the Notes will be
promptly paid in full when due, subject to any applicable grace period, whether
at maturity, by acceleration, redemption or otherwise, and interest on overdue
principal, premium, if any, (to the extent permitted by law) interest on any
interest, if any, and Liquidated Damages, if any, on the Notes and all other
payment Obligations of the Company to the Holders or the Trustee under the
Indenture or under the Notes will be promptly paid in full and performed, all in
accordance with the terms thereof; and (b) in case of any extension of time of
payment or renewal of any Notes or any of such other payment Obligations, the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration, redemption or otherwise. Failing
payment when so due of any amount so guaranteed or any performance so guaranteed
for whatever reason, the Guarantors will be jointly and severally obligated to
pay the same immediately.
The obligations of each Guarantor to the Holders and to the Trustee
pursuant to this Subsidiary Guarantee and the Indenture are expressly set forth
in Article 11 of the Indenture, and reference is hereby made to such Indenture
for the precise terms of this Subsidiary Guarantee. The terms of Article 11 of
the Indenture are incorporated herein by reference. This Subsidiary Guarantee
is subject to release as and to the extent provided in Section 11.04 of the
Indenture.
This is a continuing Guarantee and shall remain in full force and effect
and shall be binding upon each Guarantor and its respective successors and
assigns to the extent set forth in the Indenture until full and final payment of
all of the Company's Obligations under the Notes and the Indenture and shall
inure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges herein conferred upon that party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof. This is a Subsidiary Guarantee of
payment and not a guarantee of collection.
This Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Note to which this Subsidiary
Guarantee relates shall have been executed by the Trustee under the Indenture by
the manual signature of one of its authorized officers.
The maximum aggregate amount of the obligations guaranteed under the
Indenture and the Notes by any Guarantor shall not exceed the maximum amount
that can be thereby
D-1
<PAGE>
guaranteed by that Guarantor without rendering the Subsidiary Guarantee, as it
relates to such Guarantor, voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
Capitalized terms used herein have the same meanings given in the Indenture
unless otherwise indicated.
Dated as of April 15, 1998 LARALEV, INC.
By: _______________________________
Name: Andrew T. Panaccione
Title: Secretary
D-2
<PAGE>
Exhibit E
---------
FORM OF SUPPLEMENTAL INDENTURE
Supplemental Indenture (this "Supplemental Indenture"), dated as of
___________, between Guarantor (the "New Guarantor"), a subsidiary of Advance
Stores Company, Incorporated (the "Company"), and United States Trust Company of
New York, as trustee under the indenture referred to below (the "Trustee").
Capitalized terms used herein and not defined herein shall have the meaning
ascribed to them in the Indenture (as defined below).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture (the "Indenture"), dated as of April 15, 1998, providing for the
issuance of an aggregate principal amount of $200,000,000 of 10.25% Senior
Subordinated Notes due 2008 (the "Senior Subordinated Notes");
WHEREAS, Section 11.05 of the Indenture provides that under certain
circumstances the Company may cause, and Section 11.03 of the Indenture provides
that under certain circumstances the Company must cause, certain of its
subsidiaries to execute and deliver to the Trustee a supplemental indenture
pursuant to which such subsidiaries shall unconditionally guarantee all of the
Company's Obligations under the Senior Subordinated Notes pursuant to a
Subsidiary Guarantee on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO SUBSIDIARY GUARANTEE. The New Guarantor hereby agrees,
jointly and severally with all other Guarantors, to guarantee the Company's
Obligations under the Notes and the Indenture on the terms and subject to the
conditions set forth in Article 11 of the Indenture and to be bound by all other
applicable provisions of the Indenture.
E-1
<PAGE>
3. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, shareholder or agent of any Guarantor, as such,
shall have any liability for any obligations of the Company or any Guarantor
under the Notes, any Subsidiary Guarantees, the Indenture or this Supplemental
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes.
4. NEW YORK LAW TO GOVERN. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
5. COUNTERPARTS The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
7. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the correctness of the recitals of fact
contained herein, all of which recitals are made solely by the New Guarantor.
E-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed and attested, all as of the date first above written.
Dated: ________________ [Name of New Guarantor]
By: ____________________________
Name:
Title:
Dated: ________________ United States Trust Company
of New York, as Trustee
By: ____________________________
Name:
Title:
E-3
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
DATED AS OF APRIL 15, 1998
BY AND AMONG
ADVANCE STORES COMPANY, INCORPORATED
LARALEV, INC.
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 Stores Company, Incorporated, a
Virginia corporation (the "COMPANY"), LARALEV, INC. (the "GUARANTOR"), 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 10.25% Series A Senior Subordinated
Notes due 2008 (the "SERIES A NOTES") 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 among the Company, the Guarantor and the
Initial Purchasers. In order to induce the Initial Purchasers to purchase the
Series A Notes, the Company has agreed to provide the registration rights set
forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in Section 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 Notes and the Series B Notes (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 Notes 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
<PAGE>
2
the Company to the Registrar under the Indenture of Series B Notes in the
same aggregate principal amount as the aggregate principal amount of Series
A Notes tendered by Holders thereof pursuant to the Exchange Offer.
"CONSUMMATION DEADLINE": As defined in Section 3(b) hereof.
"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 Notes (which shall be registered pursuant to
the Exchange Offer Registration Statement) equal to the outstanding
principal amount of Series A Notes 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 Notes 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.
"NOTE" means a Series A Note or Series B Note.
"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
and the Guarantor relating to (a) an offering of Series B Notes pursuant to
an Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i)
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 NOTES": The Company's 10.25% Series B Senior Subordinated
Notes due 2008 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 Notes), 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 Notes) 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 and the Guarantor
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 Notes 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 of
<PAGE>
4
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 Notes to be offered in exchange for the Series A
Notes that are Transfer Restricted Securities and (ii) resales of Series B Notes
by Broker-Dealers that tendered into the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) as contemplated by Section
3(c) below.
(b) The Company and the Guarantor shall use their respective best efforts
to cause the Exchange Offer Registration Statement to be effective continuously,
and shall keep the Exchange Offer open for a period of not less than the minimum
period required under applicable federal and state securities laws to Consummate
the Exchange Offer; provided, however, that in no event shall such period be
less than 20 Business Days. The Company and the Guarantor shall cause the
Exchange Offer to comply with all applicable federal and state securities laws.
No securities other than the Series B Notes shall be included in the Exchange
Offer Registration Statement. The Company and the Guarantor shall use their
respective 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
30th 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 Notes 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
Notes received by such Broker-Dealer in the Exchange Offer, the Company and
Guarantor 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
Notes by Broker-Dealers, the Company and the Guarantor agree to use their
respective 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
<PAGE>
5
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
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 and the Guarantor 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 Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder or (C) such Holder is a Broker-Dealer
and holds Series A Notes acquired directly from the Company or any of its
Affiliates, then the Company and the Guarantor 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 their respective 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 and
the Guarantor shall use their respective best efforts to keep any Shelf
Registration
<PAGE>
6
Statement required by this Section 4(a) continuously effective, supplemented,
amended and current as required by and subject 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 and the Guarantor hereby jointly and severally agree 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 and the
Guarantor 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
<PAGE>
7
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (ii) above, (3) upon Consummation of the Exchange
Offer, in the case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or made usable
in the case of (iv) above, the liquidated damages payable with respect to the
Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or
(iv), as applicable, shall cease.
All 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 Notes. Notwithstanding the fact that any securities for which
liquidated damages are due cease to be Transfer Restricted Securities, all
obligations of the Company and the Guarantor to pay liquidated damages with
respect to 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 and the Guarantor
shall (x) comply with all applicable provisions of Section 6(c) below, (y) use
their respective best efforts to effect such exchange and to permit the resale
of Series B Notes by Broker-Dealers that tendered in the Exchange Offer Series A
Notes 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 Notes
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 and the Guarantor (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 Notes to be issued in the Exchange Offer and
(C) it is acquiring the Series B Notes in its ordinary course of business.
Each Holder using the Exchange Offer to participate in a distribution of
the Series B Notes will acknowledge and agree that, if the resales are of
Series B Notes obtained by such Holder in exchange for Series A Notes
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
<PAGE>
8
Commission's letter to Shearman & Sterling (available July 2, 1993), and
-------------------
similar no-action letters, and (2) must comply with the registration and
prospectus delivery requirements of the Act in connection with a secondary
resale transaction and that such a secondary resale transaction must be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K.
(ii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantor shall provide a supplemental
letter to the Commission (A) stating that the Company and the Guarantor are
registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
----------------------------------
13, 1988) and 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 neither the Company
nor the Guarantor has entered into any arrangement or understanding with
any Person to distribute the Series B Notes to be received in the Exchange
Offer and that, to the best of the Company's and the Guarantor's
information and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the
distribution of the Series B Notes received in the Exchange Offer.
(b) SHELF REGISTRATION STATEMENT. In connection with the Shelf
Registration Statement, the Company and the Guarantor shall:
(i) (x) comply with all the provisions of Section 6(c) below and (y)
use their respective best efforts to effect such registration to permit the
sale of the Transfer Restricted Securities being sold in accordance with
the intended method or methods of distribution thereof (as indicated in the
information furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company and the Guarantor 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 Notes
covered by any Shelf Registration Statement contemplated by this Agreement,
Series B Notes having an aggregate principal amount equal to the aggregate
principal amount of Series A Notes sold pursuant to the Shelf Registration
Statement and surrendered to the Company for cancellation in exchange for
such Series B Notes; the Company shall register Series B Notes on the Shelf
Registration Statement for this purpose and issue the Series B Notes to the
purchaser(s) of securities subject to the Shelf Registration Statement in
the names as such purchaser(s) shall designate;
<PAGE>
9
(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 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 and the Guarantor
shall:
(i) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable. Upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain
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 and the Guarantor shall
file promptly an appropriate amendment to such Registration Statement
curing such defect, and, if Commission review is required, use their
respective 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
<PAGE>
10
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 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 and the Guarantor shall use their respective 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 the Guarantor and cause the Company's and the Guarantor'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
<PAGE>
11
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 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
and the Guarantor hereby consent 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 Notes being registered, the Company and
the Guarantor shall:
<PAGE>
12
(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 and the Guarantor by (x) the President or any Vice
President and (y) a principal financial or accounting officer of
the Company and the Guarantor, confirming, as of the date
thereof, the matters set forth in Sections 6(y), 9(a) and 9(b) of
the Purchase 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 and
the Guarantor 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 the Guarantor and
representatives of the independent public accountants for the
Company and the Guarantor 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
and the Guarantor), 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
<PAGE>
13
(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 in clause (A) above and with any customary
conditions contained in any agreement entered into by the Company and
the Guarantor 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 neither the Company nor the Guarantor shall be
required to register or qualify as a foreign corporation where it is not
now so qualified or to take any action that would subject it to the service
of process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any jurisdiction
where it is not now so subject;
(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 their respective best efforts to cause the disposition of
the Transfer Restricted Securities covered by the Registration Statement to
be registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof 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
<PAGE>
14
Restricted Securities which are in a form eligible for deposit with the
Depository Trust Company;
(xiv) otherwise use their respective best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(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 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.
<PAGE>
15
SECTION 7. REGISTRATION EXPENSES. (a) All expenses incident to the
Company's and the Guarantor'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 Notes 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 and
the Guarantor; (v) all application and filing fees in connection with listing
the Series B Notes 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 and the Guarantor
(including the expenses of any special audit and comfort letters required by or
incident to such performance).
The Company will, in any event, bear its and the Guarantor's 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 or the Guarantor.
(b) In connection with any Shelf Registration Statement required by this
Agreement, the Company and the Guarantor will reimburse the Initial Purchasers
and the Holders of Transfer Restricted Securities who are selling or reselling
Series A Notes or Series B Notes 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 and the Guarantor agree,
jointly and severally, 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 Notes or registered Series A
Notes, 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.
<PAGE>
16
(b) Each Holder of Transfer Restricted Securities agrees, severally and not
jointly, to indemnify and hold harmless the Company and the Guarantor, and their
respective 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, or the Guarantor to the same extent as the foregoing indemnity from the
Company and the Guarantor 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 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), 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 and
Guarantor, 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
<PAGE>
17
(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.
(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 and the
Guarantor, 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 and the Guarantor, 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 and the Guarantor, 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 or the Guarantor, 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, the Guarantor 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
<PAGE>
18
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 and the Guarantor agrees
with each Holder, for so long as any Transfer Restricted Securities remain
outstanding and during any period in which the Company or the Guarantor (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 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 their
respective 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 and the Guarantor agree that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by them of
the provisions of this Agreement and hereby agree to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Neither the Company nor the Guarantor
will, on or after the date of this Agreement, enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's and
the Guarantor'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
<PAGE>
19
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 and the
Guarantor, 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:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Guarantor:
Advance Stores Company, Incorporated
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.
<PAGE>
20
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.
(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 STORES COMPANY,
INCORPORATED
By: /s/ J. O'Neil Leftwich
--------------------------------------
Name: J. O' Neil Leftwich
Title: Senior Vice President and Chief
Financial Officer, Secretary and
Treasurer
LARALEV, INC.
By: /s/ Andrew T. Panaccione
--------------------------------------
Name: Andrew T. Panaccione
Title: Secretary
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 Stores Company, Incorporated
10.25% Senior Subordinated Notes due 2008
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
RIORDAN & McKINZIE
300 South Grand Avenue, Suite 2900
Los Angeles, California 90071
June 4, 1998
Advance Stores Company, Incorporated
5673 Airport Road
Roanoke, Virginia 24012
LARALEV, INC.
103 Foulk Road
Suite 200
Wilmington, Delaware 19803
Re: Advance Stores Company, Incorporated -- 10.25% Series B Senior
Subordinated Notes due April 15, 2008 -- Registration Statement
on Form S-4
---------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Advance Stores Company, Incorporated, a
Virginia corporation (the "Company"), and LARALEV, INC., a Delaware corporation
(the "Guarantor"), 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 10.25% Series B Senior Subordinated Notes due April 15, 2008 to be
registered with the Securities and Exchange Commission (the "Commission") (the
"Series B Notes"), for its outstanding 10.25% Series A Senior Subordinated Notes
due April 15, 2008. This opinion is delivered to you in connection with the
Registration Statement on Form S-4 (the "Registration Statement") for the
aforementioned Series B Notes 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
<PAGE>
Advance Stores Company, Incorporated
LARALEV, INC.
June 4, 1998
Page 2
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.
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 Notes and the Subsidiary Guarantee 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 Notes
and the Subsidiary Guarantee will be legally issued and fully paid and
constitute the legally valid and binding obligations of the Company and the
Guarantor, 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 parent of the Company.
<PAGE>
Advance Stores Company, Incorporated
LARALEV, INC.
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 10.1
STOCKHOLDERS AGREEMENT
by and among
FS EQUITY PARTNERS IV, L.P.,
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
ADVANCE HOLDING CORPORATION
APRIL 15, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions........................................................................... 2
2. Rights Upon Issuance of Additional Securities......................................... 5
2.1 Issuance Notice.................................................................. 5
2.2 Response Notice.................................................................. 5
2.3 Revised Issuance Notice.......................................................... 5
2.4 Pro Rata Share................................................................... 6
2.5 Termination and Assignment....................................................... 6
3. Transfer of Shares by FS Stockholder or Ripplewood Stockholder; Rights of
Inclusion............................................................................. 6
3.1 Right of Inclusion............................................................... 6
3.2 Third-Party Offer................................................................ 7
3.3 Allocation of Included Shares.................................................... 9
3.4 Consummation..................................................................... 9
3.5 Termination and Assignment...................................................... 11
4. Obligation to Sell Securities........................................................ 11
4.1 Sale Obligation................................................................. 11
4.2 Termination and Assignment...................................................... 12
5. Restrictions on Transfers of Securities; Right of First Offer........................ 13
5.1 Transfer Restrictions........................................................... 13
5.2 Right of First Offer............................................................ 15
5.3 Termination and Assignment...................................................... 17
5.4 Taubman Option and Option Shares................................................ 17
6. Registration Rights.................................................................. 17
7. Representation on the Board of Directors............................................. 18
7.1 The Board....................................................................... 18
7.2 Approval Right.................................................................. 19
7.3 Certain Actions of the Board.................................................... 19
7.4 Termination and Assignment...................................................... 21
8. Copy of Agreement.................................................................... 21
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
9. Governing Law.................................................................... 21
10. Representations and Warranties................................................... 21
11. Amendment and Waiver; Successors; After Acquired Shares.......................... 22
12. Interpretation................................................................... 22
13. Notices.......................................................................... 22
14. Legends.......................................................................... 23
15. Further Assurances............................................................... 23
16. Injunctive Relief; Disputes...................................................... 24
17. Severability..................................................................... 24
18. Entire Agreement................................................................. 24
19. Counterparts..................................................................... 24
20. Opinions......................................................................... 24
SCHEDULE 1 Ownership of Capital Stock by Stockholders Upon Consummation of
Transactions Contemplated by Merger Agreement........................... 28
EXHIBIT A TERMS OF THE REGISTRATION RIGHTS OF THE COMMON
STOCK................................................................... A-1
EXHIBIT B IRREVOCABLE PROXY....................................................... B-1
</TABLE>
ii
<PAGE>
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is made and entered into as
of April 15, 1998 by and among Advance Holding Corporation, a Virginia
corporation (the "Company"), FS Equity Partners IV, L.P., a Delaware limited
partnership ("FSEP IV" or the "FS Stockholder"), Ripplewood Partners, L.P.
("Ripplewood Partners"), Ripplewood Advance Auto Parts Employee Fund I L.L.C.
("Ripplewood Employee Fund" and, together with Ripplewood Partners, the
"Ripplewood Stockholder") and Nicholas F. Taubman and the Arthur Taubman Trust
dated July 13, 1964 (the "Trust") (Mr. Taubman and the Trust collectively, the
"Existing Stockholders" and each individually, an "Existing Stockholder").
RECITALS
A. Pursuant to an Agreement and Plan of Merger dated as of March 4, 1998
among the Company, AHC Corporation ("Investor") and the FS Stockholder (the
"Merger Agreement"), AHC Corporation will merge with and into the Company, so
that after such merger FS Stockholder will own a majority of the Common Stock in
the Company, Ripplewood Stockholder will have a substantial investment in the
Company, and the Existing Stockholders will retain a substantial Common Stock
investment in the Company and options to acquire additional shares of the
Company pursuant to an Option Agreement dated the date hereof (the "Option
Agreement").
B. To induce the FS Stockholder and the Existing Stockholders to
consummate the transactions contemplated by the Merger Agreement, the FS
Stockholder, the Ripplewood Stockholder, the Existing Stockholders and the
Company desire to execute this Agreement.
C. The FS Stockholder's and the Existing Stockholders' obligation to
consummate the transactions contemplated by the Merger Agreement is conditioned
upon the execution of this Agreement by the FS Stockholder, the Existing
Stockholders and the Company.
D. Upon consummation of the transactions contemplated by the Merger
Agreement, FS Stockholder, Ripplewood Stockholder and the Existing Stockholders
will own the shares of capital stock of the Company set forth on Schedule 1
hereto.
E. The Existing Stockholders, the FS Stockholder, Ripplewood Stockholder
and the Company wish to establish through this Agreement certain rights,
obligations and restrictions with respect to the securities of the Company.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following capitalized
-----------
terms shall have the following meanings:
Additional Securities: All Securities which are issued and sold by
---------------------
the Company other than (i) the Initial Shares, (ii) any Securities issued or
issuable to all of the holders of Common Stock then outstanding on a
proportionate basis, (iii) any Securities issued or issuable to any Employees
pursuant to any equity incentive plan, individual agreement, bonus, award, stock
purchase plan, stock option plan or other stock agreement or arrangement which
in each event is approved by the Board (a "Benefit Plan"), (iv) any Securities
issued in exchange for debt securities of the Company or any Subsidiary,
provided, that the overall terms of the exchange transaction are fair and in the
best interests of the Company as determined in reasonable good faith by the
Board, and provided, further, that if the FS Stockholder and any other
Stockholder or their respective Affiliates each own debt Securities being
exchanged, such other Stockholders shall have the right to participate in such
exchange on the same terms as the FS Stockholder or its Affiliates, (v) any
Securities issued to any source of, or to any party arranging, financing for the
Company or any Subsidiary of the Company, provided, that the overall terms of
the financing transaction involving the issuance of debt and Securities are fair
and in the best interests of the Company as determined in reasonable good faith
by the Board and provided, further, in the event FS Stockholder, Ripplewood
Stockholder or any of their Affiliates are participating in or providing such
financing, that the Existing Stockholders have the opportunity to participate in
such financing and, if they so participate, to purchase or otherwise receive on
the same terms their Pro Rata Share (as defined in Section 2.4) of any
Securities (vi) any Securities issued pursuant to a public offering registered
under the Securities Act, (vii) any Securities that are issued or issuable in
connection with the acquisition by the Company or a Subsidiary of any business,
business assets or securities from any Person, provided, that such Securities
are not issued for less than their fair market value, as determined in good
faith by the Board, and (viii) any Securities that are issued or issuable upon
the exercise of rights, options or warrants to purchase Securities, or upon the
conversion or exchange of Securities convertible into or exchangeable for
Securities, including the Option Agreement.
Affiliate: Such term shall have the meaning given to such term
---------
pursuant to Rule 12b-2 of the General Rules and Regulations promulgated under
the Securities Exchange Act of 1934, as amended.
Board: The Board of Directors of the Company.
-----
Business means the sale of automotive parts and accessories at retail
--------
or wholesale or by catalog and the rendering of services relating thereto,
including, without limitation, carrying on or participating in the business of
any chain of automotive service facilities, any wholesale or catalog
2
<PAGE>
operation or retail chain that is engaged as a significant line of business in
the distribution or sale of automotive parts or accessories or rendering
services relating thereto and a "significant line of business" is one that
constitutes 10% or more of consolidated revenues (e.g., Sears or Wal-Mart).
Common Stock: The Class A Common Stock, par value $0.01 per share, of
------------
the Company.
Employee: Any employee, independent director or consultant of the
--------
Company or any Subsidiary of the Company.
Existing Stockholders: Nicholas F. Taubman and the Trust.
---------------------
FS Principals: Bradford M. Freeman, J. Frederick Simmons, Ronald P.
-------------
Spogli, John M. Roth, Charles P. Rullman, Jr. and William M. Wardlaw.
Initial Shares: Shall mean the 12,500,000 shares of Common Stock
--------------
issued and outstanding on the date hereof and held beneficially and of record by
the Stockholders as set forth on Schedule 1, and any Option Shares shown on
Schedule 1 on the date of the Merger Agreement.
Option Shares: Any shares of Common Stock issued pursuant to the
-------------
exercise of the Taubman Option.
Permitted Transferee: Permitted Transferee shall mean, (w) with
--------------------
respect to any Stockholder, a controlled Affiliate which shall include any
investment fund or partnership that is (i) a controlled Affiliate of such
Stockholder or (ii) with respect to the FS Stockholder, organized and controlled
by three or more of the FS Principals or (iii) with respect to the Ripplewood
Stockholder, organized and controlled by Timothy C. Collins, (x) with respect to
the FS Stockholder, for the period ending one year from the date hereof, any
institutional investor, merchant banking firm, or institutional limited partner
of an FS Stockholder who purchases shares in connection with the Merger or from
FS Stockholder within one year from the date hereof (an "Unaffiliated Permitted
Transferee"), provided that the number of Shares of Common Stock transferred to
such Unaffiliated Permitted Transferee would not cause the FS Stockholder (in
the aggregate) to own less than 50% of the Common Stock, grant any approval
rights over major transactions or to transfer any other rights except in
compliance with this Agreement, and provided, further, that such Unaffiliated
Permitted Transferee delivers an undertaking binding upon such Unaffiliated
Permitted Transferee reasonably satisfactory to the Ripplewood Stockholder, Mr.
Taubman and their respective counsel to be bound by all obligations of the FS
Stockholder hereunder, except those explicitly made not binding upon such
Unaffiliated Permitted Transferee, (y) with respect to the Trust, the
beneficiaries of the Trust (the "Trust Transferees") and (z) with respect to Mr.
Taubman and any Permitted Transferee of the Trust pursuant to clause (y) or
their respective Permitted Transferees that are individual persons (an
"Individual Stockholder"), (i) such Individual Stockholder's spouse, children,
grandchildren or other living descendants, or a trust or family partnership of
which there are no principal (i.e., corpus) beneficiaries or partners other than
the grantor or one or more of such Individual Stockholder, the Individual
Stockholder's spouse or described relatives and provided, in
3
<PAGE>
the case of a trust, that the existing beneficiaries and/or trustee(s) and/or
grantor(s) of such trust have the power to act with respect to the trust's
assets without court approval and, in the case of a family partnership, that the
partners thereof have the power to act with respect to the partnership's assets
without court approval and the partnership is not permitted to (a) distribute
assets to Persons who are not among the relatives listed above or (b) have
partners who are not among the relatives listed above or (ii) a legal
representative of such Individual Stockholder in the event such Individual
Stockholder becomes mentally incompetent or to such Individual Stockholder's
personal representative following the death of such Individual Stockholder.
Person: Any individual, corporation, entity, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization or
other entity.
Public Market Sale: Any sale of Common Stock after the Initial Public
------------------
Offering which is made pursuant to Rule 144 promulgated by the SEC under the
Securities Act or which is made pursuant to a registration statement filed with
and declared effective by the SEC.
Public Offering: A public offering of shares of Voting Securities of
---------------
the Company registered under the Securities Act, but shall not include an
offering registered on Form S-4 or Form S-8 (or any substitute form that is
adopted by the SEC). The term "Initial Public Offering" shall mean an
underwritten Public Offering of Voting Securities which results in gross
proceeds to the Company in excess of $25 million from the sale of Voting
Securities.
SEC: The Securities and Exchange Commission.
---
Securities: Shall mean (i) Voting Securities, (ii) all rights,
----------
options, warrants to purchase such Voting Securities or the securities described
in the following clause and (iii) all other securities or capital stock of any
type whatsoever, including, without limitation, (A) non-voting common stock,
preferred stock, debt securities and securities that are, or may become,
convertible into or exchangeable for, or that entitle the holder to purchase,
Voting Securities and (B) preferred stock.
Securities Act: The Securities Act of 1933, as amended.
--------------
Stockholders: The FS Stockholder, the Ripplewood Stockholder and the
------------
Existing Stockholders.
Subsidiary: With respect to any Person, a corporation or other entity
----------
of which a majority of the shares of stock or other ownership interests are
owned, directly or indirectly, by such Person.
Taubman Option: The options to purchase 500,000 shares of Common
--------------
Stock as described in the Option to Purchase Common Stock dated as of the date
hereof issued one-half to Nicholas F. Taubman and one-half to the Trust by the
Company, as described in the Option Agreement.
4
<PAGE>
Voting Securities: All Securities of the Company which possess
-----------------
general voting power to elect members of the Board (not including, unless the
context dictates otherwise, any options or warrants to purchase Voting
Securities).
2. Rights Upon Issuance of Additional Securities. The Company hereby
---------------------------------------------
grants to each Stockholder the following rights with respect to any and all
proposed issuances or sales of Additional Securities by the Company:
2.1 Issuance Notice. The Company shall give each Stockholder written
---------------
notice of the Company's intention to issue and sell Additional Securities (the
"Issuance Notice"), describing the type of Additional Securities, the price at
which the Additional Securities will be issued and sold and the general terms
upon which the Company proposes to issue and sell the Additional Securities,
including the anticipated date of such issuance or sale.
2.2 Response Notice. Each Stockholder shall have 30 days from the
---------------
date the Issuance Notice is received to agree to purchase all or any portion of
its Pro Rata Share (as defined below in Subsection 2.4) of such Additional
Securities by giving written notice to the Company of its desire to purchase
Additional Securities (the "Response Notice") and stating therein the quantity
of Additional Securities to be purchased. Such Response Notice shall constitute
the irrevocable agreement of such Stockholder to purchase the quantity of
Additional Securities indicated in the Response Notice at the price and upon the
terms stated in the Issuance Notice. Any purchase by Stockholders of Additional
Securities shall be consummated on the later (i) the closing date specified in
the Issuance Notice or (ii) the closing date on which Additional Securities
described in the applicable Issuance Notice are first issued and sold if other
Persons are also purchasing Additional Securities. Each Stockholder that has
elected to purchase its Pro Rata Share of Additional Securities will have the
right to purchase all or any portion of the Additional Securities unsubscribed
for by the other Stockholders, up to its pro rata share of such unsubscribed
portion (determined by the number of Voting Securities owned by the party or
parties who elect to purchase such unsubscribed for portion) if oversubscribed.
2.3 Revised Issuance Notice. The Company shall have 120 days from
-----------------------
the date of the Issuance Notice to consummate the proposed issuance and sale of
the Additional Securities that are not being purchased by Stockholders at a
price and upon the terms that are not materially less favorable to the Company
than those specified in the Issuance Notice. If the Company proposes to issue
Additional Securities after such 120-day period or at a price and upon terms
that are materially less favorable to the Company than those specified in the
Issuance Notice it must again comply with this Section 2.
2.4 Pro Rata Share. For purposes of this Section 2, the Pro Rata
--------------
Share of a Stockholder shall be a fraction, (i) the numerator of which shall be
the total number of shares of Voting Securities then held by the Stockholder and
(ii) the denominator of which shall be the total number of shares of Voting
Securities then issued and outstanding and held by parties to this Agreement.
5
<PAGE>
2.5 Termination and Assignment. The rights provided to each of the
--------------------------
Stockholders under this Section 2 shall terminate upon the later to occur of (i)
the 180th day after the consummation of an Initial Public Offering and (ii)
such time as less than 50% of the outstanding Common Stock is held by the
Stockholders and their Permitted Transferees (the later of such times described
in clauses (i) or (ii) referred to herein as a "Liquidity Event"). A
Stockholder's rights under this Section 2 will terminate after the Stockholder
has transferred a number of Voting Securities which represents 50% or more of
the number of Voting Securities (including the Common Stock purchasable upon
exercise of Existing Stockholder's options to acquire Voting Securities under
the Taubman Option) held by the Stockholder on the date hereof (as appropriately
adjusted for any stock split, recapitalization or similar transaction) (with (i)
Ripplewood Partners and Ripplewood Employee Fund and (ii) the Existing
Stockholders, each considered collectively for this purpose) other than
transfers to a Permitted Transferee or permitted assignee. The rights granted
under this Section 2 shall not be assignable; provided, however that a
Stockholder may assign its rights under this Section 2 relating to the shares
which it is then transferring to a Permitted Transferee or any purchaser in a
private transaction of more than 25% of the shares of Common Stock then held by
such Stockholder (with (i) Ripplewood Partners and Ripplewood Employee Fund and
(ii) the Existing Stockholders, each considered collectively for this purpose).
3. Transfer of Shares by FS Stockholder or Ripplewood Stockholder; Rights
----------------------------------------------------------------------
of Inclusion.
- ------------
3.1 Right of Inclusion.
------------------
(a) The FS Stockholder agrees not to Transfer (as defined in
Section 5.1) all or any portion of the shares of Common Stock it holds to any
Person (individually, a "Third Party" and, collectively, "Third Parties") unless
the Ripplewood Stockholder and each Existing Stockholder are given an
opportunity to sell to the Third Party such number of shares of Common Stock
owned by the Ripplewood Stockholder and such Existing Stockholder as is
determined in accordance with Subsection 3.3 of this Section 3; provided,
--------
however, that the Ripplewood Stockholder and the Existing Stockholders shall
- -------
have no rights pursuant to this Section 3 with respect to Transfers by the FS
Stockholder or a Permitted Transferee of the FS Stockholder of Common Stock to
(i) any Permitted Transferee of the FS Stockholder or Permitted Transferees of
such Permitted Transferee (except Transfers either to an Unaffiliated Permitted
Transferee (x) more than one year after the date hereof or (y) within one year
of the date hereof if after such Transfer, FS Stockholder would own less than
50% of the Common Stock or would have granted any approval rights over major
corporate transactions or would have transferred rights not in compliance with
this Agreement) or (ii) to any limited or general partner or employee of the FS
Stockholder or any Permitted Transferee of the FS Stockholder (unless such
Transfer in the case of clause (ii) would result in the FS Stockholder and its
Affiliates ceasing to continue to nominate a majority of the Board of
Directors).
(b) The Ripplewood Stockholder agrees not to Transfer (as
defined in Section 5.1) all or any portion of the shares of common stock it
holds to any third party unless the FS Stockholder is given an opportunity to
sell to the third party such number of shares of Common Stock owned by the FS
Stockholder as is determined in accordance with subsection 3.3 of this
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Section 3; provided, however, that the FS Stockholder shall have no rights
pursuant to the Section 3 with respect to Transfers by the Ripplewood
Stockholder to any Permitted Transferee of the Ripplewood Stockholder. To the
extent the FS Stockholder exercises its rights under this Section 3.1(b), the
Existing Stockholders shall thereupon have the rights described in Section
3.1(a).
3.2 Third-Party Offer.
-----------------
(a) Prior to the consummation of any sale of all or any portion
of the shares of Common Stock held by the FS Stockholder to a Third Party, the
FS Stockholder shall cause each bona fide offer from such Third Party to
purchase such shares from the FS Stockholder (a "Third-Party Offer") to be
reduced to writing and shall send written notice of such Third-Party Offer (the
"Initial Offer Notice") to the other Stockholders. Each Third-Party Offer shall
include an offer to purchase shares of Common Stock from the Existing
Stockholders and the Ripplewood Stockholder, in the amounts determined in
accordance with Subsection 3.3 of this Section 3, at the same time, at the same
price and on the same terms as the sale by the FS Stockholder to the Third
Party, and according to the terms and conditions of this Agreement. The Initial
Offer Notice shall be accompanied by a true copy of the Third-Party Offer
(including all material information available to the FS Stockholder relating
thereto). If a Stockholder desires to accept the offer contained in the Initial
Offer Notice, such Stockholder shall furnish written notice to the FS
Stockholder, within 20 days after its receipt of the Initial Offer Notice,
indicating such Stockholder's irrevocable acceptance of the offer included in
the Initial Offer Notice and setting forth the maximum number of shares of
Common Stock such Stockholder agrees to sell to the Third Party (the "Acceptance
Notice"). If a Stockholder does not furnish an Acceptance Notice to the FS
Stockholder in accordance with these provisions by the end of such 20-day
period, such Stockholder shall be deemed to have irrevocably rejected the offer
contained in the Initial Offer Notice. All shares of Common Stock set forth in
the Acceptance Notices of the Stockholders together with the shares of Common
Stock proposed to be sold by the FS Stockholder to the Third Party are referred
to collectively as "All Offered Shares". Within five days after the date on
which the Third Party informs the FS Stockholder of the total number of shares
of Common Stock which such Third Party has agreed to purchase in accordance with
the terms specified in the Initial Offer Notice, the FS Stockholder shall send
written notice (the "Final Notice") to the participating Stockholders setting
forth the number of shares of Common Stock each participating Stockholder shall
sell to the Third Party as determined in accordance with Subsection 3.3 of this
Section 3, which number shall not exceed the maximum number specified by a
Stockholder in its Acceptance Notice. Within five days after the date of the
Final Notice (or such shorter period as may reasonably be requested by the FS
Stockholder to facilitate the sale), the participating Stockholders shall
furnish to the FS Stockholder (i) a written undertaking to deliver, upon the
consummation of the sale of Common Stock to the Third Party as indicated in the
Final Notice, the certificates representing the shares of Common Stock held by
each Stockholder which will be transferred pursuant to such Third-Party Offer
(such shares shall be referred to herein as the "Included Shares") and (ii) a
limited power-of-attorney authorizing the FS Stockholder to transfer the
Included Shares pursuant to the terms of such Third-Party Offer. Each
Stockholder shall be required to make customary representations and warranties
in connection with such transfer with respect to its own authority to transfer
and its title to the shares of Common Stock transferred. In any such transaction
the Company will cooperate with all Stockholders to facilitate the transaction.
7
<PAGE>
(b) Prior to the consummation of any sale of all or any portion
of the shares of Common Stock held by the Ripplewood Stockholder to a Third
Party, the Ripplewood Stockholder shall cause each bona fide offer from such
Third Party to purchase such shares from the Ripplewood Stockholder (a
"Ripplewood Third-Party Offer") to be reduced to writing and shall send written
notice of such Ripplewood Third-Party Offer (the "Ripplewood Initial Offer
Notice") to the FS Stockholder. Each Ripplewood Third-Party Offer shall include
an offer to purchase shares of Common Stock from the FS Stockholder, in the
amounts determined in accordance with Subsection 3.3 of this Section 3, at the
same time, at the same price and on the same terms as the sale by the Ripplewood
Stockholder to the Third Party, and according to the terms and conditions of
this Agreement. The Ripplewood Initial Offer Notice shall be accompanied by a
true copy of the Ripplewood Third-Party Offer (including all material
information available to the Ripplewood Stockholder relating thereto). If the FS
Stockholder desires to accept the offer contained in the Ripplewood Initial
Offer Notice, the FS Stockholder shall furnish written notice to the Ripplewood
Stockholder, within 20 days after its receipt of the Ripplewood Initial Offer
Notice, indicating the FS Stockholder's irrevocable acceptance of the offer
included in the Ripplewood Initial Offer Notice and setting forth the maximum
number of shares of Common Stock the FS Stockholder agrees to sell to the Third
Party (the "Acceptance Notice"). If the FS Stockholder does not furnish an
Acceptance Notice to the Ripplewood Stockholder in accordance with these
provisions by the end of such 20-day period, the FS Stockholder shall be deemed
to have irrevocably rejected the offer contained in the Ripplewood Initial Offer
Notice. All shares of Common Stock set forth in the Acceptance Notice of the FS
Stockholder together with the shares of Common Stock proposed to be sold by the
Ripplewood Stockholder to the Third Party are referred to collectively as "All
Offered Shares". Within five days after the date on which the Third Party
informs the FS Stockholder of the total number of shares of Common Stock which
such Third Party has agreed to purchase in accordance with the terms specified
in the Ripplewood Initial Offer Notice, the Ripplewood Stockholder shall send
written notice (the "Ripplewood Final Notice") to the FS Stockholder setting
forth the number of shares of Common Stock the FS Stockholder shall sell to the
Third Party as determined in accordance with Subsection 3.3 of this Section 3,
which number shall not exceed the maximum number specified by the FS Stockholder
in its Acceptance Notice. Within five days after the date of the Ripplewood
Final Notice (or such shorter period as may reasonably be requested by the
Ripplewood Stockholder to facilitate the sale), the FS Stockholder shall furnish
to the Ripplewood Stockholder (i) a written undertaking to deliver, upon the
consummation of the sale of Common Stock to the Third Party as indicated in the
Ripplewood Final Notice, the certificates representing the shares of Common
Stock held by the FS Stockholder which will be transferred pursuant to such
Ripplewood Third-Party Offer (such shares shall be referred to herein as the
"Included Shares") and (ii) a limited power-of-attorney authorizing the
Ripplewood Stockholder to transfer the Included Shares pursuant to the terms of
such Ripplewood Third-Party Offer. Each Stockholder shall be required to make
customary representations and warranties in connection with such transfer with
respect to its own authority to transfer and its title to the shares of Common
Stock transferred. In any such transaction the Company will cooperate with all
Stockholders to facilitate the transaction.
3.3 Allocation of Included Shares. The maximum number of shares of
-----------------------------
Common Stock that may be sold by FS Stockholder, Ripplewood Stockholder and
each Existing Stockholder and all other holders of Common Stock who have rights
to participate in sales of Common Stock by
8
<PAGE>
the FS Stockholder or Ripplewood Stockholder pursuant to written agreements by
and between the FS Stockholder, the Ripplewood Stockholder or the Company and
any such holder (the "Other Tag-Along Rights Holders") in any sale governed by
this Section 3 shall be (i) All Offered Shares in the event the Third Party has
agreed to purchase All Offered Shares and all shares of Common Stock that the
Other Tag-Along Rights Holders who have elected to participate in such sale seek
to include in such sale or (ii) such number of shares of Common Stock equal to
the product of (a) the total number of shares of Common Stock which the Third
Party has agreed to purchase times (b) a fraction, the numerator of which is the
total number of shares of Common Stock owned by the FS Stockholder, the
Ripplewood Stockholder, the Existing Stockholders or each Other Tag-Along Rights
Holder who is eligible to and has elected to participate in such sale, as the
case may be, on the date of the Final Notice or Ripplewood Final Notice and the
denominator of which is the total number of shares of Common Stock owned on the
date of the Final Notice or Ripplewood Final Notice by the FS Stockholder, the
Ripplewood Stockholder, the Existing Stockholders and the Other Tag-Along Rights
Holders who have elected to participate in such sale; provided, however, that,
-------- -------
in the event the FS Stockholder, the Ripplewood Stockholder, the Existing
Stockholders or any Other Tag-Along Rights Holder elects to sell a number of
shares of Common Stock which is less than the number of shares such holder could
sell pursuant to clause (ii) above, the shares of Common Stock that the others
of such holders can sell in such transaction shall be increased by an aggregate
amount equal to the number of shares which any of the FS Stockholder, the
Ripplewood Stockholder, the Existing Stockholders or any Other Tag-Along Rights
Holder could have sold in such transaction but chose not to sell, and any such
increase shall be allocated among such other holders on a pro rata basis based
upon the total number of shares of Common Stock owned on the date of the Final
Notice or Ripplewood Final Notice by such other holders. The Company shall not
grant to any Person that is not a party to this Agreement on the date hereof
rights which are more favorable than or which would interfere with (it being
understood that the granting of substantially similar rights to Other Tag-Along
Rights Holders shall not by itself be deemed to so interfere) those granted to
the Existing Stockholders pursuant to this Section 3 without Mr. Taubman's or
his representative's prior written consent.
3.4 Consummation. The FS Stockholder or Ripplewood Stockholder shall
------------
have 90 days from the date of the Final Notice or Ripplewood Final Notice,
respectively, in which to sell to the Third Party the shares of Common Stock
owned by the FS Stockholder or Ripplewood Stockholder and the Included Shares of
the other Stockholders having Tag-Along Rights on terms which are not materially
less favorable to the sellers of shares of Common Stock than those specified in
the applicable Initial Offer Notice; provided, however, that in the event there
-------- -------
is a decrease in the price to be paid by the Third Party for the shares of
Common Stock to be sold from the price set forth in the Initial Offer Notice or
the Ripplewood Initial Offer Notice, as applicable, which decrease is acceptable
to the FS Stockholder (in the case of a Third Party Offer) or Ripplewood
Stockholder (in the case of a Ripplewood Third Party Offer), or other material
change in terms which are less favorable to the FS Stockholder or Ripplewood
Stockholder, as the case may be, but which are acceptable to the FS Stockholder
or Ripplewood Stockholder, as the case may be, the FS Stockholder or Ripplewood
Stockholder, as the case may be, shall notify the participating Stockholders of
such decrease or change in terms, and each of the participating Stockholders
shall have five business days from the date of receipt of the notice of such
decrease or change in terms to
9
<PAGE>
reduce the number of shares of Common Stock it will sell to such Third Party as
previously indicated in the applicable Acceptance Notice and the number of
shares that all other participating stockholders (including Other Tag-Along
Rights Holders) may transfer shall be increased in accordance with the
provisions of Section 3.3; and provided, further, that in the event there is an
-------- -------
increase in the price to be paid by the Third Party for the shares of Common
Stock to be sold from the price set forth in the applicable Initial Offer Notice
or other material change in terms which are more favorable to the FS Stockholder
or Ripplewood Stockholder, as the case may be, the FS Stockholder or Ripplewood
Stockholder, as the case may be, shall notify the other Stockholders of such
increase or change in terms, and each of the Stockholders who was eligible to
but did not elect to participate to the full extent of their rights hereunder
shall have five business days from the date of receipt of the notice of such
increase or change in terms to increase the number of shares of Common Stock it
will sell to such Third Party, and the number of shares that all other
participating stockholders (including other Tag-Along Rights Holders) may
transfer shall be decreased proportionately if necessary. A Third Party
purchaser of shares of Common Stock which complies with this Section 3 shall not
be subject to the obligations contained in this Section 3 with respect to future
sales of their shares. The FS Stockholder or Ripplewood Stockholder, as the case
may be, shall cause to be remitted to the participating Stockholders the total
sales price of the Included Shares of the participating Stockholders sold
pursuant thereto, which consideration shall be in the same form and per share
amount as the consideration received by the FS Stockholder or Ripplewood
Stockholder, as the case may be, and as specified in the Initial Offer Notice
(or Ripplewood Initial Offer Notice, as applicable), net (i) in an exercise of
Tag-Along Rights by an Existing Stockholder, of the reasonable, incremental out-
of-pocket expenses incurred by the FS Stockholder in connection with such sale
as a result of the Existing Stockholders' participation therein or (ii) in an
exercise of Tag-Along Rights by the Ripplewood Stockholder or the FS
Stockholder, of the pro rata portion (based on the number of Voting Securities
included by each Stockholder compared to the aggregate number of Voting
Securities included in such sale) of the reasonable out-of-pocket expenses
incurred in connection with a sale consummated pursuant to this Section 3. The
FS Stockholder or Ripplewood Stockholder shall furnish, or shall cause to be
furnished, such other evidence of the completion and time of completion of such
sale and the terms thereof as may be reasonably requested by the participating
Stockholders including, without limitation, evidence of the expenses incurred by
the FS Stockholder or Ripplewood Stockholder, as the case may be, in connection
with such sale. If and to the extent that, at the end of 90 days following the
date of the Final Notice (or Ripplewood Final Notice, as applicable), the FS
Stockholder or Ripplewood Stockholder, as the case may be, has not completed the
sale contemplated thereby, the FS Stockholder or Ripplewood Stockholder, as the
case may be, shall return to the participating Stockholders all certificates
representing the Included Shares and all powers-of-attorney which the
participating Stockholders may have transmitted pursuant to the terms hereof.
3.5 Termination and Assignment. Any Permitted Transferee of the FS
--------------------------
Stockholder (other than an Unaffiliated Permitted Transferee) and any assignee
of the FS Stockholder's rights under Section 4 shall agree to be bound by this
Section 3 to the same extent as the FS Stockholder. Any Permitted Transferee of
the Ripplewood Stockholder shall agree to be bound by this Section 3 to the same
extent as the Ripplewood Stockholder. The obligations of the FS Stockholder and
the Ripplewood Stockholder and any Permitted Transferee or assignee pursuant to
the provisions of this
10
<PAGE>
Section 3 shall terminate upon a Liquidity Event or, as to any such holder only,
upon a distribution without consideration of all of the shares of Common Stock
that such holder holds to the limited or general partners or employees of such
holder or their Affiliates. The rights granted to the Existing Stockholders or
Ripplewood Stockholder pursuant to this Section 3 may not be assigned, except
that these rights shall inure to the benefit of a Permitted Transferee of an
Existing Stockholder (and its Permitted Transferees) or a Permitted Transferee
of a Ripplewood Stockholder provided that such persons have agreed to be bound
by Sections 4 and 5 of this Agreement, and may be assigned to a purchaser or
transferee of more than 50% of the shares of Common Stock then held by any
Existing Stockholder or by a Ripplewood Stockholder, and such rights shall be
assignable to any purchaser of more than 50% of the shares of such transferee.
The rights granted to the FS Stockholder with respect to a Ripplewood Third
Party Offer under Section 3.1(b) and 3.2(b) may not be assigned, except that
these rights shall inure to the benefit of a Permitted Transferee of the FS
Stockholder (or its Permitted Transferees), to any general or limited partner of
the FS Stockholder or its Permitted Transferees, or to any purchaser of more
than 50% of the shares of Common Stock then held by FS Stockholder. Subject to
Section 3.3, the FS Stockholder may grant tag-along-rights under this Section 3
to any transferee and such rights shall be assignable to any purchaser of more
than 50% of the shares of such transferee. Nothing in this section shall be
construed as granting rights of inclusion in any Public Market Sale.
4. Obligation to Sell Securities.
-----------------------------
4.1 Sale Obligation. If the FS Stockholder finds a third-party
---------------
buyer to which it sells all of the shares of Common Stock held by the FS
Stockholder (including its Permitted Transferees and assignees) (whether such
sale is by way of purchase, merger or other form of transaction), upon the
request of the FS Stockholder, each of the Existing Stockholders and the
Ripplewood Stockholder shall sell all of the shares of Common Stock and the
Taubman Option beneficially owned by such Existing Stockholder and the
Ripplewood Stockholder to such third-party buyer pursuant to the same terms and
conditions negotiated by the FS Stockholder for the sale of shares of Common
Stock held by the FS Stockholder and subject to the provisions of the Taubman
Option with respect to the consideration to be received for such Option;
provided, that an Existing Stockholder and the Ripplewood Stockholder shall have
- --------
no obligation to sell its shares of Common Stock and the Taubman Option pursuant
to this Section 4 unless the FS Stockholder (including its Permitted Transferees
and assignees) sells all of the shares of Common Stock held by them. Each of
the Existing Stockholders and the Ripplewood Stockholder agrees to such sale and
to execute such agreements, powers of attorney, voting proxies or other
documents and instruments as may be necessary to consummate such sale. Each of
the Existing Stockholders and the Ripplewood Stockholder further agrees to
timely take such other actions as the FS Stockholder may reasonably request as
necessary in connection with the approval of the consummation of such sale,
including voting all Voting Securities in favor of such sale. Each Existing
Stockholder shall pay the reasonable incremental out-of-pocket expenses incurred
by the FS Stockholder in connection with the inclusion of such Existing
Stockholder in a sale consummated pursuant to this Section 4. The Ripplewood
Stockholder shall pay its pro rata portion (based on the total value of the
consideration received by such Stockholder compared to the aggregate
consideration received by all Stockholders in the
11
<PAGE>
transaction) of the reasonable out-of-pocket expenses incurred by the FS
Stockholder in connection with a sale consummated pursuant to this Section 4.
4.2 Termination and Assignment. The obligations of the Existing
--------------------------
Stockholders and Ripplewood Stockholder pursuant to this Section 4 shall be
binding on any transferee of or purchaser of shares of Common Stock or all or
any part of the Taubman Option from an Existing Stockholder or from the
Ripplewood Stockholder or from one of their Permitted Transferees, and any
subsequent transferee, except for a transferee purchasing shares in a Public
Market Sale, or any subsequent transferee thereof, and an Existing Stockholder,
the Ripplewood Stockholder, Permitted Transferee or any other transferee shall
obtain and deliver to the FS Stockholder a written commitment to be bound by
such provisions from each such transferee or Permitted Transferee prior to any
Transfer. Notwithstanding the immediately preceding sentence, a Trust
Transferee shall not be required to deliver the written commitment referred to
in such sentence upon receipt of shares by way of distribution from the trust;
provided, however, that if such Trust Transferee does not deliver such
commitment within 30 days after receipt of notice from the Company requesting
delivery of such documents (and referring specifically to this Agreement) (such
period, the "Document Delivery Period"), the Company need not register such
Transfer on its records and the Company (or its designee) shall have a
repurchase right as to such shares pursuant to Section 5.1(b). The Trust shall
promptly notify the Company of the occurrence of any event that would cause a
distribution from the Trust. The obligations pursuant to this Section 4 shall
likewise be binding on any transferee of or purchaser of shares from the FS
Stockholder (and any subsequent transferee), except for a transferee purchasing
shares in a Public Market Sale or any subsequent transferee thereof, or an
assignee of the rights held by FS Stockholder under this Section 4, and the FS
Stockholder shall obtain an undertaking by such transferee to be so bound. The
obligations of the Existing Stockholders and the Ripplewood Stockholder
pursuant to this Section 4, and the obligations of any such transferee and
Permitted Transferee, shall continue after the consummation of an Initial Public
Offering until the occurrence of a Liquidity Event. The rights of FS
Stockholder under this Section 4 shall not be assignable except to a purchaser
of more than 50% of the shares of Common Stock then held by FS Stockholder and
its Permitted Transferees (with FSEP IV and any Permitted Transferee therefrom
considered collectively for this purpose) and holding after such purchase more
than 50% of the outstanding Common Stock or to a Permitted Transferee of all of
FS Stockholder's stock and shall terminate in the event that the FS Stockholder
(or such Permitted Transferee or permitted assignee) holds a number of shares of
Common Stock which represents less than 35% of the total number of shares of
Common Stock outstanding at any time (with FSEP IV, any Permitted Transferee
and/or permitted assignee considered collectively for this purpose).
5. Restrictions on Transfers of Securities; Right of First Offer.
-------------------------------------------------------------
5.1 Transfer Restrictions.
---------------------
(a) Transfer Restrictions Binding Existing Stockholders. No
---------------------------------------------------
Existing Stockholder shall, without the prior written approval of FS
Stockholder, (i) pledge, hypothecate or encumber any shares of Common Stock,
(ii) sell, assign, transfer, gift or otherwise dispose of or convey or
distribute to its beneficiaries (in the case of the Trust) ("Transfer") any
shares of Common
12
<PAGE>
Stock, or any right, title or interest therein, except in compliance with the
Securities Act and all applicable state securities laws; or (iii) Transfer any
shares of Common Stock or any right, title or interest therein, except for sales
of shares of Common Stock expressly permitted by and in compliance with this
Agreement, including (without limitation) Subsection 5.2; provided that each of
the Existing Stockholders may not Transfer any shares of Common Stock, or any
right, title or interest therein, until after the second anniversary of the date
of this Agreement (the "Permitted Transfer Date"), except pursuant to this
Agreement or due to involuntary dissolution of the Trust or death. As long as
it has any obligations under this Agreement, to the extent permitted by its
Declaration of Trust, the Trust shall remain in full force and effect and shall
not be dissolved or revoked. After the Permitted Transfer Date, or at such
earlier date as required by law or the Declaration of Trust of the Trust, the
Existing Stockholders may Transfer shares of Common Stock to a Permitted
Transferee, without complying with Section 5.2, provided that each of such
transferees (i) executes a written undertaking to be and becomes bound by this
Agreement in the same manner and to the same extent as the Existing
Stockholders, (ii) executes an irrevocable power of attorney appointing Nicholas
F. Taubman (or an individual designated by Nicholas F. Taubman if he is unable
to act due to death or disability) as such transferee's attorney-in-fact with
sole irrevocable power and authority to make all decisions on behalf of and take
all actions required to be taken by such transferee in connection with this
Agreement, including (without limitation) any required sale of shares of Common
Stock pursuant to Section 4 hereof, and (iii) if requested by FS Stockholder,
delivers an opinion of legal counsel reasonably satisfactory to FS Stockholder
that such undertaking is binding and enforceable. Notwithstanding the
immediately preceding sentence, a Trust Transferee shall not be required to
deliver the items referred to in such sentence upon receipt of shares by way of
distribution from the Trust; provided, however, that if such Trust Transferee
-------- -------
does not deliver such items within the Document Delivery Period the Company need
not register such Transfer on its records and the Company (or its designee)
shall have a repurchase right as to such shares pursuant to Section 5.1(c). The
Trust shall promptly notify the Company of the occurrence of any event that
would cause a distribution from the Trust.
(b) Conditions to Transfer. Any attempt to Transfer, pledge,
----------------------
hypothecate or encumber shares of Common Stock, or any right, title or interest
therein, not in compliance with this Agreement shall be null and void, and the
Company shall not give effect to any such attempted transaction or Transfer.
Any shares of Common Stock Transferred pursuant to the terms and requirements of
this Agreement (including Sections 3, 4 and 5) shall be Transferred free and
clear of all mortgages, liens, pledges, charges and security interests or
encumbrances, or any obligations or liabilities in connection therewith, other
than obligations under this Agreement of transferees. Each Stockholder, on the
execution and delivery of this Agreement, agrees that such Stockholder will not
Transfer any shares of Common Stock prior to delivery to the Company of an
opinion of counsel in form and substance reasonably satisfactory to the Company
with respect to compliance with the Securities Act, or until a registration
statement with respect to such shares of Common Stock under the Securities Act
has become effective; except that no opinion shall be required in the case of a
Transfer by any Stockholder to a Permitted Transferee or by FS Stockholder or a
Permitted Transferee to any limited or general partner or employee of the FS
Stockholder or any Permitted Transferee. Except as expressly provided to the
contrary herein, all transferees of shares of Common Stock except for a
transferee acquiring shares in a Public Market Sale and transferees of such
Public
13
<PAGE>
Market Sale transferee will be bound by this Agreement in the same manner and to
the same extent as the transferor and prior to any Transfer must deliver to the
Company and the Stockholders a written undertaking to be and become so bound.
Upon completion of any Transfer in compliance with this Agreement, the
transferee shall become a Stockholder and entitled to certain rights hereunder.
(c) Repurchase Option. If Voting Securities held by a Trust Transferee
-----------------
become subject to a repurchase option pursuant to Section 4.2 or Section 5.1(a)
above, upon notice of exercise thereof from the Company (or its designee), such
Voting Securities shall be deemed to have been redeemed by the Company or
purchased by its designee for, and any certificates representing such Voting
Securities shall thereafter represent the right to receive, 85% of their fair
market value in cash (which value shall be determined by an Appraising Firm (as
defined in Section 5.2)). The Company (or its designee) shall have 60 days from
the expiration of the Document Delivery Period to deliver such notice and shall
pay such amount promptly (within 90 days from the expiration of the Document
Delivery Period) upon delivering such notice, whereupon the Company shall
reflect such redemption or sale on the records of the Company. If such notice
and payment is not delivered within 210 days of the distribution by the Trust,
and if the Trust has complied with its notice obligations hereunder, then the
Company shall record the Transfer to the Trust Transferee, notwithstanding the
failure to deliver the documents required by subsection (a). The Company's
rights under this paragraph (b) shall terminate on the date all rights under
Sections 4 and 5 hereof in favor of the FS Stockholder or its Permitted
Transferees have terminated.
(d) Transfer Restrictions Binding Ripplewood Stockholder. The
----------------------------------------------------
Ripplewood Stockholder shall not, without the prior written approval of FS
Stockholder; (i) pledge, hypothecate or encumber any shares of Common Stock,
except that the Ripplewood Employee Fund may pledge shares of Common Stock
subject to Section (e) of this Section 5.2; (ii) Transfer any shares of Common
Stock, or any right, title or interest therein, except in compliance with the
Securities Act and all applicable state securities laws; or (iii) Transfer any
shares of Common Stock or any right, title or interest therein, except for
Transfers of shares of Common Stock expressly permitted by and in compliance
with this Agreement, including (without limitation) subsection 5.2; provided
that the Ripplewood Stockholder may not Transfer any shares of Common Stock, or
any right, title or interest therein (other than to its Permitted Transferee or
as expressly permitted by and in compliance with this Agreement) until the
Permitted Transfer Date.
(e) The Ripplewood Employee Fund may pledge shares of Common Stock to
a lender in connection with the financing of its initial investment in the
Company, provided, that in connection with such pledge:
(i) No foreclosure sale of the pledge Common Stock shall be
consummated unless the FS Stockholder or a person designated by the FS
Stockholder shall be given the right to acquire such pledged shares of Common
Stock pursuant to this clause (i). Upon the pledgor agreeing to sell the shares
of Common Stock, the pledgor shall give written notice to the FS Stockholder of
the agreement to sell, which notice shall include a term sheet stating, among
other material terms, the agreed upon sale price that the purchaser is willing
to pay the pledgor for such
14
<PAGE>
shares of Common Stock. FS Stockholder or its designee shall thereafter have the
right for a period of 30 days following receipt of such notice to elect to
purchase such shares of Common Stock at the price and on the terms stated in the
written notice. The FS Stockholder or its designee shall exercise such rights by
delivering its irrevocable written election to purchase such shares prior to
2:00 p.m. Los Angeles time on the final day of said 30-day period. If the FS
Stockholder (or its designee) elects to purchase such shares of Common Stock, it
shall consummate such purchase within 60 days of the final day of the 30-day
period. If the FS Stockholder (or its designee) does not elect to purchase such
shares of Common Stock, the foreclosure sale may be completed if and only if the
transferee agrees in writing to be bound by the obligations of Ripplewood
Stockholder set forth in Section 3, 4, 5 and 7 of this Agreement.
(ii) A transferee of pledged securities in a foreclosure
sale shall not succeed to any rights hereunder of Ripplewood Stockholders,
including without limitation rights set forth in Sections 2, 3, 6 and 7 hereof.
(iii) Any pledgor of shares of Common Stock shall be bound
by Section 4 of this Agreement during such time it may hold shares of Common
Stock.
5.2 Right of First Offer. Each of the Existing Stockholders hereby
--------------------
agrees not to Transfer, for three years after the Permitted Transfer Date, or
until a Liquidity Event, if earlier, any of the shares of Common Stock held by
it to any Person (other than its Permitted Transferees) unless FS Stockholder
(or any third person(s) designated by FS Stockholder, which may include
Affiliates of FS Stockholder or the Company) is given the right to acquire such
shares of Common Stock pursuant to the provisions of this Subsection 5.2. In
addition, until a Liquidity Event, the Existing Stockholders shall not Transfer
any shares of Common Stock to any Person who directly or indirectly carries on
or participates in any business in competition with the Business (whether
conducted by the Company or any Subsidiary or controlled Affiliate of the
Company) without complying with this Section 5.2. The Ripplewood Stockholder
agrees not to Transfer, until a Liquidity Event, any of the shares of Common
Stock held by it to any Person (other than its Permitted Transferees) unless FS
Stockholder (or any third person(s) designated by FS Stockholder, which may
include Affiliates of FS Stockholder or the Company) is given the right to
acquire such shares of Common Stock pursuant to the provisions of this
Subsection 5.2. If an Existing Stockholder or the Ripplewood Stockholder
receives an offer from any Person (other than its Permitted Transferees) to
acquire any shares of Common Stock, or decides to solicit or cause to be
solicited a proposal or proposals to acquire shares of Common Stock, such
Existing Stockholder or the Ripplewood Stockholder shall first give FS
Stockholder written notice (the "Stockholder Notice") of such intention, which
notice shall include a term sheet stating, among other material terms, the
minimum cash sales price (the "Target Price") that such Existing Stockholder or
the Ripplewood Stockholder would entertain for the shares of Common Stock to be
sold (the "Offered Securities"). FS Stockholder (or its designee) shall have
the right for a period of 20 days following the delivery of the Stockholder
Notice (the "Acceptance Period") to accept the offer to purchase all but not
less than all of the Offered Securities at the Target Price and upon the other
terms provided with the Stockholder Notice. The FS Stockholder (or its
designee) shall exercise its rights under this Section 5.2 by delivering to such
Existing Stockholder or the Ripplewood Stockholder an irrevocable written notice
of its election prior to 2:00 p.m.
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Los Angeles time on the final day of the Acceptance Period. If the FS
Stockholder (or its designee) exercises its rights under this Section 5.2, the
sale of the Offered Securities shall be consummated within 60 days of the final
day of the Acceptance Period (the "Purchase Period"). If the FS Stockholder (or
its designee) does not elect to purchase the Offered Securities on such terms
(and the failure to deliver an irrevocable notice of acceptance shall be
conclusively deemed to be rejection of such opportunity) or fails to consummate
a purchase of the Offered Securities within the Purchase Period, such Existing
Stockholder or the Ripplewood Stockholder shall have the right (without
limitation to other rights it may have) to consummate the sale of the Offered
Securities on terms not materially more favorable to the purchaser than
specified in the Stockholder Notice for a period of 135 days (the "Consummation
Period") after the expiration of the Acceptance Period or, if applicable, the
Purchase Period. If such Existing Stockholder or the Ripplewood Stockholder does
not complete such sale, transfer or conveyance within the Consummation Period,
such Existing Stockholder or the Ripplewood Stockholder shall not have the right
to sell, transfer or convey any of the Offered Securities without again
complying with this Subsection 5.2. In the event such Existing Stockholder or
the Ripplewood Stockholder intends to sell the Offered Securities for
consideration other than cash, such Existing Stockholder or the Ripplewood
Stockholder shall notify the FS Stockholder (or its designee) of the terms of
such non-cash consideration. FS Stockholder (or its designee) may elect within
30 days of such notice to have the fair market value of such non-cash
consideration determined, with the parties jointly selecting an investment
banking firm to resolve any dispute regarding the fair market value of such non-
cash consideration; in the absence of agreement on such firm, a third investment
banking firm (designated by the firms proposed by the FS Stockholders and
Purchasers) shall determine such fair market value. The investment banking firm
so selected is referred to as the "Appraising Firm." If the sum of the fair
market value of the non-cash consideration and the cash consideration (in the
case of a sale that is partially for cash) is less than the cash price offered
to FS Stockholder (or its designee) pursuant to this Subsection 5.2, FS
Stockholder (or its designee) may, within 20 days of the determination of the
fair market value of the non-cash consideration, elect to purchase the Offered
Securities proposed to be sold for an amount in cash equal to the sum of (i) the
fair market value of the non-cash consideration and (ii) the cash consideration,
if any. Such purchase must be consummated within 60 days of the determination of
fair market value. If such Existing Stockholder or the Ripplewood Stockholder
receives a written offer for the Offered Securities at any time during the
Consummation Period which is acceptable to such Existing Stockholder or the
Ripplewood Stockholder but is less than the Target Price or is upon terms
materially less favorable to such Existing Stockholder or the Ripplewood
Stockholder than the terms provided to FS Stockholder (or its designee) in the
Stockholder Notice (the "Below Target Price Offer"), such Existing Stockholder
or the Ripplewood Stockholder shall promptly deliver a copy of such written
offer to FS Stockholder (or its designee). During the 20-day period following
delivery of such written offer, FS Stockholder (or its designee) shall have the
right to accept the offer to purchase the Offered Securities on the terms
reflected in such written offer. FS Stockholder (or its designee) shall, if it
so desires, exercise such right by delivery to such Existing Stockholder or the
Ripplewood Stockholder written notice of its election to purchase all but not
less than all of the Offered Securities prior to 2:00 p.m. Los Angeles time on
the final day of such additional 20 day period and the sale of the Offered
Securities shall be consummated within 60 days of the delivery of such written
notice. If FS Stockholder (or its designee) does not elect to accept the offer
to purchase the Offered Securities on such terms within such 20-day period or
fails to consummate the purchase
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of the Offered Securities within 60 days of the date of FS Stockholders (or its
designee's) acceptance of the Below Target Price Offer, such Existing
Stockholder or the Ripplewood Stockholder shall have (without limitation to any
other rights it may have) 135 days to consummate the sale of the Offered
Securities at a price and upon terms are not materially less favorable to such
Existing Stockholder or the Ripplewood Stockholder than the price and terms
specified in the written offer delivered to FS Stockholder (or its designee). In
the event a Below Target Price Offer involves any non-cash consideration, the
procedures for valuing such non-cash consideration set forth in Subsection 5.2
above shall be utilized to determine the fair market value of such non-cash
consideration and all time periods specified herein, extended accordingly.
5.3 Termination and Assignment. The obligations of a Stockholder
--------------------------
pursuant to this Section 5 shall not apply to a Public Market Sale. The rights
granted to FS Stockholder under Subsection 5.2 shall be assignable to its
Permitted Transferees (other than an Unaffiliated Permitted Transferee) and any
designee, as provided in this Section 5, or to a purchaser acquiring more than
50% of the outstanding Common Stock from the FS Stockholder. Any transferee of
shares of Common Stock from an Existing Stockholder, the Ripplewood Stockholder
or the FS Stockholder, as the case may be, other than a purchaser of shares in a
Public Market Sale or any subsequent transferee thereof, a transferee who shall
have acquired Securities following FS Stockholder declining to exercise its
rights of first offer hereunder (if the undertaking required by Section 4.2 is
delivered), or a purchaser of more than 50% of the shares of Common Stock held
by the FS Stockholder, shall be bound by the provisions of this Section 5 and
the Existing Stockholder, the Ripplewood Stockholder or the FS Stockholder, as
the case may be, shall obtain and deliver to each other Stockholder a written
commitment by such transferee to be bound by such provisions prior to any
transfer.
5.4 Taubman Option and Option Shares. Any reference in this
--------------------------------
Agreement (including any reference in Section 4) to shares of Common Stock shall
include the Option Shares as defined in the Option Agreement. After the
Permitted Transfer Date, the Taubman Option is transferable, but shall be
subject to the provisions of Sections 4, 5.1 and 5.2 hereof to the same extent
as Shares of Common Stock.
6. Registration Rights. FSEP IV, the Ripplewood Stockholder and the
-------------------
Existing Stockholders shall be entitled to certain registration rights with
respect to their shares of Common Stock (the "Registration Rights"). The terms
of the Registration Rights are set forth in Exhibit A attached hereto. The
rights granted to Stockholders under this Section 6 shall not be assignable,
except that a Stockholder may assign such rights to a Permitted Transferee
(provided, that any Permitted Transferee of the Existing Stockholders shall
deliver to the Company a power-of-attorney appointing Mr. Taubman (or an
individual he designates if he is unable to act due to death or disability), as
such Permitted Transferee's attorney-in-fact for purposes of exercising such
Transferee's rights and fulfilling such Transferee's obligations under this
Section 6) or to any purchaser of more than 50% of the shares of Common Stock
then held by such Stockholder (with (i) the Ripplewood Stockholder, and (ii) the
Existing Stockholders, each considered collectively for this purpose).
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<PAGE>
7. Representation on the Board of Directors.
----------------------------------------
7.1 The Board. Subject to the terms and conditions of this Section
---------
7, until the earlier to occur of (a) the date that is both (i) at least the
180/th/ day after the consummation of an Initial Public Offering, and (ii) such
time as less than 25% of the outstanding Common Stock is held by the
Stockholders and their Permitted Transferees or (b) the date of the sale by FS
Stockholder or its Permitted Transferees of more than 50% of the Initial Shares
held by them,(the earlier of such dates described in clauses (a) or (b) referred
to herein as a "Board Rights Termination Event"), at each annual or special
meeting of stockholders of the Company, or in any written consent executed in
lieu of a stockholder meeting, at or pursuant to which persons are being elected
to fill positions on the Board, the FS Stockholder, the Ripplewood Stockholder
and the Existing Stockholders agree to exercise, or cause to be exercised,
voting rights with respect to the shares of Voting Securities then held of
record or beneficially owned by them, in such a manner that (i) the candidates
nominated by FS Stockholder, (ii) Mr. Taubman or, in the event of his death or
disability, his representative designated in writing, and (iii) one (1)
candidate nominated by the Ripplewood Stockholder shall be elected to fill and
continue to hold positions on the Board. If necessary, the Board shall elect
such additional independent members, if any, as may be required under applicable
law or stock exchange requirements or by the National Association of Securities
Dealers or underwriters in connection with the Initial Public Offering, and the
FS Stockholder and the Existing Stockholders shall each take all actions
necessary in connection therewith. Mr. Taubman (or his representative) may not
be removed from the Board without cause. In addition, Mr. Taubman shall not be
disqualified from being a director by virtue of his age.
If, at any time from and after the date hereof until a Board Rights
Termination Event, FS Stockholder, Mr. Taubman or the Ripplewood Stockholder
shall give notice of its desire to remove any director previously nominated by
that party to serve on the Board, the FS Stockholder, the Ripplewood
Stockholder and the Existing Stockholders agree to exercise or cause to be
exercised voting rights with respect to all Voting Securities held of record or
beneficially owned by it or them so as to remove such director of the Company.
If at any time from and after the date hereof, until Board Rights Termination
Event any director previously nominated by FS Stockholder, Mr. Taubman or the
Ripplewood Stockholder to serve on the Board ceases to be a director (whether by
reason of death, resignation, removal or otherwise), FS Stockholder, Mr. Taubman
or the Ripplewood Stockholder, as the case may be, shall be entitled to nominate
a successor director to fill the vacancy created thereby, and the FS
Stockholder, the Ripplewood Stockholder and the Existing Stockholders agree to
exercise voting rights with respect to the shares of Voting Securities held of
record or beneficially owned by them so as to elect such nominee as a director
of the Company.
In furtherance of its obligations under this Section 7.1, and its
-----------
other obligations hereunder, effective on the date hereof the Ripplewood
Stockholder shall and hereby does grant to FSEP IV an irrevocable proxy to vote
the shares of the Ripplewood Stockholder in any manner that FSEP IV shall choose
consistent with the terms of this Agreement, in the form attached hereto as
Exhibit B. The irrevocable proxy shall be transferable to any Permitted
Transferee of the FS Stockholder, and the Ripplewood Stockholder shall execute
and deliver a new irrevocable proxy if necessary to effect such transfer. No
Transfer by the Ripplewood Stockholder to any Permitted
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<PAGE>
Transferee or other transferee (or any subsequent transferee) shall be effective
unless such transferee first delivers a substantially identical irrevocable
proxy in favor of FSEP IV or its Permitted Transferee. Any such irrevocable
proxy shall expire upon consummation of an Initial Public Offering.
7.2 Approval Right. Notwithstanding any other provision of this
--------------
Agreement to the contrary, until the third anniversary of this Agreement, the
Company (including any successor to the Company's business) may not Transfer any
significant portion of its assets to, or merge with or into, AutoZone, Inc. or
any Affiliate thereof and FS Stockholder, including any Permitted Transferee,
assignee or designee of FS Stockholder, may not directly or indirectly transfer
any interest in or control over any Voting Securities to AutoZone, Inc., or any
Affiliate thereof, without the prior written approval of Mr. Taubman.
7.3 Certain Actions of the Board.
----------------------------
(a) Without the approval of Mr. Taubman or his representative,
the Company shall not (i) issue any capital stock for consideration having a
value less than the fair market value of such capital stock (as determined in
reasonable good faith by the Board), unless such capital stock is issued in
connection with a financing transaction the overall terms of which are fair and
in the best interests of the Company, as determined in reasonable good faith by
the Board and provided, in the event that FS Stockholder or any of its
Affiliates is participating in or providing such financing the Existing
Stockholders have the opportunity to participate in such financing and, if they
so participate, to purchase or otherwise receive on the same terms their Pro
Rata Share (as defined in Section 2.4) of such Securities, or in connection with
a debt exchange, the overall terms of which the Board determines in reasonable
good faith are fair and in the best interests of the Company, (ii) enter into
any transaction or series of related transactions with any Affiliates of the FS
Stockholder or of the Ripplewood Stockholder, except on terms (as determined in
reasonable good faith based on full and fair disclosure by the Board) no less
favorable to the Company than are available from an unaffiliated third party, or
(iii) execute any amendment to the Articles of Incorporation or the Bylaws of
the Company, in each case as amended as of the effective time of the Merger
pursuant to the Merger Agreement, which would adversely affect the rights and
obligations of Mr. Taubman or his representative thereunder, as the case may be,
except for amendments which are applicable to holders of Voting Securities
generally and do not disproportionately disadvantage the Existing Stockholders,
or execute any amendment to this Agreement which adversely affects the rights
and obligations of the Existing Stockholders and their Permitted Transferees and
representatives, provided that this Agreement may be amended to add new parties
hereto who are purchasers of Securities (including an amendment granting
additional registration rights to such purchasers on terms permitted hereunder).
(b) Without a meeting of the Board of Directors of the Company
(as opposed to a committee thereof) having been called and convened for the
purpose of discussing any such action, the Company shall not (i) commence a
voluntary case or consent to the entry of an order for relief against it in an
involuntary case under Chapter 7 or Chapter 11 of the United States Bankruptcy
Code, (ii) acquire (including by merger) stock or assets of another business
(other than assets acquired in the ordinary course of business), from any seller
or group of related sellers in one
19
<PAGE>
transaction or in a series of related transactions, for consideration having a
fair market value in excess of $25 million, (iii) effect an Initial Public
Offering, (iv) engage in any debt financing whereby the Company and any of its
subsidiaries, taken together, incur in excess of $100 million of debt,
determined as of the time of such financing, other than pursuant to the terms of
any credit facility then outstanding for purposes of working capital, or
acquisitions or expenditures considered pursuant to clause (ii) of this Section
7.3(b), (v) hire or terminate the employment of an executive officer of the
Company, (vi) other than pursuant to employee plans approved by the Board of
Directors, issue any additional equity securities, (vii) sell assets not in the
ordinary course of business (including by merger or sale of stock of a
subsidiary), to any buyer or group of related buyers in one transaction or in a
series of related transactions, for consideration having a fair market value in
excess of $25 million, (viii) participate in a merger, share exchange, or other
business combination transaction having a fair market value in excess of $25
million or (ix) exercise its postponement rights pursuant to Section 2.1(d) of
Exhibit A.
(c) Without the approval of the director nominated by the
Ripplewood Stockholder, the Company shall not (i) enter into any transaction or
series of related transactions with any Affiliates of the FS Stockholder, except
on terms (as determined in reasonable good faith based on full and fair
disclosure by the Board) no less favorable to the Company than are available
from an unaffiliated third party or (ii) execute any amendment to the Articles
of Incorporation or the Bylaws of the Company, in each case as amended as of the
effective time of the Merger pursuant to the Merger Agreement, which would
adversely affect the rights and obligations of the Ripplewood Stockholder
thereunder, except for amendments which are applicable to holders of Voting
Securities generally and do not disproportionately disadvantage the Ripplewood
Stockholder, or execute any amendment to this Agreement which adversely affects
the rights and obligations of the Ripplewood Stockholder and their Permitted
Transferees and representatives, provided that this Agreement may be amended to
add new parties hereto who are purchasers of Securities (including an amendment
granting additional registration rights to such purchasers on terms permitted
hereunder).
(d) Except with respect to the matters set forth in Section
7.3(c), the director nominated by the Ripplewood Stockholder (the "Ripplewood
Director") shall, until the consummation of an Initial Public Offering, cast any
vote at a meeting of the Board of Directors together with a majority of the
directors nominated by and affiliated with the FS Stockholder (the "FS
Directors") and shall execute and deliver to the Secretary of the Company any
written consent of the Board executed by all of the FS Directors. Except as set
forth in the preceding sentence, the Ripplewood Stockholder shall not take any
action as a Director except as required by law or as directed by a majority of
the FS Directors. Notwithstanding the foregoing, but subject to the next
paragraph, the Ripplewood Director shall not be required to vote or act in a
manner that he or she believes in good faith based on the advice of counsel
would violate applicable law, provided that in such circumstance the Ripplewood
--------
Director shall abstain from voting or acting altogether.
In the event (i) the Ripplewood Director shall fail to comply with the
agreement in the preceding paragraph, (ii) the Ripplewood Director shall
exercise his or her right to abstain pursuant to the last sentence of the
preceding paragraph, or (iii) this Section 7.4(d) shall be determined (other
than at the instance of the FS Stockholder or its affiliates) to be invalid,
illegal or unenforceable in
20
<PAGE>
whole or in part in any respect, or the Ripplewood Director, Ripplewood
Stockholders or their affiliates shall assert such invalidity, illegality or
unenforceability, then, in any such case, the FS Stockholder shall be entitled
to remove the Ripplewood Director from the Board, and the Board shall be
entitled to appoint another director in its sole discretion, and the Ripplewood
Director shall immediately resign from the Board without casting any further
votes or taking any further actions as a Director. In addition, if clause (i) or
(iii) of the preceding sentence is applicable, then, without, further action by
any party to this Agreement, the Stockholders' Obligation to elect a nominee of
the Ripplewood Stockholder to the Board shall be of no further force and effect;
if clause (ii) of the preceding sentence is applicable, then at any time after
the FS Stockholder shall have replaced the Ripplewood Director on the Board and
the Board has had a reasonable opportunity to reconsider the vote or action with
respect to which the Ripplewood Director abstained, promptly upon the Ripplewood
Stockholder's or Ripplewood Director's request, the Ripplewood Stockholder shall
be entitled to be reappointed a Director under Section 7.1.
7.4 Termination and Assignment. The rights contained in Section 7.1
--------------------------
shall not be assignable other than by FS Stockholder to a Permitted Transferee
(provided that the FS Stockholders and their Permitted Transferees continue to
own a majority of the outstanding Common Stock) or by the Ripplewood Stockholder
to a Permitted Transferee or by Mr. Taubman to a Permitted Transferee (of the
type described in clause (w) of the definition thereof). Mr. Taubman's or his
representative's rights under Sections 7.1 and 7.3 shall terminate if Mr.
Taubman and his Permitted Transferees own less than 5% of the issued and
outstanding shares of Common Stock.
8. Copy of Agreement. A copy of this Agreement and all amendments hereto
-----------------
shall be filed with the Secretary of Company and shall be kept at the principal
executive offices of Company.
9. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the Commonwealth of Virginia without
regard to the conflicts of laws rules thereof.
10. Representations and Warranties. Each Stockholder represents and
------------------------------
warrants (a) that such Stockholder has full power, capacity, right and
authority, and any requisite approvals or consents to enter into and perform
this Agreement; (b) that this Agreement and the performance of its obligations
hereunder have been duly authorized, and that this Agreement has been duly
executed and delivered by such Stockholder and is a valid and binding agreement,
enforceable against such Stockholder in accordance with its terms; (c) that such
Stockholder owns beneficially and of record the shares of Common Stock and the
rights, options or warrants to purchase any capital stock of the Company set
forth opposite its name on Schedule 1 hereto, free and clear of any lien, claim,
charge, option, security interest, restriction or encumbrance and (d) that such
Stockholder does not own beneficially or of record any other securities or
rights, options or warrants to purchase any securities of the Company. The
Trust further represents and warrants that it is a trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia.
The sole living Trust beneficiaries are: Nicholas F. Taubman (during his
lifetime) and, upon the death of Nicholas F. Taubman, his children then living
(presently his children are Marc E. Taubman and Lara L. Taubman).
21
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The execution, delivery and performance of this Agreement will not violate any
trust document establishing or governing the Trust.
11. Amendment and Waiver; Successors; After Acquired Shares. This
-------------------------------------------------------
Agreement may be amended, modified or supplemented, and compliance with any
provision hereof may be waived, only with the written consent of each of FSEP IV
and except in order to add additional parties who are purchasers of Securities
(including the granting of Registration Rights to such parties on terms
permitted hereunder), (x) the Existing Stockholders holding a majority of the
shares of Common Stock then held by the Existing Stockholders, and (y) to the
extent the Ripplewood Stockholder would be prejudiced thereby, the Ripplewood
Stockholder, and any amendment, modification, supplement or waiver so consented
to in writing shall be binding upon the parties hereto and their successors and
Permitted Transferees and assigns (if any). This Agreement shall be binding on
the parties hereto and, their successors, transferees, assigns, heirs and
personal representatives; provided however, that unless expressly permitted
herein to an assignee or Permitted Transferee, this Agreement and the rights
granted hereunder shall not be assignable without the written consent of all of
the parties hereto, which consent may be withheld in each such party's sole
discretion. If any right hereunder is not assignable, it shall not be
transferred to any subsequent holder of shares of Common Stock by reason of the
transfer of shares to such holder. The Agreement shall apply to all shares of
Common Stock now owned or hereafter acquired by any Stockholder, and the term
"Common Stock" includes any securities into which Common Stock may hereafter be
changed or which may hereafter be issued to holders of shares of Common Stock.
12. Interpretation. The headings of the Sections contained in this
--------------
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not affect the meaning or interpretation of this
Agreement.
13. Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or delivered by telecopier (with receipt
confirmed), on the date of such delivery or transmission, (i) if to Company, at
the address or telecopier number set forth in the Purchase Agreement, (ii) if to
the FS Stockholder, at Freeman Spogli & Co. Incorporated, 11100 Santa Monica
Boulevard, Suite 1900, Los Angeles, California 90025, Attention: William M.
Wardlaw, telecopier: (310) 444-1870, (iii) if to Mr. Taubman at 2818 Avenham
Ave., SW, Roanoke, VA 24104, with a copy to Douglas W. Densmore, Esq., Flippin,
Densmore, Morse, Rutherford & Jessee, 300 First Campbell Square, Drawer 1200,
Roanoke, Virginia 24006; (iv) if to the Trust at c/o Nicholas F. Taubman at 2818
Avenham Ave., SW, Roanoke, VA 24104, with a copy to Douglas W. Densmore, Esq.,
Flippin, Densmore, Morse, Rutherford & Jessee, 300 First Campbell Square, Drawer
1200, Roanoke, Virginia 24006; and (v) if to the Ripplewood Stockholder at
Ripplewood Holdings L.L.C., 1 Rockefeller Plaza, 32nd Floor, New York, NY 10020,
Attention: John Duryea, telecopier: (212) 582-4110, with a copy to Debevoise &
Plimpton, 875 Third Avenue, New York, NY, Attention: Robert M. Quaintance, Jr.,
telecopier (212) 909-6836 (or at such other address or telecopier number for
any party as shall be specified by like notice provided that notices of a change
of address or telecopier number shall be effective only upon receipt thereof).
22
<PAGE>
14. Legends. All certificates evidencing shares of Common Stock which are
-------
issued to any of FSEP IV, the Ripplewood Stockholder and the Existing
Stockholders shall be legended as follows (in addition to any other legend
required to be placed thereon):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AND OBLIGATIONS WITH RESPECT TO THE TRANSFER, PLEDGE,
HYPOTHECATION, DISTRIBUTION AND VOTING THEREOF AS SET FORTH IN THAT CERTAIN
STOCKHOLDERS AGREEMENT DATED AS OF APRIL 15, 1998, WHICH MAY BE REVIEWED AT
THE PRINCIPAL PLACE OF BUSINESS OF THE CORPORATION AND A COPY OF WHICH MAY
BE OBTAINED FROM THE CORPORATION WITHOUT CHARGE UPON WRITTEN REQUEST
THEREFOR."
All certificates evidencing shares of Common Stock which are issued to the
Trust shall be legended as follows (in addition to the above legend and any
other legend required by law to be placed thereon):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
ADDITIONAL RESTRICTIONS AND OBLIGATIONS WITH RESPECT TO THE TRANSFER
THEREOF RELATING TO THE ARTHUR TAUBMAN TRUST DATED JULY 13, 1964 AS SET
FORTH IN SECTIONS 5.1(A) AND (B) OF THAT CERTAIN STOCKHOLDERS AGREEMENT
DATED AS OF APRIL 15, 1998, WHICH MAY BE REVIEWED AT THE PRINCIPAL PLACE OF
BUSINESS OF THE CORPORATION AND A COPY OF WHICH MAY BE OBTAINED FROM THE
CORPORATION WITHOUT CHARGE UPON WRITTEN REQUEST THEREFOR."
15. Further Assurances. The Stockholders shall exercise, or cause to be
------------------
exercised, voting rights with respect to Voting Securities held of record or
beneficially owned by them in a manner so that, and shall otherwise take any
necessary actions in order that, the covenants and understandings of the parties
set forth in this Agreement shall be implemented. Each party hereto agrees to
perform any further acts and execute and deliver any documents which may be
reasonably necessary to carry out the intent of this Agreement and to make
appropriate changes to the procedures set forth herein to implement such rights
to the extent necessary to conform to the Virginia Stock Corporation Act or
other applicable law. FS Stockholder further agrees that it will not take any
action (such as amending the articles of incorporation or bylaws of the Company)
that would materially interfere with or prevent the exercise of any rights of
the Existing Stockholders or the Ripplewood Stockholder under this Agreement.
The Company covenants and agrees that it will act in good faith to preserve for
each of the Stockholders the benefits of this Agreement and that it will take no
voluntary action to impair the benefit hereof or to avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder or to deny to any of the Stockholders any of the benefits or
protections contemplated hereby.
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16. Injunctive Relief; Disputes. It is acknowledged that it will be
---------------------------
impossible to measure in money the damages that would be suffered if the parties
hereto fail to comply with any of the obligations herein imposed on them and
that, in the event of any such failure, an aggrieved party hereto will be
irreparably damaged and will not have an adequate remedy at law. Any such party
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, and if any action should be brought in
equity to enforce any of the provisions of this Agreement, none of the parties
hereto shall raise the defense that there is an adequate remedy at law.
17. Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect to the maximum extent permitted by applicable
law. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that
this Agreement be enforced as originally contemplated to the greatest extent
possible.
18. Entire Agreement. This Agreement (and Exhibits hereto), together with
----------------
the Company's Articles of Incorporation and Bylaws as in effect on the date
hereof constitute the entire agreement and understanding among the parties
pertaining to the subject matter hereof and supersede any and all prior
agreements, whether written or oral, relating hereto.
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
20. Opinions. Upon the execution of this Agreement, FS Stockholder and
--------
the Ripplewood Stockholder shall receive an opinion from Flippin, Densmore,
Morse, Rutherford & Jessee with respect to the enforceability of this Agreement
against the Existing Stockholders and the Existing Stockholders and the
Ripplewood Stockholder shall receive an opinion from Hunton & Williams with
respect to the enforceability of this Agreement against FS Stockholder and the
FS Stockholder and the Existing Stockholders shall receive an opinion from
Debevoise & Plimpton with respect to the enforceability of this Agreement
against the Ripplewood Stockholder (assuming that Virginia law is the same as
Delaware law).
21. Term. This Agreement shall terminate and be of no further force and
----
effect on the date that is ten years from the date hereof, provided that subject
to Section 7.4, Mr. Taubman's rights under Section 7.1 shall survive termination
of this Agreement so long as he shall live.
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
ADVANCE HOLDING CORPORATION
By: /s/ Garnett E. Smith
-----------------------------
Its: President
----------------------------
NICHOLAS F. TAUBMAN
/s/ Nicholas F. Taubman
--------------------------------
THE ARTHUR TAUBMAN TRUST DATED JULY 13, 1964
By: /s/ Eugenia Taubman
-----------------------------------------------
Trustee
RIPPLEWOOD PARTNERS, L.P.
a Delaware limited partnership
By: /s/ John Duryea
---------------------------------------------------------
Its: Manager
--------------------------------------------------------
RIPPLEWOOD ADVANCE AUTO PARTS
EMPLOYEE FUND I L.L.C.,
a Delaware limited liability company
By: /s/ John Duryea
---------------------------------------------------------
Its: Manager
--------------------------------------------------------
25
<PAGE>
FS EQUITY PARTNERS IV, L.P.
a Delaware limited partnership
By: FS Capital Partners, LLC
Its: General Partner
By: /s/ Mark J. Doran
-----------------------------------------------------
Its Managing Member
-----------------------------------------------------
26
<PAGE>
SCHEDULE 1
OWNERSHIP OF CAPITAL STOCK
BY STOCKHOLDERS UPON CONSUMMATION OF
TRANSACTIONS CONTEMPLATED BY MERGER AGREEMENT
<TABLE>
<CAPTION>
OPTIONS TO
PURCHASE
COMMON
STOCKHOLDER COMMON STOCK STOCK
- --------------------------------------- -------------------------------------------------
<S> <C> <C>
FS Equity Partners IV, L.P............. 8,050,000 ---
Ripplewood Partners, L.P............... 1,911,000 ---
Ripplewood Advance Auto Parts 89,000 ---
Employee Fund I L.L.C.................
Nicholas F. Taubman.................... 1,000,000 250,000
Arthur Taubman Trust................... 750,000 250,000
</TABLE>
27
<PAGE>
EXHIBIT A
---------
TERMS OF THE REGISTRATION RIGHTS
OF THE COMMON STOCK
Capitalized terms used herein and not otherwise defined shall have the
respective meanings given such terms in the Stockholders' Agreement (the
"Agreement") to which this Exhibit A is attached.
SECTION 1
SECTION 1.1 Definitions. For purposes of this Exhibit A, the following
----------- ---------
terms shall have the following meanings:
"Demand Registration" means a Demand Registration as defined in
Section 2.1.
"Excess Amount" means. with respect to an underwritten offering, the
number of Registrable Securities requested by a Holder or Holders to be sold
pursuant to Section 2.1 or 2.2 which the managing Underwriter or Underwriters
determines exceeds the largest number of Registrable Securities which can
successfully be sold in an orderly manner in such offering within a price range
acceptable to sellers holding a majority of the Registrable Securities proposed
to be sold in such underwritten offering.
"Holder" means the FS Stockholder, the Ripplewood Stockholder and/or
any Existing Stockholder (or any Permitted Transferee or permitted assignee
thereof).
"Other Holder Notice" means an Other Holder Notice as defined in
Section 2.1.
"Piggy-Back Registration" means a Piggy-Back Registration as defined
in Section 2.2.
"Registrable Security" means any share of Common Stock outstanding
until (i) a registration statement covering such Common Stock has been declared
effective by the SEC and it has been disposed of pursuant to such effective
registration statement, (ii) it is sold under circumstances in which all of the
applicable conditions of Rule 144 (or any similar provisions then in force)
under the Securities Act are met or it may be sold pursuant to Rule 144(k) under
such Act or (iii) it has been otherwise Transferred, the Company has delivered a
new certificate or other evidence of ownership for it not bearing the legend
required pursuant to the Stockholders Agreement and it may be resold without
subsequent registration under the Securities Act.
"Requisite Share Number" means the lesser of (i) a number of
Registrable Securities representing not less than 5% of the total number of
shares of Common Stock then outstanding or (ii) the number of shares of Common
Stock representing not less than $20,000,000 in fair market value as determined
by the Board.
A-1
<PAGE>
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a registration statement under the Securities Act.
"Transfer" means any direct or indirect transfer, sale, assignment or
other disposition of Common Stock.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
SECTION 2
SECTION 2.1 Demand Registration.
-------------------
(a) Request for Registration. At any time on or after the date
------------------------
which is 180 days following the closing of the Initial Public Offering any
Holder or Holders owning, individually or in the aggregate, at least the
Requisite Share Number may make a written request for registration under the
Securities Act of all or part of its or their Registrable Securities (a "Demand
Registration"); provided that the Holder or Holders making the request are
--------
together requesting that the Requisite Share Number be registered; provided
--------
further that the Company shall not be obligated to effect (i) more than three
- -------
(3) Demand Registrations for the FS Stockholder and its Permitted Transferees
and permitted assignees, as a group; (ii) more than two (2) Demand Registrations
for the Existing Stockholders and their Permitted Transferees as a group or
(iii) more than one (1) Demand Registration for the Ripplewood Stockholder and
its Permitted Transferees as a group. Such request will specify the number of
shares of Registrable Securities proposed to be sold and will also specify the
intended method of disposition thereof. The Company shall give written notice of
such registration request within 10 days after the receipt thereof to all other
Holders. The first time an Existing Stockholder or the Ripplewood Stockholder
requests a Demand Registration, the FS Stockholder (or its Permitted Transferees
or permitted assignees) shall be entitled to submit to the Company, within ten
(10) days after receipt of notice of such Existing Stockholder's or Ripplewood
Stockholder's request for a Demand Registration, a written request for a Demand
Registration (the "Simultaneous Registration") and shall thereby join in the
request of such Existing Stockholder or the Ripplewood Stockholder, and
thereupon each of the Existing Stockholders, Ripplewood Stockholder, and FS
Stockholder shall be entitled to include Registrable Securities in such Demand
Registration on a pro rata basis, determined based on the number of Registrable
Securities then sought to be included by the FS Stockholders, all Existing
Stockholders, the Ripplewood Stockholder (in each case including any Permitted
Transferees) and other Persons entitled to include shares therein pursuant to
Demand Registration rights, respectively, up to the number of Registrable
Securities proposed to be sold in such Demand Registration and, for purposes of
Section 2.3, prior to any person including Registrable Securities under section
2.2 or other Piggy-Back Registration Rights. Each such Simultaneous Registration
shall be treated as one of the FS Stockholder's three (3) Demand Registrations.
The first time the Ripplewood Stockholder requests a Demand Registration, if (i)
within the 10-day period set forth in the preceding sentence the FS Stockholder
does not request a Simultaneous Registration, and (ii) the Existing Stockholders
has not previously requested a Demand Registration counted under Section 2.1(b),
then, by giving notice within three
A-2
<PAGE>
(3) business days of the end of said 10-day period, the Existing Stockholders
may request a Simultaneous Registration with the Ripplewood Stockholder, and if
such a request is made, thereupon the Existing Stockholders and the Ripplewood
Stockholder shall be entitled to include Registrable Securities in such Demand
Registration on a pro rata basis, determined based on the number of Registrable
Securities then sought to be included by the Ripplewood Stockholder, all
Existing Stockholders (in each case including Permitted Transferees) and other
Persons entitled to include shares therein pursuant to Demand Registration
rights (it being understood that FS Stockholder shall have waived its right to
participate therein except pursuant to Section 2.2), respectively, up to the
number of Registrable Securities proposed to be sold in such Demand Registration
and, for purposes of Section 2.3, prior to any Person including Registrable
Securities under Section 2.2 or other Piggy-Back Registration Rights. Such
Simultaneous Registration shall count as one of the Existing Shareholders two
(2) Demand Registrations. Within 10 days after receipt by a Holder of notice of
the request for a Demand Registration by another Holder, a Holder may request in
writing that Registrable Securities be included in such Demand Registration
pursuant to Section 2.2. Each such request by such other Holders (each, an
"Other Holder Notice") shall specify the number of shares of Registrable
Securities proposed to be sold and the intended method of disposition thereof.
(b) Effective Registration. A registration will not count as a Demand
----------------------
Registration (or request therefor) until (x) it has become effective or (y) if
the amount of Registrable Securities requested by the initiating Holder is
reduced pursuant to Section 2.3 by more than 50%; provided that, in the case of
any Simultaneous Registration, the Existing Stockholder's request shall not
count as one of the Existing Stockholders' two Demand Registrations (unless a
Simultaneous Registration is requested by the Existing Shareholders) and the
Ripplewood Stockholder's request shall not count as its Demand Registration.
(c) Underwritten Offering. If the Company or the initiating Holder of
---------------------
a Demand Registration so elects, the offering of such Registrable Securities
pursuant to such Demand Registration shall be in the form of an underwritten
offering. The Company and the initiating Holder of the Demand Registration
shall jointly select one or more nationally recognized firms of investment
bankers to act as the managing Underwriter or Underwriters in connection with
such offering and shall select any additional managers to be used in connection
with the offering.
(d) Required Delays. Notwithstanding anything contained in this
---------------
Section 2.1 to the contrary, if any request for Demand Registration is delivered
at a time when the Company has determined or is currently planning (and has
discussed with its Board of Directors its plan) to file a Registration Statement
with respect to an underwritten primary registration of Common Stock on behalf
of the Company (so long as a Registration Statement is filed with respect
thereto within one month of the Holder's or Holders' request for Demand
Registration), the Company may require the Holder or Holders to postpone such
request until the sooner of the expiration of the 90-day period following the
effective date of such registration or six months from the day of the Holder's
or Holders' request for such Demand Registration; and, provided further,
----------------
however, that if such request is delivered at a time when such registration
- -------
would adversely affect a material acquisition or merger to which the Company is
a party, or otherwise materially and adversely affect the Company or the
A-3
<PAGE>
market for the Company's Common Stock (it being understood that the ordinary
effect of a Registration on the market for securities does not meet the
foregoing standard) (a "Material Event Postponement"), the Company may require
the Holder to postpone such request for an appropriate period (not to exceed 90
consecutive days (with a 30-day break between any two consecutive periods) or
180 days in any 12-month period). In the event of a Material Event Postponement,
the Company shall deliver a certificate signed by the President or the Chairman
confirming the Company's reasons for postponing the registration and will effect
such registration as promptly as possible after removal of such reasons, and if
requested by the demanding Holder, shall prepare a registration statement during
the pendency of such postponement so that the registration statement may be
filed as soon as practicable following a resolution of the circumstance giving
rise to such Material Event Postponement.
SECTION 2.2 Piggy-Back Registration. If at any time on or after the
-----------------------
date which is 180 days following the closing of the Company's Initial Public
Offering, the Company proposes to file a registration statement under the
Securities Act with respect to an offering by the Company for its own account or
for the account of any of its respective security holders of any class of
security of the same class as the Registrable Securities (other than a
registration statement on Form S-4 or S-8 (or any substitute form that may be
adopted by the SEC), a registration statement filed in connection with an
exchange offer or offering of securities solely to the Company's existing
security holders), then the Company shall give written notice of such proposed
filing to the Holders as soon as practicable, and such notice shall offer such
Holders the opportunity to register such number of shares of Registrable
Securities as each such Holder may request in writing within 10 days of receipt
of such notice (which request shall specify the Registrable Securities intended
to be disposed of by such Holder and the intended method of distribution
thereof) (a "Piggy-Back Registration"). The Company shall use its best efforts
to cause the managing Underwriter or Underwriters of a proposed underwritten
offering to permit the Registrable Securities requested to be included in a
Piggy-Back Registration to be included on the same terms and conditions as any
similar securities of the Company included therein to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. Subject to Section 2.3(b), any Holder shall have
the right to withdraw its request for inclusion of its Registrable Securities in
any Piggy-Back Registration by giving written notice to the Company of its
request to withdraw within 20 days of its request for inclusion, provided that
the Registration Statement including such shares (a "Piggy-Back Registration
Statement") is not yet effective. The Company may withdraw a Piggy-Back
Registration Statement at any time prior to the time it becomes effective.
SECTION 2.3 Reduction of Offering.
---------------------
(a) Notwithstanding anything contained herein, if the managing
Underwriter or Underwriters of an offering described in Section 2.1 or 2.2
determine that the size of the offering that the Holders, the Company or any
other Persons intend to make is such that the success of the offering would be
adversely affected by inclusion of the Registrable Securities requested to be
included, then (i) with respect to a Demand Registration, if the size of the
offering is the basis of such Underwriter's or Underwriters' determination, the
Company shall not include in such registration an amount of Registrable
Securities requested to be included in such offering equal to the Excess Amount,
such
A-4
<PAGE>
reduction first to be allocated pro rata among the Holders or other Persons
who did not initiate the request for a Demand Registration according to the
number of Registrable Securities requested for inclusion, with the Holder or
Holders or other Persons who initiated the request for a Demand Registration
entitled to include shares therein to the maximum extent possible provided that
if such Holders cannot include all their shares in such offering, the amount of
Registrable Securities to be registered shall be reduced pro rata among the
initiating Holders (provided further that if the FS Stockholder initiates a
Demand Registration pursuant to Section 2.1(a) and an Existing Stockholder or
the Ripplewood Stockholder requests to participate in such Demand Registration,
the FS Stockholder and such Existing Stockholder, the Ripplewood Stockholder and
each of them participating shall be treated pari passu with respect to a
---- -----
reduction under this Section 2.3) and (ii) in the case of a Piggy-Back
Registration, if securities are being offered for the account of other Persons
as well as the Company, the securities the Company seeks to include shall have
priority over securities sought to be included by any other Person (including
the Holders) and, with respect to the Registrable Securities intended to be
offered by Holders, the proportion by which the amount of such class of
securities intended to be offered by Holders is reduced shall not exceed the
proportion by which the amount of such class of securities intended to be
offered by such other Persons is reduced (it being understood that with respect
to the Holders and third parties such reduction may be all of such class of
securities).
(b) If, as a result of the proration provisions of Section 2.3(a), any
Holder shall not be entitled to include all Registrable Securities in a Demand
Registration or Piggy-Back Registration that such Holder has requested to be
included, such Holder may elect to withdraw his request to include Registrable
Securities in such registration (a "Withdrawal Election"); provided however,
-------- -------
that a Withdrawal Election shall be irrevocable and, after making a Withdrawal
Election, a Holder shall no longer have any right to include Registrable
Securities in the registration as to which such Withdrawal Election was made.
SECTION 2.4 Additional Rights. The Company shall not grant to any
-----------------
Person registration rights on terms which are more favorable to such Person than
or which otherwise interferes with (it being understood that the granting of
registration rights to other stockholders shall not by itself be deemed to so
interfere) those accorded to the Ripplewood Stockholder or the Existing
Stockholders.
SECTION 2.5 Initial Public Offering. To the extent that FS
-----------------------
Stockholder elects to include shares in the Initial Public Offering, then all
Holders shall be entitled to include shares therein on a pro rata basis,
determined based on the number of Registrable Securities then held by such
Holders and other Persons entitled to include shares therein.
SECTION 3
SECTION 3.1 Filings; Information. Whenever any Holder requests that
--------------------
any Registrable Securities be registered pursuant to Sections 2.1, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof as quickly as practicable, and in connection with any such request:
A-5
<PAGE>
(a) The Company will, subject to Section 2.1(d), as expeditiously as
possible prepare and file with the SEC a registration statement on any form for
which the Company then qualifies and which form shall be available for the sale
of the Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and use its best efforts to cause such
filed registration statement to become and remain effective until the earlier of
(i) 90 days from the date such registration statement became effective or (ii)
the date on which the sale of Registrable Securities has been completed. If the
Company receives multiple demands for registration in accordance with this
Agreement, then, except as provided in Section 2.1(a), such demands shall be
handled in the order received.
(b) The Company will, prior to filing a registration statement or
prospectus or any amendment or supplement thereto, furnish to each Selling
Holder, one counsel representing all such Selling Holders, and each Underwriter,
if any, of the Registrable Securities covered by such registration statement
copies of such registration statement as proposed to be filed, together with
exhibits thereto, which documents will be subject to prompt review and approval
by the foregoing, and thereafter furnish to such Selling Holder, counsel and
Underwriter, if any, such number of copies of such registration statement, each
amendment and supplement thereto (in each case including all exhibits thereto
and documents incorporated by reference therein), the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such Selling Holder or Underwriter may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Selling Holder.
(c) After the filing of the registration statement, the Company will
promptly notify each Selling Holder of Registrable Securities covered by such
registration statement of any stop order issued or threatened by the SEC and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered.
(d) The Company will use its best efforts to (i) register or qualify
the Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as any Selling Holder reasonably (in light of
such Selling Holder's intended plan of distribution) requests and (ii) cause
such Registrable Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary by
virtue of the business and operations of the Company and do any and all other
acts and things that may be reasonably necessary or advisable to enable such
Selling Holder to consummate the disposition of the Registrable Securities owned
by such Selling Holder; provided that the Company will not be required to (A)
--------
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (B) subject itself
to taxation in any such jurisdiction or (C) consent to general service of
process in any such jurisdiction.
(e) The Company will immediately notify each Selling Holder of such
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the occurrence of an event
requiring the preparation of a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or omit
to state any material
A-6
<PAGE>
fact required to be stated therein or necessary to make the statements therein
not misleading and promptly make available to each Selling Holder any such
supplement or amendment.
(f) The Company will enter into customary agreements (including, if
applicable, an underwriting agreement in customary form) and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities.
(g) The Company will deliver promptly to each Selling Holder of such
Registrable Securities and each Underwriter, if any, subject to restrictions
imposed by the United States federal government or any agency or instrumentality
thereof, copies of all correspondence between the SEC and the Company, its
counsel or auditors and all memoranda relating to discussions with the SEC or
its staff with respect to the registration statement and make available for
inspection by any Selling Holder of such Registrable Securities, any Underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other professional retained by any such Selling Holder
or Underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), subject to restrictions imposed by any
governmental authority governing access to classified information, as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any Inspectors in connection with
such registration statement. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
registration statement or (ii) the disclosure or release of such Records is
requested or required pursuant to oral questions, interrogatories, requests for
information or documents or a subpoena or other order from a court of competent
jurisdiction or other process; provided that prior to any disclosure or release
--------
pursuant to clause (ii), the Inspectors shall provide the Company with prompt
notice of any such request or requirement so that the Company may seek an
appropriate protective order or waive such Inspectors' obligation not to
disclose such Records; and provided further, that if failing the entry of a
----------------
protective order or the waiver by the Company permitting the disclosure or
release of such Records, the Inspectors, upon advice of counsel, are compelled
to disclose such Records, the Inspectors may disclose that portion of the
Records which counsel has advised the Inspectors that the Inspectors are
compelled to disclose. Each Selling Holder of such Registrable Securities agrees
that information obtained by it solely as a result of such inspections (not
including any information obtained from a third party who, insofar as is known
to the Selling Holder after reasonable inquiry, is not prohibited from providing
such information by a contractual, legal or fiduciary obligation to the Company)
shall be deemed confidential and shall not be used by it as the basis for any
market transactions in the securities of the Company or its Affiliates unless
and until such is made generally available to the public. Each Selling Holder
of such Registrable Securities further agrees that it will, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction, give
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of the Records deemed confidential.
A-7
<PAGE>
(h) The Company will otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the SEC, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months after
the effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(i) The Company will use its best efforts (a) to cause all such
Registrable Securities to be listed on each national securities exchange on
which similar securities issued by the Company are then listed (if any), if the
listing of such Registrable Securities is then permitted under the rules of such
exchange or (b) to secure designation of all such Registrable Securities as a
National Association of Securities Dealers Automatic Quotation ("NASDAQ")
"national market system security" within the meaning of Rule 11Aa2-l of the SEC
or, to secure NASDAQ authorization for such Registrable Securities, if similar
securities issued by the Company are so designated.
(j) The Company may require each Selling Holder of Registrable
Securities to promptly furnish in writing to the Company such information
regarding the distribution of the Registrable Securities as the Company may from
time to time reasonably request and such other information as may be legally
required in connection with such registration.
(k) The Company will use its reasonable best efforts to facilitate the
distribution of the Registrable Securities in accordance with the intended
method of distribution thereof, including making management of the Company
available for "road show" presentations and similar selling efforts.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3.1(e)
hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3.1(e) hereof (such
period during which a Selling Holder is required to refrain from disposition of
Registrable Securities, a "Suspension Period"), and, if so directed by the
Company, such Selling Holder will deliver to the Company all copies, other than
permanent file copies then in such Selling Holder's possession, of the most
recent prospectus covering such Registrable Securities at the time of receipt of
such notice. In the event the Company shall give such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective (including the period referred to in Section 3.1(a) hereof) by the
number of days during the period from and including the date of the giving of
notice pursuant to Section 3.1(e) hereof to the date when the Company shall make
available to the Selling Holders of Registrable Securities covered by such
registration statement a prospectus supplemented or amended to conform with the
requirements of Section 3.1(e) hereof.
SECTION 3.2 Registration Expenses. In connection with any Demand
---------------------
Registration pursuant to Section 2.1 hereof and any registration statement filed
pursuant to Sections 2.2, the Company shall pay the following registration
expenses incurred in connection with the registration hereunder (the
"Registration Expenses"): (i) all registration and filing fees, (ii) fees and
expenses of
A-8
<PAGE>
compliance with securities or blue sky laws (including fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), (iii) printing expenses, (iv) the Company's internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (v) the fees and expenses, if
any, incurred in connection with the listing of the Registrable Securities, (vi)
fees and disbursements of counsel for the Company and fees and expenses for
independent certified public accountants retained by the Company, (vii) the fees
and expenses of any special experts retained by the Company in connection with
such registration, and (viii) with respect to a Demand Registration only,
reasonable fees and expenses of one counsel (who shall be reasonably acceptable
to the Company) for all of the Selling Holders, with such counsel selected by
Holders of a majority of the Registrable Securities. The Company shall have no
obligation to pay any underwriting fees, discounts or commissions attributable
to the sale of Registrable Securities, or any out-of-pocket expenses of the
Holders.
SECTION 4
SECTION 4.1 Indemnification by the Company.
------------------------------
(a) The Company agrees to indemnify and hold harmless each Selling
Holder of Registrable Securities, its officers, directors and agents, and each
Person, if any, who controls such Selling Holder within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act from and against any
loss, claim, damage or liability and any action in respect thereof to which such
Selling Holder, its officers, directors and agents, and any such controlling
Person may become subject under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon, any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or arises out of, or is
based upon, 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, and shall reimburse each Selling Holder, its officers, directors and
agents, and each such controlling Person for any legal and other expenses
reasonably incurred by that Selling Holder, its officers, directors and agents,
or any such controlling Person in investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action. The Company
also agrees to indemnify any Underwriters of the Registrable Securities, their
officers and directors and each Person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Selling
Holders provided in this Section 4.1.
(b) The indemnity agreement contained in Section 4.1(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage or liability
and any action in respect thereof if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any loss, claim, damage,
liability and any action in respect thereof to the extent that it arises from or
is based upon written information relating to the Indemnified Person furnished
expressly for use in connection with such registration by such Person, nor shall
the Company be liable to any Person for any such loss, claim, damage or
liability and any action in respect thereof to the extent it arises from or is
based
A-9
<PAGE>
upon (a) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities delivered by such Person after such Person had received
written notice from the Company pursuant to Section 3.1(a) that such
registration statement or prospectus contained such untrue statement or alleged
untrue statement of a material fact and stating specifically that a Suspension
Period is then in effect, (b) 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 after such Person has received written notice
from the Company pursuant to Section 3.1(a) that such registration statement or
prospectus contained such omission or alleged omission and stating specifically
that a Suspension Period is then in effect, or (c) the failure of such Person to
deliver any preliminary or final prospectus, or any amendments or supplements
thereto, required under applicable securities laws, including the Securities
Act, to be so delivered, provided that a sufficient number of copies thereof had
been provided by the Company to such Person.
SECTION 4.2 Indemnification by Holders of Registrable Securities.
----------------------------------------------------
Each Selling Holder agrees, severally but not jointly, to indemnify and hold
harmless the Company, its officers, directors and agents and each Person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to such Selling Holder, 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, or
any amendment or supplement thereto, or any preliminary prospectus or (ii) the
matters set forth in Section 4.1(b). Each Selling Holder also agrees to
indemnify and hold harmless Underwriters of the Registrable Securities, their
officers and directors and each Person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Company
provided in this Section 4.2. In no event, however, shall any indemnity
obligation under this Section 4.2 exceed the gross proceeds from the offering
received by such Selling Holder.
SECTION 4.3 Conduct of Indemnification Proceedings. Promptly after
--------------------------------------
receipt by any person in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the person against whom such indemnity may be
sought (an "Indemnifying Party") notify the Indemnifying Party in writing of the
claim or the commencement of such action provided that the failure to notify the
Indemnifying Party shall not relieve it from any liability which it may have to
an Indemnified Party except to the extent of any actual prejudice resulting
therefrom. If any such claim or action shall be brought against an Indemnified
Party, and it shall notify the Indemnifying Party thereof, the Indemnifying
Party shall be entitled to participate therein, and, to the extent that it
wishes, jointly with any other similarly notified Indemnifying Party, to assume
the defense thereof with counsel satisfactory to the Indemnified Party. After
notice from the Indemnifying Party to the Indemnified Party of its election to
assume the defense of such claim or action, the Indemnifying Party shall not be
liable to the Indemnified Party for any legal or other expenses subsequently
incurred by the Indemnified Party in connection with the defense thereof other
than reasonable costs of investigation; provided that the Indemnified Party
--------
shall have the right to employ separate counsel to represent the Indemnified
Party and its controlling
A-10
<PAGE>
Persons who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Indemnified Party against the Indemnifying
Party, but the fees and expenses of such counsel shall be for the account of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) based
upon the advice of counsel of such Indemnified Party representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any claim or
pending or threatened proceeding in respect of which the Indemnified Party is or
could have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such claim or
proceeding.
SECTION 4.4 Contribution. If the indemnification provided for in
------------
this is unavailable to, or is insufficient to hold harmless, the Indemnified
Parties in respect of any losses, claims, damages or liabilities referred to
herein, then each such 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 or liabilities (i)
as between the Company and the Selling Holders on the one hand and the
Underwriters on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Holders on the one
hand and the Underwriters on the other from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Company and the Selling Holders on the one hand and of
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations and (ii) as between the Company on the
one hand and each Selling Holder on the other, in such proportion as is
appropriate to reflect the relative fault of the Company and of each Selling
Holder in connection with such statements or omissions, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Selling Holders on the one hand and the Underwriters on the other shall
be deemed to be in the same proportion as the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by the Company and the Selling Holders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the prospectus. The relative fault of
the Company and the Selling Holders on the one hand and of the Underwriters on
the other 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
and the Selling Holders or by the Underwriters. The relative fault of the
Company on the one hand and of each Selling Holder on the other 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 such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 4.4 were determined by
pro rata allocation (even if the
A-11
<PAGE>
Underwriters 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 or
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 4.4, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Registrable Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and no Selling Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Selling Holder were offered to
the public (less underwriting discounts and commissions) exceeds the amount of
any damages which such Selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. Each Selling
Holder's obligations to contribute pursuant to this Section 4.4 are several in
proportion to the proceeds of the offering received by such Selling Holder bears
to the total proceeds of the offering received by all the Selling Holders and
not joint.
SECTION 5
SECTION 5.1 Participation in Underwritten Registrations. No Person
-------------------------------------------
may participate in any underwritten registration hereunder unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and these
Registration Rights; provided that (i) such Person will not be required to make
--------
any representations or warranties except those which relate solely to themselves
and (ii) the liability of such Person to any Underwriter under such underwriting
agreement will be limited to liability arising from misstatements in, or
omissions from, written information regarding such Person provided by or on
behalf of such Person in writing specifically for inclusion in the prospectus.
SECTION 5.2 Rule 144. The Company covenants that it will use its
--------
reasonable best efforts to file any reports required to be filed by it under the
Securities Act and the Exchange Act and that it will take such further action as
any Holder may reasonably request, all to the extent reasonably required from
time to time to enable Holders to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 or Rule 144A under the Securities Act, as such Rules
may be amended from time to time, or (b) any similar Rule or regulation
hereafter adopted by the SEC. Upon the request of any Holder, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
A-12
<PAGE>
SECTION 5.3 Holdback Agreements. Each Holder of Registrable
-------------------
Securities agrees not to effect any sale or distribution of the issue being
registered or of a similar security of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144 or Rule 144A under the Securities Act, during the 14
days prior to, and during the 90-day period (180 days in the case of the
Company's Initial Public Offering) beginning on, the effective date of the
registration statement filed by the Company (except as part of such
registration) if, and to the extent, requested by the managing Underwriter or
Underwriters in the case of an underwritten public offering.
A-13
<PAGE>
EXHIBIT 10.2
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
dated as of
April 15, 1998
among
ADVANCE HOLDING CORPORATION,
ADVANCE STORES COMPANY, INCORPORATED, as Borrower,
The Lenders Party Hereto,
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
___________________________
CHASE SECURITIES INC.,
as Arranger,
DLJ CAPITAL FUNDING, INC.,
as Syndication Agent,
and
FIRST UNION NATIONAL BANK,
as Documentation Agent
================================================================================
[6700-550]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
Definitions Page
----------- ----
<S> <C> <C>
SECTION 1.01. Defined Terms ........................................ 1
SECTION 1.02. Classification of Loans and
Borrowings.......................................... 34
SECTION 1.03. Terms Generally ...................................... 35
SECTION 1.04. Accounting Terms; GAAP; Fiscal
Months .............................................. 35
SECTION 1.05. Interim Financial Calculations......................... 36
ARTICLE II
The Credits
-------------
SECTION 2.01. Commitments ........................................... 36
SECTION 2.02. Loans and Borrowings .................................. 37
SECTION 2.03. Requests for Borrowings ............................... 38
SECTION 2.04. Swingline Loans ....................................... 39
SECTION 2.05. Letters of Credit ..................................... 40
SECTION 2.06. Funding of Borrowings ................................. 46
SECTION 2.07. Interest Elections .................................... 47
SECTION 2.08. Termination and Reduction of
Commitments.......................................... 49
SECTION 2.09. Repayment of Loans; Evidence of Debt .................. 50
SECTION 2.10. Amortization of Term Loans ............................ 51
SECTION 2.11. Prepayment of Loans ................................... 53
SECTION 2.12. Fees .................................................. 55
SECTION 2.13. Interest .............................................. 57
SECTION 2.14. Alternate Rate of Interest............................. 58
SECTION 2.15. Increased Costs ....................................... 58
SECTION 2.16. Break Funding Payments ................................ 60
SECTION 2.17. Taxes ................................................. 61
SECTION 2.18. Payments Generally; Pro Rata Treatment;
Sharing of Set-Offs.. ............................... 62
SECTION 2.19. Mitigation Obligations; Replacement
of Lenders .......................................... 65
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
ARTICLE III
Representations and Warranties
------------------------------
<S> <C> <C>
SECTION 3.01. Organization; Powers................................... 66
SECTION 3.02. Authorization; Enforceability.......................... 66
SECTION 3.03. Governmental Approvals; No Conflicts................... 67
SECTION 3.04. Financial Condition; No Material Adverse
Change............................................... 67
SECTION 3.05. Properties............................................. 68
SECTION 3.06. Litigation and Environmental Matters................... 69
SECTION 3.07. Compliance with Laws and Agreements.................... 69
SECTION 3.08. Investment and Holding Company Status.................. 70
SECTION 3.09. Taxes.................................................. 70
SECTION 3.10. ERISA.................................................. 70
SECTION 3.11. Disclosure............................................. 70
SECTION 3.12. Subsidiaries........................................... 71
SECTION 3.13. Insurance.............................................. 71
SECTION 3.14. Labor Matters.......................................... 71
SECTION 3.15. Solvency............................................... 71
SECTION 3.16. Senior Indebtedness.................................... 72
SECTION 3.17. Security Documents..................................... 72
SECTION 3.18. Year 2000 Compliance................................... 73
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date......................................... 74
SECTION 4.02. Each Credit Event...................................... 81
ARTICLE V
Affirmative Covenants
---------------------
SECTION 5.01. Financial Statements and Other
Information.......................................... 82
SECTION 5.02. Notices of Material Events............................. 84
SECTION 5.03. Information Regarding Collateral....................... 85
SECTION 5.04. Existence; Conduct of Business......................... 86
SECTION 5.05. Payment of Obligations................................. 86
SECTION 5.06. Maintenance of Properties.............................. 86
SECTION 5.07. Insurance.............................................. 86
SECTION 5.08. Casualty and Condemnation.............................. 88
SECTION 5.09. Books and Records, Inspection and
Audit Rights......................................... 88
SECTION 5.10. Compliance with Laws................................... 89
SECTION 5.11. Use of Proceeds and Letters of Credit.................. 89
SECTION 5.12. Additional Subsidiaries................................ 90
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 5.13. Further Assurances..................................... 90
SECTION 5.14. Collection Deposit Accounts............................ 91
ARTICLE VI
Negative Covenants
------------------
SECTION 6.01. Indebtedness; Certain Equity Securities................ 92
SECTION 6.02. Liens.................................................. 94
SECTION 6.03. Fundamental Changes.................................... 95
SECTION 6.04. Investments, Loans, Advances,
Guarantees and Acquisitions.......................... 96
SECTION 6.05 Asset Sales............................................ 98
SECTION 6.06. Hedging Agreements..................................... 99
SECTION 6.07. Restricted Payments; Certain Payments
of Indebtedness...................................... 99
SECTION 6.08. Transactions with Affiliates........................... 102
SECTION 6.09. Restrictive Agreements................................. 102
SECTION 6.10. Amendment of Material Documents........................ 103
SECTION 6.11. Sale and Lease-Back Transactions....................... 104
SECTION 6.12. Capital Expenditures................................... 104
SECTION 6.13. Leverage Ratio......................................... 105
SECTION 6.14. Consolidated Interest Expense Coverage Ratio........... 105
SECTION 6.15. Minimum Retained Cash Earnings......................... 106
SECTION 6.16. Purchase and Sale of Vehicles; Vehicle Subsidiary...... 106
ARTICLE VII
Events of Default............................ 107
-----------------
ARTICLE VIII
The Administrative Agent........................ 110
------------------------
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices................................................ 113
SECTION 9.02. Waivers; Amendments.................................... 114
SECTION 9.03. Expenses; Indemnity; Damage Waiver..................... 116
SECTION 9.04. Successors and Assigns................................. 118
SECTION 9.05. Survival............................................... 121
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 9.06. Counterparts; Integration; Effectiveness............... 121
SECTION 9.07. Severability........................................... 122
SECTION 9.08. Right of Setoff........................................ 122
SECTION 9.09. Governing Law; Jurisdiction; Consent
to Service of Process................................ 122
SECTION 9.10. WAIVER OF JURY TRIAL................................... 123
SECTION 9.11. Headings............................................... 124
SECTION 9.12. Confidentiality........................................ 124
SECTION 9.13. Interest Rate Limitation............................... 125
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES:
- ---------
<S> <C> <C>
Schedule 1.01(b) - Mortgaged Property
Schedule 2.01 - Commitments
Schedule 3.06 - Disclosed Matters
Schedule 3.12 - Subsidiaries
Schedule 3.13 - Insurance
Schedule 3.17 - Mortgage Filing Offices
Schedule 6.01 - Existing Indebtedness
Schedule 6.02 - Existing Liens
Schedule 6.04 - Investment
Schedule 6.08 - Existing Affiliated Leases
Schedule 6.09 - Existing Restrictions
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS:
- --------
<S> <C>
Exhibit A - Form of Assignment and Acceptance
Exhibit B - Forms of Opinions of Borrower's Counsel
Exhibit C - Form of Borrowing Base Certificate
Exhibit D - Form of Indemnity, Subrogation and
Contribution Agreement
Exhibit E - Form of Guarantee Agreement
Exhibit F - Form of Pledge Agreement
Exhibit G - Form of Security Agreement
</TABLE>
iv
<PAGE>
CREDIT AGREEMENT dated as of April 15,
1998, among ADVANCE HOLDING CORPORATION,
ADVANCE STORES COMPANY, INCORPORATED, the
LENDERS party hereto, and THE CHASE MANHATTAN
BANK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE I
Definitions
-----------
SECTION 1.01. Defined Terms. As used in this Agreement, the
--------------
following terms have the meanings specified below:
"ABR", when used in reference to any Loan or Borrowing, refers to
---
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Alternate Base Rate.
"Adjusted Consolidated Net Income" means, for any period, net income
--------------------------------
or loss of the Borrower and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, provided that there shall be
--------
excluded (a) the income of any Person in which any other Person (other than the
Borrower or any of the Subsidiaries or any director holding qualifying shares in
compliance with applicable law) has a joint interest, except income shall be
included to the extent of the amount of dividends or other distributions
actually paid to the Borrower or any of the Subsidiaries by such Person during
such period, (b) the income (or loss) of any Person accrued prior to the date it
becomes a Subsidiary or is merged into or consolidated with the Borrower or any
of the Subsidiaries or the date that Person's assets are acquired by the
Borrower or any of the Subsidiaries, (c) gains and losses from the sale or other
disposition of material assets outside the ordinary course of business and (d)
Excluded Charges for such period; provided further that, to the extent that the
----------------
Borrower or any Subsidiary makes any Restricted Payment to Holdings in order to
permit Holdings to pay taxes or other expenses (excluding interest on the
Holdings Senior Discount Debentures), then such taxes or other expenses shall be
deducted in determining Adjusted Consolidated Net Income as though such taxes or
other expenses had been incurred by the Borrower directly.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing
------------------
for any Interest Period, an interest
<PAGE>
2
rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to
(a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory
Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its capacity
--------------------
as administrative agent for the Lenders hereunder.
"Administrative Questionnaire" means an Administrative Questionnaire
----------------------------
in a form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person
---------
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to
-------------------
the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect
on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a
change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Revolving Lender,
---------------------
the percentage of the total Revolving Commitments represented by such Lender's
Revolving Commitment. If the Revolving Commitments have terminated or expired,
the Applicable Percentages shall be determined based upon the Revolving
Commitments most recently in effect, giving effect to any assignments.
"Applicable Rate" means, for any day (a) with respect to any Tranche B
---------------
Term Loan, the applicable Tranche B Rate and (b) with respect to any ABR Loan or
Eurodollar Loan that is a Revolving Loan or a Delayed Draw Loan, as the case may
be, the applicable rate per annum set forth below under the caption "ABR Spread"
or "Eurodollar Spread", as the case may be, based upon the Leverage Ratio as of
the most recent determination date; provided that until the delivery of the
--------
financial statements pursuant to Section 5.01 for the first
<PAGE>
3
four full fiscal quarters commencing with the quarter in which the Effective
Date occurs, the "Applicable Rate" for purposes of clause (b) shall be the
applicable rate per annum set forth below in Category 3:
<TABLE>
<CAPTION>
=======================================================
ABR Eurodollar
Leverage Ratio: --- ----------
- --------------- Spread Spread
------ ------
<S> <C> <C>
- -------------------------------------------------------
Category 1
- ---------- 0.75% 1.75%
Leverage Ratio is less than
or equal to 4.00 to 1.00
- -------------------------------------------------------
Category 2
- ---------- 1.00% 2.00%
Leverage Ratio is greater
than 4.00 to 1.00 and less
than or equal to 4.50 to
1.00
- -------------------------------------------------------
Category 3
- ---------- 1.25% 2.25%
Leverage Ratio is greater
than 4.50 to 1.00
=======================================================
</TABLE>
For purposes of the foregoing, (i) the Leverage Ratio shall be
determined as of the end of each fiscal quarter of the Borrower's fiscal year
based upon the Borrower's consolidated financial statements delivered pursuant
to Section 5.01(a) or (b) and (ii) each change in the Applicable Rate resulting
from a change in the Leverage Ratio shall be effective during the period
commencing on and including the date of delivery to the Administrative Agent of
such consolidated financial statements indicating such change and ending on the
date immediately preceding the effective date of the next such change; provided
--------
that the Leverage Ratio shall be deemed to be in Category 3 (A) at any time that
an Event of Default has occurred and is continuing or (B) if the Borrower fails
to deliver the consolidated financial statements required to be delivered by it
pursuant to Section 5.01(a) or (b), during the period from the expiration of the
time for delivery thereof until such consolidated financial statements are
delivered.
"Approved Fund" means, with respect to any Lender that is a fund that
-------------
invests in commercial loans, any other fund that invests in commercial loans and
is managed by the same investment advisor as such Lender or by an Affiliate of
such investment advisor.
"Assessment Rate" means, for any day, the annual assessment rate in
---------------
effect on such day that is payable by a member of the Bank Insurance Fund
classified as "well-capitalized" and within supervisory subgroup "B" (or a
comparable successor risk classification) within the meaning
<PAGE>
4
of 12 C.F.R. Part 327 (or any successor provision) to the Federal Deposit
Insurance Corporation for insurance by such Corporation of time deposits made in
dollars at the offices of such member in the United States; provided that if,as
--------
a result of any change in any law, rule or regulation, it is no longer possible
to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be
such annual rate as shall be determined by the Administrative Agent to be
representative of the cost of such insurance to the Lenders.
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Lender and an assignee (with the consent of any party whose consent is
required by Section 9.04), and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.
"Base CD Rate" means the sum of (a) the Three-Month Secondary CD Rate
------------
multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate.
"Board" means the Board of Governors of the Federal Reserve System of
-----
the United States of America.
"Borrower" means Advance Stores Company, Incorporated, a Virginia
--------
corporation.
"Borrowing" means (a) Loans of the same Class and Type, made,
---------
converted or continued on the same date and, in the case of Eurodollar Loans, as
to which a single Interest Period is in effect, or (b) a Swingline Loan.
"Borrowing Base" means, as of any date of determination, an amount
--------------
calculated by reference to the most recently delivered Borrowing Base
Certificate equal to the sum, without duplication, of (a) 60% of the value
(determined as provided below) of Eligible Inventory included in the
Distribution Centers' Inventory and in the PDQs' Inventory, plus (b) 50% of the
value (determined as provided below) of Eligible Inventory included in the
Stores' Inventory, plus (c) 25% of the value (determined as provided below) of
Eligible Inventory included in the Master PDQ's Inventory. For purposes of
determining the Borrowing Base, Eligible Inventory shall be valued at the lower
of cost or market or, if the Borrower has previously notified the Administrative
Agent on its Borrowing Base Certificate, a new basis of valuation satisfactory
to the Administrative Agent. The Borrowing Base shall be computed as of the end
of each fiscal month; provided that Borrowing Base at any time in effect shall
be determined by reference to the Borrowing
<PAGE>
5
Base Certificate most recently delivered hereunder. Standards of eligibility of
the Borrowing Base may be adjusted and revised from time to time by the
Administrative Agent in its sole discretion and consistent with its standard
practice, with any changes in such standards to be effective 10 days after
delivery of notice thereof to the Borrower.
"Borrowing Base Certificate" means a certificate in the form of
--------------------------
Exhibit C or any other form approved by the Administrative Agent, together with
all attachments contemplated thereby.
"Borrowing Request" means a request by the Borrower for a Borrowing in
-----------------
accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other
------------
day on which commercial banks in New York City are authorized or required by law
to remain closed; provided that, when used in connection with a Eurodollar Loan,
--------
the term "Business Day" shall also exclude any day on which banks are not open
------------
for dealings in dollar deposits in the London interbank market.
"Cash Concentration Account" means the "Cash Concentration Account",
--------------------------
as defined in the Security Agreement.
"Capital Expenditures" means, for any period, (a) the additions to
--------------------
property, plant and equipment and other capital expenditures of the Borrower and
its consolidated Subsidiaries that are (or would be) set forth in a consolidated
statement of cash flows of the Borrower for such period prepared in accordance
with GAAP and (b) without duplication, Capital Lease Obligations incurred by the
Borrower and its consolidated Subsidiaries during such period.
"Capital Lease Obligations" of any Person means the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Change in Control" means at any time, (a) the acquisition of
-----------------
ownership, directly or indirectly, beneficially or of record, by any Person
other than Holdings of any
<PAGE>
6
shares of capital stock of the Borrower; (b) prior to an IPO, the failure by
FS&C and its Affiliates to collectively own, directly or indirectly,
beneficially and of record, shares representing at least 50.10% of the aggregate
ordinary voting power represented by the issued and outstanding capital stock of
Holdings; (c) after an IPO, (i) the failure by FS&C Investors and their
Affiliates to collectively own, directly or indirectly, beneficially and of
record, shares representing at least 20% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of Holdings, and/or (ii)
the failure by FS&C and its Affiliates to collectively own directly or
indirectly, beneficially and of record, shares representing at least 50% of the
aggregate ordinary voting power represented by the shares owned by FS&C
Investors and their Affiliates referred to in clause (i) above, and/or (iii) any
Person or group (within the meaning of Rule 13d-5 under the United States
Securities and Exchange Act of 1934 as in effect on the date hereof), other than
FS&C Investors and their Affiliates, shall beneficially own, directly or
indirectly, shares of capital stock of Holdings representing more than the
percentage of the aggregate ordinary voting power represented by the shares
beneficially owned, directly or indirectly, by FS&C Investors and their
Affiliates at such time; (d) occupation of a majority of the seats (other than
vacant seats) on the board of directors of Holdings by Persons who were not
Continuing Directors; or (e) while any of the Subordinated Debt or Holdings
Senior Discount Debentures is outstanding, a "Change of Control" (as defined in
the Subordinated Debt Documents or the Holdings Senior Discount Debenture
Documents, as applicable) shall have occurred.
"Change in Law" means (a) the adoption of any law, rule or regulation
-------------
after the date of this Agreement, (b) any change in any law, rule or regulation
or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender or the Issuing
Bank (or, for purposes of Section 2.15(b), by any lending office of such Lender
or by such Lender's or the Issuing Bank's holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Class", when used in reference to any Loan or Borrowing, refers to
-----
whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans,
Delayed Draw I Loans, Delayed Draw II Loans, Tranche B Term Loans or Swingline
Loans and, when used in reference to any Commitment, refers to whether such
Commitment is a Revolving
<PAGE>
7
Commitment, Delayed Draw I Commitment, Delayed Draw II Commitment or Tranche B
Commitment.
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral" means any and all "Collateral", as defined in any
----------
applicable Security Document.
"Collateral Agent" means the "Collateral Agent", as defined in any
----------------
applicable Security Document.
"Collection Deposit Account" means the "Collection Deposit Account",
--------------------------
as defined in the Security Agreement.
"Collection Deposit Letter Agreement" means the "Collection Deposit
-----------------------------------
Letter Agreement", as defined in the Security Agreement.
"Commitment" means a Revolving Commitment, Delayed Draw I Commitment,
----------
Delayed Draw II Commitment or Tranche B Commitment, or any combination thereof
(as the context requires).
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
-------------------
Income for such period, plus, without duplication and to the extent deducted
from revenues in determining Adjusted Consolidated Net Income, the sum of (a)
Consolidated Interest Expense for such period, (b) the aggregate amount of
letter of credit fees accrued during such period, (c) the aggregate amount of
income tax expense for such period, (d) all depreciation and amortization
expense for such period and (e) other non-cash charges for such period, and
minus, without duplication and to the extent added to revenues in determining
Adjusted Consolidated Net Income for such period, all non-cash gains during such
period, all as determined on a consolidated basis with respect to the Borrower
and the Subsidiaries in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the interest
-----------------------------
expense of the Borrower and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Continuing Directors" means the directors of Holdings on the
--------------------
Effective Date, after giving effect to the Merger and the other transactions
contemplated hereby, and each other director, if in each case, such other
director's nomination for election to the board of directors of Holdings is
recommended by a majority of the then Continuing
<PAGE>
8
Directors or such other director receives the vote of FS&C in his or her
election by the stockholders of Holdings.
"Control" means the possession, directly or indirectly, of the power
-------
to direct or cause the direction of the management or policies of a Person,
whether through the ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
----------- ----------
"Default" means any event or condition which constitutes an Event of
-------
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Delayed Draw Commitments" means the Delayed Draw I Commitments and
------------------------
the Delayed Draw II Commitments.
"Delayed Draw I Availability Period" means the period from and
----------------------------------
including the Effective Date to but excluding the earlier of the Delayed Draw I
Commitment Termination Date and the date of termination of the Delayed Draw I
Commitments.
"Delayed Draw I Commitment Termination Date" means October 15, 1999.
------------------------------------------
"Delayed Draw I Commitment" means, with respect to each Lender, the
-------------------------
commitment, if any, of such Lender to make Delayed Draw I Loans hereunder during
the Delayed Draw I Availability Period, expressed as an amount representing the
maximum principal amount of Delayed Draw I Loans to be made by such Lender
hereunder, as such commitment may be (a) reduced from time to time pursuant to
Section 2.08 and (b) reduced or increased from time to time pursuant to
assignments by or to such Lender pursuant to Section 9.04. The initial amount of
each Lender's Delayed Draw I Commitment is set forth on Schedule 2.01 or in the
Assignment and Acceptance pursuant to which such Lender shall have assumed its
Delayed Draw I Commitment, as applicable. The initial aggregate amount of the
Lenders' Delayed Draw I Commitments is $50,000,000.
"Delayed Draw I Lender" means a Lender with a Delayed Draw I
---------------------
Commitment or an outstanding Delayed Draw I Loan.
"Delayed Draw I Loan" means a Loan made pursuant to clause (b) of
-------------------
Section 2.01.
<PAGE>
9
"Delayed Draw II Availability Period" means the period from and
-----------------------------------
including the Effective Date to but excluding the earlier of the Delayed Draw II
Commitment Termination Date and the date of termination of the Delayed Draw II
Commitments.
"Delayed Draw II Commitment" means, with respect to each Lender, the
--------------------------
commitment, if any, of such Lender to make Delayed Draw II Loans hereunder
during the Delayed Draw II Availability Period, expressed as an amount
representing the maximum principal amount of Delayed Draw II Loans to be made by
such Lender hereunder, as such commitment may be (a) reduced from time to time
pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant
to assignments by or to such Lender pursuant to Section 9.04. The initial
amount of each Lender's Delayed Draw II Commitment is set forth on Schedule 2.01
or in the Assignment and Acceptance pursuant to which such Lender shall have
assumed its Delayed Draw II Commitment, as applicable. The initial aggregate
amount of the Lenders' Delayed Draw II Commitments is $75,000,000.
"Delayed Draw II Commitment Termination Date" means April 15, 2001.
-------------------------------------------
"Delayed Draw II Lender" means a Lender with a Delayed Draw II
----------------------
Commitment or an outstanding Delayed Draw II Loan.
"Delayed Draw II Loan" means a Loan made pursuant to clause (c) of
--------------------
Section 2.01.
"Delayed Draw Exposure" means, at any time, the sum of the outstanding
---------------------
principal amount of Delayed Draw Loans at such time.
"Delayed Draw Loans" means Delayed Draw I Loans and Delayed Draw II
------------------
Loans.
"Delayed Draw Maturity Date" means April 15, 2004.
--------------------------
"Disclosed Matters" means the actions, suits and proceedings and the
-----------------
environmental matters disclosed in Schedule 3.06.
"Distribution Centers" means any warehouse facility operated by the
--------------------
Borrower or any of the Subsidiary Loan Parties, which holds Inventory being held
pending the regular replenishment of Store Inventory.
<PAGE>
10
"Documentation Agent" means First Union National Bank, in its capacity
-------------------
as documentation agent for the Lenders hereunder.
"dollars" or "$" refers to lawful money of the United States of
------- -
America.
"Effective Date" means the date on which the conditions specified in
--------------
Section 4.01 are satisfied (or waived in accordance with Section 9.02).
"Effective Date Dividend" means a dividend by the Borrower to Holdings
-----------------------
in an aggregate amount of $183,000,000.
"Eligible Inventory" means, as of any date of determination, the
------------------
amount equal to the value of all Inventory owned by the Borrower or any
Subsidiary Loan Party, minus reserves taken, if any, for (a) the strategic
alliance vendor price reductions based on actual purchasing volume, (b)
defective reclass of receivable reserves representing items classified as
defective for which a claim will be placed with the vendor, (c) defective
reserves representing an accrual for future defective product exposure and (d)
battery warranty as accrued by the Borrower or any of its Subsidiaries which is
in addition to the manufacturer's warranty. Unless otherwise approved from time
to time in writing by the Administrative Agent, no Inventory shall be "Eligible
Inventory" if:
(a) such item of Inventory is core inventory; or
(b) such item of Inventory is held on consignment, is owned by the
Borrower or any of its Subsidiaries and has been consigned to other
Persons, or is located at, or in the possession of, a vendor of the
Borrower or such Subsidiary, or is in transit to or from, or held or stored
by, third parties; or
(c) such item of Inventory includes any profits or transfer price
additions charged or accrued in connection with transfers of such Inventory
between the Borrower and its Subsidiaries or among the Subsidiaries of the
Borrower; provided that such Inventory shall only be excluded as Eligible
Inventory up to an amount equal to such profits and transfer price
additions; or
(d) such item of Inventory is comprised of shipping supplies and/or
packaging, selling or display materials; or
<PAGE>
11
(e) such item of Inventory is located at the Distribution Centers or
PDQs and is in excess of a 52 week supply based on sales for the preceding
52 weeks and determined at an individual product level; or
(f) such item of Inventory is comprised of rental tools; provided that
rental tools which would not be Eligible Inventory solely by reason of this
clause (f) may comprise up to $500,000 of Eligible Inventory at any time;
or
(g) the Borrower or a Subsidiary Loan Party, as the case may be, shall
not have good and marketable title as sole owner of such item of Inventory
or any claim disputing the title of the Borrower or the relevant Subsidiary
Loan Party, as the case may be, to, or right to possession of or dominion
over, such item of Inventory shall have been asserted; or
(h) such item of Inventory is not located in the United States of
America; or
(i) such item of Inventory is not subject to a valid and perfected,
first priority security interest in favor of the Collateral Agent pursuant
to the Security Agreement; or
(j) such item of Inventory is subject to any Lien whatsoever, other
than Liens which are expressly permitted to encumber Inventory pursuant to
the Loan Documents; or
(k) such item of Inventory (i) is damaged or not in good condition,
(ii) is a sample in the retail stores or for marketing purposes, (iii) does
not meet all material standards imposed by any Governmental Authority
having regulatory authority over such item of Inventory, its use or sale or
(iv) shall be a discontinued item or otherwise be believed by the
Administrative Agent (using its commercially reasonable judgment) to be not
readily usable or salable under the customary terms upon which it usually
is sold or at prices approximating at least the cost thereof (after giving
effect to any write-downs applicable thereto).
"Environmental Laws" means all laws, rules, regulations, codes,
------------------
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by or with any Governmental
Authority, relating in any way to the environment, preservation or reclamation
of natural resources, the
<PAGE>
12
management, release or threatened release of any Hazardous Material or to health
and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
-----------------------
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of Holdings, the Borrower or any Subsidiary directly
or indirectly resulting from or based upon (a) violation of any Environmental
Law, (b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"Equity Financing" means the contribution by the FS&C Investors to
----------------
Mergerco or Holdings of an aggregate amount, in cash, equal to the excess of
$107,500,000 over the Management Equity Contribution, in exchange for all the
common stock of Mergerco.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
---------------
incorporated) that, together with the Borrower, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section
-----------
4043 of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the existence
with respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Borrower or any of its ERISA Affiliates of any liability with respect to the
withdrawal
<PAGE>
13
or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by
the Borrower or any ERISA Affiliate of any notice, or the receipt by any
Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers
----------
to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article
----------------
VII.
"Excess Cash Flow" means, for any period, the sum (without
----------------
duplication) of:
(a) the consolidated net income (or loss) of the Borrower and its
consolidated Subsidiaries for such period, adjusted to exclude (i) any
gains or losses attributable to Prepayment Events and (ii) to the extent
not otherwise excluded, any Restricted Payments made to Holdings during
such period by the Borrower and its Subsidiaries; plus
----
(b) depreciation, amortization and other non-cash charges or losses
deducted in determining such consolidated net income (or loss) for such
period; plus
----
(c) the sum of (i) the amount, if any, by which Net Working Capital
decreased during such period plus (ii) the amount, if any, by which the
consolidated deferred revenues of the Borrower and its consolidated
Subsidiaries increased during such period plus (iii) the aggregate amount
of Capital Lease Obligations and principal of other Indebtedness incurred
during such period to finance Capital Expenditures, to the extent that
mandatory principal payments in respect of such Indebtedness would not be
excluded from clause (f) below when made; minus
-----
(d) the sum of (i) any non-cash gains included in determining such
consolidated net income (or loss) for such period plus (ii) the amount, if
any, by which Net Working Capital increased during such period plus (iii)
the amount, if any, by which the consolidated deferred revenues of the
Borrower and its consolidated Subsidiaries decreased during such period;
minus
-----
<PAGE>
14
(e) Capital Expenditures for such period; minus
-----
(f) the aggregate principal amount of Indebtedness repaid or prepaid
by the Borrower and its consolidated Subsidiaries during such period,
excluding (i) Indebtedness in respect of Revolving Loans and Letters of
Credit, (ii) Term Loans prepaid pursuant to Section 2.11(c) or (d), (iii)
repayments or prepayments of Indebtedness financed by incurring other
Indebtedness, to the extent that mandatory principal payments in respect of
such other Indebtedness would not be excluded from this clause (f) when
made, and (iv) Indebtedness referred to in clauses (viii) and (ix) of
Section 6.01(a).
"Excluded Charges" means (a) non-recurring transaction fees and
----------------
expenses incurred in connection with the Recapitalization and (b) bonuses paid
for management and other employees of the Borrower and its Subsidiaries in
connection with, and substantially concurrently with, the Recapitalization, in
an aggregate amount not exceeding $11,500,000.
"Excluded Taxes" means, with respect to the Administrative Agent, any
--------------
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower is located and (c) in the case
of a Foreign Lender (other than an assignee pursuant to a request by the
Borrower under Section 2.19(b)), any withholding tax that is imposed on amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party
to this Agreement (or designates a new lending office) or is attributable to
such Foreign Lender's failure to comply with Section 2.17(e), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts from the Borrower with respect to such withholding tax
pursuant to Section 2.17(a).
"Existing Credit Agreements" means (a) the Credit Agreement dated as
--------------------------
of December 5, 1994, as amended, between Crestar Bank and Holdings, (b) the
Credit Agreement dated as of October 6, 1994, as amended, between NationsBank,
N.A.
<PAGE>
15
and Holdings, (c) the Credit Agreement dated as of December 5, 1994, as amended,
between First Union National Bank of Virginia and Holdings, (d) the Credit
Agreement dated as of December 5, 1994, as amended, between Wachovia Bank of
North Carolina, N.A. and Holdings, (e) the Credit Agreement dated as of October
6, 1994, as amended, between NationsBank, N.A. and Holdings, (f) the Lines of
Credit Commitment and Promissory Notes between First Union National Bank of
Virginia and Holdings and (g) the Letter of Credit and Reimbursement Agreement
dated as of December 1, 1997, as amended, among the Borrower, Holdings and First
Union National Bank.
"Existing LC Issuing Bank" means First Union.
------------------------
"Existing Letters of Credit" means all letters of credit outstanding
--------------------------
as of the Effective Date that have been issued by the Existing LC Issuing Bank
under the Existing Credit Agreements.
"Existing Stockholders" means the holders of the outstanding common
---------------------
stock and outstanding preferred stock of Holdings prior to the Merger.
"Federal Funds Effective Rate" means, for any day, the weighted
----------------------------
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial Officer" means the chief financial officer, vice president
-----------------
of finance, principal accounting officer, treasurer or controller of Holdings or
the Borrower, as applicable.
"Financing Transactions" means (a) the execution, delivery and
----------------------
performance by each Loan Party of the Loan Documents to which it is to be a
party, the borrowing of Loans, the use of the proceeds thereof and the issuance
of Letters of Credit hereunder, (b) the execution, delivery and performance by
each Loan Party of the Subordinated Debt Documents to which it is to be a party,
the issuance of the Subordinated Debt and the use of the proceeds thereof, (c)
the Management Equity Contribution and use of the
<PAGE>
16
proceeds thereof, (d) the Equity Financing and use of the proceeds thereof and
(e) the execution, delivery and performance by Holdings of the Holdings Senior
Discount Debenture Documents, the issuance of the Holdings Senior Discount
Debentures and the use of the proceeds thereof.
"First Union" means First Union National Bank.
-----------
"Foreign Lender" means any Lender that is organized under the laws of
--------------
a jurisdiction other than that in which the Borrower is located. For purposes
of this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
"Foreign Subsidiary" means any Subsidiary that is organized under the
------------------
laws of a jurisdiction other than the United States of America or any State
thereof or the District of Columbia.
"FS&C" means Freeman Spogli & Co. Incorporated.
----
"FS&C Investors" means FS&C and certain other investors arranged by
--------------
FS&C.
"GAAP" means generally accepted accounting principles in the United
----
States of America.
"GE Capital Affiliate" means General Electric Capital Corporation,
--------------------
Monogram Credit Card Bank of Georgia or any other entity controlled directly or
indirectly by General Electric Capital Corporation.
"GE Capital Program Agreements" means (a) the Monogram Credit Card
-----------------------------
Bank of Georgia Program Agreement dated as of June 24, 1997 among Holdings, the
Borrower and Monogram Credit Card Bank of Georgia, as such agreement may have
been or may hereafter be amended, restated, supplemented or modified from time
to time in accordance with Section 6.10 hereof, together with any agreements
entered into by Holdings, the Borrower and Monogram Credit Card Bank of Georgia,
or any GE Capital Affiliate, in replacement of such Monogram Credit Card Bank of
Georgia Program Agreement provided that such replacement agreements are, in the
aggregate, no more adverse to the interests of the Borrower or the Lenders than
is such Monogram Credit Card Bank of Georgia Program Agreement; and (b) the
Commercial Credit Program Agreement dated as of November 22, 1996 among
Holdings, the Borrower and General Electric Capital Corporation, as such
agreement may have been or may hereafter be amended, restated, supplemented or
modified
<PAGE>
17
from time to time in accordance with Section 6.10 hereof, together with any
agreements entered into by Holdings, the Borrower and General Electric Capital
Corporation, or any GE Capital Affiliate, in replacement or such Commercial
Credit Program Agreement provided that such replacement agreements are, in the
aggregate, no more adverse to the interests of the Borrower or the Lenders than
is such Commercial Credit Program Agreement.
"GE Capital Program Indebtedness" means Indebtedness of the Borrower
-------------------------------
arising under the GE Capital Program Agreements in an aggregated principal
amount not exceeding (a) $25,000,000 at any time outstanding prior to January 1,
2001 and (b) $45,000,000 at any time outstanding thereafter.
"Governmental Authority" means the government of the United States of
----------------------
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any
--------- ---------
obligation, contingent or otherwise, of the guarantor guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the "primary obligor") in any manner, whether directly or
---------------
indirectly, and including any obligation of the guarantor, direct or indirect,
(a) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof, (c)
to maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account party
in respect of any letter of credit or letter of guaranty issued to support such
Indebtedness or obligation; provided, that the term "Guarantee" shall not
--------
include endorsements for collection or deposit in the ordinary course of
business.
"Guarantee Agreement" means the Guarantee Agreement, substantially in
-------------------
the form of Exhibit E, made by Holdings and the Subsidiary Loan Parties in favor
of the Administrative Agent for the benefit of the Secured Parties.
<PAGE>
18
"Hazardous Materials" means all explosive or radioactive substances
-------------------
or wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement,
-----------------
foreign currency exchange agreement, commodity price protection agreement or
other interest or currency exchange rate or commodity price hedging arrangement.
"Holdings" means Advance Holding Corporation, a Virginia corporation.
--------
"Holdings Senior Discount Debenture Documents" means the indenture
--------------------------------------------
pursuant to which the Holdings Senior Discount Debentures are issued and all
other instruments, agreements and other documents evidencing or governing the
Holdings Senior Discount Debentures or providing for any Guarantee or other
right in respect thereof.
"Holdings Senior Discount Debentures" means the Senior Discount
-----------------------------------
Debentures due 2009 to be issued by Holdings on or prior to the Effective Date
in an aggregate principal amount sufficient to yield $60,000,000 of gross cash
proceeds (before deducting underwriting discounts and commissions).
"Indebtedness" of any Person means, without duplication, (a) all
------------
obligations of such Person for borrowed money or with respect to deposits or
advances of any kind, (b) all obligations of such Person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such Person
under conditional sale or other title retention agreements relating to property
acquired by such Person, (d) all obligations of such Person in respect of the
deferred purchase price of property or services (excluding accounts payable
incurred in the ordinary course of business that are not overdue by more than 90
days), (e) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien on property owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person
of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h)
all obligations, contingent or otherwise, of such Person as an account party in
respect of letters of credit and letters of
<PAGE>
19
guaranty and (i) all obligations, contingent or otherwise, of such Person in
respect of bankers' acceptances. The Indebtedness of any Person shall include
the Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a
result of such Person's ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor. The amount of any Indebtedness described in
clause (f) above shall be limited to the maximum amount payable under the
applicable Guarantee of such Person if such Guarantee contains limitations on
the amount payable thereunder.
"Indemnified Taxes" means Taxes other than Excluded Taxes.
-----------------
"Indemnity, Subrogation and Contribution Agreement" means the
-------------------------------------------------
Indemnity, Subrogation and Contribution Agreement, substantially in the form of
Exhibit D, among Holdings, the Borrower, the Subsidiary Loan Parties and the
Administrative Agent.
"Information Memorandum" means the Confidential Information Memorandum
----------------------
dated March, 1998, relating to Holdings, the Borrower and the Transactions.
"Interest Election Request" means a request by the Borrower to convert
-------------------------
or continue a Revolving Borrowing or Term Borrowing in accordance with Section
2.07.
"Interest Payment Date" means (a) with respect to any ABR Loan (other
---------------------
than a Swingline Loan), the last day of each March, June, September and
December, (b) with respect to any Eurodollar Loan, the last day of the Interest
Period applicable to the Borrowing of which such Loan is a part and, in the case
of a Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day prior to the last day of such Interest Period that occurs at
intervals of three months' duration after the first day of such Interest Period,
and (c) with respect to any Swingline Loan, the day that such Loan is required
to be repaid.
"Interest Period" means with respect to any Eurodollar Borrowing, the
---------------
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect; provided, that (i) if any Interest Period
--------
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next
<PAGE>
20
succeeding Business Day would fall in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day and (ii) any
Interest Period that commences on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the last
calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period. For purposes hereof, the date
of a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.
"Inventory" means (a) as of any date of determination, "inventory", as
---------
defined in the Uniform Commercial Code as in effect in the State of New York and
(b) all finished goods, wares and merchandise, finished or unfinished parts,
components, assemblies held for sale to third party customers based on perpetual
inventory reports, including reconciling items to the perpetual reports, defined
and classified by the Borrower and its Subsidiaries on a basis consistent with
current and historical accounting practice in accordance with GAAP.
"IPO" means the issuance by Holdings of shares of its common stock to
---
the public pursuant to a bona fide underwritten public offering, resulting in
the receipt by Holdings of at least $40,000,000 of gross cash proceeds.
"Issuing Bank" means (a) The Chase Manhattan Bank, in its capacity as
------------
the issuer of Letters of Credit hereunder, and its successors in such capacity
as provided in Section 2.05(i), (b) any other Lender approved by the
Administrative Agent and the Borrower or (c) solely with respect to the Existing
Letters of Credit, the Existing LC Issuing Bank in respect thereof. An Issuing
Bank may, in its discretion, arrange for one or more Letters of Credit to be
issued by Affiliates of such Issuing Bank, in which case the term "Issuing Bank"
shall include any such Affiliate with respect to Letters of Credit issued by
such Affiliate.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to
---------------
a Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
-----------
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Borrower at such time. The LC Exposure of any Revolving Lender at any
time shall be its Applicable Percentage of the total LC Exposure at such time.
<PAGE>
21
"Lenders" means the Persons listed on Schedule 2.01 and any other
-------
Person that shall have become a party hereto pursuant to an Assignment and
Acceptance, other than any such Person that ceases to be a party hereto pursuant
to an Assignment and Acceptance. Unless the context otherwise requires, the
term "Lenders" includes the Swingline Lender.
"Letter of Credit" means any letter of credit issued pursuant to this
----------------
Agreement. Each Existing Letter of Credit will be deemed to constitute a Letter
of Credit for all purposes under the Loan Documents as though each Existing
Letter Credit had been issued hereunder on the Effective Date.
"Leverage Ratio" means, on any date (subject to Section 1.05), the
--------------
ratio of (a) Total Debt as of such date to (b) Consolidated EBITDA for the
period of four consecutive fiscal quarters of the Borrower most recently ended
as of such date (or, if such date is not the last day of a fiscal quarter, then
most recently ended prior to such date), all determined on a consolidated basis
in accordance with GAAP.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
---------
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
---------
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of
----
trust, lien, pledge, hypothecation, encumbrance, charge or security interest in,
on or of such asset, (b) the interest of a vendor or a lessor under any
<PAGE>
22
conditional sale agreement, capital lease or title retention agreement (or any
financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.
"Loan Documents" means this Agreement, the promissory notes, if any,
--------------
executed and delivered pursuant to Section 2.09(e), the Guarantee Agreement, the
Indemnity, Subrogation and Contribution Agreement and the Security Documents.
"Loan Parties" means Holdings, the Borrower and the Subsidiary Loan
------------
Parties.
"Loans" means the loans made by the Lenders to the Borrower pursuant
-----
to this Agreement.
"Management Equity Contribution" means the investment by certain
------------------------------
members of the existing management of Holdings and the Borrower in Holdings of
an aggregate amount of $5,000,000 to $8,038,000 in cash or, subject to the
limitations of clause (h) of Section 6.04, promissory notes in exchange for
shares of common stock of Holdings.
"Management Investors" means the members of the existing management of
--------------------
Holdings and the Borrower who participate in the Management Equity Contribution.
"Master PDQ" means any warehouse facility operated by the Borrower or
----------
any of the Subsidiary Loan Parties, which primarily holds Inventory constituting
slower-moving items.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, assets, operations, prospects or condition, financial or otherwise, of
Holdings, the Borrower and the Subsidiaries taken as a whole, (b) the ability of
any Loan Party to perform any of its obligations under any Loan Document or (c)
the rights of or benefits available to the Lenders under any Loan Document.
"Material Indebtedness" means Indebtedness (other than the Loans and
---------------------
Letters of Credit), or obligations in respect of one or more Hedging Agreements,
of any one or more of Holdings, the Borrower and their Subsidiaries in an
aggregate principal amount exceeding $5,000,000. For purposes of determining
Material Indebtedness, the "principal amount" of the obligations of Holdings,
the Borrower or any Subsidiary in respect of any Hedging Agreement at any time
shall be the maximum aggregate amount
<PAGE>
23
(giving effect to any netting agreements) that Holdings, the Borrower or such
Subsidiary would be required to pay if such Hedging Agreement were terminated at
such time.
"Merger" means the merger of Mergerco with and into Holdings with
------
Holdings as the surviving corporation.
"Merger Agreement" means the Agreement and Plan of Merger dated as of
----------------
March 4, 1998, by and among Holdings, the Borrower, the Existing Stockholders
and FS&C Investors.
"Mergerco" means AHC Corporation, a newly formed Virginia corporation
--------
whose capital stock is owned by the FS&C Investors.
"Moody's" means Moody's Investors Service, Inc.
-------
"Mortgage" means a mortgage, deed of trust, assignment of leases and
--------
rents, leasehold mortgage or other security document granting a Lien on any
Mortgaged Property to secure the Obligations. Each Mortgage shall be
satisfactory in form and substance to the Collateral Agent.
"Mortgaged Property" means, initially, each parcel of real property
------------------
and the improvements thereto owned or leased by a Loan Party and identified on
Schedule 1.01(b), and includes each other parcel of real property and
improvements thereto with respect to which a Mortgage is granted pursuant to
Section 5.12 or 5.13.
"Multiemployer Plan" means a multiemployer plan as defined in Section
------------------
4001(a)(3) of ERISA.
"Net Cash Proceeds" means, with respect to any event (a) the cash
-----------------
proceeds received in respect of such event including (i) any cash received in
respect of any non-cash proceeds, but only as and when received, (ii) in the
case of a casualty, insurance proceeds, and (iii) in the case of a condemnation
or similar event, condemnation awards and similar cash payments, net of (b) the
sum of (i) all commissions, fees and out-of-pocket expenses paid by Holdings,
the Borrower and the Subsidiaries to third parties (other than Affiliates) in
connection with such event, (ii) in the case of a sale, transfer or other
disposition of an asset (including pursuant to a sale and leaseback transaction
or a casualty or other damage or condemnation or similar proceeding), the amount
of all payments required to be made by Holdings, the Borrower and the
Subsidiaries as a result of such event to repay Indebtedness (other than Loans)
secured by such asset or otherwise subject to mandatory prepayment as a result
of such event, and
<PAGE>
24
(iii) the amount of all taxes paid (or reasonably estimated to be payable) by
Holdings, the Borrower and the Subsidiaries, and the amount of any reserves
established by Holdings, the Borrower and the Subsidiaries to fund (A) retained
liabilities relating to the assets sold or (B) contingent liabilities reasonably
estimated to be payable, in each case during the year that such event occurred
or the next two succeeding years and that are directly attributable to such
event (as determined reasonably and in good faith by the chief financial officer
of the Borrower).
"Net Working Capital" means, at any date, (a) the consolidated current
-------------------
assets of the Borrower and its consolidated Subsidiaries as of such date
(excluding cash and Permitted Investments) minus (b) the consolidated current
liabilities of the Borrower and its consolidated Subsidiaries as of such date
(excluding current liabilities in respect of Indebtedness). Net Working Capital
at any date may be a positive or negative number. Net Working Capital increases
when it becomes more positive or less negative and decreases when it becomes
less positive or more negative.
"Obligations" has the meaning assigned to such term in the Security
-----------
Agreement.
"Other Taxes" means any and all current or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made under any Loan Document or from the execution, delivery or
enforcement of, or otherwise with respect to, any Loan Document.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
----
defined in ERISA and any successor entity performing similar functions.
"PDQs" means any warehouse facility operated by the Borrower or any of
----
the Subsidiary Loan Parties, which primarily holds Inventory constituting slower
moving items than the SKU allotments at the Distribution Centers but are in
greater quantity and faster moving than the SKU allotments at the Master PDQ.
"Perfection Certificate" means a certificate in the form of Annex 1 to
----------------------
the Security Agreement or any other form approved by the Collateral Agent.
"Permitted Acquisition" means any acquisition by the Borrower or a
---------------------
Subsidiary of the Borrower of all or substantially all the assets of, or all the
shares of
<PAGE>
25
capital stock of or other equity interests in, a Person or division or line of
business of a Person if, immediately after giving effect thereto, (a) no Default
has occurred and is continuing or would result therefrom, (b) all transactions
related thereto are consummated in accordance with applicable laws, (c) all the
capital stock of each Subsidiary formed for the purpose of or resulting from
such acquisition shall be owned directly by the Borrower or a Subsidiary of the
Borrower and all actions required to be taken with respect to such acquired or
newly formed Subsidiary under Sections 5.12 and 5.13 have been taken, (d) the
Borrower and its Subsidiaries are in compliance, on a pro forma basis after
giving effect to such acquisition, with the covenants contained in Sections
6.13, 6.14 and 6.15 recomputed as of the last day of the most recently ended
fiscal quarter of the Borrower for which financial statements are available, as
if such acquisition (and any related incurrence or repayment of Indebtedness,
with any new Indebtedness being deemed to be amortized over the applicable
testing period in accordance with its terms, and assuming that any Revolving
Loans borrowed in connection with such acquisition are repaid with excess cash
balances when available) had occurred on the first day of each relevant period
for testing such compliance and (e) the Borrower has delivered to the
Administrative Agent an officers' certificate to the effect set forth in clauses
(a), (b), (c) and (d) above, together with all relevant financial information
for the Person or assets to be acquired.
"Permitted Asset Swap" means any transfer of properties or assets by
--------------------
the Borrower or any of its Subsidiaries in which at least 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
--------
(a) the aggregate fair market value (as determined in good faith by the board of
directors of the Borrower) of the property or assets (including cash) being
transferred by the Borrower or such 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 the Borrower) of the property or assets (including cash)
received by the Borrower or such Subsidiary, as the case may be, in such
exchange and (b) the aggregate fair market value (as determined in good faith by
the board of directors of the Borrower) of all property or assets transferred by
the Borrower and any of its Subsidiaries in connection with exchanges in any
period of twelve consecutive months shall not exceed $20,000,000.
<PAGE>
26
"Permitted Encumbrances" means:
----------------------
(a) Liens imposed by law for taxes or government assessments that are
not yet due or are being contested in compliance with Section 5.04;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
and other like Liens imposed by law, arising in the ordinary course of
business and securing obligations that are not overdue by more than 60 days
or are being contested in compliance with Section 5.04;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits (and, to the extent securing a trade contract or
indemnity bond, Liens on assets to which such contract or bond relates) to
secure the performance of bids, trade contracts, leases, statutory
obligations, surety, indemnity and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business;
(e) judgment liens in respect of judgments that do not constitute an
Event of Default under clause (k) of Article VII;
(f) easements, zoning restrictions, rights-of-way and similar
encumbrances on real property imposed by law or arising in the ordinary
course of business that do not secure any monetary obligations and do not
interfere with the ordinary conduct of business of Holdings or any
Subsidiary;
(g) any interest or title of a lessor under any lease that is limited
to the property subject to such lease; and
(h) unperfected Liens of any vendor on inventory sold by such vendor
securing the unpaid purchase price of such inventory, to the extent such
Liens are stated to be reserved in such vendor's sale documents (and not
granted by separate agreement of the Borrower or any Subsidiary);
provided that the term "Permitted Encumbrances" shall not include any Lien
- --------
securing Indebtedness.
<PAGE>
27
"Permitted Investments" means:
---------------------
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed
by the full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the
date of acquisition thereof and having, at such date of acquisition, the
highest credit rating obtainable from S&P or from Moody's;
(c) investments in certificates of deposit, banker's acceptances and
time deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank organized
under the laws of the United States of America or any State thereof which
has a combined capital and surplus and undivided profits of not less than
$500,000,000;
(d) fully collateralized repurchase agreements with a term of not more
than 30 days for securities described in clause (a) above and entered into
with a financial institution satisfying the criteria described in clause
(c) above; and
(e) investments in money market or mutual funds substantially all the
assets of which are comprised of securities of the types described in any
of clauses (a) through (d) above.
"Person" means any natural person, corporation, limited liability
------
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Plan" means any employee pension benefit plan (other than a
----
Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section
412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pledge Agreement" means the Pledge Agreement, substantially in the
----------------
form of Exhibit F, among the Borrower,
<PAGE>
28
Holdings, the Subsidiaries party thereto and the Collateral Agent for the
benefit of the Secured Parties.
"Prepayment Event" means:
----------------
(a) any sale, transfer or other disposition (including pursuant to a
sale and leaseback transaction) of any property or asset of the Borrower or
any Subsidiary, other than (i) dispositions described in clauses (a), (b),
(d) and (e) of Section 6.05 and (ii) other dispositions resulting in
aggregate Net Cash Proceeds not exceeding $1,000,000 during any fiscal year
of the Borrower; or
(b) any casualty or other insured damage to, or any taking under power
of eminent domain or by condemnation or similar proceeding of, any property
or asset of the Borrower or any Subsidiary, but only to the extent that the
Net Cash Proceeds therefrom have not been applied to repair, restore or
replace such property or asset within 360 days (or, in the case of a
distribution center, two years, provided that repair, restoration or
--------
replacement commenced within 270 days of such event) after such event; or
(c) the issuance by Holdings, the Borrower or any Subsidiary of any
equity securities, or the receipt by Holdings, the Borrower or any
Subsidiary of any capital contribution, other than (i) any such issuance of
equity securities to, or receipt of any such capital contribution from,
Holdings, the Borrower or a Subsidiary, (ii) the issuance by Holdings of
shares of its common stock for cash to the extent that (A) Holdings or the
Borrower notifies the Administrative Agent at or prior to the time of such
issuance that the Net Cash Proceeds thereof are to be applied to finance a
Permitted Acquisition and (B) such Net Cash Proceeds are so applied within
30 days after such Net Cash Proceeds are received or (iii) the issuance by
Holdings of shares of its common stock to management of Holdings, the
Borrower or any Subsidiary to the extent that the Net Cash Proceeds
therefrom shall not exceed $750,000 during any fiscal year of the Borrower;
or
(d) the incurrence by Holdings, the Borrower or any Subsidiary of any
Indebtedness, other than Indebtedness permitted under Section 6.01;
provided that with respect to any event described in clause (a), if the Borrower
- --------
shall deliver a certificate of a
<PAGE>
29
Financial Officer to the Administrative Agent at the time of such event setting
forth the Borrower's or a Subsidiary's intent to use the Net Cash Proceeds of
such event to acquire other assets to be used in the same line of business
within 270 days of receipt of such Net Cash Proceeds and certifying that no
Default has occurred and is continuing, such event shall not constitute a
Prepayment Event except to the extent the Net Cash Proceeds therefrom are not so
used at the end of such 270-day period, at which time such event shall be deemed
a Prepayment Event with Net Cash Proceeds equal to the Net Cash Proceeds so
remaining unused.
"Prime Rate" means the rate of interest per annum publicly announced
----------
from time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Recapitalization" means the Merger and recapitalization of Holdings
----------------
pursuant to, and in accordance with the terms of, the Merger Agreement.
"Recapitalization Documents" means the Merger Agreement and all other
--------------------------
agreements and documents relating to the Recapitalization.
"Register" has the meaning set forth in Section 9.04.
--------
"Related Parties" means, with respect to any specified Person, such
---------------
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving
----------------
Exposures, Term Loans and unused Commitments representing more than 50% of the
sum of the total Revolving Exposures, outstanding Term Loans and unused
Commitments at such time.
"Restricted Payment" means (a) any dividend or other distribution
------------------
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of Holdings, the Borrower or any Subsidiary, (b) any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such shares of capital stock of
Holdings, the Borrower or any Subsidiary or any option, warrant or other right
to acquire any such shares of
<PAGE>
30
capital stock of Holdings, the Borrower or any Subsidiary, or (c) any loans or
advances made by the Borrower or any Subsidiary to Holdings.
"Retained Cash Earnings" means, as of any date, an amount equal to
----------------------
$125,000,000 plus (a) Adjusted Consolidated Net Income for the period from the
Effective Date to and including the date of determination (treated as a single
accounting period), plus (b) the aggregate amount of proceeds received by
Holdings in respect of the issuance of capital stock of Holdings after the
Effective Date and contributed by Holdings to the Borrower as equity capital
prior to such date of determination minus (c) to the extent not deducted in
calculating such Adjusted Consolidated Net Income, the aggregate amount of
Restricted Payments made by the Borrower or any of its Subsidiaries (other than
Restricted Payments made to the Borrower or any of its Subsidiaries) after the
Effective Date and prior to such date of determination.
"Revolving Availability Period" means the period from and including
-----------------------------
the Effective Date to but excluding the earlier of the Revolving Maturity Date
and the date of termination of the Revolving Commitments.
"Revolving Commitment" means, with respect to each Lender, the
--------------------
commitment, if any, of such Lender to make Revolving Loans and to acquire
participations in Letters of Credit and Swingline Loans hereunder, expressed as
an amount representing the maximum aggregate amount of such Lender's Revolving
Exposure hereunder, as such commitment may be (a) reduced from time to time
pursuant to Section 2.08 and (b) reduced or increased from time to time pursuant
to assignments by or to such Lender pursuant to Section 9.04. The initial
amount of each Lender's Revolving Commitment is set forth on Schedule 2.01 or in
the Assignment and Acceptance pursuant to which such Lender shall have assumed
its Revolving Commitment, as applicable. The initial aggregate amount of the
Lenders' Revolving Commitments is $125,000,000.
"Revolving Exposure" means, with respect to any Lender at any time,
------------------
the sum of the outstanding principal amount of such Lender's Revolving Loans and
its LC Exposure and Swingline Exposure at such time.
"Revolving Lender" means a Lender with a Revolving Commitment or, if
----------------
the Revolving Commitments have terminated or expired, a Lender with Revolving
Exposure.
<PAGE>
31
"Revolving Loan" means a Loan made pursuant to clause (d) of Section
--------------
2.01.
"Revolving Maturity Date" means April 15, 2004.
-----------------------
"S&P" means Standard & Poor's.
---
"Secured Parties" shall have the meaning assigned to such term in the
---------------
Security Agreement.
"Security Agreement" means the Security Agreement, substantially in
------------------
the form of Exhibit G, among Holdings, the Borrower, the Subsidiary Loan Parties
and the Collateral Agent for the benefit of the Secured Parties.
"Security Documents" means the Security Agreement, the Pledge
------------------
Agreement, the Mortgages and each other security agreement or other instrument
or document executed and delivered pursuant to Section 5.12 or 5.13 to secure
any of the Obligations.
"Senior Subordinated Notes" means the Senior Subordinated Notes to be
-------------------------
issued by the Borrower on or prior to the Effective Date in the aggregate
principal amount of $200,000,000.
"Statutory Reserve Rate" means a fraction (expressed as a decimal),
----------------------
the numerator of which is the number one and the denominator of which is the
number one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject (a) with
respect to the Base CD Rate, for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three months and
(b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such
reserve percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve
Rate shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
"Stores" means all owned and leasehold properties where Inventory
------
owned by the Borrower or any of the Subsidiaries is sold to the public.
<PAGE>
32
"Subordinated Debt" means the Senior Subordinated Notes, any
-----------------
Guarantees thereof and the Indebtedness represented thereby.
"Subordinated Debt Documents" means the indenture under which the
---------------------------
Subordinated Debt is issued and all other instruments, agreements and other
documents evidencing or governing the Subordinated Debt or providing for any
Guarantee or other right in respect thereof.
"subsidiary" means, with respect to any Person (the "parent") at any
---------- ------
date, any corporation, limited liability company, partnership, association or
other entity the accounts of which would be consolidated with those of the
parent in the parent's consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held, or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of Holdings or the Borrower, as the
----------
context requires.
"Subsidiary Loan Party" means any Subsidiary of the Borrower other
---------------------
than (a) the Vehicle Subsidiary or (b) any Foreign Subsidiary that, if it were
to Guarantee the Obligations, would result in adverse tax consequences to
Holdings or the Borrower.
"Swingline Exposure" means, at any time, the aggregate principal
------------------
amount of all Swingline Loans outstanding at such time. The Swingline Exposure
of any Lender at any time shall be its Applicable Percentage of the total
Swingline Exposure at such time.
"Swingline Lender" means The Chase Manhattan Bank, in its capacity as
----------------
lender of Swingline Loans hereunder.
"Swingline Loan" means a Loan made pursuant to Section 2.04.
--------------
"Syndication Agent" means DLJ Capital Funding, Inc., in its capacity
-----------------
as syndication agent for the Lenders hereunder.
<PAGE>
33
"Taxes" means any and all present or future taxes, levies, imposts,
-----
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Term Loans" means Tranche B Term Loans and Delayed Draw Loans.
----------
"Three-Month Secondary CD Rate" means, for any day, the secondary
-----------------------------
market rate for three-month certificates of deposit reported as being in effect
on such day (or, if such day is not a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day) or, if such rate is not so reported on such day or such
next preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 a.m., New York City time, on such day (or, if
such day is not a Business Day, on the next preceding Business Day) by the
Administrative Agent from three negotiable certificate of deposit dealers of
recognized standing selected by it.
"Total Debt" means, as of the date of determination, an amount equal
----------
to (a) all Indebtedness of the Borrower and its Subsidiaries outstanding on such
date, excluding (i) Indebtedness described in clauses (e), (f) and (h) of the
definition "Indebtedness", and (ii) GE Capital Program Indebtedness, minus (b)
the aggregate amount that would appear as "Cash and cash equivalents" on a
consolidated balance sheet of the Borrower prepared as of such date in
accordance with GAAP; provided that any letters of credit and letters of
--------
guaranty referred to in clause (h) of the definition "Indebtedness" shall not be
excluded from Total Debt to the extent issued to support any other obligations
constituting Indebtedness.
"Total Exposure" means, at any time, the sum of the total Revolving
--------------
Exposures and the Delayed Draw Exposure at such time.
"Tranche B Commitment" means, with respect to each Lender, the
--------------------
commitment, if any, of such Lender to make a Tranche B Term Loan hereunder on
the Effective Date, expressed as an amount representing the maximum principal
amount of the Tranche B Term Loan to be made by such Lender hereunder, as such
commitment may be (a) reduced from time to time pursuant to Section 2.08 and (b)
reduced or increased from time to time pursuant to assignments by or to
<PAGE>
34
such Lender pursuant to Section 9.04. The initial amount of each Lender's
Tranche B Commitment is set forth on Schedule 2.01, or in the Assignment and
Acceptance pursuant to which such Lender shall have assumed its Tranche B
Commitment, as applicable. The initial aggregate amount of the Lenders' Tranche
B Commitments is $125,000,000.
"Tranche B Lender" means a Lender with a Tranche B Commitment or an
----------------
outstanding Tranche B Term Loan.
"Tranche B Maturity Date" means April 15, 2006.
-----------------------
"Tranche B Rate" means, with respect to any Tranche B Term Loan (a)
--------------
1.50% per annum, in the case of an ABR Loan, or (b) 2.50% per annum, in the case
of a Eurodollar Loan.
"Tranche B Term Loan" means a Loan made pursuant to clause (a) of
-------------------
Section 2.01.
"Transactions" means the Recapitalization and the Financing
------------
Transactions.
"Type", when used in reference to any Loan or Borrowing, refers to
----
whether the rate of interest on such Loan, or on the Loans comprising such
Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate
Base Rate.
"Vehicle" means any van, truck, tractor or trailer that is covered by
-------
a certificate of title issued under the laws of any jurisdiction in the United
States of America and used in the distribution and delivery of inventory.
"Vehicle Subsidiary" means Advance Trucking Corporation, a Virginia
------------------
corporation, and wholly owned Subsidiary of the Borrower.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
--------------------
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and Borrowings. For purposes
---------------------------------------
of this Agreement, Loans may be classified and referred to by Class (e.g., a
----
"Revolving Loan") or by Type (e.g., a "Eurodollar Loan") or by Class and Type
----
(e.g., a "Eurodollar Revolving Loan"). Borrowings also may be classified and
- ----- ---
referred to by Class (e.g., a "Revolving Borrowing") or by Type (e.g., a
--- ---
"Eurodollar
<PAGE>
35
Borrowing") or by Class and Type (e.g., a "Eurodollar Revolving Borrowing").
---
SECTION 1.03. Terms Generally. The definitions of terms herein shall
----------------
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights.
SECTION 1.04. Accounting Terms; GAAP; Fiscal Month. Except as
-------------------------------------
otherwise expressly provided herein, all terms of an accounting or financial
nature shall be construed in accordance with GAAP, as in effect from time to
time; provided that, if the Borrower notifies the Administrative Agent that the
--------
Borrower requests an amendment to any provision hereof to eliminate the effect
of any change occurring after the date hereof in GAAP or in the application
thereof on the operation of such provision (or if the Administrative Agent
notifies the Borrower that the Required Lenders request an amendment to any
provision hereof for such purpose), regardless of whether any such notice is
given before or after such change in GAAP or in the application thereof, then
such provision shall be interpreted on the basis of GAAP as in effect and
applied immediately before such change shall have become effective until such
notice shall have been withdrawn or such provision amended in accordance
herewith. Except as otherwise provided herein, all references to a fiscal month
shall mean any period of four or five calendar weeks used by
<PAGE>
36
the Borrower for recording or reporting its interim financial information.
SECTION 1.05. Interim Financial Calculations. For purposes of
-------------------------------
determining the Leverage Ratio and for purposes of determining compliance with
Sections 6.13 and 6.14:
(a) Consolidated EBITDA shall be deemed to be equal to (i)
$17,154,000 for the fiscal quarter ended January 3, 1998, and (ii)
$21,032,000 for the fiscal quarter ended April 25, 1998; and
(b) Consolidated Interest Expense for the period of four consecutive
fiscal quarters ended (i) September 12, 1998, shall be deemed to be equal
to the product of Consolidated Interest Expense for the two consecutive
fiscal quarters then ended multiplied by two, and (ii) January 2, 1999,
shall be deemed to be equal to the product of Consolidated Interest Expense
for the three consecutive fiscal quarters then ended multiplied by four-
thirds.
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments. Subject to the terms and conditions set
------------
forth herein, each Lender agrees (a) to make a Tranche B Term Loan to the
Borrower on the Effective Date in a principal amount not exceeding its Tranche B
Commitment, (b) to make Delayed Draw I Loans to the Borrower from time to time
on or after the Effective Date during the Delayed Draw I Availability Period in
a principal amount not exceeding such Lender's remaining Delayed Draw I
Commitment, (c) to make Delayed Draw II Loans to the Borrower from time to time
on or after the Effective Date during the Delayed Draw II Availability Period in
a principal amount not exceeding such Lender's remaining Delayed Draw II
Commitment and (d) to make Revolving Loans to the Borrower from time to time
during the Revolving Availability Period in an aggregate principal amount that
will not result in such Lender's Revolving Exposure exceeding such Lender's
Revolving Commitment; provided that (i) any Delayed Draw I Borrowing, Delayed
--------
Draw II Borrowing or Revolving Borrowing shall not result in the Total Exposure
exceeding the Borrowing Base then in effect, (ii) the Borrower shall not be
permitted to make more than four Delayed Draw I Borrowings that increase the
aggregate principal amount of Delayed Draw I Borrowings outstanding and (iii)
the Borrower
<PAGE>
37
shall not be permitted to make more than six Delayed Draw II Borrowings that
increase the aggregate principal amount of Delayed Draw II Borrowings
outstanding. Within the foregoing limits and subject to the terms and conditions
set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.
Amounts repaid in respect of Term Loans may not be reborrowed.
SECTION 2.02. Loans and Borrowings. (a) Each Loan (other than a
---------------------
Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the
same Class and Type made by the Lenders ratably in accordance with their
respective Commitments of the applicable Class. The failure of any Lender to
make any Loan required to be made by it shall not relieve any other Lender of
its obligations hereunder; provided that the Commitments of the Lenders are
--------
several and no Lender shall be responsible for any other Lender's failure to
make Loans as required.
(b) Subject to Section 2.14, each Revolving Borrowing and Term
Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the
Borrower may request in accordance herewith. Notwithstanding anything to the
contrary contained herein, all Borrowings made on the Effective Date shall be
ABR Borrowings. Each Swingline Loan shall be an ABR Loan. Each Lender at its
option may make any Eurodollar Loan by causing any domestic or foreign branch or
Affiliate of such Lender to make such Loan; provided that any exercise of such
--------
option shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for any Eurodollar
Borrowing, such Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $3,000,000. At the time that each ABR
Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that
is an integral multiple of $100,000 and not less than $1,000,000; provided that
--------
an ABR Revolving Borrowing or ABR Delayed Draw Borrowing may be in an aggregate
amount that is equal to the entire unused balance of the Commitments of the
applicable Class, as applicable, or in the case of an ABR Revolving Borrowing,
that is required to finance the reimbursement of an LC Disbursement as
contemplated by Section 2.05(e). Each Swingline Loan shall be in an amount that
is an integral multiple of $100,000 and not less than $200,000. Borrowings of
more than one Type and Class may be outstanding at the same time; provided that
--------
there shall not at any time be more than a total of 8 Eurodollar Borrowings
outstanding.
<PAGE>
38
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end
after the Revolving Maturity Date, Delayed Draw Maturity Date or Tranche B
Maturity Date, as applicable.
SECTION 2.03. Requests for Borrowings. To request a Revolving
------------------------
Borrowing or Term Borrowing, the Borrower shall notify the Administrative Agent
of such request by telephone (a) in the case of a Eurodollar Borrowing, not
later than 11:00 a.m., New York City time, three Business Days before the date
of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than
11:00 a.m., New York City time, one Business Day before the date of the proposed
Borrowing; provided that any such notice of an ABR Revolving Borrowing to
--------
finance the reimbursement of an LC Disbursement as contemplated by Section
2.05(e) may be given not later than 10:00 a.m., New York City time, on the date
of the proposed Borrowing. Each such telephonic Borrowing Request shall be
irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in a form approved by the
Administrative Agent and signed by the Borrower. Each such telephonic and
written Borrowing Request shall specify the following information in compliance
with Section 2.02:
(i) whether the requested Borrowing is to be a Revolving Borrowing,
Delayed Draw I Borrowing, Delayed Draw II Borrowing or Tranche B Term
Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a Business Day;
(iv) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
(v) in the case of a Eurodollar Borrowing, the initial Interest Period
to be applicable thereto, which shall be a period contemplated by the
definition of the term "Interest Period"; and
(vi) the location and number of the Borrower's account to which funds
are to be disbursed, which shall comply with the requirements of Section
2.06.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If
<PAGE>
39
no Interest Period is specified with respect to any requested Eurodollar
Revolving Borrowing, then the Borrower shall be deemed to have selected an
Interest Period of one month's duration. Promptly following receipt of a
Borrowing Request in accordance with this Section, the Administrative Agent
shall advise each Lender of the details thereof and of the amount of such
Lender's Loan to be made as part of the requested Borrowing.
SECTION 2.04. Swingline Loans. (a) Subject to the terms and
----------------
conditions set forth herein, the Swingline Lender agrees to make Swingline
Loans to the Borrower from time to time during the Revolving Availability
Period, in an aggregate principal amount at any time outstanding that will not
result in (i) the aggregate principal amount of outstanding Swingline Loans
exceeding $15,000,000, (ii) the sum of the total Revolving Exposures exceeding
the total Revolving Commitments or (iii) the Total Exposure exceeding the
Borrowing Base then in effect; provided that the Swingline Lender shall not be
--------
required to make a Swingline Loan to refinance an outstanding Swingline Loan.
Within the foregoing limits and subject to the terms and conditions set forth
herein, the Borrower may borrow, prepay and reborrow Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the
Administrative Agent of such request by telephone (confirmed by telecopy), not
later than 12:00 noon, New York City time, on the day of a proposed Swingline
Loan. Each such notice shall be irrevocable and shall specify the requested
date (which shall be a Business Day) and amount of the requested Swingline Loan.
The Administrative Agent will promptly advise the Swingline Lender of any such
notice received from the Borrower. The Swingline Lender shall make each
Swingline Loan available to the Borrower by means of a credit to the general
deposit account of the Borrower with the Swingline Lender (or, in the case of a
Swingline Loan made to finance the reimbursement of an LC Disbursement as
provided in Section 2.05(e), by remittance to the Issuing Bank) by 3:00 p.m.,
New York City time, on the requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the
Administrative Agent not later than 10:00 a.m., New York City time, on any
Business Day require the Revolving Lenders to acquire participations on such
Business Day in all or a portion of the Swingline Loans outstanding. Such notice
shall specify the aggregate amount of Swingline Loans in which Revolving Lenders
will participate. Promptly upon receipt of such notice, the Administrative
Agent will
<PAGE>
40
give notice thereof to each Revolving Lender, specifying in such notice such
Lender's Applicable Percentage of such Swingline Loan or Loans. Each Revolving
Lender hereby absolutely and unconditionally agrees, upon receipt of notice as
provided above, to pay to the Administrative Agent, for the account of the
Swingline Lender, such Lender's Applicable Percentage of such Swingline Loan or
Loans. Each Revolving Lender acknowledges and agrees that its obligation to
acquire participations in Swingline Loans pursuant to this paragraph is absolute
and unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever. Each Revolving
Lender shall comply with its obligation under this paragraph by wire transfer of
immediately available funds, in the same manner as provided in Section 2.06 with
respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis
-------
mutandis, to the payment obligations of the Revolving Lenders), and the
- --------
Administrative Agent shall promptly pay to the Swingline Lender the amounts so
received by it from the Revolving Lenders. The Administrative Agent shall notify
the Borrower of any participations in any Swingline Loan acquired pursuant to
this paragraph, and thereafter payments in respect of such Swingline Loan shall
be made to the Administrative Agent and not to the Swingline Lender. Any amounts
received by the Swingline Lender from the Borrower (or other party on behalf of
the Borrower) in respect of a Swingline Loan after receipt by the Swingline
Lender of the proceeds of a sale of participations therein shall be promptly
remitted to the Administrative Agent; any such amounts received by the
Administrative Agent shall be promptly remitted by the Administrative Agent to
the Revolving Lenders that shall have made their payments pursuant to this
paragraph and to the Swingline Lender, as their interests may appear. The
purchase of participations in a Swingline Loan pursuant to this paragraph shall
not relieve the Borrower of any default in the payment thereof.
SECTION 2.05. Letters of Credit. (a) General. Subject to the terms
------------------ --------
and conditions set forth herein, the Borrower may request the issuance of
Letters of Credit for its own account, in a form reasonably acceptable to the
Administrative Agent and the applicable Issuing Bank, at any time and from time
to time during the Revolving Availability Period. In the event of any
inconsistency between the terms and conditions of this Agreement and the terms
and conditions of any form of letter of credit application or other agreement
submitted by the Borrower to, or entered into by the Borrower with, an Issuing
Bank relating to any
<PAGE>
41
Letter of Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
----------------------------------------------------------
Conditions. To request the issuance of a Letter of Credit (or the amendment,
- -----------
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the applicable Issuing Bank) to
the applicable Issuing Bank and the Administrative Agent (reasonably in advance
of the requested date of issuance, amendment, renewal or extension) a notice
requesting the issuance of a Letter of Credit, or identifying the Letter of
Credit to be amended, renewed or extended, and specifying the date of issuance,
amendment, renewal or extension (which shall be a Business Day), the date on
which such Letter of Credit is to expire (which shall comply with paragraph (c)
of this Section), the amount of such Letter of Credit, the name and address of
the beneficiary thereof and such other information as shall be necessary to
prepare, amend, renew or extend such Letter of Credit. If there is more than
one Issuing Bank, the Borrower may select among the Issuing Banks in connection
with the issuance of any Letter of Credit. If requested by the Issuing Bank,
the Borrower also shall submit a letter of credit application on the Issuing
Bank's standard form in connection with any request for a Letter of Credit. A
Letter of Credit shall be issued, amended, renewed or extended only if (and upon
issuance, amendment, renewal or extension of each Letter of Credit the Borrower
shall be deemed to represent and warrant that), after giving effect to such
issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed
$25,000,000, (ii) the total Revolving Exposures shall not exceed the total
Revolving Commitments and (iii) the Total Exposure shall not exceed the
Borrowing Base then in effect.
(c) Expiration Date. Each Letter of Credit shall expire at or prior
----------------
to the close of business on the earlier of (i) the date one year after the date
of the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Revolving Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or an
---------------
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Revolving Lender, and each Revolving Lender hereby
acquires from the Issuing Bank, a
<PAGE>
42
participation in such Letter of Credit equal to such Lender's Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Revolving
Lender hereby absolutely and unconditionally agrees to pay to the Administrative
Agent, for the account of the Issuing Bank, such Lender's Applicable Percentage
of each LC Disbursement made by the Issuing Bank and not reimbursed by the
Borrower on the date due as provided in paragraph (e) of this Section, or of any
reimbursement payment required to be refunded to the Borrower for any reason.
Each Lender acknowledges and agrees that its obligation to acquire
participations pursuant to this paragraph in respect of Letters of Credit is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including any amendment, renewal or extension of any Letter of
Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Issuing Bank shall make any LC
--------------
Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such
LC Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on (i) the Business
Day that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., New York City time, on the day of the receipt, or (ii) the Business
Day immediately following the day that the Borrower receives such notice, if
such notice is not received prior to such time on the day of receipt; provided
--------
that, if such LC Disbursement is not less than $100,000, the Borrower may,
subject to the conditions to borrowing set forth herein, request in accordance
with Section 2.03 or 2.04 that such payment be financed with an ABR Revolving
Borrowing or Swingline Loan in an equivalent amount and, to the extent so
financed, the Borrower's obligation to make such payment shall be discharged and
replaced by the resulting ABR Revolving Borrowing or Swingline Loan. If the
Borrower fails to make such payment when due, the Administrative Agent shall
notify each Revolving Lender of the applicable LC Disbursement, the payment then
due from the Borrower in respect thereof and such Lender's Applicable Percentage
thereof. Promptly following receipt of such notice, each Revolving Lender
<PAGE>
43
shall pay to the Administrative Agent its Applicable Percentage of the payment
then due from the Borrower, in the same manner as provided in Section 2.06 with
respect to Loans made by such Lender (and Section 2.06 shall apply, mutatis
-------
mutandis, to the payment obligations of the Revolving Lenders), and the
- --------
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the Revolving Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the Issuing
Bank or, to the extent that Revolving Lenders have made payments pursuant to
this paragraph to reimburse the Issuing Bank, then to such Lenders and the
Issuing Bank as their interests may appear. Any payment made by a Revolving
Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC
Disbursement (other than the funding of ABR Revolving Loans or a Swingline Loan
as contemplated above) shall not constitute a Loan and shall not relieve the
Borrower of its obligation to reimburse such LC Disbursement.
(f) Obligations Absolute. The Borrower's obligation to reimburse LC
---------------------
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of
Credit or this Agreement, or any term or provision herein or therein, (ii) any
draft or other document presented under a Letter of Credit proving to be forged,
fraudulent or invalid in any respect or any statement therein being untrue or
inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of
Credit against presentation of a draft or other document that does not comply
with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower's obligations hereunder.
Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of
their Related Parties, shall have any liability or responsibility by reason of
or in connection with the issuance or transfer of any Letter of Credit or any
payment or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in
<PAGE>
44
interpretation of technical terms or any consequence arising from causes beyond
the control of the Issuing Bank; provided that the foregoing shall not be
--------
construed to excuse the Issuing Bank from liability to the Borrower to the
extent of any direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by the Borrower to the extent permitted by
applicable law) suffered by the Borrower that are caused by the Issuing Bank's
failure to exercise care when determining whether drafts and other documents
presented under a Letter of Credit comply with the terms thereof. The parties
hereto expressly agree that, in the absence of gross negligence or wilful
misconduct on the part of the Issuing Bank (as finally determined by a court of
competent jurisdiction), the Issuing Bank shall be deemed to have exercised care
in each such determination. In furtherance of the foregoing and without limiting
the generality thereof, the parties agree that, with respect to documents
presented which appear on their face to be in substantial compliance with the
terms of a Letter of Credit, the Issuing Bank may, in its sole discretion,
either accept and make payment upon such documents without responsibility for
further investigation, regardless of any notice or information to the contrary,
or refuse to accept and make payment upon such documents if such documents are
not in strict compliance with the terms of such Letter of Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly
------------------------
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; provided that any failure to give or
--------
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC
Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC
-----------------
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made, the unpaid amount thereof shall
bear interest, for each day from and including the date such LC Disbursement is
made to but excluding the date that the Borrower reimburses such LC
Disbursement, at the rate per annum then applicable to ABR Revolving Loans;
provided that, if the Borrower fails to reimburse such LC Disbursement when due
- --------
pursuant to paragraph (e) of this Section, then Section 2.13(c) shall apply.
Interest accrued pursuant to this paragraph shall be for the account of the
Issuing Bank,
<PAGE>
45
except that interest accrued on and after the date of payment by any Revolving
Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank
shall be for the account of such Lender to the extent of such payment.
(i) Replacement of the Issuing Bank. An Issuing Bank may be replaced
--------------------------------
at any time by written agreement among the Borrower, the Administrative Agent
and the successor to such Issuing Bank. The Administrative Agent shall notify
the Lenders of any such replacement of an Issuing Bank. At the time any such
replacement shall become effective, the Borrower shall pay all unpaid fees
accrued for the account of the replaced Issuing Bank pursuant to Section
2.12(b). From and after the effective date of any such replacement, (i) the
successor Issuing Bank shall have all the rights and obligations of an Issuing
Bank under this Agreement with respect to Letters of Credit to be issued by it
thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed
to refer to such successor or to any previous Issuing Bank, or to such successor
and all previous Issuing Banks, as the context shall require. After the
replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain
a party hereto and shall continue to have all the rights and obligations of an
Issuing Bank under this Agreement with respect to Letters of Credit issued by it
prior to such replacement, but shall not be required to issue additional Letters
of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and
-----------------------
be continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Revolving Lenders with LC Exposure representing greater
than 50% of the total LC Exposure) demanding the deposit of cash collateral
pursuant to this paragraph, the Borrower shall deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and for the
benefit of the Lenders, an amount in cash equal to 105% of the LC Exposure as of
such date plus any accrued and unpaid interest thereon; provided that the
--------
obligation to deposit such cash collateral shall become effective immediately,
and such deposit shall become immediately due and payable, without demand or
other notice of any kind, upon the occurrence of any Event of Default with
respect to the Borrower described in clause (h) or (i) of Article VII. The
Borrower also shall deposit cash collateral pursuant to this paragraph as and to
the extent required by Section 2.11(b), and any such cash collateral so
deposited and held by the Administrative Agent hereunder shall constitute part
of the Borrowing Base for purposes of determining compliance with Section
2.11(b). Each such
<PAGE>
46
deposit shall be held by the Administrative Agent as collateral for the payment
and performance of the obligations of the Borrower under this Agreement. The
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account. Other than any interest earned
on the investment of such deposits, which investments shall be made at the
option and sole discretion of the Administrative Agent and at the Borrower's
risk and expense, such deposits shall not bear interest. Interest or profits, if
any, on such investments shall accumulate in such account. Moneys in such
account shall be applied by the Administrative Agent to reimburse the Issuing
Bank for LC Disbursements for which it has not been reimbursed and, to the
extent not so applied, shall be held for the satisfaction of the reimbursement
obligations of the Borrower for the LC Exposure at such time or, if the maturity
of the Loans has been accelerated (but subject to the consent of Revolving
Lenders with LC Exposure representing greater than 50% of the total LC
Exposure), be applied to satisfy other obligations of the Borrower under this
Agreement. If the Borrower is required to provide an amount of cash collateral
hereunder as a result of the occurrence of an Event of Default, such amount (to
the extent not applied as aforesaid) shall be returned to the Borrower within
three Business Days after all Events of Default have been cured or waived. If
the Borrower is required to provide an amount of cash collateral hereunder
pursuant to Section 2.11(b), such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower as and to the extent that, after
giving effect to such return, the Borrower would remain in compliance with
Section 2.11(b) and no Default shall have occurred and be continuing.
(k) Existing Letters of Credit. Each Existing LC Issuing Bank shall
---------------------------
deliver to the Administrative Agent, on or prior to the Effective Date, a
schedule identifying all Existing Letters of Credit issued by it. Each Existing
LC Issuing Bank also shall notify the Administrative Agent of any LC
Disbursement or any expiration, termination or renewal of any Existing Letters
of Credit issued by it.
SECTION 2.06. Funding of Borrowings. (a) Each Lender shall make
----------------------
each Loan to be made by it hereunder on the proposed date thereof by wire
transfer of immediately available funds by 12:00 noon, New York City time, to
the account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders; provided that Swingline Loans shall be made as
--------
provided in Section 2.04. The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts
<PAGE>
47
so received, in like funds, to an account of the Borrower designated by the
Borrower in the applicable Borrowing Request; provided that ABR Revolving Loans
--------
made to finance the reimbursement of an LC Disbursement as provided in Section
2.05(e) shall be remitted by the Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. In such event, if a Lender has not in fact made its share
of the applicable Borrowing available to the Administrative Agent, then the
applicable Lender and the Borrower severally agree to pay to the Administrative
Agent forthwith on demand such corresponding amount with interest thereon, for
each day from and including the date such amount is made available to the
Borrower to but excluding the date of payment to the Administrative Agent, at
(i) in the case of such Lender, the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Loans. If such Lender pays such amount to
the Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
SECTION 2.07. Interest Elections. (a) Each Revolving Borrowing and
-------------------
Term Borrowing initially shall be of the Type specified in the applicable
Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an
initial Interest Period as specified in such Borrowing Request. Thereafter, the
Borrower may elect to convert such Borrowing to a different Type or to continue
such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest
Periods therefor, all as provided in this Section. The Borrower may elect
different options with respect to different portions of the affected Borrowing,
in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such
portion shall be considered a separate Borrowing. This Section shall not apply
to Swingline Borrowings, which may not be converted or continued.
<PAGE>
48
(b) To make an election pursuant to this Section, the Borrower shall
notify the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Borrower were
requesting a Revolving Borrowing of the Type resulting from such election to be
made on the effective date of such election. Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.
(c) Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02 and paragraph
(f) of this Section:
(i) the Borrowing to which such Interest Election Request applies and,
if different options are being elected with respect to different portions
thereof, the portions thereof to be allocated to each resulting Borrowing
(in which case the information to be specified pursuant to clauses (iii)
and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the
term "Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Borrowing prior to the end of the Interest
Period applicable
<PAGE>
49
thereto, then, unless such Borrowing is repaid as provided herein, at the end of
such Interest Period such Borrowing shall be converted to an ABR Borrowing.
Notwithstanding any contrary provision hereof, if an Event of Default has
occurred and is continuing and the Administrative Agent, at the request of the
Required Lenders, so notifies the Borrower, then, so long as an Event of Default
is continuing (i) no outstanding Borrowing may be converted to or continued as a
Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be
converted to an ABR Borrowing at the end of the Interest Period applicable
thereto.
(f) A Borrowing of any Class may not be converted to or continued as
a Eurodollar Borrowing if after giving effect thereto (i) the Interest Period
therefor would commence before and end after a date on which any principal of
the Loans of such Class is scheduled to be repaid and (ii) the sum of the
aggregate principal amount of outstanding Eurodollar Borrowings of such Class
with Interest Periods ending on or prior to such scheduled repayment date plus
the aggregate principal amount of outstanding ABR Borrowings of such Class would
be less than the aggregate principal amount of Loans of such Class required to
be repaid on such scheduled repayment date.
SECTION 2.08. Termination and Reduction of Commitments. (a) Unless
-----------------------------------------
previously terminated, (i) the Tranche B Commitments shall terminate at 5:00
p.m., New York City time, on the Effective Date, (ii) the Delayed Draw I
Commitments shall terminate at 5:00 p.m., New York City time, on the Delayed
Draw I Commitment Termination Date, (iii) the Delayed Draw II Commitments shall
terminate at 5:00 p.m., New York City time, on the Delayed Draw II Commitment
Termination Date and (ii) the Revolving Commitments shall terminate on the
Revolving Maturity Date. The Delayed Draw I Commitment of each Lender shall be
reduced by the amount of each Delayed Draw I Loan made by such Lender at the
time such Loan is made. The Delayed Draw II Commitment of each Lender shall be
reduced by the amount of each Delayed Draw II Loan made by such Lender at the
time such Loan is made.
(b) The Borrower may at any time terminate, or from time to time
reduce, the Commitments of any Class; provided that (i) each reduction of the
--------
Commitments of any Class shall be in an amount that is an integral multiple of
$1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not
terminate or reduce the Revolving Commitments if, after giving effect to any
concurrent prepayment of the Revolving Loans in accordance with
<PAGE>
50
Section 2.11, the sum of the Revolving Exposures would exceed the total
Revolving Commitments.
(c) In the event that, on the date on which any prepayment would be
required pursuant to Section 2.11(c) or 2.11(d), no Term Borrowings remain
outstanding or the amount of the prepayment required by Section 2.11(c) or
2.11(d), as the case may be, exceeds the aggregate principal amount of Term
Borrowings then outstanding, the Commitments shall be reduced by an amount equal
to the excess of the required prepayment over the principal amount, if any, of
Term Borrowings actually prepaid. Any reduction of Commitments required
pursuant to this paragraph shall be allocated (i) first, to the Delayed Draw I
Commitment, if any, and the Delayed Draw II Commitments, if any, ratably, and,
(ii) second, to the Revolving Commitments.
(d) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Commitments under paragraph (b) of this
Section, or any required reduction of the Revolving Commitments under paragraph
(c) of this Section, at least three Business Days prior to the effective date of
such termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section shall be irrevocable; provided that a notice
--------
of termination of the Revolving Commitments delivered by the Borrower may state
that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by the Borrower (by notice
to the Administrative Agent on or prior to the specified effective date) if such
condition is not satisfied. Any termination or reduction of the Commitments of
any Class shall be permanent. Each reduction of the Commitments of any Class
shall be made ratably among the Lenders in accordance with their respective
Commitments of such Class.
SECTION 2.09. Repayment of Loans; Evidence of Debt. (a) The
-------------------------------------
Borrower hereby unconditionally promises to pay (i) to the Administrative Agent
for the account of each Lender the then unpaid principal amount of each
Revolving Loan of such Lender on the Revolving Maturity Date, (ii) to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Term Loan of such Lender as provided in Section 2.10 and (iii) to
the Swingline Lender the then unpaid principal amount of each Swingline Loan on
the earlier of the Revolving Maturity Date and the first date after such
Swingline Loan is made that is the 15th or last day of a calendar month and is
at least two
<PAGE>
51
Business Days after such Swingline Loan is made; provided that on each date
--------
that a Revolving Borrowing is made, the Borrower shall repay all Swingline Loans
then outstanding.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower to such
Lender resulting from each Loan made by such Lender, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(c) The Administrative Agent shall maintain accounts in which it
shall record (i) the amount of each Loan made hereunder, the Class and Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by
the Administrative Agent hereunder for the account of the Lenders and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph
(b) or (c) of this Section shall be prima facie evidence of the existence and
----- -----
amounts of the obligations recorded therein; provided that the failure of any
--------
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrower to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans of any Class made by it be
evidenced by a promissory note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 9.04) be represented by one or
more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and its
registered assigns).
SECTION 2.10. Amortization of Term Loans. (a) Subject to adjustment
---------------------------
pursuant to paragraph (d) of this Section, the Borrower shall repay Tranche B
Term Borrowings
<PAGE>
52
on each date set forth below in the aggregate principal amount set
forth opposite such date:
<TABLE>
<CAPTION>
Date Amount
- ---- ------
<S> <C>
October 15, 1999 $ 500,000
April 15, 2000 $ 500,000
October 15, 2000 $ 500,000
April 15, 2001 $ 500,000
October 15, 2001 $ 500,000
April 15, 2002 $ 500,000
October 15, 2002 $ 500,000
April 15, 2003 $ 500,000
October 15, 2003 $ 500,000
April 15, 2004 $ 500,000
October 15, 2004 $30,000,000
April 15, 2005 $30,000,000
October 15, 2005 $30,000,000
Tranche B Maturity Date $30,000,000
</TABLE>
(b) (i) Subject to adjustment pursuant to paragraph (d) of this
Section, the Borrower shall repay Delayed Draw I Borrowings on each date set
forth below in the aggregate principal amount set forth opposite such date:
<TABLE>
<CAPTION>
Date Amount
- ---- ------
<S> <C>
April 15, 2000 $ 500,000
October 15, 2000 $ 500,000
April 15, 2001 $ 500,000
October 15, 2001 $ 500,000
April 15, 2002 $ 500,000
October 15, 2002 $ 500,000
April 15, 2003 $ 500,000
October 15, 2003 $ 500,000
Delayed Draw Maturity Date $46,000,000
</TABLE>
(ii) Subject to adjustment pursuant to paragraph (d) of this Section,
the Borrower shall repay Delayed Draw II Borrowings on each date set forth below
in the aggregate principal amount set forth opposite such date:
<TABLE>
<CAPTION>
Date Amount
- ---- ------
<S> <C>
October 15, 2001 $ 500,000
April 15, 2002 $ 500,000
October 15, 2002 $ 500,000
April 15, 2003 $ 500,000
October 15, 2003 $ 500,000
Delayed Draw Maturity Date $72,500,000
</TABLE>
<PAGE>
53
(c) To the extent not previously paid, (i) all Tranche B Term Loans
shall be due and payable on the Tranche B Maturity Date and (ii) all Delayed
Draw Loans shall be due and payable on the Delayed Draw Maturity Date.
(d) If the initial aggregate amount of the Lenders' (i) Tranche B
Commitments exceeds the aggregate principal amount of Tranche B Term Loans that
are made on the Effective Date, (ii) Delayed Draw I Commitments exceeds the
aggregate principal amount of Delayed Draw I Loans that are made during the
Delayed Draw I Availability Period or (iii) Delayed Draw II Commitments exceeds
the aggregate principal amount of Delayed Draw II Loans that are made during the
Delayed Draw II Availability Period, then the scheduled repayments of Tranche B
Borrowings, Delayed Draw I Borrowings or Delayed Draw II Borrowings, as the case
may be, to be made pursuant to this Section shall be reduced ratably by an
aggregate amount equal to such excess. Any prepayment of a Term Borrowing of
any Class shall be applied to reduce the subsequent scheduled repayments of the
Term Borrowings of such Class to be made pursuant to this Section in reverse
chronological order; provided that any prepayment made pursuant to Section
--------
2.11(a) shall be applied, first, to reduce the next scheduled repayments of the
Term Borrowings of such Class to be made pursuant to this Section in
chronological order, to the extent such repayments are scheduled to be due
within 12 months after such prepayment is made, until such next scheduled
repayments have been eliminated as a result of reductions hereunder and, second,
to reduce the subsequent scheduled repayments of the Term Borrowings of such
Class to be made pursuant to this Section in reverse chronological order.
(e) Prior to any repayment of any Term Borrowings of any Class
hereunder, the Borrower shall select the Borrowing or Borrowings of the
applicable Class to be repaid and shall notify the Administrative Agent by
telephone (confirmed by telecopy) of such selection not later than 11:00 a.m.,
New York City time, three Business Days before the scheduled date of such
repayment; provided that each repayment of Term Borrowings of any Class shall be
--------
applied to repay any outstanding ABR Term Borrowings of such Class before any
other Borrowings of such Class. Each repayment of a Borrowing shall be applied
ratably to the Loans included in the repaid Borrowing. Repayments of Term
Borrowings shall be accompanied by accrued interest on the amount repaid.
SECTION 2.11. Prepayment of Loans. (a) The Borrower shall have the
--------------------
right at any time and from time to
<PAGE>
54
time to prepay any Borrowing in whole or in part, subject to the requirements of
this Section.
(b) In the event and on such occasion that the Total Exposure exceeds
the Borrowing Base, the Borrower shall prepay Revolving Borrowings or Swingline
Borrowings (or, if no such Borrowings are outstanding, deposit cash collateral
in an amount equal to the total LC Exposure in an account with the
Administrative Agent pursuant to Section 2.05(j)) in an aggregate amount equal
to such excess.
(c) In the event and on each occasion that any Net Cash Proceeds are
received by or on behalf of Holdings, the Borrower or any Subsidiary in respect
of any Prepayment Event, the Borrower shall, immediately after such Net Cash
Proceeds are received, prepay Term Borrowings in an aggregate amount equal to
such Net Cash Proceeds.
(d) Following the end of each fiscal year of the Borrower, commencing
with the fiscal year ending January 1, 2000, the Borrower shall prepay Term
Borrowings in an aggregate amount equal to 50% of Excess Cash Flow for such
fiscal year. Each prepayment pursuant to this paragraph shall be made on or
before the date that is ten days after the date on which financial statements
are delivered pursuant to Section 5.01 with respect to the fiscal year for which
Excess Cash Flow is being calculated (and in any event within 90 days after the
end of such fiscal year).
(e) Prior to any optional or mandatory prepayment of Borrowings
hereunder, the Borrower shall select the Borrowing or Borrowings to be prepaid
and shall specify such selection in the notice of such prepayment pursuant to
paragraph (f) of this Section; provided that each prepayment of Borrowings of
--------
any Class shall be applied to prepay ABR Borrowings of such Class before any
other Borrowings of such Class. In the event of any optional or mandatory
prepayment of Term Borrowings made at a time when Term Borrowings of more than
one Class remain outstanding, the Borrower shall select Term Borrowings to be
prepaid so that the aggregate amount of such prepayment is allocated among the
Delayed Draw I Borrowings, Delayed Draw II Borrowings and Tranche B Term
Borrowings pro rata based on the aggregate principal amount of outstanding
Borrowings of each such Class; provided that any Tranche B Lender may elect, by
--------
notice to the Administrative Agent by telephone (confirmed by telecopy) at least
one Business Day prior to the prepayment date, to decline all or any portion of
any prepayment of its Tranche B Term Loans pursuant to this Section (other than
an optional prepayment pursuant to paragraph (a) of this
<PAGE>
55
Section, which may not be declined), in which case the aggregate amount of the
prepayment that would have been applied to prepay Tranche B Term Loans but was
so declined shall be applied to prepay Delayed Draw Borrowings on a pro rata
basis.
(f) The Borrower shall notify the Administrative Agent (and, in the
case of prepayment of a Swingline Loan, the Swingline Lender) by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City
time, three Business Days before the date of prepayment, (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
one Business Day before the date of prepayment or (iii) in the case of
prepayment of a Swingline Loan, not later than 12:00 noon, New York City time,
on the date of prepayment. Each such notice shall be irrevocable and shall
specify the prepayment date, the principal amount of each Borrowing or portion
thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably
detailed calculation of the amount of such prepayment; provided that, if a
--------
notice of optional prepayment is given in connection with a conditional notice
of termination of the Revolving Commitments as contemplated by Section 2.08,
then such notice of prepayment may be revoked if such notice of termination is
revoked in accordance with Section 2.08. Promptly following receipt of any such
notice (other than a notice relating solely to Swingline Loans), the
Administrative Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of any Borrowing shall be in an amount that would be
permitted in the case of an advance of a Borrowing of the same Type as provided
in Section 2.02, except as necessary to apply fully the required amount of a
mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably
to the Loans included in the prepaid Borrowing. Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.13.
SECTION 2.12. Fees. (a) The Borrower agrees to pay to the
-----
Administrative Agent for the account of each Lender a commitment fee, which
shall accrue at the rate of 1/2 of 1% per annum on the Delayed Draw I
Commitment, the Delayed Draw II Commitment and the average daily unused amount
of the Revolving Commitment of such Lender during the period from and including
the Effective Date to but excluding the date on which such Commitments
terminate. Accrued commitment fees shall be payable in arrears on the last day
of March, June, September and December of each year and on the date on which any
Commitment terminates,
<PAGE>
56
commencing on the first such date to occur after the date hereof. All commitment
fees shall be computed on the basis of a year of 360 days and shall be payable
for the actual number of days elapsed (including the first day but excluding the
last day). For purposes of computing commitment fees, a Revolving Commitment of
a Lender shall be deemed to be used to the extent of the outstanding Revolving
Loans and LC Exposure of such Lender (and the Swingline Exposure of such Lender
shall be disregarded for such purpose).
(b) The Borrower agrees to pay (i) to the Administrative Agent for
the account of each Revolving Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Rate as interest on Eurodollar Revolving Loans on the average daily amount of
such Lender's LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date on which such Lender's
Revolving Commitment terminates and the date on which such Lender ceases to have
any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue
at the rate of 1/4 of 1% per annum on the average daily amount of the LC
Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but
excluding the later of the date of termination of the Revolving Commitments and
the date on which there ceases to be any LC Exposure, as well as the Issuing
Bank's standard fees with respect to the issuance, amendment, renewal or
extension of any Letter of Credit or processing of drawings thereunder.
Participation fees and fronting fees accrued through and including the last day
of March, June, September and December of each year shall be payable on the
third Business Day following such last day, commencing on the first such date to
occur after the Effective Date; provided that all such fees shall be payable on
--------
the date on which the Revolving Commitments terminate and any such fees accruing
after the date on which the Revolving Commitments terminate shall be payable on
demand. Any other fees payable to the Issuing Bank pursuant to this paragraph
shall be payable within 10 days after demand. All participation fees and
fronting fees shall be computed on the basis of a year of 360 days and shall be
payable for the actual number of days elapsed (including the first day but
excluding the last day).
(c) The Borrower agrees to pay to the Administrative Agent, for its
own account, fees payable in
<PAGE>
57
the amounts and at the times separately agreed upon between the Borrower and the
Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of
commitment fees and participation fees, to the Lenders entitled thereto. Fees
paid shall not be refundable under any circumstances.
SECTION 2.13. Interest. (a) The Loans comprising each ABR Borrowing
---------
(including each Swingline Loan) shall bear interest at the Alternate Base Rate
plus the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower hereunder is not
paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the
rate otherwise applicable to such Loan as provided in the preceding paragraphs
of this Section or (ii) in the case of any other amount, 2% plus the rate
applicable to ABR Revolving Loans as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan and, in the case of Revolving Loans, upon
termination of the Revolving Commitments; provided that (i) interest accrued
--------
pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in
the event of any repayment or prepayment of any Loan (other than a prepayment of
an ABR Revolving Loan prior to the end of the Revolving Availability Period),
accrued interest on the principal amount repaid or prepaid shall be payable on
the date of such repayment or prepayment and (iii) in the event of any
conversion of any Eurodollar Loan prior to the end of the current Interest
Period therefor, accrued interest on such Loan shall be payable on the effective
date of such conversion.
<PAGE>
58
(e) All interest hereunder shall be computed on the basis of a year
of 360 days, except that interest computed by reference to the Alternate Base
Rate at times when the Alternate Base Rate is based on the Prime Rate shall be
computed on the basis of a year of 365 days (or 366 days in a leap year), and in
each case shall be payable for the actual number of days elapsed (including the
first day but excluding the last day). The applicable Alternate Base Rate or
Adjusted LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
SECTION 2.14. Alternate Rate of Interest. If prior to the
---------------------------
commencement of any Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that
the Adjusted LIBO Rate for such Interest Period will not adequately and
fairly reflect the cost to such Lenders of making or maintaining their
Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing
SECTION 2.15. Increased Costs. (a) If any Change in Law shall:
----------------
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBO Rate) or the Issuing Bank; or
<PAGE>
59
(ii) impose on any Lender or the Issuing Bank or the London interbank
market any other condition affecting this Agreement or Eurodollar Loans
made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Borrower will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank,
as the case may be, for such additional costs incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in
Law regarding capital requirements has or would have the effect of reducing the
rate of return on such Lender's or the Issuing Bank's capital or on the capital
of such Lender's or the Issuing Bank's holding company, if any, as a consequence
of this Agreement or the Loans made by, or participations in Letters of Credit
held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a
level below that which such Lender or the Issuing Bank or such Lender's or the
Issuing Bank's holding company could have achieved but for such Change in Law
(taking into consideration such Lender's or the Issuing Bank's policies and the
policies of such Lender's or the Issuing Bank's holding company with respect to
capital adequacy), then from time to time the Borrower will pay to such Lender
or the Issuing Bank, as the case may be, such additional amount or amounts as
will compensate such Lender or the Issuing Bank or such Lender's or the Issuing
Bank's holding company for any such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the
amount or amounts necessary to compensate such Lender or the Issuing Bank or its
holding company, as the case may be, as specified in paragraph (a) or (b) of
this Section, and, in reasonable detail, the basis therefor, shall be delivered
to the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay such Lender or the Issuing Bank, as the case may be, the amount shown
as due on any such certificate within 10 days after receipt thereof.
<PAGE>
60
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation; provided
--------
that the Borrower shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than 270 days prior to the date that such Lender or the Issuing Bank, as
the case may be, notifies the Borrower of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; provided further that, if the Change
-------- -------
in Law giving rise to such increased costs or reductions is retroactive, then
the 270-day period referred to above shall be extended to include the period of
retroactive effect thereof.
SECTION 2.16. Break Funding Payments. In the event of (a) the
-----------------------
payment of any principal of any Eurodollar Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Revolving Loan or Term Loan on the date specified in any
notice delivered pursuant hereto (regardless of whether such notice may be
revoked under Section 2.11(g) and is revoked in accordance therewith), or (d)
the assignment of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by the Borrower pursuant to
Section 2.19, then, in any such event, the Borrower shall compensate each Lender
for the loss, cost and expense attributable to such event. In the case of a
Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed to
include an amount determined by such Lender to be the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount of such Loan
had such event not occurred, at the Adjusted LIBO Rate that would have been
applicable to such Loan, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert or continue, for the period that would have been the Interest
Period for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender
would bid were it to bid, at the commencement of such period, for dollar
deposits of a comparable amount and period from other banks in the Eurodollar
market. A certificate of any Lender setting forth any amount or amounts that
such Lender is entitled to receive pursuant to this Section, and, in reasonable
detail, the basis therefor,
<PAGE>
61
shall be delivered to the Borrower and shall be conclusive absent manifest
error. The Borrower shall pay such Lender the amount shown as due on any such
certificate within 10 days after receipt thereof.
SECTION 2.17. Taxes. (a) Any and all payments by or on account of
------
any obligation of the Borrower hereunder or under any other Loan Document shall
be made free and clear of and without deduction for any Indemnified Taxes or
Other Taxes; provided that if the Borrower shall be required to deduct any
--------
Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section)
the Administrative Agent, Lender or Issuing Bank (as the case may be) receives
an amount equal to the sum it would have received had no such deductions been
made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall
pay the full amount deducted to the relevant Governmental Authority in
accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent, each
Lender and the Issuing Bank, within 10 days after written demand therefor, for
the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent, such Lender or the Issuing Bank, as the case may be, on or
with respect to any payment by or on account of any obligation of the Borrower
hereunder or under any other Loan Document (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this
Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes
were correctly or legally imposed or asserted by the relevant Governmental
Authority. A certificate as to the amount of such payment or liability, and
setting forth, in reasonable detail, the basis therefor, delivered to the
Borrower by a Lender or the Issuing Bank, or by the Administrative Agent on its
own behalf or on behalf of a Lender or the Issuing Bank, shall be conclusive
absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or
Other Taxes by the Borrower to a Governmental Authority, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of a
<PAGE>
62
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the Code, the law of the jurisdiction in
which the Borrower is located, or any treaty to which such jurisdiction is a
party, with respect to payments under this Agreement shall deliver to the
Borrower (with a copy to the Administrative Agent), at the time or times
prescribed by applicable law, such properly completed and executed documentation
prescribed by applicable law or reasonably requested by the Borrower as will
permit such payments to be made without withholding or at a reduced rate. Any
Foreign Lender which is not a "bank" within the meaning of Section 881(c)(3)(A)
of the Code and intends to claim exemption from U.S. Federal withholding tax
under Section 871(h) or 881(c) of the Code with respect to payments of
"portfolio interest" shall deliver to the Borrower (with a copy for the
Administrative Agent) a Form W-8, or any subsequent versions thereof or
successors thereto (and, if such Foreign Lender delivers a Form W-8, a
certificate representing that such Foreign Lender is not a bank for purposes of
Section 881(c) of the Code, is not a ten-percent shareholder (within the meaning
of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled
foreign corporation related to the Borrower (within the meaning of Section
864(d)(4) of the Code)), properly completed and duly executed by such Foreign
Lender claiming complete exemption from, or a reduced rate of, U.S. Federal
withholding tax on payments of interest by the Borrower under this Agreement and
the other Loan Documents.
(f) If the Administrative Agent or a Lender determines, in its sole
discretion, that it has received a refund of any Taxes or Other Taxes as to
which it has been indemnified by the Borrower or with respect to which the
Borrower has paid additional amounts pursuant to this Section 2.17, it shall pay
over such refund to the Borrower (but only to the extent of indemnity payments
made, or additional amounts paid, by the Borrower under this Section 2.17 with
respect to the Taxes or Other Taxes giving rise to such refund), net of all out-
of-pocket expenses of the Administrative Agent or such Lender and without
interest (other than any interest paid by the relevant Governmental Authority
with respect to such refund); provided that the Borrower, upon the request of
--------
the Administrative Agent or such Lender, agrees to repay the amount paid over to
the Borrower (plus any penalties, interest or other charges imposed by the
relevant Governmental Authority) to the
<PAGE>
63
Administrative Agent or such Lender in the event the Administrative Agent or
such Lender is required to repay such refund to such Governmental Authority.
Nothing contained in this Section 2.17(f) shall require the Administrative Agent
or any Lender to make available its tax returns (or any other information
relating to its taxes which it deems confidential) to the Borrower or any other
Person.
SECTION 2.18. Payments Generally; Pro Rata Treatment; Sharing of Set-
------------------------------------------------------
offs. (a) The Borrower shall make each payment required to be made by it
- -----
hereunder or under any other Loan Document (whether of principal, interest, fees
or reimbursement of LC Disbursements, or of amounts payable under Section 2.15,
2.16 or 2.17, or otherwise) prior to 12:00 noon, New York City time, on the date
when due, in immediately available funds, without set-off or counterclaim. Any
amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York, except payments to be made directly to the Issuing Bank or
Swingline Lender as expressly provided herein and except that payments pursuant
to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons
entitled thereto and payments pursuant to other Loan Documents shall be made to
the Persons specified therein. The Administrative Agent shall distribute any
such payments received by it for the account of any other Person to the
appropriate recipient promptly following receipt thereof. If any payment under
any Loan Document shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension. All payments under each Loan Document shall be made
in dollars.
(b) If at any time insufficient funds are received by and available
to the Administrative Agent to pay fully all amounts of principal, unreimbursed
LC Disbursements, interest and fees then due hereunder, such funds shall be
applied (i) first, towards payment of interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, towards payment of
principal and unreimbursed LC Disbursements then due hereunder, ratably among
the parties entitled thereto in accordance with the amounts of principal and
unreimbursed LC Disbursements then due to such parties.
<PAGE>
64
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Revolving Loans, Term Loans or participations in LC
Disbursements or Swingline Loans resulting in such Lender receiving payment of a
greater proportion of the aggregate amount of its Revolving Loans, Term Loans
and participations in LC Disbursements and Swingline Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Revolving Loans, Term Loans and participations in LC
Disbursements and Swingline Loans of other Lenders to the extent necessary so
that the benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Revolving Loans, Term Loans and participations in LC
Disbursements and Swingline Loans; provided that (i) if any such participations
--------
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or participations
in LC Disbursements to any assignee or participant, other than to the Borrower
or any Subsidiary or Affiliate thereof (as to which the provisions of this
paragraph shall apply). The Borrower consents to the foregoing and agrees, to
the extent it may effectively do so under applicable law, that any Lender
acquiring a participation pursuant to the foregoing arrangements may exercise
against the Borrower rights of set-off and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of the Borrower
in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that the
Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing Bank,
as the case may be, the amount due. In such event, if the Borrower has not in
fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the Administrative Agent
<PAGE>
65
forthwith on demand the amount so distributed to such Lender or Issuing Bank
with interest thereon, for each day from and including the date such amount is
distributed to it to but excluding the date of payment to the Administrative
Agent, at the greater of the Federal Funds Effective Rate and a rate determined
by the Administrative Agent in accordance with banking industry rules on
interbank compensation.
(e) If any Lender shall fail to make any payment required to be made
by it pursuant to Section 2.04(c), 2.05(d) or (e), 2.06(b), 2.18(d) or 9.03(c),
then the Administrative Agent may, in its discretion (notwithstanding any
contrary provision hereof), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender's
obligations under such Sections until all such unsatisfied obligations are fully
paid.
SECTION 2.19. Mitigation Obligations; Replacement of Lenders. (a)
-----------------------------------------------
If any Lender requests compensation under Section 2.15, or if the Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.17, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, such
designation or assignment (i) would eliminate or reduce amounts payable pursuant
to Section 2.15 or 2.17, as the case may be, in the future and (ii) in the
reasonable judgment of such Lender, would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to such
Lender. The Borrower hereby agrees to pay all reasonable costs and expenses
incurred by any Lender in connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.15, or if the
Borrower is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.17,
or if any Lender defaults in its obligation to fund Loans hereunder, then the
Borrower may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this Agreement to
an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the Borrower
--------
shall have received the prior
<PAGE>
66
written consent of the Administrative Agent (and, if a Revolving Commitment is
being assigned, the Issuing Bank and Swingline Lender), which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans and participations in LC
Disbursements and Swingline Loans, accrued interest thereon, accrued fees and
all other amounts payable to it hereunder, from the assignee (to the extent of
such outstanding principal and accrued interest and fees) or the Borrower (in
the case of all other amounts) and (iii) in the case of any such assignment
resulting from a claim for compensation under Section 2.15 or payments required
to be made pursuant to Section 2.17, such assignment will result in a material
reduction in such compensation or payments. A Lender shall not be required to
make any such assignment and delegation if, prior thereto, as a result of a
waiver by such Lender or otherwise, the circumstances entitling the Borrower to
require such assignment and delegation cease to apply.
ARTICLE III
Representations and Warranties
------------------------------
Each of Holdings and the Borrower represents and warrants to the
Lenders that:
SECTION 3.01. Organization; Powers. Each of Holdings, the Borrower
---------------------
and their Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, has all requisite power
and authority to carry on its business as now conducted and, except where the
failure to do so, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in,
and is in good standing in, every jurisdiction where such qualification is
required.
SECTION 3.02. Authorization; Enforceability. The Transactions to be
------------------------------
entered into by each Loan Party are within such Loan Party's corporate powers
and have been duly authorized by all necessary corporate and, if required,
stockholder action. This Agreement has been duly executed and delivered by each
of Holdings and the Borrower and constitutes, and each other Loan Document to
which any Loan Party is to be a party, when executed and delivered by such Loan
Party, will constitute, a legal, valid and binding obligation of Holdings, the
Borrower or such Loan Party (as the case may be), enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency,
<PAGE>
67
reorganization, moratorium or other laws affecting creditors' rights generally
and subject to general principles of equity, regardless of whether considered in
a proceeding in equity or at law.
SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions
-------------------------------------
(a) do not require any consent or approval of, registration or filing with, or
any other action by, any Governmental Authority, except (i) such as have been
obtained or made and are in full force and effect and except filings necessary
to perfect Liens created under the Loan Documents or (ii) where the failure to
obtain such consent or approval or make such registration or filing,
individually or in the aggregate, would not reasonably be expected to result in
a Material Adverse Effect, (b) will not violate any applicable law or regulation
or the charter, by-laws or other organizational documents of Holdings, the
Borrower or any of their Subsidiaries or any order of any Governmental
Authority, (c) will not violate or result in a default under any material
indenture, agreement or other instrument binding upon Holdings, the Borrower or
any of their Subsidiaries or their assets, or give rise to a right thereunder to
require any payment to be made by Holdings, the Borrower or any of their
Subsidiaries, and (d) will not result in the creation or imposition of any Lien
on any asset of Holdings, the Borrower or any of their Subsidiaries, except
Liens created under the Loan Documents.
SECTION 3.04. Financial Condition; No Material Adverse Change. (a)
------------------------------------------------
Holdings has heretofore furnished to the Lenders its consolidated balance sheet
and statements of income, stockholders equity and cash flows (i) as of and for
the fiscal year ended January 3, 1998, reported on by Arthur Andersen LLP
independent public accountants, and (ii) as of the end of and for each fiscal
month ended after the end of such fiscal year and prior to the date 30 days
prior to the Effective Date, certified by one of its Financial Officers. Such
financial statements present fairly, in all material respects, the financial
position and results of operations and cash flows of Holdings and its
consolidated Subsidiaries as of such dates and for such periods in accordance
with GAAP, subject to year-end audit adjustments and the absence of footnotes in
the case of the statements referred to in clause (ii) above.
(b) Holdings and the Borrower have heretofore furnished to the
Lenders (i) the pro forma consolidated balance sheet of Holdings and (ii) the
pro forma consolidated balance sheet of the Borrower, each as of the date of the
most recent balance sheet referred to in paragraph (a) above, prepared giving
effect to the
<PAGE>
68
Transactions as if the Transactions had occurred on such date. Such pro forma
consolidated balance sheets (i) have been prepared in good faith based on the
same assumptions used to prepare the pro forma financial statements included in
the Information Memorandum (which assumptions are believed by Holdings and the
Borrower to be reasonable), (ii) accurately reflect all adjustments necessary to
give effect to the Transactions and (iii) presents fairly, in all material
respects, the pro forma financial position of Holdings, the Borrower and their
respective consolidated Subsidiaries as of the date of the most recent balance
sheet referred to in paragraph (a) above as if the Transactions had occurred on
such date.
(c) Except as disclosed in the financial statements referred to above
or the notes thereto or in the Information Memorandum and except for the
Disclosed Matters, after giving effect to the Transactions, none of Holdings,
the Borrower or their Subsidiaries has, as of the Effective Date, any material
contingent liabilities.
(d) Since January 3, 1998, there has been no material adverse change
in the business, assets, operations, prospects or condition, financial or
otherwise, of Holdings, the Borrower and their Subsidiaries, taken as a whole.
SECTION 3.05. Properties. (a) Each of Holdings, the Borrower and
-----------
their Subsidiaries has good title to, or valid leasehold interests in, all its
real and personal property material to its business (including its Mortgaged
Properties), except for minor defects in title that do not interfere with its
ability to conduct its business as currently conducted or to utilize such
properties for their intended purposes.
(b) Each of Holdings, the Borrower and their Subsidiaries owns, or is
licensed to use, all trademarks, trade names, copyrights, patents and other
intellectual property material to its business, and the use thereof by Holdings,
the Borrower and their Subsidiaries does not infringe upon the rights of any
other Person, except for any such infringements that, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse
Effect.
(c) The Borrower has delivered to the Administrative Agent a schedule
setting forth the address of each real property that is owned or leased by
Holdings or any of its Subsidiaries as of the Effective Date after giving effect
to the Transactions.
<PAGE>
69
(d) As of the Effective Date, neither Holdings, the Borrower nor any
of their Subsidiaries has received notice of, or has knowledge of, any pending
or contemplated condemnation proceeding affecting any Mortgaged Property or any
sale or disposition thereof in lieu of condemnation. Neither any Mortgaged
Property nor any interest therein is subject to any right of first refusal,
option or other contractual right to purchase such Mortgaged Property or
interest therein (other than options to purchase any such Mortgaged Property
leased by the Borrower as lessee).
SECTION 3.06. Litigation and Environmental Matters. (a) There are
-------------------------------------
no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of Holdings or the Borrower,
threatened against or affecting Holdings, the Borrower or any of their
Subsidiaries (i) as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, would reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect (other
than the Disclosed Matters) or (ii) that involve any of the Loan Documents or
the Transactions.
(b) Except for the Disclosed Matters and except with respect to any
other matters that, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect, neither Holdings, the Borrower
nor any of their Subsidiaries (i) has failed to comply with any Environmental
Law or to obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law, (ii) has become subject to any
Environmental Liability, (iii) has received notice of any claim with respect to
any Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
(c) Since the date of this Agreement, there has been no change in the
status of the Disclosed Matters that, individually or in the aggregate, has
resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
SECTION 3.07. Compliance with Laws and Agreements. Each of Holdings,
------------------------------------
the Borrower and their Subsidiaries is in compliance with all laws, regulations
and orders of any Governmental Authority applicable to it or its property and
all indentures, agreements and other instruments binding upon it or its
property, except where the failure to do so, individually or in the aggregate,
would not reasonably be expected to result in a Material Adverse Effect. No
Default has occurred and is continuing.
<PAGE>
70
SECTION 3.08. Investment and Holding Company Status. Neither
--------------------------------------
Holdings, the Borrower nor any of their Subsidiaries is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
SECTION 3.09. Taxes. Each of Holdings, the Borrower and their
------
Subsidiaries has timely filed or caused to be filed all Tax returns and reports
required to have been filed and has paid or caused to be paid all Taxes required
to have been paid by it, except (a) Taxes that are being contested in good faith
by appropriate proceedings and for which Holdings, the Borrower or such
Subsidiary, as applicable, has set aside on its books adequate reserves or (b)
to the extent that the failure to do so would not reasonably be expected to
result in a Material Adverse Effect.
SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably
------
expected to occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated
benefit obligations under each Plan (based on the assumptions used for purposes
of Statement of Financial Accounting Standards No. 87) did not, as of the date
of the most recent financial statements reflecting such amounts, exceed by more
than $1,000,000 the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $1,000,000 the fair
market value of the assets of all such underfunded Plans.
SECTION 3.11. Disclosure. Holdings and the Borrower have disclosed
-----------
to the Lenders all agreements, instruments and corporate or other restrictions
to which Holdings, the Borrower or any of their Subsidiaries is subject, and all
other matters known to any of them, that, individually or in the aggregate,
would reasonably be expected to result in a Material Adverse Effect. Neither
the Information Memorandum nor any of the other reports, financial statements,
certificates or other information furnished by or on behalf of any Loan Party to
the Administrative Agent or any Lender in connection with the negotiation of
this Agreement or any other Loan Document or delivered hereunder or thereunder
(as modified or
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71
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that, with respect to projected financial
--------
information, Holdings and the Borrower represent only that such information was
prepared in good faith based upon assumptions believed to be reasonable at the
time.
SECTION 3.12. Subsidiaries. After giving effect to the consummation
-------------
of the Recapitalization on the Effective Date, Holdings does not have any
Subsidiaries other than the Borrower and the Borrower's Subsidiaries. Schedule
3.12 sets forth the name of, and the ownership interest of the Borrower in, each
Subsidiary of the Borrower and identifies each Subsidiary that is a Subsidiary
Loan Party, in each case as of the Effective Date.
SECTION 3.13. Insurance. Schedule 3.13 sets forth a description of
----------
all insurance maintained by or on behalf of Holdings, the Borrower and their
Subsidiaries as of the Effective Date. As of the Effective Date, all premiums
in respect of such insurance have been paid.
SECTION 3.14. Labor Matters. As of the Effective Date, there are no
--------------
strikes, lockouts or slowdowns against Holdings, the Borrower or any Subsidiary
pending or, to the knowledge of Holdings or the Borrower, threatened. Holdings,
the Borrower and the Subsidiaries have not been in material violation of the
Fair Labor Standards Act or any other applicable Federal, state, local or
foreign law dealing with the hours worked by or payments made to employees or
any similar matters. All payments due from Holdings, the Borrower or any
Subsidiary, or for which any claim may be made against Holdings, the Borrower or
any Subsidiary, on account of wages and employee health and welfare insurance
and other benefits, have been paid or accrued as a liability on the books of
Holdings, the Borrower or such Subsidiary, except where the failure to pay such
liability individually or in the aggregate, would not reasonably be expected to
result in a Material Adverse Effect. The consummation of the Transactions will
not give rise to any right of termination or right of renegotiation on the part
of any union under any collective bargaining agreement to which Holdings, the
Borrower or any Subsidiary is bound.
SECTION 3.15. Solvency. Immediately after the consummation of the
---------
Transactions to occur on the Effective Date and immediately following the making
of each Loan made on the Effective Date and after giving effect to the
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72
application of the proceeds of such Loans, (a) the fair value of the assets of
each Loan Party, at a fair valuation, will exceed its debts and liabilities,
subordinated, contingent or otherwise; (b) the present fair saleable value of
the property of each Loan Party will be greater than the amount that will be
required to pay the probable liability of its debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (c) each Loan Party will be able to pay its debts
and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) each Loan Party will not have
unreasonably small capital with which to conduct the business in which it is
engaged as such business is now conducted and is proposed to be conducted
following the Effective Date.
SECTION 3.16. Senior Indebtedness. The Obligations constitute
--------------------
"Senior Debt" under and as defined in the Subordinated Debt Documents.
SECTION 3.17. Security Documents. (a) The Pledge Agreement is
-------------------
effective to create in favor of the Collateral Agent, for the ratable benefit of
the Secured Parties, a legal, valid and enforceable security interest in the
Collateral (as defined in the Pledge Agreement) and, when such Collateral is
delivered to the Collateral Agent, the Pledge Agreement shall constitute a fully
perfected first priority Lien on, and security interest in, all right, title and
interest of each pledgor thereunder in such Collateral, in each case prior and
superior in right to any other Person.
(b) The Security Agreement is effective to create in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable security interest in the Collateral (as defined in the Security
Agreement) and, when financing statements in appropriate form are filed in the
offices specified on Schedule 6 to the Perfection Certificate, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the grantors thereunder in such Collateral
other than the Intellectual Property (as defined in the Security Agreement), to
the extent that a security interest can be perfected in such Collateral by
filing, recording or registering a financing statement or analogous document in
the United States (or any political subdivision thereof) and its territories and
possessions pursuant to the Uniform Commercial Code or other applicable law in
such jurisdiction, in each case prior and superior in right to any other Person,
other than with respect to Liens expressly permitted by Section 6.02.
<PAGE>
73
(c) When the Security Agreement is filed in the United States Patent
and Trademark Office and the United States Copyright Office, the Security
Agreement shall constitute a fully perfected Lien on, and security interest in,
all right, title and interest of the Loan Parties in the Intellectual Property
(as defined in the Security Agreement) in which a security interest may be
perfected by filing, recording or registering a security agreement, financing
statement or analogous document in the United States Patent and Trademark Office
or the United States Copyright Office, as applicable, in each case prior and
superior in right to any other Person other than Liens expressly permitted by
Section 6.02 (it being understood that subsequent recordings in the United
States Patent and Trademark Office and the United States Copyright Office may be
necessary to perfect a Lien on registered trademarks, trademark applications and
copyrights acquired by the Loan Parties after the date hereof).
(d) The Mortgages are effective to create, subject to the exceptions
listed in each title insurance policy covering such Mortgage, in favor of the
Collateral Agent, for the ratable benefit of the Secured Parties, a legal, valid
and enforceable Lien on all of the Loan Parties' right, title and interest in
and to the Mortgaged Properties thereunder and the proceeds thereof, and when
the Mortgages are filed in the offices specified on Schedule 3.17(d), the
Mortgages shall constitute a Lien on, and security interest in, all right, title
and interest of the Loan Parties in such Mortgaged Properties and the proceeds
thereof, in each case prior and superior in right to any other Person, other
than with respect to the rights of Persons pursuant to Liens expressly permitted
by Section 6.02.
SECTION 3.18. Year 2000 Compliance. To the best of the Borrower's
---------------------
knowledge, any reprogramming required to permit the proper functioning, in and
following the year 2000, of (a) the computer systems of the Borrower and its
Subsidiaries and (b) equipment containing embedded microchips (including systems
and equipment supplied by others or with which systems of the Borrower and its
Subsidiaries interface) and the testing of all such systems and equipment, as so
reprogrammed, will be completed in all material respects by August 31, 1999. To
the best of the Borrower's knowledge, the cost to the Borrower and its
Subsidiaries of such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 to the Borrower and its Subsidiaries (including
reprogramming errors and the failure of others' systems or equipment) will not
result in a Default or a Material Adverse Effect.
<PAGE>
74
ARTICLE IV
Conditions
----------
SECTION 4.01. Effective Date. The obligations of the Lenders to make
---------------
Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not
become effective until the date on which each of the following conditions is
satisfied (or waived in accordance with Section 9.02):
(a) The Administrative Agent (or its counsel) shall have received
from each party hereto either (i) a counterpart of this Agreement signed on
behalf of such party or (ii) written evidence satisfactory to the
Administrative Agent (which may include telecopy transmission of a signed
signature page of this Agreement) that such party has signed a counterpart
of this Agreement.
(b) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated
the Effective Date) of each of (i) Riordan & McKinzie, counsel for the Loan
Parties, substantially in the form of Exhibit B-1, (ii) Flippin Densmore
Morse Rutherford & Jessee, Virginia counsel for the Loan Parties,
substantially in the form of Exhibit B-2, (iii) Richards & O'Neil, special
New York counsel for the Loan Parties, substantially in the form of Exhibit
B-3, and (iv) local counsel in each jurisdiction where a Mortgaged Property
is located, substantially in the form of Exhibit B-4, and, in the case of
each such opinion required by this paragraph, covering such other matters
relating to the Loan Parties, the Vehicle Subsidiary, the Loan Documents or
the Transactions as the Required Lenders shall reasonably request. Holdings
and the Borrower hereby request such counsel to deliver such opinions.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably
request relating to the organization, existence and good standing of each
Loan Party, the authorization of the Transactions and any other legal
matters relating to the Loan Parties, the Loan Documents or the
Transactions, all in form and substance satisfactory to the Administrative
Agent and its counsel.
<PAGE>
75
(d) The Administrative Agent shall have received a certificate, dated
the Effective Date and signed by the President, a Vice President or a
Financial Officer of each of Holdings and the Borrower, confirming
compliance with the conditions set forth in paragraphs (a) and (b) of
Section 4.02.
(e) The Administrative Agent shall have received all fees and other
amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses
required to be reimbursed or paid by any Loan Party hereunder or under any
other Loan Document.
(f) The Administrative Agent shall have received counterparts of the
Pledge Agreement signed on behalf of Holdings, the Borrower and each
Subsidiary Loan Party, together with stock certificates representing all
the outstanding shares of capital stock of the Borrower and each Subsidiary
owned by or on behalf of any Loan Party as of the Effective Date after
giving effect to the Transactions (except that stock certificates
representing shares of common stock of a Foreign Subsidiary that is not a
Subsidiary Loan Party may be limited to 65% of the outstanding shares of
common stock of such Foreign Subsidiary), promissory notes evidencing all
intercompany Indebtedness owed to any Loan Party by Holdings, the Borrower
or any Subsidiary as of the Effective Date after giving effect to the
Transactions and stock powers and instruments of transfer, endorsed in
blank, with respect to such stock certificates and promissory notes.
(g) The Administrative Agent shall have received counterparts of the
Security Agreement signed on behalf of Holdings, the Borrower and each
Subsidiary Loan Party, together with the following:
(i) all documents and instruments, including Uniform Commercial
Code financing statements, required by law or reasonably requested by
the Administrative Agent to be filed, registered or recorded to create
or perfect the Liens intended to be created under the Security
Agreement; and
(ii) a completed Perfection Certificate dated the Effective Date
and signed by an executive officer or Financial Officer of each of
Holdings and the Borrower, together with all attachments contemplated
thereby, including the results of a search of the Uniform Commercial
Code (or
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76
equivalent) filings made with respect to the Loan Parties in the
jurisdictions contemplated by the Perfection Certificate and copies of
the financing statements (or similar documents) disclosed by such
search and evidence reasonably satisfactory to the Administrative
Agent that the Liens indicated by such financing statements (or
similar documents) are permitted by Section 6.02 or have been
released.
(h) The Administrative Agent shall have received (i) counterparts of
the Guarantee Agreement signed on behalf of Holdings and each Subsidiary
Loan Party, (ii) counterparts of the Indemnity, Subrogation and
Contribution Agreement signed on behalf of each Loan Party and (iii)
evidence that the Cash Concentration Account and the Collection Deposit
Accounts shall have been established.
(i) The Administrative Agent shall have received (i) counterparts of
a Mortgage with respect to each Mortgaged Property signed on behalf of the
record owner of such Mortgaged Property, (ii) a policy or policies of title
insurance (or binding commitments to issue such title insurance policies)
issued by a nationally recognized title insurance company, insuring the
Lien of each such Mortgage as a valid first Lien on the Mortgaged Property
described therein, free of any other Liens except as permitted by Section
6.02, in form and substance reasonably acceptable to the Collateral Agent,
together with such endorsements, coinsurance and reinsurance as the
Collateral Agent or the Required Lenders may reasonably request, (iii) such
surveys, abstracts and appraisals as may be required pursuant to such
Mortgages or as the Administrative Agent or the Required Lenders may
reasonably request, (iv) a copy of the original permanent certificate or
temporary certificate of occupancy as the same may have been amended or
issued from time to time, covering each improvement located upon the
Mortgaged Properties, that were required to have been issued by the
appropriate Governmental Authority for such improvement and (v) written
confirmation from the applicable zoning commission or other appropriate
Governmental Authority stating that with respect to each Mortgaged Property
as built it complies with existing land use and zoning ordinances,
regulations and restrictions applicable to such Mortgaged Property (or in
lieu of the foregoing, the Borrower shall have caused the title companies
insuring the Mortgage with respect to each Mortgage Property to affix a
zoning endorsement to each of its
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77
lenders policy of title insurance covering each such Mortgage).
(j) The Administrative Agent shall have received evidence
satisfactory to it that the insurance required by Section 5.07 is in
effect.
(k) The Lenders shall have received, and shall be reasonably
satisfied with the results of, environmental assessment reports (including
prior Phase I reports and other publicly available documents regarding
environmental matters) with respect to any Environmental Liabilities that
may be attributable to such properties or operations as have been specified
by the Administrative Agent for review.
(l) The Equity Financing shall have been consummated and Mergerco
shall have received (and as a result of the Merger, Holdings shall receive)
gross cash proceeds therefrom equal to the excess of $107,500,000 over the
Management Equity Contribution. The Management Equity Contribution shall
have been consummated and Holdings shall have received $5,000,000 to
$8,038,000 therefrom in cash or, subject to the limitations of clause (h)
of Section 6.04, promissory notes.
(m) All material consents and approvals required to be obtained from
any Governmental Authority or other Person in connection with the
Recapitalization shall have been obtained, and all applicable waiting
periods and appeal periods shall have expired, in each case without the
imposition of any burdensome conditions. The Recapitalization shall have
been, or substantially simultaneously with the initial funding of Loans on
the Effective Date shall be, consummated in accordance with the
Recapitalization Documents and applicable law, without any amendment to or
waiver of any material terms or conditions of the Recapitalization
Documents not approved by the Required Lenders. As a result of the
Recapitalization (i) the FS&C Investors shall own not less than 79% of the
outstanding common stock of Holdings, (ii) FS&C shall own not less than 63%
of the outstanding common stock of Holdings, (iii) the Management Investors
shall own not less than 4% of the outstanding common stock of Holdings,
(iv) the Existing Stockholders shall own the balance of the outstanding
common stock of Holdings and (v) there shall not be any outstanding
preferred stock of Holdings. The Administrative Agent shall have received
copies of the Recapitalization Documents and all certificates,
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78
opinions and other documents delivered thereunder, certified by a Financial
Officer of Holdings or the Borrower as complete and correct. The Lenders
shall (i) be satisfied with the Recapitalization Documents (to the extent
not delivered prior to date of the execution of this Agreement) and (b) be
satisfied with the capitalization, structure and equity ownership of
Holdings after giving effect to the Transactions. In connection with the
Recapitalization, on or prior to the Effective Date all Subsidiaries of
Holdings (other than the Borrower and its Subsidiaries) shall be either
merged into the Borrower or a Subsidiary thereof, or transferred to the
Borrower, or liquidated (in which case all assets of such Subsidiary shall
be transferred to the Borrower), with the result that Holdings shall not
have any Subsidiaries (other than the Borrower and its Subsidiaries).
(n) The Lenders shall have received (a) combined audited consolidated
balance sheets and related statements of income, stockholders' equity and
cash flows of Holdings for the 1994, 1995, 1996 and 1997 fiscal years ended
prior to the Effective Date and (b) unaudited consolidated balance sheets
and related statements of income and stockholders' equity of Holdings for
each fiscal month ended after January 3, 1998, and prior to the date 30
days prior to the Effective Date, which audited and unaudited financial
statements shall not be materially inconsistent with the financial
statements or forecasts previously provided to the Lenders.
(o) The Lenders shall have received a pro forma consolidated balance
sheets of both Holdings and the Borrower as of the date of the most recent
balance sheet referred to in clause (a) of Section 3.04, reflecting all pro
forma adjustments as if the Transactions had been consummated on such date,
and such pro forma consolidated balance sheets shall be consistent in all
material respects with the forecasts and other information previously
provided to the Lenders. After giving effect to the Transactions, neither
Holdings, the Borrower nor any of the Subsidiaries shall have outstanding
any shares of preferred stock or any Indebtedness, other than (i)
Indebtedness incurred under the Loan Documents, (ii) in the case of
Holdings, the Holdings Senior Discount Debentures, (iii) the Senior
Subordinated Notes, and (iv) other Indebtedness permitted under Section
6.01. The aggregate amount of fees and expenses (including underwriting
discounts and
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79
commissions) payable or otherwise borne by Holdings, the Borrower and their
Subsidiaries in connection with the Transactions shall not exceed
$24,000,000.
(p) The Administrative Agent shall have received a solvency letter,
in form and substance satisfactory to the Lenders, from Valuation Research,
with respect to the solvency of the Loan Parties after giving effect to the
Transactions.
(q) The Administrative Agent shall be reasonably satisfied with the
results of an examination by the Administrative Agent of (i) the inventory
of Holdings and its Subsidiaries and (ii) the systems providing for the
monitoring and reporting of such inventory after giving effect to the
Transactions.
(r) The Lenders shall be reasonably satisfied in all respects with
the tax position and the contingent tax and other liabilities of, and with
any tax sharing agreements among, Holdings and its Subsidiaries after
giving effect to the Transactions and the other transactions contemplated
hereby, and with the plans of Holdings with respect thereto.
(s) The Administrative Agent shall be reasonably satisfied with the
sufficiency of amounts available under the Revolving Commitments to meet
the ongoing working capital requirements of the Borrower and its
Subsidiaries following the consummation of the Transactions.
(t) The Administrative Agent shall have received a completed
Borrowing Base Certificate dated the Effective Date and signed by a
Financial Officer of the Borrower.
(u) Holdings shall have received not less than $60,000,000 (less
underwriting discounts and commissions) in gross cash proceeds from the
issuance of the Holdings Senior Discount Debentures in a public offering or
in a Rule 144A or other private placement satisfactory to the
Administrative Agent. The Administrative Agent shall have received copies
of the Holdings Senior Discount Debenture Documents and the terms and
conditions of the Holdings Senior Discount Debenture Documents (including
but not limited to terms and conditions relating to the fees, amortization,
maturity, subordination, covenants, events of defaults and remedies) shall
be reasonably satisfactory in all respects to the Lenders (it being
understood that terms
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and conditions disclosed in the preliminary offering memorandum for the
Holdings Senior Discount Debentures, dated March 23, 1998, are satisfactory
to the Lenders). The Holdings Senior Discount Debentures shall be unsecured
and shall not be Guaranteed.
(v) The Borrower shall have received not less than $200,000,000 (less
underwriting discounts and commissions) in gross cash proceeds from the
issuance of the Senior Subordinated Notes in a public offering or in a Rule
144A or other private placement satisfactory to the Administrative Agent.
The Administrative Agent shall have received copies of the Subordinated
Debt Documents and the terms and conditions of the Subordinated Debt
Documents (including but not limited to terms and conditions relating to
the fees, amortization, maturity, subordination, covenants, events of
defaults and remedies) shall be satisfactory in all respects to the Lenders
(it being understood that terms and conditions disclosed in the preliminary
offering memorandum for the Senior Subordinated Notes, dated March 23,
1998, are satisfactory to the Lenders). The Subordinated Debt shall be
unsecured and shall not be Guaranteed by any Person other than Subsidiary
Loan Parties.
(w) The Administrative Agent shall be satisfied with the management
of Holdings and the Borrower after giving effect to the Transactions and
with the arrangements for the retention of such management.
(x) The Vehicle Subsidiary shall have been formed and all the capital
stock thereof shall be owned by the Borrower. The Administrative Agent
shall have received a copy of the certificate or articles of incorporation
of, and the by laws of, the Vehicle Subsidiary, in each case in form and
substance reasonably satisfactory to it. The Administrative Agent shall be
satisfied with the arrangements for the transfer to the Vehicle Subsidiary
of ownership of and title to all Vehicles owned by Holdings, the Borrower
or any Subsidiary, within 60 days after the Effective Date.
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans and
of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.02) at or prior
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81
to 3:00 p.m., New York City time, on May 29, 1998 (and, in the event such
conditions are not so satisfied or waived, the Commitments shall terminate at
such time).
SECTION 4.02. Each Credit Event. The obligation of each Lender to
------------------
make a Loan on the occasion of any Borrowing, and of the Issuing Bank to issue,
amend, renew or extend any Letter of Credit, is subject to the satisfaction of
the following conditions:
(a) The representations and warranties of each Loan Party set forth
in the Loan Documents shall be true and correct on and as of the date of
such Borrowing or the date of issuance, amendment, renewal or extension of
such Letter of Credit, as applicable, except for representations and
warranties expressly made as of an earlier date, which shall be true and
correct as of such earlier date.
(b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter
of Credit, as applicable, no Default shall have occurred and be continuing.
(c) The Total Exposure shall not exceed the Borrowing Base.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by Holdings
and the Borrower on the date thereof as to the matters specified in paragraphs
(a), (b) and (c) of this Section.
ARTICLE V
Affirmative Covenants
---------------------
Until the Commitments have expired or been terminated and the
principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit shall have expired or terminated and
all LC Disbursements shall have been reimbursed, each of
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Holdings and the Borrower covenants and agrees with the Lenders that:
SECTION 5.01. Financial Statements and Other Information. Holdings
-------------------------------------------
and the Borrower will furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year of Holdings and
the Borrower, both Holdings' and the Borrower's audited consolidated and
consolidating balance sheets and related statements of operations,
stockholders' equity and cash flows as of the end of and for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all reported on by Arthur Andersen LLP or other independent
public accountants of recognized national standing (without a "going
concern" or like qualification or exception and without any qualification
or exception as to the scope of such audit) to the effect that such
consolidated and consolidating financial statements present fairly in all
material respects the financial condition and results of operations of
Holdings or the Borrower, as applicable, and their consolidated
Subsidiaries on a consolidated and consolidating basis in accordance with
GAAP consistently applied;
(b) within 45 days after the end of each of the first three fiscal
quarters of each fiscal year of Holdings and the Borrower, both Holdings'
and the Borrower's consolidated and consolidating balance sheets and
related statements of operations, stockholders' equity and cash flows as of
the end of and for such fiscal quarter and the then elapsed portion of the
fiscal year, setting forth in each case in comparative form the figures for
the corresponding period or periods of (or, in the case of the balance
sheet, as of the end of) the previous fiscal year, all certified by one of
its Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of Holdings or the Borrower,
as applicable, and their consolidated Subsidiaries on a consolidated and
consolidating basis in accordance with GAAP consis tently applied, subject
to normal year-end audit adjustments and the absence of footnotes;
(c) within 30 days after the end of each month (other than the last
month) of each fiscal quarter of Holdings and the Borrower, both Holdings'
and the Borrower's consolidated balance sheets and related
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83
statements of operations, stockholders' equity as of the end of and for
such fiscal month and the then elapsed portion of the fiscal year, all
certified by one of its Financial Officers as presenting in all material
respects the financial condition and results of operations of Holdings or
the Borrower, as applicable, and their consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;
(d) concurrently with any delivery of financial statements under
clause (a) or (b) above, a certificate of a Financial Officer of the
Borrower (i) certifying as to whether a Default has occurred and, if a
Default has occurred, specifying the details thereof and any action taken
or proposed to be taken with respect thereto, (ii) setting forth a
reasonably detailed calculation of the Leverage Ratio as of the end of the
period covered by such financial statements, (iii) setting forth reasonably
detailed calculations demonstrating compliance with Sections 6.12, 6.13,
6.14 and 6.15 and (iv) stating whether any change in GAAP or in the
application thereof has occurred since the date of Holdings' audited
financial statements referred to in Section 3.04 and, if any such change
has occurred, specifying the effect of such change on the financial
statements accompanying such certificate;
(e) concurrently with any delivery of financial statements under
clause (a) above, a certificate of the accounting firm that reported on
such financial statements stating whether they obtained knowledge during
the course of their examination of such financial statements of any Default
(which certificate may be limited to the extent required by accounting
rules or guidelines);
(f) within 16 days after the end of each fiscal month, or within 25
days after the end of both the first fiscal month and the last fiscal month
of each fiscal year, a completed Borrowing Base Certificate calculating and
certifying the Borrowing Base as of the last day of such fiscal month,
signed on behalf of the Borrower by a Financial Officer;
(g) as soon as the same are complete, but in no event more that 60
days after the commencement of each fiscal year of Holdings, a detailed
consolidated budget for such fiscal year (including a projected
consolidated balance sheet and related statements of
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84
projected operations and cash flow as of the end of and for such fiscal
year) and, promptly when available, any significant revisions of such
budget;
(h) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by
Holdings, the Borrower or any Subsidiary with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the
functions of said Commission, or with any national securities exchange, or
distributed by Holdings to its shareholders generally, as the case may be;
(i) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of
Holdings, the Borrower or any Subsidiary, or compliance with the terms of
any Loan Document, as the Administrative Agent or any Lender may reasonably
request; and
(j) at the same time as it delivers the financial statements required
under the provisions of this Section 5.01(a), a copies of the "Management
Letter" delivered to Holdings and the Borrower by their independent
certified public accountants in connection with the delivery of such
financial statements.
SECTION 5.02. Notices of Material Events. Upon Holdings or the
---------------------------
Borrower obtaining knowledge thereof, Holdings and the Borrower will furnish to
the Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting
Holdings, the Borrower or any Affiliate thereof that, if adversely
determined, could reasonably be expected to result in a Material Adverse
Effect;
(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to
result in liability of Holdings, the Borrower and their Subsidiaries in an
aggregate amount exceeding $1,000,000; and
<PAGE>
85
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial Officer or other executive officer of Holdings or the Borrower
setting forth the details of the event or development requiring such notice and
any action taken or proposed to be taken with respect thereto.
SECTION 5.03. Information Regarding Collateral. (a) Holdings or the
---------------------------------
Borrower will furnish to the Administrative Agent prompt written notice of any
change (i) in any Loan Party's corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of any Loan Party's chief executive office, its
principal place of business, any office in which it maintains books or records
relating to Collateral owned by it or any office or facility at which Collateral
owned by it is located (including the establishment of any such new office or
facility), (iii) in any Loan Party's identity or corporate structure or (iv) in
any Loan Party's Federal Taxpayer Identification Number. Holdings and the
Borrower agree not to effect or permit any change referred to in the preceding
sentence unless all filings have been made under the Uniform Commercial Code or
otherwise that are required in order for the Administrative Agent to continue at
all times following such change to have a valid, legal and perfected security
interest in all the Collateral. Holdings and the Borrower also agree promptly
to notify the Administrative Agent if any material portion of the Collateral is
damaged or destroyed.
(b) Each year, at the time of delivery of annual financial statements
with respect to the preceding fiscal year pursuant to clause (a) of Section
5.01, Holdings or the Borrower shall deliver to the Administrative Agent a
certificate of a Financial Officer of Holdings or the Borrower (i) setting forth
the information required pursuant to Section 2 of the Perfection Certificate or
confirming that there has been no change in such information since the date of
the Perfection Certificate delivered on the Effective Date or the date of the
most recent certificate delivered pursuant to this Section and (ii) certifying
that all Uniform Commercial Code financing statements (including fixture
filings, as applicable) or other appropriate filings, recordings or
registrations, including all refilings, rerecordings and reregistrations,
containing a description of the Collateral have been filed of record in each
governmental, municipal or other appropriate office in
<PAGE>
86
each jurisdiction identified pursuant to clause (i) above to the extent
necessary to protect and perfect the security interests under the Security
Agreement for a period of not less than 18 months after the date of such
certificate (except as noted therein with respect to any continuation statements
to be filed within such period).
SECTION 5.04. Existence; Conduct of Business. Each of Holdings and
-------------------------------
the Borrower will, and will cause each of its Subsidiaries to, do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence and the rights, licenses, permits, privileges, franchises,
patents, copyrights, trademarks and trade names material to the conduct of its
business; provided that the foregoing shall not prohibit any merger,
--------
consolidation, liquidation or dissolution permitted under Section 6.03.
SECTION 5.05. Payment of Obligations. Each of Holdings and the
-----------------------
Borrower will, and will cause each of its Subsidiaries to, pay its Indebtedness
and other obligations, including Tax liabilities, that, if not paid, would not
reasonably be expected to result in a Material Adverse Effect before the same
shall become delinquent or in default, except where (a) the validity or amount
thereof is being contested in good faith by appropriate proceedings, (b)
Holdings, the Borrower or such Subsidiary has set aside on its books adequate
reserves with respect thereto in accordance with GAAP, (c) such contest
effectively suspends collection of the contested obligation and the enforcement
of any Lien securing such obligation and (d) the failure to make payment pending
such contest would not reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.06. Maintenance of Properties. Each of Holdings and the
--------------------------
Borrower will, and will cause each of its Subsidiaries to, keep and maintain all
property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
SECTION 5.07. Insurance. (a) Each of Holdings and the Borrower
----------
will, and will cause each of its Subsidiaries to, maintain, with financially
sound and reputable insurance companies (i) adequate insurance for its insurable
properties, all to such extent and against such risks, including fire, casualty
and other risks insured against by extended coverage, as is customary with
companies in the same or similar businesses operating in the same or similar
locations, (ii) such other insurance as is required pursuant to the terms of any
Security Document and (iii) business interruption insurance, insuring against
loss of
<PAGE>
87
gross earnings for a period of not less than 12 months arising from any risks or
occurrences required to be covered by insurance pursuant to this Section 5.07.
(b) Fire and extended coverage policies maintained with respect to
any Collateral shall be endorsed or otherwise amended to include (i) a non-
contributing mortgage clause (regarding improvements to real property) and
lenders' loss payable clause (regarding personal property), in each case in
favor of the Administrative Agent and providing for losses thereunder to be
payable to the Administrative Agent or its designee, (ii) a provision to the
effect that neither the Borrower, the Administrative Agent nor any other party
shall be a coinsurer and (iii) such other provisions as the Administrative Agent
may reasonably require from time to time to protect the interests of the
Lenders. Commercial general liability policies shall be endorsed to name the
Administrative Agent as an additional insured. Business interruption policies
shall name the Administrative Agent as loss payee. Each such policy referred to
in this paragraph also shall provide that it shall not be canceled, modified or
not renewed (i) by reason of nonpayment of premium except upon not less than 10
days' prior written notice thereof by the insurer to the Administrative Agent
(giving the Administrative Agent the right to cure defaults in the payment of
premiums) or (ii) for any other reason except upon not less than 30 days' prior
written notice thereof by the insurer to the Administrative Agent. Holdings or
the Borrower shall deliver to the Administrative Agent, prior to the
cancelation, modification or nonrenewal of any such policy of insurance, a copy
of a renewal or replacement policy (or other evidence of renewal of a policy
previously delivered to the Administrative Agent) together with evidence
satisfactory to the Administrative Agent of payment of the premium therefor.
SECTION 5.08. Casualty and Condemnation. (a) Holdings or the
--------------------------
Borrower will furnish to the Administrative Agent and the Lenders prompt written
notice of any casualty or other insured damage to any portion of any Collateral
or the commencement of any action or proceeding for the taking of any Collateral
or any part thereof or interest therein under power of eminent domain or by
condemnation or similar proceeding.
(b) If any event described in paragraph (a) of this Section results in
Net Cash Proceeds (whether in the form of insurance proceeds, condemnation award
or otherwise), the Administrative Agent is authorized to collect such Net Cash
Proceeds and, if received by Holdings,
<PAGE>
88
the Borrower or any Subsidiary, such Net Cash Proceeds shall be paid over the
Administrative Agent; provided that (i) if the aggregate Net Cash Proceeds in
respect of such event (other than proceeds of business income insurance) are
less than $5,000,000, such Net Cash Proceeds shall be paid over to Holdings or
the Borrower unless a Default has occurred and is continuing, and (ii) all
proceeds of business income insurance shall be paid over to the Borrower unless
a Default has occurred and is continuing. All such Net Cash Proceeds retained by
or paid over to the Administrative Agent shall be held by the Administrative
Agent and released from time to time to pay the costs of repairing, restoring or
replacing the affected property in accordance with the terms of the applicable
Security Document, subject to the provisions of the applicable Security Document
regarding application of such Net Cash Proceeds during a Default.
(c) If any Net Cash Proceeds retained by or paid over to the
Administrative Agent as provided above continue to be held by the Administrative
Agent on the date that is 360 days (or, in the case of a distribution center,
two years, provided that repair, restoration or replacement commenced within 270
--------
days after the occurrence of such event) after the occurrence of the event
resulting in such Net Cash Proceeds, then such Net Cash Proceeds shall be
applied to prepay Term Borrowings as provided in Section 2.11(c).
SECTION 5.09. Books and Records; Inspection and Audit Rights. (a)
-----------------------------------------------
Each of Holdings and the Borrower will, and will cause each of its Subsidiaries
to, keep proper books of record and account in which full, true and correct
entries are made of all dealings and transactions in relation to its business
and activities. Each of Holdings and the Borrower will, and will cause each of
its Subsidiaries to, permit any representatives designated by the Administrative
Agent or any Lender, upon reasonable prior notice, to visit and inspect its
properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with its officers and independent
accountants, all at such reasonable times and as often as reasonably requested;
provided that the Borrower shall be given the opportunity to be present at any
- --------
discussion with its independent accountants.
(b) Each of Holdings and the Borrower will, and will cause each of
its Subsidiaries to, permit any representatives designated by the Administrative
Agent (including any consultants, accountants, lawyers and appraisers retained
by the Administrative Agent) to conduct evaluations and appraisals of the
computation of the
<PAGE>
89
Borrowing Base and the assets included in the Borrowing Base, all at such
reasonable times and as often as reasonably requested. The Borrower shall pay
the reasonable fees and expenses of any representatives retained by the
Administrative Agent to conduct any such evaluation or appraisal; provided
--------
that the Borrower shall not be required to pay such fees and expenses for more
than two such evaluations or appraisals during any calendar year unless an Event
of Default has occurred and is continuing. The Borrower also agrees to modify
or adjust the computation of the Borrowing Base (which may include maintaining
additional reserves or modifying the eligibility criteria for the components of
the Borrowing Base) to the extent required by the Administrative Agent or the
Required Lenders as a result of any such evaluation or appraisal; provided that
--------
any such adjustment will take effect only 10 day's prior notice to the Borrower.
SECTION 5.10. Compliance with Laws. Each of Holdings and the
---------------------
Borrower will, and will cause each of its Subsidiaries to, comply with all laws,
rules, regulations and orders of any Governmental Authority applicable to it or
its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.11. Use of Proceeds and Letters of Credit. The proceeds of
--------------------------------------
the Tranche B Loans, together with the Net Cash Proceeds of the Subordinated
Debt, will be used (a) to pay all amounts outstanding under the Existing Credit
Agreements constituting obligations of the Borrower and any other existing
Indebtedness of the Borrower and its Subsidiaries, other than (i) Indebtedness
in respect of the McDuffie County industrial revenue bond and (ii) Indebtedness
existing under the GE Capital Program Agreements, (b) for the payment of the
Effective Date Dividend and (c) to pay fees and expense allocated to the
Borrower in connection with the Transactions. The proceeds of the Effective
Date Dividend, together with the proceeds of the Holdings Senior Discount
Debentures, the Equity Financing and the Management Equity Contribution, will be
used by Holdings for the payment of (a) the cash consideration to be paid in
connection with the Merger, (b) all amounts outstanding under the Existing
Credit Agreements and all the existing Indebtedness of Holdings and its
Subsidiaries, other than amounts payable by the Borrower referred to in the
preceding sentence, and (c) fees and expenses allocated to Holdings in
connection with the Transactions. The proceeds of the Delayed Draw Loans will
be used only for general corporate purposes. The proceeds of the Revolving
Loans and Swingline Loans will be used only
<PAGE>
90
for general corporate purposes. No part of the proceeds of any Loan will be
used, whether directly or indirectly, for any purpose that entails a violation
of any of the Regulations of the Board, including Regulations G, U and X.
Letters of Credit will be issued only for general corporate purposes.
SECTION 5.12. Additional Subsidiaries. If any additional Subsidiary
------------------------
is formed or acquired after the Effective Date, Holdings and the Borrower will
notify the Administrative Agent and the Lenders thereof and (a) if such
Subsidiary is a Subsidiary Loan Party, Holdings and the Borrower will cause such
Subsidiary to become a party to the Guarantee Agreement, the Indemnity
Subrogation and Contribution Agreement and each applicable Security Document in
the manner provided therein within three Business Days after such Subsidiary is
formed or acquired and promptly take such actions to create and perfect Liens on
such Subsidiary's assets to secure the Obligations as the Administrative Agent
or the Required Lenders shall reasonably request and (b) if any shares of
capital stock or Indebtedness of such Subsidiary are owned by or on behalf of
any Loan Party, Holdings and the Borrower will cause such shares and promissory
notes evidencing such Indebtedness to be pledged pursuant to the Pledge
Agreement within three Business Days after such Subsidiary is formed or acquired
(except that, if such Subsidiary is a Foreign Subsidiary and is not a Subsidiary
Loan Party, shares of common stock of such Subsidiary to be pledged pursuant to
the Pledge Agreement may be limited to 65% of the outstanding shares of common
stock of such Subsidiary).
SECTION 5.13. Further Assurances. (a) Each of Holdings and the
-------------------
Borrower will, and will cause each Subsidiary Loan Party to, execute any and all
further documents, financing statements, agreements and instruments, and take
all such further actions (including the filing and recording of financing
statements, fixture filings, mortgages, deeds of trust and other documents),
which may be required under any applicable law, or which the Administrative
Agent or the Required Lenders may reasonably request, to effectuate the
transactions contemplated by the Loan Documents or to grant, preserve, protect
or perfect the Liens created or intended to be created by the Security Documents
or the validity or priority of any such Lien, all at the expense of the Loan
Parties. Holdings and the Borrower also agree to provide to the Administrative
Agent, from time to time upon request, evidence reasonably satisfactory to the
Administrative Agent as to the perfection and priority of the Liens created or
intended to be created by the Security Documents.
<PAGE>
91
(b) If any material assets (including any real property or
improvements thereto or any interest therein) are acquired by the Borrower or
any Subsidiary Loan Party after the Effective Date (other than assets
constituting Collateral under the Security Agreement that become subject to the
Lien of the Security Agreement upon acquisition thereof), the Borrower will
notify the Administrative Agent and the Lenders thereof, and, if requested by
the Administrative Agent or the Required Lenders, the Borrower will cause such
assets to be subjected to a Lien securing the Obligations and will take, and
cause the Subsidiary Loan Parties to take, such actions as shall be necessary or
reasonably requested by the Administrative Agent to grant and perfect such
Liens, including actions described in paragraph (a) of this Section, all at the
expense of the Loan Parties; provided that the foregoing shall not require the
--------
Borrower to grant a Lien on assets constituting leasehold interests in stores or
Vehicles owned by the Vehicle Subsidiary.
(c) Each of Holdings and the Borrower will, and will cause each of its
Subsidiaries to, transfer to the Vehicle Subsidiary ownership of and title to
any and all Vehicles owned by Holdings, the Borrower or any Subsidiary,
promptly, and in any event within 60 days, after the Effective Date.
SECTION 5.14. Collection Deposit Accounts. As promptly as
----------------------------
practicable and in any event within 90 days after the Effective Date, the
Borrower shall enter into Collection Deposit Letter Agreements for each
Collection Deposit Account.
ARTICLE VI
Negative Covenants
------------------
Until the Commitments have expired or terminated and the principal of
and interest on each Loan and all fees payable hereunder have been paid in full
and all Letters of Credit have expired or terminated and all LC Disbursements
<PAGE>
92
shall have been reimbursed, each of Holdings and the Borrower covenants and
agrees with the Lenders that:
SECTION 6.01. Indebtedness; Certain Equity Securities. (a) The
----------------------------------------
Borrower will not, and will not permit any Subsidiary to, create, incur, assume
or permit to exist any Indebtedness, except:
(i) Indebtedness created under the Loan Documents;
(ii) in the case of the Borrower, the Subordinated Debt;
(iii) Indebtedness existing on the date hereof and set forth in
Schedule 6.01, but not any extensions, renewals or replacements of any such
Indebtedness;
(iv) Indebtedness of the Borrower to any Subsidiary of the Borrower
and of any Subsidiary of the Borrower to the Borrower or any other
Subsidiary of the Borrower; provided that Indebtedness of any Subsidiary
--------
that is not a Loan Party to the Borrower or any Subsidiary Loan Party shall
be subject to Section 6.04;
(v) Guarantees by the Borrower of Indebtedness of any Subsidiary of
the Borrower and by any Subsidiary of the Borrower of Indebtedness of the
Borrower or any other Subsidiary of the Borrower; provided that (A) the
--------
Indebtedness so guaranteed is permitted by this Section, (B) Guarantees by
the Borrower or any Subsidiary Loan Party of Indebtedness of any Subsidiary
that is not a Loan Party shall be subject to Section 6.04, (C) the
Subordinated Debt shall not be guaranteed by any Subsidiary that is not a
Subsidiary Loan Party and any such Guarantee shall be subordinated to the
obligations hereunder of the applicable Subsidiary on the same terms as the
Subordinated Debt of the Borrower is subordinated to its obligations
hereunder and (D) the Holdings Senior Discount Debentures shall not be
Guaranteed;
(vi) Indebtedness of the Borrower or any Subsidiary of the Borrower
incurred to finance the acquisition, construction or improvement of any
fixed or capital assets, including Capital Lease Obligations and any
Indebtedness assumed in connection with the acquisition of any such assets
or secured by a Lien on any such assets prior to the acquisition thereof,
and extensions, renewals and replacements of any such Indebtedness that do
not increase the outstanding principal amount thereof or result in an
earlier
<PAGE>
93
maturity date or decreased weighted average life thereof; provided
--------
that (A) such Indebtedness is incurred prior to or within 270 days after
such acquisition or the completion of such construction or improvement and
(B) the aggregate principal amount of Indebtedness permitted by this clause
(vi) shall not exceed (A) $15,000,000 at any time outstanding prior to the
third anniversary of the Effective Date and (B) $25,000,000 at any time
outstanding thereafter; provided further that the amount permitted under
-------- -------
clause (vi) above shall not include Indebtedness set forth in Schedule 6.01
relating to McDuffie County industrial revenue bond;
(vii) Indebtedness of (A) any Person that becomes a Subsidiary after
the date hereof pursuant to a Permitted Acquisition to the extent that such
Indebtedness exists at the time such Person becomes a Subsidiary and is not
created in contemplation of or in connection with such Person becoming a
Subsidiary, (B) the Borrower or a Subsidiary to the extent that such
Indebtedness is assumed in connection with a Permitted Acquisition made by
the Borrower or such Subsidiary and is not created in contemplation of such
Permitted Acquisition and (C) the Borrower in respect of unsecured
promissory notes issued as consideration for Permitted Acquisitions;
provided that the aggregate principal amount of Indebtedness permitted by
--------
this clause (vii) shall be subject to the limitations set forth in clause
(i) of Section 6.04;
(viii) other unsecured Indebtedness in an aggregate principal amount
not exceeding $4,000,000 at any time outstanding; and
(ix) GE Capital Program Indebtedness.
(b) Holdings will not create, incur, assume or permit to exist any
Indebtedness except (i) Indebtedness existing on the date hereof and set forth
in Schedule 6.01, but not any extensions, renewals or replacements of any such
Indebtedness, (ii) Indebtedness created under the Loan Documents and (iii) the
Holdings Senior Discount Debentures.
(c) Neither Holdings nor the Borrower will, nor will they permit any
Subsidiary to (i) create, incur, assume or permit to exist any Indebtedness
(other than Indebtedness created under the Loan Documents) in reliance upon such
Indebtedness constituting a "Credit Facility" (as defined in the Subordinated
Debt Documents) for purposes of determining whether such Indebtedness is
permitted under the
<PAGE>
94
Subordinated Debt Documents, regardless of whether such Indebtedness is
permitted by this Section, or (ii) designate any Indebtedness (other than
Indebtedness created under the Loan Documents) as "Designated Senior Debt" (as
defined in the Subordinated Debt Documents).
(d) Neither Holdings nor the Borrower will, nor will they permit any
Subsidiary to, issue any preferred stock or be or become liable in respect of
any obligation (contingent or otherwise) to purchase, redeem, retire, acquire or
make any other payment in respect of any shares of capital stock of Holdings,
the Borrower or any Subsidiary or any option, warrant or other right to acquire
any such shares of capital stock.
SECTION 6.02. Liens. (a) The Borrower will not, and will not permit
------
any Subsidiary to, create, incur, assume or permit to exist any Lien on any
property or asset now owned or hereafter acquired by it, or assign or sell any
income or revenues (including accounts receivable) or rights in respect of any
thereof, except:
(i) Liens created under the Loan Documents;
(ii) Permitted Encumbrances;
(iii) any Lien on any property or asset of the Borrower or any
Subsidiary existing on the date hereof and set forth in Schedule 6.02;
provided that (i) such Lien shall not apply to any other property or asset
--------
of the Borrower or any Subsidiary and (ii) such Lien shall secure only
those obligations which it secures on the date hereof and extensions,
renewals and replacements thereof that do not increase the outstanding
principal amount thereof;
(iv) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary or existing on any
property or asset of any Person that becomes a Subsidiary after the date
hereof prior to the time such Person becomes a Subsidiary; provided that
--------
(A) such Lien is not created in contemplation of or in connection with such
acquisition or such Person becoming a Subsidiary , as the case may be, (B)
such Lien shall not apply to any other property or assets of the Borrower
or any Subsidiary and (C) such Lien shall secure only those obligations
which it secures on the date of such acquisition or the date such Person
becomes a Subsidiary, as the case may be and extensions, renewals and
replacements thereof that
<PAGE>
95
do not increase the outstanding principal amount thereof;
(v) Liens on fixed or capital assets acquired, constructed or
improved by the Borrower or any Subsidiary; provided that (A) such security
--------
interests secure Indebtedness permitted by clause (vi) of Section 6.01(a),
(B) such security interests and the Indebtedness secured thereby are
incurred prior to or within 270 days after such acquisition or the
completion of such construction or improvement, (C) the Indebtedness
secured thereby does not exceed the cost (including design, engineering,
sales taxes, delivery, installation and other similar costs) of acquiring,
constructing or improving such fixed or capital assets and (D) such
security interests shall not apply to any other property or assets of the
Borrower or any Subsidiary; and
(vi) Liens arising under the GE Capital Program Agreements on
accounts receivables sold pursuant to the GE Capital Program Agreements.
(b) Holdings will not create, incur, assume or permit to exist any
Lien on any property or asset now owned or hereafter acquired by it, or assign
or sell any income or revenues (including accounts receivable) or rights in
respect thereof, except Liens created under the Security Documents and Permitted
Encumbrances.
SECTION 6.03. Fundamental Changes. (a) Neither Holdings nor the
--------------------
Borrower will, nor will they permit any Subsidiary to, merge into or consolidate
with any other Person, or permit any other Person to merge into or consolidate
with it, or liquidate or dissolve, except that, if at the time thereof and
immediately after giving effect thereto no Default shall have occurred and be
continuing (i) any Subsidiary may merge into the Borrower in a transaction in
which the Borrower is the surviving corporation, (ii) any Subsidiary (other than
the Borrower) may merge into any Subsidiary Loan Party in a transaction in which
the surviving entity is a Subsidiary Loan Party, (iii) any Subsidiary (other
than the Borrower) may liquidate or dissolve if the Borrower determines in good
faith that such liquidation or dissolution is in the best interests of the
Borrower and is not materially disadvantageous to the Lenders and (iv) any
Subsidiary may merge with another entity to implement a Permitted Acquisition;
provided that any such merger involving a Person that is not a wholly owned
- --------
Subsidiary immediately prior to such merger shall not be permitted unless also
permitted by Section 6.04.
<PAGE>
96
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, engage to any material extent in any business other than
businesses of the type conducted by the Borrower and the Subsidiaries on the
date of execution of this Agreement and businesses reasonably related thereto.
(c) Holdings will not engage in any business or activity other than
the ownership of all the outstanding shares of capital stock of the Borrower and
activities incidental thereto. Holdings will not own or acquire any assets
(other than shares of capital stock of the Borrower, cash and Permitted
Investments) or incur any liabilities (other than liabilities under the Loan
Documents, the Holdings Senior Discount Debentures, liabilities imposed by law,
including tax liabilities, and other liabilities incidental to its existence and
permitted business and activities). Holdings will not have any Subsidiaries,
other than the Borrower and its Subsidiaries.
SECTION 6.04. Investments, Loans, Advances, Guarantees and
--------------------------------------------
Acquisitions. The Borrower will not, and will not permit any of its
- -------------
Subsidiaries to, purchase, hold or acquire (including pursuant to any merger
with any Person that was not a wholly owned Subsidiary prior to such merger) any
capital stock, evidences of indebtedness or other securities (including any
option, warrant or other right to acquire any of the foregoing) of, make or
permit to exist any loans or advances to, Guarantee any obligations of, or make
or permit to exist any investment or any other interest in, any other Person, or
purchase or otherwise acquire (in one transaction or a series of transactions)
any assets of any other Person constituting a business unit, except:
(a) the Merger;
(b) Permitted Investments;
(c) investments existing on the date hereof and set forth on Schedule
6.04, to the extent such investments would not be permitted under any other
clause of this Section;
(d) investments in the capital stock of their respective Subsidiaries;
provided that (i) any such shares of capital stock held by a Loan Party
--------
shall be pledged pursuant to the Collateral Agreement (subject to the
limitations applicable to common stock of a Foreign Subsidiary referred to
in Section 5.12) and (ii) the aggregate amount of investments in, and loans
and advances to, and Guarantees of Indebtedness of,
<PAGE>
97
Subsidiaries that are not Loan Parties shall not exceed $500,000 in the
aggregate at any time outstanding;
(e) loans or advances made by the Borrower to any Subsidiary of the
Borrower (or to Holdings, but only as permitted by Section 6.07) and made
by any Subsidiary of the Borrower to the Borrower or any other Subsidiary
of the Borrower; provided that (i) any such loans and advances made by a
--------
Loan Party shall be evidenced by a promissory note pledged pursuant to the
Pledge Agreement and (ii) the amount of all such loans and advances by Loan
Parties to Subsidiaries that are not Loan Parties shall be subject to the
limitation set forth in clause (d)(ii) above;
(f) Guarantees constituting Indebtedness permitted by Section 6.01;
provided that (i) neither the Borrower nor any Subsidiary shall Guarantee
--------
the Holdings Senior Discount Debentures, (ii) the Subordinated Debt shall
not be Guaranteed by Holdings or by any Subsidiary other than a Subsidiary
Loan Party that is a Subsidiary of the Borrower and (iii) the aggregate
principal amount of Indebtedness of Subsidiaries that are not Loan Parties
Guaranteed by any Loan Party shall be subject to the limitation set forth
in clause (d)(ii) above;
(g) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business;
(h) promissory notes received from Management Investors as part of the
Management Equity Contribution in an aggregate principal amount not
exceeding $3,000,000 at any time outstanding;
(i) Permitted Acquisitions; provided that (i) the consideration for
--------
each Permitted Acquisition shall consist solely of cash, shares of common
stock of Holdings, the assumption of Indebtedness of the acquired Person or
encumbering the acquired assets , Indebtedness referred to in clauses (vii)
and (viii) of Section 6.01(a) or a combination thereof and (ii) the sum of
all Indebtedness so assumed or otherwise resulting from Permitted
Acquisitions (including Indebtedness referred to in clauses (vii) and
(viii) of Section 6.01(a)) plus the cash consideration paid in connection
with Permitted Acquisitions (other than cash consideration received as Net
Cash Proceeds from the
<PAGE>
98
issuance by Holdings of additional shares of its common stock to finance
Permitted Acquisitions, as contemplated by clause (e) of the definition of
"Prepayment Event"), minus the book value (determined, in respect of each
Permitted Acquisition, as of the date of consummation thereof) of all cash,
cash equivalents, prepaid expenses, inventory and accounts receivable
acquired pursuant to Permitted Acquisitions, shall not exceed, during any
fiscal year of the Borrower, when aggregated with the sum of all Capital
Expenditures during such fiscal year, the amount permitted for such fiscal
year pursuant to Section 6.12;
(j) loans or advances to employees in the ordinary course of business;
provided that the aggregate amount of all loans and advances permitted by
--------
this clause (j) shall not exceed $750,000 at any time outstanding;
(k) other investments in an aggregate amount not exceeding $1,000,000
at any time outstanding; and
(l) obligations of management to the Borrower in connection with split
dollar life insurance policies; provided that the aggregate amount of all
--------
obligations permitted by this clause (l) shall not exceed $1,000,000 at any
time outstanding.
SECTION 6.05. Asset Sales. The Borrower will not, and will not
------------
permit any of its Subsidiaries to, sell, transfer, lease or otherwise dispose of
any asset, including any capital stock, nor will the Borrower permit any of its
Subsidiaries to issue any additional shares of its capital stock or other
ownership interest in such Subsidiary, except:
(a) sales of inventory, used or surplus equipment and Permitted
Investments in the ordinary course of business;
(b) sales, transfers and dispositions to the Borrower or a Subsidiary;
provided that any such sales, transfers or dispositions involving a
--------
Subsidiary that is not a Loan Party shall be made in compliance with
Section 6.08; and
(c) sales, transfers and dispositions of assets (other than capital
stock of a Subsidiary) that are not permitted by any other clause of this
Section; provided that the aggregate fair market value of all assets sold,
--------
transferred or otherwise disposed of in reliance
<PAGE>
99
upon this clause (c) shall not exceed $2,000,000 during any fiscal year of
the Borrower;
(d) the Borrower may sell or otherwise convey accounts receivable
pursuant to and in accordance with the GE Capital Program Agreements;
(e) sales of fixed or capital assets made pursuant to sale and lease-
back transactions permitted under Section 6.11; and
(f) sales, transfers and dispositions of assets constituting Permitted
Asset Swaps;
provided that all sales, transfers, leases and other dispositions permitted
- --------
hereby (other than those permitted by clause (b) above) shall be made for fair
value and solely for cash consideration, except that consideration for Permitted
Asset Swaps may consist of non-cash consideration as contemplated by the
definition of such term.
SECTION 6.06. Hedging Agreements. The Borrower will not, and will
-------------------
not permit any of its Subsidiaries to, enter into any Hedging Agreement, other
than Hedging Agreements entered into in the ordinary course of business to hedge
or mitigate risks to which the Borrower or any Subsidiary is exposed in the
conduct of its business or the management of its liabilities.
SECTION 6.07. Restricted Payments; Certain Payments of Indebtedness.
------------------------------------------------------
(a) Neither Holdings nor the Borrower will, nor will they permit any Subsidiary
to, declare or make, or agree to pay or make, directly or indirectly, any
Restricted Payment, except:
(i) Holdings may declare and pay dividends with respect to its
capital stock payable solely in additional shares of its common stock;
(ii) Subsidiaries of the Borrower may make Restricted Payments to the
Borrower and to wholly owned Subsidiaries of the Borrower and may declare
and pay dividends ratably with respect to their capital stock;
(iii) if at the time thereof and after giving effect thereto no
Default has occurred and is continuing, the Borrower may pay dividends or
make loans to Holdings at such times and in such amounts, not exceeding
$500,000 during any fiscal year, as shall be necessary to permit Holdings
to discharge its permitted liabilities (other than to make any payments
<PAGE>
100
with respect to the Holdings Senior Discount Debentures);
(iv) following the fifth anniversary of the Effective Date, if at the
time thereof and after giving effect thereto no Default has occurred and is
continu ing, the Borrower may pay dividends or make loans to Holdings at
such times and in such amounts, not exceeding $14,420,000 during any fiscal
year, as shall be necessary to permit Holdings to pay, as and when due,
interest on the Holdings Senior Discount Debentures accrued subsequent to
the fifth anniversary of the Effective Date;
(v) Holdings may make Restricted Payments pursuant to and in
accordance with stock option plans or other benefit plans for management or
employees of Holdings and its Subsidiaries, including the redemption or
purchase of shares of common stock of Holdings held by former employees of
Holdings or any Subsidiary follow ing the termination of their employment,
if (A) at the time thereof and after giving effect thereto no Default has
occurred and is continuing and (B) after giving effect to any such
Restricted Payment, the aggregate cumulative amount of Restricted Payments
made pursuant to this clause (v) shall not exceed the sum of (1) $1,000,000
during any fiscal year or (2) $10,000,000 at any time during this
Agreement, plus the amount of Net Cash Proceeds received by Holdings and
its Subsidiaries after the Effective Date and prior to making such
Restricted Payment from the issuance of additional shares of its common
stock to members of management or employees of Holdings and its
Subsidiaries; provided that the promissory notes permitted under Section
--------
6.04(h) may be forgiven or returned without regard to the limitation in
clause (B) above and the forgiveness or return thereof shall not be treated
as Restricted Payments for purposes of determining compliance with such
clause (B) above;
(vi) the Borrower may pay cash dividends or make loans to Holdings in
such amounts and at such times as Holdings makes Restricted Payments
permitted by clause (v) above; and
(vii) if at the time thereof and after giving effect thereto no
Default has occurred and is continuing, the Borrower may pay dividends or
make loans to Holdings in such amounts and at such times as required to
permit Holdings to pay, as and when due, income taxes payable by Holdings
with respect to the
<PAGE>
101
consolidated, combined tax filing group that includes the Borrower and its
Subsidiaries; provided that dividends or loans pursuant to this clause
(vii) shall not at any time exceed the amount of income taxes that would
then be payable by the Borrower and its Subsidiaries if the Borrower and
its Subsidiaries were not a part of a consolidated, combined tax filing
group with Holdings or any other Person.
(b) Neither Holdings nor the Borrower will, nor will they permit any
Subsidiary to, make or agree to pay or make, directly or indirectly, any payment
or other distribution (whether in cash securities or other property) in respect
of principal of or interest on any Indebtedness, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancelation or termination of any Indebtedness, except:
(i) payment of Indebtedness created under the Loan Documents;
(ii) payment of regularly scheduled interest and principal payments
as and when due in respect of any Indebtedness other than payments in
respect of the Subordinated Debt prohibited by the subordination provisions
thereof;
(iii) refinancings of Indebtedness to the extent permitted by Section
6.01;
(iv) payment of secured Indebtedness that becomes due as a result of
the voluntary sale or transfer of the property or assets securing such
Indebtedness;
(v) payment of interest on the Holdings Senior Discount Debentures
payable solely by the issuance by Holdings of additional Holdings Senior
Discount Debentures, provided that after the fifth anniversary of the
--------
Effective Date, Holdings will be permitted to pay interest in cash on the
Holdings Senior Discount Debentures as and when due;
(vi) repayment of Indebtedness (including Indebtedness under the
Existing Credit Agreements) on the Effective Date in connection with the
Recapitalization; and
(vii) payment of intercompany Indebtedness between or among the
Borrower and its Subsidiaries permitted
<PAGE>
102
under clause (iv) of Section 6.01(a) and payment of Indebtedness permitted
under clauses (viii) and (ix) of Section 6.01(a).
SECTION 6.08. Transactions with Affiliates. Neither Holdings nor the
-----------------------------
Borrower will, nor will they permit any Subsidiary to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with, any
of its Affiliates, except (a) transactions that do not involve Holdings and are
at prices and on terms and conditions not less favorable to the Borrower or such
Subsidiary than could be obtained on an arm's-length basis from unrelated third
parties, provided that the Borrower delivers to the Administrative Agent (i)
--------
with respect to any transaction or series of related transactions involving
aggregate consideration in excess of $2,000,000, a resolution of the Borrower's
board of directors set forth in an officers' certificate certifying that such
transaction complies with this clause (a) and that such transaction has been
approved by a majority of the disinterested members of the Borrower's board of
directors and (ii) with respect to any transaction or series of related
transactions involving aggregate consideration in excess of $10,000,000, an
opinion as to the fairness to the Lenders of such transaction from a financial
point of view issued by an accounting, appraisal or investment banking firm of
national standing, (b) transactions between or among the Borrower and its
Subsidiaries that are Subsidiary Loan Parties which do not involve any other
Affiliate, (c) any Restricted Payment permitted by Section 6.07, (d) loans to
management of Holdings or the Borrower permitted by clause (h) of Section 6.04,
(e) payments made under and in accordance with agreements in effect on the
Effective Date and specified in a Schedule 6.08 (without giving effect to any
amendment or modification thereof that has not been approved by the Required
Lenders), (f) 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 Holdings or any of its Subsidiaries in the ordinary
course of business of Holdings or such Subsidiary to or with the officers,
directors or employees of Holdings or its Subsidiaries and (g) sales of common
stock of Holdings, when such sales are exclusively for cash.
SECTION 6.09. Restrictive Agreements. Neither Holdings nor the
-----------------------
Borrower will, nor will they permit any Subsidiary to, directly or indirectly,
enter into, incur or permit to exist any agreement or other arrangement that
<PAGE>
103
prohibits, restricts or imposes any condition upon (a) the ability of Holdings,
the Borrower or any Subsidiary to create, incur or permit to exist any Lien upon
any of its property or assets, or (b) the ability of any Subsidiary to pay
dividends or other distributions with respect to any shares of its capital stock
or to make or repay loans or advances to the Borrower or any other Subsidiary or
to Guarantee Indebtedness of the Borrower or any other Subsidiary; provided that
--------
(i) the foregoing shall not apply to restrictions and conditions imposed by law
or by any Loan Document, Subordinated Debt Document or Holdings Senior Discount
Debenture Documents, (ii) the foregoing shall not apply to restrictions and
conditions existing on the date hereof identified on Schedule 6.09 (but shall
apply to any extension or renewal of, or any amendment or modification expanding
the scope of, any such restriction or condition), (iii) the foregoing shall not
apply to customary restrictions and conditions contained in agreements relating
to the sale of a Subsidiary pending such sale, provided such restrictions and
conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder, (iv) clause (a) of the foregoing shall not apply to
restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the property or assets securing such Indebtedness and (v) clause
(a) of the foregoing shall not apply to customary provisions in leases or other
contracts restricting the assignment thereof.
SECTION 6.10. Amendment of Material Documents. Neither Holdings nor
--------------------------------
the Borrower will, nor will they permit any Subsidiary to, amend, modify or
waive any of its rights under (a) any Subordinated Debt Document, Holdings
Senior Discount Note Document or any agreement specified in Schedule 6.08, (b)
its certificate of incorporation, by-laws or other organizational documents, or
(c) the GE Capital Program Agreements or the documents governing the McDuffie
County industrial revenue bonds, except amendments and modification to
agreements and documents referred to in clauses (b) and (c) shall be permitted
to the extent that the cumulative effect of all such amendments and
modifications do not have a Material Adverse Effect or a material adverse effect
on the interests of the Lenders; provided that amendments and modifications to
--------
the GE Capital Program Agreements that have a monetary effect on the Borrower or
any of its Subsidiaries shall be deemed not to have a Material Adverse Effect or
adversely affect the Lenders in any material respect so long as the cumulative
net monetary effect of such amendments and modifications does not exceed
$5,000,000 during the period from the Effective Date through November 22, 2001,
or $5,000,000
<PAGE>
104
during the period subsequent to such date through the Tranche B Maturity Date
(in each case compared to the monetary effect of the existing GE Capital Program
Agreements).
SECTION 6.11. Sale and Lease-Back Transactions. Neither Holdings nor
---------------------------------
the Borrower will, nor will they permit any Subsidiary to, enter into any
arrangement, directly or indirectly, with any Person whereby it shall sell or
transfer any property, real or personal, used or useful in its business, whether
now owned or hereafter acquired, and thereafter rent or lease such property or
other property which it intends to use for substantially the same purpose or
purposes as the property being sold or transferred, except for any such sale and
leaseback of property involving the sale of fixed or capital assets, at a price
not less than the cost thereof, that is consummated within 270 days after the
date that such assets are acquired.
SECTION 6.12. Capital Expenditures. The Borrower will not permit the
---------------------
sum of (a) the aggregate amount of Capital Expenditures made by the Borrower and
the Subsidiaries in any fiscal year, plus (b) all amounts that are to be
aggregated with Capital Expenditures for such fiscal year as provided in clause
(i) of Section 6.04 (the sum of the amounts referred to in clauses (a) and (b)
being referred to as "Restricted Expenditures"), to exceed the amount set forth
below opposite such year; provided, that the Restricted Expenditures in any
--------
fiscal year (the "Pending Fiscal Year") may be increased by an amount (not
exceeding $20,000,000) equal to the sum of (x) the excess, if any, of the sum of
the amounts set forth below under "Amount" for each fiscal year referred to
below ending prior to the Pending Fiscal Year, minus the sum of the Restricted
Expenditures for such preceding fiscal years and (y) the amount set forth below
under "Amount" for the fiscal year immediately subsequent to the Pending Fiscal
Year; provided further that (A) clause (x) shall not apply to permit any
-------- -------
increase for the fiscal year commencing January 4, 1998, and (B) the amount of
Restricted Expenditures permitted in any fiscal year shall be reduced by the
amount of any Restricted
<PAGE>
105
Expenditures made in the immediately preceding fiscal year in reliance upon
clause (y) of the foregoing proviso:
<TABLE>
<CAPTION>
Fiscal Year
Ending Amount
------ ------
<S> <C>
January 2, 1999 $70,000,000
January 1, 2000 $70,000,000
December 30, 2000 $70,000,000
December 29, 2001 $75,000,000
December 28, 2002 $80,000,000
January 3, 2004 $85,000,000
and each fiscal year
thereafter
</TABLE>
SECTION 6.13. Leverage Ratio. Subject to Section 1.05, the Borrower
---------------
will not permit the Leverage Ratio as of any date during any period set forth
below to be in excess of the ratio set forth below opposite such period:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 19, 1998 through April
24, 1999 6.00 to 1.00
April 25, 1999 through July
15, 2000 5.75 to 1.00
July 16, 2000 through July
14, 2001 5.50 to 1.00
July 15, 2001 through July
13, 2002 5.00 to 1.00
July 14, 2002 through July
12, 2003 4.50 to 1.00
July 13, 2003 and thereafter 4.00 to 1.00
</TABLE>
SECTION 6.14. Consolidated Interest Expense Coverage Ratio. Subject
---------------------------------------------
to Section 1.05, the Borrower will not permit the ratio of (a) Consolidated
EBITDA to (b) Consolidated Interest Expense (net of interest income), in each
case for any period of four consecutive fiscal quarters of the Borrower ending
during any period set forth below to be less than the ratio set forth below
opposite such period:
<TABLE>
<CAPTION>
Four-Quarter
Period Ending Ratio
------------- -----
<S> <C>
July 19, 1998 through April
24, 1999 1.65 to 1.00
</TABLE>
<PAGE>
106
<TABLE>
<S> <C>
April 25, 1999 through July
15, 2000 1.75 to 1.00
July 16, 2000 through July
14, 2001 2.00 to 1.00
July 15, 2001 through July
13, 2002 2.25 to 1.00
July 14, 2002 and thereafter 2.50 to 1.00
</TABLE>
SECTION 6.15. Minimum Retained Cash Earnings. Subject to Section
-------------------------------
1.05, the Borrower will not permit Retained Cash Earnings as of the last day of
any fiscal quarter to be less than the sum of (a) $100,000,000, plus (b) 50% of
the cumulative amount of Adjusted Consolidated Net Income for each fiscal
quarter (other than any fiscal quarter for which Adjusted Consolidated Net
Income is not a positive amount) ending after the Effective Date and on or prior
to the date of determination.
SECTION 6.16. Purchase and Sale of Vehicles; Vehicle Subsidiary. (a)
--------------------------------------------------
Neither Holdings nor the Borrower will, nor will they permit any Subsidiary
(other than the Vehicle Subsidiary) to, own, purchase, acquire or hold title to,
any Vehicle, except Vehicles owned on the Effective Date pending transfer
thereof to the Vehicle Subsidiary.
(b) The Vehicle Subsidiary will not engage in any business or activity
other than acquiring, owning and disposing of Vehicles used in the business of
the Borrower and its Subsidiaries, and activities incidental thereto. The
Vehicle Subsidiary will not own or acquire any assets (other than Vehicles) or
incur any liabilities (other than liabilities imposed by law, including tax
liabilities, and other liabilities incidental to its existence and permitted
business and activities). The Vehicle Subsidiary will not have any Subsidiaries
or other investments. The Borrower will not make or permit any investments in
the Vehicle Subsidiary, other than contributions of equity capital by the
Borrower to the extent necessary to permit the Vehicle Subsidiary to acquire
Vehicles and to satisfy its permitted liabilities as and when done.
<PAGE>
107
ARTICLE VII
Events of Default
-----------------
If any of the following events ("Events of Default") shall occur:
-----------------
(a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the
same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement or any other Loan Document, when and
as the same shall become due and payable, and such failure shall continue
unremedied for a period of three Business Days;
(c) any representation or warranty made or deemed made by or on behalf
of Holdings, the Borrower or any Subsidiary in or in connection with any
Loan Document or any amendment or modification thereof or waiver
thereunder, or in any report, certificate, financial statement or other
document furnished pursuant to or in connection with any Loan Document or
any amendment or modification thereof or waiver thereunder, shall prove to
have been incorrect in any material respect when made or deemed made;
(d) Holdings or the Borrower shall fail to observe or perform any
covenant, condition or agreement contained in Section 5.02, 5.04 (with
respect to the existence of Holdings or the Borrower) or 5.11 or in Article
VI;
(e) any Loan Party shall fail to observe or perform any covenant,
condition or agreement contained in any Loan Document (other than those
specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after notice thereof from
the Administrative Agent to the Borrower (which notice will be given at the
request of any Lender);
(f) Holdings, the Borrower or any Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in
respect of any
<PAGE>
108
Material Indebtedness, when and as the same shall become due and payable;
(g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables
or permits (with or without the giving of notice, the lapse of time or
both) the holder or holders of any Material Indebtedness or any trustee or
agent on its or their behalf to cause any Material Indebtedness to become
due, or to require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity; provided that this clause (g)
--------
shall not apply to secured Indebtedness that becomes due as a result of the
voluntary sale or transfer of the property or assets securing such
Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other
relief in respect of Holdings, the Borrower or any Subsidiary or its debts,
or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or
hereafter in effect or (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for Holdings, the
Borrower or any Subsidiary or for a substantial part of its assets, and, in
any such case, such proceeding or petition shall continue undismissed for
60 days or an order or decree approving or ordering any of the foregoing
shall be entered;
(i) Holdings, the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in
effect, (ii) consent to the institution of, or fail to contest in a timely
and appropriate manner, any proceeding or petition described in clause (h)
of this Article, (iii) apply for or consent to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for Holdings, the Borrower or any Subsidiary or for a substantial part of
its assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing;
<PAGE>
109
(j) Holdings, the Borrower or any Subsidiary shall become unable,
admit in writing its inability or fail generally to pay its debts as they
become due;
(k) one or more judgments for the payment of money in an aggregate
amount in excess of $5,000,000 shall be rendered against Holdings, the
Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which
execution shall not be effectively stayed, or any action shall be legally
taken by a judgment creditor (and such action is not effectively stayed) to
attach or levy upon any assets of Holdings, the Borrower or any Subsidiary
to enforce any such judgment;
(l) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in liability of the
Borrower and its Subsidiaries in an aggregate amount exceeding (i)
$3,000,000 in any year or (ii) $5,000,000 for all periods;
(m) any Lien purported to be created under any Security Document shall
cease to be, or shall be asserted by any Loan Party not to be, a valid and
perfected Lien on any Collateral, with the priority required by the
applicable Security Document, except (i) as a result of the sale or other
disposition of the applicable Collateral in a transaction permitted under
the Loan Documents or (ii) as a result of the Administrative Agent's
failure to maintain possession of any stock certificates, promissory notes
or other instruments delivered to it under the Pledge Agreement;
(n) a Change in Control shall occur;
then, and in every such event (other than an event with respect to the Borrower
described in clause (h) or (i) of this Article), and at any time thereafter
during the continuance of such event, the Administrative Agent may, and at the
request of the Required Lenders shall, by notice to the Borrower, take either or
both of the following actions, at the same or different times: (i) terminate
the Commitments, and thereupon the Commitments shall terminate immediately, and
(ii) declare the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and all fees
<PAGE>
110
and other obligations of the Borrower accrued hereunder, shall become due and
payable immediately, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower; and in case of any event
with respect to the Borrower described in clause (h) or (i) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then
outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower.
ARTICLE VIII
The Administrative Agent
------------------------
Each of the Lenders and the Issuing Bank hereby irrevocably appoints
the Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms of the Loan Documents, together with such
actions and powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the
same rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with Holdings, the Borrower or any Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations
except those expressly set forth in the Loan Documents. Without limiting the
generality of the foregoing, (a) the Administrative Agent shall not be subject
to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty
to take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated by the Loan Documents
that the Administrative Agent is required to exercise in writing by the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary
under the circumstances as provided in Section 9.02), and (c) except as
expressly set forth in the Loan Documents, the Administrative Agent shall not
have any
<PAGE>
111
duty to disclose, and shall not be liable for the failure to disclose, any
information relating to Holdings, the Borrower or any of its Subsidiaries that
is communicated to or obtained by the bank serving as Administrative Agent or
any of its Affiliates in any capacity. The Administrative Agent shall not be
liable for any action taken or not taken by it with the consent or at the
request of the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
9.02) or in the absence of its own gross negligence or wilful misconduct. The
Administrative Agent shall not be deemed not to have knowledge of any Default
unless and until written notice thereof is given to the Administrative Agent by
Holdings, the Borrower or a Lender, and the Administrative Agent shall not be
responsible for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with any Loan Document, (ii)
the contents of any certificate, report or other document delivered thereunder
or in connection therewith, (iii) the performance or observance of any of the
covenants, agreements or other terms or conditions set forth in any Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of any
Loan Document or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere in any Loan
Document, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who
may be counsel for the Borrower), independent accountants and other experts
selected by it, and shall not be liable for any action taken or not taken by it
in accordance with the advice of any such counsel, accountants or experts.
The Administrative Agent may perform any and all its duties and
exercise its rights and powers by or through any one or more sub-agents
appointed by the Administrative Agent. The Administrative Agent and any such
sub-agent may perform any and all its duties and exercise its rights and powers
through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall
<PAGE>
112
apply to any such sub-agent and to the Related Parties of each Administrative
Agent and any such sub-agent, and shall apply to their respective activities in
connection with the syndication of the credit facilities provided for herein as
well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor the
Administrative Agent as provided in this paragraph, the Administrative Agent may
resign at any time by notifying the Lenders, the Issuing Bank and the Borrower.
Upon any such resignation, the Required Lenders shall have the right, in
consultation with the Borrower, to appoint a successor. If no successor shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Administrative Agent gives notice
of its resignation, then the retiring Administrative Agent may, on behalf of the
Lenders and the Issuing Bank, appoint a successor Administrative Agent which
shall be a bank with an office in New York, New York, or an Affiliate of any
such bank. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Administrative
Agent, and the retiring Administrative Agent shall be discharged from its duties
and obligations hereunder. The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor. After the
Administrative Agent's resignation hereunder, the provisions of this Article and
Section 9.03 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while it was
acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this Agreement,
any other Loan Document or related agreement or any document furnished hereunder
or thereunder.
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113
The provisions of this Article applicable to the Administrative Agent
also shall apply to the Collateral Agent, mutatis mutandis.
------- --------
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices. Except in the case of notices and other
--------
communications expressly permitted to be given by telephone, all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
(a) if to Holdings or the Borrower, to Advance Stores Company,
Incorporated at 5673 Airport Road, Roanoke, Virginia 24012, Attention of
Chief Financial Officer (Telecopy No. (540) 561-1699);
with a copy to:
Freeman Spogli & Co. Incorporated, 599 Lexington Avenue, 18th Floor,
New York, New York 10022, Attention of Mark J. Doran, (Telecopy No. (212)
758-7499;
(b) if to the Administrative Agent or the Collateral Agent, to The
Chase Manhattan Bank, Loan and Agency Services Group, One Chase Manhattan
Plaza, 8th Floor, New York, New York 10081, Attention of Janet Beldon
(Telecopy No. (212) 552-5658), with a copy to The Chase Manhattan Bank,
270 Park Avenue, 5th Floor, New York 10017, Attention of Neil Boylan
(Telecopy No. (212) 972-0009);
(c) if to the Issuing Bank, to The Chase Manhattan Bank at 55 Water
Street, 17th Floor, Room 1708, New York, New York 10041, Attention of
Standby LC Department (Telecopy No. (212) 363-5656);
(d) if to the Swingline Lender, to The Chase Manhattan Bank at One
Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of
Janet Beldon (Telecopy No. (212) 552-5658); and
(e) if to any other Lender, to it at its address (or telecopy number)
set forth in its Administrative Questionnaire.
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114
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the
--------------------
Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender in
exercising any right or power hereunder or under any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of the
Administrative Agent, the Collateral Agent, the Issuing Bank and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of any Loan Document or consent to any departure by any Loan
Party therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) of this Section, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. Without limiting the generality of the foregoing, the making of a Loan or
issuance of a Letter of Credit shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent, the Collateral Agent,
any Lender or the Issuing Bank may have had notice or knowledge of such Default
at the time.
(b) Neither this Agreement nor any other Loan Document nor any
provision hereof or thereof may be waived, amended or modified except, in the
case of this Agreement, pursuant to an agreement or agreements in writing
entered into by Holdings, the Borrower and the Required Lenders or, in the case
of any other Loan Document, pursuant to an agreement or agreements in writing
entered into by the Administrative Agent or the Collateral Agent, as applicable,
and the Loan Party or Loan Parties that are parties thereto, in each case with
the consent of the Required Lenders; provided that no such agreement shall (i)
--------
increase the Commitment of any Lender without the written consent of such
Lender, (ii) reduce the principal amount of any Loan or LC Disbursement or
reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment of the principal amount of any Loan or LC
Disbursement, or any interest thereon, or any
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115
fees payable hereunder, or reduce the amount of, waive or excuse any such
payment, or postpone the scheduled date of expiration of any Commitment, without
the written consent of each Lender affected thereby, (iv) change Section 2.18(b)
or (c) in a manner that would alter the pro rata sharing of payments required
thereby, without the written consent of each Lender, (v) change any of the
provisions of this Section or the definition of "Required Lenders" or any other
provision of any Loan Document specifying the number or percentage of Lenders
(or Lenders of any Class) required to waive, amend or modify any rights
thereunder or make any determination or grant any consent thereunder, without
the written consent of each Lender (or each Lender of such Class, as the case
may be), (vi) release Holdings or any Subsidiary Loan Party from its Guarantee
under the Guarantee Agreement (except as expressly provided in the Guarantee
Agreement), or limit its liability in respect of such Guarantee, without the
written consent of each Lender, (vii) except in strict accordance with the
express provisions thereof, release all or any substantial part of the
Collateral from the Liens of the Security Documents, without the written consent
of each Lender, (viii) change any of the provisions of the definitions of
"Borrowing Base" or "Eligible Inventory" in a manner that by their terms
adversely affect in any material respect the interests of the Lenders, without
the written consent of at least 66 2/3% of the Lenders affected thereby, (ix)
change any provisions of any Loan Document in a manner that by its terms
adversely affects the rights in respect of payments due to Lenders holding Loans
of any Class differently than those holding Loans of any other Class, without
the written consent of Lenders holding a majority in interest of the outstanding
Loans and unused Commitments of each affected Class (in addition to any other
consent required under this paragraph) or (x) change the rights of the Tranche B
Lenders to decline mandatory prepayments as provided in Section 2.11, without
the written consent of Tranche B Lenders holding a majority of the outstanding
Tranche B Loans; provided further that (A) no such agreement shall amend,
-------- -------
modify or otherwise affect the rights or duties of the Administrative Agent, the
Collateral Agent, the Issuing Bank or the Swingline Lender without the prior
written consent of the Administrative Agent, the Collateral Agent, the Issuing
Bank or the Swingline Lender, as the case may be, and (B) any waiver, amendment
or modification of this Agreement that by its terms affects the rights or duties
under this Agreement of the Revolving Lenders (but not any other Lenders), the
Tranche B Lenders (but not any other Lenders), the Delayed Draw I Lenders (but
not any other Lenders) or the Delayed Draw II Lenders (but not any other
Lenders) may be effected by an agreement or agreements in writing entered into
by
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116
Holdings, the Borrower and requisite percentage in interest of the affected
Class of Lenders that would be required to consent thereto under this Section if
such Class of Lenders were the only Class of Lenders hereunder at the time.
SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower
-----------------------------------
shall pay (i) all reasonable out-of-pocket expenses incurred by the
Administrative Agent, the Collateral Agent, the Syndication Agent, the
Documentation Agent and their respective Affiliates, including the reasonable
fees, charges and disbursements of counsel for the Administrative Agent and the
Collateral Agent, in connection with the syndication of the credit facilities
provided for herein, the preparation and administration of the Loan Documents or
any amendments, modifications or waivers of the provisions thereof (whether or
not the transactions contemplated hereby or thereby shall be consummated), (ii)
all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection
with the issuance, amendment, renewal or extension of any Letter of Credit or
any demand for payment thereunder and (iii) all out-of-pocket expenses incurred
by the Administrative Agent, the Collateral Agent, the Issuing Bank or any
Lender, including the fees, charges and disbursements of any counsel for the
Administrative Agent, the Collateral Agent, the Issuing Bank or any Lender, in
connection with the enforcement or protection of its rights in connection with
the Loan Documents, including its rights under this Section, or in connection
with the Loans made or Letters of Credit issued hereunder, including all such
out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit.
(b) The Borrower shall indemnify the Administrative Agent, the
Collateral Agent, the Issuing Bank and each Lender, and each Related Party of
any of the foregoing Persons (each such Person being called an "Indemnitee")
----------
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted against
any Indemnitee arising out of, in connection with, or as a result of (i) the
execution or delivery of any Loan Document or any other agreement or instrument
contemplated hereby, the performance by the parties to the Loan Documents of
their respective obligations thereunder or the consummation of the Transactions
or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit
or the use of the proceeds therefrom (including any refusal by the Issuing Bank
to honor a demand for payment under a Letter of Credit if the
<PAGE>
117
documents presented in connection with such demand do not strictly comply with
the terms of such Letter of Credit), (iii) any actual or alleged presence or
release of Hazardous Materials on or from any Mortgaged Property or any other
property currently or formerly owned or operated by Holdings, the Borrower or
any of its Subsidiaries, or any Environmental Liability related in any way to
Holdings, the Borrower or any of its Subsidiaries, except that this clause (iii)
shall not apply to Environmental Liabilities related to a Mortgaged Property
that are attributable solely to acts or events occurring after completion of
foreclosure proceedings with respect to such Mortgaged Property and surrender of
possession thereof by the Borrower and its Subsidiaries to or as directed by the
Collateral Agent or the purchasers at any such foreclosure sale, or (iv) any
actual or prospective claim, litigation, investigation or proceeding relating to
any of the foregoing, whether based on contract, tort or any other theory and
regardless of whether any Indemnitee is a party thereto; provided that such
--------
indemnity shall not, as to any Indemnitee, be available to the extent that such
losses, claims, damages, liabilities or related expenses resulted from the gross
negligence or wilful misconduct of such Indemnitee.
(c) To the extent that the Borrower fails to pay any amount required
to be paid by it to the Administrative Agent, the Collateral Agent, the Issuing
Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each
Lender severally agrees to pay to the Administrative Agent, the Collateral
Agent, the Issuing Bank or the Swingline Lender, as the case may be, such
Lender's pro rata share (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
- --------
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent, the Collateral Agent, the Issuing Bank or the
Swingline Lender in its capacity as such. For purposes hereof, a Lender's "pro
rata share" shall be determined based upon its share of the sum of the total
Revolving Exposures, outstanding Term Loans and unused Commitments at the time.
(d) To the extent permitted by applicable law, neither Holdings nor
the Borrower shall assert, and each hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or
instrument contemplated
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118
hereby, the Transactions, any Loan or Letter of Credit or the use of the
proceeds thereof.
(e) All amounts due under this Section shall be payable promptly
after written demand therefor.
SECTION 9.04. Successors and Assigns. (a) The provisions of this
-----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit), except that the
Borrower may not assign or otherwise transfer any of its rights or obligations
hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and
void). Nothing in this Agreement, expressed or implied, shall be construed to
confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of the Issuing
Bank that issues any Letter of Credit) and, to the extent expressly contemplated
hereby, the Related Parties of each of the Administrative Agent, the Collateral
Agent, the Issuing Bank and the Lenders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion
of its rights and obligations under this Agreement (including all or a portion
of its Commitment and the Loans at the time owing to it); provided that (i)
--------
except in the case of an assignment to a Lender or an Affiliate or Approved Fund
of a Lender, each of the Borrower and the Administrative Agent (and, in the case
of an assignment of all or a portion of a Revolving Commitment or any Lender's
obligations in respect of its LC Exposure or Swingline Exposure, the Issuing
Bank and the Swingline Lender) must give their prior written consent to such
assignment (which consent shall not be unreasonably withheld), (ii) except in
the case of an assignment to a Lender or an Affiliate or Approved Fund of a
Lender or an assignment of the entire remaining amount of the assigning Lender's
Commitment or Loans, the amount of the Commitment or Loans of the assigning
Lender subject to each such assignment (determined as of the date the Assignment
and Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, (iii) each partial
assignment shall be made as an assignment of a proportionate part of all the
assigning Lender's rights and obligations under this Agreement, except that this
clause (iii) shall not be
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119
construed to prohibit the assignment of a proportionate part of all the
assigning Lender's rights and obligations in respect of one Class of Commitments
or Loans, (iv) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Acceptance, together with a processing
and recordation fee of $3,500, and (v) the assignee, if it shall not be a
Lender, shall deliver to the Administrative Agent an Administrative
Questionnaire; and provided further that any consent of the Borrower otherwise
----------------
required under this paragraph shall not be required if an Event of Default under
clause (h) or (i) of Article VII has occurred and is continuing. Subject to
acceptance and recording thereof pursuant to paragraph (d) of this Section, from
and after the effective date specified in each Assignment and Acceptance the
assignee thereunder shall be a party hereto and, to the extent of the interest
assigned by such Assignment and Acceptance, have the rights and obligations of a
Lender under this Agreement, and the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all of the assigning Lender's rights and obligations under
this Agreement, such Lender shall cease to be a party hereto but shall continue
to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03). Any
assignment or transfer by a Lender of rights or obligations under this Agreement
that does not comply with this paragraph shall be treated for purposes of this
Agreement as a sale by such Lender of a participation in such rights and
obligations in accordance with paragraph (e) of this Section.
(c) The Administrative Agent, acting for this purpose as an agent of
the Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
--------
the Register shall be conclusive, and Holdings, the Borrower, the Administrative
Agent, the Collateral Agent, the Issuing Bank and the Lenders may treat each
Person whose name is recorded in the Register pursuant to the terms hereof as a
Lender hereunder for all purposes of this Agreement, notwithstanding notice to
the contrary. The Register shall be available for inspection by the Borrower,
the Issuing Bank and any Lender, at any reasonable time and from time to time
upon reasonable prior notice.
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120
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Borrower, the
Administrative Agent, the Issuing Bank or the Swingline Lender, sell
participations to one or more banks or other entities (a "Participant") in all
-----------
or a portion of such Lender's rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans owing to it);
provided that (i) such Lender's obligations under this Agreement shall remain
- --------
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations and (iii) Holdings, the Borrower,
the Administrative Agent, the Collateral Agent, the Issuing Bank and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce the Loan
Documents and to approve any amendment, modification or waiver of any provision
of the Loan Documents; provided that such agreement or instrument may provide
--------
that such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to Section
9.02(b) that affects such Participant. Subject to paragraph (f) of this Section,
the Borrower agrees that each Participant shall be entitled to the benefits of
Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to paragraph (b) of this Section.
To the extent permitted by law, each Participant also shall be entitled to the
benefits of Section 9.08 as though it were a Lender, provided such Participant
agrees to be subject to Section 2.18(c) as though it were a Lender.
(f) A Participant shall not be entitled to receive any greater
payment under Section 2.15 or 2.17 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
unless the sale of the participation to such Participant is
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121
made with the Borrower's prior written consent. A Participant that would be a
Foreign Lender if it were a Lender shall not be entitled to the benefits of
Section 2.17 unless the Borrower is notified of the participation sold to such
Participant and such Participant agrees, for the benefit of the Borrower, to
comply with Section 2.17(e) as though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Lender, including any pledge or assignment to secure obligations to a
Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of
--------
a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05. Survival. All covenants, agreements, representations
---------
and warranties made by the Loan Parties in the Loan Documents and in the
certificates or other instruments delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Administrative Agent, the
Collateral Agent, the Issuing Bank or any Lender may have had notice or
knowledge of any Default or incorrect representation or warranty at the time any
credit is extended hereunder, and shall continue in full force and effect as
long as the principal of or any accrued interest on any Loan or any fee or any
other amount payable under this Agreement is outstanding and unpaid or any
Letter of Credit is outstanding and so long as the Commitments have not expired
or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article
VIII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Letters of Credit and the
Commitments or the termination of this Agreement or any provision hereof.
SECTION 9.06. Counterparts; Integration; Effectiveness. This
-----------------------------------------
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a
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122
single contract. This Agreement, the other Loan Document and any separate letter
agreements with respect to fees payable to the Administrative Agent constitute
the entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof. Except as provided in Section 4.01, this
Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Delivery of an executed counterpart of a signature page of this Agreement by
telecopy shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 9.07. Severability. Any provision of this Agreement held to
-------------
be invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.
SECTION 9.08. Right of Setoff. If an Event of Default shall have
----------------
occurred and be continuing, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the
Borrower against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured. The rights of each Lender under this Section
are in addition to other rights and remedies (including other rights of setoff)
which such Lender may have.
SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of
--------------------------------------------------
Process. (a) This Agreement shall be construed in accordance with and governed
- --------
by the law of the State of New York.
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123
(b) Each of Holdings and the Borrower hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New
York, and any appellate court from any thereof, in any action or proceeding
arising out of or relating to any Loan Document, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement or any other Loan Document shall
affect any right that the Administrative Agent, the Collateral Agent, the
Issuing Bank or any Lender may otherwise have to bring any action or proceeding
relating to this Agreement or any other Loan Document against Holdings, the
Borrower or its properties in the courts of any jurisdiction.
(c) Each of Holdings and the Borrower hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
any other Loan Document in any court referred to in paragraph (b) of this
Section. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 9.01. Nothing in this
Agreement or any other Loan Document will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES,
---------------------
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
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124
ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
SECTION 9.11. Headings. Article and Section headings and the Table
---------
of Contents used herein are for convenience of reference only, are not part of
this Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
SECTION 9.12. Confidentiality. Each of the Administrative Agent, the
----------------
Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below) in accordance with their customary procedures,
except that Information may be disclosed (a) to its and its Affiliates' and
Approved Funds' directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority, (c) to
the extent required by applicable laws or regulations or by any subpoena or
similar legal process, (d) to any other party to this Agreement, (e) in
connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or any other Loan Document or the
enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section, to any
assignee of or Participant in, or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement, (g) with the consent of
the Borrower, (h) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this Section or (ii) becomes available to
the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential
basis from a source other than Holdings or the Borrower or (i) to any direct or
indirect contractual counterparty with a Lender or its affiliates in a swap
agreement or such counterparty's professional advisor (so long as such
contractual counterparty or professional advisor to such contractual
counterparty agrees to be bound by the provisions of this Section 9.12). For
the purposes of this Section, "Information" means all information received from
-----------
Holdings or the Borrower relating to Holdings or the Borrower or its business,
other than any such information that is available to the Administrative Agent,
the Issuing Bank or any Lender on a nonconfidential basis
<PAGE>
125
prior to disclosure by Holdings or the Borrower; provided that, in the case of
--------
information received from Holdings or the Borrower after the date hereof, such
information is clearly identified at the time of delivery as confidential. Any
Person required to maintain the confidentiality of Information as provided in
this Section shall be considered to have complied with its obligation to do so
if such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
SECTION 9.13. Interest Rate Limitation. Notwithstanding anything
-------------------------
herein to the contrary, if at any time the interest rate applicable to any Loan,
together with all fees, charges and other amounts which are treated as interest
on such Loan under applicable law (collectively the "Charges"), shall exceed the
-------
maximum lawful rate (the "Maximum Rate") which may be contracted for, charged,
------------
taken, received or reserved by the Lender holding such Loan in accordance with
applicable law, the rate of interest payable in respect of such Loan hereunder,
together with all Charges payable in respect thereof, shall be limited to the
Maximum Rate and, to the extent lawful, the interest and Charges that would have
been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the interest and Charges
payable to such Lender in respect of other Loans or periods shall be increased
(but not above the Maximum Rate therefor) until such cumulated amount, together
with interest thereon at the Federal Funds Effective Rate to the date of
repayment, shall have been received by such Lender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
ADVANCE HOLDING CORPORATION,
by
/s/ J O'Neil Leftwich
------------------------
Name: J O'Neil Leftwich
Title: SVP/CFO Secretary Treasurer
ADVANCE STORES COMPANY, INCORPORATED,
by
/s/ J O'Neil Leftwich
------------------------
Name: J O'Neil Leftwich
Title: SVP/CFO Secretary Treasurer
THE CHASE MANHATTAN BANK,
individually and as administrative Agent,
by
/s/ Deborah Davey
------------------------
Name: Deborah Davey
Title: Vice President
<PAGE>
DLJ CAPITAL FUNDING, INC.
by
/s/ Harold J. Philipps
------------------------
Harold J. Philipps
Managing Director
<PAGE>
FIRST UNION NATIONAL BANK
by /s/ Mark B. Feke
---------------------------
Senior Vice President
<PAGE>
CRESTAR BANK,
by
/s/
____________________________
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC.
by
/s/
________________________
<PAGE>
CREDIT LYONNAIS NEW YORK Branch
by
/s/ Mark Koneval
--------------------------
Mark Koneval
Vice President
<PAGE>
CREDITANSTALT CORPORATE FINANCE,
INC.,
by
/s/ Robert M. Biringer
-------------------------
Robert M. Biringer
by
/s/ William E. McCollum, Jr.
---------------------------
William E. McCollum, Jr.
<PAGE>
NATIONAL BANK OF CANADA,
by
/s/
-------------------------
by
/s/
-------------------------
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION,
by
/s/ Perry Vavoules
------------------------
Perry Vavoules
Senior Vice President
<PAGE>
AT&T COMMERCIAL FINANCE
CORPORATION,
by
/s/ Paul Seidenwar
---------------------
Paul Seidenwar, AVP
<PAGE>
BANKBOSTON, N.A.,
by
/s/
-------------------
<PAGE>
ERSTE BANK DER OESTERREICHISCHEN
SPARKASSEN AG - NEW YORK,
by
/s/ Rima Terradista John S. Runnion
--------------------------------------
RIMA TERRADISTA JOHN S. RUNNION
Vice President First Vice President
<PAGE>
IMPERIAL BANK, A CALIFORNIA BANKING
CORPORATION,
by
/s/ Mark Campbell
----------------------------
Mark Campbell
Senior Vice President
<PAGE>
ING (U.S.) CAPITAL CORPORATION,
by /s/ Robert L. Fellows
---------------------------
Robert L. Fellows
Vice President
<PAGE>
STAR BANK, NATIONAL ASSOCIATION,
by /s/ Mark A. Whitson
--------------------------
Mark A. Whitson
Vice President
<PAGE>
SUMMIT BANK,
by
/s/
---------------------
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
by
/s/ Terry Rocha
------------------------
Terry Rocha
Vice President
<PAGE>
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.,
by
/s/ Gilles Marchand
----------------------------
Gilles Marchand
VP
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST,
by /s/ Jeffrey W. Maillet
----------------------------
JEFFREY W. MAILLET
Senior Vice President & Director
<PAGE>
ING HIGH INCOME PRINCIPAL
PRESERVATION FUND HOLDINGS, LDC.,
BY: ING CAPITAL ADVISORS, INC.,
AS INVESTMENT ADVISOR
by /s/ Michael D. Hatley
-------------------------
MICHAEL D. HATLEY
VICE PRESIDENT & PORTFOLIO MANAGER
<PAGE>
PILGRIM AMERICA PRIME RATE TRUST,
By: PILGRIM AMERICA INVESTMENTS, INC.,
as its Investment Manager
By: /s/ Howard Tiffen
------------------------------
Name: Howard Tiffen
Title: Senior Vice President
<PAGE>
EXHIBIT 10.3
EXECUTED COPY
PLEDGE AGREEMENT dated as of April 15, 1998, among
ADVANCE STORES COMPANY, INCORPORATED, a Virginia corporation (the
"Borrower"), ADVANCE HOLDING CORPORATION, a Virginia corporation
--------
("Holdings"), each subsidiary of the Borrower listed on Schedule
--------
I hereto (each such Subsidiary individually a "Subsidiary
----------
Pledgor" and, collectively, the "Subsidiary Pledgors"; the
-------------------
Borrower, Holdings and the Subsidiary Pledgors are referred to
collectively herein as the "Pledgors") and THE CHASE MANHATTAN
--------
BANK, a New York banking corporation ("Chase"), as collateral
-----
agent (in such capacity, the "Collateral Agent"), for the Secured
----------------
Parties (as defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of April 15, 1998
(as amended, supplemented or otherwise modified from time to time, the "Credit
------
Agreement"), among the Borrower, Holdings, the lenders from time to time party
- ---------
thereto (the "Lenders"), Chase, as administrative agent (in such capacity, the
-------
"Administrative Agent") for the Lenders, Collateral Agent and as issuing bank
- ---------------------
(in such capacity, the "Issuing Bank"), DLJ Capital Funding, Inc., as
------------
syndication agent, and First Union National Bank, as documentation agent, and
(b) the Guarantee Agreement dated as of April [ ], 1998 (as amended,
supplemented or otherwise modified from time to time, the "Guarantee
---------
Agreement"), among the Subsidiary Pledgors, Holdings and the Collateral Agent.
The Lenders have agreed to make Loans to the Borrower and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. Holdings and the Subsidiary Pledgors have agreed to guarantee, among
other things, all the obligations of the Borrower under the Credit Agreement.
The obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit are conditioned upon, among other things, the execution and
delivery by the Pledgors of a Pledge Agreement in the form hereof to secure (a)
the due and punctual payment of (i) the principal of and premium, if any, and
interest (including interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding) on the Loans, when and as due, whether
at maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made by the
<PAGE>
2
Borrower under the Credit Agreement in respect of any Letter of Credit, when and
as due, including payments in respect of reimbursement of disbursements made by
the Issuing Bank with respect thereto, interest thereon and obligations to
provide, under certain circumstances, cash collateral in connection therewith
and (iii) all other monetary obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding), of the Loan Parties to the Secured
Parties under the Credit Agreement and the other Loan Documents and (b) unless
otherwise agreed to in writing by the applicable Lender party thereto, the due
and punctual payment and performance of all monetary obligations of the Borrower
under each Hedging Agreement entered into with any counterparty that was a
Lender (or an Affiliate of a Lender) at the time such Hedging Agreement was
entered into (all the monetary obligations described in the preceding clauses
(a) and (b) being referred to collectively as the "Obligations"). Capitalized
-----------
terms used herein and not defined herein shall have meanings assigned to such
terms in the Credit Agreement.
Accordingly, the Pledgors and the Collateral Agent, on behalf of itself and
each Secured Party (and each of their respective successors or assigns), hereby
agree as follows:
SECTION 1. Pledge. As security for the payment and performance, as the
-------
case may be, in full of the Obligations, each Pledgor hereby transfers, grants,
hypothecates and pledges, unto the Collateral Agent, its successors and assigns,
and hereby grants to the Collateral Agent, its successors and assigns, for the
ratable benefit of the Secured Parties, a security interest in, all of the
Pledgor's right, title and interest in, to and under (a) the shares of capital
stock owned by it and listed on Schedule II hereto and any shares of capital
stock of the Borrower or any Subsidiary of Holdings obtained in the future by
the Pledgor and the certificates representing all such shares (the "Pledged
-------
Stock"); provided that the Pledged Stock shall not include (i) more than 65% of
- -----
the issued and outstanding shares of stock of any Foreign Subsidiary or (ii) to
the extent that applicable law requires that a Subsidiary of the Pledgor issue
directors' qualifying shares, such qualifying shares; (b)(i) the debt securities
listed opposite the name of the
Pledgor on Schedule II hereto, (ii) any debt securities in the future held by or
issued to the Pledgor and (iii) the promissory notes and any other instruments
evidencing such debt securities (the "Pledged Debt Securities"); (c) all other
-----------------------
<PAGE>
3
property that may be delivered to and held by the Collateral Agent pursuant to
the terms hereof; (d) subject to Section 5, all payments of principal or
interest, dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed, in respect of, in exchange for or
upon the conversion of the securities referred to in clauses (a) and (b) above;
(e) subject to Section 5, all rights and privileges of the Pledgor with respect
to the securities and other property referred to in clauses (a), (b), (c) and
(d) above; and (f) all proceeds of any of the foregoing (the items referred to
in clauses (a) through (f) above being collectively referred to as the
"Collateral"). Upon delivery to the Collateral Agent, (a) any stock
- -----------
certificates, notes or other securities now or hereafter included in the
Collateral (the "Pledged Securities") shall be accompanied by stock powers duly
------------------
executed in blank or other instruments of transfer satisfactory to the
Collateral Agent and by such other instruments and documents as the Collateral
Agent may reasonably request and (b) all other property comprising part of the
Collateral shall be accompanied by proper instruments of assignment duly
executed by the applicable Pledgor and such other instruments or documents as
the Collateral Agent may reasonably request. Each delivery of Pledged Securities
shall be accompanied by a schedule describing the securities then being pledged
hereunder, which schedule shall be attached hereto as a supplement to Schedule
II and made a part hereof. Each schedule so delivered shall supplement any prior
schedules so delivered.
SECTION 2. Delivery of the Collateral. (a) Each Pledgor agrees promptly
---------------------------
to deliver or cause to be delivered to the Collateral Agent any and all Pledged
Securities, and any and all certificates or other instruments or documents
representing the Collateral.
(b) Each Pledgor will cause any Indebtedness for borrowed money owed to
the Pledgor by any Loan Party or any Subsidiary thereof to be evidenced by a
duly executed promissory note that is pledged and delivered to the Collateral
Agent pursuant to the terms thereof.
SECTION 3. Representations, Warranties and Covenants. Each Pledgor hereby
------------------------------------------
represents, warrants and covenants, as to itself and the Collateral pledged by
it hereunder, to and with the Collateral Agent that:
(a) the Pledged Stock represents that percentage as set forth on
Schedule II of the issued and outstanding shares of each class of the
capital stock of the issuer with respect thereto;
<PAGE>
4
(b) except for the security interest granted hereunder, the Pledgor
(i) is and will at all times continue to be the direct owner, beneficially
and of record, of the Pledged Securities indicated on Schedule II, (ii)
holds the same free and clear of all Liens, (iii) will make no assignment,
pledge, hypothecation or transfer of, or create or permit to exist any
security interest in or other Lien on, the Collateral, other than pursuant
hereto, and (iv) subject to Section 5, will cause any and all Pledged
Securities, whether for value paid by the Pledgor or otherwise, to be
forthwith deposited with the Collateral Agent and pledged or assigned
hereunder;
(c) the Pledgor (i) has the power and authority to pledge the
Collateral in the manner hereby done or contemplated and (ii) will defend
its title or interest thereto or therein against any and all Liens (other
than the Lien created by this Agreement), however arising, of all Persons
whomsoever;
(d) no consent of any other Person (including stockholders or
creditors of any Pledgor) and no consent or approval of any Governmental
Authority or any securities exchange was or is necessary to the validity of
the pledge effected hereby;
(e) by virtue of the execution and delivery by the Pledgors of this
Agreement, when the Pledged Securities are delivered to the Collateral
Agent in accordance with this Agreement, the Collateral Agent will obtain a
valid and perfected first lien upon and security interest in such Pledged
Securities as security for the payment and performance of the Obligations;
(f) upon delivery of the Pledged Securities to the Collateral Agent,
the pledge effected hereby is effective to vest in the Collateral Agent, on
behalf of the Secured Parties, the rights of the Collateral Agent in the
Collateral as set forth herein;
(g) all of the Pledged Stock has been duly authorized and validly
issued and is fully paid and nonassessable;
(h) all information set forth herein relating to the Pledged Stock is
accurate and complete in all material respects as of the date hereof; and
<PAGE>
5
(i) the pledge of the Pledged Stock pursuant to this Agreement does
not violate Regulation G, T, U or X of the Federal Reserve Board or any
successor thereto as of the date hereof.
SECTION 4. Registration in Nominee Name; Denominations. The Collateral
--------------------------------------------
Agent, on behalf of the Secured Parties, shall have the right (in its sole and
absolute discretion) to hold the Pledged Securities in its own name as pledgee,
the name of its nominee (as pledgee or as sub-agent) or the name of the
Pledgors, endorsed or assigned in blank or in favor of the Collateral Agent.
Each Pledgor will promptly give to the Collateral Agent copies of any notices or
other communications received by it with respect to Pledged Securities
registered in the name of such Pledgor. The Collateral Agent shall at all times
have the right to exchange the certificates representing Pledged Securities for
certificates of smaller or larger denominations for any purpose consistent with
this Agreement.
SECTION 5. Voting Rights; Dividends and Interest, etc. (a) Unless and
-------------------------------------------
until an Event of Default shall have occurred and be continuing:
(i) Each Pledgor shall be entitled to exercise any and all voting
and/or other consensual rights and powers inuring to an owner of Pledged
Securities or any part thereof for any purpose consistent with the terms of
this Agreement, the Credit Agreement and the other Loan Documents;
provided, however, that such Pledgor will not be entitled to exercise any
-------- -------
such right if the result thereof would reasonably be expected to materially
and adversely affect the rights inuring to a holder of the Pledged
Securities or the rights and remedies of any of the Secured Parties under
this Agreement or the Credit Agreement or any other Loan Document or the
ability of the Secured Parties to exercise the same.
(ii) The Collateral Agent shall execute and deliver to each Pledgor,
or cause to be executed and delivered to each Pledgor, all such proxies,
powers of attorney and other instruments as such Pledgor may reasonably
request for the purpose of enabling such Pledgor to exercise the voting
and/or consensual rights and powers it is entitled to exercise pursuant to
subparagraph (i) above and to receive the cash dividends it is entitled to
receive pursuant to subparagraph (iii) below.
(iii) Each Pledgor shall be entitled to receive and retain any and
all dividends, interest, principal and
<PAGE>
6
other distributions paid in cash on the Pledged Securities to the extent
and only to the extent that such cash dividends, interest, principal and
other distributions are permitted by, and otherwise paid in accordance
with, the terms and conditions of the Credit Agreement, the other Loan
Documents and applicable laws. All dividends, interest, principal and other
distributions made on or in respect of the Pledged Securities other than in
cash (or that are paid in cash but are not permitted by the Credit
Agreement, the other Loan Documents or applicable law), whether resulting
from a subdivision, combination or reclassification of the outstanding
capital stock of the issuer of any Pledged Securities or received in
exchange for Pledged Securities or any part thereof, or in redemption
thereof, or as a result of any merger, consolidation, acquisition or other
exchange of assets to which such issuer may be a party or otherwise, shall
be and become part of the Collateral, and, if received by any Pledgor,
shall not be commingled by such Pledgor with any of its other funds or
property but shall be held separate and apart therefrom, shall be held in
trust for the benefit of the Collateral Agent and shall be forthwith
delivered to the Collateral Agent in the same form as so received (with any
necessary endorsement).
(b) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to dividends, interest, principal or other
distributions that such Pledgor is authorized to receive pursuant to paragraph
(a)(iii) above shall cease, and all such rights shall thereupon become vested in
the Collateral Agent, which shall have the sole and exclusive right and
authority to receive and retain such dividends, interest, principal or other
distributions. All dividends, interest, principal or other distributions
received by the Pledgor contrary to the provisions of this Section 5 shall be
held in trust for the benefit of the Collateral Agent, shall be segregated from
other property or funds of such Pledgor and shall be forthwith delivered to the
Collateral Agent upon demand in the same form as so received (with any necessary
endorsement). Any and all money and other property paid over to or received by
the Collateral Agent pursuant to the provisions of this paragraph (b) shall be
retained by the Collateral Agent in an account to be established by the
Collateral Agent upon receipt of such money or other property and shall be
applied in accordance with the provisions of Section 7. After all Events of
Default have been cured or waived, the Collateral Agent shall, within five
Business Days after all such Events of Default have been cured or waived, repay
to each Pledgor all cash dividends, interest,
<PAGE>
7
principal or other distributions (without interest), that such Pledgor would
otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii)
above and which remain in such account.
(c) Upon the occurrence and during the continuance of an Event of Default,
all rights of any Pledgor to exercise the voting and consensual rights and
powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section
5, and the obligations of the Collateral Agent under paragraph (a)(ii) of this
Section 5, shall cease, and all such rights shall thereupon become vested in the
Collateral Agent, which shall have the sole and exclusive right and authority to
exercise such voting and consensual rights and powers, provided that, unless
--------
otherwise directed by the Required Lenders, the Collateral Agent shall have the
right from time to time following and during the continuance of an Event of
Default to permit the Pledgors to exercise such rights. After all Events of
Default have been cured or waived, such Pledgor will have the right to exercise
the voting and consensual rights and powers that it would otherwise be entitled
to exercise pursuant to the terms of paragraph (a)(i) above.
SECTION 6. Remedies upon Default. Upon the occurrence and during the
----------------------
continuance of an Event of Default, subject to applicable regulatory and legal
requirements, the Collateral Agent may sell the Collateral, or any part thereof,
at public or private sale or at any broker's board or on any securities
exchange, for cash, upon credit or for future delivery as the Collateral Agent
shall deem appropriate. The Collateral Agent shall be authorized at any such
sale (if it deems it advisable to do so) to restrict the prospective bidders or
purchasers to Persons who will represent and agree that they are purchasing the
Collateral for their own account for investment and not with a view to the
distribution or sale thereof, and upon consummation of any such sale the
Collateral Agent shall have the right to assign, transfer and deliver to the
purchaser or purchasers thereof the Collateral so sold. Each such purchaser at
any such sale shall hold the property sold absolutely free from any claim or
right on the part of any Pledgor, and, to the extent permitted by applicable
law, the Pledgors hereby waive all rights of redemption, stay, valuation and
appraisal any Pledgor now has or may at any time in the future have under any
rule of law or statute now existing or hereafter enacted.
The Collateral Agent shall give a Pledgor 10 days' prior written notice
(which each Pledgor agrees is reasonable notice within the meaning of Section 9-
504(3) of the Uniform Commercial Code as in effect in the State of New York or
its
<PAGE>
8
equivalent in other jurisdictions) of the Collateral Agent's intention to make
any sale of such Pledgor's Collateral. Such notice, in the case of a public
sale, shall state the time and place for such sale and, in the case of a sale at
a broker's board or on a securities exchange, shall state the board or exchange
at which such sale is to be made and the day on which the Collateral, or portion
thereof, will first be offered for sale at such board or exchange. Any such
public sale shall be held at such time or times within ordinary business hours
and at such place or places as the Collateral Agent may fix and state in the
notice of such sale. At any such sale, the Collateral, or portion thereof, to be
sold may be sold in one lot as an entirety or in separate parcels, as the
Collateral Agent may (in its sole and absolute discretion) determine. The
Collateral Agent shall not be obligated to make any sale of any Collateral if it
shall determine not to do so, regardless of the fact that notice of sale of such
Collateral shall have been given. The Collateral Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. In case any sale of all or any part of the
Collateral is made on credit or for future delivery, the Collateral so sold may
be retained by the Collateral Agent until the sale price is paid in full by the
purchaser or purchasers thereof, but the Collateral Agent shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and pay
for the Collateral so sold and, in case of any such failure, such Collateral may
be sold again upon like notice. At any public (or, to the extent permitted by
applicable law, private) sale made pursuant to this Section 6, any Secured Party
may bid for or purchase, free from any right of redemption, stay or appraisal on
the part of any Pledgor (all said rights being also hereby waived and released),
the Collateral or any part thereof offered for sale and may make payment on
account thereof by using any claim then due and payable to it from such Pledgor
as a credit against the purchase price, and it may, upon compliance with the
terms of sale, hold, retain and dispose of such property without further
accountability to such Pledgor therefor. For purposes hereof, (a) a written
agreement to purchase the Collateral or any portion thereof shall be treated as
a sale thereof, (b) the Collateral Agent shall be free to carry out such sale
pursuant to such agreement and (c) such Pledgor shall not be entitled to the
return of the Collateral or any portion thereof subject thereto, notwithstanding
the fact that after the Collateral Agent shall have entered into such an
agreement all Events of Default shall have been remedied and the Obligations
paid in full. As an alternative to exercising
<PAGE>
9
the power of sale herein conferred upon it, the Collateral Agent may proceed by
a suit or suits at law or in equity to foreclose upon the Collateral and to sell
the Collateral or any portion thereof pursuant to a judgment or decree of a
court or courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver. Any sale pursuant to the provisions of this Section 6
shall be deemed to conform to the commercially reasonable standards as provided
in Section 9-504(3) of the Uniform Commercial Code as in effect in the State of
New York or its equivalent in other jurisdictions.
SECTION 7. Application of Proceeds of Sale. The Collateral Agent shall
--------------------------------
apply the proceeds of any collection or sale of Collateral as well as any
Collateral consisting of cash:
FIRST, to the payment of all costs and expenses incurred by the
Administrative Agent or the Collateral Agent (in its capacity as such
hereunder or under any other Loan Document) in connection with such
collection or sale or otherwise in connection with this Agreement, any
other Loan Document or any of the Obligations, including all court costs
and the reasonable fees and expenses of its agents and legal counsel, the
repayment of all advances made by the Collateral Agent hereunder or under
any other Loan Document on behalf of any Pledgor and any other costs or
expenses incurred by the Collateral Agent or the Administrative Agent in
connection with the exercise of any right or remedy hereunder or under
any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Pledgors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the purchase money by the Collateral Agent or of the officer
making the sale shall be a sufficient discharge to the purchaser or purchasers
of the
<PAGE>
10
Collateral so sold and such purchaser or purchasers shall not be obligated to
see to the application of any part of the purchase money paid over to the
Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
SECTION 8. Reimbursement of Collateral Agent. (a) Each Pledgor agrees to
----------------------------------
pay upon demand to the Collateral Agent the amount of any and all reasonable
expenses, including the reasonable fees, other charges and disbursements of its
counsel and of any experts or agents, that the Collateral Agent may incur in
connection with (i) the administration of this Agreement, (ii) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Collateral, (iii) the exercise or enforcement of any of the rights of the
Collateral Agent hereunder or (iv) the failure by such Pledgor to perform or
observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations under the other
Loan Documents, each Pledgor agrees to indemnify the Collateral Agent and the
Indemnitees (as defined in Section 9.03 of the Credit Agreement) against, and
hold each Indemnitee harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable counsel fees, other
charges and disbursements, incurred by or asserted against any Indemnitee
arising out of, in any way connected with, or as a result of (i) the execution
or delivery of this Agreement or any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties hereto
of their respective obligations thereunder or the consummation of the
Transactions and the other transactions contemplated thereby or (ii) any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto, provided that such indemnity
--------
shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or wilful misconduct of such Indemnitee.
(c) Any amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 8 shall remain operative and in full force and effect regardless
of the termination of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any of the Obligations, the invalidity or
unenforceability of any term or provision of this Agreement or any other Loan
Document or any
<PAGE>
11
investigation made by or on behalf of the Collateral Agent or any other Secured
Party. All amounts due under this Section 8 shall be payable on written demand
therefor and shall bear interest at the rate specified in Section 2.13 of the
Credit Agreement.
SECTION 9. Collateral Agent Appointed Attorney-in-Fact. Each Pledgor
--------------------------------------------
hereby appoints the Collateral Agent the attorney-in-fact of such Pledgor for
the purpose of carrying out the provisions of this Agreement and taking any
action and executing any instrument that the Collateral Agent may deem necessary
or advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest, upon the occurrence and during the continuance of
an Event of Default, with full power of substitution either in the Collateral
Agent's name or in the name of such Pledgor, to ask for, demand, sue for,
collect, receive and give acquittance for any and all moneys due or to become
due under and by virtue of any Collateral, to endorse checks, drafts, orders and
other instruments for the payment of money payable to the Pledgor representing
any interest or dividend or other distribution payable in respect of the
Collateral or any part thereof or on account thereof and to give full discharge
for the same, to settle, compromise, prosecute or defend any action, claim or
proceeding with respect thereto, and to sell, assign, endorse, pledge, transfer
and to make any agreement respecting, or otherwise deal with, the same;
provided, however, that nothing herein contained shall be construed as requiring
- -------- -------
or obligating the Collateral Agent to make any commitment or to make any inquiry
as to the nature or sufficiency of any payment received by the Collateral Agent,
or to present or file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby. The Collateral Agent and the other
Secured Parties shall be accountable only for amounts actually received as a
result of the exercise of the powers granted to them herein, and neither they
nor their officers, directors, employees or agents shall be responsible to any
Pledgor for any act or failure to act hereunder, except for their own gross
negligence or wilful misconduct.
SECTION 10. Waivers; Amendment. (a) No failure or delay of the
-------------------
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the other
<PAGE>
12
Secured Parties under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provisions of this Agreement or consent to any departure by any Pledgor
therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) below, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice or demand
on any Pledgor in any case shall entitle such Pledgor to any other or further
notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Collateral Agent and the Pledgor or Pledgors with respect to which such waiver,
amendment or modification is to apply, subject to any consent required in
accordance with Section 9.02 of the Credit Agreement.
SECTION 11. Securities Act, etc. In view of the position of the Pledgors
--------------------
in relation to the Pledged Securi ties, or because of other current or future
circumstances, a question may arise under the Securities Act of 1933, as now or
hereafter in effect, or any similar statute hereafter enacted analogous in
purpose or effect (such Act and any such similar statute as from time to time in
effect being called the "Federal Securities Laws") with respect to any
-----------------------
disposition of the Pledged Securities permitted hereunder. Each Pledgor
understands that compliance with the Federal Securities Laws might very strictly
limit the course of conduct of the Collateral Agent if the Collateral Agent were
to attempt to dispose of all or any part of the Pledged Securities, and might
also limit the extent to which or the manner in which any subsequent transferee
of any Pledged Securities could dispose of the same. Similarly, there may be
other legal restrictions or limitations affecting the Collateral Agent in any
attempt to dispose of all or part of the Pledged Securities under applicable
Blue Sky or other state securities laws or similar laws analogous in purpose or
effect. Each Pledgor recognizes that in light of such restrictions and
limitations the Collateral Agent may, with respect to any sale of the Pledged
Securities, limit the purchasers to those who will agree, among other things, to
acquire such Pledged Securities for their own account, for investment, and not
with a view to the distribution or resale thereof. Each Pledgor acknowledges
and agrees that in light of such restrictions and limitations, the Collateral
Agent, in its sole and absolute discretion, (a) may proceed to make such a sale
whether or not a registration statement for the purpose of registering such
Pledged Securities or part thereof shall have been filed under
<PAGE>
13
the Federal Securities Laws and (b) may approach and negotiate with a single
potential purchaser to effect such sale. Each Pledgor acknowledges and agrees
that any such sale might result in prices and other terms less favorable to the
seller than if such sale were a public sale without such restrictions. In the
event of any such sale, the Collateral Agent shall incur no responsibility or
liability for selling all or any part of the Pledged Securities at a price that
the Collateral Agent, in its sole and absolute discretion, may in good faith
deem reasonable under the circumstances, notwithstanding the possibility that a
substantially higher price might have been realized if the sale were deferred
until after registration as aforesaid or if more than a single purchaser were
approached. The provisions of this Section 11 will apply notwithstanding the
existence of a public or private market upon which the quotations or sales
prices may exceed substantially the price at which the Collateral Agent sells.
SECTION 12. Registration, etc. Each Pledgor agrees that, upon the
------------------
occurrence and during the continuance of an Event of Default hereunder, if for
any reason the Collateral Agent desires to sell any of the Pledged Securities at
a public sale, it will, at any time and from time to time, upon the written
request of the Collateral Agent, use its best efforts to take or to cause the
issuer of such Pledged Securities to take such action and prepare, distribute
and/or file such documents, as are required or advisable in the reasonable
opinion of counsel for the Collateral Agent to permit the public sale of such
Pledged Securities. Each Pledgor further agrees to indemnify, defend and hold
harmless the Collateral Agent, each other Secured Party, any underwriter and
their respective officers, directors, affiliates and controlling Persons from
and against all loss, liability, expenses, costs of counsel (including, without
limitation, reasonable fees and expenses to the Collateral Agent of legal
counsel), and claims (including the costs of investigation) that they may incur
insofar as such loss, liability, expense or claim arises out of or is based upon
any alleged untrue statement of a material fact contained in any prospectus (or
any amendment or supplement thereto) or in any notification or offering
circular, or arises out of or is based upon any alleged omission to state a
material fact required to be stated therein or necessary to make the statements
in any thereof not misleading, except insofar as the same may have been caused
by any untrue statement or omission based upon information furnished in writing
to such Pledgor or the issuer of such Pledged Securities by the Collateral Agent
or any other Secured Party expressly for use therein. Each Pledgor further
agrees, upon such written
<PAGE>
14
request referred to above, to use its best efforts to qualify, file or register,
or cause the issuer of such Pledged Securities to qualify, file or register, any
of the Pledged Securities under the Blue Sky or other securities laws of such
states as may be requested by the Collateral Agent and keep effective, or cause
to be kept effective, all such qualifications, filings or registrations. Each
Pledgor will bear all costs and expenses of carrying out its obligations under
this Section 12. Each Pledgor acknowledges that there is no adequate remedy at
law for failure by it to comply with the provisions of this Section 12 and that
such failure would not be adequately compensable in damages, and therefore
agrees that its agreements contained in this Section 12 may be specifically
enforced.
SECTION 13. Security Interest Absolute. All rights of the Collateral
---------------------------
Agent hereunder, the grant of a security interest in the Collateral and all
obligations of each Pledgor hereunder, shall be absolute and unconditional
irrespective of (a) any lack of validity or enforceability of the Credit
Agreement, any other Loan Document, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Credit Agreement, any other Loan
Document or any other agreement or instrument relating to any of the foregoing,
(c) any exchange, release or nonperfection of any other collateral, or any
release or amendment or waiver of or consent to or departure from any guaranty,
for all or any of the Obligations or (d) any other circumstance that might
otherwise constitute a defense available to, or a discharge of, any Pledgor in
respect of the Obligations or in respect of this Agreement (other than the
indefeasible payment in full of all the Obligations).
SECTION 14. Termination or Release. (a) This Agreement and the security
-----------------------
interests granted hereunder shall terminate when all the Obligations (other than
inchoate indemnification and reimbursement obligations) have been indefeasibly
paid in full, Lenders have no further commitment to lend, the LC Exposure has
been reduced to zero and the Issuing Bank has no further commitment to issue
Letters of Credit under the Credit Agreement, at which time the Collateral Agent
shall execute and deliver to the Pledgors, at the Pledgors' expense, all Uniform
Commercial Code termination statements and similar documents which the Pledgors
shall reasonably request to evidence such termination. Any execution and
delivery of termination statements or documents pursuant to this
<PAGE>
15
Section 7.14 shall be without recourse to or warranty by the Collateral Agent.
(b) A Pledgor which is a Subsidiary shall automatically be released from
its obligations hereunder and the Security Interest in the Collateral of such
Pledgor shall be automatically released in the event that all the capital stock
of such Pledgor shall be sold, transferred or otherwise disposed of to a Person
that is not an Affiliate of the Borrower in accordance with the terms of the
Credit Agreement; provided that if the Credit Agreement so requires, the Lenders
shall have consented pursuant to Section 9.02 of the Credit Agreement to such
sale, transfer or other disposition and the terms of such consent did not
provide otherwise.
(c) Upon any sale or other transfer by any Pledgor of any Collateral that
is permitted under the Credit Agreement to any Person that is not a Pledgor, or,
upon the effectiveness of any written consent to the release of the security
interest granted hereby in any Collateral pursuant to Section 9.02(b) of the
Credit Agreement, the security interest in such Collateral shall be
automatically released.
SECTION 15. Notices. All communications and notices hereunder shall be in
--------
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to any Subsidiary Pledgor shall be given to
it at the address for notices set forth on Schedule I.
SECTION 16. Further Assurances. Each Pledgor agrees to do such further
-------------------
acts and things, and to execute and deliver such additional conveyances,
assignments, agreements and instruments, as the Collateral Agent may at any time
reasonably request in connection with the administration and enforcement of this
Agreement or with respect to the Collateral or any part thereof or in order
better to assure and confirm unto the Collateral Agent its rights and remedies
hereunder.
SECTION 17. Binding Effect; Several Agreement; Assignments. Whenever in
-----------------------------------------------
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of any Pledgor that are contained in
this Agreement shall bind and inure to the benefit of its successors and
assigns. This Agreement shall become effective as to any Pledgor when a
counterpart hereof executed on behalf of such Pledgor shall have been delivered
to the Collateral Agent and a counterpart hereof shall have been executed on
behalf of the Collateral
<PAGE>
16
Agent, and thereafter shall be binding upon such Pledgor and the Collateral
Agent and their respective successors and assigns, and shall inure to the
benefit of such Pledgor, the Collateral Agent and the other Secured Parties, and
their respective successors and assigns, except that no Pledgor shall have the
right to assign its rights hereunder or any interest herein or in the Collateral
(and any such attempted assignment shall be void), except as expressly
contemplated by this Agreement or the other Loan Documents. If all of the
capital stock of a Pledgor is sold, transferred or otherwise disposed of to a
Person that is not an Affiliate of the Borrower or Holdings pursuant to a
transaction permitted by Section 6.05 of the Credit Agreement, such Pledgor
shall be released from its obligations under this Agreement without further
action. This Agreement shall be construed as a separate agreement with respect
to each Pledgor and may be amended, modified, supplemented, waived or released
with respect to any Pledgor without the approval of any other Pledgor and
without affecting the obligations of any other Pledgor hereunder
SECTION 18. Survival of Agreement; Severability. (a) All covenants,
------------------------------------
agreements, representations and warranties made by each Pledgor herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank, regardless of any investigation made by
the Secured Parties or on their behalf, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loan or any
other fee or amount payable under this Agreement or any other Loan Document is
outstanding and unpaid or the LC Exposure does not equal zero and as long as the
Commitments have not been terminated.
(b) In the event any one or more of the provisions contained in this
Agreement should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby (it being understood
that the invalidity of a particular provision in a particular jurisdiction shall
not in and of itself affect the validity of such provision in any other
jurisdiction). The parties shall endeavor in good-faith negotiations to replace
the invalid, illegal or unenforceable provisions with valid provisions the
economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
<PAGE>
17
SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
--------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 20. Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute a single contract, and shall become effective
as provided in Section 17. Delivery of an executed counterpart of a signature
page to this Agreement by facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Agreement.
SECTION 21. Rules of Interpretation. The rules of interpretation
------------------------
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement. Section headings used herein are for convenience of reference only,
are not part of this Agreement and are not to affect the construction of, or to
be taken into consideration in interpreting this Agreement.
SECTION 22. Jurisdiction; Consent to Service of Process. (a) Each
--------------------------------------------
Pledgor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that, to the extent permitted by applicable law, all
claims in respect of any such action or proceeding may be heard and determined
in such New York State or, to the extent permitted by law, in such Federal
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Collateral Agent or
any other Secured Party may otherwise have to bring any action or proceeding
relating to this Agreement or the other Loan Documents against any Pledgor or
its properties in the courts of any jurisdiction.
(b) Each Pledgor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties
<PAGE>
18
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 15. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
SECTION 23. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
---------------------
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 24. Additional Pledgors. Pursuant to Section 5.12 of the Credit
--------------------
Agreement, each Subsidiary of Holdings that was not in existence or not a
Subsidiary on the date of the Credit Agreement is required to enter in this
Agreement as a Subsidiary Pledgor upon becoming a Subsidiary if such Subsidiary
owns or possesses property of a type that would be considered Collateral
hereunder. Upon execution and delivery by the Collateral Agent and a Subsidiary
of an instrument in the form of Annex 1, such Subsidiary shall become a
Subsidiary Pledgor hereunder with the same force and effect as if originally
named as a Subsidiary Pledgor herein. The execution and delivery of such
instrument shall not require the consent of any Pledgor hereunder. The rights
and obligations of each Pledgor hereunder shall remain in full force and effect
notwithstanding the addition of any new Subsidiary Pledgor as a party to this
Agreement.
<PAGE>
19
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
ADVANCE STORES COMPANY,
INCORPORATED,
by
/s/ J. O'Neil Leftwich
-----------------------------
Name: J. O'Neil Leftwich
Title: SVP/CFO Secretary/Treasurer
ADVANCE HOLDING
CORPORATION,
by
/s/ J. O'Neil Leftwich
------------------------------
Name: J. O'Neil Leftwich
Title: SVP/CFO Secretary Treasurer
LARALEV, INC.,
by /s/ David C. Eppes
------------------------------
Name: David C. Eppes
Title: President
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by /s/ Deborah Davey
-----------------------------------
Name: Deborah Davey
Title: Vice President
<PAGE>
EXHIBIT 10.4
EXECUTED COPY
GUARANTEE AGREEMENT dated as of April 15, 1998, among
ADVANCE HOLDING CORPORATION, a Virginia corporation ("Holdings"),
--------
each of the subsidiaries of Holdings listed on Schedule I hereto
(each such subsidiary individually, a "Subsidiary Guarantor" and
--------------------
collectively, the "Subsidiary Guarantors" and, together with
---------------------
Holdings, the "Guarantors"), and THE CHASE MANHATTAN BANK, a New
----------
York banking corporation ("Chase"), as collateral agent (in such
-----
capacity, the "Collateral Agent") for the Secured Parties (as
----------------
defined in the Security Agreement, Exhibit G to the Credit
Agreement referred to below).
Reference is made to the Credit Agreement dated as of April 15, 1998 (as
amended, supplemented or otherwise modified from time to time, the "Credit
------
Agreement"), among Holdings, Advance Stores Company, Incorporated, a Virginia
- ---------
corporation (the "Borrower"), the lenders from time to time party thereto (the
--------
"Lenders"), DLJ Capital Funding, Inc. as syndication agent, First Union National
- --------
Bank, as documentation agent, and Chase, as administrative agent (in such
capacity, the "Administrative Agent") for the Lenders, Collateral Agent and as
-------------------
issuing bank (in such capacity, the "Issuing Bank"). Capitalized terms used
------------
herein and not defined herein shall have the meanings assigned to such terms in
the Credit Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. The Borrower has elected that the Guarantors guarantee the
Obligations (as defined below) by entering into this Agreement. Each of the
Subsidiary Guarantors is a direct or indirect Subsidiary of Holdings and each
of the Subsidiary Guarantors and Holdings acknowledges that it will derive
substantial benefit from the making of the Loans by the Lenders, and the
issuance of the Letters of Credit by the Issuing Bank. The obligations of the
Lenders to make Loans and of the Issuing Bank to issue Letters of Credit are
conditioned on, among other things, the execution and delivery by the Guarantors
of a Guarantee Agreement in the form hereof. As consideration therefor and in
order to induce the Lenders to make Loans and the Issuing Bank to issue Letters
of Credit, the Guarantors are willing to execute this Agreement.
<PAGE>
2
Accordingly, the parties hereto agree as follows:
SECTION 1. Guarantee. Each Guarantor unconditionally guarantees, jointly
----------
with the other Guarantors and severally, as a primary obligor and not merely as
a surety, (a) the due and punctual payment of (i) the principal of and premium,
if any, and interest (including interest accruing during the pendency of any
bankruptcy, insolvency, receivership or other similar proceeding, regardless of
whether allowed or allowable in such proceeding) on the Loans, when and as due,
whether at maturity, by acceleration, upon one or more dates set for prepayment
or otherwise, (ii) each payment required to be made by the Borrower under the
Credit Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements made by the Issuing Bank
with respect thereto, interest thereon and obligations to provide, under certain
circumstances, cash collateral in connection therewith and (iii) all other
monetary obligations, including fees, costs, expenses and indemnities, whether
primary, secondary, direct, contingent, fixed or otherwise (including monetary
obligations incurred during the pendency of any bankruptcy, insolvency, receiver
ship or other similar proceeding, regardless of whether allowed or allowable in
such proceeding), of the Loan Parties to the Secured Parties under the Credit
Agreement and the other Loan Documents and (b) unless otherwise agreed to in
writing by the applicable Lender party thereto, the due and punctual payment and
performance of all monetary obligations of the Borrower under each Hedging
Agreement entered into with any counterparty that was a Lender (or an Affiliate
of a Lender) at the time such Hedging Agreement was entered into (all the
monetary obligations described in the preceding clauses (a) and (b) being
collectively called the "Obligations"). Each Guarantor further agrees that the
-----------
Obligations may be extended or renewed, in whole or in part, without notice to
or further assent from it, and that the security interest granted hereunder and
the obligations of each Pledgor will survive any extension or renewal of any
Obligation.
SECTION 2. Obligations Not Waived. To the fullest extent permitted by
-----------------------
applicable law, each Guarantor waives presentment to, demand of payment from and
protest to the Borrower of any of the Obligations, and also waives notice of
acceptance of its guarantee and notice of protest for nonpayment. To the
fullest extent permitted by applicable law, the obligations of each Guarantor
hereunder shall not be affected by (a) the failure of the Collateral Agent or
any other Secured Party to assert any claim or demand or to enforce or exercise
any right or remedy against the Borrower
<PAGE>
3
or any other Guarantor under the provisions of the Credit Agreement, any other
Loan Document or otherwise, (b) any rescission, waiver, amendment or
modification of, or any release from, any of the terms or provisions of this
Agreement, any other Loan Document, any Guarantee or any other agreement,
including with respect to any other Guarantor under this Agreement or (c) the
failure to perfect any security interest in, or the release of, any of the
security held by or on behalf of the Collateral Agent or any other Secured
Party.
SECTION 3. Security. Each of the Guarantors authorizes the Collateral
---------
Agent and each of the other Secured Parties to (a) take and hold security for
the payment of this Guarantee and the Obligations and exchange, enforce, waive
and release any such security, (b) apply such security and direct the order or
manner of sale thereof as they in their sole discretion may determine and (c)
release or substitute any one or more endorsees, other Guarantors or other
obligors in respect of the Obligations.
SECTION 4. Guarantee of Payment. Each Guarantor further agrees that its
---------------------
guarantee constitutes a guarantee of payment when due and not of collection, and
waives any right to require that any resort be had by the Collateral Agent or
any other Secured Party to any of the security held for payment of the
Obligations or to any balance of any deposit account or credit on the books of
the Collateral Agent or any other Secured Party in favor of the Borrower or any
other Person.
SECTION 5. No Discharge or Diminishment of Guarantee. The obligations of
------------------------------------------
each Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than the indefeasible payment in
full in cash of the Obligations), including any claim of waiver, release,
surrender, alteration or compromise of any of the Obligations, and shall not be
subject to any defense or setoff, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of each Guarantor hereunder shall not be discharged or impaired or
otherwise affected by the failure of the Collateral Agent or any other Secured
Party to assert any claim or demand or to enforce any remedy under the Credit
Agreement, any other Loan Document or any other agreement, by any waiver or
modification of any provision of any thereof, by any default, failure or delay,
wilful or otherwise, in the performance of the Obligations, or by any
<PAGE>
4
other act or omission that may or might in any manner or to any extent vary the
risk of any Guarantor or that would otherwise operate as a discharge of each
Guarantor as a matter of law or equity (other than the indefeasible payment in
full in cash of all the Obligations).
SECTION 6. Defenses of Borrower Waived. To the fullest extent permitted
----------------------------
by applicable law, each of the Guarantors waives any defense based on or arising
out of any defense of the Borrower or the unenforceability of the Obligations or
any part thereof from any cause, or the cessation from any cause of the
liability of the Borrower, other than the final and indefeasible payment in full
in cash of the Obligations. The Collateral Agent and the other Secured Parties
may, at their election, foreclose on any security held by one or more of them by
one or more judicial or nonjudicial sales, accept an assignment of any such
security in lieu of foreclosure, compromise or adjust any part of the
Obligations, make any other accommodation with the Borrower or any other
guarantor or exercise any other right or remedy available to them against the
Borrower or any other guarantor, without affecting or impairing in any way the
liability of any Guarantor hereunder except to the extent the Obligations have
been fully, finally and indefeasibly paid in cash. Pursuant to applicable law,
each of the Guarantors waives any defense arising out of any such election even
though such election operates, pursuant to applicable law, to impair or to
extinguish any right of reimbursement or subrogation or other right or remedy of
such Guarantor against the Borrower or any other Guarantor or guarantor, as the
case may be, or any security.
SECTION 7. Agreement to Pay; Subordination. In furtherance of the
--------------------------------
foregoing and not in limitation of any other right that the Collateral Agent or
any other Secured Party has at law or in equity against any Guarantor by virtue
hereof, upon the failure of the Borrower or any other Loan Party to pay any
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, each Guarantor hereby
promises to and will forthwith pay, or cause to be paid, to or as directed by
the Collateral Agent in cash the amount of such unpaid Obligations. Upon
payment by any Guarantor of any sums to or as directed by the Collateral Agent
as provided above, all rights of such Guarantor against the Borrower arising as
a result thereof by way of right of subrogation, contribution, reimbursement,
indemnity or otherwise shall in all respects be subordinate and junior in right
of payment to the prior indefeasible payment in full in cash of all the
Obligations. In addition, any
<PAGE>
5
indebtedness of any Loan Party now or hereafter owed to any Guarantor is hereby
subordinated in right of payment to the prior payment in full of the
Obligations. If, at any time that a Default has occurred and is continuing, any
amount shall be paid to any Guarantor on account of (i) such subrogation,
contribution, reimbursement, indemnity or similar right or (ii) any such
indebtedness of any Loan Party, such amount shall be held in trust for the
benefit of the Secured Parties and shall forthwith be paid to the Collateral
Agent to be credited against the payment of the Obligations, whether matured or
unmatured, in accordance with the terms of the Loan Documents.
SECTION 8. Information. Each of the Guarantors assumes all responsibility
------------
for being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Obligations and the nature, scope and extent of the risks that such
Guarantor assumes and incurs hereunder, and agrees that none of the Collateral
Agent or the other Secured Parties will have any duty to advise any of the
Guarantors of information known to it or any of them regarding such
circumstances or risks.
SECTION 9. Representations and Warranties. Each of the Subsidiary
-------------------------------
Guarantors represents and warrants as to itself that all representations and
warranties relating to it contained in the Credit Agreement are true and
correct.
SECTION 10. Termination. The Guarantees made hereunder (a) shall
------------
terminate when all the Obligations (other than inchoate indemnification and
reimbursement obligations) have been indefeasibly paid in full and the Lenders
have no further commitment to lend under the Credit Agreement, the LC Exposure
has been reduced to zero and the Issuing Bank has no further obligation to issue
Letters of Credit under the Credit Agreement and (b) shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any Obligation is rescinded or must otherwise be restored by
any Secured Party or any Guarantor upon the bankruptcy or reorganization of the
Borrower, any Guarantor or otherwise.
SECTION 11. Binding Effect; Several Agreement; Assignments. Whenever in
-----------------------------------------------
this Agreement any of the parties hereto is referred to, such reference shall be
deemed to include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Guarantors that are contained in
this Agreement shall bind and inure to the benefit of each party hereto and
their
<PAGE>
6
respective successors and assigns. This Agreement shall become effective as to
any Guarantor when a counterpart hereof executed on behalf of such Guarantor
shall have been delivered to the Collateral Agent, and a counterpart hereof
shall have been executed on behalf of the Collateral Agent, and thereafter shall
be binding upon such Guarantor and the Collateral Agent and their respective
successors and assigns, and shall inure to the benefit of such Guarantor, the
Collateral Agent and the other Secured Parties, and their respective successors
and assigns, except that no Guarantor shall have the right to assign its rights
or obligations hereunder or any interest herein (and any such attempted
assignment shall be void). If all of the capital stock of a Subsidiary Guarantor
is sold, transferred or otherwise disposed of (other than to Holdings or a
Subsidiary of Holdings) pursuant to a transaction permitted by Section 6.05 of
the Credit Agreement, such Subsidiary Guarantor shall be released from its
obligations under this Agreement without further action. This Agreement shall be
construed as a separate agreement with respect to each Guarantor and may be
amended, modified, supplemented, waived or released with respect to any
Guarantor without the approval of any other Guarantor and without affecting the
obligations of any other Guarantor hereunder.
SECTION 12. Waivers; Amendment. (a) No failure or delay of the
-------------------
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the other Secured Parties under the other Loan Documents are cumulative
and are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provision of this Agreement or consent to any departure by any
Guarantor therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) below, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice or demand on any Guarantor in any case shall entitle such Guarantor to
any other or further notice or demand in similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Guarantors with respect to which such waiver, amendment or modification
<PAGE>
7
relates and the Collateral Agent, subject to any consent required in accordance
with Section 9.02 of the Credit Agreement.
SECTION 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
--------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 14. Notices. All communications and notices hereunder shall be in
--------
writing and given as provided in Section 9.01 of the Credit Agreement. All
communications and notices hereunder to each Subsidiary Guarantor shall be given
to it at its address set forth in Schedule I.
SECTION 15. Survival of Agreement; Severability. (a) All covenants,
------------------------------------
agreements, representations and warranties made by the Guarantors herein and in
the certificates or other instruments prepared or delivered in connection with
or pursuant to this Agreement or any other Loan Document shall be considered to
have been relied upon by the Collateral Agent and the other Secured Parties and
shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank regardless of any investigation made by
the Secured Parties or on their behalf, and shall continue in full force and
effect until all the Obligations have been indefeasibly paid in full, the
Lenders have no further commitment to lend, the LC Exposure has been reduced to
zero and the Issuing Bank has no further commitment to issue Letters of Credit
under the Credit Agreement.
(b) In the event any one or more of the provisions contained in this
Agreement or in any other Loan Document should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby (it being understood that the invalidity of a
particular provision in a particular jurisdiction shall not in and of itself
affect the validity of such provision in any other jurisdiction). The parties
shall endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 16. Counterparts. This Agreement may be executed in counterparts,
-------------
each of which shall constitute an original, but all of which when taken together
shall constitute a single contract, and shall become effective as provided in
Section 11. Delivery of an executed signature page to this Agreement by
facsimile transmission shall be as effective as
<PAGE>
8
delivery of a manually executed counterpart of this Agreement.
SECTION 17. Rules of Interpretation. The rules of interpretation
------------------------
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
SECTION 18. Jurisdiction; Consent to Service of Process. (a) Each
--------------------------------------------
Guarantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or the other Loan Documents, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Collateral Agent or any other Secured Party may otherwise have to bring any
action or proceeding relating to this Agreement or the other Loan Documents
against any Guarantor or its properties in the courts of any jurisdiction.
(b) Each Guarantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 14. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
<PAGE>
9
SECTION 19. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
---------------------
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 19.
SECTION 20. Additional Subsidiary Guarantors. Pursuant to Section 5.12 of
---------------------------------
the Credit Agreement, each Subsidiary of Holdings which is also a Subsidiary
Loan Party that was not in existence or not a Subsidiary on the date of the
Credit Agreement is required to enter into this Agreement as a Subsidiary
Guarantor upon becoming a Subsidiary. Upon execution and delivery after the
date hereof by the Collateral Agent and such a Subsidiary of an instrument in
the form of Annex 1, such Subsidiary shall become a Subsidiary Guarantor
hereunder with the same force and effect as if originally named as a Subsidiary
Guarantor herein. The execution and delivery of any instrument adding an
additional Subsidiary Guarantor as a party to this Agreement shall not require
the consent of any other Guarantor hereunder. The rights and obligations of
each Guarantor hereunder shall remain in full force and effect notwithstanding
the addition of any new Subsidiary Guarantor as a party to this Agreement.
SECTION 21. Right of Setoff. If an Event of Default shall have occurred
----------------
and be continuing, each Secured Party is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other Indebtedness at any time owing by such Secured Party to
or for the credit or the account of any Guarantor against any or all the
obligations of such Guarantor now or hereafter existing under this Agreement and
the other Loan Documents held by such Secured Party, irrespective of whether or
not such Secured Party shall have made any demand under this Agreement or any
other Loan Document and although such obligations may be unmatured. The rights
of each Secured Party under this Section 21 are in addition to other rights
<PAGE>
10
and remedies (including other rights of setoff) which such Secured Party may
have.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
LARALEV, INC., as a Guarantor,
by /s/ David C. Eppes
--------------------------
Name: David C. Eppes
Title: President
ADVANCE HOLDING CORPORATION,
as a Guarantor,
by /s/ J O'Neil Leftwich
--------------------------
Name: J O'Neil Leftwich
Title: SVP/CFO Secretary
Treasurer
THE CHASE MANHATTAN BANK,
as Collateral Agent,
by /s/ Deborah Davey
--------------------------
Name: Deborah Davey
Title: Vice President
<PAGE>
EXHIBIT 10.5
EXECUTED COPY
INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT dated as
of April 15, 1998, among ADVANCE STORES COMPANY, INCORPORATED, a
Virginia corporation (the "Borrower") and a wholly-owned
subsidiary of ADVANCE HOLDING CORPORATION, a Virginia corporation
("Holdings"), each subsidiary of the Borrower listed on Schedule
I hereto (the "Guarantors") and THE CHASE MANHATTAN BANK, a New
York banking corporation ("Chase"), as collateral agent (in such
capacity, the "Collateral Agent") for the Secured Parties (as
defined in the Credit Agreement referred to below).
Reference is made to (a) the Credit Agreement dated as of April 15, 1998
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, Holdings, the lenders from time to time party
thereto (the "Lenders"), DLJ Capital Funding, Inc., as syndication agent, First
Union National Bank, as documentation Agent, and Chase, as administrative agent
for the Lenders (in such capacity, the "Administrative Agent"), Collateral Agent
and issuing bank (in such capacity, the "Issuing Bank"), and (b) the Guarantee
Agreement dated as of April 15, 1998, among the Guarantors, Holdings and the
Collateral Agent (the "Guarantee Agreement"). Capitalized terms used herein and
not defined herein shall have the meanings assigned to such terms in the Credit
Agreement.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. The Guarantors have agreed to guarantee such Loans and the other
Obligations (as defined in the Guarantee Agree ment) of the Borrower under the
Credit Agreement pursuant to the Guarantee Agreement; certain Guarantors have
granted Liens on and security interests in certain of their assets to secure the
Obligations. The obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit are conditioned on, among other things, the
execution and delivery by the Borrower and the Guarantors of an agreement in the
form hereof.
<PAGE>
2
Accordingly, the Borrower, each Guarantor and the Collateral Agent agree as
follows:
SECTION 1. Indemnity and Subrogation. In addition to all such rights of
indemnity and subrogation as the Guarantors may have under applicable law (but
subject to Section 3), the Borrower agrees that (a) in the event a payment shall
be made by any Guarantor under the Guarantee Agreement, the Borrower shall
indemnify such Guarantor for the full amount of such payment and such Guarantor
shall be subrogated to the rights of the Person to whom such payment shall have
been made to the extent of such payment and (b) in the event any assets of any
Guarantor shall be sold pursuant to any Security Document to satisfy a claim of
any Secured Party, the Borrower shall indemnify such Guarantor in an amount
equal to the greater of the book value or the fair market value of the assets so
sold.
SECTION 2. Contribution and Subrogation. Each Guarantor (a "Contributing
Guarantor") agrees (subject to Section 3) that, in the event a payment shall be
made by any other Guarantor under the Guarantee Agreement or assets of any other
Guarantor shall be sold pursuant to any Security Document to satisfy a claim of
any Secured Party and such other Guarantor (the "Claiming Guarantor") shall not
have been fully indemnified by the Borrower as provided in Section 1, the
Contributing Guarantor shall indemnify the Claiming Guarantor in an amount equal
to the amount of such payment or the greater of the book value or the fair
market value of such assets, as the case may be, in each case multiplied by a
fraction of which the numerator shall be the net worth of the Contributing
Guarantor on the date hereof and the denominator shall be the aggregate net
worth of all the Guarantors on the date hereof (or, in the case of any Guarantor
becoming a party hereto pursuant to Section 11, the date of the Supplement
hereto executed and delivered by such Guarantor). Any Contributing Guarantor
making any payment to a Claiming Guarantor pursuant to this Section 2 shall be
subrogated to the rights of such Claiming Guarantor under Section 1 to the
extent of such payment.
SECTION 3. Subordination. Notwithstanding any provision of this Agreement
to the contrary, all rights of the Guarantors under Sections 1 and 2 and all
other rights of indemnity, contribution or subrogation under applicable law or
otherwise shall be fully subordinated to the indefeasible payment in full in
cash of the Obligations. No failure on the part of the Borrower or any
Guarantor to make the payments required by Sections 1 and 2 (or any other
payments required under applicable law or otherwise) shall in any respect limit
the obligations and liabilities of any Guarantor with respect
<PAGE>
3
to its obligations hereunder, and each Guarantor shall remain liable for the
full amount of the obligations of such Guarantor hereunder.
SECTION 4. Termination. This Agreement shall survive and be in full force
and effect so long as any Obligation (other than inchoate indemnification and
reimbursement obligations) is outstanding and has not been indefeasibly paid in
full in cash, and so long as the LC Exposure has not been reduced to zero or any
of the Commitments under the Credit Agreement have not been terminated, and
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by any Secured Party or any Guarantor upon the bankruptcy
or reorganization of the Bor rower, any Guarantor or otherwise.
SECTION 5. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. No Waiver; Amendment. (a) No failure on the part of the
Collateral Agent or any Guarantor to exercise, and no delay in exercising, any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy by the
Collateral Agent or any Guarantor preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law. None of
the Collateral Agent and the Guarantors shall be deemed to have waived any
rights hereunder unless such waiver shall be in writing and signed by such
parties.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Borrower, the Guarantors and the Collateral Agent, with the prior written
consent of the Required Lenders (except as otherwise provided in the Credit
Agreement).
SECTION 7. Notices. All communications and notices hereunder shall be in
writing and given as provided in the Guarantee Agreement and addressed as
specified therein.
SECTION 8. Binding Agreement; Assignments. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the parties that are contained
<PAGE>
4
in this Agreement shall bind and inure to the benefit of their respective
successors and assigns. Neither the Borrower nor any Guarantor may assign or
transfer any of its rights or obligations hereunder (and any such attempted
assignment or transfer shall be void) without the prior written consent of the
Required Lenders. Notwithstanding the foregoing, at the time any Guarantor is
released from its obligations under the Guarantee Agreement in accordance with
such Guarantee Agreement and the Credit Agreement, such Guarantor will cease to
have any rights or obligations under this Agreement.
SECTION 9. Survival of Agreement; Severability. (a) All covenants and
agreements made by the Borrower and each Guarantor herein and in the
certificates or other instruments prepared or delivered in connection with this
Agreement or the other Loan Documents shall be considered to have been relied
upon by the Collateral Agent, the other Secured Parties and each Guarantor and
shall survive the making by the Lenders of the Loans and the issuance of the
Letters of Credit by the Issuing Bank, and shall continue in full force and
effect as long as the principal of or any accrued interest on any Loans or any
other fee or amount payable under the Credit Agreement or this Agreement or
under any of the other Loan Documents is outstanding and unpaid or the LC
Exposure does not equal zero and as long as the Commitments have not been
terminated.
(b) In case any one or more of the provisions contained in this Agreement
should be held invalid, illegal or unenforceable in any respect, no party hereto
shall be required to comply with such provision for so long as such provision is
held to be invalid, illegal or unenforceable, but the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 10. Counterparts. This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Agreement shall be effective with respect to any
Guarantor when a counterpart bearing the signature of such Guarantor shall have
been delivered to the Collateral Agent. Delivery of an executed signature page
to this Agreement by facsimile transmission shall be as effective as delivery of
a manually signed counterpart of this Agreement.
<PAGE>
5
SECTION 11. Additional Guarantors. Pursuant to Section 5.12 of the Credit
Agreement, each Subsidiary of Holdings which is also a Subsidiary Loan Party
that was not in existence or not such a Subsidiary on the date of the Credit
Agreement is required to enter into the Guarantee Agreement as a Guarantor upon
becoming such a Subsidiary. Upon execution and delivery, after the date hereof,
by the Collateral Agent and such a Subsidiary of an instrument in the form of
Annex 1 hereto, such Subsidiary shall become a Guarantor hereunder with the same
force and effect as if originally named as a Guarantor hereunder. The execution
and delivery of any instrument adding an additional Guarantor as a party to this
Agreement shall not require the consent of any Guarantor hereunder. The rights
and obligations of each Guarantor hereunder shall remain in full force and
effect notwithstanding the addition of any new Guarantor as a party to this
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first appearing above.
ADVANCE STORES COMPANY, INCORPORATED,
by /s/ J O'Neil Leftwich
--------------------------------
Name: J O'Neil Leftwich
Title: Senior Vice President
Chief Financial Officer
Secretary/Treasurer
LARALEV, INC., as a Guarantor,
by /s/ David C. Eppes
--------------------------------
Name: David C. Eppes
Title: President
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by /s/ Deborah Davey
--------------------------------
Name: Deborah Davey
Title: Vice President
<PAGE>
EXHIBIT 10.6
EXECUTED COPY
SECURITY AGREEMENT dated as of April 15, 1998, among ADVANCE
STORES COMPANY, INCORPORATED, a Virginia corporation (the
"Borrower"), ADVANCE HOLDING CORPORATION, a Virginia corporation
("Holdings"), each subsidiary of the Borrower listed on Schedule
I hereto (each such subsidiary individually a "Subsidiary
Guarantor" and collectively, the "Subsidiary Guarantors"; the
Subsidiary Guarantors, Holdings and the Borrower are referred to
collectively herein as the "Grantors") and THE CHASE MANHATTAN
BANK, a New York banking corporation ("Chase"), as collateral
agent (in such capacity, the "Collateral Agent") for the Secured
Parties (as defined herein).
Reference is made to (a) the Credit Agreement dated as of April 15, 1998
(as amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among the Borrower, Holdings, the lenders from time to time party
thereto (the "Lenders"), Chase, as administrative agent for the Lenders (in such
capacity, the "Administrative Agent"), Collateral Agent and as issuing bank (in
such capacity, the "Issuing Bank"), DLJ Capital Funding, Inc., as syndication
agent, and First Union National Bank, as documentation agent, and (b) the
Guarantee Agreement dated as of April 15, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Guarantee Agreement"), among the
Subsidiary Guarantors, Holdings and the Collateral Agent.
The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, pursuant
to, and upon the terms and subject to the conditions specified in, the Credit
Agreement. Each of Holdings and the Subsidiary Guarantors has agreed to
guarantee, among other things, all the obligations of the Borrower under the
Credit Agreement. The obligations of the Lenders to make Loans and of the
Issuing Bank to issue Letters of Credit are conditioned upon, among other
things, the execution and delivery by the Grantors of an agreement in the form
hereof to secure (a) the due and punctual payment of (i) the principal of and
premium, if any, and interest (including interest accruing during the pendency
of any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding) on the Loans,
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise, (ii) each payment required to be made
<PAGE>
2
by the Borrower under the Credit Agreement in respect of any Letter of Credit,
when and as due, including payments in respect of reimbursement of
disbursements, interest thereon and obligations to provide cash collateral and
(iii) all other monetary obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding), of the Loan Parties to the Secured
Parties under the Credit Agreement and the other Loan Documents and (b) unless
otherwise agreed to in writing by the applicable Lender party thereto, the due
and punctual payment and performance of all monetary obligations of the Borrower
under each Hedging Agreement entered into with any counterparty that was a
Lender (or an Affiliate of a Lender) at the time such Hedging Agreement was
entered into (all the monetary obligations described in the preceding clauses
(a) and (b) being collectively called the "Obligations").
Accordingly, the Grantors and the Collateral Agent, on behalf of itself and
each Secured Party (and each of their respective successors or assigns), hereby
agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Definition of Terms Used Herein. Unless the context otherwise
requires, all capitalized terms used but not defined herein shall have the
meanings set forth in the Credit Agreement.
SECTION 1.02. Definition of Certain Terms Used Herein. As used herein, the
following terms shall have the following meanings:
"Account Debtor" shall mean any Person who is or who may become obligated
to any Grantor under, with respect to or on account of an Account.
"Accounts" shall mean any and all right, title and interest of any Grantor
to payment for goods and services sold or leased, including any such right
evidenced by chattel paper, whether due or to become due, whether or not it has
been earned by performance, and whether now or hereafter acquired or arising in
the future, including accounts receivable from Affiliates of the Grantors.
Notwithstanding the foregoing, the term "Accounts" shall not include any
<PAGE>
3
accounts receivable sold or created pursuant to the GE Capital Program
Agreements, except to the extent the same are transferred back or charged back
to a Grantor pursuant to the applicable GE Capital Program Agreement.
"Accounts Receivable" shall mean all Accounts and all right, title and
interest in any returned goods (other than Unpaid Returned Merchandise),
together with all rights, titles, securities and guarantees with respect
thereto, including any rights to stoppage in transit, replevin, reclamation and
resales, and all related security interests, liens and pledges, whether
voluntary or involuntary, in each case whether now existing or owned or
hereafter arising or acquired.
"Cash Concentration Account" shall mean the cash concentration account
maintained by the Borrower with the Cash Concentration Bank in Roanoke, Virginia
(account number 2001000059003), to which the Borrower will cause to be
transferred, on each Business Day, amounts deposited in the Collection Deposit
Accounts on such Business Day.
"Cash Concentration Bank" shall mean the "Cash Concentration Bank" as
defined in the Cash Concentration Letter Agreement.
"Cash Concentration Letter Agreement" shall mean the agreement among the
Cash Concentration Bank, the Borrower and the Collateral Agent, in substantially
the form of Annex 1-A hereto, pursuant to which the Borrower shall maintain the
Cash Concentration Account, as such Cash Concentration Letter Agreement may be
amended, modified or supplemented from time to time.
"Collateral" shall mean all (a) Accounts Receivable, (b) Documents, (c)
Equipment, (d) General Intangibles, (e) Inventory, (f) cash and cash accounts
(including the Cash Concentration Account and the Collection Deposit Accounts),
(g) Investment Property and (h) Proceeds. Notwithstanding the foregoing, the
term "Collateral" shall not include any property of the type specified in
clauses (b) and (d) above if the assignment, granting, creation, mortgage,
pledge, hypothecation or transfer thereof by such Grantor hereunder, would
violate the terms of, or otherwise constitute a default or termination or
similar event under any document or instrument to which any Loan Party is a
party (other than those documents or instruments between or among the Loan
Parties and/or their Affiliates only) relating to the ownership of, or
pertaining to any rights or interests held in such property, provided that (i)
--------
the terms to be violated or default or termination or similar event that would
result in
<PAGE>
4
the event of the granting of the Lien hereunder, are consistent with such Loan
Party's current business practice in connection with the type of document or
instrument to which they relate and (ii) each Loan Party shall use its best
efforts to ensure that the assignment, granting, creation, mortgage, pledge,
hypothecation or transfer of any such property by any Grantor will not violate
the terms of, or otherwise constitute a default or termination or similar event
under any document or instrument to which such Loan Party is a party.
"Collection Deposit Account" shall mean the respective collection deposit
accounts maintained by the Borrower and the Subsidiary Guarantors pursuant to
the Collection Deposit Letter Agreements (and prior to the execution of the
Collection Deposit Letter Agreements, any other collection deposit accounts
maintained by the Borrower and the Subsidiary Guarantors) into which the
Borrower and the Subsidiary Guarantors will deposit all Daily Receipts.
"Collection Deposit Letter Agreement" shall mean an agreement among the
Borrower, any Lender or other bank and the Collateral Agent, in substantially
the form of Annex 1-B hereto, pursuant to which, the Borrower and the Subsidiary
Guarantors shall maintain a Collection Deposit Account, as such Collection
Deposit Agreement may be amended, modified or supplemented from time to time.
"Commodity Account" shall mean an account maintained by a Commodity
Intermediary in which a Commodity Contract is carried out for a Commodity
Customer.
"Commodity Contract" shall mean a commodity futures contract, an option on
a commodity futures contract, a commodity option or any other contract that, in
each case, is (a) traded on or subject to the rules of a board of trade that has
been designated as a contract market for such a contract pursuant to the federal
commodities laws or (b) traded on a foreign commodity board of trade, exchange
or market, and is carried on the books of a Commodity Intermediary for a
Commodity Customer.
"Commodity Customer" shall mean a Person for whom a Commodity Intermediary
carries a Commodity Contract on its books.
"Commodity Intermediary" shall mean (a) a Person who is registered as a
futures commission merchant under the federal commodities laws or (b) a Person
who in the ordinary course of its business provides clearance or settlement
services for a
<PAGE>
5
board of trade that has been designated as a contract market pursuant to federal
commodities laws.
"Copyright License" shall mean any written agreement, now or hereafter in
effect, granting any right to any third party under any Copyright now or
hereafter owned by any Grantor or which such Grantor otherwise has the right to
license, or granting any right to such Grantor under any Copyright now or
hereafter owned by any third party, and all rights of such Grantor under any
such agreement.
"Copyrights" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all copyright rights in any work subject to the
copyright laws of the United States or any other country, whether as author,
assignee, transferee or otherwise, and (b) all registrations and applications
for registration of any such copyright in the United States or any other
country, including registrations, recordings, supplemental registrations and
pending applications for registration in the United States Copyright Office,
including those listed on Schedule II.
"Credit Agreement" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Daily Receipts" shall mean all amounts received by the Borrower and the
Subsidiary Guarantors, whether in the form of cash, checks, any moneys received
or receivable in respect of charges made by means of credit cards, and other
negotiable instruments, in each case as a result of the sale of Inventory.
"Documents" shall mean all instruments, files, records, ledger sheets and
documents covering or relating to any of the Collateral.
"Entitlement Holder" shall mean a Person identified in the records of a
Securities Intermediary as the Person having a Security Entitlement against the
Securities Intermediary. If a Person acquires a Security Entitlement by virtue
of Section 8-501(b)(2) or (3) of the Uniform Commercial Code as in effect in the
relevant jurisdiction, such Person is the Entitlement Holder.
"Equipment" shall mean all equipment, furniture and furnishings, and all
tangible personal property similar to any of the foregoing, including tools,
parts and supplies of every kind and description, and all improvements,
accessions or appurtenances thereto, that are now or hereafter owned by any
Grantor. The term Equipment shall include Fixtures.
<PAGE>
6
"Financial Asset" shall mean (a) a Security, (b) an obligation of a Person
or a share, participation or other interest in a Person or in property or an
enterprise of a Person, which is, or is of a type, dealt with in or traded on
financial markets, or which is recognized in any area in which it is issued or
dealt in as a medium for investment or (c) any property that is held by a
Securities Intermediary for another Person in a Securities Account if the
Securities Intermediary has expressly agreed with the other Person that the
property is to be treated as a Financial Asset under Article 8 of the Uniform
Commercial Code as in effect in the relevant jurisdiction. As the context
requires, the term Financial Asset shall mean either the interest itself or the
means by which a Person's claim to it is evidenced, including a certificated or
uncertificated Security, a certificate representing a Security or a Security
Entitlement.
"Fixtures" shall mean all items of Equipment, whether now owned or
hereafter acquired, of any Grantor that become so related to particular real
estate that an interest in them arises under any real estate law applicable
thereto.
"General Intangibles" shall mean all chosen in action and causes of action
and all other assignable intangible personal property of any Grantor of every
kind and nature (other than Accounts Receivable) now owned or hereafter acquired
by any Grantor, including limited partnership or limited liability company
interests, corporate or other business records, indemnification claims, contract
rights (including rights under leases, whether entered into as lessor or lessee,
Hedging Agreements and other agreements), Intellectual Property, goodwill,
registrations, franchises, tax refund claims and any letter of credit,
guarantee, claim, security interest or other security held by or granted to any
Grantor to secure payment by an Account Debtor of any of the Accounts
Receivable. Notwithstanding the foregoing, the term "General Intangibles" shall
not include any accounts receivable sold or created pursuant to the GE Capital
Program Agreements, except to the extent the same are transferred back or
charged back to a Grantor pursuant to the applicable GE Capital Program
Agreement.
"Intellectual Property" shall mean all intellectual and similar property of
any Grantor of every kind and nature now owned or hereafter acquired by any
Grantor, including inventions, designs, Patents, Copyrights, Licenses, Trade
marks, trade secrets, confidential or proprietary technical and business
information, know-how, show-how or other data or information, software and
databases and all embodiments or fixations thereof and related documentation,
registrations and franchises, and all additions, improvements and accessions to,
<PAGE>
7
and books and records describing or used in connection with, any of the
foregoing.
"Inventory" shall mean all goods of any Grantor, whether now owned or
hereafter acquired, held for sale or lease, or furnished or to be furnished by
any Grantor under contracts of service, or consumed in any Grantor's business,
including raw materials, intermediates, work in process, packaging materials,
finished goods, semi-finished inventory, scrap inventory, manufacturing supplies
and spare parts, and all such goods that have been returned to or repossessed by
or on behalf of any Grantor. Notwithstanding the foregoing the term "Inventory"
shall not include any Unpaid Returned Merchandise.
"Investment Property" shall mean all Securities (whether certificated or
uncertificated), Security Entitlements, Securities Accounts, Commodity Contracts
and Commodity Accounts of any Grantor, whether now owned or hereafter acquired
by any Grantor.
"License" shall mean any Patent License, Trademark License, Copyright
License or other license or sublicense to which any Grantor is a party,
including those listed on Schedule III (other than those license agreements in
existence on the date hereof and listed on Schedule III and those license
agreements entered into after the date hereof, which by their terms prohibit
assignment or a grant of a security interest by such Grantor as licensee
thereunder).
"Obligations" shall have the meaning assigned to such term in the
preliminary statement of this Agreement.
"Patent License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to make, use or sell any invention
on which a Patent, now or hereafter owned by any Grantor or which any Grantor
otherwise has the right to license, is in existence, or granting to any Grantor
any right to make, use or sell any invention on which a Patent, now or hereafter
owned by any third party, is in existence, and all rights of any Grantor under
any such agreement.
"Patents" shall mean all of the following now owned or hereafter acquired
by any Grantor: (a) all letters patent of the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of the United States or any other country, including
registrations, recordings and pending applications in the United States Patent
and Trademark Office or any similar offices in any other country, including
those listed on Schedule IV, and (b) all reissues, continuations, divisions,
<PAGE>
8
continuations-in-part, renewals or extensions thereof, and the inventions
disclosed or claimed therein, including the right to make, use and/or sell the
inventions disclosed or claimed therein.
"Perfection Certificate" shall mean a certificate substantially in the form
of Annex 2 hereto, completed and supplemented with the schedules and attachments
contemplated thereby, and duly executed by a Financial Officer and the chief
legal officer of each of Holdings and the Borrower.
"Proceeds" shall mean any consideration received from the sale, exchange,
license, lease or other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other Person or entity
as a result of the destruction, loss, theft, damage or other involuntary
conversion of whatever nature of any asset or property which constitutes
Collateral, and shall include (a) all cash and negotiable instruments received
by or held on behalf of the Collateral Agent pursuant to Article 5 hereof , (b)
any claim of any Grantor against any third party for (and the right to sue and
recover for and the rights to damages or profits due or accrued arising out of
or in connection with) (i) past, present or future infringement of any Patent
now or hereafter owned by any Grantor, or licensed under a Patent License, (ii)
past, present or future infringement or dilution of any Trademark now or
hereafter owned by any Grantor or licensed under a Trademark License or injury
to the goodwill associated with or symbolized by any Trademark now or hereafter
owned by any Grantor, (iii) past, present or future breach of any License and
(iv) past, present or future infringement of any Copyright now or hereafter
owned by any Grantor or licensed under a Copyright License and (c) any and all
other amounts from time to time paid or payable under or in connection with any
of the Collateral.
"Secured Parties" shall mean (a) the Lenders, (b) the Administrative Agent,
(c) the Collateral Agent, (d) the Issuing Bank, (e) each counterparty to a
Hedging Agreement entered into with the Borrower if such counterparty was a
Lender (or an affiliate of a Lender) at the time the Hedging Agreement was
entered into, (f) the beneficiaries of each indemnification obligation
undertaken by any Grantor under any Loan Document and (g) the successors and
assigns of each of the foregoing.
"Securities Account" shall mean an account to which a Financial Asset is
or may be credited in accordance with an agreement under which the Person
maintaining the account undertakes to treat the Person for whom the account is
<PAGE>
9
maintained as entitled to exercise rights that comprise the Financial Asset.
"Securities" shall mean any obligations of an issuer or any shares,
participations or other interests in an issuer or in property or an enterprise
of an issuer which (a) are represented by a certificate representing a security
in bearer or registered form, or the transfer of which may be registered upon
books maintained for that purpose by or on behalf of the issuer, (b) are one of
a class or series or by its terms is divisible into a class or series of shares,
participations, interests or obligations and (c)(i) are, or are of a type, dealt
with or traded on securities exchanges or securities markets or (ii) are a
medium for investment and by their terms expressly provide that they are a
security governed by Article 8 of the Uniform Commercial Code as in effect in
the relevant jurisdiction.
"Securities Intermediary" shall mean (a) a clearing corporation or (b) a
Person, including a bank or broker, that in the ordinary course of its business
maintains securities accounts for others and is acting in that capacity.
"Security Entitlements" shall mean the rights and property interests of an
Entitlement Holder with respect to a Financial Asset.
"Security Interest" shall have the meaning assigned to such term in Section
2.01.
"Trademark License" shall mean any written agreement, now or hereafter in
effect, granting to any third party any right to use any Trademark now or
hereafter owned by any Grantor or which any Grantor otherwise has the right to
license, or granting to any Grantor any right to use any Trademark now or
hereafter owned by any third party, and all rights of any Grantor under any such
agreement.
"Trademarks" shall mean all of the following now owned or hereafter
acquired by any Grantor: (a) all trademarks, service marks, trade names,
corporate names, company names, business names, fictitious business names, trade
styles, trade dress, logos, other source or business identifiers, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all registration and
recording applications filed in connection therewith, including registrations
and registration applications in the United States Patent and Trademark Office,
any State of the United States or any similar offices in any other country or
any political subdivision thereof, and all extensions or renewals
<PAGE>
10
thereof, including those listed on Schedule V, (b) all goodwill associated
therewith or symbolized thereby and (c) all other assets, rights and interests
that uniquely reflect or embody such goodwill.
"Unpaid Returned Merchandise" shall mean any goods that are returned to
Holdings or the Borrower where such return results in an obligation of Holdings
or the Borrower to make any payment to any GE Capital Affiliate under any GE
Capital Program Agreement (including, without limitation, any obligation to
purchase or repurchase any account created by the sale of such goods) or gives
any GE Capital Affiliate any right to reduce the amount of any payments which
would otherwise have been made under any GE Capital Program Agreement; provided,
--------
however, that such goods shall cease to be "Unpaid Returned Merchandise" when
- -------
the applicable GE Capital Affiliate has received from Holdings or the Borrower
full payment of such obligation or has reduced a payment made under the
applicable GE Capital Program Agreement in respect thereof.
SECTION 1.03. Rules of Interpretation. The rules of interpretation
specified in Section 1.03 of the Credit Agreement shall be applicable to this
Agreement.
ARTICLE II
Security Interest
SECTION 2.01. Security Interest. As security for the payment or
performance, as the case may be, in full of the Obligations, each Grantor hereby
grants, mortgages, pledges, hypothecates and transfers to the Collateral Agent,
its successors and assigns, for the ratable benefit of the Secured Parties, and
hereby grants to the Collateral Agent, its successors and assigns, for the
ratable benefit of the Secured Parties, a security interest in, all of such
Grantor's right, title and interest in, to and under the Collateral (the
"Security Interest"). Without limiting the foregoing, the Collateral Agent is
hereby authorized to file one or more financing statements (including fixture
filings), continuation statements, filings with the United States Patent and
Trademark Office or United States Copyright Office (or any successor office or
any similar office in any other country) or other documents for the purpose of
perfecting, confirming, continuing, enforcing or protecting the Security
Interest granted by each Grantor, without the signature of any Grantor, and
naming any Grantor or the Grantors as debtors and the Collateral Agent as
secured party.
<PAGE>
11
SECTION 2.02. No Assumption of Liability. The Security Interest is
granted as security only and shall not subject the Collateral Agent or any other
Secured Party to, or in any way alter or modify, any obligation or liability of
any Grantor with respect to or arising out of the Collateral.
ARTICLE III
Representations and Warranties
The Grantors jointly and severally represent and warrant to the Collateral
Agent and the Secured Parties that:
SECTION 3.01. Title and Authority. Each Grantor has good and valid rights
in and title to the Collateral with respect to which it has purported to grant a
Security Interest hereunder and has full power and authority to grant to the
Collateral Agent the Security Interest in such Collateral pursuant hereto and to
execute, deliver and perform its obligations in accordance with the terms of
this Agreement, without the consent or approval of any other Person other than
any consent or approval which has been obtained.
SECTION 3.02. Filings. (a) The Perfection Certificate has been duly
prepared, completed and executed and the information set forth therein is
correct and complete in all material respects. Fully executed Uniform
Commercial Code financing statements (including fixture filings, as applicable)
or other appropriate filings, recordings or registrations containing a
description of the Collateral have been delivered to the Collateral Agent for
filing in each governmental, municipal or other office specified in Schedule 6
to the Perfection Certificate, which are all the filings, recordings and
registrations (other than filings required to be made in the United States
Patent and Trademark Office and the United States Copyright Office in order to
perfect the Security Interest in Collateral consisting of United States Patents,
Trademarks and Copyrights) that are necessary to publish notice of and protect
the validity of and to establish a legal, valid and perfected security interest
in favor of the Collateral Agent (for the ratable benefit of the Secured
Parties) in respect of all Collateral in which the Security Interest may be
perfected by filing, recording or registration in the United States (or any
political subdivision thereof) and its territories and possessions, and no
further or subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary in any such jurisdiction, except as provided under
applicable law with respect to the filing of continuation statements.
<PAGE>
12
SECTION 3.03. Validity of Security Interest. The Security Interest
constitutes (a) a legal and valid security interest in all the Collateral
securing the payment and performance of the Obligations, (b) subject to the
filings described in Section 3.02 above, a perfected security interest in all
Collateral in which a security interest may be perfected by filing, recording or
registering a financing statement or analogous document in the United States (or
any political subdivision thereof) and its territories and possessions pursuant
to the Uniform Commercial Code or other applicable law in such jurisdictions and
(c) a security interest that shall be perfected in all Collateral in which a
security interest may be perfected upon the receipt and recording of this
Agreement with the United States Patent and Trademark Office and the United
States Copyright Office, as applicable, within the three month period
(commencing as of the date hereof) pursuant to 35 U.S.C. (S) 261, 15 U.S.C. (S)
1060 or 17 U.S.C. (S) 205 and otherwise as may be required pursuant to the laws
of any other necessary jurisdiction. The Security Interest is and shall be
prior to any other Lien on any of the Collateral, other than Liens expressly
permitted to be prior to the Security Interest pursuant to Section 6.02 of the
Credit Agreement.
SECTION 3.04. Absence of Other Liens. The Collateral is owned by the
Grantors free and clear of any Lien, except for Liens expressly permitted
pursuant to Section 6.02 of the Credit Agreement. The Grantor has not filed or
consented to the filing of (a) any financing statement or analogous document
under the Uniform Commercial Code or any other applicable laws covering any
Collateral, (b) any assignment in which any Grantor assigns any Collateral or
any security agreement or similar instrument covering any Collateral with the
United States Patent and Trademark Office or the United States Copyright Office
or (c) any assignment in which any Grantor assigns any Collateral or any
security agreement or similar instrument covering any Collateral with any
foreign governmental, municipal or other office, which financing statement or
analogous document, assignment, security agreement or similar instrument is
still in effect, except, in each case, for Liens expressly permitted pursuant to
Section 6.02 of the Credit Agreement.
<PAGE>
13
ARTICLE IV
Covenants
SECTION 4.01. Change of Name; Location of Collateral; Records; Place of
Business. (a) Each Grantor agrees promptly to notify the Collateral Agent in
writing of any change (i) in its corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of its chief executive office, its principal
place of business, any office in which it maintains books or records relating to
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility)
other than with respect to Collateral (A) consisting of goods in transit between
facilities, whether in vehicles owned by the applicable Grantor or on common
carriers and (B) located in temporary warehousing which will remain in such
warehousing for no longer than one month, (iii) in its identity or corporate
structure or (iv) in its Federal Taxpayer Identification Number. Each Grantor
agrees not to effect or permit any change referred to in the preceding sentence
unless all filings have been made under the Uniform Commercial Code or otherwise
that are required in order for the Collateral Agent to continue at all times
following such change to have a valid, legal and perfected first priority
security interest in all the Collateral. Each Grantor agrees promptly to notify
the Collateral Agent if any material portion of the Collateral owned or held by
such Grantor is damaged or destroyed.
(b) Each Grantor agrees to maintain, at its own cost and expense, such
complete and accurate records with respect to the Collateral owned by it as is
consistent with its current practices and in accordance with such prudent and
standard practices used in industries that are the same as or similar to those
in which such Grantor is engaged, but in any event to include complete
accounting records indicating all payments and proceeds received with respect to
any part of the Collateral, and, at such time or times as the Collateral Agent
may reasonably request, promptly to prepare and deliver to the Collateral Agent
a duly certified schedule or schedules in form and detail satisfactory to the
Collateral Agent showing the identity, amount and location of any and all
Collateral.
SECTION 4.02. Periodic Certification. Each year, at the time of delivery
of annual financial statements with respect to the preceding fiscal year
pursuant to Section 5.01 of the Credit Agreement, the Borrower shall deliver to
the Collateral Agent a certificate executed by a Financial Officer of the
Borrower (a) setting forth the information required pursuant
<PAGE>
14
to this Section 2 of the Perfection Certificate or confirming that there has
been no change in such information since the date of such certificate or the
date of the most recent certificate delivered pursuant to this Section 4.02 and
(b) certifying that all Uniform Commercial Code financing statements (including
fixture filings, as applicable) or other appropriate filings, recordings or
registrations, including all refilings, rerecordings and reregistrations,
containing a description of the Collateral have been filed of record in each
governmental, municipal or other appropriate office in each jurisdiction
identified pursuant to clause (a) above to the extent necessary to protect and
perfect the Security Interest for a period of not less than 18 months after the
date of such certificate (except as noted therein with respect to any
continuation statements to be filed within such period). Each certificate
delivered pursuant to this Section 4.02 shall identify in the format of Schedule
II, III, IV or V, as applicable, all Patents, Trademarks, Copyrights and
Licenses of any Grantor in existence on the date thereof and not then listed on
such Schedules or previously so identified to the Collateral Agent.
SECTION 4.03. Protection of Security. Each Grantor shall, at its own cost
and expense, take any and all actions necessary to defend title to the
Collateral against all Persons and to defend the Security Interest of the
Collateral Agent in the Collateral and the priority thereof against any Lien not
expressly permitted pursuant to Section 6.02 of the Credit Agreement.
SECTION 4.04. Further Assurances. Each Grantor agrees, at its own
expense, to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as the Collateral
Agent may from time to time reasonably request to better assure, preserve,
protect and perfect the Security Interest and the rights and remedies created
hereby, including the payment of any fees and taxes required in connection with
the execution and delivery of this Agreement, the granting of the Security
Interest and the filing of any financing statements (including fixture filings)
or other documents in connection herewith or therewith. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any promissory note or other instrument, such note or instrument shall be
promptly pledged and delivered to the Collateral Agent, duly endorsed in a
manner satisfactory to the Collateral Agent.
Without limiting the generality of the foregoing, each Grantor hereby
authorizes the Collateral Agent, with prompt notice thereof to the Grantors, to
supplement this Agreement
<PAGE>
15
by supplementing Schedule II, III, IV or V hereto or adding additional schedules
hereto to specifically identify any asset or item that may constitute
Copyrights, Licenses, Patents or Trademarks; provided, however, that any Grantor
shall have the right, exercisable within 10 days after it has been notified by
the Collateral Agent of the specific identification of such Collateral, to
advise the Collateral Agent in writing of any inaccuracy of the representations
and warranties made by such Grantor hereunder with respect to such Collateral.
Each Grantor agrees that it will use its best efforts to take such action as
shall be necessary in order that all representations and warranties hereunder
shall be true and correct with respect to such Collateral within 30 days after
the date it has been notified by the Collateral Agent of the specific
identification of such Collateral.
SECTION 4.05. Inspection and Verification. The Collateral Agent and such
Persons as the Collateral Agent may reasonably designate shall have the right,
subject to compliance with Section 5.09 of the Credit Agreement, to inspect the
Collateral, all records related thereto (and to make extracts and copies from
such records) and the premises upon which any of the Collateral is located, to
discuss the Grantors' affairs with the officers of the Grantors and their
independent accountants and to verify under reasonable procedures the validity,
amount, quality, quantity, value, condition and status of, or any other matter
relating to, the Collateral, including, in the case of Accounts or Collateral in
the possession of any third person, by contacting Account Debtors or the third
person possessing such Collateral for the purpose of making such a verification;
provided, however, that representatives of the Grantors shall be entitled to
- -------- -------
participate in such discussions. The Collateral Agent shall have the absolute
right to share any information it gains from such inspection or verification
with any Secured Party.
SECTION 4.06. Taxes; Encumbrances. At its option and after notice to the
applicable Grantor, the Collateral Agent may discharge past due taxes,
assessments, charges, fees, Liens, security interests or other encumbrances at
any time levied or placed on the Collateral and not permitted pursuant to
Section 6.02 of the Credit Agreement, and may pay for the maintenance and
preservation of the Collateral to the extent any Grantor fails to do so as
required by the Credit Agreement or this Agreement, and each Grantor jointly and
severally agrees to reimburse the Collateral Agent on demand for any payment
made or any expense incurred by the Collateral Agent pursuant to the foregoing
authorization; provided, however, that nothing in this Section 4.06 shall be
interpreted as excusing any Grantor from the performance of, or imposing any
obligation on the Collateral Agent or any Secured Party to
<PAGE>
16
cure or perform, any covenants or other promises of any Grantor with respect to
taxes, assessments, charges, fees, liens, security interests or other
encumbrances and maintenance as set forth herein or in the other Loan Documents.
SECTION 4.07. Assignment of Security Interest. If at any time any Grantor
shall take a security interest in any property of an Account Debtor or any other
Person to secure payment and performance of an Account, such Grantor shall
promptly assign such security interest to the Collateral Agent. Such assignment
need not be filed of public record unless necessary to continue the perfected
status of the security interest against creditors of and transferees from the
Account Debtor or other Person granting the security interest.
SECTION 4.08. Continuing Obligations of the Grantors. Each Grantor shall
remain liable to observe and perform all the conditions and obligations to be
observed and performed by it under each contract, agreement or instrument
relating to the Collateral, all in accordance with the terms and conditions
thereof, and each Grantor jointly and severally agrees to indemnify and hold
harmless the Collateral Agent and the Secured Parties from and against any and
all liability for such performance.
SECTION 4.09. Use and Disposition of Collateral. None of the Grantors
shall make or permit to be made an assignment, pledge or hypothecation of the
Collateral or shall grant any other Lien in respect of the Collateral, except as
expressly permitted by Section 6.02 of the Credit Agreement. None of the
Grantors shall make or permit to be made any transfer of the Collateral and each
Grantor shall remain at all times in possession of the Collateral owned by it,
except that (a) Inventory, obsolete or worn out assets, Permitted Investments
and other assets having a fair market value (alone or together with other
related assets sold or to be sold) of less than $25,000 may be sold, in each
case in the ordinary course of business and (b) unless and until the Collateral
Agent shall notify the Grantors that an Event of Default shall have occurred and
be continuing and that during the continuance thereof the Grantors shall not
sell, convey, lease, assign, transfer or otherwise dispose of any Collateral
(which notice may be given by telephone if promptly confirmed in writing), the
Grantors may use and dispose of the Collateral in any lawful manner not
inconsistent with the provisions of this Agreement, the Credit Agreement or any
other Loan Document. Without limiting the generality of the foregoing, each
Grantor agrees that it shall not permit any Inventory to be in the possession or
control of any
<PAGE>
17
warehouseman, bailee, agent or processor at any time unless such warehouseman,
bailee, agent or processor shall have been notified of the Security Interest and
shall have agreed in writing to hold the Inventory subject to the Security
Interest and the instructions of the Collateral Agent and to waive and release
any Lien held by it with respect to such Inventory, whether arising by operation
of law or otherwise.
SECTION 4.10. Limitation on Modification of Accounts. None of the
Grantors will, without the Collateral Agent's prior written consent, grant any
extension of the time of payment of any of the Accounts Receivable, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partly, any Person liable for the payment thereof or allow any credit
or discount whatsoever thereon, other than extensions, credits, discounts,
compromises or settlements granted or made in the ordinary course of business
and consistent with its current practices and in accordance with such prudent
and standard practices used in industries that are the same as or similar to
those in which such Grantor is engaged.
SECTION 4.11. Insurance. The Grantors, at their own expense, shall
maintain or cause to be maintained insurance covering physical loss or damage to
the Inventory and Equipment in accordance with Section 5.07 of the Credit
Agreement. Each Grantor irrevocably makes, constitutes and appoints the
Collateral Agent (and all officers, employees or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent (and attorney-in-fact)
for the purpose, during the continuance of an Event of Default, of making,
settling and adjusting claims in respect of Collateral under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Collateral Agent may, without waiving or releasing any
obligation or liability of the Grantors hereunder or any Event of Default, in
its sole discretion, obtain and maintain such policies of insurance and pay such
premium and take any other actions with respect thereto as the Collateral Agent
deems advisable. All sums disbursed by the Collateral Agent in connection with
this Section 4.11, including reasonable attorneys' fees, court costs, expenses
and other charges relating thereto, shall be payable, upon demand, by the
Grantors to the Collateral Agent and shall be additional Obligations secured
hereby.
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SECTION 4.12. Legend. Each Grantor shall legend, in form and manner
satisfactory to the Collateral Agent, its Accounts Receivable and its books,
records and documents evidencing or pertaining thereto with an appropriate
reference to the fact that such Accounts Receivable have been assigned to the
Collateral Agent for the benefit of the Secured Parties and that the Collateral
Agent has a security interest therein.
SECTION 4.13. Covenants Regarding Patent, Trademark and Copyright
Collateral. (a) Each Grantor agrees that it will not, nor will it permit any
of its licensees to, do any act, or omit to do any act, whereby any Patent which
is material to the conduct of such Grantor's business may become invalidated or
dedicated to the public, and agrees that it shall continue to mark any products
covered by a Patent with the relevant patent number as necessary and sufficient
to establish and preserve its maximum rights under applicable patent laws.
(b) Each Grantor (either itself or through its licensees or its
sublicensees) will, for each Trademark material to the conduct of such Grantor's
business, (i) maintain such Trademark in full force free from any claim of
abandonment or invalidity for non-use, (ii) maintain the quality of products and
services offered under such Trademark, (iii) display such Trademark with notice
of Federal or foreign registration to the extent necessary and sufficient to
establish and preserve its maximum rights under applicable law and (iv) not
knowingly use or knowingly permit the use of such Trademark in violation of any
third party rights.
(c) Each Grantor (either itself or through licensees) will, for each work
covered by a material Copyright, continue to publish, reproduce, display, adopt
and distribute the work with appropriate copyright notice as necessary and
sufficient to establish and preserve its maximum rights under applicable
copyright laws.
(d) Each Grantor shall notify the Collateral Agent immediately if it knows
or has reason to know that any Patent, Trademark or Copyright material to the
conduct of its business may become abandoned, lost or dedicated to the public,
or of any adverse determination or development (including the institution of, or
any such determination or development in, any proceeding in the United States
Patent and Trademark Office, United States Copyright Office or any court or
similar office of any country) regarding such Grantor's ownership of any Patent,
Trademark or Copyright, its right to register the same, or to keep and maintain
the same.
(e) In no event shall any Grantor, either itself or through any agent,
employee, licensee or designee, file an
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19
application for any Patent, Trademark or Copyright (or for the registration of
any Trademark or Copyright) with the United States Patent and Trademark Office,
United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, unless it promptly informs the Collateral Agent, and, upon
request of the Collateral Agent, executes and delivers any and all agreements,
instruments, documents and papers as the Collateral Agent may request to
evidence the Collateral Agent's security interest in such Patent, Trademark or
Copyright, and each Grantor hereby appoints the Collateral Agent as its
attorney-in-fact to execute and file such writings for the foregoing purposes,
all acts of such attorney being hereby ratified and confirmed; such power, being
coupled with an interest, is irrevocable.
(f) Each Grantor will take all necessary steps that are consistent with
the practice in any proceeding before the United States Patent and Trademark
Office, United States Copyright Office or any office or agency in any political
subdivision of the United States or in any other country or any political
subdivision thereof, to maintain and pursue each material application relating
to the Patents, Trademarks and/or Copyrights (and to obtain the relevant grant
or registration) and to maintain each issued Patent and each registration of the
Trademarks and Copyrights that is material to the conduct of any Grantor's
business, including timely filings of applications for renewal, affidavits of
use, affidavits of incontestability and payment of maintenance fees, and, if
consistent with good business judgment, to initiate opposition, interference and
cancelation proceedings against third parties.
(g) In the event that any Grantor has reason to believe that any
Collateral consisting of a Patent, Trademark or Copyright material to the
conduct of any Grantor's business has been or is about to be infringed,
misappropriated or diluted by a third party, such Grantor promptly shall notify
the Collateral Agent and shall, if consistent with good business judgment,
promptly sue for infringement, misappropriation or dilution and to recover any
and all damages for such infringement, misappropriation or dilution, and take
such other actions as are appropriate under the circumstances to protect such
Collateral.
(h) Upon and during the continuance of an Event of Default, each Grantor
shall use its best efforts to obtain all requisite consents or approvals by the
licensor of each Copyright License, Patent License or Trademark License to
effect the assignment of all of such Grantor's right, title
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20
and interest thereunder to the Collateral Agent or its designee.
(i) Each Grantor shall ensure that fully executed security agreements in
the form hereof and containing a description of all Collateral consisting of
Intellectual Property shall have been received and recorded within three months
after the execution of this Agreement with respect to United States Patents,
United States registered Trademarks (and Trademarks for which United States
registration applications are pending) and United States registered Copyrights
have been delivered to the Collateral Agent for recording by the United States
Patent and Trademark Office and the United States Copyright Office pursuant to
35 U.S.C. (S) 261, 15 U.S.C. (S) 1060 or 17 U.S.C. (S) 205 and the regulations
thereunder, as applicable, and otherwise as may be required pursuant to the laws
of any other necessary jurisdiction, to protect the validity of and to establish
a legal, valid and perfected security interest in favor of the Collateral Agent
(for the ratable benefit of the Secured Parties) in respect of all Collateral
consisting of Patents, Trademarks and registered Copyrights in which a security
interest may be perfected by filing, recording or registration in the United
States (or any political subdivision thereof) and its territories and
possessions, or in any other necessary jurisdiction, and no further or
subsequent filing, refiling, recording, rerecording, registration or
reregistration is necessary (other than such actions as are necessary to perfect
the Security Interest with respect to any Collateral consisting of Patents,
Trademarks and Copyrights (or registration or application for registration
thereof) acquired or developed after the date hereof).
ARTICLE V
Collections
SECTION 5.01. Collection Deposit Accounts. (a) From and after the
----------------------------
Effective Date, each Grantor agrees to deposit all Daily Receipts into the
Collection Deposit Accounts on a daily basis.
(b) From and after the Effective Date, the Grantors agree to
transfer, or cause to be transferred, on each Business Day, all amounts on
deposit in any Collection Deposit Account to the Cash Concentration Account
other than amounts necessary (i) for the payment of routine bank service fees,
(ii) for change orders and (iii) to reconcile deposit balances.
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(c) Unless and until the happening of an Event of Default, the
Borrower may at any time withdraw any of the funds contained in the Cash
Concentration Account for use, subject to the provisions of the Credit
Agreement, for general corporate purposes.
(d) Upon the occurrence of an Event of Default, each Collection
Deposit Account and the Cash Concentration Account will, without any further
action taken on the part of any Grantor or the Collateral Agent, automatically
convert into a closed account under the exclusive dominion and control of the
Collateral Agent in which funds are held subject to the rights of the Collateral
Agent hereunder. No Grantor shall thereafter have any right or power to
withdraw any funds from any Collection Deposit Account or the Cash Concentration
Account without the prior written consent of the Collateral Agent.
(e) In the event that a Grantor directly receives any remittances on
Accounts Receivable, notwithstanding the arrangements for payment directly into
the Collection Deposit Accounts pursuant to Section 5.02, such remittances shall
be held for the benefit of the Collateral Agent and the Lenders and shall be
segregated from other funds of such Grantor, subject to the Security Interest
granted hereby, and such Grantor shall cause such remittances and payments to be
deposited into a Collection Deposit Account or the Cash Concentration Account as
soon as practicable after such Grantor's receipt thereof.
(f) All payments by any Grantor into any Cash Deposit Account or the
Cash Collateral Account pursuant to this Section 5.01, whether in the form of
cash, checks, notes, drafts, bills of exchange, money orders or otherwise, in
the relevant Cash Deposit Account or Cash Collateral Account in precisely the
form in which received (but with any endorsements of such Grantor necessary for
deposit or collection), and until they are so deposited such payments shall be
held in trust by such Grantor for and as the property of the Collateral Agent.
SECTION 5.02. Collections. From and after the Effective Date, each
------------
Grantor agrees to notify and direct promptly each Account Debtor and every other
Person obligated to make payments with respect to the Accounts Receivable to
make all such payments to a Collection Deposit Account established by it. Each
Grantor shall use all reasonable efforts to cause each Account Debtor and every
other Person identified in the preceding sentence to make all payments with
respect to the Accounts Receivable directly to such Collection Deposit Account.
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22
(b) Without the prior written consent of the Collateral Agent, no Grantor
shall, in a manner adverse to the Lenders, change the general instructions given
to Account Debtors in respect of payment on Accounts to be deposited in any
Collection Deposit Account. Until the Collateral Agent shall have advised the
Grantors to the contrary, each Grantor shall, and the Collateral Agent hereby
authorizes each Grantor to, enforce and collect all amounts owing on the
Inventory and Accounts Receivable, for the benefit and on behalf of the
Collateral Agent and the other Secured Parties; provided, however, that such
privilege may at the option of the Collateral Agent be terminated upon the
occurrence and during the continuance of any Event of Default.
SECTION 5.03. Power of Attorney. Each Grantor irrevocably makes,
constitutes and appoints the Collateral Agent (and all officers, employees or
agents designated by the Collateral Agent) as such Grantor's true and lawful
agent and attorney-in-fact, and in such capacity the Collateral Agent shall have
the right, with power of substitution for each Grantor and in each Grantor's
name or otherwise, for the use and benefit of the Collateral Agent and the
Secured Parties, upon the occurrence and during the continuance of an Event of
Default (a) to receive, endorse, assign and/or deliver any and all notes,
acceptances, checks, drafts, money orders or other evidences of payment relating
to the Collateral or any part thereof; (b) to demand, collect, receive payment
of, give receipt for and give discharges and releases of all or any of the
Collateral; (c) to sign the name of any Grantor on any invoice or bill of lading
relating to any of the Collateral; (d) to send verifications of Accounts
Receivable to any Account Debtor; (e) to commence and prosecute any and all
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect or otherwise realize on all or any of the Collateral or
to enforce any rights in respect of any Collateral; (f) to settle, compromise,
compound, adjust or defend any actions, suits or proceedings relating to all or
any of the Collateral; (g) to notify, or to require any Grantor to notify,
Account Debtors to make payment directly to the Collateral Agent; and (h) to
use, sell, assign, transfer, pledge, make any agreement with respect to or
otherwise deal with all or any of the Collateral, and to do all other acts and
things necessary to carry out the purposes of this Agreement, as fully and
completely as though the Collateral Agent were the absolute owner of the
Collateral for all purposes; provided, however, that nothing herein contained
shall be construed as requiring or obligating the Collateral Agent or any
Secured Party to make any commitment or to make any inquiry as to the nature or
sufficiency of any payment received by the Collateral Agent or any Secured
Party, or to
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23
present or file any claim or notice, or to take any action with respect to the
Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby, and no action taken or omitted to be
taken by the Collateral Agent or any Secured Party with respect to the
Collateral or any part thereof shall give rise to any defense, counterclaim or
offset in favor of any Grantor or to any claim or action against the Collateral
Agent or any Secured Party. It is understood and agreed that the appointment of
the Collateral Agent as the agent and attorney-in-fact of the Grantors for the
purposes set forth above is coupled with an interest and is irrevocable. The
provisions of this Section shall in no event relieve any Grantor of any of its
obligations hereunder or under any other Loan Document with respect to the
Collateral or any part thereof or impose any obligation on the Collateral Agent
or any Secured Party to proceed in any particular manner with respect to the
Collateral or any part thereof, or in any way limit the exer cise by the
Collateral Agent or any Secured Party of any other or further right which it may
have on the date of this Agreement or hereafter, whether hereunder, under any
other Loan Document, by law or otherwise.
ARTICLE VI
Remedies
SECTION 6.01. Remedies upon Default. Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
Collateral to the Collateral Agent on demand, and it is agreed that the
Collateral Agent shall have the right to take any of or all the following
actions at the same or different times: (a) with respect to any Collateral
consisting of Intellectual Property, on demand, to cause the Security Interest
to become an assignment, transfer and conveyance of any of or all such
Collateral by the applicable Grantors to the Collateral Agent, or to license or
sublicense, whether general, special or otherwise, and whether on an exclusive
or non-exclusive basis, any such Collateral throughout the world on such terms
and conditions and in such manner as the Collateral Agent shall determine (other
than in violation of any then-existing licensing arrangements to the extent that
waivers cannot be obtained), and (b) with or without legal process and with or
without prior notice or demand for performance, to take possession of the
Collateral and without liability for trespass to enter any premises where the
Collateral may be located for the purpose of taking possession of or removing
the Collateral and, generally, to exercise any and all rights afforded to a
secured party under the Uniform Commercial Code
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24
or other applicable law. Without limiting the generality of the foregoing, each
Grantor agrees that the Collateral Agent shall have the right, subject to the
mandatory requirements of applicable law, to sell or otherwise dispose of all or
any part of the Collateral, at public or private sale or at any broker's board
or on any securities exchange, for cash, upon credit or for future delivery as
the Collateral Agent shall deem appropriate. The Collateral Agent shall be
authorized at any such sale (if it deems it advisable to do so) to restrict the
prospective bidders or purchasers to Persons who will represent and agree that
they are purchasing the Collateral for their own account for investment and not
with a view to the distribution or sale thereof, and upon consummation of any
such sale the Collateral Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold. Each such
purchaser at any such sale shall hold the property sold absolutely, free from
any claim or right on the part of any Grantor, and each Grantor hereby waives
(to the extent permitted by law) all rights of redemption, stay and appraisal
which such Grantor now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted.
The Collateral Agent shall give the Grantors 10 days' written notice (which
each Grantor agrees is reasonable notice within the meaning of Section 9-504(3)
of the Uniform Commercial Code as in effect in the State of New York or its
equivalent in other jurisdictions) of the Collateral Agent's intention to make
any sale of Collateral. Such notice, in the case of a public sale, shall state
the time and place for such sale and, in the case of a sale at a broker's board
or on a securities exchange, shall state the board or exchange at which such
sale is to be made and the day on which the Collateral, or portion thereof, will
first be offered for sale at such board or exchange. Any such public sale shall
be held at such time or times within ordinary business hours and at such place
or places as the Collateral Agent may fix and state in the notice (if any) of
such sale. At any such sale, the Collateral, or portion thereof, to be sold may
be sold in one lot as an entirety or in separate parcels, as the Collateral
Agent may (in its sole and absolute discretion) determine. The Collateral Agent
shall not be obligated to make any sale of any Collateral if it shall determine
not to do so, regardless of the fact that notice of sale of such Collateral
shall have been given. The Collateral Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case any sale of all or any part of the Collateral is made on
credit or for
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25
future delivery, the Collateral so sold may be retained by the Collateral Agent
until the sale price is paid by the purchaser or purchasers thereof, but the
Collateral Agent shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for the Collateral so sold and, in case
of any such failure, such Collateral may be sold again upon like notice. At any
public (or, to the extent permitted by law, private) sale made pursuant to this
Section, any Secured Party may bid for or purchase, free (to the extent
permitted by law) from any right of redemption, stay, valuation or appraisal on
the part of any Grantor (all said rights being also hereby waived and released
to the extent permitted by law), the Collateral or any part thereof offered for
sale and may make payment on account thereof by using any claim then due and
payable to such Secured Party from any Grantor as a credit against the purchase
price, and such Secured Party may, upon compliance with the terms of sale, hold,
retain and dispose of such property without further accountability to any
Grantor therefor. For purposes hereof, a written agreement to purchase the
Collateral or any portion thereof shall be treated as a sale thereof; the
Collateral Agent shall be free to carry out such sale pursuant to such agreement
and no Grantor shall be entitled to the return of the Collateral or any portion
thereof subject thereto, notwithstanding the fact that after the Collateral
Agent shall have entered into such an agreement all Events of Default shall have
been remedied and the Obligations paid in full. As an alternative to exercising
the power of sale herein conferred upon it, the Collateral Agent may proceed by
a suit or suits at law or in equity to foreclose this Agreement and to sell the
Collateral or any portion thereof pursuant to a judgment or decree of a court or
courts having competent jurisdiction or pursuant to a proceeding by a court-
appointed receiver.
SECTION 6.02. Application of Proceeds. The Collateral Agent shall apply
the proceeds of any collection or sale of the Collateral, as well as any
Collateral consisting of cash, as follows:
FIRST, to the payment of all costs and expenses incurred by the
Administrative Agent or the Collateral Agent (in its capacity as such
hereunder or under any other Loan Document) in connection with such
collection or sale or otherwise in connection with this Agreement, any
other Loan Document or any of the Obligations, including all court costs
and the fees and expenses of its agents and legal counsel, the repayment of
all advances made by the Collateral Agent hereunder or under any other Loan
Document on behalf of any Grantor and any other costs or expenses incurred
by the Collateral Agent
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26
or the Administrative Agent in connection with the exercise of any right or
remedy hereunder or under any other Loan Document;
SECOND, to the payment in full of the Obligations (the amounts so
applied to be distributed among the Secured Parties pro rata in accordance
with the amounts of the Obligations owed to them on the date of any such
distribution); and
THIRD, to the Grantors, their successors or assigns, or as a court of
competent jurisdiction may otherwise direct.
The Collateral Agent shall have absolute discretion as to the time of
application of any such proceeds, moneys or balances in accordance with this
Agreement. Upon any sale of the Collateral by the Collateral Agent (including
pursuant to a power of sale granted by statute or under a judicial proceeding),
the receipt of the purchase money by the Collateral Agent or of the officer
making the sale shall be a sufficient discharge to the purchaser or purchasers
of the Collateral so sold and such purchaser or purchasers shall not be
obligated to see to the application of any part of the purchase money paid over
to the Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
SECTION 6.03. Grant of License to Use Intellectual Property. For the
purpose of enabling the Collateral Agent to exercise rights and remedies under
this Article at such time as the Collateral Agent shall be lawfully entitled to
exercise such rights and remedies, each Grantor hereby grants to the Collateral
Agent an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to the Grantors) to use, license or sub-license
any of the Collateral consisting of Intellectual Property now owned or hereafter
acquired by such Grantor, and wherever the same may be located, and including in
such license reasonable access to all media in which any of the licensed items
may be recorded or stored and to all computer software and programs used for the
compilation or printout thereof. The use of such license by the Collateral
Agent shall be exercised, at the option of the Collateral Agent, upon the
occurrence and during the continuation of an Event of Default; provided that any
license, sub-license or other transaction entered into by the Collateral Agent
in accordance herewith shall be binding upon the Grantors notwithstanding any
subsequent cure of an Event of Default.
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ARTICLE VII
Miscellaneous
SECTION 7.01. Notices. All communications and notices hereunder shall
(except as otherwise expressly permitted herein) be in writing and given as
provided in Section 9.01 of the Credit Agreement. All communications and
notices hereunder to any Subsidiary Guarantor shall be given to it at its
address or telecopy number set forth on Schedule I, with a copy to the Borrower.
SECTION 7.02. Security Interest Absolute. All rights of the Collateral
Agent hereunder, the Security Interest and all obligations of the Grantors
hereunder shall be absolute and unconditional irrespective of (a) any lack of
validity or enforceability of the Credit Agreement, any other Loan Document, any
agreement with respect to any of the Obligations or any other agreement or
instrument relating to any of the foregoing, (b) any change in the time, manner
or place of payment of, or in any other term of, all or any of the Obligations,
or any other amendment or waiver of or any consent to any departure from the
Credit Agreement, any other Loan Document or any other agreement or instrument,
(c) any exchange, release or non-perfection of any Lien on other collateral, or
any release or amendment or waiver of or consent under or departure from any
guarantee, securing or guaranteeing all or any of the Obligations, or (d) any
other circumstance that might otherwise constitute a defense available to, or a
discharge of, any Grantor in respect of the Obligations or this Agreement.
SECTION 7.03. Survival of Agreement. All covenants, agreements,
representations and warranties made by any Grantor herein and in the
certificates or other instruments prepared or delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the
Secured Parties and shall survive the making by the Lenders of the Loans, and
the execution and delivery to the Lenders of any notes evidencing such Loans,
regardless of any investigation made by the Lenders or on their behalf, and
shall continue in full force and effect until this Agreement shall terminate.
SECTION 7.04. Binding Effect; Several Agreement. This Agreement shall
become effective as to any Grantor when a counterpart hereof executed on behalf
of such Grantor shall have been delivered to the Collateral Agent and a
counterpart hereof shall have been executed on behalf of the Collateral Agent,
and thereafter shall be binding upon such Grantor and the Collateral Agent and
their respective successors and assigns, and shall inure to the benefit of such
Grantor, the
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28
Collateral Agent and the other Secured Parties and their respective successors
and assigns, except that no Grantor shall have the right to assign or transfer
its rights or obligations hereunder or any interest herein or in the Collateral
(and any such assignment or transfer shall be void) except as expressly
contemplated by this Agreement or the Credit Agreement. This Agreement shall be
construed as a separate agreement with respect to each Grantor and may be
amended, modified, supplemented, waived or released with respect to any Grantor
without the approval of any other Grantor and without affecting the obligations
of any other Grantor hereunder.
SECTION 7.05. Successors and Assigns. Whenever in this Agreement any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all covenants, promises and agreements
by or on behalf of any Grantor or the Collateral Agent that are contained in
this Agreement shall bind and inure to the benefit of their respective
successors and assigns.
SECTION 7.06. Collateral Agent's Fees and Expenses; Indemnification. (a)
Each Grantor jointly and severally agrees to pay upon demand to the Collateral
Agent the amount of any and all reasonable expenses, including the reasonable
fees, disbursements and other charges of its counsel and of any experts or
agents, which the Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody or preservation of, or the
sale of, collection from or other realization upon any of the Collateral, (iii)
the exercise, enforcement or protection of any of the rights of the Collateral
Agent hereunder or (iv) the failure of any Grantor to perform or observe any of
the provisions hereof.
(b) Without limitation of its indemnification obligations under the other
Loan Documents, each Grantor jointly and severally agrees to indemnify the
Collateral Agent and the other Indemnitees against, and hold each of them
harmless from, any and all losses, claims, damages, liabilities and related
expenses, including reasonable fees, disbursements and other charges of counsel,
incurred by or asserted against any of them arising out of, in any way connected
with, or as a result of, the execution, delivery or performance of this
Agreement or any claim, litigation, investigation or proceeding relating hereto
or to the Collateral, whether or not any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, liabilities or related expenses are
determined by a court of
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29
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or willful misconduct of such Indemnitee.
(c) Any such amounts payable as provided hereunder shall be additional
Obligations secured hereby and by the other Security Documents. The provisions
of this Section 7.06 shall remain operative and in full force and effect
regardless of the termination of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby, the repayment of any of
the Loans, the invalidity or unenforceability of any term or provision of this
Agreement or any other Loan Document, or any investigation made by or on behalf
of the Collateral Agent or any Lender. All amounts due under this Section 7.06
shall be payable on written demand therefor.
SECTION 7.07. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 7.08. Waivers; Amendment. (a) No failure or delay of the
Collateral Agent in exercising any power or right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the exercise of any
other right or power. The rights and remedies of the Collateral Agent hereunder
and of the Collateral Agent, the Issuing Bank, the Administrative Agent and the
Lenders under the other Loan Documents are cumulative and are not exclusive of
any rights or remedies that they would otherwise have. No waiver of any
provisions of this Agreement or any other Loan Document or consent to any
departure by any Grantor therefrom shall in any event be effective unless the
same shall be permitted by paragraph (b) below, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Grantor in any case shall entitle such
Grantor or any other Grantor to any other or further notice or demand in similar
or other circumstances.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Collateral Agent and the Grantor or Grantors with respect to which
such waiver, amendment or modification is to apply, subject to any consent
required in accordance with Section 9.02 of the Credit Agreement.
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SECTION 7.09. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS.
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.09.
SECTION 7.10. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby (it being understood that the invalidity of a particular
provision in a particular jurisdiction shall not in and of itself affect the
validity of such provision in any other jurisdiction). The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
comes as close as possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 7.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract (subject to Section 7.04), and
shall become effective as provided in Section 7.04. Delivery of an executed
signature page to this Agreement by facsimile transmission shall be effective as
delivery of a manually executed counterpart hereof.
SECTION 7.12. Headings. Article and Section headings used herein are for
the purpose of reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in interpreting,
this Agreement.
SECTION 7.13. Jurisdiction; Consent to Service of Process. (a) Each
Grantor hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this
<PAGE>
31
Agreement or the other Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Nothing in this Agreement shall affect any right that the Collateral Agent, the
Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring
any action or proceeding relating to this Agreement or the other Loan Documents
against any Grantor or its properties in the courts of any jurisdiction.
(b) Each Grantor hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement or the other Loan Documents in any
New York State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 7.01. Nothing in this
Agreement will affected the right of any party to this Agreement to serve
process in any other manner permitted by law.
SECTION 7.14. Termination. (a) This Agreement and the Security Interest
shall terminate when all the Obligations (other than inchoate indemnification
and reimbursement rights) have been indefeasibly paid in full, the Lenders have
no further commitment to lend, the LC Exposure has been reduced to zero and the
Issuing Bank has no further commitment to issue Letters of Credit under the
Credit Agreement, at which time the Collateral Agent shall execute and deliver
to the Grantors, at the Grantors' expense, all Uniform Commercial Code
termination statements and similar documents which the Grantors shall reasonably
request to evidence such termination. Any execution and delivery of termination
statements or documents pursuant to this Section 7.14 shall be without recourse
to or warranty by the Collateral Agent.
(b) A Subsidiary Guarantor shall automatically be released from its
obligations hereunder and the Security Interest in the Collateral of such
Subsidiary Guarantor shall be automatically released in the event that all the
capital
<PAGE>
32
stock of such Subsidiary Guarantor shall be sold, transferred or otherwise
disposed of to a Person that is not an Affiliate of the Borrower in accordance
with the terms of the Credit Agreement; provided that the Lenders shall have
consented to such sale, transfer or other disposition (to the extent required by
the Credit Agreement) and the terms of such consent did not provide otherwise.
(c) Upon any sale or other transfer by any Grantor of any Collateral that
is permitted under the Credit Agreement to any Person that is not a Grantor, or,
upon the effectiveness of any written consent to the release of the security
interest granted hereby in any Collateral pursuant to Section 9.02(b) of the
Credit Agreement, the security interest in such Collateral shall be
automatically released.
(d) The Collateral Agent shall, in connection with a financing contemplated
by Section 6.01(a)(vi) and 6.02(a)(v) of the Credit Agreement, at the request of
the lender providing the financing, (i) subordinate the security interest under
this Agreement on the specific assets or improvement being financed to the
security interest of such lender pursuant to an intercreditor and/or
subordination agreement in form and substance reasonably satisfactory to such
lender, the Administrative Agent and the Grantor or (ii) release the Lien and
security interest under this Agreement on the specific assets or improvement
being financed; provided that such Lien and security interest shall be
--------
reinstated upon the repayment in full of the loans of such lender and the
obligations of the Grantor to such lender arising from or related to such
financing secured by such assets or improvement and, in connection with such
reinstatement, the Grantors shall execute and deliver, at the Grantors' expense,
any Uniform Commercial Code financing statements or other documents necessary to
effect and evidence such reinstatement as may be reasonably requested by the
Collateral Agent. In connection with any subordination or release of Lien and
security interest pursuant to this Section 7.14(d), the Collateral Agent shall
execute and deliver, at the Grantors' expense, any documents necessary to effect
and evidence such subordination as may be reasonably requested by the Grantors.
SECTION 7.15. Additional Grantors. Upon execution and delivery by the
Collateral Agent and a Subsidiary of Holdings of an instrument in the form of
Annex 3 hereto, such Subsidiary shall become a Grantor hereunder with the same
force and effect as if originally named as a Grantor herein.
<PAGE>
33
The execution and delivery of any such instrument shall not require the consent
of any Grantor hereunder. The rights and obligations of each Grantor hereunder
shall remain in full force and effect notwithstanding the addition of any new
Grantor as a party to this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
ADVANCE STORES COMPANY,
INCORPORATED,
by
/s/ J. O'Neil Leftwich
------------------------------------
Name: J. O'Neil Leftwich
Title: Senior Vice President/C.F.O.
Secretary/Treasurer
ADVANCE HOLDING
CORPORATION,
by
/s/ J. O'Neil Leftwich
----------------------------------
Name: J. O'Neil Leftwich
Title: Senior Vice President/C.F.O.
Secretary/Treasurer
LARALEV, INC.,
by
/s/ David C. Eppes
----------------------------------
Name: David C. Eppes
Title: President
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by
/s/ D. Davey
----------------------------------
Name: Deborah Davey
Title: Vice President
<PAGE>
EXHIBIT 10.7
LEASE AGREEMENT
between
Ki, L.C.
as
Landlord
and
ADVANCE STORES COMPANY, INCORPORATED
as
Tenant
March 16, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph Title or Subject Page No.
<S> <C> <C>
Parties 1
Leased Premises 1
1 Term 1
2 Rent 1
3 Taxes 2
4 Insurance 3
5 Tenant's Furnishings, Fixtures & Equipment 7
6 Alterations and Additions 7
7 Maintenance and Repairs 8
8 Utilities 9
9 Use 9
10 Signs 10
11 Assignment or Subletting 10
12 Damage by Casualty 11
13 Condemnation 12
14 Default 13
15 Hazardous Substances 17
16 Notices and Rent Payments 19
17 Miscellaneous 20
17A Identity of Interest 20
17B Quiet Enjoyment 20
17C Holding Over 20
17D Surrender of Leased Premises 20
17E Landlord's Exoneration 21
17F Right of Entry 21
17G Compliance with Laws and Insurance 21
17H Performance of Tenant's Obligations 22
17I Subordination 22
17J Estoppel Certificates 22
17K Late Payment Penalty 23
17L Additional Rent 23
17M Net Lease 24
17N Excusable Delay 24
17O Indemnification of Landlord 24
17P Non-Waiver 24
17Q Short Form Lease 25
17R Governing Law 25
17S Number and Gender 25
17T Additional Instruments 25
17U Severability 25
17V Captions 26
17W Counterparts 26
17X Binding Effect 26
17Y Entire Agreement 26
Execution by Parties 27
Notary Acknowledgement 27
Exhibit "A" 29
</TABLE>
<PAGE>
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (herein the "lease") is made March 16, 1995, by
and between Ki, L.C., a Virginia limited liability company (herein the
"Landlord"); and ADVANCE STORES COMPANY, INCORPORATED, a Virginia corporation
(herein the "Tenant").
W I T N E S S E T H
THAT in consideration of the rental reserved herein and the mutual
covenants and agreements herein contained, Landlord hereby demises and leases
unto Tenant that certain parcel of real property, together with the buildings
and improvements thereon, as more particularly described on Exhibit "A" attached
hereto and made a part hereof by this reference (herein the "Leased Premises").
1. Term: The term of this lease shall commence at 12:01 a.m. on
-----
March 22, 1995, and shall terminate at midnight on December 31, 2006.
2. Rent: Tenant shall pay to Landlord, without notice or demand, a
-----
monthly rental of $27,000.00, which shall be payable, in advance, on the first
day of each month during the term of this lease and at a prorated rate for
fractions of a month if the term shall have commenced on any day other than the
first day of any month. All payments of rent shall be made by Tenant to
Landlord at such place as Landlord may from
1
<PAGE>
time to time designate in writing. For the present, Landlord designates the
place designated in paragraph 16 of this lease as the place for the making of
the payments of rent. All rent shall be payable in current legal tender of the
United States of America, as the same is then by law, constituted. Checks must
be drawn on a Virginia bank and are subject to collection. The extension of time
for the payment of any installment of rent, or the acceptance by Landlord of any
money other than of the kind herein specified, shall not be a waiver of the
rights of Landlord to insist on having all other payments of rent made in the
manner and at the time herein specified. No payment by Tenant or receipt by
Landlord of a lesser amount than the aforesaid monthly rent shall be deemed
other than a payment on account of the earliest rent due, nor shall any
endorsement or statement on any check or on any letter accompanying any check or
payment as rent be deemed an accord and satisfaction and Landlord may accept
such check or payment without prejudice to its right to recover the balance of
the rent or to pursue any other remedy provided for in this lease.
3. Taxes: Tenant shall pay all taxes, assessments and other charges
-----
imposed upon the Leased Premises, and upon the buildings and improvements
thereon, which are assessed during the lease term. All such taxes and
assessments shall be paid before any fine, penalty, interest or cost may be
added thereto for nonpayment thereof. All taxes, assessments, rents or other
charges imposed prior to but payable in whole or in installments after the
effective date of the lease term, and all taxes, assessments or other charges
imposed during the term but payable in whole or in installments after the lease
term, shall be adjusted and prorated, so that Landlord shall pay his prorated
share for the period prior to and for the period subsequent to the lease term
and Tenant shall pay its
2
<PAGE>
prorated share for the lease term. Tenant shall furnish to Landlord for his
inspection, within thirty (30) days after the date any amount is payable by
Tenant, as provided in this paragraph, official receipts of the appropriate
taxing authority or proof satisfactory to Landlord evidencing payment.
Tenant shall have the right to contest and review by legal
proceedings, instituted and conducted by Tenant at Tenant's own expense and free
of expense to Landlord, any taxes, assessments or other charges imposed upon or
against the Leased Premises or buildings and improvements thereon. In the event
Tenant exercises its right to review by legal proceedings any such taxes,
assessments or other charges imposed upon or against the Leased Premises or
buildings and improvements thereon, Tenant shall continue to pay as the same
become due and payable, the full amount of such taxes, assessments or other
charges under protest, if it be so advised. The term "legal proceedings" as
here used shall be construed as including appropriate appeals of any judgments,
decrees, orders and certiorari proceedings and appeals of orders therein, to and
including appeals to the court of last resort.
4. Insurance:
----------
A. Insurance: Tenant shall during the lease term, at its sole
----------
expense, provide and keep in force the following insurance coverage:
(i) Fire and Extended Coverage: Insurance on the Leased
---------------------------
Premises against loss or damage by fire and against loss or damage by other
risks, including flood and earthquake, as may be included in all risk property
insurance in an amount not less than 100% of the full replacement value of the
buildings and
3
<PAGE>
improvements, provided that such amounts in the aggregate shall not be less than
$1,350,000 during the first year of the term of this lease; and provided
further, that such amounts shall be increased annually if the replacement value
of the buildings and improvements shall have increased in order to maintain such
insurance coverage in amounts at least equal to the replacement value of the
buildings and improvements. Any disagreement between Landlord and Tenant with
respect to the replacement value of the buildings and improvements shall be
determined by one disinterested arbitrator if one can be agreed upon, otherwise
before three disinterested arbitrators, one named by Landlord, one by Tenant,
and one by the two thus chosen. The cost of such arbitration shall be paid by
Tenant.
(ii) Rental Value: Rental insurance against loss of rent
-------------
under a rental value insurance policy covering risk of loss due to the
occurrence of any of the hazards described in the preceding subparagraph in an
amount sufficient to pay for one (1) year the rent and additional rent payable
pursuant to this lease.
(iii) Liability: Comprehensive general public liability
----------
insurance insuring against claims for personal injury, death or property damage
occurring on, in or about the Leased Premises or arising out of the conduct by
the Tenant of its business at the Leased Premises. The limits of such insurance
shall be in such amounts as may be reasonably requested by Landlord from time to
time, but not less than $1,000,000 for injury or property damage arising out of
any one occurrence.
4
<PAGE>
(iv) Umbrella/Excess Coverage: Umbrella or excess liability
-------------------------
insurance with limits of not less than $10,000,000.
(v) Miscellaneous: Such other insurance against other
--------------
insurable hazards in such amounts as may from time to time be required by
Landlord or by the holder of any mortgage or deed of trust covering the Leased
Premises.
B. Policies: All insurance provided for in this paragraph shall
---------
be effected under policies issued by insurers of recognized responsibility
licensed to do business in Virginia. Tenant shall throughout the term of this
lease deliver to Landlord evidence, in the form of an insurance certificate or
binder, that such insurance policies are in effect. Within fifteen (15) days
after the premium on any policy shall become due and payable, Landlord shall be
furnished with satisfactory evidence of its payment.
C. Insureds: The rental value insurance policy above described
---------
shall name only Landlord as the insured. However, Tenant may furnish a combined
rental and use and occupancy policy, provided that Landlord shall be named as
the insured and the first payee with respect to an amount equal to the rent and
additional rent, and Tenant shall be named as the payee with respect to any
remaining proceeds. All other policies of insurance shall name Landlord and
Tenant as the insureds, as their respective interests may appear. At the
request of Landlord, any insurance policy shall be made payable to the holders
of any mortgage or deeds of trust covering the Leased Premises, as the interest
of such holders may appear, pursuant to a standard clause for holders of
mortgages or deeds of trust. To the extent obtainable, all policies shall
contain an agreement by the insurers (i) that any loss shall be adjusted with
Landlord and the holders of any such mortgage or
5
<PAGE>
deed of trust, notwithstanding any act or negligence of Tenant which might
otherwise result in forfeiture of such insurance, (ii) that such policies shall
not be cancelled or subject to reduction of coverage or other modification
except upon thirty (30) days prior written notice to Landlord and to the holders
of any mortgage or deed of trust to whom loss may be payable, and (iii) that the
insurance coverage shall not be affected by the performance of any work in or
about the Leased Premises.
D. Premium Apportionment: Premiums on all insurance policies
----------------------
in force at the commencement or the expiration or earlier termination of this
lease shall be apportioned between Landlord and Tenant as of the date of such
commencement or termination.
E. Blanket Policies: If Tenant provides any insurance required
-----------------
by this lease in the form of a blanket policy, Tenant shall furnish satisfactory
proof that such blanket policy complies in all respects with the provisions of
this lease, and that the coverage thereunder is at least equal to the coverage
which would be provided under a separate policy covering only the Leased
Premises.
F. Waiver of Subrogation: Neither Landlord nor Tenant shall be
----------------------
liable to the other for any business interruption or any loss or damage to
property or injury to or death of persons occurring in or about the Leased
Premises, or in any manner growing out of or connected with the Tenant's use and
occupation of the Leased Premises, whether or not caused by the negligence or
other fault of Landlord or Tenant, or of their respective agents, employees,
subtenants, licensees, or assignees. This release shall apply to the extent
that such business interruption, loss, or damage to property or injury to or
death
6
<PAGE>
of persons is covered by insurance, regardless of whether such insurance is
payable to or protects Landlord or Tenant, or both. Nothing herein shall be
construed to impose any other or greater liability upon either Landlord or
Tenant than would have existed in the absence of this provision. This release
shall be in effect only so long as the applicable insurance policies contain a
clause to the effect that this release shall not affect the right of the insured
to recover under such policies. Such clauses shall be obtained by the parties
whenever possible. The release in favor of Landlord contained herein is in
addition to, and not in substitution for, or in diminution of, the hold harmless
and indemnification provisions hereof.
5. Tenant's Furnishings, Fixtures and Equipment: Tenant, at its sole
---------------------------------------------
cost and expenses, may supply and install in the Leased Premises any
furnishings, fixtures or equipment which it deems necessary for its use of said
premises; provided, however, that Tenant shall repair, at its own expense, any
damage to the Leased Premises occasioned by such installation. Any such
furnishings, fixtures and equipment supplied and installed in the Leased
Premises, except those permanently attached, shall be and remain the property of
Tenant and Tenant shall have the right to remove same at any time so long as
Tenant is not in default in the performance of any of the terms and conditions
of this lease. Any damage to the Leased Premises occasioned by the removal of
said furnishings, fixtures and equipment shall be repaired by Tenant at its sole
cost and expense.
6. Alterations and Additions: Tenant shall not make or permit to be
--------------------------
made any alterations, improvements, and/or additions of any kind or nature to
the Leased Premises or any part thereof except by and with the prior written
consent of
7
<PAGE>
Landlord which consent shall be in Landlord's sole discretion. All alterations,
improvements and additions to the Leased Premises shall be made in accordance
with all applicable laws and shall at once when made or installed be deemed to
have attached to the freehold and to have become the property of Landlord and
shall remain for the benefit of Landlord at the end of the term, or other
expiration of this lease, in as good order and condition as they were when
installed, reasonable wear and tear excepted; provided, however, if prior to the
termination of this lease, or within fifteen (15) days thereafter, Landlord so
directs, Tenant shall promptly remove the additions, improvements, fixtures and
installations which were placed in the Leased Premises by Tenant and which are
designated in said notice and repair any damage occasioned by such removal and,
in default thereof, Landlord may effect said removals and repairs at Tenant's
expense. In the event of making such alterations, improvements, and/or additions
as herein provided, Tenant shall indemnify and save harmless Landlord from all
expense, liens, claims, or damages to either persons or property arising out of,
or resulting from, the undertaking or making of said alterations, additions, and
improvements.
7. Maintenance and Repairs: Tenant shall not cause or permit any
------------------------
waste, damage, or injury to the Leased Premises. Tenant, at its sole expense,
shall keep the Leased Premises as now or hereafter constituted with all
improvements made thereto and the adjoining sidewalks, curbs, walls, parking
areas, landscaping and access roads, clean and in good condition (reasonable
wear and tear excepted), free of dirt, rubbish, snow, ice, and unlawful
obstructions, and shall make all repairs, replacements, and renewals, whether
ordinary or extraordinary, seen or unforeseen, including all structural repairs
necessary to
8
<PAGE>
maintain the Leased Premises. All repairs, replacements, and renewals shall be
at least equal in quality of materials and workmanship to that originally
existing in the Leased Premises. Landlord shall in no event be required to make
any repair, alteration, or improvement to the Leased Premises. Tenant shall
indemnify Landlord against all costs, expenses, liabilities, losses, damages,
suits, fines, penalties, claims, and demands, including reasonable attorney's
fees, because of Tenant's failure to comply with the foregoing, and Tenant shall
not call upon Landlord for any disbursement or outlay whatsoever in connection
therewith, and expressly releases and discharges Landlord of and from any
liability therefor.
8. Utilities: Tenant shall pay or cause to be paid all charges for
----------
air conditioning, heat, water, gas, electricity, light, telephone or any other
communication or utility service used in or rendered or supplied to the Leased
Premises throughout the term of this lease, and to indemnify Landlord and save
him harmless against any liability or damages on such account. Landlord shall
not be liable in damages or otherwise for any failure to furnish, or
interruption of the services of air conditioning, heat, water, gas, electricity,
light, telephone or any other communication or utility.
9. Use: Tenant may use and occupy the Leased Premises for any lawful
----
purpose, except that Tenant shall not use or occupy or permit the Leased
Premises to be used or occupied, nor do or permit anything to be done in or on
the Leased Premises, in a manner which will in any way violate any certificate
of occupancy affecting the Leased Premises, or make void or voidable any
insurance then in force with respect thereto, or which will make it impossible
to obtain fire or other insurance required to be furnished by
9
<PAGE>
Tenant hereunder, or which will cause or be likely to cause structural damage to
the building or any part thereof, or which will constitute a public or private
nuisance, and shall not use or occupy or permit the Leased Premises to be used
or occupied in any manner which will violate any present or future laws or
regulations of any governmental authority.
10. Signs: Tenant shall have the privilege of placing on and in the
------
Leased Premises such signs as Tenant deems necessary and proper in the conduct
of Tenant's business, provided (i) Tenant obtains all permits and licenses which
may be required for the erection and maintenance thereof and pays the fees for
such licenses and permits, and (ii) such signs may lawfully be permitted to be
erected and maintained. Tenant shall indemnify and save harmless Landlord
against and from any and all losses, damages, claims, suits, or actions for any
injury or damage to person or property caused by the erection and maintenance of
such signs, and insurance coverage therefor shall be included in the public
liability policy which Tenant is required to furnish under this lease.
11. Assignment or Subletting: Tenant shall not assign, mortgage or
-------------------------
encumber this lease, nor sublet or permit the Leased Premises or any part
thereof to be used by others, without the prior written consent of Landlord in
each instance, which consent shall be in Landlord's sole discretion. The
prohibition against assignment or subletting shall be construed to include a
prohibition against any assignment or subletting by operation of law including,
but not limited to, a merger. If Landlord consents to an assignment or
subletting, Tenant shall remain primarily liable during the term of this lease
for the performance of all the terms of this lease, and any such consent shall
not be construed to release Tenant from obtaining the consent in writing of
Landlord to any further assignment or subletting.
10
<PAGE>
12. Damage by Casualty:
-------------------
A. Landlord's Election to Terminate or Rebuild: If the Leased
--------------------------------------------
Premises shall be damaged or destroyed, in whole or in part, during the term of
this lease by fire or other casualty, then Landlord shall have the option to
rebuild or terminate this lease to be exercised by notice to Tenant given not
more than sixty (60) days from the date of such damage or destruction.
B. Termination: If Landlord elects to terminate this lease as
------------
provided by the preceding subparagraph, the rent and additional rent to be paid
by Tenant hereunder shall be apportioned as of the date of damage or
destruction.
C. Rebuilding: If Landlord elects to rebuild the Leased
-----------
Premises as provided by subparagraph a of this paragraph, this lease shall
continue in full force and effect and Landlord shall (at his expense but only to
the extent of insurance proceeds made available to Landlord by any mortgagee of
the Leased Premises) promptly repair or cause to be repaired such damage;
provided, however, that Landlord's repair obligation shall not include any
alterations, decorations, additions or improvements originally made or installed
by Tenant as shall have been damaged by such fire or other casualty. If Landlord
elects to rebuild as aforesaid, then the rent and additional rent shall abate
proportionately during the period and to the extent that the Leased Premises are
unfit for use by Tenant in the ordinary conduct of its permitted uses hereunder.
Notwithstanding the foregoing provisions, in the event the Leased Premises are
damaged or destroyed by fire or other casualty due to the fault or neglect of
Tenant, its agents, employees or invitees, then, without prejudice to any other
rights and remedies of Landlord, there shall be no apportionment or abatement of
any rent.
11
<PAGE>
D. Continuing Obligations: Except as otherwise provided in this
-----------------------
lease, this lease shall not terminate or be affected in any manner by reason of
the damage or destruction, by fire or other casualty, in whole or in part, of
the Leased Premises or the improvements thereon, or by reason of the
untenantability of the Leased Premises and, except as otherwise provided herein,
the rent and additional rent reserved in this lease shall be paid by Tenant in
accordance with the terms of this lease, without abatement, diminution or
reduction of rent on account of any such damage or destruction.
13. Condemnation:
-------------
A. Total: If the whole of the Leased Premises shall be acquired
------
or taken by eminent domain for any public or quasi-public use or purpose or by
private purchase in lieu thereof, then this lease and the term hereof shall
automatically cease and terminate on the date when possession shall be taken by
the condemning authority.
B. Partial: If any part of the Leased Premises shall be so
--------
taken, Landlord may elect to terminate this lease or to continue same in effect
to be exercised by notice to Tenant given not more than sixty (60) days from the
date when possession shall be taken by the condemning authority. If Landlord
elects to continue this lease, then all of the terms and provisions hereof shall
continue in full force and effect, except that the rent shall be reduced in
proportion to the area, if any, of the premises so taken and, Landlord shall
promptly, at his expense (but only to the extent of the net condemnation award
made available to Landlord by any mortgagee of the Leased Premises) promptly
replace or cause to be replaced the Leased Premises to its condition existing at
the time of such taking; provided, however, that Landlord's restoration
obligation shall not
12
<PAGE>
include alterations, decorations, additions or improvements originally made or
installed by Tenant as shall have been taken. In the preceding sentence, "net"
shall mean the amount remaining after the expenses of collection, including as
expenses any attorney's fees or other charges incurred by Landlord with respect
to such amount.
C. Rent: If this Lease is terminated as provided in this
-----
paragraph, the rent and additional rent shall be paid by Tenant up to the date
that physical possession is taken by the condemning authority, and Landlord
shall refund any rent and additional rent paid by Tenant in advance and not yet
earned, less any sum then owing by Tenant to Landlord.
D. Award: All damages or compensation awarded or paid for any
------
such taking, whether for the whole or any part of the Leased Premises, shall
belong to and be the property of Landlord without any participation by Tenant;
provided, however, that nothing herein contained shall be construed to preclude
Tenant from prosecuting any claim directly against the condemning authority, but
not against Landlord, for the value of or damages to and/or for the cost of
removal of all work performed by Tenant pursuant to paragraph 5 of this lease
entitled "Tenant's Furnishings, Fixtures and Equipment" and pursuant to
paragraph 6 of this lease entitled "Alterations and Additions" as may be
recoverable by Tenant in Tenant's own right.
14. Default:
--------
A. Defaults: If (i) Tenant defaults in the payment of any rent
---------
or any additional rent and such default continues for five (5) days after the
same has become due, or (ii) Tenant defaults in fulfilling any of the covenants
or agreements of this
13
<PAGE>
lease on its part to be kept or performed, and such default is not cured or
commenced to be cured (and diligently prosecuted to completion) within ten (10)
days after written notice from Landlord or his agent, or (iii) if this lease be
transferred to or devolve upon any person or corporation or other entity other
than Tenant, except as may be specifically permitted by this lease, or if there
be any material change in the ownership or control of Tenant, then and in any of
such events Landlord, or its agent, may give Tenant a written notice specifying
a day not less than five (5) days thereafter whereupon the term shall end, and
on the day specified the term of this lease shall expire as if that day were the
day herein fixed for the expiration of the term, and Tenant shall then quit and
surrender the Leased Premises to Landlord and Tenant shall remain liable as
hereinafter provided.
B. Abandonment: If Tenant vacates or abandons the Leased
------------
Premises, or if the Leased Premises become vacant for a period of three (3)
days, or if the term of this lease shall expire, or if Tenant fails to take
possession of the Leased Premises within ten (10) days after commencement of the
term of this lease, Landlord may reenter the Leased Premises and remove Tenant
or its legal representatives or other occupant by summary proceedings or
otherwise and Tenant waives the service of notice of intention to reenter or to
institute legal proceedings to that end.
C. Reentry: In case of any such reentry, expiration, and/or
--------
dispossess by summary proceedings or otherwise, the rent shall become due
thereupon and be paid up to the time of such reentry, dispossess, and/or
expiration, together with such expenses as Landlord may incur for brokerage
and/or putting the Leased Premises in good order, or for preparing the same for
re-rental. Landlord may relet the premises or any
14
<PAGE>
part or parts thereof, either in the name of Landlord or otherwise, for a term
or terms which may at Landlord's option be less than or exceed the period which
may otherwise have constituted the balance of the term of this lease and may
grant reasonable concessions, or free rent; and Tenant or the legal
representatives of Tenant shall also pay Landlord as liquidated damages for the
failure of Tenant to observe and perform said Tenant's covenants herein
contained, any deficiency between (i) all rent and additional rent hereby
reserved and/or covenanted to be paid, and (ii) the net amount, if any, of the
rents collected on account of the lease of the Leased Premises for each month of
the period which would otherwise have constituted the balance of the term of
this lease. In computing such liquidated damages, there shall be added to the
deficiency such expenses as Landlord may incur in connection with reletting,
such as for brokerage, for keeping the Leased Premises in good order, and for
preparing the same for reletting. Any such liquidated damages shall be paid in
monthly installments by Tenant on the rent days specified in this lease and any
suit brought to collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Landlord to collect the deficiency for any
subsequent month by a similar proceeding. Landlord, in his discretion, may make
such alterations, repairs, replacements, and/or decorations in the Leased
Premises as may be necessary for the purpose of reletting the Leased Premises;
and the making of such alterations and/or decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Landlord
shall not be liable for failure to relet the Leased Premises. The words
"reenter" or "reentry" as used in this lease shall not be restricted to their
technical legal meaning.
15
<PAGE>
D. Injunctive Relief: In the event of a breach or threatened
------------------
breach by Tenant of any of the covenants or provisions of this lease, Landlord
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity as if reentry, summary proceedings and other remedies were not
herein provided for. Mention in this lease of any particular remedy shall not
preclude Landlord from any other remedy, in law or in equity. Tenant expressly
waives any and all rights of redemption granted by or under any present or
future laws in the event of Tenant's being evicted or dispossessed, or in the
event of Landlord's obtaining possession of the Leased Premises by reason of
Tenant's violation of the provisions of this lease.
E. Cure Defaults: If Tenant shall default in the performance
--------------
of any provision, covenant or condition on its part to be performed under this
lease, Landlord may, at his option, perform the same for the account and at the
expense of Tenant. If Landlord at any time shall be compelled to pay or elects
to pay any sum of money or do any act which requires the payment of any sum of
money by reason of the failure of the Tenant to comply with any provision of
this lease, or if Landlord incurs any expense in prosecuting or defending any
action or proceeding by reason of any default of Tenant under this lease, or if
Landlord incurs any expense in prosecuting or defending any action or proceeding
by reason of any default of Tenant under this lease, the sums so paid by
Landlord with interest at the rate of 12% per annum, costs and damages shall be
due from and be paid by Tenant to Landlord on demand.
16
<PAGE>
F. Chronic Defaults: Tenant will be in "Chronic Default" under
-----------------
this lease if Tenant commits a default (either a Monetary or Non-Monetary
Default) during any 365-day period in which any of the following combinations
of default has already occurred (even though said defaults may have been timely
cured): (i) Two Monetary Defaults; or (ii) Three Non-Monetary Defaults; or (iii)
One Monetary Default and two Non-Monetary Defaults. If Tenant is in Chronic
Default, Landlord may immediately exercise any or all remedies available under
this lease or at law or in equity, all without giving Tenant any notice or an
opportunity to cure the last default causing Tenant's Chronic Default
(notwithstanding any notice and cure provision or other lease provision to the
contrary). For the purposes of this paragraph, (i) a Monetary Default occurs if
Tenant fails to pay any sum of money when due (including, but not limited to,
basic rent, additional rent, and all other charges imposed upon Tenant by this
lease; and (ii) a Non-Monetary Default occurs if Tenant fails to perform any of
its obligations under this lease other than the timely payment of money.
15. Hazardous Substance:
--------------------
A. Tenant shall not cause or permit any Hazardous Substance to
be used, stored, generated, or disposed of on or in the Leased Premises by
Tenant, Tenant's agents, employees, contractors, or invitees without first
obtaining Landlord's written consent. If Hazardous Substances are used, stored,
generated, or disposed of on or in the Leased Premises except as permitted
above, or if the Leased Premises become contaminated in any manner for which
Tenant is legally liable, Tenant shall indemnify and hold harmless Landlord from
any and all claims, damages, fines, judgments, penalties, costs, liabilities, or
17
<PAGE>
losses (including, without limitation, a decrease in value of the Leased
Premises, damages caused by loss or restriction of rentable or usable space, or
any damages caused by adverse impact on marketing of the Leased Premises, and
any and all sums paid for settlement of claims, attorneys' fees, consultant, and
expert fees) arising during or after the lease term and arising as a result of
that contamination by Tenant. This indemnification includes, without limitation,
any and all costs incurred because of any investigation of the site or any
cleanup, removal, or restoration mandated by a federal, state, or local agency
or political subdivision. Without limitation of the foregoing, if Tenant causes
or permits the presence of any Hazardous Substance on the Leased Premises that
results in contamination, Tenant shall promptly, at its sole expense, take any
and all necessary actions to return the Leased Premises to the condition
existing prior to the presence of any such Hazardous Substance on the Leased
Premises. Tenant shall first obtain Landlord's approval for any such remedial
action. The provisions of this paragraph 15 shall survive the termination of
this lease.
B. As used herein, "Hazardous Substance" means any substance
that is toxic, ignitable, reactive, or corrosive and is regulated by any local
government, the State of Virginia, or the United States Government. "Hazardous
Substance" includes any and all material or substances that are defined as
"hazardous waste," extremely hazardous waste," or a "hazardous substance"
pursuant to state, federal, or local governmental law. "Hazardous Substance"
includes, but is not restricted to, asbestos, polychlorobiphenyls ("PCBs"), and
petroleum. The provisions of this paragraph 15 shall survive the termination of
this lease.
18
<PAGE>
16. Notices and Rent Payments:
--------------------------
A. Notices: Notices under this lease shall be deemed to have
--------
been given if in writing, and when delivered personally or when deposited in the
United States mail, certified or registered, return receipt requested, with
postage prepaid, and addressed as follows:
To Landlord At: Ki, L.C.
c/o W.O.D., Inc.
Suite 1400, First Union Tower
10 South Jefferson St.
Roanoke, Virginia 24011
Attn: Douglas W. Densmore
To Tenant At: Advance Stores Company, Incorporated
PO Box 2710
Roanoke, Virginia 24001
Attn: Real Estate Department
or to either at such other place as either of them may give notice to the other,
pursuant to the provisions of this paragraph, from time to time.
B. Rent: All payments of rent to be make hereunder by Tenant
-----
shall be mailed to Landlord at the address provided for in subparagraph A of
this paragraph.
19
<PAGE>
17. Miscellaneous:
--------------
A. Identity of Interest: The execution of this lease or the
---------------------
performance of any act pursuant to the provisions thereof shall not be deemed or
construed to have the effect of creating between Landlord and Tenant the
relationship of principal or agent, or of a partnership or joint venture.
B. Quiet Enjoyment: Tenant, upon payment of the rent and
----------------
additional rent, and the performance of all the terms of this lease, shall, at
all times during the lease term, peaceably and quietly enjoy the Leased Premises
without any disturbance from Landlord or from any other person claiming through
Landlord, subject, however, to the reservations and conditions of this lease and
the fee mortgage to which this lease is subordinate.
C. Holding Over: Any holding over after the expiration of the
-------------
term hereof with the consent of Landlord shall be construed to create a tenancy
from month to month at the monthly rent herein reserved, plus 50% of such
amount, and such tenancy shall otherwise be subject to the terms and condition
set forth in this lease.
D. Surrender of Leased Premises: Tenant shall surrender to
-----------------------------
Landlord the Leased Premises at the expiration of the term hereof, or upon
termination by virtue of Tenant's default, in as good order and condition as
same now are or hereafter may be put by Landlord or Tenant, ordinary wear and
tear and damage by fire or other casualty not occasioned by the fault of Tenant
excepted.
20
<PAGE>
E. Landlord's Exoneration: Landlord shall not be liable or
-----------------------
responsible in any way for any damage to person or property sustained in or
about the Leased Premises during the term of this lease howsoever the same may
be caused unless due to Landlord's willful acts.
F. Right of Entry: Landlord and his representatives may enter
---------------
the Leased Premises, at any reasonable time, for the purpose of inspecting the
Leased Premises, performing any work which Landlord elects to undertake made
necessary by reason of Tenant's default under the terms of this lease,
exhibiting the Leased Premises for sale, lease, or mortgage financing, or
posting notices of non-responsibility under any mechanic's lien law.
G. Compliance with Laws and Insurance: Tenant shall, at its
-----------------------------------
sole expense, promptly comply with all laws, orders and regulations of federal,
state, and municipal governments and appropriate departments, commissions,
authorities, boards, and their officers, and the orders and regulations of the
National Board of Fire Underwriters, or any other body now or hereafter
exercising similar functions, which may be applicable to the Leased Premises,
the fixtures and equipment therein, and the parking areas, sidewalks and curbs
adjoining the Leased Premises. Tenant shall comply with the requirements of all
policies of public liability, fire, and all other types of insurance at any time
in force with respect to the building and other improvements on the Leased
Premises. Tenant, at its sole expense, shall obtain all required licenses or
permits for the conduct of its business within the terms of this lease, or for
the making of repairs, alterations, improvements, or additions, and Landlord,
where necessary, will join with Tenant in applying for all such permits or
licenses.
21
<PAGE>
H. Performance of Tenant's Obligations: If Tenant shall default
------------------------------------
in the observance or performance of any covenant on Tenant's part to be observed
or performed under any of the provisions of this lease, Landlord may immediately
or at any time thereafter and without notice perform the same for the account of
Tenant, and if Landlord makes any expenditures or incurs any obligations for the
payment of money in connection therewith including, but not limited to, legal
fees in instituting, prosecuting, or defending any action or proceeding, such
sums paid or obligations incurred, with 12% interest per annum and costs, shall
be paid by Tenant to Landlord upon demand. Furthermore, Tenant shall pay and
indemnify Landlord against all legal costs and charges, including attorney's
fees lawfully and reasonably incurred, in obtaining possession of the Leased
Premises after a default of Tenant or after Tenant's default in surrendering
possession upon the expiration or earlier termination of the term of this lease.
I. Subordination: This lease is subject and subordinate at all
--------------
times to the lien of existing and future mortgages on the Leased Premises.
Although no instrument or act on the part of Tenant shall be necessary to
effectuate such subordination, Tenant will, nevertheless, execute and deliver
such further instruments subordinating this lease to the lien of all such
mortgages as may be desired by the mortgagee. Tenant hereby appoints Landlord
its attorney-in-fact, irrevocably, to execute and deliver any such instrument
for Tenant.
J. Estoppel Certificates: Within ten (10) days after request
----------------------
therefor by Landlord, Tenant shall deliver in recordable form a certification to
any proposed mortgagee, trustee, or purchaser certifying that this lease is in
full force and effect and that there are no defenses or offsets thereto, or
stating those claimed by Tenant.
22
<PAGE>
K. Late Payment Penalty: Tenant acknowledges that late payment by
---------------------
Tenant to Landlord of rent and additional rent due hereunder will cause Landlord
to incur costs not contemplated by this lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Leased
Premises. Accordingly, if any installment of rent or any additional rent due
from Tenant shall not be received by Landlord or Landlord's assignee within ten
(10) days after such amount shall be due, Tenant shall pay to Landlord a late
charge equal to 10% of such overdue amount. The parties agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by
Landlord shall in no event constitute a waiver of Tenant's default with respect
to such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
L. Additional Rent: All taxes, charges, costs, and expenses which
----------------
Tenant is required to pay hereunder, together with all interest and penalties
that may accrue thereon in the event of Tenant's failure to pay such amounts,
and all damages, costs, and expenses which Landlord may incur by reason of any
default of Tenant or failure on Tenant's part to comply with the terms of this
lease, shall be deemed to be additional rent and, in the event of nonpayment by
Tenant, Landlord shall have all the rights and remedies with respect thereto as
Landlord has for the nonpayment of the basic rent.
23
<PAGE>
M. Net Lease: Tenant acknowledges and agrees that it is intended
----------
that this is a net lease that is completely carefree to Landlord, except as
expressly set out in this lease; that Landlord is not responsible during the
term of this lease for any costs, charges, expenses, and outlays of any nature
whatsoever arising from or relating to the Leased Premises, or the use and
occupancy thereof, or the contents thereof, or the business carried on therein;
and Tenant shall pay all charges, expenses, costs and outlays of every nature
and kind relating to the Leased Premises except as expressly set out in this
lease.
N. Excusable Delay: Except for the payment of rent and additional
----------------
rent, if Landlord or Tenant is delayed or prevented from performing any of their
obligations under this lease by reason of strike or labor troubles or any
outside cause whatsoever beyond Landlord's or Tenant's reasonable control, the
period of such delay or such prevention shall be deemed added to the time herein
provided for the performance of any such obligations by Landlord or Tenant.
O. Indemnification of Landlord: Tenant shall defend, indemnify and
----------------------------
hold Landlord harmless from and against any claim, loss, expense or damage to
any person or property in or upon the Leased Premises arising out of Tenant's
use or occupancy of said premises, or any act or neglect of Tenant or Tenant's
servants, employees or agents, or any change, alteration or improvement made by
Tenant in the Leased Premises, or any default by Tenant of any of the covenants
and agreements of this lease on its part to be kept and performed.
P. Non-Waiver: The failure of Landlord to seek redress for violation
----------
of, or to insist upon the strict performance of, any covenant or condition of
this
24
<PAGE>
lease, or of any rule or regulation, shall not prevent a subsequent act, which
would have originally constituted a violation, from having all the force and
effect of an original violation. The receipt by Landlord of rent with knowledge
of the breach of any covenant of this lease shall not be deemed a waiver of such
breach. No provision of this lease shall be deemed to have been waived by
Landlord, unless such waiver be in writing signed by Landlord.
Q. Short Form Lease: Tenant agrees not to record this lease, and
-----------------
Landlord and Tenant agree to execute, acknowledge and deliver, if either party
shall so request, a "Short Form Lease" suitable for recording at the expense of
the party so requesting.
R. Governing Law: The laws of the State of Virginia shall govern the
--------------
validity, performance and enforcement of this lease.
S. Number and Gender: Any word contained in the text of this lease
------------------
shall be read as the singular or the plural and as the masculine, feminine or
neuter gender as may be applicable in the particular context.
T. Additional Instruments: The parties shall execute and deliver any
-----------------------
instruments in writing necessary to carry out any agreement, term, condition, or
assurance in this lease whenever occasion shall arise and request for such
instruments shall be made.
U. Severability: If any provision of this lease shall be declared
-------------
invalid or unenforceable, the remainder of the lease shall continue in full
force and effect.
25
<PAGE>
V. Captions: The captions in this lease are for convenience only,
---------
are not a part of this lease, and do not in any way limit or amplify the terms
and provisions of this lease.
W. Counterparts: This lease may be executed in one or more
-------------
counterparts, each of which shall be an original, and all of which shall
constitute one and the same instrument.
X. Binding Effect: Except as herein otherwise expressly provided,
---------------
the terms and provisions hereof shall be binding upon and shall inure to the
benefit of the heirs, executors, administrators, successors and permitted
assigns, respectively, of Landlord and Tenant. Each term and each provision of
this lease to be performed by Tenant shall be construed to be both an
independent covenant and a condition. The reference contained to successors and
assigns of Tenant is not intended to constitute a consent to assignment by
Tenant, but has reference only to those instances in which Landlord may have
given written consent to a particular assignment.
Y. Entire Agreement: This lease contains all of the premises,
-----------------
agreements and conditions between the parties hereto, and any subsequent
agreements between the parties altering the terms hereof must be reduced to
writing and executed by both parties.
26
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
Agreement on the day and year first above written.
Landlord Tenant
-------- ------
Ki, L.C. ADVANCE STORES COMPANY,
INCORPORATED
By: W.O.D., INC.
Its Manager
By: /s/ Douglas W. Densmore By: /s/ Nicholas F. Taubman
- --------------------------- --------------------------
Douglas W. Densmore Nicholas F. Taubman
Its President Chairman of the Board
STATE OF VIRGINIA AT LARGE
CITY OF ROANOKE, to-wit:
The foregoing instrument was acknowledged before me this 21st day of March,
1995, by Douglas W. Densmore, President of W.O.D., Inc., a Virginia corporation,
Manager of Ki, L.C., a Virginia limited liability company, on behalf of said
company.
My Commission Expires: April 30, 1995
/s/
---------------------------------
Notary Public
27
<PAGE>
STATE OF VIRGINIA AT LARGE
CITY OF ROANOKE, to-wit:
The foregoing instrument was acknowledged before me this 16th day of March,
1995, by NICHOLAS F. TAUBMAN, Chairman of the Board of Advance Stores Company,
Incorporated, a Virginia corporation, on behalf of said corporation.
MY COMMISSION EXPIRES AUGUST 31, 1997
/s/ Stephanie A Bousman
-------------------------------
Notary Public
28
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
----------------------------------
This FIRST AMENDMENT TO LEASE AGREEMENT ("Amendment") is made and
entered into as of April 15, 1998 (the "Amendment Date"), by and between Ki,
L.C., a Virginia limited liability company ("Landlord"), and ADVANCE STORES
COMPANY, INCORPORATED, a Virginia corporation ("Tenant").
R E C I T A L S
---------------
A. Tenant and Landlord entered into that certain Lease Agreement
(the "Lease"), dated as of March 16, 1995, whereby Landlord leased to Tenant and
Tenant leased from Landlord the land and improvements thereon, located in
Roanoke, Virginia and commonly known as 5673 Airport Road, Roanoke, Virginia
(the "Leased Premises").
B. The parties desire to amend the Lease as set forth in this
Amendment.
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree to amend the Lease as follows:
1. TERMS. All capitalized terms used herein and not otherwise
-----
defined shall have the same respective meanings as are given such terms in the
Lease.
2. ASSIGNMENT OR SUBLETTING. Notwithstanding anything to the
------------------------
contrary contained in Paragraph 11 of the Lease, Tenant shall have the right to
assign the Lease or sublet the Leased Premises, without obtaining Landlord's
prior written consent, to (i) any affiliate of Tenant (but without relieving
Tenant of its obligations thereunder), (ii) any entity with which the Tenant may
merge or consolidate, and/or (iii) any person or entity which acquires all or
substantially all of the assets of Tenant. The sale of fifty percent (50%) or
more of Tenant's voting stock (a "Stock Transfer") shall be deemed to be an
assignment of the Lease requiring Landlord's prior consent, which shall not be
unreasonably withheld. In the event Landlord withholds its consent to Stock
Transfer, the proposed buyer of the Tenant's stock ("Proposed Buyer") shall have
the right to purchase the Leased Premises as follows:
A. Option to Purchase. Proposed Buyer may exercise its option to
------------------
purchase ("Option to Purchase") all of Landlord's interest in the Leased
Premises (but not any part
<PAGE>
thereof) only by giving a notice of Proposed Buyer's election to purchase the
Leased Premises ("Purchase Notice") within sixty (60) days of receipt of notice
of rejection by Landlord of Tenant's request for consent to a Stock Transfer.
Landlord's failure to respond within sixty (60) days from the date of receipt of
Tenant's request for consent to a Stock Transfer shall be deemed an approval of
Tenant's request for consent to such Stock Transfer.
B. Option Price. The option price ("Option Price") will be an
------------
amount equal to the Fair Market Value (as defined below) of the Leased Premises.
In addition to the Option Price, Proposed Buyer and Landlord shall bear all
closing costs and expenses in connection with the transfer of the Leased
Premises to Proposed Buyer in accordance with the prevailing custom in the
jurisdiction where the Leased Premises are located. Landlord shall be required
to convey good and marketable fee interest title to the Leased Premises free and
clear of all liens and encumbrances other than monetary liens or liens and
encumbrances which do not materially detract from the current value or use of
the Leased Premises as of the date hereof.
C. Fair Market Value. The fair market value (the "Fair Market
-----------------
Value") of the Leased Premises shall be determined as follows:
(1) The parties shall attempt to determine the Fair Market Value
by mutual agreement within fifteen (15) days after Proposed Buyer's delivery of
the Purchase Notice.
(2) However, if the parties are unable to agree on the Fair
Market Value within the fifteen (15) day period set forth above, then within ten
(10) days after the expiration of that period each party, at its cost and by
giving notice to the other party, shall appoint a real estate appraiser with at
least five (5) years' full-time commercial appraisal experience in appraising
properties similar to the Leased Premises in the area in which the Leased
Premises are located to appraise and set the Fair Market Value. Further, all of
the appraisers selected through the process described above shall be certified
as required by Virginia law as in effect at the time. If a party does not
appoint an appraiser within ten (10) days after the other party has delivered
notice of the name of its appraiser (the "Appraiser Appointment Deadline"), the
party which appointed an appraiser prior to the Appraiser Appointment Deadline
shall deliver written notice to the other party of the expiration of the time
period for the appointment of an appraiser (the "Appointment Expiration
Notice"), which notice may be delivered via facsimile. In the event that the
party which failed to appoint an appraiser prior to the Appraiser Appointment
Deadline subsequently fails to deliver notice to the other party of the
appointment of an appraiser within two (2) business days after delivery of the
Appointment Expiration Notice, the single appraiser appointed shall be the sole
appraiser and shall set the Fair Market Value. If the two appraisers are
appointed by the parties as stated in this Paragraph, they shall meet promptly
and attempt to set the Fair Market Value. If they are unable to agree within
thirty (30) days after the second appraiser has been appointed, they shall
attempt to select a third appraiser meeting the qualifications stated in this
Paragraph within ten (10) days after the last day the two appraisers are given
to set the Fair Market Value. If they are unable to agree on the
-2-
<PAGE>
third appraiser, either of the parties to the Lease by giving ten (10) days'
notice to the other party can file a petition with the American Arbitration
Association solely for the purpose of selecting a third appraiser who meets the
qualifications stated in this Paragraph. Each party shall bear half the cost of
the American Arbitration Association appointing the third appraiser and of
paying the third appraiser's fee. The third appraiser, however selected, shall
be a person who has not previously acted in any capacity for either party.
Within thirty (30) days after the selection of the third appraiser, a majority
of the appraisers shall set the Fair Market Value. After the Fair Market Value
has been set, the appraisers shall immediately notify the parties.
3. LEASEHOLD MORTGAGES AND ENCUMBRANCES. Notwithstanding anything
------------------------------------
to the contrary contained in Paragraph 11 of the Lease, Tenant shall have the
right, without obtaining Landlord's consent, to mortgage or encumber Tenant?s
leasehold estate in connection with a general financing of Tenant or any
successor to substantially all of its assets.
4. DAMAGE BY CASUALTY. Paragraph 12(A) of the Lease is hereby
------------------
amended and restated as follows:
"A. Election to Terminate or Rebuild.
---------------------------------
If, during the term of this Lease, the Leased Premises are
totally or partially destroyed, Landlord shall restore the Leased Premises to
substantially the same condition as they were in immediately before such
destruction. Notwithstanding the foregoing, if such damage is to a material
portion of the Leased Premises ("Material Destruction"), either Landlord or
Tenant may elect to terminate the Lease by providing written notice to the other
party within thirty (30) days after such Material Destruction. For purposes of
this Paragraph, damage or destruction shall constitute "Material Destruction"
if: (i) the cost of restoration exceeds fifty percent (50%) of the then
replacement value of the Leased Premises destroyed; or (ii) the time to restore
such damage or destruction is reasonably expected to exceed nine (9) months."
Paragraph 12(B) of the Lease is hereby amended and restated as
follows:
"B. Termination. If either Landlord or Tenant elects to
-----------
terminate this Lease as provided by Paragraph 12(A), the rent and additional
rent to be paid by Tenant hereunder shall be apportioned as of the date of
damage or destruction."
The first sentence of Paragraph 12(C) of the Lease is hereby
amended and restated as follows:
"C. Rebuilding. If neither Landlord nor Tenant elects to
----------
terminate this Lease as provided in Paragraph 12(A), then this Lease shall
continue in full force and effect and Landlord shall, at his expense, but only
from insurance proceeds released by the holder of any mortgage lien upon the
Leased Premises, restore the same to substantially the condition the
-3-
<PAGE>
Leased Premises were in immediately prior to such damage or destruction except
as otherwise provided in this Paragraph 12."
5. CONDEMNATION. The first sentence of Paragraph 13(B) of the
------------
Lease is hereby amended and restated as follows:
"B. Partial. Landlord and Tenant shall have the right to
-------
terminate the Lease upon the taking by eminent domain of a material portion (a
"Material Taking") of the Leased Premises, by providing written notice to the
other party within sixty (60) days after receipt of notice of such Material
Taking. For purposes of such right to terminate, the term "Material Taking"
shall mean a taking which involves more than twenty percent (20%) of the floor
area of the building at the Leased Premises, or more than thirty-five percent
(35%) of the land area of the Leased Premises which is not occupied by any
building."
The phrase "If Landlord elects to continue this lease" in the second
sentence of Paragraph 13(B) of the Lease is hereby amended and restated as
follows: "If neither Landlord nor Tenant elects to terminate this Lease as
provided in this Paragraph".
6. DEFAULTS. The ten (10) day cure period after notice of non-
--------
monetary defaults set forth in Paragraph 14(A)(ii) of the Lease is hereby
amended and restated to be thirty (30) days after written notice.
7. CHRONIC DEFAULTS. The following provision is hereby deleted from
----------------
the first sentence of Paragraph 14F: "(ii) Three Non-Monetary Defaults; or
(iii) One Monetary Default and two Non-Monetary Defaults."
8. HAZARDOUS SUBSTANCES. Notwithstanding anything to the contrary
--------------------
contained in Paragraph 15(A): (i) Landlord's consent shall not be required in
order for Tenant to maintain any hazardous substances which have been
customarily stored by Tenant at the Leased Premises prior to the date of this
Amendment; and (ii) Tenant shall not be required to indemnify Landlord in the
event that hazardous substances migrate on to the Leased Premises from any
neighboring property or are brought on to the Leased Premises by trespassers
(even if Tenant may be held legally liable therefor), provided however, that
Tenant shall in no way be relieved of its indemnity obligation due to its own
negligence or fault.
9. SUBORDINATION. Paragraph 17(I) of the Lease is hereby amended
-------------
and restated as follows:
"I. Subordination: Notwithstanding anything to the contrary
-------------
contained in this Lease, this Lease shall be subordinate to any mortgage
recorded prior to the date of this Lease; provided, however, Lessor shall use
reasonable best efforts to deliver to Lessee a Non-Disturbance Agreement (as
defined below) from the holder of any such mortgage no later than sixty (60)
days after the date of this Amendment. Notwithstanding anything to the
-4-
<PAGE>
contrary contained in this Lease, this Lease shall not be subordinate to any
mortgage recorded after the date of this Lease, unless Lessor shall have
provided Lessee with a non-disturbance agreement ("Non-Disturbance Agreement")
in favor of Lessee from the holder of any such mortgage. The Non-Disturbance
Agreement shall be in a form reasonably acceptable to Lessee. Upon provision of
a Non-Disturbance Agreement to Lessee, in a form reasonably acceptable to
Lessee, Lessee shall execute such Non-Disturbance Agreement."
10. SENIOR LIENS. Landlord hereby subordinates any landlord's lien
------------
it might hold, statutory, constitutional, contractual or otherwise, to any
inventory, fixtures, equipment or other personal property owned or leased by
Tenant and now or hereafter located at the Leased Premises to the lien of any
lender providing general financing to Tenant. Landlord agrees to execute any
instrument, releases or other documents that may be necessary to evidence the
waiver and release of any such liens.
11. EXTENSION OPTION. Tenant is given one (1) option to extend the
----------------
initial term of the Lease, subject to all the provisions contained in the Lease,
as amended and restated by this Amendment, except for monthly rent, for a period
of five (5) years ("Extended Term"). In order to exercise an option to extend,
Tenant shall give notice of exercise of the option ("Option Notice") to Landlord
at least three (3) months but not more than nine (9) months before the
expiration of the term. The monthly rent during the Extended Term shall be
equal to the fair market rental for the Leased Premises, which in no event shall
be less than the rent payable immediately prior to the Extended Term. The
parties shall have thirty (30) days after Landlord receives the Option Notice in
which to agree on monthly rent during the Extended Term. If the parties agree
on the monthly rent for the Extended Term during that period, they shall
immediately execute an amendment to the Lease stating the monthly rent.
If the parties are unable to agree on the monthly rent for the
Extended Term within the thirty (30) day period set forth above, then within ten
(10) days after the expiration of that period each party, at its cost and by
giving notice to the other party, shall appoint a real estate appraiser with at
least five (5) years' full-time commercial appraisal experience in appraising
properties similar to the Leased Premises in the area in which the Leased
Premises are located to appraise and set the monthly rent for the Extended Term.
Further, all of the appraisers selected through the process described above
shall be certified as required by Virginia law as in effect at the time. If a
party does not appoint an appraiser within ten (10) days after the other party
has given notice of the name of its appraiser, the single appraiser appointed
shall be the sole appraiser and shall set the monthly rent for the Extended
Term. If the two appraisers are appointed by the parties as stated in this
Paragraph, they shall meet promptly and attempt to set the monthly rent for the
Extended Term. If they are unable to agree within thirty (30) days after the
second appraiser has been appointed, they shall attempt to select a third
appraiser meeting the qualifications stated in this Paragraph within ten (10)
days after the last day the two appraisers are given to set the monthly rent.
If they are unable to agree on the third appraiser, either of the parties to the
Lease by giving ten (10) days' notice to the other party can file a petition
with the American Arbitration Association solely for the purpose of
-5-
<PAGE>
selecting a third appraiser who meets the qualifications stated in this
Paragraph. Each party shall bear half the cost of the American Arbitration
Association appointing the third appraiser and of paying the third appraiser's
fee. The third appraiser, however selected, shall be a person who has not
previously acted in any capacity for either party. Within thirty (30) days after
the selection of the third appraiser, a majority of the appraisers shall set the
monthly rent for the Extended Term. After the monthly rent for the Extended Term
has been set, the appraisers shall immediately notify the parties.
12. LEASEHOLD MORTGAGES. Notwithstanding anything to the contrary
-------------------
contained in this Lease, Tenant may execute, deliver and perform one or more
mortgages, deeds of trust or other leasehold security agreements ("Leasehold
Indentures") without the consent of Landlord in connection with an overall
financing of Advance Stores Company, Incorporated or a successor to
substantially all of its assets ("ASCI"). If either Tenant or the mortgagee,
grantee or trustee under any such Leasehold Indenture sends Landlord a notice
advising of the existence of such Leasehold Indenture and the address of the
mortgagee, grantee or trustee thereunder for the service of such notices, such
mortgagee, grantee or trustee shall be deemed to be a "Leasehold Lender."
Landlord shall be under no obligation under this paragraph to any mortgagee,
grantee or trustee under a Leasehold Indenture who is not a Leasehold Lender.
Anything to the contrary herein notwithstanding, there shall only be one
Leasehold Lender with respect to the Leased Premises at any time.
A. Upon the occurrence of any default hereunder by Tenant,
written notice to that effect shall be sent by Landlord to each Leasehold Lender
at the same time notice of such default is sent to Tenant. Landlord shall not
terminate this Lease or exercise any other right or remedy hereunder unless it
first gives notice of such default to each Leasehold Lender, and:
(1) If such default is a failure to pay a monetary
obligation of Tenant, the Leasehold Lender shall fail to cure such default
within thirty (30) days of receipt of notice thereof from Landlord; or
(2) If such default is not a failure to pay a monetary
obligation of Tenant, the Leasehold Lender shall fail within forty-five (45)
days of receipt of said written notice to remedy such default; or
(3) If any such default cannot be cured by the Leasehold
Lender by payment of money and without the Leasehold Lender obtaining possession
of the Leased Premises by appropriate proceedings and/or title to Tenant's
leasehold estate by judicial or non-judicial foreclosure proceedings or by deed
in lieu thereof, then any such default shall be remedied or deemed remedied if
the Leasehold Lender shall have complied with the following provisions:
-6-
<PAGE>
(i) Within thirty (30) days after receiving notice
from Landlord setting forth the nature of such default, or prior thereto, the
Leasehold Lender shall have acquired Tenant's leasehold estate or within fifteen
(15) days shall have commenced judicial or non-judicial foreclosure proceedings
or appropriate proceedings to obtain possession of the Leased Premises;
(ii) The Leasehold Lender shall diligently prosecute
any such proceedings to completion;
(iii) The Leasehold Lender shall have fully cured and
continue to cure any default arising from failure to pay or perform any monetary
obligations in accordance with the terms of this Lease; and
(iv) After gaining possession of the Leased Premises,
the Leasehold Lender shall perform all other obligations of Tenant as and when
the same are due in accordance with the terms of this Lease.
B. If any Leasehold Lender or a person designated by a Leasehold
Lender shall either become the owner of the interest of Tenant hereunder upon
the exercise of any remedy provided for in the Leasehold Indenture or shall
enter into a new Lease with Landlord as provided in paragraph (d), then,
notwithstanding anything to the contrary contained in this Lease, such Leasehold
Lender or such person shall have the right to assign such interest or such new
Lease to any person without obtaining the consent or approval of Landlord,
provided, however, that following such assignment, the Landlord?s consent shall
be required with respect to any subsequent tenants to the extent required under
this Lease.
C. If this Lease is terminated, rejected or disaffirmed for any
reason pursuant to bankruptcy law or other law affecting creditors' rights, any
Leasehold Lender, or a person designated by any Leasehold Lender, shall have the
right, exercisable by notice to Landlord within thirty (30) days after the
effective date of termination, rejection or disaffirmance, to enter into a new
Lease of the Leased Premises with Landlord to the extent enforceable under law.
The term of the new Lease shall begin on the date of the termination of this
Lease and shall continue for the remainder of the term of this Lease (including
any options to renew if the right thereto is exercised by such Leasehold Lender
or its assignee).
Such new Lease shall otherwise contain the same terms and
conditions as those set forth herein, except for requirements which are no
longer applicable or have already been performed, provided that all defaults
which are susceptible of being remedied by the payment of money shall have been
cured, and provided further that such new lease shall require the Tenant
thereunder promptly to commence and expeditiously continue to remedy all other
defaults on the part of Tenant thereunder to the extent reasonably possible. It
is the intention of the parties hereto that such new Lease shall have the same
priority relative to other rights or
-7-
<PAGE>
interests to or in the fee estate in the land covered by this Lease. The
provisions of this paragraph shall survive the termination of this Lease and
shall continue in full force and effect thereafter to the same extent as if this
paragraph (d) were a separate and independent contract by and among Landlord,
Tenant and each Leasehold Lender. From the date on which any Leasehold Lender
shall serve upon Landlord the aforesaid notice of the exercise of its rights to
enter into a new Lease, such Leasehold Lender may use and enjoy the Leased
Premises without hindrance or interference by Landlord.
D. Subject to the cure rights set forth herein, no Leasehold Lender
shall become liable for the performance or observance of any covenants or
conditions to be performed or observed by Tenant unless and until such Leasehold
Lender becomes the owner of Tenant's interest hereunder upon the exercise of any
remedy provided for in any Leasehold Indenture or occupies the Leased Premises
or enters into a new Lease with Landlord as herein provided. Thereafter, such
Leasehold Lender shall be liable for the performance and observance of such
covenants and conditions only until such Leasehold Lender assigns such interest
or assigns the new Lease as permitted hereby whereupon all obligations of such
Leasehold Lender under this Lease or such new Lease arising subsequent to such
assignment shall terminate.
E. Landlord agrees that the exercise of its rights under this Lease
in case of a default by Tenant shall not, without the prior written consent of
each Leasehold Lender, result in the merger of the estate of the subtenant under
any sublease with the estate of the sublandlord thereunder.
F. Without the prior written consent of each Leasehold Lender,
Landlord will not accept a voluntary surrender of this Lease or the estate
created hereby and will not consent to any amendment of this Lease that
adversely affects the rights of the Leasehold Lender hereunder.
G. In the event of any default by Tenant under the Lease or the
Leasehold Indenture, Landlord will allow the Leasehold Lender to enforce its
lien and security interest on Tenant's assets located at the Leased Premises and
Landlord will allow the Leasehold Lender to assemble and remove all of Tenant's
assets located on the Leased Premises (provided that (i) the Leasehold Lender
shall only be permitted to remove assets which Tenant would be entitled to
remove pursuant to the terms of Paragraph 5 of the Lease, and (ii) the Leasehold
Lender promptly repairs all material damage resulting from such removal) without
the Leasehold Lender assuming any of Tenant's obligations under the Lease.
13. NO OTHER MODIFICATIONS. Except as otherwise provided herein, all
----------------------
other terms and provisions of the Lease shall remain in full force and effect,
unmodified by this Amendment.
14. BINDING EFFECT. The provisions of this Amendment shall be
--------------
binding upon and inure to the benefit of the heirs, representatives, successors
and permitted assigns of the parties hereto.
-8-
<PAGE>
15. COUNTERPARTS. This Amendment may be executed in any number of
------------
original counterparts. Any such counterpart, when executed, shall constitute an
original of this Amendment, and all such counterparts together shall constitute
one and the same Amendment.
Remainder of page intentionally left blank
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first set forth above.
"LANDLORD" "TENANT"
Ki, L.C., ADVANCE STORES, INCORPORATED,
a Virginia limited liability company a Virginia corporation
By W.O.D., Inc. Manager
By: /s/ Douglas W. Densmore By: /s/ Garnett E. Smith
------------------------------- ----------------------------
Name: Douglas W. Densmore Name: Garnett E. Smith
Its: President Its: President
By: /s/ J O'Neil Leftwich
-----------------------------
Name: J O'Neil Leftwich
Its: SVP/CFO Senior President
<PAGE>
EXHIBIT 10.8
LEASE AGREEMENT
between
NICHOLAS F. TAUBMAN
as
Landlord
and
ADVANCE STORES COMPANY, INCORPORATED
as
Tenant
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Paragraph Title or Subject Page No.
<S> <C> <C>
Parties 1
Leased Premises 1
1 Term 1
2 Rent 1
3 Taxes 2
4 Insurance 3
5 Tenant's Furnishings, Fixtures and 6
Equipment
6 Alterations and Additions 7
7 Maintenance and Repairs 8
8 Utilities 8
9 Use 9
10 Signs 9
11 Assignment or Subletting 9
12 Damage by Casualty 10
13 Condemnation 12
14 Default 13
15 Notices and Rent Payments 16
16 Miscellaneous 17
A Identity of Interest 17
B Quiet Enjoyment 17
C Holding Over 18
D Surrender of Leased Premises 18
E Landlord's Exoneration 18
F Right of Entry 18
G Compliance with Laws and Insurance 19
H Performance of Tenant's Obligations 19
I Subordination 20
J Estoppel Certificates 20
K Late Payment Penalty 20
L Additional Rent 21
M Net Lease 21
N Excusable Delay 21
O Indemnification of Landlord 22
P Non-Waiver 22
Q Short Form Lease 22
R Governing Law 22
S Number and Gender 23
T Additional Instruments 23
U Severability 23
V Captions 23
W Counterparts 23
X Binding Effect 23
Y Entire Agreement 24
Execution by Parties
Notary Acknowledgment
Exhibit "A"
</TABLE>
<PAGE>
LEASE AGREEMENT
---------------
This LEASE AGREEMENT (herein the "lease") is made December _______,
1996, by and between NICHOLAS F. TAUBMAN, (herein the "Landlord"); and ADVANCE
STORES COMPANY, INCORPORATED, a Virginia corporation, (herein the "Tenant").
WITNESSETH:
THAT in consideration of the rental reserved herein and the mutual
covenants and agreements herein contained, Landlord hereby demises and leases
unto Tenant that certain parcel of real property, together with the buildings
and improvements thereon, as more particularly described in Exhibit "A" attached
hereto and made a part hereof by this reference (herein the "Leased Premises").
1. Term: The term of this lease shall be ten (10) years and shall
----
commence at 12:01 a.m. January 1, 1997 and terminate at midnight on December 31,
2006.
2. Rent: Tenant shall pay to Landlord, without notice or demand, a
----
monthly rental of $ 108,333.33, which shall be payable, in advance, on the first
day of each month during the term of this lease. All payments of rent shall be
made by Tenant to Landlord at such place as Landlord may from time to time
designate in writing. For the present, Landlord
-1- LANDLORD _________________
TENANT ___________________
<PAGE>
designates the place designated in paragraph 15 of this lease as the place for
the making of the payments of rent. All rent shall be payable in current legal
tender of the United States of America as the same is then by law constituted.
Checks must be drawn on a Virginia bank and are subject to collection. The
extension of time for the payment of any installment of rent, or the acceptance
by Landlord of any money other than of the kind herein specified, shall not be a
waiver of the rights of Landlord to insist on having all other payments of rent
made in the manner and at the time herein specified. No payment by Tenant or
receipt by Landlord of a lesser amount than the aforesaid monthly rent shall be
deemed other than a payment on account of the earliest rent due, nor shall any
endorsement or statement on any check or on any letter accompanying any check or
payment as rent be deemed an accord and satisfaction and Landlord may accept
such check or payment without prejudice to his right to recover the balance of
the rent or to pursue any other remedy provided for in this lease.
3. Taxes: Tenant shall pay all taxes, assessments and other charges
-----
imposed upon the Leased Premises which are assessed during the lease term. All
such taxes and assessments shall be paid before any fine, penalty, interest or
cost may be added thereto for nonpayment thereof. All taxes, assessments, rents
or other charges imposed prior to but payable in whole or in installments after
the effective date of the lease term, and all taxes, assessments or other
charges imposed during the term but payable in whole or in installments after
the lease term, shall be adjusted and prorated, so that Landlord shall pay his
prorated share for the period prior to and for the period subsequent to the
lease term and Tenant shall pay its prorated share for the lease term. Tenant
shall furnish to Landlord for his inspection within thirty (30) days
-2- LANDLORD _________________
TENANT ____________________
<PAGE>
after the date any amount is payable by Tenant, as provided in this paragraph,
official receipts of the appropriate taxing authority or proof satisfactory to
Landlord evidencing payment.
Tenant shall have the right to contest and review by legal
proceedings, instituted and conducted by Tenant at Tenant's own expense and free
of expense to Landlord, any taxes, assessments or other charges imposed upon or
against the Leased Premises. In the event Tenant exercises its right to review
by legal proceedings any such taxes, assessments or other charges imposed upon
or against the Leased Premises, Tenant shall continue to pay as the same become
due and payable the full amount of such taxes, assessments or other charges
under protest, if it be so advised. The term "legal proceedings" as here used
shall be construed as including appropriate appeals of any judgments, decrees,
orders and certiorari proceedings and appeals of orders therein, to and
including appeals to the court of last resort.
4. Insurance:
----------
A. Insurance: Tenant shall during the lease term, at its sole
---------
expense, provide and keep in force the following insurance coverage:
(1) Fire and Extended Coverage: Insurance on the Leased
--------------------------
Premises against loss or damage by fire and such other risks as may be included
in the broadest form of extended coverage from time to time available in amounts
at all times sufficient to prevent Landlord or Tenant from becoming a coinsurer
under the terms of the applicable policies but, in any event, in an amount not
less than 100% of the then full insurable value of the Leased Premises. "Full
insurable value" shall mean actual replacement value (exclusive of costs of
excavation, foundations and footings).
-3- LANDLORD _________________
TENANT ____________________
<PAGE>
(2) Rental Value: Rental insurance against loss of rent
------------
under a rental value insurance policy covering risk of loss due to the
occurrence of any of the hazards described in the preceding subparagraph in an
amount sufficient to pay for one year the rent and additional rent payable
pursuant to this lease. Any proceeds received by Landlord under rent insurance
policies will be credited as received against the rent due.
(3) Liability: Comprehensive general public liability
---------
insurance insuring against claims for personal injury, death or property damage
occurring on, in or about the Leased Premises or arising out of the conduct by
the Tenant of its business at the Leased Premises. The limits of such insurance
shall be in such amounts as may be reasonably requested by Landlord from time to
time, but not less than $1,000,000.00 for injury or property damage arising out
of any one occurrence.
(4) Umbrella/Excess Coverage: Umbrella or excess liability
------------------------
insurance with limits of not less than $10,000,000.
(5) Miscellaneous: Such other insurance against other
-------------
insurable hazards in such amounts as may from time to time be required by
Landlord or by the holder of any mortgage or deed of trust covering the Leased
Premises.
B. Policies: All insurance provided for in this paragraph shall
--------
be effected under policies issued by insurers of recognized responsibility
licensed to do business in Virginia. Tenant shall, throughout the term of this
lease, deliver to Landlord evidence, in the form of an insurance certificate or
binder, that such insurance policies are in effect. Within fifteen (15) days
after the premium on any policy shall become due and payable, Landlord shall be
furnished with satisfactory evidence of its payment.
-4- LANDLORD _________________
TENANT ___________________
<PAGE>
C. Insureds: The rental value insurance policy above described
--------
shall name only Landlord as the insured. However, Tenant may furnish a combined
rental and use and occupancy policy, provided that Landlord shall be named as
the insured and the first payee with respect to an amount equal to the rent and
additional rent, and Tenant shall be named as the payee with respect to any
remaining proceeds. All other policies of insurance shall name Landlord and
Tenant as the insureds, as their respective interests may appear. At the request
of Landlord, any insurance policy shall be made payable to the holders of any
mortgage or deeds of trust to which this lease is at any time subordinate, as
the interest of such holders may appear, pursuant to a standard clause for
holders of mortgages or deeds of trust. To the extent obtainable, all policies
shall contain an agreement by the insurers (1) that any loss shall be payable to
Landlord or the holders of any such mortgage or deed of trust, notwithstanding
any act or negligence of Tenant which might otherwise result in forfeiture of
such insurance, (2) that such policies shall not be canceled except upon ten
(10) days prior written notice to Landlord and to the holders of any mortgage or
deed of trust to whom loss may be payable, and (3) that the insurance coverage
shall not be affected by the performance of any work in or about the Leased
Premises.
-5- LANDLORD _________________
TENANT ___________________
<PAGE>
D. Waiver of Subrogation: Neither Landlord nor Tenant shall be
---------------------
liable to the other for any business interruption or any loss or damage to
property or injury to or death of persons occurring in the Leased Premises or in
any manner growing out of or connected with Tenant's use and occupation of the
Leased Premises or the condition thereof, whether or not caused by the
negligence or other fault of Landlord or Tenant, or of their respective agents,
employees, subtenants, licensees, or assignees. This release shall apply to the
extent that such business interruption, loss, or damage to property or injury to
or death of persons is covered by insurance, regardless of whether such
insurance is payable to or protects Landlord or Tenant, or both. Nothing herein
shall be construed to impose any other or greater liability upon either Landlord
or Tenant than would have existed in the absence of this provision. This release
shall be in effect only so long as the applicable insurance policies contain a
clause to the effect that this release shall not affect the right of the insured
to recover under such policies. Such clauses shall be obtained by the parties
whenever possible. The release in favor of Landlord contained herein, is in
addition to, and not in substitution for, or in diminution of the hold harmless
and indemnification provisions hereof.
5. Tenant's Furnishings, Fixtures and Equipment: Tenant, at its sole
--------------------------------------------
and cost expense, may supply and install in the Leased Premises any furnishings,
fixtures or equipment which it deems necessary for its use of said premises;
provided, however, that Tenant shall repair, at its own expense, any damage to
the Leased Premises occasioned by such installation. Any such furnishings,
fixtures and equipment supplied and installed in the Leased
-6- LANDLORD _________________
TENANT ___________________
<PAGE>
Premises, except those permanently attached, shall be and remain the property of
Tenant provided Tenant is not in default in the performance of any of the terms
and conditions of this lease. Any damage to the Leased Premises occasioned by
the removal of said furnishings, fixtures and equipment shall be repaired by
Tenant at its sole cost and expense.
6. Alterations and Additions: Tenant shall not make or permit to be
-------------------------
made any alterations, improvements, and/or additions of any kind or nature to
the Leased Premises or any part thereof except by and with the prior consent of
Landlord which consent shall be in Landlord's sole discretion. All alterations,
improvements and additions to the Leased Premises shall be made in accordance
with all applicable laws and shall at once when made or installed be deemed to
have attached to the freehold and to have become the property of Landlord and
shall remain for the benefit of Landlord at the end of the term, or other
expiration of this lease, in as good order and condition as they were when
installed, reasonable wear and tear excepted; provided, however, if prior to the
termination of this lease, or within fifteen (15) days thereafter, Landlord so
directs, Tenant shall promptly remove the additions, improvements, fixtures and
installations which were placed in the Leased Premises by Tenant and which are
designated in said notice and repair any damage occasioned by such removal and
in default thereof Landlord may effect said removals and repairs at Tenant's
expense. In the event of making such alterations, improvements, and/or additions
as herein provided, Tenant shall indemnify and save harmless Landlord from all
expense, liens, claims, or damages to either persons or property arising out of,
or resulting from the undertaking or making of said alterations, additions, and
improvements.
-7- LANDLORD _________________
TENANT ___________________
<PAGE>
7. Maintenance and Repairs: Tenant shall not cause or permit any
-----------------------
waste, damage, or injury to the Leased Premises. Tenant, at its sole expense,
shall keep the Leased Premises as now or hereafter constituted with all
improvements made thereto and the adjoining sidewalks, curbs, walls, parking
areas, landscaping and access roads, clean and in good condition (reasonable
wear and tear excepted), free of dirt, rubbish, snow, ice, and unlawful
obstructions, and shall make all repairs, replacements, and renewals, whether
ordinary or extraordinary, seen or unforeseen, including all structural repairs
necessary to maintain the Leased Premises. All repairs, replacements, and
renewals shall be at least equal in quality of materials and workmanship to that
originally existing in the Leased Premises. Landlord shall in no event be
required to make any repair, alteration, or improvement to the Leased Premises.
Tenant shall indemnify Landlord against all costs, expenses, liabilities,
losses, damages, suits, fines, penalties, claims, and demands, including
reasonable attorney's fees, because of Tenant's failure to comply with the
foregoing, and Tenant shall not call upon Landlord for any disbursement or
outlay whatsoever in connection therewith, and expressly releases and discharges
Landlord of and from any liability therefor.
8. Utilities: Tenant shall pay or cause to be paid all charges for
---------
air conditioning, heat, water, gas, electricity, light, telephone or any other
communication or utility service used in or rendered or supplied to the Leased
Premises throughout the term of this lease, and to indemnify Landlord and save
him harmless against any liability or damages on such account. Landlord shall
not be liable in damages or otherwise for any failure to furnish, or
interruption of the services of air conditioning, heat, water, gas, electricity,
light, telephone or any other communication or utility.
-8- LANDLORD _________________
TENANT ___________________
<PAGE>
9. Use: Tenant may use and occupy the Leased Premises for any lawful
---
purposes, except that Tenant shall not use or occupy or permit the Leased
Premises to be used or occupied, nor do or permit anything to be done in or on
the Leased Premises, in a manner which will in any way violate any certificate
of occupancy affecting the Leased Premises, or make void or voidable any
insurance then in force with respect thereto, or which will make it impossible
to obtain fire or other insurance required to be furnished by Tenant hereunder,
or which will cause or be likely to cause structural damage to the building(s)
or any part thereof, or which will constitute a public or private nuisance, and
shall not use or occupy or permit the Leased Premises to be used or occupied in
any manner which will violate any present or future laws or regulations of any
governmental authority.
10. Signs: Tenant shall have the privilege of placing on and in the
-----
Leased Premises such signs as Tenant deems necessary and proper in the conduct
of Tenant's business, provided (i) Tenant obtains all permits and licenses which
may be required for the erection and maintenance thereof and pays the fees for
such licenses and permits, and (ii) such signs may lawfully be permitted to be
erected and maintained. Tenant shall indemnify and save harmless Landlord
against and from any and all losses, damages, claims, suits, or actions for any
injury or damage to person or property caused by the erection and maintenance of
such signs, and insurance coverage therefor shall be included in the public
liability policy which Tenant is required to furnish under this lease.
11. Assignment or Subletting: Tenant shall not assign, mortgage or
------------------------
encumber this lease, nor sublet or permit the Leased Premises or any part
thereof to be used by others,
-9- LANDLORD _________________
TENANT ___________________
<PAGE>
without the prior written consent of Landlord in each instance, which consent
shall be in Landlord's sole discretion. The prohibition against assignment or
subletting shall be construed to include a prohibition against any assignment or
subletting by operation of law. If Landlord consents to an assignment or
subletting, Tenant shall remain primarily liable during the term of this lease
for the performance of all the terms of this lease, and any such consent shall
not be construed to release Tenant from obtaining the consent in writing of
Landlord to any further assignment or subletting.
12. Damage by Casualty:
-------------------
A. Landlord's Election to Terminate or Rebuild: If the Leased
-------------------------------------------
Premises shall be damaged or destroyed, in whole or in part, during the term of
this lease by fire or other casualty, then Landlord shall have the option to
rebuild or terminate this lease to be exercised by notice to Tenant given not
more than sixty (60) days from the date of such damage or destruction.
B. Termination: If Landlord elects to terminate this lease as
-----------
provided by subparagraph A of this paragraph, the rent and additional rent to be
paid by Tenant hereunder shall be apportioned as of the date of damage or
destruction.
C. Rebuilding: If Landlord elects to rebuild the Leased
----------
Premises as provided by subparagraph A of this paragraph, this lease shall
continue in full force and effect and Landlord shall, at his expense, but only
from insurance proceeds released by the holder of any mortgage lien upon the
Leased Premises, restore the same to substantially the condition the Leased
Premises were in immediately prior to such damage or destruction except as
otherwise
-10- LANDLORD _________________
TENANT ___________________
<PAGE>
provided in this paragraph 12. Landlord's obligation under this paragraph shall
in no event exceed the scope of the work required by Landlord in the original
construction of the Leased Premises. Landlord shall not be required to, but
Tenant shall, replace or restore any furnishings, fixtures or equipment it may
have installed in the Leased Premises pursuant to paragraph 5 of this Lease. The
parties shall promptly commence and diligently proceed with their restoration
obligations hereunder. If Landlord elects to rebuild as aforesaid, then the
rent and additional rent shall abate proportionately during the period and to
the extent that the Leased Premises are unfit for use by Tenant in the ordinary
conduct of its permitted uses hereunder. Notwithstanding the foregoing
provisions, in the event the Leased Premises are damaged or destroyed by fire or
other casualty due to the fault or neglect of Tenant, its agents, employees or
invitees, then, without prejudice to any other rights and remedies of Landlord,
there shall be no apportionment or abatement of any rent.
D. Continuing Obligations: Except as otherwise provided in this
----------------------
lease, this lease shall not terminate or be affected in any manner by reason of
the damage or destruction, by fire or other casualty, in whole or in part, of
the Leased Premises or the improvements thereon, or by reason of the
untenantability of the Leased Premises and, except as otherwise provided herein,
the rent and additional rent reserved in this lease shall be paid by Tenant in
accordance with the terms of this lease, without abatement, diminution or
reduction of rent on account of any such damage or destruction
-11- LANDLORD _________________
TENANT ___________________
<PAGE>
13. Condemnation:
-------------
A. Total: If the whole of the Leased Premises shall be acquired or
-----
taken by eminent domain for any public or quasi-public use or purpose or by
private purchase in lieu thereof, then this lease and the term hereof shall
automatically cease and terminate on the date when possession shall be taken by
the condemning authority.
B. Partial: If any part of the Leased Premises shall be so taken,
-------
Landlord may elect to terminate this lease or to continue same in effect to be
exercised by notice to Tenant given not more than sixty (60) days from the date
when possession shall be taken by the condemning authority. If Landlord elects
to continue this lease, then all of the terms and provisions hereof shall
continue in full force and effect, except that the rent shall be reduced in
proportion to the area, if any, of the premises so taken and Landlord shall
proceed with so much of the restoration of the Leased Premises in order to
restore same to substantially the condition it was in immediately prior to such
taking; provided, however, that in no event shall Landlord be required to expend
any amounts therefore in excess of the net condemnation award. In the preceding
sentence "net" shall mean the amount remaining after the expenses of collection,
including as expenses any attorney's fees or other charges incurred by Landlord
with respect to such amount. Landlord shall not be required to restore any
furnishings, fixtures or equipment installed by Tenant pursuant to paragraph 5
of this lease. The parties shall promptly commence and diligently proceed with
their restoration obligations hereunder.
C. Rent: If this Lease is terminated as provided in this
----
paragraph, the rent and additional rent shall be paid by Tenant up to the date
that physical possession is taken
-12- LANDLORD _________________
TENANT _________________
<PAGE>
by the condemning authority, and Landlord shall refund any rent and additional
rent paid by Tenant in advance and not yet earned, less any sum then owing by
Tenant to Landlord.
D. Award: All damages or compensation awarded or paid for any
-----
such taking, whether for the whole or any part of the Leased Premises, shall
belong to and be the property of Landlord without any participation by Tenant;
provided, however, that nothing herein contained shall be construed to preclude
Tenant from prosecuting any claim directly against the condemning authority, but
not against Landlord, for the value of or damages to and/or for the cost of
removal of all work performed by Tenant pursuant to paragraphs 5 and 6 of this
lease as may be recoverable by Tenant in Tenant's own right.
14. Default:
--------
A. Defaults: If (i) Tenant defaults in the payment of any rent
--------
or any additional rent and such default continues for five (5) days after the
same has become due, or (ii) Tenant defaults in fulfilling any of the covenants
or agreements of this lease on its part to be kept or performed, and such
default is not cured or commenced to be cured (and diligently prosecuted to
completion) within ten (10) days after written notice from Landlord or his
agent, or (iii) if this lease be transferred to or devolve upon any person or
corporation or other entity other than Tenant, except as may be specifically
permitted by this lease, then and in any of such events Landlord, or his agent,
may give Tenant a written notice specifying a day not less than five (5) days
thereafter whereupon the term shall end, and on the day specified the term of
this lease shall expire as if that day were the day herein fixed for the
expiration of the term, and Tenant shall then quit and surrender the Leased
Premises to Landlord and Tenant shall remain liable as hereinafter provided.
-13- LANDLORD _________________
TENANT ____________________
<PAGE>
B. Abandonment: If Tenant vacates or abandons the Leased
-----------
Premises, or if the Leased Premises become vacant for a period of three (3)
days, or if the term of this lease shall expire, Landlord may reenter the Leased
Premises and remove Tenant or its legal representatives or other occupant by
summary proceedings or otherwise and Tenant waives the service of notice of
intention to reenter or to institute legal proceedings to that end.
C. Reentry: In case of any such reentry, expiration, and/or
-------
dispossess by summary proceedings otherwise, the rent shall become due thereupon
and be paid up to the time of such reentry, dispossess, and/or expiration,
together with such expenses as Landlord may incur for brokerage and/or putting
the Leased Premises in good order, or for preparing the same for re-rental.
Landlord may relet the premises or any part or parts thereof, either in the name
of Landlord or otherwise, for a term or terms which may, at Landlord's option,
be less than or exceed the period which may otherwise have constituted the
balance of the term of this lease and may grant reasonable concessions, or free
rent; and Tenant or the legal representatives of Tenant shall pay Landlord, as
liquidated damages for the failure of Tenant to observe and perform said
Tenant's covenants herein contained, any deficiency between (i) all rent and
additional rent hereby reserved and/or covenanted to be paid, and (ii) the net
amount, if any, of the rents collected on account of the lease of the Leased
Premises for each month of the period which would otherwise have constituted the
balance of the term of this lease. In computing such liquidated damages, there
shall be added to the deficiency such expenses as Landlord may incur in
connection with reletting, such as for brokerage, for keeping the Leased
Premises in good order, and for preparing the same for reletting. Any such
liquidated damages
-14- LANDLORD _________________
TENANT ____________________
<PAGE>
shall be paid in monthly installments by Tenant on the rent days specified in
this lease and any suit brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Landlord to collect the
deficiency for any subsequent month by a similar proceeding. Landlord, in his
discretion, may make such alterations, repairs, replacements, and/or decorations
in the Leased Premises as may be necessary for the purpose of reletting the
Leased Premises; and the making of such alterations and/or decorations shall not
operate or be construed to release Tenant from liability hereunder as aforesaid.
Landlord shall not be liable for failure to relet the Leased Premises. The words
"reenter" or "reentry" as used in this lease shall not be restricted to their
technical legal meaning.
D. Injunctive Relief: In the event of a breach or threatened
-----------------
breach by Tenant of any of the covenants or provisions of this lease, Landlord
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity as if reentry, summary proceedings and other remedies were not
herein provided for. Mention in this lease of any particular remedy shall not
preclude Landlord from any other remedy, in law or in equity. Tenant expressly
waives any and all rights of redemption granted by or under any present or
future laws in the event of Tenant's being evicted or dispossessed, or in the
event of Landlord's obtaining possession of the Leased Premises by reason of
Tenant's violation of the provisions of this lease.
E. Cure Defaults: If Tenant shall default in the performance of
-------------
any provision, covenant or condition on its part to be performed under this
lease, Landlord may, at his option, perform the same for the account and at the
expense of Tenant. If Landlord at any
-15- LANDLORD _________________
TENANT ____________________
<PAGE>
time shall be compelled to pay or elects to pay any sum of money or do any act
which requires the payment of any sum of money by reason of the failure of the
Tenant to comply with any provision of this lease, or if Landlord incurs any
expense in prosecuting or defending any action or proceeding by reason of any
default of Tenant under this lease, the sums so paid by Landlord, with interest
at the rate of 12% per annum, costs and damages shall be due from and be paid by
Tenant to Landlord on demand.
F. Chronic Defaults: Tenant will be in "Chronic Default" under
----------------
this lease if Tenant commits a default (either a Monetary or Non-Monetary
Default) during any 365-day period in which any of the following combinations of
default has already occurred (even though said defaults may have been timely
cured): (i) Two Monetary Defaults; or (ii) Three Non-Monetary Defaults; or (iii)
One Monetary Default and two Non-Monetary Defaults. If Tenant is in Chronic
Default, Landlord may immediately exercise any or all remedies available under
this lease or at law or in equity, all without giving Tenant any notice or an
opportunity to cure the last default causing Tenant's Chronic Default
(notwithstanding any notice and cure provision or other lease provision to the
contrary). For the purposes of this paragraph, (i) a Monetary Default occurs if
Tenant fails to pay any sum of money when due (including, but not limited to,
basic rent, additional rent, and all other charges imposed upon Tenant by this
lease; and (ii) a Non-Monetary Default occurs if Tenant fails to perform any of
its obligations under this lease other than the timely payment of money.
15. Notices and Rent Payments:
-------------------------
A. Notices: Notices under this lease shall be deemed to have
-------
been given if in writing, and when deposited in the United States mail,
certified, return receipt
-16- LANDLORD _________________
TENANT ____________________
<PAGE>
requested, with postage prepaid, and addressed as follows:
To Landlord At: Nicholas F. Taubman
2818 Avenham Avenue, S.W.
Roanoke, Virginia 24014
To Tenant At: Advance Stores Company, Incorporated
PO Box 2710
Roanoke, Virginia 24001
Attn: Real Estate Department
or to either at such other place as either of them may give notice to the other,
pursuant to the provisions of this paragraph, from time to time.
B. Rent: All payments of rent to be made hereunder by Tenant
----
shall be mailed to Landlord at the address provided for in subparagraph A of
this paragraph.
16. Miscellaneous:
--------------
A. Identity of Interest: The execution of this lease or the
--------------------
performance of any act pursuant to the provisions thereof shall not be deemed or
construed to have the effect of creating between Landlord and Tenant the
relationship of principal or agent, or of a partnership or joint venture.
B. Quiet Enjoyment: Tenant, upon payment of the rent and
---------------
additional rent, and the performance of all the terms of this lease, shall, at
all times during the
-17- LANDLORD _________________
TENANT ____________________
<PAGE>
lease term, peaceably and quietly enjoy the Leased Premises without any
disturbance from Landlord or from any other person claiming through Landlord,
subject, however, to the reservations and conditions of this lease and the fee
mortgage to which this lease is subordinate.
C. Holding Over: Any holding over after the expiration of the
------------
term hereof with the consent of Landlord shall be construed to create a tenancy
from month to month at the monthly rent herein reserved, plus 50% of such
amount, and such tenancy shall otherwise be subject to the terms and conditions
set forth in this lease.
D. Surrender of Leased Premises: Tenant shall surrender to
----------------------------
Landlord the Leased Premises at the expiration of the term hereof, or upon
termination by virtue of Tenant's default, in as good order and condition as
same now are or hereafter may be put by Landlord or Tenant, ordinary wear and
tear and damage by fire or other casualty not occasioned by the fault of Tenant
excepted.
E. Landlord's Exoneration: Landlord shall not be liable or
----------------------
responsible in any way for any damage to person or property sustained in or
about the Leased Premises during the term of this lease howsoever the same may
be caused unless due to Landlord's willful acts.
F. Right of Entry: Landlord and his representatives may enter
--------------
the Leased Premises, at any reasonable time, for the purpose of inspecting the
Leased Premises, performing any work which Landlord elects to undertake made
necessary by reason of Tenant's default under the terms of this lease,
exhibiting the Leased Premises for sale, lease, or mortgage financing, or
posting notices of non-responsibility under any mechanic's lien law.
-18- LANDLORD _________________
TENANT ____________________
<PAGE>
G. Compliance with Laws and Insurance: Tenant shall, at its
----------------------------------
sole expense, promptly comply with all laws, orders, and regulations of federal,
state, and municipal governments and appropriate departments, commissions,
authorities, boards, and their officers, and the orders and regulations of the
National Board of Fire Underwriters, or any other body now or hereafter
exercising similar functions, which may be applicable to the Leased Premises,
the fixtures and equipment therein, and the parking areas, sidewalks and curbs
adjoining the Leased Premises. Tenant shall comply with the requirements of all
policies of public liability, fire, and all other types of insurance at any time
in force with respect to the building and other improvements on the Leased
Premises. Tenant, at its sole expense, shall obtain all required licenses or
permits for the conduct of its business within the terms of this lease, or for
the making of repairs, alterations, improvements, or additions, and Landlord,
where necessary, will join with Tenant in applying for all such permits or
licenses.
H. Performance of Tenant's Obligations: If Tenant shall default
-----------------------------------
in the observance or performance of any covenant on Tenant's part to be observed
or performed under any of the provisions of this lease, Landlord may immediately
or at any time thereafter and without notice perform the same for the account of
Tenant, and if Landlord makes any expenditures or incurs any obligations for the
payment of money in connection therewith including, but not limited to, legal
fees in instituting, prosecuting, or defending any action or proceeding, such
sums paid or obligations incurred, with 12% interest per annum and costs, shall
be paid by Tenant to Landlord upon demand. Furthermore, Tenant shall pay and
indemnify Landlord against all legal costs and charges, including attorney's
fees lawfully and
-19- LANDLORD _________________
TENANT ____________________
<PAGE>
reasonably incurred, in obtaining possession of the Leased Premises after a
default of Tenant or after Tenant's default in surrendering possession upon the
expiration or earlier termination of the term of this lease.
I. Subordination: This lease is subject and subordinate at all
-------------
times to the lien of existing and future mortgages on the Leased Premises.
Although no instrument or act on the part of Tenant shall be necessary to
effectuate such subordination, Tenant will, nevertheless, execute and deliver
such further instruments subordinating this lease to the lien of all such
mortgages as may be desired by the mortgagee. Tenant hereby appoints Landlord
its attorney-in-fact, irrevocably, to execute and deliver any such instrument
for Tenant.
J. Estoppel Certificates: Within ten (10) days after request
---------------------
therefor by Landlord, Tenant shall deliver in recordable form a certification to
any proposed mortgagee, trustee, or purchaser, certifying that this lease is in
full force and effect and that there are no defenses or offsets thereto, or
stating those claimed by Tenant.
K. Late Payment Penalty: Tenant acknowledges that late payment
--------------------
by Tenant to Landlord of rent and additional rent due hereunder will cause
Landlord to incur costs not contemplated by this lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges, and late charges which may be
imposed on Landlord by the terms of any mortgage or trust deed covering the
Leased Premises. Accordingly, if any installment of rent or any additional rent
due from Tenant shall not be received by Landlord or Landlord's designee within
ten (10) days after such amount shall be due, Tenant shall pay to Landlord a
late charge equal to 10% of such
-20- LANDLORD _________________
TENANT ____________________
<PAGE>
overdue amount. The parties agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment
by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder.
L. Additional Rent: All taxes, charges, costs, and expenses
---------------
which Tenant is required to pay hereunder, together with all interest and
penalties that may accrue thereon in the event of Tenant's failure to pay such
amounts, and all damages, costs, and expenses which Landlord may incur by reason
of any default of Tenant or failure on Tenant's part to comply with the terms of
this lease, shall be deemed to be additional rent and, in the event of
nonpayment by Tenant, Landlord shall have all the rights and remedies with
respect thereto as Landlord has for the nonpayment of the basic rent.
M. Net Lease: Tenant acknowledges and agrees that it is
---------
intended that this is a net lease that is completely carefree to Landlord,
except as expressly set out in this lease; that Landlord is not responsible
during the term of this lease for any costs, charges, expenses, and outlays of
any nature whatsoever arising from or relating to the Leased Premises, or the
use and occupancy thereof, or the contents thereof, or the business carried on
therein; and Tenant shall pay all charges, expenses, costs and outlays of every
nature and kind relating to the Leased Premises except as expressly set out in
this lease.
N. Excusable Delay: Except for the payment of rent and
---------------
additional rent, if Landlord or Tenant is delayed or prevented from performing
any of their obligations
-21- LANDLORD _________________
TENANT ____________________
<PAGE>
under this lease by reason of strike or labor troubles or any outside cause
whatsoever beyond Landlord's or Tenant's reasonable control, the period of such
delay or such prevention shall be deemed added to the time herein provided for
the performance of any such obligations by Landlord or Tenant.
O. Indemnification of Landlord: Tenant shall defend, indemnify
---------------------------
and hold Landlord harmless from and against any claim, loss, expense or damage
to any person or property in or upon the Leased Premises, arising out of
Tenant's use or occupancy of said premises, or any act or neglect of Tenant or
Tenant's servants, employees or agents, or any change, alteration or improvement
made by Tenant in the Leased Premises.
P. Non-Waiver: The failure of Landlord to seek redress for
----------
violation of, or to insist upon the strict performance of, any covenant or
condition of this lease, or of any originally constituted a violation, from
having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this lease
shall not be deemed a waiver of such breach. No provision of this lease shall be
deemed to have been waived by Landlord unless such waiver be in writing signed
by Landlord.
Q. Short Form Lease: Tenant agrees not to record this lease,
----------------
and Landlord and Tenant agree to execute, acknowledge and deliver, if either
party shall so request, a "Short Form Lease" suitable for recording at the
expense of the party so requesting.
R. Governing Law: The laws of the State of Virginia shall
-------------
govern the validity, performance and enforcement of this lease.
-22- LANDLORD _________________
TENANT ____________________
<PAGE>
S. Number and Gender: Any word contained in the text of this
-----------------
lease shall be read as the singular or the plural and as the masculine, feminine
or neuter gender as may be applicable in the particular context.
T. Additional Instruments: The parties shall execute and
----------------------
deliver any instruments in writing necessary to carry out any agreement, term,
condition, or assurance in this lease whenever occasion shall arise and request
for such instruments shall be made.
U. Severability: If any provision of this lease shall be
------------
declared invalid or unenforceable, the remainder of the lease shall continue in
full force and effect.
V. Captions: The captions in this lease are for convenience
--------
only, are not a part of this lease, and do not in any way limit or amplify the
terms and provisions of this lease.
W. Counterparts: This lease may be executed in one or more
------------
counterparts, each of which shall be an original, and all of which shall
constitute one and the same instrument.
X. Binding Effect: Except as herein otherwise expressly
--------------
provided, the term and provisions hereof shall be binding upon and shall inure
to the benefit of the heirs, executors, administrators, successors and permitted
assigns, respectively, of Landlord and Tenant. Each term and each provision of
this lease to be performed by Tenant shall be construed to be both an
independent covenant and a condition. The reference contained to successors and
assigns of Tenant is not intended to constitute a consent to assignment by
Tenant, but has reference only to those instances in which Landlord may have
given written consent to a particular assignment.
-23- LANDLORD _________________
TENANT ____________________
<PAGE>
Y. Entire Agreements: This lease contains all of the premises,
-----------------
agreements and conditions between the parties hereto, and any subsequent
agreements between the parties altering the terms hereof must be reduced to
writing and executed by both parties.
[THE REST OF PAGE INTENTIONALLY LEFT BLANK]
-24- LANDLORD _________________
TENANT ____________________
<PAGE>
IN WITNESS WHEREOF, Landlord and tenant have executed this Lease
Agreement on the day and year first above written.
LANDLORD TENANT
ADVANCE STORES COMPANY,
INCORPORATED
/s/ Nicholas F. Taubman By: /s/ Garnett E. Smith
- ---------------------------------- -------------------------------
Nicholas F. Taubman Garnett E. Smith, President
STATE OF VIRGINIA
COUNTY OF ROANOKE, to wit:
The foregoing instrument was acknowledged before me this ______
day of ________________, 1996, by NICHOLAS F. TAUBMAN.
/s/
-------------------------------------------
Notary Public
My Commission Expires: ____________________
STATE OF VIRGINIA
COUNTY OF ROANOKE, to wit:
The foregoing instrument was acknowledged before me this ______
day of ________________, 1996, by GARNETT E. SMITH, President of Advance Stores
Company, Incorporated, a Virginia corporation, on behalf of said corporation.
/s/
-------------------------------------------
Notary Public
My Commission Expires: ____________________
<PAGE>
Year 1 1,247,000
Year 2 1,278,000
Year 3 1,310,000
Year 4 1,343,000
Year 5 1,377,000
Year 6 1,411,000
Year 7 1,446,000
Year 8 1,482,000
Year 9 1,519,000
Year 10 1,557,000
----------------
13,970,000
10 year average 1,397,000
Will set rent at $1,300,000 per year. Less than $3.00 sq/ft.
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
----------------------------------
This FIRST AMENDMENT TO LEASE AGREEMENT ("Amendment") is made and
entered into as of April 15, 1998 (the "Amendment Date"), by and between
NICHOLAS F. TAUBMAN, an individual (="andlord"), and ADVANCE STORES COMPANY,
INCORPORATED, a Virginia corporation ("Tenant").
R E C I T A L S
---------------
A. Tenant and Landlord entered into that certain Lease Agreement,
commencing as of January 1, 1997, and that certain Lease Modification Agreement
dated as of February 23, 1998 (as amended, the "Lease") whereby Landlord leased
to Tenant and Tenant leased from Landlord 28.1 acres of land and the
improvements thereon, located in Roanoke, Virginia and commonly known as 1835
Blue Hills Drive, Roanoke, Virginia (the "Leased Premises").
B. The parties desire to amend the Lease as set forth in this
Amendment.
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree to amend the Lease as follows:
1. TERMS. All capitalized terms used herein and not otherwise
-----
defined shall have the same respective meanings as are given such terms in the
Lease.
2. INSURANCE. The limits of the liability insurance required to be
---------
maintained by Tenant pursuant to Paragraph 4(A)(3) of the Lease shall be no less
than $1,000,000 for injury or property damage arising out of any one occurrence.
3. ASSIGNMENT OR SUBLETTING. Notwithstanding anything to the
------------------------
contrary contained in Paragraph 11 of the Lease, Tenant shall have the right to
assign the Lease or sublet the Leased Premises, without obtaining Landlord"s
prior written consent, to (i) any affiliate of Tenant (but without relieving
Tenant of its obligations thereunder), (ii) any entity with which the Tenant may
merge or consolidate, and/or (iii) any person or entity which acquires all or
substantially all of the assets of Tenant. The sale of fifty percent (50%) or
more of Tenant's voting stock (a "Stock Transfer") shall be deemed to be an
assignment of the Lease requiring Landlord's prior consent, which consent shall
not be unreasonably withheld. In the event
<PAGE>
Landlord withholds its consent to a Stock Transfer, the proposed buyer of
Tenant's stock ("Proposed Buyer") shall have the right to purchase the Leased
Premises as follows:
A. Option to Purchase. Proposed Buyer may exercise its option to
------------------
purchase ("Option to Purchase") all of Landlord's interest in the Leased
Premises (but not any part thereof) only by giving a notice of Proposed Buyer's
election to purchase the Leased Premises ("Purchase Notice") within sixty (60)
days of receipt of notice of rejection by Landlord of Tenant's request for
consent to a Stock Transfer. Landlord's failure to respond within sixty (60)
days from the date of receipt of Tenant's request for consent to a Stock
Transfer shall be deemed an approval of Tenant's request for consent to such
Stock Transfer.
B. Option Price. The option price ("Option Price") will be an amount
------------
equal to the Fair Market Value (as defined below) of the Leased Premises. In
addition to the Option Price, Proposed Buyer and Landlord shall bear all closing
costs and expenses in connection with the transfer of the Leased Premises to
Proposed Buyer in accordance with the prevailing custom in the jurisdiction
where the Leased Premises are located. Landlord shall be required to convey good
and marketable fee interest title to the Leased Premises free and clear of all
liens and encumbrances other than monetary liens or liens and encumbrances which
do not materially detract from the current value or use of the Leased Premises
as of the date hereof.
C. Fair Market Value. The fair market value (the "Fair Market
-----------------
Value") of the Leased Premises shall be determined as follows:
(1) The parties shall attempt to determine the Fair Market Value
by mutual agreement within fifteen (15) days after Proposed Buyer's delivery of
the Purchase Notice.
(2) However, if the parties are unable to agree on the Fair
Market Value within the fifteen (15) day period set forth above, then within ten
(10) days after the expiration of that period each party, at its cost and by
giving notice to the other party, shall appoint a real estate appraiser with at
least five (5) years' full-time commercial appraisal experience in appraising
properties similar to the Leased Premises in the area in which the Leased
Premises are located to appraise and set the Fair Market Value. Further, all of
the appraisers selected through the process described above shall be certified
as required by Virginia law as in effect at the time. If a party does not
appoint an appraiser within ten (10) days after the other party has delivered
notice of the name of its appraiser (the "Appraiser Appointment Deadline"), the
party which appointed an appraiser prior to the Appraiser Appointment Deadline
shall deliver written notice to the other party of the expiration of the time
period for the appointment of an appraiser (the "Appointment Expiration
Notice"), which notice may be delivered via facsimile. In the event that the
party which failed to appoint an appraiser prior to the Appraiser Appointment
Deadline subsequently fails to deliver notice to the other party of the
appointment of an appraiser within two (2) business days after delivery of the
Appointment Expiration Notice, the single appraiser appointed shall be the sole
appraiser and shall set the Fair Market Value. If the two appraisers are
appointed by the parties as stated in this Paragraph, they
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shall meet promptly and attempt to set the Fair Market Value. If they are unable
to agree within thirty (30) days after the second appraiser has been appointed,
they shall attempt to select a third appraiser meeting the qualifications stated
in this Paragraph within ten (10) days after the last day the two appraisers are
given to set the Fair Market Value. If they are unable to agree on the third
appraiser, either of the parties to the Lease by giving ten (10) days' notice to
the other party can file a petition with the American Arbitration Association
solely for the purpose of selecting a third appraiser who meets the
qualifications stated in this Paragraph. Each party shall bear half the cost of
the American Arbitration Association appointing the third appraiser and of
paying the third appraiser's fee. The third appraiser, however selected, shall
be a person who has not previously acted in any capacity for either party.
Within thirty (30) days after the selection of the third appraiser, a majority
of the appraisers shall set the Fair Market Value. After the Fair Market Value
has been set, the appraisers shall immediately notify the parties.
4. LEASEHOLD MORTGAGES AND ENCUMBRANCES. Notwithstanding anything to
------------------------------------
the contrary contained in Paragraph 11 of the Lease, Tenant shall have the
right, without obtaining Landlord's consent, to mortgage or encumber Tenant's
leasehold estate in connection with a general financing of Tenant or any
successor to substantially all of its assets.
5. DAMAGE BY CASUALTY. Paragraph 12(A) of the Lease is hereby
------------------
amended and restated as follows:
"A. Election to Terminate or Rebuild.
---------------------------------
If, during the term of this Lease, the Leased Premises are
totally or partially destroyed, Landlord shall restore the Leased Premises to
substantially the same condition as they were in immediately before such
destruction. Notwithstanding the foregoing, if such damage is to a material
portion of the Leased Premises ("Material Destruction"), either Landlord or
Tenant may elect to terminate the Lease by providing written notice to the other
party within thirty (30) days after such Material Destruction. For purposes of
this Paragraph, damage or destruction shall constitute "Material Destruction"
if: (i) the cost of restoration exceeds fifty percent (50%) of the then
replacement value of the Leased Premises destroyed; or (ii) the time to restore
such damage or destruction is reasonably expected to exceed nine (9) months."
Paragraph 12(B) of the Lease is hereby amended and restated as
follows:
"B. Termination. If either Landlord or Tenant elects to
-----------
terminate this Lease as provided by Paragraph 12(A), the rent and additional
rent to be paid by Tenant hereunder shall be apportioned as of the date of
damage or destruction."
The first sentence of Paragraph 12(C) of the Lease is hereby
amended and restated as follows:
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"C. Rebuilding. If neither Landlord nor Tenant elects to
----------
terminate this Lease as provided in Paragraph 12(A), then this Lease shall
continue in full force and effect and Landlord shall, at his expense, but only
from insurance proceeds released by the holder of any mortgage lien upon the
Leased Premises, restore the same to substantially the condition the Leased
Premises were in immediately prior to such damage or destruction except as
otherwise provided in this Paragraph 12."
6. CONDEMNATION. The first sentence of Paragraph 13(B) of the
------------
Lease is hereby amended and restated as follows:
"B. Partial. Landlord and Tenant shall have the right to
-------
terminate the Lease upon the taking by eminent domain of a material portion (a
"Material Taking") of the Leased Premises, by providing written notice to the
other party within sixty (60) days after receipt of notice of such Material
Taking. For purposes of such right to terminate, the term "Material Taking"
shall mean a taking which involves more than twenty percent (20%) of the floor
area of the building at the Leased Premises, or more than thirty-five percent
(35%) of the land area of the Leased Premises which is not occupied by any
building."
The phrase "If Landlord elects to continue this lease" in the second
sentence of Paragraph 13(B) of the Lease is hereby amended and restated as
follows: "If neither Landlord nor Tenant elects to terminate this Lease as
provided in this Paragraph".
7. DEFAULTS. The ten (10) day cure period after notice of non-
--------
monetary defaults set forth in Paragraph 14(A)(ii) of the Lease is hereby
amended and restated to be thirty (30) days after written notice.
8. CHRONIC DEFAULTS. The following provision is hereby deleted from
----------------
the first sentence of Paragraph 14F: "(ii) Three Non-Monetary Defaults; or (iii)
One Monetary Default and two Non-Monetary Defaults."
9. SUBORDINATION. Paragraph 16(I) of the Lease is hereby amended and
-------------
restated as follows:
"I. Subordination: Notwithstanding anything to the contrary
-------------
contained in this Lease, this Lease shall be subordinate to any mortgage
recorded prior to the date of this Lease; provided, however, Lessor shall use
reasonable best efforts to deliver to Lessee a Non-Disturbance Agreement (as
defined below) from the holder of any such mortgage no later than sixty (60)
days after the date of this Amendment. Notwithstanding anything to the contrary
contained in this Lease, this Lease shall not be subordinate to any mortgage
recorded after the date of this Lease, unless Lessor shall have provided Lessee
with a non-disturbance agreement ("Non-Disturbance Agreement") in favor of
Lessee from the holder of any such mortgage. The Non-Disturbance Agreement shall
be in a form reasonably acceptable to Lessee. Upon provision of a Non-
Disturbance Agreement to Lessee, in a form reasonably acceptable to Lessee,
Lessee shall execute such Non-Disturbance Agreement.."
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10. SENIOR LIENS. Landlord hereby subordinates any landlord's lien it
------------
might hold, statutory, constitutional, contractual or otherwise, to any
inventory, fixtures, equipment or other personal property owned or leased by
Tenant and now or hereafter located at the Leased Premises to the lien of any
lender providing general financing to Tenant. Landlord agrees to execute any
instrument, releases or other documents that may be necessary to evidence the
waiver and release of any such liens.
11. HAZARDOUS SUBSTANCES. Notwithstanding anything to the contrary
--------------------
contained in the Lease: (i) Landlord's consent shall not be required in order
for Tenant to maintain any hazardous substances which have been customarily
stored by Tenant at the Leased Premises prior to the date of this Amendment; and
(ii) Tenant shall not be required to indemnify Landlord in the event that
hazardous substances migrate on to the Leased Premises from any neighboring
property or are brought on to the Leased Premises by trespassers (even if Tenant
may be held legally liable therefor), provided however, that Tenant shall in no
way be relieved of its indemnity obligation due to its own negligence or fault.
12. EXTENSION OPTION. Tenant is given one (1) option to extend the
----------------
initial term of the Lease, subject to all the provisions contained in the Lease,
as amended and restated by this Amendment, except for monthly rent, for a period
of five (5) years ("Extended Term"). In order to exercise an option to extend,
Tenant shall give notice of exercise of the option ("Option Notice") to Landlord
at least three (3) months but not more than nine (9) months before the
expiration of the term. The monthly rent during the Extended Term shall be
equal to the fair market rental for the Leased Premises, which in no event shall
be less than the rent payable immediately prior to the Extended Term. The
parties shall have thirty (30) days after Landlord receives the Option Notice in
which to agree on monthly rent during the Extended Term. If the parties agree
on the monthly rent for the Extended Term during that period, they shall
immediately execute an amendment to the Lease stating the monthly rent.
If the parties are unable to agree on the monthly rent for the
Extended Term within the thirty (30) day period set forth above, then within ten
(10) days after the expiration of that period each party, at its cost and by
giving notice to the other party, shall appoint a real estate appraiser with at
least five (5) years' full-time commercial appraisal experience in appraising
properties similar to the Leased Premises in the area in which the Leased
Premises are located to appraise and set the monthly rent for the Extended Term.
Further, all of the appraisers selected through the process described above
shall be certified as required by Virginia law as in effect at the time. If a
party does not appoint an appraiser within ten (10) days after the other party
has given notice of the name of its appraiser, the single appraiser appointed
shall be the sole appraiser and shall set the monthly rent for the Extended
Term. If the two appraisers are appointed by the parties as stated in this
Paragraph, they shall meet promptly and attempt to set the monthly rent for the
Extended Term. If they are unable to agree within thirty (30) days after the
second appraiser has been appointed, they shall attempt to select a third
appraiser meeting the qualifications stated in this Paragraph within ten (10)
days after the last day the two appraisers are given to set the monthly rent.
If they are unable to agree
-5-
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on the third appraiser, either of the parties to the Lease by giving ten (10)
days' notice to the other party can file a petition with the American
Arbitration Association solely for the purpose of selecting a third appraiser
who meets the qualifications stated in this Paragraph. Each party shall bear
half the cost of the American Arbitration Association appointing the third
appraiser and of paying the third appraiser's fee. The third appraiser, however
selected, shall be a person who has not previously acted in any capacity for
either party. Within thirty (30) days after the selection of the third
appraiser, a majority of the appraisers shall set the monthly rent for the
Extended Term. After the monthly rent for the Extended Term has been set, the
appraisers shall immediately notify the parties.
13. LEASEHOLD MORTGAGES. Notwithstanding anything to the contrary
-------------------
contained in this Lease, Tenant may execute, deliver and perform one or more
mortgages, deeds of trust or other leasehold security agreements ("Leasehold
Indentures") without the consent of Landlord in connection with an overall
financing of Advance Stores Company, Incorporated or a successor to
substantially all of its assets ("ASCI"). If either Tenant or the mortgagee,
grantee or trustee under any such Leasehold Indenture sends Landlord a notice
advising of the existence of such Leasehold Indenture and the address of the
mortgagee, grantee or trustee thereunder for the service of such notices, such
mortgagee, grantee or trustee shall be deemed to be a "Leasehold Lender."
Landlord shall be under no obligation under this paragraph to any mortgagee,
grantee or trustee under a Leasehold Indenture who is not a Leasehold Lender.
Anything to the contrary herein notwithstanding, there shall only be one
Leasehold Lender with respect to the Leased Premises at any time.
A. Upon the occurrence of any default hereunder by Tenant,
written notice to that effect shall be sent by Landlord to each Leasehold Lender
at the same time notice of such default is sent to Tenant. Landlord shall not
terminate this Lease or exercise any other right or remedy hereunder unless it
first gives notice of such default to each Leasehold Lender, and:
(1) If such default is a failure to pay a monetary
obligation of Tenant, the Leasehold Lender shall fail to cure such default
within thirty (30) days of receipt of notice thereof from Landlord; or
(2) If such default is not a failure to pay a monetary
obligation of Tenant, the Leasehold Lender shall fail within forty-five (45)
days of receipt of said written notice to remedy such default; or
(3) If any such default cannot be cured by the Leasehold
Lender by payment of money and without the Leasehold Lender obtaining possession
of the Leased Premises by appropriate proceedings and/or title to Tenant's
leasehold estate by judicial or non-judicial foreclosure proceedings or by deed
in lieu thereof, then any such default shall be remedied or deemed remedied if
the Leasehold Lender shall have complied with the following provisions:
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(i) Within thirty (30) days after receiving notice
from Landlord setting forth the nature of such default, or prior thereto, the
Leasehold Lender shall have acquired Tenant's leasehold estate or within fifteen
(15) days shall have commenced judicial or non-judicial foreclosure proceedings
or appropriate proceedings to obtain possession of the Leased Premises;
(ii) The Leasehold Lender shall diligently prosecute
any such proceedings to completion;
(iii) The Leasehold Lender shall have fully cured and
continue to cure any default arising from failure to pay or perform any monetary
obligations in accordance with the terms of this Lease; and
(iv) After gaining possession of the Leased Premises,
the Leasehold Lender shall perform all other obligations of Tenant as and when
the same are due in accordance with the terms of this Lease.
B. If any Leasehold Lender or a person designated by a Leasehold
Lender shall either become the owner of the interest of Tenant hereunder upon
the exercise of any remedy provided for in the Leasehold Indenture or shall
enter into a new Lease with Landlord as provided in paragraph (d), then,
notwithstanding anything to the contrary contained in this Lease, such Leasehold
Lender or such person shall have the right to assign such interest or such new
Lease to any person without obtaining the consent or approval of Landlord,
provided, however, that following such assignment, the Landlord's consent shall
be required with respect to any subsequent tenants to the extent required under
this Lease.
C. If this Lease is terminated, rejected or disaffirmed for any
reason pursuant to bankruptcy law or other law affecting creditors' rights, any
Leasehold Lender, or a person designated by any Leasehold Lender, shall have the
right, exercisable by notice to Landlord within thirty (30) days after the
effective date of termination, rejection or disaffirmance, to enter into a new
Lease of the Leased Premises with Landlord to the extent enforceable under law.
The term of the new Lease shall begin on the date of the termination of this
Lease and shall continue for the remainder of the term of this Lease (including
any options to renew if the right thereto is exercised by such Leasehold Lender
or its assignee).
Such new Lease shall otherwise contain the same terms and
conditions as those set forth herein, except for requirements which are no
longer applicable or have already been performed, provided that all defaults
which are susceptible of being remedied by the payment of money shall have been
cured, and provided further that such new lease shall require the Tenant
thereunder promptly to commence and expeditiously continue to remedy all other
defaults on the part of Tenant thereunder to the extent reasonably possible. It
is the intention of the parties hereto that such new Lease shall have the same
priority relative to other rights or interests to or in the fee estate in the
land covered by this Lease. The provisions of this paragraph shall survive the
termination of this Lease and shall continue in full force and effect
-7-
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thereafter to the same extent as if this paragraph (d) were a separate and
independent contract by and among Landlord, Tenant and each Leasehold Lender.
From the date on which any Leasehold Lender shall serve upon Landlord the
aforesaid notice of the exercise of its rights to enter into a new Lease, such
Leasehold Lender may use and enjoy the Leased Premises without hindrance or
interference by Landlord.
D. Subject to the cure rights set forth herein, no Leasehold Lender
shall become liable for the performance or observance of any covenants or
conditions to be performed or observed by Tenant unless and until such Leasehold
Lender becomes the owner of Tenant's interest hereunder upon the exercise of any
remedy provided for in any Leasehold Indenture or occupies the Leased Premises
or enters into a new Lease with Landlord as herein provided. Thereafter, such
Leasehold Lender shall be liable for the performance and observance of such
covenants and conditions only until such Leasehold Lender assigns such interest
or assigns the new Lease as permitted hereby whereupon all obligations of such
Leasehold Lender under this Lease or such new Lease arising subsequent to such
assignment shall terminate.
E. Landlord agrees that the exercise of its rights under this Lease
in case of a default by Tenant shall not, without the prior written consent of
each Leasehold Lender, result in the merger of the estate of the subtenant under
any sublease with the estate of the sublandlord thereunder.
F. Without the prior written consent of each Leasehold Lender,
Landlord will not accept a voluntary surrender of this Lease or the estate
created hereby and will not consent to any amendment of this Lease that
adversely affects the rights of the Leasehold Lender hereunder.
G. In the event of any default by Tenant under the Lease or the
Leasehold Indenture, Landlord will allow the Leasehold Lender to enforce its
lien and security interest on Tenant's assets located at the Leased Premises and
Landlord will allow the Leasehold Lender to assemble and remove all of Tenant's
assets located on the Leased Premises (provided that (i) the Leasehold Lender
shall only be permitted to remove assets which Tenant would be entitled to
remove pursuant to the terms of Paragraph 5 of the Lease, and (ii) the Leasehold
Lender promptly repairs all material damage resulting from such removal) without
the Leasehold Lender assuming any of Tenant's obligations under the Lease.
14. NO OTHER MODIFICATIONS. Except as otherwise provided herein, all
----------------------
other terms and provisions of the Lease shall remain in full force and effect.
15. BINDING EFFECT. The provisions of this Amendment shall be binding
--------------
upon and inure to the benefit of the heirs, representatives, successors and
permitted assigns of the parties hereto.
-8-
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16. COUNTERPARTS. This Amendment may be executed in any number
------------
of original counterparts. Any such counterpart, when executed, shall constitute
an original of this Amendment, and all such counterparts together shall
constitute one and the same Amendment.
Remainder of page intentionally left blank
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first set forth above.
"LANDLORD" "TENANT"
ADVANCE STORES INCORPORATED,
A Virginia Corporation
By: /s/ Nicholas F. Taubman
----------------------------
Nicholas F. Taubman
an individual By: /s/ Garnett E. Smith
------------------------------
Name: Garnett E. Smith
Its: President
By: /s/ Nicholas F. Taubman
------------------------------
Name: Nicholas F. Taubman
Its: Chairman
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EXHIBIT 10.9
TRUST INDENTURE
________________
MCDUFFIE COUNTY DEVELOPMENT AUTHORITY
FIRST UNION NATIONAL BANK,
as Trustee
and
BRANCH BANKING AND TRUST COMPANY,
as Credit Facility Trustee
________________
securing the
$10,000,000
________________
TAXABLE INDUSTRIAL DEVELOPMENT REVENUE BONDS
(ADVANCE STORES COMPANY, INCORPORATED PROJECT), SERIES 1997
________________
DATED AS OF DECEMBER 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION......................................................... 6
Section 1.1 Definitions................................................................ 6
Section 1.2 Rules of Construction...................................................... 17
ARTICLE II
THE BONDS..................................................................................... 18
Section 2.1 Amount, Terms, and Issuance of the Bonds................................... 18
Section 2.2 Designation, Denominations, Maturity Date and Interest Rates
of the Bonds............................................................... 18
Section 2.3 Optional Tender Provisions of the Bonds.................................... 22
Section 2.4 Registered Bonds Required: Bond Registrar and Bond Register................ 23
Section 2.5 Transfer and Exchange...................................................... 24
Section 2.6 Execution.................................................................. 25
Section 2.7 Authentication: Authenticating Agent....................................... 25
Section 2.8 Payment of Principal and Interest; Interest Rights Preserved............... 26
Section 2.9 Persons Deemed Owners...................................................... 27
Section 2.10 Mutilated, Destroyed, Lost, Stolen or Undelivered Bonds................... 28
Section 2.11 Temporary Bonds............................................................ 28
Section 2.12 Cancellation of Surrendered Bonds.......................................... 28
Section 2.13 Conditions of Issuance..................................................... 29
Section 2.14 Book Entry................................................................. 30
ARTICLE III
PURCHASE AND REMARKETING OF TENDERED BONDS.................................................... 32
Section 3.1 Remarketing of Tendered Bonds.............................................. 32
Section 3.2 Purchase of Bonds Delivered to the Tender Agent............................ 33
Section 3.3 Delivery of Purchased Bonds................................................ 34
Section 3.4 Delivery of the Proceeds of the Sale of Remarketed Bonds................... 34
Section 3.5 No Remarketing After Certain Events........................................ 35
</TABLE>
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ARTICLE IV
<S> <C>
PROJECT FUND.................................................................................. 36
Section 4.1 Creation of and Deposits to the Project Fund............................... 36
Section 4.2 Payments from the Project Fund............................................. 36
Section 4.3 Trustee May Rely on Requisitions........................................... 37
Section 4.4 Completion Date............................................................ 37
Section 4.5 Transfers to the Bond Fund................................................. 37
Section 4.6 Trustee's Records.......................................................... 37
Section 4.7 Disposition of Balance in Project Fund..................................... 37
ARTICLE V
REVENUES AND APPLICATION THEREOF.............................................................. 38
Section 5.1 Revenues to be Paid Over to Trustee........................................ 38
Section 5.2 The Bond Fund.............................................................. 38
Section 5.3 Revenues to Be Held for All Bondholders; Certain Exceptions................ 40
ARTICLE VI
DEPOSITORIES OF MONEYS; SECURITY FOR DEPOSITS
AND INVESTMENT OF FUNDS....................................................................... 41
Section 6.1 Security for Deposits...................................................... 41
Section 6.2 Investment of Moneys....................................................... 41
Section 6.3 The Credit Facility........................................................ 42
ARTICLE VII
REDEMPTION OR PURCHASE OF THE BONDS........................................................... 45
Section 7.1 Redemption or Purchase Dates and Prices.................................... 45
Section 7.2 Company to Direct Optional Redemption...................................... 47
Section 7.3 Selection of Bonds to be Called for Redemption............................. 47
Section 7.4 Notice of Redemption or Purchase........................................... 48
Section 7.5 Bonds Redeemed or Purchased in Part........................................ 49
ARTICLE VIII
PARTICULAR COVENANTS AND PROVISIONS........................................................... 50
Section 8.1 Covenant to Pay the Bonds; Bonds Limited Obligations
of the Issuer.............................................................. 50
Section 8.2 Covenants to Perform Obligations Under this Indenture...................... 50
Section 8.3 Covenant to Perform Obligations Under the Lease Agreement.................. 51
</TABLE>
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Section 8.4 Trustee May Enforce the Issuer's Rights Under
the Lease Agreement........................................................ 51
Section 8.5 Covenant Against Arbitrage................................................. 51
Section 8.6 Inspection of the Bond Register............................................ 51
Section 8.7 Priority of Pledge and Security Interest................................... 51
Section 8.8 Maintenance of Insurance: Payment of Taxes, Charges, Etc................... 52
Section 8.9 Maintenance and Repair..................................................... 52
Section 8.10 Insurance and Condemnation Proceeds........................................ 52
ARTICLE IX
DEFAULT AND REMEDIES.......................................................................... 53
Section 9.1 Defaults................................................................... 53
Section 9.2 Acceleration and Annulment Thereof......................................... 54
Section 9.3 Other Remedies............................................................. 55
Section 9.4 Legal Proceedings by the Credit Facility Trustee........................... 55
Section 9.5 Discontinuance of Proceedings by the Credit Facility Trustee............... 55
Section 9.6 Credit Facility Issuer or Bondholders May Direct Proceedings............... 56
Section 9.7 Limitations on Actions by the Bondholders.................................. 56
Section 9.8 Credit Facility Trustee May Enforce Rights Without
Possession of the Bonds.................................................... 57
Section 9.9 Remedies Not Exclusive..................................................... 57
Section 9.10 Delays and Omissions Not to Impair Rights.................................. 57
Section 9.11 Application of Moneys in the Event of Default.............................. 57
Section 9.12 Credit Facility Trustee and Bondholders
Entitled to All Remedies Under the Act..................................... 58
Section 9.13 Credit Facility Trustee May File Claim in Bankruptcy....................... 58
Section 9.14 Receiver................................................................... 59
ARTICLE X
CONCERNING THE TRUSTEE........................................................................ 60
Section 10.1 Acceptance of the Trusts................................................... 60
Section 10.2 Acceptance of Trusts by Credit Facility Trustee............................ 61
Section 10.3 Trustee or Credit Facility Trustee to Give Notice.......................... 63
Section 10.4 Trustee and The Credit Facility Trustee Entitled to Indemnity.............. 63
Section 10.5 Trustee nor the Credit Facility Trustee Responsible for Insurance,
Taxes, Execution of this Indenture, Acts of the Issuer or
Application of the Moneys Applied in Accordance
with this Indenture........................................................ 64
Section 10.6 Compensation............................................................... 65
Section 10.7 Trustee to Preserve Records................................................ 66
Section 10.8 Trustee or Credit Facility Trustee May Be a Bondholder..................... 66
</TABLE>
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<S> <C>
Section 10.9 Trustee and Credit Facility Trustee Not Responsible for Recitals........... 66
Section 10.10 No Responsibility for Recording or Filing.................................. 66
Section 10.11 Trustee and Credit Facility Trustee May Require Information................ 66
Section 10.12 Trustee and Credit Facility Trustee May Rely on Certificates............... 67
Section 10.13 Trustee or Credit Facility Trustee Bond.................................... 67
Section 10.14 Segregation of Funds; Interests............................................ 67
Section 10.15 Qualification of the Trustee and the Credit Facility Trustee............... 67
Section 10.16 Resignation and Removal of the Trustee or
Credit Facility Trustee.................................................... 68
Section 10.17 Successor Trustee or Credit Facility Trustee............................... 69
Section 10.18 Co-Trustee................................................................. 70
Section 10.19 Notice to Moody's or S&P................................................... 71
ARTICLE XI
EXECUTION OF INSTRUMENTS BY THE BONDHOLDERS
AND PROOF OF OWNERSHIP OF THE BONDS........................................................... 72
Section 11.1 Execution of Instruments by the Bondholders and Proof
of Ownership of the Bonds.................................................. 72
Section 11.2 Preservation of Information................................................ 72
ARTICLE XII
THE REMARKETING AGENT, THETENDER AGENT AND THE PLACEMENT
AGENT........................................................................................ 73
Section 12.1 The Remarketing Agent...................................................... 73
Section 12.2 The Tender Agent........................................................... 74
Section 12.3 The Placement Agent........................................................ 74
Section 12.4 Notices.................................................................... 74
ARTICLE XIII
AMENDMENTS AND SUPPLEMENTS.................................................................... 75
Section 13.1 Amendments and Supplements Without
the Bondholders' Consent................................................... 75
Section 13.2 Amendments With the Bondholders' and the
Credit Facility Issuer's Consent........................................... 76
Section 13.3 Supplemental Indentures Affecting the Rights
of the Credit Facility Issuer.............................................. 77
Section 13.4 Amendment of the Lease Agreement........................................... 78
Section 13.5 Amendment of the Lease Agreement Requiring the
Consent of the Credit Facility Issuer...................................... 78
Section 13.6 Amendment of the Credit Facility........................................... 78
</TABLE>
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<TABLE>
<S> <C>
Section 13.7 Trustee and the Credit Facility Trustee Authorized to Join
in Amendments and Supplements; Reliance on Counsel......................... 78
ARTICLE XIV
DEFEASANCE: OTHER PAYMENTS.................................................................... 79
Section 14.1 Defeasance................................................................. 79
Section 14.2 Deposit of Funds for Payment of the Bonds.................................. 80
Section 14.3 Effect of Purchase of the Bonds............................................ 81
ARTICLE XV
MISCELLANEOUS PROVISIONS...................................................................... 82
Section 15.1 Covenants of the Issuer to Bind its Successors............................. 82
Section 15.2 Notices.................................................................... 82
Section 15.3 Trustee as the Paying Agent and the Bond Registrar......................... 83
Section 15.4 Rights Under this Indenture................................................ 83
Section 15.5 Form of Certificates and Opinions.......................................... 83
Section 15.6 Severability............................................................... 84
Section 15.7 State Law Governs.......................................................... 84
Section 15.8 Payments Due on Days Other Than Business Days.............................. 84
Section 15.9 Execution in Counterparts.................................................. 84
EXHIBIT A: Form of Notice of Conversion
EXHIBIT B: DTC Blanket Issuer Letter of Representations
EXHIBIT C: Form of Bond
EXHIBIT D: Description of the Project
EXHIBIT E: Requisition and Certificate
</TABLE>
v
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TRUST INDENTURE
This TRUST INDENTURE, dated as of December 1, 1997, by and among the
DEVELOPMENT AUTHORITY OF MCDUFFIE COUNTY, a public body politic and corporate
under the laws of the State of Georgia (the "Issuer"), FIRST UNION NATIONAL
BANK, a national banking association, having a corporate trust office in
Richmond, Virginia, as Trustee (the "Trustee"), and BRANCH BANKING AND TRUST
COMPANY, a North Carolina banking institution, having its principal office in
Wilson, North Carolina, as Credit Facility Trustee (in its capacity as Credit
Facility Trustee to be hereinafter referred to as the "Credit Facility
Trustee").
W I T N E S S E T H:
--------------------
WHEREAS, the Issuer has been created pursuant to the provisions of an act
of the General Assembly of the State of Georgia (O.C.G.A. Section 36-62 et
--
seq.), as amended (the "Enabling Act") and an activating resolution of the Board
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of Commissioners of McDuffie County, duly adopted on January 17, 1970, and its
directors have been appointed as provided therein and are currently acting in
that capacity; and
WHEREAS, in furtherance of the public purpose for which the Issuer was
created, the Issuer proposes to issue $10,000,000 in aggregate principal amount
of its Taxable Industrial Development Revenue Bonds (Advance Stores Company,
Incorporated Project), Series 1997 (the "Bonds") pursuant to this Indenture to
finance, in whole or in part, the cost of the acquisition, construction,
installation and equipping of an industrial facility to be located in McDuffie
County, Georgia (the "Project") as more fully set forth in Exhibit D hereto and
a portion of the costs of issuance of the Bonds, and to make available the
proceeds of the sale of the Bonds to Advance Stores Company, Incorporated, a
Virginia corporation (the "Company"); and
WHEREAS, the Issuer and the Company will enter into a Lease Agreement,
dated as of December 1, 1997 (the "Lease Agreement"), pursuant to which the
Company will agree to make payments sufficient to pay the principal and purchase
price of, and redemption premium (if any) and interest on, the Bonds as the same
become due and payable and to pay administrative expenses in connection with the
Bonds; and
WHEREAS, it has been determined that the estimated amount necessary to
finance the cost of the acquisition, construction, equipping and improving of
the Project, including necessary expenses incidental to the issuance of the
Bonds, will require the issuance, sale and delivery of Bonds in the aggregate
principal amount of $10,000,000 as hereinafter provided; and
WHEREAS, the Company and First Union National Bank, a national banking
association (the "Bank"), have entered into a Letter of Credit and Reimbursement
<PAGE>
Agreement, dated as of December 1, 1997 (the "Reimbursement Agreement"),
pursuant to which the Bank has agreed to issue its irrevocable direct-pay letter
of credit, dated the date of the delivery of the Bonds (the "Letter of Credit"),
in favor of the Credit Facility Trustee, for the account of the Company
obligating the Bank to pay the Credit Facility Trustee upon draws made by the
Credit Facility Trustee in accordance with the terms thereof, up to (i) an
amount equal to the aggregate principal amount of the Bonds then Outstanding
(hereinafter defined) to be used by the Credit Facility Trustee (a) to pay the
principal of such Bonds whether at maturity, upon redemption, acceleration or
otherwise, and (b) to pay the portion of the purchase price equal to the
principal amount of any such Bonds delivered to the Tender Agent (hereinafter
defined) for purchase plus (ii) an amount equal to up to forty-nine (49) days'
accrued interest on the Bonds at an assumed interest rate of fifteen percent
(15%) per annum (which is the maximum interest rate to be borne by the Bonds),
to be used by the Credit Facility Trustee to pay accrued interest on the Bonds
and to pay the portion of the purchase price of tendered Bonds equal to the
accrued interest, if any, on any such Bonds, and pursuant to which the Company
has agreed to reimburse the Bank for all amounts drawn by the Credit Facility
Trustee under the Letter of Credit, together with interest on all such amounts
and to pay to the Bank certain fees and expenses for issuing the Letter of
Credit; and
WHEREAS, as security for the payment of the Bonds, the Issuer has agreed to
assign and pledge to the Trustee and the Credit Facility Trustee, as their
interests may appear, all right, title and interest of the Issuer in (a) the
Lease Agreement (except certain rights reserved by the Issuer under the terms of
this Indenture), (b) all money and securities at any time on deposit in, in
transit to or credited to any account or Fund created hereunder, including
without limitation the Project Fund and the Bond Fund; and (c) Revenues (as
hereinafter defined); and
WHEREAS, all things necessary to make the Bonds, when authenticated by the
Trustee and issued and delivered as provided in this Indenture, the legal,
valid, binding and enforceable limited obligations of the Issuer, according to
the import thereof, and to create a valid assignment and pledge of the Pledged
Revenues to the payment of the principal of, and the redemption premium (if any)
and the interest on, the Bonds and a valid assignment of certain of the rights,
title and interest of the Issuer in the Lease Agreement, have been done and
performed, and the execution, issuance and delivery of the Bonds, subject to the
terms hereof, have in all respects been authorized; and
WHEREAS, the Trustee and the Credit Facility Trustee, as their interests
may appear, have accepted the trusts created by this Indenture and in evidence
thereof have joined in the execution hereof; and
WHEREAS, the Issuer has determined that the Bonds to be issued hereunder
shall be substantially in the form contained in Exhibit C, with such variations,
omissions and insertions as are required or permitted by this Indenture; and
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NOW, THEREFORE, in consideration of the premises, of the acceptance by the
Trustee and the Credit Facility Trustee of the trusts hereby created, and of the
purchase and acceptance of the Bonds by the Bondholders, and also for and in
consideration of the sum of One Dollar to the Issuer in hand paid by the Trustee
and the Credit Facility Trustee at or before the execution and delivery of this
Indenture, the receipt of which is hereby acknowledged, and for the purpose of
fixing and declaring the terms and conditions upon which the Bonds are to be
issued, delivered, secured and accepted by the Bondholders and any and all other
persons who shall from time to time be or become owners thereof, and in order to
secure the payment of the Bonds at any time issued and outstanding hereunder and
the interest thereon according to their tenor, purport and effect, and in order
to secure the performance and observance of all the covenants, agreements and
conditions therein and herein contained:
THE ISSUER DOES HEREBY PLEDGE AND ASSIGN, and grant a security interest
unto the Trustee and its successors and assigns and unto the Credit Facility
Trustee and its successors and assigns, as their interests may appear, forever,
to have and to hold, for the benefit of the owners of the Bonds all right, title
and interest of the Issuer presently owned or hereafter acquired in and to the
following (collectively, the "Trust Estate"):
(a) The Lease Agreement (as the same may from time to time be
supplemented or amended), including, but not limited to, all payments of
principal and interest due and to become due under the Lease Agreement
whether made at their respective due dates or as prepayments permitted or
required by the Lease Agreement together with full power and authority, in
the name of the Issuer or otherwise, to demand, receive, enforce, collect
or receipt for any or all of the foregoing, to endorse or execute any
checks or other instruments or orders, to file any claims and to take any
action which the Trustee or the Credit Facility Trustee may deem necessary
or advisable in connection therewith, and the Issuer hereby irrevocably
appoints the Trustee and the Credit Facility Trustee as attorneys-in-fact
of the Issuer for such purposes, which appointment is coupled with an
interest and is irrevocable; provided, however, that the Issuer shall
continue to have all the rights, together with the Trustee, contained in
the following sections of the Lease Agreement:
(i) Section 6.4 (pertaining to the Issuer's non-exclusive right
to receive payment for certain advances);
(ii) Section 7.1 (pertaining to the Issuer's right of access to
the Project and certain records);
(iii) Section 7.3 (pertaining to the Issuer's right to receive
certain information);
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(iv) Section 7.4 (pertaining to the Issuer's right to receive
payment for certain costs and expenses);
(v) Section 7.5 (pertaining to the Issuer's right to certain
indemnities);
(vi) Section 7.6 (pertaining to the Issuer's right to
indemnification);
(vii) Section 7.9 (pertaining to the Issuer's right to provide
certain information);
(viii) Section 8.1 (pertaining to the Issuer's right to consent
or withhold consent to assignment of rights of the Company under the
Lease Agreement or lease or sale of the Project);
(ix) Sections 9.3 and 9.5 (pertaining to the Issuer's right to
reimbursement of expenses incurred upon a default);
(x) Section 10.1(c) (pertaining to the Issuer's right to notice
of prepayments and rights upon the occurrence of certain events);
(xi) Section 11.5 (pertaining to the Issuer's right to receive
notices);
(xii) Section 11.13 (pertaining to the limitations on the
liability of the Issuer); and
(xiii) Section 11.14 (pertaining to the Issuer's right to receive
payment for certain costs and expenses).
(b) All money and securities at any time on deposit in, in transit to
or credited to any account or Fund created hereunder, including without
limitation the Project Fund and the Bond Fund; and
(c) Revenues (as hereinafter defined);
and it is so mutually agreed and covenanted by and between the parties hereto
for the equal and proportionate benefit and security of the Bondholders without
preference, priority or distinction as to lien or otherwise, except as
hereinafter provided, of any one Bond over any other Bond, by reason of priority
in the issue, sale or negotiation thereof or otherwise, for the benefit of the
Bondholders and as security for the fulfillment of the obligations of the Issuer
hereunder;
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TO HAVE AND TO HOLD the same forever, subject, however, to the exceptions,
reservations and matters therein and herein recited but IN TRUST, nevertheless,
for the benefit and security of the owners from time to time of the Bonds
delivered hereunder and issued by the Issuer and outstanding or, to the extent
set forth herein, for the benefit of the Credit Facility Issuer, so long as a
Credit Facility is in place in respect of the Bonds;
PROVIDED, HOWEVER, that if, after the right, title and interest of the
Trustee and the Credit Facility Trustee in and to the Trust Estate pledged and
assigned to them under this Indenture shall have ceased, terminated and become
void in accordance with Article XIV hereof, the principal of and interest on the
Bonds and any other obligations arising hereunder shall have been paid to the
Bondholders or shall have been paid by the Company pursuant to Article XIV
hereof, then, this Indenture and all covenants, agreements and other obligations
of the Issuer hereunder shall cease, terminate and be void, and thereupon the
Trustee and the Credit Facility Trustee shall cancel and discharge this
Indenture and execute and deliver to the Issuer and the Company such instruments
in writing as shall be required to evidence the discharge hereof, otherwise,
this Indenture shall be and remain in full force and effect.
THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that
the Bonds issued and secured hereunder are to be issued and delivered and the
Trust Estate and other revenues and funds herein pledged and assigned are to be
dealt with and disposed of under, upon and subject to the terms, conditions,
stipulations, covenants, agreements, trusts, uses and purposes as hereinafter
expressed.
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ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.1 DEFINITIONS. All words and terms defined in Article I of
the Lease Agreement shall have the same meanings in this Indenture, unless
otherwise specifically defined herein. In addition, the following words and
terms as used in this Indenture shall have the following meanings unless some
other meaning is plainly intended:
"Act" shall mean Section 36-62 et seq., as amended, Official Code of
-- ---
Georgia Annotated, and other applicable provisions of law.
"Alternate Credit Facility" shall mean an irrevocable direct pay letter of
credit, insurance policy or similar credit enhancement or support facility for
the benefit of the Credit Facility Trustee, the terms of which Alternate Credit
Facility shall, in all respects material to the Bondholders, be the same (except
for the term of such Alternate Credit Facility) as or better than the Credit
Facility that is replaced by such Alternate Credit Facility as set forth in
Section 6.3 hereof.
"Authenticating Agent" shall mean the Trustee and any agent, designated and
appointed pursuant to Section 2.7 hereof.
"Available Moneys" shall mean:
(a) with respect to any payment date occurring during any period that
the Bonds are entitled to the benefit of a Credit Facility,
(1) any moneys which have been paid to the Trustee by the Company
(including moneys transferred from the Project Fund pursuant to
Section 4.1 hereof and which have been on deposit with the Trustee for
at least three hundred sixty-seven (367) days during and prior to
which no Event of Bankruptcy shall have occurred, and the proceeds
from the investment of such moneys after such moneys have become
Available Moneys, and
(2) moneys on deposit with the Trustee representing proceeds from
the resale by the Remarketing Agent of Bonds to persons other than the
Issuer or the Company as described in Article III hereof, which, in
each case, were at all times since their deposit with the Trustee held
in a separate and segregated account or accounts or sub-account or
sub-accounts in which no moneys which were not Available Moneys were
at any time held, and the proceeds from the investment thereof, and
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(3) moneys drawn under a Credit Facility which in each case were
at all times since their deposit with the Trustee held in a separate
and segregated account or accounts or sub-account or sub-accounts in
which no moneys (other than those drawn under a Credit Facility) were
at any time held; and
(b) with respect to any payment date not occurring during a period
that the Bonds are entitled to the benefit of a Credit Facility, any moneys
furnished to the Trustee and the proceeds from the investment thereof. The
Trustee may presume that no Event of Bankruptcy has occurred unless
notified in writing to the contrary by the Company, the Credit Facility
Issuer or the owners of not less than twenty-five percent (25%) in
aggregate principal amount of Bonds Outstanding.
"Bank" shall mean (1) First Union National Bank, a national banking
association, as the issuer of the Letter of Credit, and its successors and
assigns; and (2) any Substitute Bank.
"Bank Account" shall mean the account of that name established in the Bond
Purchase Fund pursuant to Section 3.2 hereof.
"Bond" or "Bonds" shall mean Development Authority of McDuffie County
Taxable Industrial Development Revenue Bonds (Advance Stores Company,
Incorporated Project), Series 1997, issued by the Issuer under this Indenture.
"Bond Counsel" shall mean the firm of King & Spalding, or its successors
appointed by the Issuer. If the Trustee determines, at its sole discretion,
that the Issuer has failed to appoint a successor, "Bond Counsel" shall mean a
firm of attorneys of nationally recognized standing in matters pertaining to the
tax-exempt or taxable nature of interest on bonds issued by states and their
political subdivisions, duly admitted to the practice of law before the highest
court of any state of the United States of America.
"Bond Fund" shall mean the trust fund so designated which is established
pursuant to Section 5.2(a) hereof.
"Bond Purchase Fund" shall mean the trust fund so designated which is
established pursuant to Section 3.2 hereof.
"Bond Register" shall have the meaning provided in Section 2.4 hereof.
"Bond Registrar" shall mean the Bond Registrar as designated in Section 2.4
hereof.
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"Bondholder" or "Bondholders" or "owner" or "owners" shall mean the initial
owner or owners and any future owner or owners of the Bond or Bonds as
registered on the books and records of the Bond Registrar pursuant to Section
2.4 hereof.
"Book Entry Agreement" shall have the meaning provided in Section 2.14
hereof.
"Business Day" means a day on which (a) banks located in each of the cities
in which the principal office of the Trustee, the Credit Facility Trustee, the
Credit Facility Issuer and the Remarketing Agent is located are not required or
authorized by law or executive order to close for business, and (b) The New York
Stock Exchange is not closed.
"Calculation Period" shall mean the period from and including the day
following the Determination Date of each week (even if not a Business Day) to
and including the following Determination Date.
"Company" shall mean Advance Stores Company, Incorporated, a Virginia
corporation, and its successor or assigns and any surviving, resulting or
transferee corporation or other entity.
"Conversion Date" shall mean that Business Day elected by the Company in
accordance with Section 2.2(e) hereof as the effective date of conversion of the
interest rate on the Bonds from the Variable Rate to the Fixed Rate, which date
shall be an Interest Payment Date.
"Counsel" shall mean an attorney or firm of attorneys acceptable to the
Trustee (who may, but need not be, counsel to the Issuer or the Company).
"Credit Facility" shall mean the Letter of Credit or any Alternate Credit
Facility delivered to the Trustee pursuant to Article VI hereof.
"Credit Facility Account" shall mean the account of that name established
in the Bond Fund pursuant to Section 5.2 hereof.
"Credit Facility Issuer" shall mean the Bank with respect to the Letter of
Credit and the institution issuing any Alternate Credit Facility.
"Credit Facility Trustee" means Branch Banking and Trust Company, a North
Carolina banking corporation, and any successor Credit Facility Trustee
appointed hereunder. In addition, if the interest rate on the Bonds is
converted to a Fixed Rate, there will no longer be a Credit Facility in effect,
and thereafter all references to Credit Facility Trustee shall mean the Trustee.
"Defaulted Interest" has the meaning provided in Section 2.8 hereof.
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"Determination Date" shall mean Wednesday of each week or if Wednesday is
not a Business Day then the next succeeding Business Day.
"DTC" means The Depository Trust Company, or any successor thereto.
"DTC Participant" or "DTC Participants" means securities brokers and
dealers, trust companies and clearing corporations that have access to the DTC
system either directly or through other DTC Participants.
"Event of Bankruptcy" shall mean a petition by or against the Company or
the Issuer under any bankruptcy act or under any similar act which may be
enacted which shall have been filed (other than bankruptcy proceedings
instituted by the Company or the Issuer against third parties) unless such
petition shall have been dismissed within 90 days and such dismissal shall be
final and not subject to appeal.
"Event of Default" shall mean any of the events specified in Section 9.1
hereof to be an Event of Default.
"Fixed Rate" shall mean the fixed annual rate of interest on the Bonds
determined by the Placement Agent pursuant to Section 2.2(e) hereof. If, for any
reason, the Fixed Rate is held to be invalid or unenforceable by a court of
competent jurisdiction, the Fixed Rate shall be equal to ten percent (10%) per
annum for the Bonds.
"Fixed Rate Period" shall mean the period during which the Fixed Rate is in
effect, which shall be the period beginning on the Conversion Date and ending on
the Maturity Date.
"Governmental Obligations" shall mean:
(i) direct obligations of the United States of America for the
full and timely payment of which the full faith and credit of the
United States of America is pledged,
(ii) obligations issued by a Person controlled or supervised by
and acting as an instrumentality of the United States of America, the
full and timely payment of which is unconditionally guaranteed as a
full faith and credit obligation of the United States of America, and
(iii) securities or receipts evidencing ownership interests in
obligations or specified portions (such as principal or interest) of
obligations described in clause (i) or (ii) above the full and timely
payment of which securities, receipts or obligations is
unconditionally guaranteed by the United States of America, which
obligations,
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securities or receipts are not subject to redemption prior to maturity
at less than par at the option of anyone other than the holder
thereof.
"Indenture" shall mean this Indenture as amended or supplemented at the
time in question.
"Initial Interest Rate" shall mean a variable rate of interest as
determined by the Remarketing Agent on the date of the issuance of the Bonds.
"Initial Rate Period" shall mean from and including the Original Delivery
Date to and including January 7, 1998.
"Interest Payment Date" shall mean the first Business Day of each month
commencing on the first Business Day of February, 1998 and ending on the
Maturity Date, the Conversion Date and the Maturity Date.
"Investment Obligations" shall mean:
(i) Bonds or obligations of counties, municipal corporations, school
districts, political subdivisions, authorities, or bodies of the State;
(ii) Bonds or other obligations of the United States or of subsidiary
corporations of the United States Government which are fully guaranteed by
such government;
(iii) Obligations of agencies of the United States Government issued
by the Federal Land Bank, the Federal Home Loan Bank, the Federal
Intermediate Credit Bank, and the Central Bank for Cooperatives;
(iv) Bonds or other obligations issued by any Public Housing Agency
or Municipal Corporation in the United States, which such bonds or
obligations are fully secured as to the payment of both principal and
interest by a pledge of annual contributions under an annual contributions
contract or contracts with the United States Government, or project notes
issued by any public housing agency, urban renewal agency, or municipal
corporation in the United States which are fully secured as to payment of
both principal and interest by a requisition, loan, or payment agreement
with the United States Government;
(v) Certificates of deposit of national or state banks located
within the state which have deposits insured by the Federal Deposit
Insurance Corporation and certificates of deposit of federal savings and
loan associations and state building and loan associations located within
this state which have deposits insured by the Savings Association Insurance
Fund of the Federal Deposit Insurance
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Corporation or the Georgia Credit Union Deposit Insurance Corporation,
including the certificates of deposit of any bank, savings and loan
association, or building and loan association acting as depositary,
custodian, or trustee for any such bond proceeds. The portion of such
certificates of deposit in excess of the amount insured by the Federal
Deposit Insurance Corporation, the Savings Association Insurance Fund of
the Federal Deposit Insurance Corporation or the Georgia Credit Union
Deposit Insurance Corporation, if any, shall be secured by deposit, with
the Federal Reserve Bank of Atlanta, Georgia, or with any national or state
bank or federal savings and loan association or state building and loan or
savings and loan association located within this state, of one or more the
following securities in an aggregate principal amount equal at least to the
amount of such excess; direct and general obligations of this state or of
any county or municipal corporation in this state, obligations of the
United States or subsidiary corporations included in paragraph (ii) hereof,
obligations of the agencies of the United States Government included in
paragraph (iii) hereof, or bonds, obligations, or project notes of public
housing agencies, urban renewal agencies, or municipalities included in
paragraph (iv) hereof;
(vi) Repurchase agreements with respect to obligations included in
(i), (ii), (iii), (iv) or (v) above and any other investments to the extent
at the time permitted by then applicable law for the investment of public
funds.
"Issuer" shall mean the Development Authority of McDuffie County, a public
body politic and corporate pursuant to the laws of the State of Georgia.
"Lease Agreement" shall mean the Lease Agreement of even date herewith
between the Issuer and the Company and any amendments or supplements thereof
permitted by this Indenture.
"Letter of Credit" shall mean the irrevocable direct pay letter of credit,
dated the date of delivery of the Bonds in the amount of $10,201,370 issued by
the Bank in favor of the Credit Facility Trustee as beneficiary, with an initial
term of three (3) years, subject to any extensions thereof.
"Majority of the Bondholders" shall mean the owners of a majority of the
aggregate principal amount of the Outstanding Bonds.
"Maturity Date" shall mean November 1, 2002 unless the maturity of the
Bonds shall be accelerated by the Credit Facility Trustee pursuant to Section
9.2 hereof, in which case the "Maturity Date" of the Bonds shall be the date set
forth in the notice of acceleration from the Credit Facility Trustee to the
Issuer pursuant to Section 9.2 of hereof.
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"Moody's" shall mean Moody's Investors Service, Inc. a Delaware
corporation, its successors and assigns, and, if such corporation shall be
dissolved or liquidated or shall no longer perform the functions of a securities
rating agency, "Moody's" shall be deemed to refer to any other nationally
recognized securities rating agency designated by the Trustee, with the consent
of the Company and the Credit Facility Issuer.
"Optional Retention Notice" shall mean a notice of the owner of a Bond to
the Trustee as described in Sections 2.2(e) and 7.1(d) hereof regarding
retention of the Bonds after a conversion of the interest rate.
"Optional Tender Notice" shall mean a notice from the owner of a Bond to
the Tender Agent as described in Sections 2.3 and 3.1 hereof regarding the
optional tender of the Bonds by the owners.
"Original Delivery Date" shall mean December 31, 1997.
"Outstanding" in connection with Bonds shall mean, as of the time in
question, all Bonds authenticated and delivered under the Indenture, except:
(i) Bonds theretofore canceled or required to be canceled under
Section 2.12 hereof,
(ii) Bonds which are deemed to have been paid in accordance with
Article XIV hereof; and
(iii) Bonds in substitution for which other Bonds have been
authenticated and delivered pursuant to Article II hereof.
In determining whether the owners of a requisite aggregate principal amount of
Bonds Outstanding have concurred in any request, demand, authorization,
direction, notice, consent or waiver under the provisions hereof, Bonds which
are held by or on behalf of the Company (unless all of the outstanding Bonds are
then owned by the Company) or an Affiliate of the Company (as defined below)
shall be disregarded for the purpose of any such determination. For the purpose
of this paragraph, an "Affiliate" of any specified entity shall mean any other
entity directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified entity and "control", when used with
respect to any specific entity, shall mean the power to direct the management
and policies of such entity, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Paying Agent" shall mean the Trustee and its successors as provided in
Section 15.3 hereof.
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"Payment Date" shall have the meaning set forth in Section 5.2(d) hereof.
"Placement Agent" shall mean the securities dealer, bank or trust company
which is designated by the Company with the consent of the Credit Facility
Issuer, which is responsible for the initial placement of the Bonds and which
will agree to establish the Preliminary Fixed Rate and to use its best efforts
to arrange for the sale of Tendered Bonds on the Conversion Date, all as more
particularly described in Section 2.2(e) hereof.
"Pledge Agreement" shall mean the Pledge Agreement of even date herewith by
the Company to the Bank, and any amendments or supplements thereof.
"Pledged Revenues" means and shall include the payments required to be made
by the Company under the Lease Agreement except payments to be made to the
Trustee for services rendered as Trustee under the Indenture and as Bond
Registrar and Paying Agent for the Bonds and except for expenses,
indemnification and other payments required to be made pursuant to Sections 7.8
and 7.9 of the Lease Agreement.
"Preliminary Fixed Rate" shall mean the rate of interest determined by the
Placement Agent prior to the Conversion Date to be that rate which, in the sole
judgment of the Placement Agent based on prevailing market conditions, is the
minimum fixed rate of interest necessary for the Placement Agent to arrange for
the sale at par of all of the Bonds for which the Placement Agent would be so
required to arrange for the sale on the Conversion Date pursuant to Section
2.2(e) hereof.
"Principal Office" of the Trustee or Bond Registrar shall mean the office
at which, at the time in question, its corporate trust business with respect to
the Bonds is principally conducted.
"Project" shall mean the financing, in whole or in part, of the
acquisition, construction, installation and equipping of an industrial facility
on approximately 49 acres of land located in McDuffie County, Georgia, to be
used as a warehouse and distribution center, and any other interests in real and
personal property, leasehold interest, easements, licenses, and rights in real
property and personal property as more fully set forth on Exhibit D hereto.
"Project Fund" shall mean the trust fund so designated which is established
pursuant to Section 4.1 hereof.
"Regular Record Date" shall mean:
(i) in respect of any Interest Payment Date during the Variable Rate
Period, the close of business on the Business Day immediately preceding
each such Interest Payment Date, and
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(ii) in respect of any Interest Payment Date during the Fixed Rate
Period, the fifteenth (15th) day (whether or not a Business Day) of the
calendar month immediately preceding each such Interest Payment Date.
"Reimbursement Agreement" shall mean the Letter of Credit and Reimbursement
Agreement of even date herewith by and between the Company and the Bank, as the
same may be amended from time to time and filed with the Trustee, and any
agreement of the Company with a Credit Facility Issuer setting forth the
obligations of the Company to such Credit Facility Issuer arising out of any
payments under a Credit Facility and which provides that it shall be deemed to
be a Reimbursement Agreement for the purpose of this Indenture.
"Remarketing Account" shall mean the account of that name established in
the Bond Purchase Fund pursuant to Section 3.2 hereof.
"Remarketing Agent" shall mean First Union National Bank, Charlotte, North
Carolina, and its successors as provided in Section 12.1 hereof.
"Remarketing Agreement" shall mean the Remarketing Agreement of even date
herewith between the Company and the Remarketing Agent and any amendments and
supplements thereof.
"Repayments Account" shall mean the account of that name established in the
Bond Fund pursuant to Section 5.2 hereof.
"Requisite Bondholders" shall mean the owners of more than two-thirds (2/3)
in aggregate principal amount of the Outstanding Bonds.
"Responsible Officer" when used with respect to the Trustee shall mean the
chairman or vice chairman of the board of directors, the chairman or vice-
chairman of the executive committee of the board of directors, the president,
any vice president, the secretary, any assistant secretary, the treasurer, any
assistant treasurer, the cashier, any assistant cashier, any trust officer, any
assistant trust officer, the controller, any assistant controller or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers of banking institutions with
trust powers and also shall mean, 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.
"Revenues" shall mean:
(i) all amounts payable to the Trustee with respect to the principal
or redemption price of, or interest on the Bonds (a) by the Company under
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the Lease Agreement, (b) by the Credit Facility Issuer under a Credit
Facility, and (c) by transfer from the Project Fund pursuant to Section 4.1
hereof, and
(ii) investment income with respect to any moneys held by the Trustee
in the Bond Fund.
"Security interest" or "security interests" refers to the security
interests created herein and shall have the meaning set forth in the U.C.C.
"S&P" shall mean Standard & Poor's, a division of McGraw-Hill Companies,
Inc., a New York corporation, its successors and assigns, and, if such
corporation shall be dissolved or liquidated or shall no longer perform the
functions of a securities rating agency, "S&P" shall be deemed to refer to any
other nationally recognized securities rating agency designated by the Trustee,
with the consent of the Company and the Credit Facility Issuer.
"Special Record Date" shall mean for purpose of payment of Defaulted
Interest on the Bonds, the date fixed by the Trustee pursuant to Section 2.8
hereof.
"State" shall mean the State of Georgia.
"Substitute Bank" shall mean a commercial bank or savings and loan
association which has issued a Substitute Letter of Credit.
"Substitute Letter of Credit" shall mean a letter of credit delivered to
the Trustee in accordance with Section 6.3(c) of this Indenture, issued by the
Bank or a Substitute Bank, replacing any existing Letter of Credit and with
substantially identical payment terms and conditions to the Letter of Credit
being replaced.
"Tender Agent" shall mean First Union National Bank, Richmond, Virginia and
its successors as provided in Section 12.2 hereof.
"Tender Agency Agreement" shall mean the Tender Agency Agreement of even
date herewith among the Company, the Trustee and the Tender Agent and any
amendments and supplements thereof.
"Tendered Bonds" shall mean those Bonds tendered or deemed tendered by the
owners for purchase pursuant to an Optional Tender Notice or on the Conversion
Date.
"Trustee" shall mean First Union National Bank, Richmond, Virginia, a
national banking association, and its successor in the trust hereunder.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing hereunder, the Credit
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Facility Trustee shall perform all of the duties of the Trustee under this
Indenture and all references to the Trustee shall mean the Credit Facility
Trustee.
"U.C.C." means the Uniform Commercial Code of the State of Georgia.
"Undelivered Bond" shall mean:
(i) any Bond for which an Optional Tender Notice has been given
pursuant to Section 2.3 hereof and which has not been delivered to the
Tender Agent on the date specified for purchase, and
(ii) any Bond which has not been delivered to the Trustee for
redemption or purchase on any mandatory redemption or purchase date or the
Conversion Date if, with respect to Bonds to be delivered on the Conversion
Date, the owner thereof has not provided the Trustee with the Optional
Retention Notice; provided that in either case the Trustee has on hand and
available on such date funds sufficient to purchase or redeem said Bond.
"Variable Rate" shall mean a variable interest rate established after the
Initial Rate Period as the rate of interest determined by the Remarketing Agent
on and as of each Determination Date as the minimum rate of interest necessary,
in the judgment of the Remarketing Agent, taking into account market conditions
prevailing on the Determination Date, to enable the Remarketing Agent to arrange
for the sale of all of the Bonds on the Determination Date in the secondary
market at a price equal to the principal amount thereof (plus interest accrued
to the date of settlement). If the Remarketing Agent fails to certify such rate,
the Variable Rate for the next succeeding Calculation Period or Periods until
thereafter certified by the Remarketing Agent shall remain the same as that most
recently established and certified by the Remarketing Agent until thereafter
certified by the Remarketing Agent or adjusted as set forth in the next
succeeding sentence. If the Remarketing Agent fails to certify such rate for the
Bonds for four consecutive Calculation Periods, the rate for the Bonds for each
Calculation Period thereafter (if none is certified by the Remarketing Agent) to
be determined by the Trustee shall be a rate equal to the 30 day LIBOR Rate.
"LIBOR Rate" shall mean, for any period, an interest rate per annum (based on a
360-day year) determined by the Trustee or its designee to be the rate or the
arithmetic mean of rates (rounded upward, if necessary, to the nearest one-
sixteenth (1/16) of one percentage point of the rate per annum) for deposits in
immediately available and freely transferable dollars of the United States of
America that appears on Telerate Screen, page 3747, as published daily by the
British Bankers Association Interest Settlement Rates (or another comparable
international financial data service satisfactory to the Trustee, or its
designee, in its discretion, if Telerate no longer publishes such rates) and
that is offered by first class banks in the London InterBank market to the
offices of the Trustee or its
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designee at 10:00 a.m. on the applicable Determination Date. If, for any reason,
the Variable Rate is not determined as described above or is held to be invalid
or unenforceable by a court of competent jurisdiction for any period, the
interest rate for each such period shall be equal to ten percent (10%) per annum
for the Bonds.
"Variable Rate Period" shall mean that period during which a Variable Rate
is in effect on the Bonds.
"Variable Rate Purchase Date" shall mean while the Bonds bear interest at
the Variable Rate, any Business Day (prior to and upon the effective date of the
Fixed Interest Rate) on which the Bonds may be tendered for purchase at the
option of the owner thereof in accordance with Section 2.3 hereof.
SECTION 1.2 RULES OF CONSTRUCTION.
(a) Words of the masculine gender shall be deemed and construed to include
correlative words of the feminine and neuter genders. Unless the context shall
otherwise indicate, the words "Bondowner", "Bondholder", "Bondholder of Record"
and "person" shall include the plural as well as the singular number; the word
"person" shall include any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof, and the word
"Bondholder" when used herein with respect to the Bonds shall mean the
registered owner of any of the Bonds.
(b) Words importing the redemption or calling for redemption of the Bonds
shall not be deemed to refer to or connote payment of Bonds at their stated
maturity.
(c) The Table of Contents, captions and headings in this Indenture are for
convenience only and in no way limit the scope or intent of any provision or
section of this Indenture.
(d) All references herein to particular articles or sections are references
to articles or sections of this Indenture unless some other reference is
indicated.
(e) All references herein to time shall be prevailing Eastern time.
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ARTICLE II
THE BONDS
SECTION 2.1 AMOUNT, TERMS, AND ISSUANCE OF THE BONDS.
(a) The Bonds shall be limited to $10,000,000 in aggregate principal
amount and shall contain substantially the terms recited in the form of Bond in
Exhibit C and as set forth in this Indenture. No Bonds may be issued under this
Indenture except in accordance with this Article II. No additional bonds shall
be issued under this Indenture.
(b) The Issuer may cause a copy of the text of the opinion of Bond
Counsel delivered in connection with the issuance of the Bonds to be printed on
or attached to any of the Bonds. The Bonds may bear such endorsement or legend
satisfactory to the Trustee as may be required to conform to usage or law with
respect thereto, including the imposition of CUSIP or other identifying numbers.
(c) Upon satisfaction of the conditions set forth in Section 2.13
hereof, the Issuer shall issue the Bonds, and the Trustee shall, at the Issuer's
request, authenticate the Bonds and deliver them as specified in the request.
SECTION 2.2 DESIGNATION, DENOMINATIONS, MATURITY DATE AND INTEREST RATES
OF THE BONDS.
(a) DESIGNATION, DENOMINATIONS, MATURITY DATE. The Bonds shall be
designated "$10,000,000 Development Authority of McDuffie County Taxable
Industrial Development Revenue Bonds (Advance Stores Company, Incorporated
Project), Series 1997." The Bonds shall be issuable as fully registered Bonds
in the denominations of $100,000 or any integral multiple of $5,000 in excess
thereof, provided that if less than One Hundred Thousand Dollars ($100,000)
principal amount of Bonds is outstanding one Bond shall be issued in such
smaller denomination; and provided further, that if as a result of redemption
pursuant to Article VII hereof the unredeemed portion of a redeemed Bond shall
be less than $100,000, a replacement Bond in the amount of such unredeemed
portion may be issued. All Bonds shall bear the date of their authentication,
shall bear interest from the most recent date to which interest has been paid or
duly provided for, or, if authenticated on an Interest Payment Date, from that
date, or, if no interest has been paid or duly provided for, from the date of
authentication, and shall mature, subject to prior redemption as provided in
Article VII hereof, on November 1, 2002. The Bonds shall be numbered from "1"
consecutively upwards prefixed by the letter "R".
(b) INTEREST RATES. The Bonds shall bear interest at the applicable
rate provided below. On each Interest Payment Date, interest accrued through
the day immediately preceding such Interest Payment Date shall be payable by the
Company.
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While the Bonds bear interest at a Variable Rate interest on the Bonds shall be
computed on the basis of a year of three hundred sixty-five (365) or three
hundred sixty-six (366) days, as applicable, for the number of days actually
elapsed. From and including the Conversion Date, and thereafter, interest on the
Bonds shall be computed on the basis of a three hundred sixty (360) day year for
the number of days actually elapsed.
(c) INITIAL INTEREST RATE. For the Initial Rate Period, the Bonds
shall bear interest at the Initial Interest Rate.
(d) VARIABLE RATE. Following the Initial Rate Period and until the
Conversion Date, the Bonds shall bear interest at the Variable Rate. During the
Variable Rate Period, the Remarketing Agent shall determine the interest rate
for the Bonds on each Determination Date. The Remarketing Agent shall give
telephonic notice on the Determination Date to the Trustee and the Company of
the interest rate to be in effect for the following Calculation Period. The
determination of the Variable Rate by the Remarketing Agent shall be conclusive
and binding upon the Bondholders, the Issuer, the Company, the Trustee, the
Tender Agent and the Remarketing Agent. Any owner may request the Variable Rate
in effect from time to time with respect to the Bonds from the Trustee or the
Remarketing Agent.
(e) FIXED RATE: CONVERSION TO FIXED RATE.
(1) The Company has a one-time option to convert the interest
rate payable on the Bonds from the Variable Rate to the Fixed Rate
effective on an Interest Payment Date following compliance by the
Company with the provisions of this Section 2.2(e). The Fixed Rate
shall be established after delivery by the Company to the Issuer, the
Credit Facility Trustee, the Trustee, the Credit Facility Issuer, the
Tender Agent and the Remarketing Agent of:
(A) a notice to the effect that the interest rate on the
Bonds shall become fixed on the Conversion Date specified in such
notice, which notice shall designate the Placement Agent and
shall state that a Credit Facility will not be in effect after
the Conversion Date, and
(B) an opinion of Bond Counsel addressed to the Credit
Facility Trustee, the Trustee and the Issuer that the
establishment of a Fixed Rate is authorized and permitted under
this Indenture. Such notice and opinion must be delivered not
less than thirty (30) nor more than sixty (60) days prior to the
Conversion Date.
(2) At least twenty-five (25) days prior to the proposed
Conversion Date, the Placement Agent shall determine the Preliminary
Fixed Rate as of
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such date and shall notify the Credit Facility Trustee, the Trustee
and the Company of the Preliminary Fixed Rate by telephone,
telecopier, telex, telegram or other telecommunication device and upon
request, shall confirm such notice in writing.
(3) Upon receipt of notice of the Preliminary Fixed Rate, the
Trustee shall, as soon as practicable (but in no event more than two
(2) Business Days thereafter), mail, in the name of the Issuer, a
notice to the owners of the Bonds which shall be in the form of the
Notice of Conversion attached hereto as Exhibit A and which shall:
(A) state that the interest rate on the Bonds is being
converted to the Fixed Rate effective on the Conversion Date and
specify the Conversion Date,
(B) state that after the tenth (10th) day preceding the
Conversion Date, the owners shall not be entitled to deliver
Bonds for purchase pursuant to Section 2.3 hereof,
(C) state the Preliminary Fixed Rate,
(D) state that depending on market conditions, the Fixed
Rate may be higher but in no event lower than the Preliminary
Fixed Rate,
(E) state that payment of the Bonds will not be supported by
a Credit Facility after the Conversion Date,
(F) state that the rating on the Bonds (if any) may be
reduced or withdrawn on the Conversion Date,
(G) state that all owners who desire to retain such Bonds
must deliver an Optional Retention Notice to the Trustee by the
tenth (10th) day preceding the Conversion Date (or the next
succeeding Business Day if such date is not a Business Day) or be
deemed to have tendered their Bonds for purchase and must deliver
the Bonds to the Trustee on or before the Conversion Date to be
stamped with the legend contained in Section 2.2(e)(8) hereof,
(H) state that the delivery by the Company to the Trustee of
a letter from Bond Counsel dated as of the Conversion Date
confirming the opinion received pursuant to the notice is a
condition precedent to a conversion to a Fixed Rate, and
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(I) state that in order to receive payment of the purchase
price of any Bond which is deemed to have been tendered, the
owner of such Bond must deliver such Bond to a specified office
of the Tender Agent before 10:00 a.m. (prevailing Eastern time)
on the Conversion Date.
(4) The delivery by the Company to the Trustee of a letter from
Bond Counsel confirming the opinion required prior to the notification
described above on such Conversion Date is a condition precedent to
any such conversion. In the event that the Company fails to deliver to
the Trustee the letter of Bond Counsel referred to in the preceding
sentence, such conversion shall not take effect, and the Bonds shall
continue to bear interest at the Variable Rate.
(5) Any owner of Bonds to be converted to a Fixed Rate not
providing the Trustee with the Optional Retention Notice shall be
deemed to have tendered its Bonds to the Tender Agent. Said owner
shall not be entitled to any payment (including any interest to accrue
subsequently to the Conversion Date) other than the purchase price for
such Bonds which shall be equal to the unpaid principal amount of such
Bonds, and any such Bonds shall no longer be entitled to the benefits
of this Indenture, except for the purpose of payment of the purchase
price therefor and interest payable on the Conversion Date. Payment of
the purchase price of any such Bonds shall be made only upon the
presentment and surrender of such Bonds to the Tender Agent. Upon
request, the Trustee shall provide the Tender Agent with the address
set forth on the Bond Register for such owner. The Trustee shall
notify the Bond Registrar of all Bonds with respect to which the
Trustee has not received Optional Retention Notices, which Bonds shall
be deemed to be tendered for purchase on the Conversion Date. In the
case of any Bond deemed tendered, the Issuer shall cause to be
executed, and the Trustee shall authenticate and deliver to the new
owner as provided in Section 3.1 hereof, a new Bond of like date and
tenor in lieu of and in substitution for such Bond deemed to be
tendered.
(6) On the Conversion Date, the Fixed Rate shall be established
as follows:
(A) if any of the Bonds have been tendered or deemed
tendered for purchase, then:
(i) if the Placement Agent shall have arranged for the
sale of any or all Tendered Bonds at a price equal to the
principal amount thereof, the Fixed Rate shall be equal to
the
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interest rate or rates at which such Bonds were sold by the
Placement Agent, provided that all Tendered Bonds shall be
sold at par and at a rate greater than or equal to the
Preliminary Fixed Rate; or
(ii) if the Placement Agent shall have arranged for the
sale of none of the Tendered Bonds, the Fixed Rate shall be
equal to the Preliminary Fixed Rate; or
(B) if all owners of the Bonds elect to retain such Bonds,
the Fixed Rate shall be equal to the Preliminary Fixed Rate.
(7) On the Conversion Date, the Placement Agent shall give
written notice to the Trustee of the Fixed Rate and the Trustee shall
give notice of the same as soon as practicable (but in no event more
than two (2) Business Days thereafter) to the owners of Bonds being
converted to bear the Fixed Rate.
(8) On or before the Conversion Date, all Bonds shall be
presented to the Trustee for stamping thereon of the legend:
"The interest rate on this Bond has been fixed at ____% per annum
in accordance with the provisions of this Bond and Section 2.2(e)
of the Indenture." And, if applicable: "There is not a Credit
Facility in effect."
SECTION 2.3 OPTIONAL TENDER PROVISIONS OF THE BONDS.
(a) While the Bonds bear interest at the Variable Rate, any Bond or portion
thereof in an authorized denomination (other than a Bond registered in the name
of the Company) shall be purchased on the demand of the owner thereof, on any
Business Day at a purchase price equal to one hundred percent (100%) of the
principal amount thereof plus interest accrued to the date of purchase, if the
owner of such Bond delivers to the Tender Agent at its address filed with the
Trustee an Optional Tender Notice at least seven (7) days prior to the Variable
Rate Purchase Date specified in such Optional Tender Notice.
(b) Any Optional Tender Notice delivered pursuant to the preceding
subsection shall automatically constitute: (1) an irrevocable offer to sell such
Bond on the Variable Rate Purchase Date at a price equal to one hundred percent
(100%) of the principal amount of such Bond plus interest accrued to the
Variable Rate Purchase Date; and (2) an irrevocable authorization and
instruction to the Bond Registrar to effect transfer of such
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Bond to the purchaser thereof on the Variable Rate Purchase Date. No purchase of
Bonds pursuant to the provisions of this Section 2.3 shall be deemed a
redemption thereof.
(c) Any owner who delivers an Optional Tender Notice pursuant to this
Section 2.3 shall deliver such Bond to the Tender Agent, at its address filed
with the Trustee, not less than five (5) days prior to the Variable Rate
Purchase Date specified in the aforesaid Optional Tender Notice; provided,
however, that any Bond owner which is an investment company registered under the
Investment Company Act of 1940 may deliver Bonds owned by it to the Tender Agent
at its address filed with the Trustee, at or prior to 10:00 a.m. on the Variable
Rate Purchase Date. All Bonds delivered to the Tender Agent pursuant to this
Section 2.3 must be duly endorsed for transfer in blank in form satisfactory to
the Trustee.
(d) If a Bondholder who gives the Optional Tender Notice shall fail to
deliver the Bond or Bonds identified in the Optional Tender Notice to the Tender
Agent at or prior to 10:00 a.m. on the Variable Rate Purchase Date, such
Undelivered Bond shall be purchased and shall cease to accrue interest on such
Variable Rate Purchase Date and the owner thereof shall thereafter be entitled
only to payment of the purchase price therefor and not to the benefits of this
Indenture, and the Issuer, to the extent permitted by law, shall execute and the
Trustee or the Authenticating Agent shall authenticate and deliver a substitute
Bond or Bonds in lieu of the Undelivered Bond and the Bond Registrar shall
register such Bond in the name of the purchaser or purchasers thereof pursuant
to Section 2.5 hereof. The Tender Agent shall notify the Trustee and the Bond
Registrar of any Undelivered Bonds. The Trustee shall (1) notify the Remarketing
Agent of such Undelivered Bonds and (2) place a stop transfer against such
Undelivered Bonds until the Undelivered Bonds are properly delivered to the
Tender Agent. Payment of the purchase price of any such Undelivered Bonds shall
be made only upon the presentment and surrender of such Bonds to the Tender
Agent. Upon notice of such delivery, the Bond Registrar shall make any necessary
adjustment to the Bond Register.
(e) Notwithstanding anything to the contrary contained herein, the rights
of the owners to tender Bonds pursuant to this Section 2.3 shall cease
immediately and without further notice from and including the date payment of
the Bonds is accelerated following an Event of Default pursuant to Article IX
hereof.
SECTION 2.4 REGISTERED BONDS REQUIRED: BOND REGISTRAR AND BOND REGISTER.
(a) All Bonds shall be issued in fully registered form. The Bonds shall be
registered upon original issuance and upon subsequent transfer or exchange as
provided in this Indenture.
(b) The Issuer shall designate one or more persons to act as "Bond
Registrar" for the Bonds, provided that the Bond Registrar appointed for the
Bonds shall be either the Trustee or a person which would meet the requirements
for qualification as a successor
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trustee imposed by Section 10.15 hereof. The Issuer hereby appoints First Union
National Bank as its Bond Registrar in respect of the Bonds. Any person other
than the Trustee undertaking to act as Bond Registrar shall first execute a
written agreement, in form satisfactory to the Trustee, to perform the duties of
a Bond Registrar under this Indenture, which agreement shall be filed with the
Trustee and the Tender Agent.
(c) The Bond Registrar shall act as registrar and transfer agent for the
Bonds. There shall be kept at an office of the Bond Registrar a register (herein
sometimes referred to as the "Bond Register") in which, subject to such
reasonable regulations as the Issuer, the Trustee or the Bond Registrar may
prescribe, there shall be provisions for the registration of the Bonds and for
the registration of transfers of the Bonds. The Issuer shall cause the Bond
Registrar to designate, by a written notification to the Trustee, a specific
office location (which may be changed from time to time, upon similar
notification) at which the Bond Register is kept. In the absence of a specific
designation by the Bond Registrar, the corporate trust office of the Trustee in
Richmond, Virginia, shall be deemed such office in respect of the Bonds for
which the Trustee is acting as Bond Registrar.
SECTION 2.5 TRANSFER AND EXCHANGE.
(a) Upon surrender for transfer of any Bond at the office of the Bond
Registrar, the Issuer shall execute and the Trustee or its Authenticating Agent
shall authenticate and deliver in the name of the transferee or transferees, one
or more new fully registered Bonds of authorized denomination for the aggregate
principal amount which the new owner is entitled to receive; provided that if
moneys for the purchase of such Bond have been provided pursuant to a draw under
the Credit Facility, such Bond shall not be transferable to any one other than
the Company or its assignee or pledgee. Except for transfers in connection with
the purchase of Bonds pursuant to Section 2.3 hereof and the remarketing thereof
pursuant to Article III, which shall be effected at the corporate trust office
of the Tender Agent in Richmond, Virginia, Bonds shall be surrendered for
transfer at the corporate trust office of the Trustee in Richmond, Virginia.
Also, the Issuer shall execute and the Trustee or its Authenticating Agent shall
authenticate and deliver Bonds in lieu of Undelivered Bonds.
(b) Bonds may be exchanged for other Bonds of any other authorized
denomination, of a like aggregate principal amount, upon surrender of the Bonds
to be exchanged at the principal corporate trust office of the Bond Registrar or
Trustee; provided, however, that in connection with the purchase of Bonds
tendered for purchase and the remarketing thereof pursuant to Article III
hereof, Bonds may be exchanged at the principal office of the Tender Agent, or
any office of any agent designated by the Trustee. Whenever any Bonds are so
surrendered for exchange, the Issuer shall execute, and the Trustee or its
Authenticating Agent shall authenticate and deliver, the Bonds which the
Bondholder making the exchange is entitled to receive.
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(c) All Bonds presented for transfer, exchange, redemption or payment (if
so required by the Issuer, the Bond Registrar or the Trustee) shall be
accompanied by a written instrument or instruments of transfer or authorization
for exchange, in form satisfactory to the Bond Registrar, which may include a
signature guarantee, duly executed by the owner or by his attorney duly
authorized in writing.
(d) No service charge shall be made to a Bondholder for any exchange or
transfer of Bonds, but the Issuer or the Bond Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto.
(e) Except in connection with the purchase of Bonds pursuant to Section 2.3
hereof and the remarketing thereof pursuant to Article III hereof, neither the
Issuer nor any Bond Registrar on behalf of the Issuer shall be required to
issue, transfer or exchange any Bond selected for redemption in whole or in
part.
(f) New Bonds delivered upon transfer or exchange shall be valid
obligations of the Issuer, evidencing the same debt as the Bond surrendered,
shall be secured by this Indenture and shall be entitled to all of the security
and benefits hereof to the same extent as the Bonds surrendered.
SECTION 2.6 EXECUTION.
(a) The Bonds shall be executed by the manual or facsimile signature of the
Chairman or Vice Chairman of the Issuer, the seal of the Issuer shall be
affixed, imprinted, lithographed or reproduced thereon and the same shall be
attested by the manual or facsimile signature of the Secretary or Assistant
Secretary of the Issuer.
(b) Bonds executed as above provided may be issued and shall, upon request
of the Issuer, be authenticated by the Trustee or the Authenticating Agent,
notwithstanding that any officer signing such Bonds or whose facsimile signature
appears thereon shall have ceased to hold office at the time of issuance or
authentication or shall not have held office at the date of the Bond.
SECTION 2.7 AUTHENTICATION: AUTHENTICATING AGENT.
(a) No Bond shall be valid for any purpose until the Trustee's Certificate
of Authentication thereon shall have been duly executed as provided in this
Indenture, and such authentication shall be conclusive proof that such Bond has
been duly authenticated and delivered under this Indenture and that the owner
thereof is entitled to the benefit of the trust hereby created subject to the
provisions of Section 2.3(d) and Article XIV hereof.
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(b) If the Bond Registrar is other than the Trustee, the Trustee may
appoint the Bond Registrar as an Authenticating Agent with the power to act on
the Trustee's behalf and subject to its direction in the authentication and
delivery of Bonds in connection with transfers and exchanges under Section 2.5
hereof, and the authentication and delivery of Bonds by an Authenticating Agent
pursuant to this Section shall, for all purposes of this Indenture, be deemed to
be the authentication and delivery "by the Trustee". The Trustee shall,
however, itself authenticate all Bonds upon their initial issuance. The
Authenticating Agent may authenticate Bonds in substitution for Undelivered
Bonds. The Authenticating Agent shall be entitled to reasonable compensation
from the Company for its services.
(c) Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate trust business
of any Authenticating Agent shall be the successor of the Authenticating Agent
hereunder, if such successor corporation is otherwise eligible as a Bond
Registrar under Section 2.4 hereof, without the execution or filing of any
further document on the part of the parties hereto or the Authenticating Agent
or such successor corporation.
(d) Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee, the Issuer, the Remarketing Agent and the
Company. The Trustee may at any time terminate the agency of any Authenticating
Agent by giving written notice of termination to such Authenticating Agent, the
Issuer and the Company. Upon receiving such a notice of resignation or upon such
a termination, or in case at any time any Authenticating Agent shall cease to be
eligible under this Section, the Trustee may promptly appoint a successor
Authenticating Agent, shall give written notice of any such appointment to the
Issuer and the Company, and shall mail notice of any such appointment to all
owners of Bonds as the names and addresses of such owners appear on the Bond
Register.
SECTION 2.8 PAYMENT OF PRINCIPAL AND INTEREST; INTEREST RIGHTS
PRESERVED.
(a) The principal and redemption price of any Bond shall be payable, upon
surrender of such Bond, at the office of the Trustee or other paying agent
appointed pursuant to this Indenture. Interest on each Interest Payment Date
shall be payable by check, mailed on the Interest Payment Date to the address of
the person entitled thereto on the Regular Record Date or, if applicable, the
Special Record Date, as such address shall appear in the Bond Register. While
the Bonds bear interest at a Variable Rate, interest shall also be payable by
wire transfer to the account of a member bank of the Federal Reserve System of
any owner of Bonds in the aggregate principal amount of $1,000,000 or more at
the written request (identifying such account by number) of such owner received
by the Trustee at least ten (10) days prior to the Regular Record Date or
Special Record Date.
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(b) Interest on any Bond which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the person in whose
name that Bond is registered at the close of business on the Regular Record Date
for such interest.
(c) Any interest on any Bond which is payable, and is not punctually paid
or duly provided for, on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the owner of such Bonds on the
relevant Regular Record Date solely by virtue of such registered owner having
been such record owner on the Regular Record Date, and such Defaulted Interest
shall be paid, pursuant to Section 9.11 hereof, to the person in whose name the
Bond is registered at the close of business on a Special Record Date to be fixed
by the Trustee, such date to be not more than fifteen (15) nor less than ten
(10) days prior to the date of proposed payment. The Trustee shall cause notice
of the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first class postage prepaid, to each Bondholder, at its
address as it appears in the Bond Register, not less than ten (10) days prior to
such Special Record Date.
(d) Subject to the foregoing provisions of this Section 2.8, each Bond
delivered under this Indenture, upon transfer of or exchange for or in lieu of
any other Bond shall carry the rights to interest accrued and unpaid, and to
accrue, as such other Bond.
All payments of principal and redemption price of and interest on the
Bonds, whether upon redemption, acceleration, maturity or otherwise, shall be
made first, pursuant to draws under the Credit Facility in accordance with its
terms on the dates when due; second, from Available Moneys on deposit with the
Trustee and not held in trust for the benefit of the owners of the Bonds
pursuant to the provisions of Article XIV hereof, and then from other collected
funds available to the Trustee hereunder for such payments.
SECTION 2.9 PERSONS DEEMED OWNERS. The Issuer, the Trustee, the Credit
Facility Trustee, the Bond Registrar and the Authenticating Agent may deem and
treat the person in whose name any Bond is registered as the absolute owner
thereof (whether or not such Bond shall be overdue and notwithstanding any
notation of ownership or other writing thereon made by anyone other than the
Issuer, the Trustee, the Credit Facility Trustee, the Bond Registrar or the
Authenticating Agent) for the purpose of receiving payment of or on account of
the principal of (and premium, if any, on), and (subject to Section 2.8 hereof)
interest on such Bond, and for all other purposes, and neither the Issuer, the
Trustee, the Credit Facility Trustee, the Bond Registrar, nor the Authenticating
Agent shall be affected by any notice to the contrary. All such payments so made
to any such registered owner, or upon his order, shall be valid and, to the
extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Bond.
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SECTION 2.10 MUTILATED, DESTROYED, LOST, STOLEN OR UNDELIVERED BONDS.
(a) If any Bond shall become mutilated, the Issuer shall execute, and the
Trustee or its Authenticating Agent shall thereupon authenticate and deliver, a
new Bond of like tenor and denomination in exchange and substitution for the
Bond so mutilated, but only upon surrender to the Trustee of such mutilated Bond
for cancellation, and the Issuer and the Trustee may require reasonable
indemnity therefor. If any Bond shall be reported lost, stolen or destroyed,
evidence as to the loss, theft or destruction thereof shall be submitted to the
Issuer and the Trustee; and if such evidence shall be satisfactory to both and
indemnity satisfactory to both shall be given, the Issuer shall execute, and
thereupon the Trustee or its Authenticating Agent shall authenticate and
deliver, a new Bond of like tenor and denomination. The cost of providing any
substitute Bond under the provisions of this Section shall be borne by the
Bondholder for whose benefit such substitute Bond is provided. If any such
mutilated, lost, stolen or destroyed Bond shall have matured or be about to
mature, the Issuer may, with the consent of the Trustee, pay to the owner the
principal amount of such Bond upon the maturity thereof and the compliance with
the aforesaid conditions by such owner, without the issuance of a substitute
Bond therefor.
(b) The Issuer shall execute and the Trustee or its Authenticating Agent
shall authenticate and deliver a substitute Bond in lieu of each Undelivered
Bond.
(c) Every substituted Bond issued pursuant to this Section 2.10 shall
constitute an additional contractual obligation of the Issuer, whether or not
the Bond alleged to have been destroyed, lost or stolen shall be at any time
enforceable by anyone, and shall be entitled to all of the benefits of this
Indenture equally and proportionately with any and all other Bonds duly issued
hereunder.
(d) All Bonds shall be held and owned upon the express condition that the
foregoing provisions are, to the extent permitted by law, exclusive with respect
to the replacement or payment of mutilated, destroyed, lost, stolen or
Undelivered Bonds and shall preclude any and all other rights or remedies.
SECTION 2.11 TEMPORARY BONDS. Pending preparation of definitive Bonds, or
by agreement with the purchasers of all Bonds, the Issuer may issue, and, upon
its request, the Trustee shall authenticate, in lieu of definitive Bonds one or
more temporary printed or typewritten Bonds of substantially the tenor recited
above in any denomination authorized under Section 2.2 hereof. Upon request of
the Issuer, the Trustee shall authenticate definitive Bonds in exchange for and
upon surrender of an equal principal amount of temporary Bonds. Until so
exchanged, temporary Bonds shall have the same rights, remedies and security
hereunder as definitive Bonds.
SECTION 2.12 CANCELLATION OF SURRENDERED BONDS. Bonds surrendered for
payment, redemption, transfer or exchange and Bonds surrendered to the Trustee
by the
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Issuer or by the Company for cancellation shall be canceled by the Trustee and a
certificate evidencing such cancellation shall be furnished by the Trustee to
the Issuer and the Company. Bonds purchased pursuant to Section 2.3 hereof shall
not be surrendered Bonds and, unless otherwise specifically provided in this
Indenture, shall be Outstanding Bonds.
SECTION 2.13 CONDITIONS OF ISSUANCE.
(a) Prior to or simultaneously with the authentication and delivery of the
Series 1997 Bonds by the Trustee, the Trustee shall have received notice that
the conditions for the issuance of the Letter of Credit as set forth in Article
VII of the Reimbursement Agreement have been satisfied and there shall be filed
with the Trustee such documents, certificates and opinions as Trustee (or in the
case of the Letter of Credit, the Credit Facility Trustee) may require,
including, the following:
(1) A copy, certified by the Secretary of the Issuer, of the
resolution or resolutions of the Issuer authorizing the issuance of the
Bonds, awarding the Bonds and directing the authentication and delivery of
the Bonds to or upon the order of the purchaser(s) therein named upon
payment of the purchase price therein set forth.
(2) Executed counterparts of this Indenture, the Lease Agreement, the
Letter of Credit and Reimbursement Agreement, the Tender Agency Agreement
and the Remarketing Agreement.
(3) An opinion of Counsel for the Issuer, to the effect that the
execution and delivery of the Lease Agreement and this Indenture have been
duly authorized by the Issuer, that the Lease Agreement and this Indenture
are in substantially the forms so authorized and have been duly executed by
the Issuer and that, assuming proper authorization and execution of this
Indenture by the Trustee and the Credit Facility Trustee and of the Lease
Agreement by the Company, the Lease Agreement and this Indenture are the
valid and binding agreements of the Issuer enforceable in accordance with
their respective terms, subject to the qualification that enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting enforcement of creditors' rights
generally and by the exercise of judicial discretion in accordance with
general equitable principles.
(4) An opinion of Counsel to the Company to the effect that the
execution and delivery of the Lease Agreement, the Reimbursement Agreement,
the Remarketing Agreement and the Tender Agency Agreement have been duly
authorized by the Company, that the Lease Agreement, the Reimbursement
Agreement, the Remarketing Agreement and the Tender Agency Agreement have
been duly executed and delivered by the Company, and that the Lease
Agreement,
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the Reimbursement Agreement, the Remarketing Agreement and the Tender
Agency Agreement, assuming due authorization, execution and delivery
thereof by the other parties thereto, if any, are valid, binding and
enforceable against the Company in accordance with their terms, subject to
the qualification that enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and by the exercise of judicial
discretion in accordance with general equitable principles.
(5) An opinion of Bond Counsel to the Issuer, to the effect that the
issuance of the Bonds has been duly and validly authorized by the Issuer,
that the Bonds are valid and binding agreements of the Issuer enforceable
in accordance with their terms, subject to the qualification that
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and by the exercise of judicial discretion in
accordance with general equitable principles.
(6) A written request and authorization of the Issuer addressed to the
Trustee directing the Trustee to authenticate and deliver the Series 1997
Bonds.
(7) Such other documents as the Trustee may reasonably require.
(b) When the documents mentioned in paragraphs (1) through (7) of
subsection (a) of this Section shall have been filed with the Trustee
and/or the Credit Facility Trustee and when the Bonds shall have been
executed as required by this Indenture, the Trustee shall authenticate the
Bonds and deliver them to or upon the order of the purchaser(s) named in
the resolution mentioned in paragraph (1) thereof, but only upon payment to
the Trustee for the account of the Issuer of the purchase price of the
Bonds. The Trustee and the Credit Facility Trustee shall be entitled to
rely conclusively upon such resolution or resolutions, or document approved
thereby, as to the name of the purchasers and the amount of such purchase
price.
(c) Simultaneously with the delivery of the Bonds, the Trustee shall apply
the proceeds of the Bonds in accordance with Article IV of this Indenture.
SECTION 2.14 BOOK ENTRY. The Issuer shall enter into an agreement in
substantially the form attached hereto as Exhibit B (the "Book Entry Agreement")
with the Paying Agent and DTC, or any successor thereto, or other securities
depository, and make such other provision and perform such further acts as are
necessary or appropriate to provide for the distribution of the Bonds in book-
entry form.
Neither the Issuer, the Company, the Trustee, the Credit Facility Trustee,
nor the Paying Agent will have any responsibility or obligations to the DTC
Participants, DTC
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Indirect Participants (as each is defined in the Book Entry Agreement contained
as Exhibit B hereto) or the beneficial owners with respect to (i) the accuracy
of any records maintained by DTC or any DTC Participant or DTC Indirect
Participant; (ii) the payment by DTC or any DTC Participant or DTC Indirect
Participant of any amount due to any beneficial owner in respect of the
principal amount or redemption price of or interest on the Bonds; (iii) the
delivery by DTC or any DTC Participant or DTC Indirect Participant of any notice
to any beneficial owner that is required or permitted to be given to bondholders
under the terms of the Indenture; (iv) the selection of the beneficial owners to
receive payment in the event of any partial redemption of the Bonds; or (v) any
consent given or other action taken by DTC as registered owner.
The Trustee shall issue Bonds directly to beneficial owners of Bonds other
than DTC, or its nominee, in the event that:
(1) DTC determines not to continue to act as securities depository for
the Bonds; or
(2) The Trustee has advised DTC at the request of the Company of the
Company's determination that DTC is incapable of discharging its duties; or
(3) The Issuer determines that it is in the best interest of the
Company not to continue the book-entry system (and the Company provides
written approval of such determination) or that the interests of the
beneficial owners of the Bonds might be adversely affected if the book-
entry system is continued.
Upon occurrence of the events described in (1) or (2) above, the Company
shall attempt to locate another qualified securities depository.
In the event the Issuer makes the determination noted in (3) above, or if
the Company fails to locate another qualified securities depository to replace
DTC upon occurrence of the events described in (1) or (2) above, the Trustee
shall mail a notice to DTC for distribution to the beneficial owners of the
Bonds stating that DTC will no longer serve as securities depository, whether a
new securities depository will or can be appointed, the procedures for obtaining
such Bonds and the provisions of this Indenture which govern the Bonds
including, but not limited to, provisions regarding authorized denominations,
transfer and exchange, principal and interest payment and other related matters.
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ARTICLE III
PURCHASE AND REMARKETING OF TENDERED BONDS
SECTION 3.1 REMARKETING OF TENDERED BONDS.
(a) Not later than the close of business on the date the Tender Agent
receives an Optional Tender Notice, the Tender Agent shall notify the
Remarketing Agent, the Trustee and the Company by telephone, telex or
telecopier, confirmed in writing if requested, specifying the Variable Rate
Purchase Date and the aggregate principal amount of Bonds to be purchased on
such Variable Rate Purchase Date.
(b) Not later than the close of business on the ninth (9th) day prior to
the Conversion Date, the Trustee shall notify the Placement Agent and the
Company by telephone, telex or telecopier, confirmed in writing if requested,
specifying the aggregate principal amount of Bonds tendered or deemed tendered
for mandatory purchase on the Conversion Date.
(c) Except as provided in subsection (d) below and Section 3.5 hereof, upon
receipt by the Remarketing Agent of notice from the Tender Agent pursuant to
Section 3.1(a) hereof and by the Placement Agent of notice from the Trustee
pursuant to Section 3.1(b) hereof, the Remarketing Agent or the Placement Agent,
as the case may be, shall use its best efforts to arrange for the sale, at par
plus accrued interest, if any, of such Bonds tendered or deemed tendered for
settlement on the Variable Rate Purchase Date or the Conversion Date,
respectively. At or before 3:00 p.m. on the Business Day immediately preceding
the Variable Rate Purchase Date or the Conversion Date, the Remarketing Agent or
the Placement Agent, respectively, shall give notice by telephone, telecopier or
telex, promptly confirmed in writing if requested, to the Trustee and the Tender
Agent specifying the principal amount of such Bonds, if any, to be placed by it
and to the Trustee the names, addresses and social security numbers or other tax
identification numbers of the proposed purchasers thereof.
(d) Notwithstanding the provisions of subsection (c) above, any Bond
purchased pursuant to the terms of this Indenture from the date notice of
redemption or conversion is given shall not be remarketed except to a buyer who
agrees at the time of such purchase to tender such Bond for redemption or
purchase on the redemption or purchase date.
(e) During the Variable Rate Period, the Remarketing Agent shall continue
to use its best efforts to arrange for the sale, at the best price available,
but not less than the principal amount thereof plus accrued interest, of any
Bonds purchased with moneys advanced under the Credit Facility pursuant to
Section 3.2(a)(2) hereof, provided that Bonds purchased with moneys advanced
under the Credit Facility shall not be released
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for delivery to the purchasers unless the Credit Facility has been reinstated by
the amount drawn thereunder to pay the purchase price for such Bonds and the
Credit Facility Trustee has received the executed reinstatement certificate
required to be delivered by such Credit Facility Issuer. The Credit Facility
Trustee agrees to advise the Trustee and the Tender Agent immediately upon
receipt of such reinstatement certificate.
SECTION 3.2 PURCHASE OF BONDS DELIVERED TO THE TENDER AGENT.
(a) There is hereby established with the Tender Agent, as agent for the
Trustee, a "Development Authority of McDuffie County Taxable Industrial
Development Revenue Bonds (Advance Stores Company, Incorporated Project), Series
1997 Bond Purchase Fund" out of which the purchase price for Bonds tendered for
purchase on a Variable Rate Purchase Date, the Conversion Date or on such other
date on which Bonds are remarketed shall be paid. There are hereby established
in the Bond Purchase Fund two separate and segregated accounts, to be designated
the "Remarketing Account" and the "Bank Account". Funds received from purchasers
of Tendered Bonds (other than the Company or the Credit Facility Issuer) shall
be deposited by the Remarketing Agent or the Placement Agent, as the case may
be, in the Remarketing Account. At or prior to 10:00 a.m. on each Variable Rate
Purchase Date or the Conversion Date, the Remarketing Agent or the Placement
Agent, as the case may be, shall deliver to the Tender Agent for deposit in the
Remarketing Account of the Bond Purchase Fund immediately available funds,
payable to the order of the Tender Agent, in an amount equal to the purchase
price of the Bonds to be delivered to the Tender Agent that have been remarketed
by the Remarketing Agent or placed by the Placement Agent as specified in the
notice delivered pursuant to Section 3.1(c) hereof. Funds, if any, drawn by the
Credit Facility Trustee under the Credit Facility pursuant to Section 3.2(b)
below in an amount equal to the aggregate purchase price of Bonds tendered for
purchase less the amount available in the Remarketing Account shall, at the
direction of the Credit Facility Trustee, be delivered by the Credit Facility
Issuer to the Tender Agent for deposit in the Bank Account of the Bond Purchase
Fund. On each Variable Rate Purchase Date and on the Conversion Date, the
Tender Agent in coordination with the Trustee shall effect the purchase, but
only from the funds listed below, of such Bonds from the owners thereof at a
purchase price equal to the principal amount thereof, plus interest accrued, if
any, to the date of purchase and such payment shall be made in immediately
available funds. Funds from the payment of such purchase price shall be derived
from the following sources in the order of priority indicated:
(1) proceeds of the remarketing of such Bonds pursuant to Section
3.1(c) hereof which constitute Available Moneys;
(2) moneys furnished by the Trustee or the Credit Facility Trustee to
the Tender Agent representing proceeds of a drawing by the Credit Facility
Trustee under the Credit Facility; and
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(3) any other moneys available for such purposes.
(b) The Tender Agent shall advise the Trustee and the Credit Facility
Trustee by telex or telecopier and shall advise the Credit Facility Issuer and
the Company by telephone, in each case, no later than 10:30 a.m. on each
Variable Rate Purchase Date or the Conversion Date, as the case may be, of the
amount of any drawing under the Credit Facility necessary to make full and
timely payments hereunder. The Credit Facility Trustee shall promptly (and in
no event later than 11:00 a. m.) take all action necessary to draw on the Credit
Facility the specified amount. All amounts received by the Credit Facility
Trustee from a drawing under the Credit Facility shall be transferred to the
Tender Agent and held by the Tender Agent in the Bank Account pending
application of such moneys as provided in this Article III. The Trustee and the
Credit Facility Trustee shall provide to the Tender Agent the funds referred to
in paragraph (2) of Section 3.2(a) prior to the time the Tender Agent is
required to apply such funds to effect the purchase of Bonds and shall notify
the Tender Agent promptly after receipt of notice from the Credit Facility
Issuer reinstating the Credit Facility. The Remarketing Agent shall deliver
funds from the sale of Bonds held by the Credit Facility Issuer as pledgee of
the Company pursuant to Section 3.1(e) hereof to the Tender Agent for deposit in
the Remarketing Account, which funds shall be promptly paid by the Tender Agent
on behalf of the Company to the Credit Facility Issuer as reimbursement under
the Reimbursement Agreement. The Tender Agent shall notify the Trustee and the
Credit Facility Trustee of any such reimbursement, and the Credit Facility
Trustee shall promptly deliver to the Credit Facility Issuer any reinstatement
certificate and the form of transfer certificate required by the Credit
Facility.
SECTION 3.3 DELIVERY OF PURCHASED BONDS.
(a) Bonds purchased shall be delivered as follows:
(1) Bonds placed by the Remarketing Agent or the Placement Agent
pursuant to Section 3.1 hereof shall be delivered by the Tender Agent to
the Remarketing Agent or the Placement Agent, as the case may be, on behalf
of the purchasers thereof.
(2) Bonds purchased with moneys described in Section 3.2(a)(2) shall
be delivered to the Credit Facility Issuer as pledgee of the Company
pursuant to the terms of the Reimbursement Agreement and the Pledge
Agreement or the Credit Facility Issuer designee.
(3) Bonds purchased with excess moneys transferred from the Project
Fund to the Bond Fund pursuant to Section 4.5 hereof or with draws under
the Credit Facility for which the Credit Facility Issuer has been
reimbursed with such excess moneys from the Project Fund shall be canceled
by the Trustee.
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(b) Except as otherwise set forth herein, Bonds delivered as provided in
this Section 3.3 shall be registered by the Bond Registrar in the manner
directed by the recipient thereof.
(c) In the event that any Bond to be delivered to the Tender Agent is not
delivered by the owner thereof properly endorsed for transfer on or prior to the
Variable Rate Purchase Date or the Conversion Date, as the case may be, and
there has been irrevocably deposited with the Tender Agent an amount sufficient
to pay the purchase price thereof, which amount may be held by the Tender Agent
in a non-interest bearing account, the Issuer shall execute and the Trustee or
its Authenticating Agent shall authenticate and deliver a substitute Bond in
lieu of the Undelivered Bond and the Bond Registrar shall register such Bond in
the name of the purchaser thereof. Thereafter, interest on such Undelivered
Bond shall cease to accrue, and the holder thereof shall be entitled only to
payment of the purchase price therefor and not to the benefits of the Indenture.
(d) Notwithstanding the foregoing, Bonds purchased with funds identified in
Section 3.2(a)(2) hereof shall be held by the Credit Facility Issuer or the
Tender Agent and shall not be delivered to subsequent purchasers thereof or any
other person until (i) the Credit Facility Trustee has received notice in
writing from the Credit Facility Issuer that the Credit Facility has been
reinstated to the extent of the purchase price of such Bonds and interest
thereon and (ii) the Credit Facility Trustee has notified the Trustee and the
Tender Agent of such reinstatement.
SECTION 3.4 DELIVERY OF THE PROCEEDS OF THE SALE OF REMARKETED BONDS.
The proceeds of the placement of the Bonds by the Remarketing Agent of any Bonds
delivered to the Tender Agent or by the Placement Agent of Bonds on the
Conversion Date shall be paid first, to the tendering Bondholders of such Bonds;
second, to the Credit Facility Issuer, to the extent of any amounts drawn under
the Credit Facility in connection with the payment of the purchase price for
such Bonds and not reimbursed to the Credit Facility Issuer as of the time of
sale of such Bonds; and third, to the Company.
SECTION 3.5 NO REMARKETING AFTER CERTAIN EVENTS. Anything in this
Indenture to the contrary notwithstanding, there shall be no remarketing of
Bonds pursuant to this Article III after the Conversion Date or the principal of
the Bonds shall have been accelerated pursuant to Section 9.2 hereof.
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ARTICLE IV
PROJECT FUND
SECTION 4.1 CREATION OF AND DEPOSITS TO THE PROJECT FUND.
(a) A special fund is hereby created and designated "Development Authority
of McDuffie County Taxable Industrial Development Revenue Bonds (Advance Stores
Company, Incorporated Project), Series 1997 Project Fund" (the "Project Fund")
to the credit of which such deposits shall be made as are required by the
provisions of this Indenture. Any moneys received by the Issuer or by the
Trustee as trustee under this Indenture from any source for payment of the Cost
of the Project, including all proceeds of the sale of the Bonds and insurance
and condemnation proceeds as provided in the Lease Agreement, shall be deposited
to the credit of the Project Fund.
(b) The moneys in the Project Fund shall be held by the Trustee in trust
and, subject to the provisions of Section 4.5 and 9.2 of this Indenture, shall
be applied to the payment of the Cost of the Project and, pending such
application, shall be and are hereby made subject to a lien and charge in favor
of the owners of the Bonds issued and outstanding under this Indenture and for
the further security of such owners until paid out or transferred as herein
provided.
SECTION 4.2 PAYMENTS FROM THE PROJECT FUND.
(a) Payment of the Cost of the Project shall be made from the Project Fund.
All payments from the Project Fund shall be subject to the provisions and
restrictions set forth in this Article, and the Issuer covenants that it will
not cause to be paid from the Project Fund any sums except in accordance with
such provisions and restrictions. Such payments shall be made by the Trustee
upon receipt of an appropriately completed requisition and certificate, signed
by the Company Representative (substantially in the form of the Requisition and
Certificate attached hereto as Exhibit "E" and hereby deemed incorporated
herein) stating to whom the payment described is to be made and the purpose, in
reasonable detail, for which the obligation to make such payment was incurred
and including, if such requisition and certificate comprises an item for payment
for labor or to contractors, buildings or materialmen, a paragraph in the form
of the last paragraph of the attached form of requisition and certificate.
(b) The Trustee is authorized and directed to apply the moneys in the
Project Fund in accordance herewith but only upon receipt of the requisitions
required by this Section 4.2, duly executed by the person and in the manner
provided for herein.
(c) Interest earnings on the funds deposited in the Project Fund shall be
transferred to the Repayments Account of the Bond Fund.
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SECTION 4.3 TRUSTEE MAY RELY ON REQUISITIONS. All requisitions in the
form provided by Section 4.2 hereof and all other statements, orders,
certifications and approvals received by the Trustee, as required by this
Article as conditions of payment from the Project Fund, may be conclusively
relied upon by the Trustee, and shall be retained by the Trustee as provided in
Section 4.6, subject at all reasonable times to examination by the Company, the
Bank, the Issuer, any Bondholder and the agents and representatives thereof.
SECTION 4.4 COMPLETION DATE. The establishment of the Completion Date
and the disposition of moneys then held for the credit of the Project Fund shall
be in accordance with Sections 4.3 and 4.4 of the Lease Agreement, respectively.
SECTION 4.5 TRANSFERS TO THE BOND FUND. In the event that the Company
should elect or be required to prepay the rental payments pursuant to Section
10.1, Section 10.2, or Section 10.3 of the Lease Agreement or that the Trustee
shall declare the Bonds to be due and payable pursuant to Section 9.2 hereof,
the Trustee shall, without further authorization, forthwith transfer any balance
remaining in the Project Fund to the Bond Fund.
SECTION 4.6 TRUSTEE'S RECORDS. The Trustee shall maintain adequate
records for a period of at least three (3) years after the Completion Date
pertaining to all disbursements from the Project Fund. After the Completion
Date, the Trustee shall deliver to the Company, and the Issuer upon request a
final accounting.
SECTION 4.7 DISPOSITION OF BALANCE IN PROJECT FUND. When the Project
shall have been completed and the Trustee shall have received a certificate of
the Company Representative stating the Completion Date and what items of the
Cost of the Project, if any, have not been paid, and for the payment of which
money should be reserved, any funds remaining after the Trustee has reserved
funds for unpaid items shall be deposited in the Bond Fund and applied by the
Trustee at the written direction of the Company as soon thereafter as
practicable, (a) to the purchase of Bonds at such price and upon such terms and
conditions as the Company may direct or to the reimbursement of the Credit
Facility Issuer for draws under the Credit Facility to purchase Bonds, or (b) to
the redemption of the Bonds, on the first redemption date occurring after the
Completion Date at the applicable optional or mandatory redemption price or to
reimburse the Credit Facility Issuer for draws under the Credit Facility to
redeem bonds, such amounts may be transferred to the Bond Fund for payment of
maturing principal of or interest on any of the Bonds or to reimburse the Credit
Facility Issuer for draws under the Credit Facility for such payment.
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ARTICLE V
REVENUES AND APPLICATION THEREOF
SECTION 5.1 REVENUES TO BE PAID OVER TO TRUSTEE. The Issuer has caused
the Revenues for the Lease Agreement payments to be paid directly to the
Trustee. If, notwithstanding these arrangements, the Issuer receives any
payments under the Lease Agreement or on account of a Credit Facility with
respect to the principal or redemption price of or interest on the Bonds, the
Issuer shall immediately pay over the same to the Trustee to be held as
Revenues.
SECTION 5.2 THE BOND FUND.
(a) There is hereby established with the Trustee a special fund to be
designated "Development Authority of McDuffie County Taxable Industrial
Development Revenue Bonds (Advance Stores Company, Incorporated Project), Series
1997 Bond Fund" (the "Bond Fund"), the moneys in which, in accordance with
Section 5.2(c) hereof, the Trustee shall apply to (1) the principal or
redemption price of Bonds as they mature or become due, upon surrender thereof,
and (2) the interest on Bonds as it becomes payable. There are hereby
established with the Trustee within the Bond Fund two separate and segregated
accounts, to be designated the "Repayments Account" and the "Credit Facility
Account".
(b) There shall be deposited into the various accounts of the Bond Fund
from time to time the following:
(1) into the Repayments Account, moneys received by the Trustee under
and pursuant to the provisions of this Indenture or any of the provisions
of the Lease Agreement, when accompanied by written directions from the
person depositing such moneys that such moneys are to be paid into such
account of the Bond Fund, which shall include the interest earnings on the
Project Fund deposited as required by Section 4.2(c) hereof. All amounts
deposited in the Repayments Account shall be segregated and held, with the
earnings thereon, separate and apart from other funds in the Bond Fund
until such amounts become Available Moneys. At such time as funds deposited
in the Repayments Account become Available Moneys, they may be commingled
with other Available Moneys in the Repayments Account; and
(2) into the Credit Facility Account, all moneys drawn by the Credit
Facility Trustee under the Credit Facility to pay principal or redemption
price (excluding any premium) of the Bonds and interest on the Bonds.
(c) Except as provided in, Section 9.11 hereof, moneys in the Bond Fund
shall be used solely for the payment of the principal or redemption price of the
Bonds and
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interest on the Bonds from the following source or sources but only in the
following order of priority;
(1) moneys held in the Credit Facility Account, provided that in no
event shall moneys held in the Credit Facility Account be used to pay any
amounts due on Bonds which are held by or for the Company, including
without limitation, Bonds pledged to the Credit Facility Issuer, or to pay
any portion of the redemption premium required pursuant to Section 7.1
(a)(2) hereof; and
(2) moneys held in the Repayments Account to the extent such amounts
qualify as Available Moneys (except with respect to moneys paid on Bonds
that are held by or for the Company, including without limitation, Bonds
pledged to the Credit Facility Issuer, which moneys need not qualify as
Available Moneys).
(d) Not later than 10:00 A.M. on the third (3rd) Business Day preceding the
date on which principal or redemption price of or interest on the Bonds is due
and payable (the "Payment Date"), the Trustee shall have notified the Company
and the Credit Facility Issuer and the Credit Facility Trustee of the amounts of
principal and interest due on the Bonds on the Payment Date. Not later than
11:00 A.M. on each Payment Date, the Credit Facility Trustee shall present a
draft or drafts under the Credit Facility in the amounts due and payable on the
Bonds. Such funds shall be wired by the Credit Facility Issuer to the Credit
Facility Trustee and immediately transferred by the Credit Facility Trustee to
the Trustee to be credited to the Credit Facility Account and payments due under
the Bonds shall be made by the Trustee in accordance with Section 2.8 and
Section 5.2(c) hereof. Following such payment to the Bondholders, the Trustee
shall, on behalf of the Company, promptly pay moneys on deposit in the
Repayments Account in an amount equal to the amounts of such drawing or drawings
to the Bank as reimbursement to the Credit Facility Issuer under the terms of
the Reimbursement Agreement. If no amounts are owed by the Company to the Credit
Facility Issuer under the Reimbursement Agreement, any amounts remaining in the
Repayments Account on the Business Day immediately following a Payment Date
shall be paid to the Company upon request with the consent of the Credit
Facility Issuer.
(e) Except as provided in the following sentence, the Bond Fund shall be
depleted at least once each year, except for a reasonable carryover amount (not
to exceed the greater of one year's earnings on the Bond Fund or one-twelfth
(1/12th) of annual debt service). Any money deposited in the Bond Fund shall be
spent within a thirteen (13) month period beginning on the date of deposit, and
any amount received from investment of money held in the Bond Fund shall be
spent within a one (1) year period beginning on the date of receipt. Any amounts
remaining in the Bond Fund after payment in full of the principal or redemption
price of and interest on the Bonds (or provisions for payment thereof) shall be
paid to the Company at the written request of the Company therefor or as
otherwise required by law; provided, that if any payments have been received by
the Credit
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Facility Trustee from the Credit Facility in connection with such payment of the
Bonds, any remaining amounts shall be paid to the Credit Facility Issuer to the
extent of such payments.
SECTION 5.3 REVENUES TO BE HELD FOR ALL BONDHOLDERS; CERTAIN EXCEPTIONS.
Revenues shall, until applied as provided in this Indenture, be held by the
Trustee in trust for the benefit of the owners of all Outstanding Bonds, except
that any portion of the Revenues representing principal or redemption price of
any Bonds, and interest on any Bonds previously matured or called for redemption
in accordance with Article VII of this Indenture, shall be held for the benefit
of the owners of such Bonds only.
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ARTICLE VI
DEPOSITORIES OF MONEYS; SECURITY FOR
DEPOSITS AND INVESTMENT OF FUNDS
SECTION 6.1 SECURITY FOR DEPOSITS. All moneys deposited with the
Trustee under the provisions of this Indenture or the Lease Agreement shall be
held in trust and applied only in accordance with the provisions of this
Indenture and the Lease Agreement and shall not be subject to lien (other than
the lien created hereby) or attachment by any creditor of the Trustee, the
Issuer, the Credit Facility Trustee or the Company.
SECTION 6.2 INVESTMENT OF MONEYS.
(a) At the request and the direction of the Company Representative
(confirmed in writing), moneys held for the credit of the Project Fund and the
Bond Fund (including any amount therein) shall be invested and reinvested by the
Trustee in Investment Obligations which shall mature not later than the
respective dates when the moneys held for the credit of said funds will be
required for the purposes intended, provided that moneys held in the Credit
Facility Account of the Bond Fund shall be invested and reinvested by the
Trustee only in Governmental Obligations which shall mature not later than the
date on which such moneys will be required to be paid; provided further that
such investment shall only be made at the direction of the Company
Representative. The Trustee shall be entitled to rely on instruction from the
Company Representative.
(b) Obligations so purchased as an investment of moneys in any such fund or
account shall be deemed at all times to be a part of such fund or account, and
the interest accruing thereon and any profit realized from such investment shall
be credited to such fund or account (except as provided in Section 4.2(c)), and
any loss resulting from such investment shall be charged to such fund or
account. The Trustee shall sell at market price or present for redemption any
obligation so purchased whenever it shall be necessary so to do in order to
provide cash to meet any payment or transfer from any such fund or account.
Neither the Trustee nor the Issuer shall be liable or responsible for loss
resulting from any such investment or the sale of any such investment made
pursuant to the terms of this Section.
(c) For the purpose of the Trustee's determination of the amount on deposit
to the credit of any such fund or account, obligations in which moneys in such
fund or account have been invested shall be valued at the lower of cost or
market.
(d) The Trustee may make any and all investments permitted by this Section
through its own bond or investment department, unless otherwise directed in
writing by the Company Representative.
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SECTION 6.3 THE CREDIT FACILITY.
(a) Initial Letter of Credit.
------------------------
(1) The Letter of Credit shall be a direct pay letter of credit and
shall provide for direct payments to or upon the order of the Credit
Facility Trustee as hereinafter set forth and shall be the irrevocable
obligation of the Bank to pay to or upon the order of the Credit Facility
Trustee, upon request and in accordance with the terms thereof, an amount
of up to $10,201,370 of which (A) $10,000,000 shall support the payment of
principal of the Bonds when due and that portion of the purchase price
corresponding to principal of Tendered Bonds not remarketed on any Variable
Rate Purchase Date or sold on the Conversion Date, and (B) $201,370 shall
support the payment of up to forty-nine (49) days' interest at an assumed
rate of fifteen percent (15%) per annum (which is the maximum rate of
interest borne by the Bonds) on the Bonds when due and that portion of the
purchase price corresponding to interest on Tendered Bonds not remarketed
on any Variable Rate Purchase Date or sold on the Conversion Date.
(2) The Letter of Credit shall terminate automatically on the earliest
of (A) the date on which a drawing under the Letter of Credit has been
honored upon the maturity or acceleration of the Bonds or redemption of all
the Bonds, (B) the day on which the Credit Facility Issuer receives the
notice of the conversion following the Conversion Date, (C) the date on
which the Bank receives notice from the Credit Facility Trustee that an
Alternate Credit Facility is substituted for the Letter of Credit and is in
effect, (D) the date on which the Bank receives notice from the Credit
Facility Trustee that there are no longer any Bonds Outstanding and (E) the
"Expiration Date" stated in the Letter of Credit as it may be extended
pursuant to the terms thereof.
(3) The Bank's obligation under the Letter of Credit may be reduced to
the extent of any drawing thereunder, subject to reinstatement as provided
therein. The Letter of Credit shall provide that, with respect to a
drawing by the Credit Facility Trustee solely to pay interest on the Bonds
on any Interest Payment Date, if the Credit Facility Trustee shall not have
received from the Bank within ten (10) days from the date of such drawing a
notice by telecopier, by telex or in writing that the Bank has not been
reimbursed, the Credit Facility Trustee's right to draw under the Letter of
Credit with respect to the payment of interest shall be reinstated on or
before the eleventh (11th) calendar day following such drawing in an
amount equal to such drawing. With respect to any other drawing by the
Credit Facility Trustee, the amount available under the Letter of Credit
for payment of the purchase price of the Bonds and the principal and
interest on the Bonds shall be reinstated in an amount equal to any such
drawing but only to the extent that the Bank is reimbursed in accordance
with the terms of the Reimbursement Agreement for the
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amounts so drawn and the Bank delivers a notice to the Credit Facility
Trustee reinstating the Letter of Credit in such amount.
(4) The Letter of Credit shall provide that if, in accordance with the
terms of the Indenture, the Bonds shall become or be declared immediately
due and payable pursuant to any provision of the Indenture, the Credit
Facility Trustee shall be entitled to draw on the Letter of Credit to the
extent that the amounts are available thereunder to pay the aggregate
principal amount of the Bonds then Outstanding plus an amount of interest
not to exceed forty-nine (49) days.
(5) Upon the termination of the Letter of Credit, the Credit Facility
Trustee shall return the Letter of Credit to the Bank, marked "CANCELED" on
its face.
(b) Expiration. Unless an Alternate Credit Facility has been provided in
----------
accordance with Section 6.3(c) hereof at least thirty (30) days before the
Interest Payment Date immediately preceding the fifteenth (15th) day prior to
the expiration date of a Credit Facility or unless the interest rate payable on
the Bonds has been converted from the Variable Rate to the Fixed Rate pursuant
to Section 2.2 hereof, the Credit Facility Trustee shall call the Bonds for
redemption in accordance with the Section 7.1 (c)(2) hereof. If at any time
there shall cease to be any Bonds Outstanding hereunder, the Credit Facility
Trustee shall promptly surrender the then current Credit Facility to the Credit
Facility Issuer for cancellation. The Credit Facility Trustee shall comply with
the procedures set forth in the Credit Facility relating to the termination
thereof.
(c) Alternate Credit Facilities. While the Bonds bear interest at the
---------------------------
Variable Rate, the Company may, at its option, provide for the delivery to the
Credit Facility Trustee of an Alternate Credit Facility. The Alternate Credit
Facility shall have terms in all respects material to the owners of the Bonds
the same as the Credit Facility being replaced and shall be in form acceptable
to the Credit Facility Trustee and the Tender Agent. On or prior to the date of
delivery of an Alternate Credit Facility to the Credit Facility Trustee, the
Company shall furnish to the Credit Facility Trustee and the Trustee:
(1) an opinion of Counsel stating that the delivery of such Alternate
Credit Facility to the Credit Facility Trustee is authorized under this
Indenture and complies with the terms hereof and that such Alternate Credit
Facility is enforceable against the Credit Facility Issuer thereof in
accordance with its terms, and
(2) if the Bonds are rated by Moody's or S&P, written evidence from
Moody's, if the Bonds are rated by Moody's, and from S&P, if the Bonds are
rated by S&P, in each case to the effect that such rating agency has
reviewed the proposed Alternate Credit Facility and that the substitution
of the proposed Alternate Credit Facility for the then current Credit
Facility will not, by itself, result in:
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(A) a permanent withdrawal of its rating of the Bonds, or
(B) a reduction of the then current rating of the Bonds,
or if the Bonds are not rated by Moody's or S&P, written evidence (or such
other evidence satisfactory to the Credit Facility Trustee in its sole
discretion) that the obligations of the bank or institution issuing the
proposed Alternate Credit Facility substantially equivalent in term to the
remaining term of the Bonds are rated by Moody's or S&P in the same
category as the obligations of substantially equivalent term of the bank or
institution which issued the Credit Facility being replaced.
The Credit Facility Trustee shall then accept such Alternate Credit Facility and
surrender the previously held Credit Facility to the previous Credit Facility
Issuer for cancellation promptly on or before the fifteenth (15th) day after the
Alternate Credit Facility becomes effective, but not later than the fifteenth
(15th) day following the last Interest Payment Date covered by the Credit
Facility to be canceled.
(d) Notices of Substitution or Replacement of Credit Facility.
---------------------------------------------------------
(1) The Trustee shall, at least twenty (20) days prior to the proposed
replacement of a Credit Facility with an Alternate Credit Facility, give
notice thereof by mail to the owners of the Bonds, which notice shall
include the identity of the issuer thereof and the rating, if any, to be
assigned to the Bonds by Moody's or S&P following the effective date of
such Alternate Credit Facility or, if the Bonds are not then rated by
Moody's or S&P, then the rating assigned by Moody's or S&P to the
obligations of the issuer of such Alternate Credit Facility substantially
equivalent in term to the remaining term of the Bonds.
(2) The Credit Facility Trustee shall promptly give notice of any
replacement of the Credit Facility to the Issuer, the Tender Agent and the
Remarketing Agent.
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ARTICLE VII
REDEMPTION OR PURCHASE OF THE BONDS
SECTION 7.1 REDEMPTION OR PURCHASE DATES AND PRICES. The Bonds shall be
subject to redemption, and, in certain instances, to purchase, prior to maturity
in the amounts, at the times and in the manner provided in this Article VII.
Payments of the redemption price or the purchase price of any Bond shall be made
only upon the surrender to the Trustee or its agent, as directed, of any Bond so
redeemed or purchased.
(a) OPTIONAL REDEMPTION.
(1) Optional Redemption During Variable Rate Period. While the Bonds
bear interest at the Variable Rate, the Bonds shall be subject to
redemption, upon the written direction of the Issuer, given at the request
of the Company, with the consent of the Credit Facility Issuer, on any
Interest Payment Date and on the Conversion Date in whole or in part, at a
redemption price of one hundred percent (100%) of the principal amount
thereof, without premium, plus interest accrued to the redemption date.
(2) Optional Redemption With Premium During Fixed Rate Period. While
the Bonds bear interest at the Fixed Rate, the Bonds shall be subject to
redemption upon the written direction of the Issuer, given at the request
of the Company, in whole on any date, or in part on any Interest Payment
Date, occurring on or after the dates set forth below, at the redemption
prices (expressed as percentages of principal amount to be redeemed) set
forth below plus interest accrued to the redemption date as follows:
<TABLE>
<CAPTION>
======================================================================
Commencement of
Redemption Period Redemption Price
- ----------------------------------------------------------------------
<S> <C>
The Business Day four (4) years 103% declining by 1/2% on each
from the Conversion Date succeeding anniversary date of
the first Business day of the
redemption period until reaching
100% and thereafter at 100%
======================================================================
</TABLE>
(b) EXTRAORDINARY OPTIONAL REDEMPTION DUE TO CASUALTY OR EMINENT DOMAIN.
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(1) The Bonds may be redeemed as a whole or in part by the Issuer at
any time at the written direction of the Company, at a redemption price
equal to one hundred percent (100%) of the principal amount thereof plus
interest accrued thereon to the redemption date, without premium, under any
of the following conditions, the existence of which shall be certified to
the Trustee by the Company Representative:
(A) The Project shall have been damaged or destroyed to such
extent that the amount of Net Proceeds of insurance exceeds $50,000
and the Company elects not to rebuild the Project or fails to so elect
within ninety (90) days of receipt by the Trustee of such Net
Proceeds; or
(B) Title to, or the temporary use of, all of the Project or any
substantial portion thereof shall have been taken by Eminent Domain
and the amount of Net Proceeds from such taking exceeds $50,000 and
the Company elects not to replace the property so taken or fails so to
elect within ninety (90) days of receipt by the Trustee of such Net
Proceeds.
(2) Such redemption shall occur on the next Interest Payment Date
occurring not less than thirty (30) days following the expiration of such
90-day period referred to in paragraph (1) of this Section 7.1(b).
(c) MANDATORY REDEMPTION.
(1) Failure to Provide Alternate Credit Facility. The Bonds shall be
--------------------------------------------
subject to mandatory redemption during the Variable Rate Period at one
hundred percent (100%) of the principal amount thereof, without premium,
plus interest accrued, if any, thereon to the date of redemption, on the
Interest Payment Date occurring closest to but not after fifteen (15) days
prior to the date of expiration of the then current Credit Facility, unless
an Alternate Credit Facility has been provided in accordance with Article
VI hereof.
(2) Excess Moneys in Project Fund. The Bonds shall be subject to
-----------------------------
mandatory redemption in whole or in part from excess moneys in the Project
Fund or from moneys drawn under the Credit Facility for which the Credit
Facility Issuer has been reimbursed from such excess moneys in accordance
with the provisions of Section 4.5 of the Lease Agreement, which redemption
date shall be no more than 60 days following the date of transfer of moneys
to the Bond Fund from the Project Fund.
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(d) MANDATORY PURCHASE ON CONVERSION DATE. The Bonds shall be subject to
mandatory purchase in whole on the Conversion Date at a purchase price equal to
one hundred percent (100%) of the principal amount thereof, without premium,
plus interest accrued, if any, thereon to the date of purchase, on the
Conversion Date; provided that there shall not be so purchased (1) Bonds or
portions thereof in authorized denominations with respect to which the Trustee
shall have received Optional Retention Notices from the owners thereof, and (2)
Bonds issued in exchange for or upon the registration of transfer of Bonds or
portions thereof in authorized denominations referred to in (1) above.
(e) PURCHASE IN LIEU OF REDEMPTION. The Bonds are subject to optional call
and purchase in whole prior to the Conversion Date on any Interest Payment Date
upon the written direction of the Issuer, given at the request of the Company,
which purchase may be in lieu of redemption, from monies deposited with the
Trustee sufficient for payment of 100% of the principal amount due upon such
call together with accrued interest on the Bonds to the call date.
SECTION 7.2 COMPANY TO DIRECT OPTIONAL REDEMPTION. The Issuer shall
direct the Trustee in writing to call Bonds for optional redemption when and
only when it shall have been notified by the Company to do so and the Company
has notified the Trustee in writing that the Company has made or intends to make
a corresponding prepayment under the Lease Agreement. Such direction from the
Issuer to the Trustee shall be given at least forty-five (45) days but not more
than sixty (60) days prior to the redemption date or such shorter period as
shall be acceptable to the Trustee. So long as a Credit Facility is then held
by the Credit Facility Trustee, the Trustee shall only call Bonds for optional
redemption if it has Available Moneys in the Repayments Account of the Bond Fund
or has been notified by the Credit Facility Issuer that it will receive moneys
pursuant to the Credit Facility, in the aggregate, sufficient to pay the
redemption price of the Bonds to be called for redemption, plus accrued interest
thereon. No optional redemptions shall be effected at the option of the Company
during the Variable Rate Period under this Article VII without the prior written
consent of the Credit Facility Issuer.
SECTION 7.3 SELECTION OF BONDS TO BE CALLED FOR REDEMPTION. Except as
otherwise provided herein or in the Bonds, if less than all the Bonds are to be
redeemed, the particular Bonds to be called for redemption shall be selected in
the following order of priority: first, Bonds pledged to the Bank pursuant to
the Pledge Agreement, second, Bonds owned by the Company and third, Bonds
selected by any random or other method determined by the Trustee in its sole
discretion to be fair and reasonable. The Trustee shall treat any Bond of a
denomination greater than One Hundred Thousand Dollars ($100,000) as
representing that number of separate Bonds each of the denomination of the
minimum denomination of One Hundred Thousand Dollars ($100,000) or any integral
multiple of Five Thousand Dollars ($5,000) in excess thereof as the Trustee
shall so determine.
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SECTION 7.4 NOTICE OF REDEMPTION OR PURCHASE.
(a) When required to redeem or purchase Bonds under any provision of this
Article VII, or when directed to do so by the Issuer, the Trustee shall cause
notice of the redemption or purchase to be given not more than sixty (60) days
and not less than twenty (20) days prior to the redemption or purchase date by
mailing a copy of all notices of redemption or purchase by first class mail,
postage prepaid, to all registered owners of Bonds to be redeemed or purchased
at their addresses shown on the Bond Register. Failure to mail any such notice
or defect in the mailing thereof in respect of any Bond shall not affect the
validity of the redemption or purchase of any other Bond. Notices of redemption
or purchases shall also be mailed to the Remarketing Agent and the Credit
Facility Issuer if any. Any such notice shall be given in the name of the
Issuer, shall identify the Bonds to be redeemed or purchased (and, in the case
of partial redemption or purchase of any Bonds, the respective principal amounts
thereof to be redeemed or purchased), shall specify the redemption or purchase
date, and shall state that on the redemption or purchase date, the redemption or
purchase price of the Bonds called for redemption or purchase will be payable at
the principal corporate trust office of the Trustee, or in the case of mandatory
redemptions or purchases pursuant to Section 7.1 (c)(2) or 7.1(d) hereof at the
office of the Trustee's Paying Agent, if any, and that from that date interest
will cease to accrue. The Trustee may use "CUSIP" numbers in notices of
redemption or purchase as a convenience to Bondholders, provided that any such
notice shall state that no representation is made as to the correctness of such
numbers either as printed on the Bonds or as contained in any notice of
redemption or purchase and that reliance may be placed only on the
identification numbers containing the prefix established under the Indenture.
(b) With respect to any notice of redemption or purchase of Bonds in
accordance with Section 7.1(c)(2) hereof, such notice shall also specify the
date of the expiration of the term of the Credit Facility.
(c) If at the time of mailing of notice of any optional redemption the
Issuer shall not have deposited with the Trustee moneys sufficient to redeem all
the Bonds called for redemption, such notice may state that it is conditional on
the deposit of Available Moneys (or in the case of purchase pursuant to Section
7.2(e), moneys) with the Trustee not later than the redemption date, and such
notice shall be of no effect unless such moneys are so deposited.
(d) Upon redemption of less than all of the Bonds, the Credit Facility
Trustee shall furnish to the Credit Facility Issuer a notice in the form
specified by the Credit Facility Issuer to reduce the coverage provided by the
Credit Facility and upon redemption of all of the Bonds, the Credit Facility
Trustee shall surrender the Credit Facility to the Credit Facility Issuer for
cancellation.
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(e) Purchases under Section 7.1(d) hereof shall be in accordance with
Section 2.2(e) hereof.
SECTION 7.5 BONDS REDEEMED OR PURCHASED IN PART. Any Bond which is to
be redeemed or purchased only in part shall be surrendered at a place stated in
the notice provided for in Section 7.4 hereof (with due endorsement by, or a
written instrument of transfer in form satisfactory to the Trustee duly executed
by, the owner thereof or his attorney duly authorized in writing), and the
Issuer shall execute and the Trustee or its Authenticating Agent shall
authenticate and deliver to the owner of such Bond without service charge, a new
Bond or Bonds, of any authorized denomination as requested by such owner in an
aggregate principal amount equal to and in exchange for the unredeemed and
unpurchased portion of the principal of the Bond so surrendered.
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ARTICLE VIII
PARTICULAR COVENANTS AND PROVISIONS
SECTION 8.1 COVENANT TO PAY THE BONDS; BONDS LIMITED OBLIGATIONS OF THE
ISSUER.
(a) The Issuer covenants that it will promptly pay the principal of and
interest on and other amounts payable under the Bonds at the places, on the
dates and in the manner provided herein and in the Bonds according to the true
intent and meaning thereof. Such principal and interest and other amounts are
payable solely from the payments made by the Company under the Lease Agreement
and other Revenues.
(b) The Bonds shall not be general obligations of the Issuer but limited
and special obligations payable solely from the amounts payable under the
Agreement and other amounts specifically pledged therefor under this Indenture,
and shall be a valid claim of the respective Owners thereof only against the
designated accounts of the Bond Fund and other moneys held by the Trustee and
the amounts payable under the Lease Agreement or otherwise pledged therefor,
which amounts are hereby pledged, assigned and otherwise secured for the equal
and ratable payment of the Bonds and shall be used for no other purpose than to
pay the principal of, premium, if any, and interest on the Bonds, except as may
be otherwise expressly authorized in this Indenture. No Owner of any Bonds has
the right to compel any exercise of taxing power of the Issuer to pay the Bonds
or the interest thereon, and the Bonds do not constitute an indebtedness of the
Issuer or a loan of credit thereof within the meaning of any constitutional or
statutory provisions.
SECTION 8.2 COVENANTS TO PERFORM OBLIGATIONS UNDER THIS INDENTURE. The
Issuer covenants that it will faithfully perform at all times any and all
covenants, undertakings, stipulations and provisions contained in this
Indenture, in the Bonds executed and delivered hereunder and in all proceedings
of the Issuer pertaining thereto and will faithfully observe and perform at all
times any and all covenants, undertakings, stipulations and provisions of the
Lease Agreement on its part to be observed or performed. The Issuer covenants
that it is duly authorized under the Constitution and laws of the State,
including particularly and without limitation the Act, to issue the Bonds
authorized hereby and to enter into this Indenture, to pledge the payments under
the Lease Agreement and other Revenues in the manner and to the extent herein
set forth, and to assign its interest in the Lease Agreement to the Trustee; and
that all action on its part for the issuance of the Bonds issued hereunder and
the execution and delivery of this Indenture has been duly and effectively
taken; and that the Bonds in the hands of the owners thereof are and will be the
valid and binding obligations of the Issuer according to the tenor and import
thereof.
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<PAGE>
SECTION 8.3 COVENANT TO PERFORM OBLIGATIONS UNDER THE LEASE AGREEMENT.
Subject to the provisions of Section 8.4 of this Article, the Issuer covenants
and agrees that it will not suffer, permit or take any action or do anything or
fail to take any action or fail to do anything which may result in the
termination or cancellation of the Lease Agreement so long as any Bond is
Outstanding; that it will punctually fulfill its obligations and will require
the Company to perform punctually its duties and obligations under the Lease
Agreement; that it will not execute or agree to any change, amendment or
modification of or supplement to the Lease Agreement or this Indenture except by
a supplement or an amendment duly executed by the Issuer and the Company with
the approval of the Trustee and the Credit Facility Trustee and upon the further
terms and conditions set forth in Article VIII of this Indenture; that it will
not agree to any abatement, reduction, abrogation, waiver, diminution or other
modification in any manner or to any extent whatsoever of the obligation of the
Company to pay the rental payments and to meet its other obligations as provided
in the Lease Agreement; and that it will promptly notify the Trustee and the
Credit Facility Trustee in writing of any actual or alleged Event of Default
under the Lease Agreement, whether by the Company or the Issuer, and will
further notify the Trustee and the Credit Facility Trustee at least thirty (30)
days before the proposed date of effectiveness of any proposed termination or
cancellation of the Lease Agreement.
SECTION 8.4 TRUSTEE MAY ENFORCE THE ISSUER'S RIGHTS UNDER THE LEASE
AGREEMENT. The Lease Agreement, a duly executed counterpart of which has been
filed with the Trustee, sets forth the covenants and obligations of the Issuer
and the Company, including a provision in Section 12.9 thereof that subsequent
to the issuance of the Bonds and prior to Payment of the Bonds (as defined in
the Lease Agreement) the Lease Agreement may not be effectively amended,
changed, modified, altered or terminated except as provided in Article VIII of
this Indenture, and reference is hereby made to the Lease Agreement for a
detailed statement of said covenants and obligations of the Company under the
Lease Agreement, and the Issuer agrees that the Trustee, subject to the
provisions of the Lease Agreement and this Indenture reserving certain rights to
the Issuer and respecting actions by the Trustee in its name or in the name of
the Issuer, may enforce all rights of the Issuer and all obligations of the
Company under and pursuant to the Lease Agreement for and on behalf of the
Bondholders whether or not the Issuer is in default hereunder.
SECTION 8.5 [INTENTIONALLY OMITTED].
SECTION 8.6 INSPECTION OF THE BOND REGISTER. At reasonable times and
upon reasonable regulations established by the Bond Registrar, the Bond Register
may be inspected and copied by and at the expense of the Company.
SECTION 8.7 PRIORITY OF PLEDGE AND SECURITY INTEREST. The pledge herein
made of the Trust Estate and the security interest created herein with respect
thereto constitutes a first and prior pledge of, and a security interest in, the
Trust Estate. Said pledge and
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security interest shall at no time be impaired directly or indirectly by the
Issuer or the Trustee, and the Trust Estate shall not otherwise be pledged and,
except as provided herein and in the Lease Agreement, no persons shall have any
rights with respect thereto.
SECTION 8.8 MAINTENANCE OF INSURANCE: PAYMENT OF TAXES, CHARGES, ETC.
Pursuant to the provisions of 6.3 of the Lease Agreement and Section 4.3 of the
Reimbursement Agreement, the Company has agreed to maintain certain insurance
and to pay all lawful taxes, assessments and charges at any time levied or
assessed upon or against the Project, or any part thereof, which might impair or
prejudice the lien afforded by this Indenture as to the Trust Estate; provided,
however, that nothing contained in this Section shall require the maintenance of
such insurance or the payment of any such taxes, assessments or charges if the
same are not required to be maintained or paid under the provisions of the
Lease Agreement.
SECTION 8.9 MAINTENANCE AND REPAIR. Pursuant to the provisions of
Section 6.1 of the Lease Agreement, the Company has agreed at its own expense to
cause the Project to be maintained, preserved and kept in good condition, repair
and working order, and that it will, from time to time, cause to be made all
needed repairs so that the Project shall at all times be kept in good condition
and repair, and that the Company may, at its own expense, make, from time to
time, additions, modifications and improvements to the Project under the terms
and conditions set forth in the Lease Agreement.
SECTION 8.10 INSURANCE AND CONDEMNATION PROCEEDS. Reference is hereby
made to Section 6.8 of the Lease Agreement whereunder it is provided that under
certain circumstances the respective Net Proceeds of insurance and condemnation
awards (or Net Proceeds from a sale in lieu of condemnation) are to be paid to
the Trustee and deposited in separate trust accounts (but not in the Bond Fund)
and to be disbursed and paid out as therein provided. The Trustee hereby accepts
and agrees to perform the duties and obligations as therein specified.
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ARTICLE IX
DEFAULT AND REMEDIES
SECTION 9.1 DEFAULTS. Each of the following events is hereby declared
to be an "Event of Default":
(a) Payment of interest on any of the Bonds shall not be made when the
same shall become due; or
(b) Payment of the principal or redemption price of any of the Bonds
shall not be made when the same shall become due, whether at maturity or
upon call for redemption or otherwise; or
(c) An "Event of Default" under the Lease Agreement shall have
occurred and not have been waived; or
(d) The Credit Facility Trustee receives written notice from the
Credit Facility Issuer that an Event of Default under the Reimbursement
Agreement has occurred and has not been waived; or
(e) The Credit Facility Trustee receives notice by telecopier, by
telex or in writing from the Credit Facility Issuer that the Credit
Facility Issuer has not been reimbursed for a drawing on or before the
close of business on the tenth (10th) calendar day following a drawing
under such Credit Facility to pay interest on the Bonds and that the
interest portion of the Credit Facility will not be reinstated for the
amount so drawn; or
(f) Payment of the purchase price of any Bond tendered pursuant to
Section 2.3 hereof is not made when payment is due; or
(g) The Issuer shall fail to duly and punctually perform any of the
covenants, conditions, agreements and provisions contained in the Bonds or
in this Indenture on the part of the Issuer to be performed other than as
referred to in the preceding subsections of this Section;
provided, however, that no failure specified in subsections (c) or (g) of this
Section 9.1 shall constitute an Event of Default until written notice specifying
such failure and requiring the same to be remedied shall have been given to the
Company, the Issuer and the Credit Facility Trustee by the Trustee, which may
give notice in its discretion and shall give such notice at the written
direction of the owners of not less than twenty-five percent (25%) in aggregate
principal amount of Bonds Outstanding, and the Company and the Issuer shall have
had thirty (30) days after receipt of such notice to correct said failure and
shall not
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have corrected said failure within the applicable period, provided, however,
that if the Issuer or Company as the case may be, is diligently and continuously
pursuing a cure or correction of such failure but has been unable to affect such
cure within the aforementioned thirty (30) day period, the Trustee shall extend
such period to allow for the same to be remedied.
SECTION 9.2 ACCELERATION AND ANNULMENT THEREOF.
(a) Subject to the requirement that, so long as the Credit Facility Issuer
is performing under the Credit Facility, the consent of the Credit Facility
Issuer to any acceleration must be obtained in the case of an Event of Default
described in subsections (c) or (g) of Section 9.1 hereof, upon the occurrence
of an Event of Default, the Credit Facility Trustee may, and upon (1) the
written request of the Credit Facility Issuer, or (2) the occurrence of an Event
of Default described in subsection (a), (b), (d), (e) or (f) of Section 9.1
hereof the Credit Facility Trustee shall, by notice to the Issuer, declare the
entire unpaid principal of and interest on the Bonds due and payable; and upon
such declaration, the said principal, together with interest accrued thereon,
shall become payable immediately at the place of payment provided therein,
anything in the Indenture or in the Bonds to the contrary notwithstanding. The
Credit Facility Trustee shall not be permitted to request receipt of indemnity
to its satisfaction prior to such declaration of acceleration. Upon the
occurrence of any acceleration hereunder, the Credit Facility Trustee, to the
extent it has not already done so, shall immediately draw upon the Credit
Facility to the extent permitted by the terms thereof. Interest on the Bonds
shall cease to accrue upon receipt by the Credit Facility Trustee of funds drawn
under the Credit Facility.
(b) Immediately after any acceleration because of the occurrence of an
Event of Default under Sections 9.1(a), (b), (d), (e), (f) or (g), the Credit
Facility Trustee shall (immediately, and in no event within two Business Days
thereafter) notify in writing the Issuer, the Company and the Credit Facility
Issuer of the occurrence of such acceleration. Within five (5) days of the
occurrence of any acceleration hereunder, the Credit Facility Trustee shall
notify by first class mail, postage prepaid, the owners of all Bonds
Outstanding of the occurrence of such acceleration.
(c) If, after the principal of the Bonds has become due and payable, all
arrears of interest upon the Bonds are paid by the Company, and the Company also
performs all other things in respect to which it may have been in default under
the Lease Agreement and pays the reasonable charges of the Credit Facility
Trustee and the Bondholders, including reasonable attorneys' fees, then, and in
every such case, the Credit Facility Issuer or a Majority of the Bondholders by
written notice to the Issuer and to the Credit Facility Trustee, may annul such
acceleration and its consequences, and such annulment shall be binding upon the
Credit Facility Trustee and upon all owners of Bonds issued hereunder; provided,
however, that the Credit Facility Trustee shall not annul any declaration
without the written consent of the Credit Facility Issuer unless such
acceleration
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has resulted from the failure of the Credit Facility Issuer to honor a proper
draw for payment under the Credit Facility. Notwithstanding the foregoing, the
Credit Facility Trustee shall not annul any acceleration which has resulted from
an Event of Default under Section 9.1(e) hereof unless the Credit Facility has
been reinstated in accordance with its terms to an amount equal to the principal
amount of the Bonds Outstanding plus one hundred twenty (120) days' interest
accrued thereon, and the Credit Facility Trustee has received written notice of
such reinstatement from the Credit Facility Issuer. The Trustee and the Credit
Facility Trustee shall forward a copy of any notice from Bondholders received by
it pursuant to this paragraph to the Company.
SECTION 9.3 OTHER REMEDIES. If any Event of Default occurs and is
continuing, the Credit Facility Trustee, before or after the principal of the
Bonds becomes immediately due and payable, may enforce each and every right
granted to it under the Lease Agreement and any supplements or amendments
thereto. In exercising such rights and the rights given the Credit Facility
Trustee under this Article IX, the Credit Facility Trustee shall take such
action as, in the judgment of the Credit Facility Trustee applying the standards
described in Section 10.1 hereof would best serve the interests of the
Bondholders.
SECTION 9.4 LEGAL PROCEEDINGS BY THE CREDIT FACILITY TRUSTEE.
(a) If any Event of Default has occurred and is continuing, the Credit
Facility Trustee in its direction may, and upon the written request of the
Credit Facility Issuer or the owners of not less than twenty-five percent (25%)
in aggregate principal amount of the Outstanding Bonds and receipt of indemnity
to its satisfaction shall, in its own name:
(1) By mandamus, or other suit, action or proceeding at law or in
equity, enforce all rights of the Bondholders hereunder;
(2) Bring suit upon the Bonds, the Credit Facility (but only to the
extent the Credit Facility Issuer shall have wrongfully dishonored drawings
made in strict conformity with the terms hereof); and
(3) By action or suit in equity seek to enjoin any acts or things
which may be unlawful or in violation of the rights of the Bondholders.
(b) If an Event of Default under Section 9.1(c) occurs and is continuing,
the Credit Facility Trustee in its discretion may, and upon the written request
of the owners of not less than twenty-five percent (25%) in aggregate principal
amount of the Outstanding Bonds and receipt of indemnity to its satisfaction
shall, enforce each and every right granted to it under the Lease Agreement.
SECTION 9.5 DISCONTINUANCE OF PROCEEDINGS BY THE CREDIT FACILITY
TRUSTEE. If any proceeding commenced by the Credit Facility Trustee on account
of any Event of
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Default is discontinued or is determined adversely to the Credit Facility
Trustee, then the Company, the Credit Facility Issuer, the Issuer, the Credit
Facility Trustee, the Trustee and the Bondholders shall be restored to their
former positions and rights hereunder as though no proceedings had been
commenced.
SECTION 9.6 CREDIT FACILITY ISSUER OR BONDHOLDERS MAY DIRECT
PROCEEDINGS. Anything to the contrary in this Indenture notwithstanding, either
the Credit Facility Issuer if a Credit Facility is in effect (and no default has
occurred and is continuing under the Credit Facility), or a Majority of the
Bondholders, if there is no Credit Facility in effect, shall have the right,
after furnishing indemnity satisfactory to the Credit Facility Trustee, to
direct the method and place of conducting all remedial proceedings by the Credit
Facility Trustee hereunder, provided that such direction shall not be in
conflict with any rule of law or with this Indenture or unduly prejudice the
rights of minority Bondholders.
SECTION 9.7 LIMITATIONS ON ACTIONS BY THE BONDHOLDERS.
(a) No Bondholder shall have any right to bring suit on the Credit
Facility. No Bondholder shall have any right to pursue any other remedy
hereunder unless:
(1) the Trustee and the Credit Facility Trustee shall have been given
written notice of an Event of Default;
(2) the owners of not less than twenty-five percent (25%) in aggregate
principal amount of the Outstanding Bonds shall have requested the Credit
Facility Trustee, in writing, to exercise the powers hereinabove granted
or to pursue such remedy in its or their name or names;
(3) the Credit Facility Trustee shall have been offered indemnity
satisfactory to it against costs, expenses and liabilities, except that no
offer of indemnification shall be required for a declaration of
acceleration under Section 9.2 hereof or for a drawing under the Credit
Facility;
(4) the Credit Facility Trustee shall have failed to comply with such
request within a reasonable time; and
(5) prior to the Conversion Date, the Credit Facility Issuer has
failed to honor a proper draw request under the Credit Facility.
(b) Notwithstanding the foregoing provisions of subsection (a) of this
Section 9.7 or any other provision of this Indenture, the obligation of the
Issuer shall be absolute and unconditional to pay hereunder, but solely from the
Revenues and other funds pledged under this Indenture, the principal or
redemption price of, and interest on, the Bonds to the respective owners thereof
on the respective due dates thereof, and nothing herein shall
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affect or impair the right of action, which is absolute and unconditional, of
such owners to enforce such payment.
SECTION 9.8 CREDIT FACILITY TRUSTEE MAY ENFORCE RIGHTS WITHOUT
POSSESSION OF THE BONDS. All rights under this Indenture and the Bonds may be
enforced by the Credit Facility Trustee without the possession of any Bonds or
the production thereof at the trial or other proceedings relative thereto, and
any proceedings instituted by the Credit Facility Trustee shall be brought in
its name for the ratable benefit of the owners of the Bonds.
SECTION 9.9 REMEDIES NOT EXCLUSIVE. No remedy herein conferred is
intended to be exclusive of any other remedy or remedies, and each remedy is in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute.
SECTION 9.10 DELAYS AND OMISSIONS NOT TO IMPAIR RIGHTS. No delays or
omission in respect of exercising any right or power accruing upon any default
shall impair such right or power or be a waiver of such default, and every
remedy given by this Article IX may be exercised from time to time and as often
as may be deemed expedient.
SECTION 9.11 APPLICATION OF MONEYS IN THE EVENT OF DEFAULT.
(a) Any moneys received by the Trustee or the Credit Facility Trustee,
under this Article IX shall be applied in the following order; provided that any
moneys received by the Trustee or the Credit Facility Trustee from a drawing
under the Credit Facility shall be applied to the extent permitted by the terms
thereof only as provided in paragraph (3) below with respect to the principal of
and interest accrued on, Bonds other than Bonds held by or for the Company:
(1) To the payment of the reasonable costs of the Trustee and the
Credit Facility Trustee, including counsel fees and any disbursements of
the Trustee and the Credit Facility Trustee, with interest thereon from the
date of payment at the overdue rate, and their reasonable compensation; and
(2) To the payment of reasonable costs and expenses of the Issuer,
including counsel fees, incurred in connection with the Event of Default;
and
(3) To the payment of principal or redemption price (as the case may
be) and interest on the Bonds, and in case such moneys shall be
insufficient to pay the same in full, then to payment of principal or
redemption price and interest ratably, without preference or priority of
one over another or of any installment of interest over any other
installment of interest.
(b) The surplus, if any, shall be paid to the Company or the person
lawfully entitled to receive the same as a court of competent jurisdiction may
direct; provided that,
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if the Credit Facility Trustee has received payments on the Credit Facility
following the Event of Default, the surplus shall be paid to the Credit Facility
Issuer to the extent of such payments.
SECTION 9.12 CREDIT FACILITY TRUSTEE AND BONDHOLDERS ENTITLED TO ALL
REMEDIES UNDER THE ACT. It is the purpose of this Article IX to provide such
remedies to the Credit Facility Trustee and the Bondholders as may be lawfully
granted under the provisions of the Act, but should any remedy herein granted be
held unlawful, the Credit Facility Trustee and the Bondholders shall
nevertheless be entitled to every remedy provided by the Act. It is further
intended that, insofar as lawfully possible, the provisions of this Article
shall apply to and be binding upon any trustee or receiver appointed under
applicable law.
SECTION 9.13 CREDIT FACILITY TRUSTEE MAY FILE CLAIM IN BANKRUPTCY.
(a) In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relating to the Issuer, the Company or any other
obligor upon the Lease Agreement or the Bonds or to property of the Issuer, the
Company, or such other obligor or the creditors of any of them, the Credit
Facility Trustee (irrespective of whether the principal of the Bonds shall then
be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Credit Facility Trustee shall have made any demand
on the Company for the payment of an amount equal to overdue principal or
interest or additional interest) shall be entitled and empowered, by
intervention in such proceedings or otherwise.
(1) to file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Bonds and to file such other
papers or documents as may be necessary or advisable in order to have the
claims of the Credit Facility Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Credit
Facility Trustee, its agents and counsel) and of the Bondholders allowed in
such judicial proceeding; and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by the
Bondholders to make such payments to the Credit Facility Trustee, and in the
event that the Credit Facility Trustee shall consent to the making of such
payments directly to the Bondholders, to pay to the Credit Facility Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Credit Facility Trustee, its agents and counsel, and any other
amounts due the Credit Facility Trustee under Section 9.11 hereof.
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(b) Nothing herein contained shall be deemed to authorize the Credit
Facility Trustee to authorize or consent to or accept, or adopt on behalf of the
Bondholders, any plan of reorganization, arrangement, adjustment or composition
affecting the Bonds or the rights of any Bondholder thereof, or to authorize the
Credit Facility Trustee to vote in respect of the claim of the Bondholders in
any such proceeding.
(c) All moneys received by the Credit Facility Trustee pursuant to any
right given or action taken under this Indenture shall, after payment of the
costs and expenses of the proceedings resulting in the collection of such moneys
and the fees and expenses of the Credit Facility Trustee, be deposited in the
Bond Fund and applied to the payment of the principal of, redemption premium, if
any, and interest then due and unpaid on the Bonds in accordance with the
provisions of this Indenture.
SECTION 9.14 RECEIVER. Upon the occurrence of an Event of Default and
upon the filing of a suit or other commencement of judicial proceedings to
enforce the rights of the Credit Facility Trustee and of the Bondholders under
this Indenture, the Credit Facility Trustee shall be entitled, as a matter of
right, to the appointment of a receiver or receivers of the amounts payable
under the Lease Agreement and assigned to the Credit Facility Trustee under this
Indenture pending such proceedings, with such powers as the court making such
appointment shall confer, whether or not any such amounts payable shall be
deemed sufficient ultimately to satisfy the Bonds.
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ARTICLE X
CONCERNING THE TRUSTEE
SECTION 10.1 ACCEPTANCE OF THE TRUSTS. The Trustee hereby represents and
warrants to the Issuer (for the benefit of the Company and the Bondholders as
well as the Issuer) that it is a national banking association and that it is
duly authorized under the laws of the United States of America to accept and
execute trusts of the character herein set out.
The Trustee accepts and agrees to execute the trusts imposed upon it by
this Indenture, but only upon the terms and conditions set forth in this Article
and subject to the provisions of this Indenture including the following express
terms and conditions, to all of which the parties hereto and the Bondholders
agree:
(a) Except during the continuance of an Event of Default, the Trustee
undertakes to perform such duties and only such duties as are specifically
set forth in this Indenture, and no implied covenants or obligations shall
be read into this Indenture against the Trustee.
(b) In case an Event of Default has occurred and is continuing, 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 their exercise, as
a prudent man would exercise or use under the circumstances in the conduct
of his own affairs.
(c) The Trustee may execute any of the trusts or powers hereof and
perform any of its duties by or through attorneys, agents, receivers or
employees but shall be answerable for the conduct of the same in accordance
with the standard specified above, and shall be entitled to act upon the
opinion or advice of its Counsel concerning all matters of trust hereof and
the duties hereunder, and may in all cases be reimbursed hereunder for
reasonable compensation paid to all such attorneys, agents, receivers and
employees as may reasonably be employed in connection with the trust
hereof. The Trustee may conclusively rely upon an opinion of Counsel and
shall not be responsible for any loss or damage resulting from any action
or non-action by it taken or omitted to be taken in good faith in reliance
upon such opinion of Counsel.
(d) The Trustee shall not be responsible for any recital herein, or in
the Bonds (except in respect to the authentication certificate of the
Trustee endorsed on the Bonds), or for insuring the Trust Estate or any
part of the Project or collecting any insurance moneys, or for the validity
of the execution hereof by the Issuer or of any supplements hereto or
instruments of further assurance, or for the sufficiency of the security
for the Bonds; and the Trustee shall not be bound to ascertain or
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inquire as to the performance or observance of any agreements or conditions
on the part of the Issuer or on the part of the Company under the Lease
Agreement, except as hereinafter set forth; but the Trustee may require of
the Issuer or the Company full information and advice as to the performance
of the agreements and conditions aforesaid and as to the condition of the
Trust Estate.
(e) The Trustee shall not be liable in connection with the performance
or nonperformance of its duties under this Indenture except for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This subsection shall not be construed to limit the effect of
subsection (a) of this Section 10.1;
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a responsible Officer or Officers of the Trustee
unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(3) The Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with
the direction of a Majority of the Bondholders relating to the time,
method and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred upon the
Trustee under this Indenture.
(f) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee, including without
limitation Sections 10.3 and 10.4 hereof, shall be subject to the
provisions of this Section 10.1.
SECTION 10.2 ACCEPTANCE OF TRUSTS BY CREDIT FACILITY TRUSTEE. The Credit
Facility Trustee hereby represents and warrants to the Issuer (for the benefit
of the Company and the Bondholders as well as the Issuer) that it is a national
banking corporation and that it is authorized under the laws of the United
States of America to accept and execute trusts of the character herein set out.
The Credit Facility Trustee accepts and agrees to execute the trusts
imposed upon it by this Indenture and the Lease Agreement, but only upon the
terms and conditions set forth in this Article and subject to the provisions of
this Indenture and the Lease Agreement including the following express terms and
conditions, to all of which the parties hereto and the Bondholders agree:
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(a) Except during the continuance of an Event of Default, the Credit
Facility Trustee undertakes to perform such duties and only such duties as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Credit Facility
Trustee.
(b) In case an Event of Default has occurred and is continuing, the
Credit Facility 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 their
exercise, as a prudent man would exercise or use under the circumstances in
the conduct of his own affairs.
(c) The Credit Facility Trustee may execute any of the trusts or
powers hereof and perform any of its duties by or through attorneys,
agents, receivers or employees but shall be answerable for the conduct of
the same in accordance with the standard specified above, and shall be
entitled to act upon the opinion or advice of its counsel concerning all
matters of trust hereof and the duties hereunder, and may in all cases be
reimbursed hereunder for reasonable compensation paid to all such
attorneys, agents, receivers and employees as may reasonably be employed in
connection with the trust hereof. The Credit Facility Trustee may
conclusively rely upon an opinion of counsel and shall not be responsible
for any loss or damage resulting from any action or non-action by it taken
or omitted to be taken in good faith in reliance upon such opinion of
counsel.
(d) The Credit Facility Trustee shall not be liable in connection with
the performance or nonperformance of its duties under this Indenture except
for its own negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
(1) This subsection shall not be construed to limit the effect of
subsection (a) of this Section 10.2;
(2) The Credit Facility Trustee shall not be liable for any error
of judgment made in good faith by a responsible officer or officers of
the Credit Facility Trustee unless it shall be proved that the Credit
Facility Trustee was negligent in ascertaining the pertinent facts;
and
(3) The Credit Facility Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Majority Bondholders relating to
the time, method and place of conducting any proceeding for any remedy
available to the Credit Facility Trustee, or exercising any
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trust or power conferred upon the Credit Facility Trustee under this
Indenture.
(e) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Credit Facility Trustee,
including without limitation Sections 10.3 and 10.4 hereof, shall be
subject to the provisions of this Section 10.2.
SECTION 10.3 TRUSTEE OR CREDIT FACILITY TRUSTEE TO GIVE NOTICE.
(a) Neither the Credit Facility Trustee nor the Trustee shall be required
to take notice or be deemed to have notice of any default hereunder, except
failure by the Issuer to cause to be made any of the payments to the Trustee
required to be made by Article V or failure by the Issuer or the Company to file
with the Trustee any document required by this Indenture or the Lease Agreement
to be so filed, unless the Trustee or Credit Facility Trustee shall be notified
of such default by the Issuer or by the holders of 25% in aggregate principal
amount of Bonds then Outstanding or unless a responsible corporate trust officer
of the Credit Facility Trustee charged with the responsibility for the
management of the trusts conferred by this Indenture shall have actual knowledge
of such default.
(b) If a responsible trust officer of the Credit Facility Trustee charged
with the responsibility for the management of the trusts conferred by this
Indenture shall have actual knowledge of any Event of Default continuing
hereunder, the Credit Facility Trustee shall give to the Trustee, all
Bondholders and to the Credit Facility Issuer written notice of all such
defaults within thirty (30) days after receipt of such information.
SECTION 10.4 TRUSTEE AND THE CREDIT FACILITY TRUSTEE ENTITLED TO
INDEMNITY.
(a) The Company shall indemnify the Trustee and the Credit Facility Trustee
and their officers, directors and employees against any loss, liability or
expense incurred by any thereof arising out of or in connection with the
acceptance or administration of their duties under this Indenture, except as
set forth in subsection (b) below. The Trustee and the Credit Facility Trustee
shall notify the Company promptly of any claim for which it may seek indemnity.
Except where the Company is the claimant, the Company shall defend the claim,
and the Trustee and the Credit Facility Trustee shall cooperate in the defense.
The Trustee and the Credit Facility Trustee may have separate counsel, and the
Company shall pay the reasonable fees and expenses of such counsel.
(b) The Company shall not be obligated to reimburse any expense or to
indemnify against any loss or liability incurred by the Trustee and the Credit
Facility Trustee through negligence or bad faith.
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(c) To secure the Company's payment obligations in this Section, the
Trustee and the Credit Facility Trustee shall have a lien prior to the lien of
the Trustee for the benefit of the owners of the Bonds on all money or property
held or collected by the Trustee, except for amounts drawn under the Credit
Facility as to which the Trustee shall have no such lien. Such obligations shall
survive the satisfaction and discharge of this Indenture.
(d) When the Trustee or the Credit Facility Trustee, incurs expenses or
renders services after an Event of Default, the expenses and compensation for
the services are intended to constitute expenses of administration under any
applicable bankruptcy law.
(e) The Trustee or the Credit Facility Trustee may, nevertheless, begin
suit, or appear in and defend suit, or do anything else in its judgment proper
to be done by it as such Trustee or the Credit Facility Trustee, without
indemnity, and in such case the Issuer shall reimburse the Trustee or the Credit
Facility Trustee from funds available therefor under the Lease Agreement for all
costs and expenses, outlays and counsel fees and other reasonable disbursements
properly incurred in connection therewith; provided, however, that the Trustee
or the Credit Facility Trustee, as the case may be, shall:
(1) make all payments hereunder of principal and redemption price of
and interest on the Bonds and of the purchase price of Bonds tendered at
the option of the owners thereof or purchased by the Company in lieu of
redemption,
(2) accelerate the Bonds when required to do so hereunder other than
at the direction of the Bondholders, and
(3) draw on the Credit Facility when required to do so hereunder,
each without the necessity of the Bondholders providing security or indemnity to
the Trustee or the Credit Facility Trustee, as the case may be. If the Issuer
shall fail to make reimbursement, the Trustee and the Credit Facility Trustee
may reimburse itself from any moneys in its possession under the provisions of
this Indenture (other than amounts drawn under the Credit Facility) and shall be
entitled with respect thereto to a preference over the Bonds.
SECTION 10.5 TRUSTEE NOR THE CREDIT FACILITY TRUSTEE RESPONSIBLE FOR
INSURANCE, TAXES, EXECUTION OF THIS INDENTURE, ACTS OF THE ISSUER OR APPLICATION
OF THE MONEYS APPLIED IN ACCORDANCE WITH THIS INDENTURE.
(a) Neither the Trustee nor the Credit Facility Trustee shall be under any
obligation to effect or maintain insurance or to renew any policies of insurance
or to inquire as to the sufficiency of any policies of insurance carried by the
Company, or to report, or make or file claims or proof of loss for, any loss or
damage insured against or which may
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occur, or to keep itself informed or advised as to the payment of any taxes or
assessments, or to require any such payment to be made. Neither the Trustee nor
the Credit Facility Trustee shall have responsibility in respect of the
validity, sufficiency, due execution or acknowledgment of this Indenture or any
supplements thereto or instruments of further assurance or the validity or
sufficiency of the security provided hereunder or in respect of the validity of
the Bonds or the due execution or issuance thereof. Neither the Trustee nor the
Credit Facility Trustee shall be under any obligation to see that any duties
herein imposed upon any party other than itself, or any covenants herein
contained on the part of any party other than itself to be performed, shall be
done or performed, and the Trustee and the Credit Facility Trustee shall be
under no liability for failure to see that any such duties or covenants are so
done or performed.
(b) The Trustee and the Credit Facility Trustee shall not be liable or
responsible because of the failure of the Issuer or of any of its employees or
agents to make any collections or deposits or to perform any act herein required
of the Issuer or because of the loss of any moneys arising through the
insolvency or the act or default or omission of any other depository in which
such moneys shall have been deposited under the provisions of this Indenture.
The Trustee and the Credit Facility Trustee shall not be responsible for the
application of any of the proceeds of the Bonds or any other moneys deposited
with it and paid out, withdrawn or transferred hereunder if such application,
payment, withdrawal or transfer shall be made in accordance with the provisions
of this Indenture. The Trustee shall not be responsible or liable for any loss
suffered in connection with any investment of funds made by it in accordance
with Section 6.2 hereof.
(c) The permissive right of the Trustee and the Credit Facility Trustee to
do things enumerated in this Indenture shall not be construed as a duty, and the
Trustee and the Credit Facility Trustee shall not be answerable for other than
its negligence or willful misconduct. The immunities and exemptions from
liability of the Trustee and the Credit Facility Trustee hereunder shall extend
to the directors, officers, employees and agents of the Trustee and the Credit
Facility Trustee.
SECTION 10.6 COMPENSATION. The Issuer shall use its best efforts to
cause the Company to pay to the Trustee and the Credit Facility Trustee a total
annual fee of $3,500 each year during the term hereof and reasonable out-of-
pocket expenses in accordance with Section 7.8 of the Lease Agreement. In
computing such compensation, the parties shall not be limited by any law on the
compensation of an express trust. If the Company shall fail to make any payment
required by this Section 10.6, the Trustee may, but shall be under no obligation
to, make such payment from any moneys in its possession under the provisions of
this Indenture and shall be entitled to a preference therefor over the Bonds
hereunder; provided that no payments under this Section 10.6 shall be made with
moneys drawn under the Credit Facility. When the Trustee or the Credit Facility
Trustee incurs expenses or renders services after an Event of Default, the
expenses and compensation
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for the services are intended to and shall constitute expenses of administration
under any applicable bankruptcy law.
SECTION 10.7 TRUSTEE TO PRESERVE RECORDS. All records and files
pertaining to the Project in the custody of the Trustee shall be open at all
reasonable times to the inspection of the Issuer, the Credit Facility Issuer,
the Credit Facility Trustee and the Company and their agents and
representatives.
SECTION 10.8 TRUSTEE OR CREDIT FACILITY TRUSTEE MAY BE A BONDHOLDER. The
institution acting as Trustee and Credit Facility Trustee under this Indenture,
and directors, officers, employees or agents of the Trustee and the Credit
Facility Trustee, may in good faith buy, sell, own, hold and deal in the Bonds
issued under and secured by this Indenture, and may join in the capacity of a
Bondholder in any action which any Bondholder may be entitled to take with like
effect as if such institution were not the Trustee nor the Credit Facility
Trustee under this Indenture. To the extent permitted by law, such institution
may also receive tenders and purchase in good faith Bonds from itself, including
any department, affiliate or subsidiary, with like effect as if it were not the
Trustee or the Credit Facility Trustee, as the case may be.
SECTION 10.9 TRUSTEE AND CREDIT FACILITY TRUSTEE NOT RESPONSIBLE FOR
RECITALS. Except for the authentication of the Bonds by the Trustee, the
recitals, statements and representations contained herein and in the Bonds shall
be taken and construed as made by and on the part of the Issuer and not by the
Trustee or the Credit Facility Trustee, and, except for the authentication of
the Bonds by the Trustee, neither the Trustee nor the Credit Facility Trustee
shall be under any responsibility for the correctness of the same.
SECTION 10.10 NO RESPONSIBILITY FOR RECORDING OR FILING. Neither the
Trustee nor the Credit Facility Trustee shall be under any obligation to see to
the recording or filing of this Indenture, the Lease Agreement, any financing
statements or any other instrument or otherwise to the giving to any person of
notice of the provisions hereof or thereof.
SECTION 10.11 TRUSTEE AND CREDIT FACILITY TRUSTEE MAY REQUIRE INFORMATION.
Except for the obligations of the Credit Facility Trustee under Section 9.2
hereof, the obligations of the Trustee to make payments on the Bonds when due,
and the obligations of the Credit Facility Trustee to draw under the Credit
Facility as required hereunder, anything contained in this Indenture to the
contrary notwithstanding, the Trustee and the Credit Facility Trustee shall have
the right, but shall not be required, to demand, as a condition of any action by
the Trustee or the Credit Facility Trustee, as applicable, in respect of the
authentication of any Bonds, the withdrawal of any cash, the release of any
property, or any action whatsoever within the purview of this Indenture, any
showings, certificates, opinions, appraisals or other information, or corporate
action or evidence thereof, in addition to that required by the terms hereof.
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SECTION 10.12 TRUSTEE AND CREDIT FACILITY TRUSTEE MAY RELY ON
CERTIFICATES. The Trustee and the Credit Facility Trustee shall be protected and
shall incur no liability in acting or proceeding, or in not acting or not
proceeding, in good faith and in accordance with the terms of this Indenture,
upon any ordinance, resolution, order, notice, request, consent, waiver,
certificate, statement, instrument, opinion, affidavit, requisition, bond or
other paper or document which it shall in good faith believe to be genuine and
to have been adopted or signed by the proper board or person or to have been
prepared and furnished pursuant to any of the provisions of the Lease Agreement
or this Indenture, or upon the written opinion of any attorney, engineer,
accountant or other expert believed by it to be qualified in relation to the
subject matter, and neither the Trustee nor the Credit Facility Trustee shall be
under any duty to make any investigation or inquiry as to any statements
contained or matters referred to in any such instrument. Any action taken by the
Trustee or the Credit Facility Trustee pursuant to this Indenture upon the
request or authority or consent of any person who at the time of making such
request or giving such authority or consent is the owner of any Bond shall be
conclusive and binding upon all future owners of the same Bond and upon Bonds
issued in exchange therefor or in place thereof.
SECTION 10.13 TRUSTEE OR CREDIT FACILITY TRUSTEE BOND. Neither the Trustee
nor the Credit Facility Trustee shall be required to give any bond or surety in
respect to the execution of its rights and obligations hereunder.
SECTION 10.14 SEGREGATION OF FUNDS; INTERESTS. All moneys received by the
Trustee and the Credit Facility Trustee shall, until used or applied or invested
as herein provided, be held in trust in the manner and for the purposes for
which they were received but need not be segregated from other funds except to
the extent required by this Indenture or law. Neither the Trustee nor the Credit
Facility Trustee shall be under any liability for interest on any moneys
received hereunder.
SECTION 10.15 QUALIFICATION OF THE TRUSTEE AND THE CREDIT FACILITY
TRUSTEE. There shall at all times be a Trustee and, until the Conversion Date, a
Credit Facility Trustee hereunder which shall be an association or a corporation
organized and doing business under the laws of the United States of America or
of any state, authorized under such laws and the applicable laws of the State to
exercise corporate trust powers and act as Bond Registrar hereunder, having a
combined capital and surplus of at least Fifty Million Dollars ($50,000,000) for
the Trustee or Twenty-Five Million Dollars ($25,000,000) for the Credit Facility
Trustee, and subject to supervision or examination by federal or state
authority. If such association or corporation is not a commercial bank or trust
company, it shall also have a rating by Moody's (if the Bonds are then rated by
Moody's) of BAA 3/P3 or higher, or by S&P (if the Bonds are then rated by S&P)
of BBB/A3 or higher or shall otherwise be approved in writing by Moody's or S&P,
as the case may be. If such association or corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the
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purposes of this Section 10.15, the combined capital and surplus of such
association or corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
addition, under no circumstances shall the Credit Facility Trustee and the
Credit Facility Issuer be the same person or be Affiliates of one another. If at
any time the Trustee or the Credit Facility Trustee shall cease to be eligible
in accordance with the provisions of this Section 10.15, it shall resign
immediately in the manner and with the effect specified in Section 10.16 hereof.
SECTION 10.16 RESIGNATION AND REMOVAL OF THE TRUSTEE OR CREDIT FACILITY
TRUSTEE.
(a) No resignation or removal of the Trustee or the Credit Facility Trustee
and no appointment of a successor Trustee or successor Credit Facility Trustee
pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee or the successor Credit Facility Trustee
under Section 10.17 hereof.
(b) The Trustee or the Credit Facility Trustee may resign at any time by
giving written notice thereof to the Issuer and the Company. If an instrument
of acceptance by a successor Trustee or successor Credit Facility Trustee shall
not have been delivered to the Trustee or Credit Facility Trustee within thirty
(30) days after the giving of such notice of resignation, the resigning Trustee
or Credit Facility Trustee may petition any court of competent jurisdiction for
the appointment of a successor Trustee or successor Credit Facility Trustee.
(c) The Trustee and the Credit Facility Trustee may be removed at any time
by an instrument or instruments in writing to the Trustee or Credit Facility
Trustee, as the case may be, with copies to the Issuer and the Company, signed
by a Majority of the Bondholders or by their attorneys, legal representatives or
agents and delivered to the Trustee, the Credit Facility Trustee, the Issuer and
the Company (such instruments to be effective only when received by the Trustee
or Credit Facility Trustee as the case may be).
(d) If at any time:
(1) the Trustee or Credit Facility Trustee shall cease to be eligible
under Section 10.15 hereof and shall fail to resign after written request
therefor by the Company or by a Majority of the Bondholders, or
(2) the Trustee or Credit Facility Trustee shall become incapable of
acting or shall be adjudged a bankrupt or insolvent or a receiver of the
Trustee or Credit Facility Trustee or of the property of the Trustee or the
Credit Facility Trustee shall be appointed or any public officer shall take
charge or control of the Trustee or Credit Facility Trustee or of the
property or affairs for the purpose of rehabilitation, conservation or
liquidation of the Trustee or the Credit Facility Trustee,
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then, in any such case, the Issuer or the Company may remove the Trustee or the
Credit Facility Trustee, or any Bondholder may petition any court of competent
jurisdiction for the removal of the Trustee or Credit Facility Trustee, and the
appointment of a successor.
(e) If the Trustee or Credit Facility Trustee shall resign, be removed or
become incapable of acting, or if a vacancy shall occur in the office of Trustee
or the Credit Facility Trustee for any cause, the Issuer with the approval of
the Company shall promptly appoint a successor. If, within one year after such
resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee or successor Credit Facility Trustee shall be appointed by act
of the Majority of the Bondholders delivered to the Company and the resigning or
removed Trustee or Credit Facility Trustee, the successor Trustee or successor
Credit Facility Trustee so appointed shall forthwith upon its acceptance of such
appointment, become the successor Trustee or successor Credit Facility Trustee,
as the case may be, and supersede the successor Trustee or successor Credit
Facility Trustee appointed by the Issuer and approved by the Company. If no
successor Trustee or successor Credit Facility Trustee shall have been so
appointed by the Issuer and approved by the Company or a Majority of the
Bondholders and accepted appointment in the manner hereinafter provided, any
Bondholder, if he has been a bona fide owner of a Bond for at least six (6)
months, may petition any court of competent jurisdiction for the appointment of
a successor Trustee or successor Credit Facility Trustee, as the case may be.
(f) The Issuer shall cause the successor Trustee to give notice of each
resignation and each removal of the Trustee or the Credit Facility Trustee and
each appointment of a successor Trustee or successor Credit Facility Trustee by
mailing written notice of such event by first class mail, postage prepaid, to
each Bondholder. Each notice shall include the name and address of the
principal corporate trust office of the successor Trustee or successor Credit
Facility Trustee, as applicable.
SECTION 10.17 SUCCESSOR TRUSTEE OR CREDIT FACILITY TRUSTEE.
(a) Every successor Trustee appointed hereunder and any successor Credit
Facility Trustee appointed hereunder shall execute, acknowledge and deliver to
its predecessor, and also to the Issuer and the Company, an instrument in
writing accepting such appointment hereunder, and thereupon and upon transfer of
the Credit Facility to the successor Credit Facility Trustee, such successor
Trustee or successor Credit Facility Trustee without any further act, shall
become fully vested with all the rights, immunities, powers and trusts, and
subject to all the duties and obligations, of its predecessor; but such
predecessor shall, nevertheless, on the written request of its successor or of
the Issuer and upon payment of the expenses, charges and other disbursements of
such predecessor which are payable pursuant to the provisions of Section 10.6
hereof, execute and deliver an instrument transferring to such successor Trustee
or such successor Credit Facility Trustee all the rights, immunities, powers and
trusts of such predecessor hereunder; and every predecessor Trustee or
predecessor Credit Facility Trustee, as the
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case may be, shall deliver all property and moneys held by it hereunder to its
successor, subject, nevertheless, to its preference, if any, provided for in
Sections 10.4 and 10.6 hereof. Should any instrument in writing from the Issuer
be required by any successor Trustee or successor Credit Facility Trustee for
more fully and certainly vesting in such Trustee or such Credit Facility Trustee
the rights, immunities, powers and trusts hereby vested or intended to be vested
in the predecessor Trustee or predecessor Credit Facility Trustee, any such
instrument in writing shall and will, on request, be executed, acknowledged and
delivered by the Issuer. The resignation of any Trustee or Credit Facility
Trustee and the instrument or instruments removing any Trustee or Credit
Facility Trustee and appointing a successor hereunder, together with all other
instruments provided for in this Article, shall be filed and/or recorded by the
successor Trustee or successor Credit Facility Trustee in each recording office
where this Indenture and the Financing Statements have been filed and/or
recorded.
(b) Notwithstanding any of the foregoing provisions of this Article, any
bank or trust company having power to perform the duties and execute the trusts
of this Indenture and otherwise qualified to act as Trustee or Credit Facility
Trustee hereunder with or into which the bank or trust company acting as Trustee
or Credit Facility Trustee may be merged or consolidated, or to which the assets
and business of such bank or trust company may be sold, shall be deemed the
successor of the Trustee or Credit Facility Trustee, as applicable; provided,
however, that any sale of trust assets, if any, other than as part of all other
assets of the bank or trust company being sold shall be deemed a resignation
pursuant to Section 10.16 hereof.
SECTION 10.18 CO-TRUSTEE. It is the purpose of this Indenture that there
shall be no violation of any law of any jurisdiction denying or restricting the
right of certain banking corporations or associations to transact business as
trustee as contemplated herein in such jurisdiction. It is recognized that in
case of litigation under this Indenture and in particular in case of the
enforcement of the security interest contained in this Indenture upon the
occurrence of an Event of Default, it may be necessary that the Trustee appoint
an additional individual or institution as a separate Trustee or Co-Trustee,
which shall be satisfactory to the Company. The following provisions of this
Section 10.18 are adapted to these ends:
(a) In the event of the incapacity or lack of authority of the Trustee
by reason of any present or future law of any jurisdiction to exercise any
of the rights, powers and trusts herein granted to the Trustee or to hold
title to or a security interest in the Trust Estate or to take any other
action which may be necessary or desirable in connection therewith, each
and every remedy, power, right, claim, demand, cause of action, immunity,
estate, title, interest and lien expressed or intended by this Indenture to
be exercised by or vested in or conveyed to the Trustee with respect
thereto shall be exercisable by and vest in such separate Trustee or Co-
Trustee but only to the extent necessary to enable the separate
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Trustee or Co-Trustee to exercise such rights, powers and trusts, and every
covenant and obligation necessary to the exercise thereof shall run to and
be enforceable by such separate Trustee or Co-Trustee.
(b) Should any deed, conveyance or instrument in writing from the
Issuer be required by the separate Trustee or Co-Trustee so appointed by
the Trustee in order to more fully and certainly vest in and confirm to it
such properties, rights, powers, trusts, duties and obligations any and all
such deeds, conveyances and instruments shall, on request, be executed,
acknowledged and delivered by the Issuer. In case any separate Trustee or
Co-Trustee or a successor to either, shall die, be dissolved, become
incapable of action, resign or be removed, all the estates, properties,
rights, powers, trusts, duties and obligations of such separate Trustee or
Co-Trustee, so far as permitted by are, shall vest in and be exercised by
the Trustee until the appointment of a new Trustee or successor to such
separate Trustee or Co-Trustee.
SECTION 10.19 NOTICE TO MOODY'S OR S&P. At any time during which the
Bonds are rated by Moody's or S&P, the Trustee, to the extent it has knowledge
of the following, shall notify Moody's or S&P, as applicable, promptly of:
(a) any change in the Trustee,
(b) the expiration or termination of the Credit Facility during the
Variable Rate Period or the provision of an Alternate Credit Facility in
accordance with the terms of this Indenture,
(c) a change in the interest rate borne by the Bonds from a Variable
Rate to a Fixed Rate,
(d) the payment of all of the Bonds, or
(e) any material change to this Indenture, the Lease Agreement, or the
Reimbursement Agreement.
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ARTICLE XI
EXECUTION OF INSTRUMENTS BY THE BONDHOLDERS
AND PROOF OF OWNERSHIP OF THE BONDS
SECTION 11.1 EXECUTION OF INSTRUMENTS BY THE BONDHOLDERS AND PROOF OF
OWNERSHIP OF THE BONDS.
(a) Any request, direction, consent or other instrument in writing required
or permitted by this Indenture to be signed or executed by a Bondholder may be
signed or executed by the Bondholder or its attorneys or legal representatives.
Proof of the execution of any such instrument and of the ownership of the Bonds
shall be sufficient for any purpose of this Indenture and shall be conclusive in
favor of the Trustee and the Credit Facility Trustee with regard to any action
taken by the Trustee or the Credit Facility Trustee under such instrument if
made in the following manner:
The fact and date of the execution by any person of any such
instrument may be proved by the verification of any officer in any
jurisdiction who, by the laws thereof, has power to take affidavits within
such jurisdiction, to the effect that such instrument was subscribed and
sworn to before him, or by an affidavit of a witness to such execution, and
where such execution is by an officer of a corporation or association or a
member of a partnership on behalf of such corporation, association or
partnership, such verification or affidavit shall also constitute
sufficient proof of his authority.
(b) Nothing contained in this Section 11.1 shall be construed as limiting
the Trustee or the Credit Facility Trustee to such proof, it being intended that
the Trustee or the Credit Facility Trustee may accept any other evidence of the
matters herein stated which may be sufficient. Any request or consent of a
Bondholder shall bind every future owner of the Bond(s) to which such request or
consent pertains or any Bond(s) issued in lieu thereof in respect of anything
done by the Trustee or the Credit Facility Trustee pursuant to such request or
consent.
(c) Notwithstanding any of the foregoing provisions of this Section 11.1,
the Trustee and the Credit Facility Trustee shall not be required to recognize
any person as an owner of Bonds or to take any action at such owner's request
unless the Bonds shall be deposited with the Trustee or the Credit Facility
Trustee, as applicable.
SECTION 11.2 PRESERVATION OF INFORMATION. The Trustee shall preserve
in the Bond Register, in as current a form as is reasonably practicable, the
name and address of each Bondholder received by the Trustee in its capacity as
Bond Registrar.
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ARTICLE XII
THE REMARKETING AGENT, THE
TENDER AGENT AND THE PLACEMENT AGENT
SECTION 12.1 THE REMARKETING AGENT.
(a) The Issuer hereby appoints First Union National Bank, with its
corporate office in Charlotte, North Carolina, as Remarketing Agent under this
Indenture. The Remarketing Agent and any successor Remarketing Agent, by
written instrument delivered to the Issuer, the Trustee and the Company, shall
accept the duties and obligations imposed on it under this Indenture and the
Remarketing Agreement.
(b) In addition to the other obligations imposed on the Remarketing Agent
hereunder, the Remarketing Agent shall agree to keep such books and records in
connection with its activities as Remarketing Agent hereunder as shall be
consistent with prudent industry practice and make such books and records
available for inspection by the Issuer, the Trustee, the Credit Facility Issuer
and the Company at all reasonable times.
(c) The Remarketing Agent shall at all times be a member of the National
Association of Securities Dealers, Inc. and registered as a Municipal Securities
Dealer under the Securities Exchange Act of 1934, as amended, or a national
banking association or a bank or a trust company, in each case authorized by law
to perform its obligations hereunder.
(d) If at any time the Remarketing Agent is unable or unwilling to act as
Remarketing Agent, the Remarketing Agent, upon sixty (60) Business Days' prior
written notice to the Issuer, the Trustee, the Credit Facility Trustee, the
Credit Facility Issuer, the Tender Agent and the Company, may resign. The
Remarketing Agent may be removed at any time by the Company with the consent of
the Issuer, by written 30 days notice signed by the Company delivered to the
Trustee, the Remarketing Agent, the Credit Facility Issuer and the Tender Agent.
Upon resignation or removal of the Remarketing Agent, the Company, with the
consent of the Issuer, shall appoint a substitute Remarketing Agent meeting the
qualifications of Section 12.1(c) above.
(e) In the event that the Company shall fail to appoint a successor
Remarketing Agent, upon the resignation or removal of the Remarketing Agent or
upon its dissolution, insolvency or bankruptcy, the Trustee may, but is not
required to, appoint a Remarketing Agent or may itself act as Remarketing Agent
until the appointment of a successor Remarketing Agent in accordance with this
Section 12.1; provided, however, that the Trustee, in its capacity as
Remarketing Agent, shall not be required to sell Bonds or determine the interest
rate on the Bonds pursuant to Section 2.2 hereof.
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SECTION 12.2 THE TENDER AGENT.
(a) The Issuer hereby appoints as Tender Agent under this Indenture First
Union National Bank, which agent has a corporate trust office in Richmond,
Virginia. The Tender Agent and any successor Tender Agent, by written
instrument delivered to the Issuer, the Trustee and the Company, shall accept
the duties and obligations imposed on it under this Indenture.
(b) The Tender Agent shall at all times be a member of the National
Association of Securities Dealers, Inc. having a capitalization of at least
Fifteen Million Dollars ($15,000,000) and a rating by Moody's (if the Bonds are
then rated by Moody's) of Baa 3/P3 or higher or a national banking association
of a bank or a trust company having capital and surplus of at least $50,000,000,
in each case authorized by law to perform its obligations hereunder.
(c) If at any time the Tender Agent is unable or unwilling to act as Tender
Agent, the Tender Agent, upon sixty (60) days' prior written notice to the
Issuer, the Trustee, the Remarketing Agent and the Company, may resign;
provided, however, that in no case shall such resignation become effective until
the appointment of a successor Tender Agent. The Tender Agent may be removed at
any time by the Company with the consent of the Issuer, by written notice signed
by the Company delivered to the Trustee, the Remarketing Agent, the Credit
Facility Issuer and the Tender Agent; provided, however, that in no case shall
such removal become effective until the appointment of a successor Tender Agent.
Upon resignation or removal of the Tender Agent, the Company, with the consent
of the Issuer, shall appoint a substitute Tender Agent meeting the
qualifications of Section 12.2(b) above.
(d) In the event that the Company shall fail to appoint a successor Tender
Agent, upon the resignation or removal of the Tender Agent or upon its
dissolution, insolvency or bankruptcy, the Trustee may at its discretion, but is
not required to, act as Tender Agent until the appointment of a successor Tender
Agent in accordance with this Section 12.2.
SECTION 12.3 THE PLACEMENT AGENT. The Placement Agent shall be a member of
the National Association of Securities Dealers, Inc. and registered as a
municipal securities dealer under the Securities Exchange Act of 1934, as
amended, or a national banking association or a bank or trust company, in each
case authorized by law to perform its obligations described in Section 2.2(e)
hereof.
SECTION 12.4 NOTICES. The Trustee shall, within thirty (30) days of
the resignation or removal of the Remarketing Agent or the Tender Agent or the
appointment of the Placement Agent or a successor Remarketing Agent or a
successor Tender Agent, give notice thereof by first class mail, postage
prepaid, to the owners of the Bonds.
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ARTICLE XIII
AMENDMENTS AND SUPPLEMENTS
SECTION 13.1 AMENDMENTS AND SUPPLEMENTS WITHOUT THE BONDHOLDERS' CONSENT.
This Indenture may be amended or supplemented at any time and from time to time,
without the consent of the Bondholders, but with the consent of the Company and
the Credit Facility Issuer, if a Credit Facility is in effect (and no Event of
Default has occurred and is continuing under the Credit Facility), by a
supplemental indenture authorized by a resolution of the Issuer filed with the
Trustee, for one or more of the following purposes:
(a) to add additional covenants of the Issuer or to surrender any
right or power herein conferred upon the Issuer;
(b) for any purpose not inconsistent with the terms of this Indenture
or to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any
supplemental indenture, or to make such other provisions in regard to
matters or questions arising under this Indenture which shall not adversely
affect the interests of the owners of the Bonds;
(c) to permit the Bonds to be converted during the Variable Rate
Period to certificateless securities or securities represented by a master
certificate held in trust, ownership of which, in either case, is evidenced
by book entries on the books of the Bond Registrar, for any period of time;
(d) to permit the appointment of a Co-Trustee under this Indenture;
(e) to modify, eliminate or add to the provisions of this Indenture to
such extent as shall be necessary to effect the qualification of this
Indenture under the Trust Indenture Act of 1939, as amended, or under any
similar federal statute hereafter enacted, and to add to this Indenture
such other provisions as may be expressly permitted by the Trust Indenture
Act of 1939, as amended;
(f) except as otherwise provided in Section 13.2 hereof, to modify,
eliminate or add to the provisions of this Indenture to such extent as
shall be necessary to obtain a rating of the Bonds from Moody's or S&P;
(g) to amend the administrative provisions hereof to accommodate the
provisions of an Alternate Credit Facility; and
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(h) to change or modify any provisions of the Indenture (other than as
specified in Section 13.2 hereof) which in the judgment of the Trustee are
not to the material prejudice of any Bondholder.
Notwithstanding the foregoing, prior to the making of any amendment or
supplement as described in the preceding paragraph, the Company shall
provide the Trustee and the Credit Facility Trustee and during the Variable
Rate Period (if no Event of Default has occurred and is continuing under
the Credit Facility) the Credit Facility Issuer with:
(1) a copy of the proposed amendment or supplement, and
(2) an opinion of Bond Counsel to the effect that unless the
Trustee shall have otherwise given its consent to such amendment or
supplement, to the effect that such amendment or supplement will not
otherwise adversely affect the interests of the Bondholders.
SECTION 13.2 AMENDMENTS WITH THE BONDHOLDERS' AND THE CREDIT FACILITY
ISSUER'S CONSENT.
(a) This Indenture may be amended pursuant to Section 13.2 from time to
time, except with respect to:
(1) the principal, redemption price, purchase price, or interest
payable upon any Bonds,
(2) the Interest Payment Dates, the dates of maturity or the
redemption or purchase provisions of any Bonds, and
(3) this Article XIII,
by a supplemental indenture authorized by a resolution of the Issuer filed with
the Trustee and consented to by the Credit Facility Issuer if a Credit Facility
is in effect (and no Event of Default has occurred and is continuing under the
Credit Facility) and by the Company.
(b) This Indenture may be amended with respect to the matters enumerated in
paragraphs (1) through (3) of subsection (a) of this Section with the unanimous
consent of all Bondholders, the Credit Facility Issuer if a Credit Facility is
in effect (and no Event of Default has occurred and is continuing under the
Credit Facility), the Company and the Issuer.
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(c) Notwithstanding the foregoing provisions of this Section 13.2, prior to
the making of any amendment or supplement as described in this Section 13.2, the
Company shall provide the Trustee, the Credit Facility Trustee and during the
Variable Rate Period (if no Event of Default has occurred and is continuing
under the Credit Facility) the Credit Facility Issuer with:
(1) a copy of the proposed amendment or supplement, and
(2) an opinion of Bond Counsel that unless the Trustee shall have
otherwise given its consent to such amendment or supplement, to the effect
that such amendment or supplement will not otherwise adversely affect the
interests of the Bondholders.
SECTION 13.3 SUPPLEMENTAL INDENTURES AFFECTING THE RIGHTS OF THE CREDIT
FACILITY ISSUER. Anything herein to the contrary notwithstanding, a
supplemental indenture under this Article XIII which in the judgment of the
Credit Facility Issuer if a Credit Facility is in effect (and no default has
occurred and is continuing under the Credit Facility) materially and adversely
affects the rights of the Credit Facility Issuer shall not become effective
unless or until the Credit Facility Issuer shall have consented to the execution
and delivery thereof.
SECTION 13.4 AMENDMENT OF THE LEASE AGREEMENT.
(a) The Company and the Issuer may amend the Lease Agreement but as to any
amendment to the Lease Agreement during the Variable Rate Period with the
consent of the Credit Facility Issuer (if no default has occurred and is
continuing under the Credit Facility); provided that prior to making any
amendment, the Company shall provide the Trustee and the Credit Facility Trustee
during the Variable Rate Period (if no default has occurred and is continuing
under the Credit Facility) the Credit Facility Issuer with:
(1) copy of the proposed amendment, and
(2) an opinion of Bond Counsel that unless the Trustee shall have
otherwise given its consent to such amendment, to the effect that such
amendment will not otherwise adversely affect the interests of the
Bondholders.
Notwithstanding the foregoing, the Issuer and the Company may amend the Lease
Agreement to such extent as may be necessary to obtain a rating of the Bonds
from Moody's or S&P without providing the opinion of Bond Counsel specified in
paragraph (2) above.
(b) If the Company proposes to amend the Lease Agreement in such a manner
as would materially and adversely affect the interests of the Bondholders, the
Trustee shall
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notify Bondholders of the proposed amendment and may consent thereto with the
consent of at least a Majority of the Bondholders which would be affected by the
action proposed to be taken; provided, that the Trustee shall not, without the
unanimous consent of the owners of all Bonds then Outstanding, consent to any
amendment which would:
(1) decrease the amounts payable under the Lease Agreement,
(2) change the due date of rental payments corresponding with payment
of principal of or interest on the Bonds or change any of the prepayment
provisions of the Lease Agreement, or
(3) change Section 5.6 of the Lease Agreement.
SECTION 13.5 AMENDMENT OF THE LEASE AGREEMENT REQUIRING THE CONSENT OF THE
CREDIT FACILITY ISSUER. Anything herein to the contrary notwithstanding, any
amendment, change or modification of the Lease Agreement which in the judgment
of the Credit Facility Issuer (if a Credit Facility is in effect and no default
has occurred and is continuing under the Credit Facility) materially and
adversely affects the rights of the Credit Facility Issuer shall not become
effective unless or until the Credit Facility Issuer shall have consented to the
execution and delivery of such amendment, change or modification.
SECTION 13.6 AMENDMENT OF THE CREDIT FACILITY. The initial Credit
Facility may be amended to such extent as shall be necessary to obtain a rating
of the Bonds from Moody's or S&P provided that such amendment or supplement will
not adversely affect the interests of the Bondholders. The Trustee shall notify
the Bondholders and the Issuer of any proposed amendment of the Credit Facility
which would materially and adversely affect the interests of the Bondholders and
may consent thereto with the consent of the Issuer, which consent shall not be
unreasonably withheld, and the consent of at least a Majority of the Bondholders
which would be affected by the action proposed to be taken; provided, that the
Trustee shall not, without the unanimous consent of the owners of all Bonds then
Outstanding, consent to any amendment which would decrease the amount payable
under the Credit Facility or reduce the term of the Credit Facility.
SECTION 13.7 TRUSTEE AND THE CREDIT FACILITY TRUSTEE AUTHORIZED TO JOIN IN
AMENDMENTS AND SUPPLEMENTS; RELIANCE ON COUNSEL. The Trustee and the Credit
Facility Trustee are authorized to join with the Issuer in the execution and
delivery of any supplemental indenture or amendment permitted by this Article
XIII and in so doing shall be fully protected by an opinion of Counsel that such
supplemental indenture or amendment is so permitted and has been duly authorized
by the Issuer and that all things necessary to make it a valid and binding
agreement have been done; provided that certain amendments may, by agreement
between the Trustee and the Credit Facility Issuer, require the prior consent of
the Credit Facility Issuer.
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ARTICLE XIV
DEFEASANCE: OTHER PAYMENTS
SECTION 14.1 DEFEASANCE.
(a) When the principal or redemption price (as the case may be) of, and
interest on all Bonds issued hereunder have been paid, including without
limitation the purchase price for Bonds tendered under Section 2.2 hereof, or
provision has been made for payment of the same, together with the compensation
of the Trustee and all other sums payable hereunder by the Issuer, the right,
title and interest of the Trustee and the Credit Facility Trustee in and to the
Trust Estate and the security interests shall thereupon cease, and the Trustee
and the Credit Facility Trustee, on written demand of the Issuer, shall release
this Indenture and the security interests and shall execute such documents to
evidence such release as may be reasonably required by the Issuer and shall turn
over to the Company or to such person, body or authority as may be entitled to
receive the same all balances then held by the Trustee or the Credit Facility
Trustee hereunder; provided, that, if any payments have been received by the
Trustee or the Credit Facility Trustee derived from draws by the Credit Facility
Trustee under the Credit Facility in connection with such release, such balances
shall be paid to the Credit Facility Issuer to the extent of such payments. If
payment or provision therefor is made with respect to less than all of the
Bonds, the particular Bonds (or portion thereof) for which provision for payment
shall have been considered made shall be selected by lot by the Trustee and
thereupon the Trustee shall take similar action for the release of this
Indenture with respect to such Bonds. Notwithstanding anything to the contrary
contained herein, Bonds purchased at the option of the owners thereof with
moneys held by the Trustee pursuant to this Article XIV shall not be remarketed
but shall be canceled by the Trustee.
(b) Provision for the payment of Bonds shall be deemed to have been made
when the Trustee holds in the Bond Fund, in trust and irrevocably set aside
exclusively for such payment, (1) moneys sufficient to make such payment
provided that if a Credit Facility is then held by the Trustee or the Credit
Facility Trustee, such moneys shall constitute Available Moneys or (2)
noncallable Governmental Obligations maturing as to principal and interest in
such amounts and at such times as will provide sufficient moneys without
reinvestment to make such payment, and provided, that if a Credit Facility is
then held by the Credit Facility Trustee, such Governmental Obligations shall
have been on deposit with the Trustee in a separate and segregated account for a
period of three hundred sixty-six (366) days during and prior to which no Event
of Bankruptcy has occurred or which Governmental Obligations were purchased with
Available Moneys.
(c) No Bonds in respect of which a deposit under subsection (b) above has
been made shall be deemed paid within the meaning of this Article unless the
Trustee is satisfied that the amounts deposited are sufficient to make all
payments that might become due on
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the Bonds, including purchase price payments for Bonds tendered at the option of
the owners or purchased by the Company in lieu of redemption, if any.
Notwithstanding the foregoing, no delivery to the Trustee under this subsection
(c) shall be deemed a payment of any Bonds which are to be redeemed prior to
their stated maturity until such Bonds shall have been irrevocably called or
designated for redemption on a date thereafter on which such Bonds may be
redeemed in accordance with the provisions of this Indenture or the Issuer shall
have given the Trustee, in form satisfactory to the Trustee, irrevocable
instructions to give notice of redemption. Neither the obligations nor moneys
deposited with the Trustee pursuant to this Section shall be withdrawn or used
for any purpose other than, and shall be segregated and held in trust for, the
payment of the principal of, redemption price of, purchase price if applicable
of, and interest on the Bonds with respect to which such deposit has been made.
In the event that such moneys or obligations are to be applied to the payment of
principal or redemption price of any Bonds more than sixty (60) days following
the deposit thereof with the Trustee, the Trustee shall mail a notice stating
that such moneys or obligations have been deposited and identifying the Bonds
for the payment of which such moneys or obligations are being held to all owners
of such Bonds at their addresses shown on the Bond Register.
(d) Anything in Article XIV to the contrary notwithstanding, if moneys or
Governmental Obligations have been deposited or set aside with the Trustee
pursuant to this Article for the payment of the principal or redemption price,
including purchase price if applicable, of the Bonds and the interest thereon
and such moneys or Governmental Obligations do not constitute Available Moneys,
no amendment to the provisions of this Article shall be made without the consent
of the owner of each of the Bonds affected thereby.
(e) Notwithstanding the foregoing, those provisions relating to the
purchase of Bonds upon the demand of any Bondholders, the maturity of Bonds,
interest payments and dates thereof, and the dates, premiums and notice
requirements for optional and mandatory redemption or purchase and the Trustee's
remedies with respect thereto, and provisions relating to exchange, transfer and
registration of Bonds, replacement of mutilated, destroyed, lost or stolen
Bonds, the safekeeping and cancellation of Bonds, non-presentment of Bonds, the
holding of moneys in trust and repayments to the Company or the Credit Facility
Issuer from the Bond Fund and the duties of the Trustee in connection with all
of the foregoing and the fees, expenses and indemnities of the Trustee and the
Credit Facility Trustee, shall remain in effect and shall be binding upon the
Trustee, the Credit Facility Trustee, the Issuer, the Company and the
Bondholders notwithstanding the release and discharge of the lien of this
Indenture.
SECTION 14.2 DEPOSIT OF FUNDS FOR PAYMENT OF THE BONDS. If the principal
or redemption price of any Bonds to become due, either at maturity or by call
for redemption or otherwise, together with all interest accruing thereon to the
due date, has been paid or provision therefor made in accordance with Section
14.1 hereof, all interest on such Bonds
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shall cease to accrue on the due date and all liability of the Issuer with
respect to such Bonds shall likewise cease, except as hereinafter provided.
Thereafter the owners of such Bonds shall be restricted exclusively to the funds
so deposited for any claim of whatsoever nature with respect to such Bonds, and
the Trustee shall hold such funds in trust for such owners.
SECTION 14.3 EFFECT OF PURCHASE OF THE BONDS. No purchase of Bonds
pursuant to Section 3.3 hereof shall be deemed to be a payment or redemption of
such Bonds or any portion thereof and such purchase will not operate to
extinguish or discharge the indebtedness evidenced by such Bonds.
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ARTICLE XV
MISCELLANEOUS PROVISIONS
SECTION 15.1 COVENANTS OF THE ISSUER TO BIND ITS SUCCESSORS. In the event
of the dissolution of the Issuer, all of the covenants, stipulations,
obligations and agreements contained in this Indenture by or on behalf of or for
the benefit of the Issuer shall bind or inure to the benefit of the successor or
successors of the Issuer from time to time and any officer, board, commission,
authority, agency or instrumentality to whom or to which any power or duty
affecting such covenants, stipulations, obligations and agreements shall be
transferred by or in accordance with law, and the term "Issuer" as used in this
Indenture shall include such successor or successors.
SECTION 15.2 NOTICES.
(a) Any notice, demand, direction, request or other instrument authorized
or required by this Indenture to be given or filed with the Issuer, the Trustee,
the Credit Facility Trustee, the Company or the Credit Facility Issuer shall be
in writing and shall be deemed given or filed for all purposes of this Indenture
when delivered by hand delivery, sent via overnight courier service or mailed by
first class mail, postage prepaid, registered or certified mail, addressed as
follows:
(1) If to the Issuer: Development Authority of McDuffie County, c/o Samuel
A. Fowler, Jr., Esquire, P.O. Box 1620, 318 Jackson Street, Thomson, Georgia
30824-1150;
(2) If to the Trustee: First Union National Bank, 901 East Cary Street,
2nd Floor, Richmond, Virginia 23219, Attention: Corporate Trust Department;
(3) If to the Credit Facility Trustee: Branch Banking and Trust Company,
223 West Nash Street, Wilson, North Carolina 27893, Attention: Corporate Trust
Department;
(4) If to any successor Trustee, successor Credit Facility Trustee or Co-
Trustee, addressed to it at its principal corporate trust office, Attention:
Corporate Trust Department;
(5) If to the Company, to Advance Stores Company, Incorporated, P.O. Box
2710, 5673 Airport Road, Roanoke, Virginia 24012;
(6) If to the Bank, to First Union National Bank, 201 South Jefferson
Street, VA 7387 Underwriting, Roanoke, Virginia 24011 ; and
(7) If to any Credit Facility Issuer (other than the Bank), addressed to it
at its principal office;
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and if sent by telegraph, telegram report of delivery requested, or telecopy,
addressed as above, at the time and date appearing on the report of delivery.
Notwithstanding the foregoing, the delivery of Bonds, Optional Tender Notices,
or Optional Retention Notices to the Trustee or Tender Agent if made by
telegraph, telegram or telecopy, must be made by delivery of the hard copy by
overnight delivery on the date of delivery of such telegraph, telegram or
telecopy and shall not be effective until actual receipt thereof by the Trustee
or the Tender Agent, as the case maybe.
(b) A duplicate copy of each notice or other communication given hereunder
by either the Issuer, the Trustee or the Credit Facility Trustee to the other
shall also be given to the Company.
(c) All documents received by the Trustee or Credit Facility Trustee under
the provisions of this Indenture, or photographic copies thereof, shall be
retained in its possession until this Indenture shall be released in accordance
with the provisions of the Indenture, subject at all reasonable times to the
inspection of the Issuer and the Company and the agents and representatives
thereof.
(d) The Issuer, the Trustee, the Credit Facility Trustee, the Company and
the Credit Facility Issuer may, by notice given hereunder, designate any further
or different addresses to which subsequent notices, certificates or other
communications shall be sent.
SECTION 15.3 TRUSTEE AS THE PAYING AGENT AND THE BOND REGISTRAR. The
Trustee is hereby designated and agrees to act as Paying Agent and Bond
Registrar for and in respect of the Bonds and any amounts received under the
Credit Facility or the Lease Agreement.
SECTION 15.4 RIGHTS UNDER THIS INDENTURE. Except as herein otherwise
expressly provided, nothing in this Indenture expressed or implied is intended
or shall be construed to confer upon any person, firm or corporation other than
the parties hereto, the Company and the owners of the Bonds issued under and
secured by this Indenture, any benefit of this Indenture or any provisions
hereof, this Indenture and all its provisions being intended to be and being for
the sole and exclusive benefit of the parties hereto, the Company and the owners
from time to time of the Bonds issued hereunder.
SECTION 15.5 FORM OF CERTIFICATES AND OPINIONS. Except as otherwise
provided in this Indenture, any request, notice, certificate or other instrument
from the Issuer or the Company to the Trustee shall be deemed to have been
signed by the proper party or parties if signed by the Issuer Representative or
the Company Representative, respectively, and the Trustee may accept and rely
upon a certificate signed by the Issuer Representative as to any action taken by
the Issuer and by the Company Representative as to any action taken by the
Company.
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SECTION 15.6 SEVERABILITY. In case any one or more of the provisions of
this Indenture or of the Bonds issued hereunder shall for any reason be held to
be illegal or invalid, such illegality or invalidity shall not affect any other
provisions of this Indenture or of the Bonds, but this Indenture and the Bonds
shall be construed and enforced as if such illegal or invalid provision had not
been contained therein. In case any covenant, stipulation, obligation or
agreement of the Issuer contained in this Indenture or in the Bonds shall for
any reason be held to be in violation of law, then such covenant, stipulation,
obligation or agreement of the Issuer shall be given effect to the full extent
permitted by law.
SECTION 15.7 STATE LAW GOVERNS. This Indenture shall be governed by and
construed in accordance with the laws of the State.
SECTION 15.8 PAYMENTS DUE ON DAYS OTHER THAN BUSINESS DAYS. In any case
where the date of maturity of interest on or principal of the Bonds or the date
fixed for redemption of the Bonds shall be in the city of payment a day other
than a Business Day, then payment of interest or principal need not be made on
such date but may be made on the next succeeding Business Day with the same
force and effect as if made on the date of maturity or the date fixed for
redemption, provided that interest shall accrue for the period of any such
extension.
SECTION 15.9 EXECUTION IN COUNTERPARTS. This Indenture may be executed in
multiple counterparts, each of which shall be regarded for all purposes as an
original, and such counterparts shall constitute but one and the same
instrument, and no one counterpart of which need be executed by all parties.
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IN WITNESS WHEREOF, the Issuer has caused this Indenture to be executed in
its name and on its behalf by the Chairman of the Issuer, the official seal of
the Issuer to be impressed hereon and the same to be attested by the Secretary
of the Issuer; the Trustee has caused this Indenture to be executed in its name
and on its behalf by a vice president or trust officer; and the Credit Facility
Trustee has caused this Indenture to be executed in its name and on its behalf
by a vice president or trust officer, all as of the date and year first above
written.
DEVELOPMENT AUTHORITY OF
MCDUFFIE COUNTY
[SEAL]
By: /s/
_______________________________
Chairman
Attest: /s/
___________________________
Secretary
FIRST UNION NATIONAL BANK,
as Trustee
By: /s/
______________________________
Title:
BRANCH BANKING AND TRUST COMPANY, as
Credit Facility Trustee
By: /s/
_____________________________
Title:
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EXHIBIT A
Form of Notice of Conversion
[Name and Address of Owner]
Re: $10,000,000 Development Authority of McDuffie County Taxable
Industrial Development Revenue Bonds (Advance Stores Company,
Incorporated Project), Series 1997
The undersigned officer of First Union National Bank, as Trustee with
respect to the captioned Bonds, pursuant to the provisions of Section 2.2(e) of
that certain Trust Indenture (the "Indenture"), dated as of December 1, 1997,
among McDuffie County Development Authority, the Trustee and Branch Banking and
Trust Company, as Credit Facility Trustee, hereby notifies you that the interest
rate borne by the captioned Bonds shall be converted from the Variable Rate to
the Fixed Rate, as follows (capitalized terms used herein shall have the
meanings provided in the Indenture):
1. The Conversion Date is ____________________.
2. The Placement Agent is First Union National Bank, One First Union
Center, TW8, 301 South College Street, Charlotte, North Carolina 28288-
0600.
3. All Owners of Bonds are required to tender their Bonds on the Conversion
Date to the Tender Agent, at the address set forth below, for purchase
on the Conversion Date. In the event any owner of Bonds shall fail to
tender such owner's Bonds for purchase on the Conversion Date, such
Bonds shall be deemed to have been tendered for purchase on the
Conversion Date.
4. The address of the Tender Agent is as follows:
First Union National Bank
901 East Carry Street
2nd Floor
Richmond, Virginia 23219
Attention: Corporate Trust Department
5. After the tenth day preceding the Conversion Date, you will not be
entitled to tender any Bond for purchase.
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6. In order to receive payment of the purchase price of any Bond which is
deemed to have been tendered, you must deliver such Bond to the office
of the Tender Agent shown above before 10:00 a.m. (prevailing Eastern
time) on the Conversion Date.
7. Interest on any Bond will be payable only to (but not including) the
Conversion Date.
8. The delivery by the Company to the Trustee of a letter from Bond
Counsel confirming the opinion received pursuant to this notification
is a condition precedent to a conversion to a Fixed Rate. In the event
that the Company fails to deliver to the Trustee the letter of Bond
Counsel herein referred to, the conversion of interest on the Bonds to
the Fixed Rate shall not take effect and the Bonds shall continue to
bear interest at the Variable Rate.
9. The Preliminary Fixed Rate is _____________
10. Depending on market conditions, the Fixed Rate may be higher but in no
event lower than the Preliminary Fixed Rate.
11. After the Conversion Date, payment on the Bonds will not be supported
by a Credit Facility.
12. The rating on the Bonds (if any) may be reduced or withdrawn on the
Conversion Date.
13. All owners of Bonds who desire to retain such Bonds must deliver an
Optional Retention Notice to the Trustee by the tenth (10th) day
preceding the Conversion Date (or the next succeeding Business Day if
such date is not a Business Day) or be deemed to have tendered their
Bonds for purchase and must deliver the Bonds to the Trustee on or
before the Conversion Date to be stamped with the legend contained in
Section 2.2(e)(8) of the Indenture.
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Dated this ________ day of ____________________, ____.
FIRST UNION NATIONAL BANK,
as Trustee
________________________________
Title:
A copy of this Notice has been delivered to the Tender Agent at the address
above.
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EXHIBIT B
DTC Blanket Issuer Letter of Representations
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EXHIBIT C
Form of Bond
MCDUFFIE COUNTY DEVELOPMENT AUTHORITY
TAXABLE INDUSTRIAL DEVELOPMENT REVENUE BONDS
(ADVANCE STORES COMPANY INCORPORATED PROJECT), SERIES 1997
CUSIP NO. _________
No. ___
Registered Owner: Cede & Co.
Principal Amount: $10,000,000
Maturity Date: November 1, 2002
Initial Interest Rate: __.___%
Interest Payment Dates: The first Business Day of each month, commencing the
first Business Day of February 1998, and ending on the
Maturity Date, the Conversion Date (hereinafter
defined) and the Maturity Date.
Original Delivery Date: December 31, 1997
THE ISSUER HAS ESTABLISHED A BOOK ENTRY SYSTEM OF REGISTRATION FOR THIS
BOND. EXCEPT AS SPECIFICALLY PROVIDED OTHERWISE IN THE INDENTURE, CEDE & CO., AS
NOMINEE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), WILL BE
THE REGISTERED OWNER AND WILL HOLD THIS BOND ON BEHALF OF EACH BENEFICIAL OWNER
HEREOF. BY ACCEPTANCE OF A CONFIRMATION OF PURCHASE, DELIVERY OR TRANSFER, EACH
BENEFICIAL OWNER OF THIS BOND SHALL BE DEEMED TO HAVE AGREED TO SUCH
ARRANGEMENT. CEDE & CO., AS REGISTERED OWNER OF THIS BOND, MAY BE TREATED AS THE
OWNER OF IT FOR ALL PURPOSES.
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF DTC TO THE
TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
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OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
THE BONDS SHALL NOT BE GENERAL OBLIGATIONS OF THE ISSUER BUT LIMITED AND
SPECIAL OBLIGATIONS PAYABLE SOLELY FROM THE AMOUNTS PAYABLE UNDER THE AGREEMENT
AND OTHER AMOUNTS SPECIFICALLY PLEDGED THEREFOR UNDER THIS INDENTURE, AND SHALL
BE A VALID CLAIM OF THE RESPECTIVE OWNERS THEREOF ONLY AGAINST THE DESIGNATED
ACCOUNTS OF THE BOND FUND AND OTHER MONEYS HELD BY THE TRUSTEE AND THE AMOUNTS
PAYABLE UNDER THE AGREEMENT OR OTHERWISE PLEDGED THEREFOR, WHICH AMOUNTS ARE
HEREBY PLEDGED, ASSIGNED AND OTHERWISE SECURED FOR THE EQUAL AND RATABLE PAYMENT
OF THE BONDS AND SHALL BE USED FOR NO OTHER PURPOSE THAN TO PAY THE PRINCIPAL
OF, PREMIUM, IF ANY, AND INTEREST ON THE BONDS, EXCEPT AS MAY BE OTHERWISE
EXPRESSLY AUTHORIZED IN THIS INDENTURE. NO OWNER OF ANY BONDS HAS THE RIGHT TO
COMPEL ANY EXERCISE OF TAXING POWER OF THE ISSUER TO PAY THE BONDS OR THE
INTEREST THEREON, AND THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS OF THE ISSUER
OR A LOAN OF CREDIT THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR
STATUTORY PROVISIONS.
THIS BOND MAY BE TENDERED FOR PURCHASE AS DESCRIBED HEREIN. DELIVERY OF AN
OPTIONAL TENDER NOTICE WITH RESPECT TO THIS BOND CONSTITUTES AN IRREVOCABLE
OFFER TO SELL THIS BOND ON THE DATE SPECIFIED THEREIN AND IS BINDING ON
SUBSEQUENT OWNERS OF THIS BOND. IN THE EVENT THE OWNER OF THIS BOND FAILS TO
DELIVER THIS BOND TO THE TENDER AGENT ON THE SPECIFIED DATE, THE OWNER HEREOF
SHALL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO
THE BENEFITS OF THE INDENTURE. THIS BOND ALSO IS SUBJECT TO MANDATORY TENDER AND
PURCHASE AS DESCRIBED HEREIN.
The Development Authority of McDuffie County (herein called the "Issuer"),
a public body politic and corporate of the State of Georgia (herein called the
"State"), for value received, hereby promises to pay (but only from the sources
hereinafter mentioned) to the Registered Owner set forth above, or registered
assigns, the Principal Amount set forth above on the Maturity Date set forth
above and to pay (but only from the sources hereinafter mentioned) interest
thereon from the Interest Payment Date immediately preceding the Date of
Authentication endorsed hereon, unless this Bond is authenticated on an Interest
Payment Date in which event it will bear interest from such date, payable on
each Interest Payment Date, until payment of said principal sum has been made or
provided for, at the rate or rates per annum set forth below. Principal and
interest and premium, if any, will be paid in any coin or currency of the United
States of America which, at the time of payment, is legal tender for the payment
of public and private debts. Interest
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will be paid by check mailed on the Interest Payment Date to the person in whose
name this Bond is registered at the close of business on the Regular Record Date
(as hereinafter defined) immediately preceding such Interest Payment Date;
provided, however, that while the Bonds (as hereinafter defined) bear interest
at the Variable Rate (as hereinafter defined) interest will also be payable by
wire transfer to the account at a member bank of the Federal Reserve System of
any registered owner of Bonds in the aggregate principal amount of One Million
Dollars ($1,000,000) or more at the written request (identifying such account by
number) of such owner received by the Trustee (as hereinafter defined) on or
before the Regular Record Date. While the Bonds bear interest at the Variable
Rate (as hereinafter defined), the Regular Record Date will be the close of
business on the Business Day immediately preceding each Interest Payment Date.
While the Bonds bear interest at the Fixed Rate (as hereinafter defined), the
Regular Record Date will be the fifteenth (15th) day of the calendar month
immediately preceding each Interest Payment Date. Any such interest not so
punctually paid or duly provided for will forthwith cease to be payable to the
owner on such Regular Record Date, and may be paid to the person in whose name
this Bond is registered at the close of business on a Special Record Date (as
defined in the Indenture (hereinafter defined)) for the payment of such
defaulted interest to be fixed by the Trustee, or may be paid at any time in any
other lawful manner, all as more fully provided in the Indenture. Principal and
redemption price will be paid upon surrender of this Bond at the corporate trust
office of First Union National Bank, as trustee (said banking institution and
any successor trustee or co-trustee under the Indenture being herein called the
"Trustee"), in the City of Richmond, Virginia. Payment of the purchase price of
Bonds purchased as described herein will be paid, upon surrender of such Bonds,
at the office of First Union National Bank in the City of Richmond, Virginia (in
such capacity, herein called the "Tender Agent").
This Bond is issued under and pursuant to the Constitution and laws of the
State of Georgia (the "State"), particularly the provisions of an act of the
General Assembly of the State of Georgia (O.C.G.A. Section 36-62 et seq.), as
-- ---
amended (the "Enabling Act") and an activating resolution of the Board of
Commissioners of McDuffie County, duly adopted on January 17, 1970, and its
directors have been appointed as provided therein and are currently acting in
that capacity
This Bond and the issue of which it is a part and the purchase price
thereof, the premium, if any, and interest thereon are limited obligations of
the Issuer payable by the Issuer solely from the revenues and receipts derived
from the Lease Agreement (as hereinafter defined), which revenues and receipts
have been pledged and assigned to the Trustee to secure payment thereof and from
amounts received pursuant to the Credit Facility (as hereinafter defined). This
Bond and the interest hereon will not constitute an indebtedness or a charge
against the general credit or taxing powers of the Issuer within the meaning of
any constitutional provision or statutory limitation and shall never constitute
nor give rise to any pecuniary liability of the Issuer, but will be a limited
obligation of the Issuer payable solely from the revenues and other funds
pledged therefor and will not be payable from any assets or funds of the Issuer
other than the revenues and other funds
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pledged therefor, and neither the faith and credit nor the taxing power of the
State or any political subdivision or any agency thereof is pledged to the
payment of the principal of or the interest on this Bond.
This Bond is one of the Bonds of a duly authorized issue of variable rate
industrial revenue bonds of the Issuer in the aggregate principal amount of
$10,000,000 and designated Development Authority of McDuffie County Taxable
Industrial Development Revenue Bonds (Advance Stores Company, Incorporated
Project), Series 1997 (the "Bonds").
The Bonds have been issued for the purpose of financing the acquisition,
construction, installation and equipping of an industrial facility (herein
called the "Project") and to pay a portion of the costs of issuing the Bonds.
The Bonds are issued under and pursuant to a Trust Indenture, dated as of
December 1, 1997 (said Trust Indenture, together with all such supplements and
amendments thereto as therein permitted, being herein called the "Indenture"),
among the Issuer, the Trustee and Branch Banking and Trust Company, as Credit
Facility Trustee (said banking institution and any successor Credit Facility
Trustee under the Indenture being herein called the "Credit Facility Trustee").
An executed counterpart of the Indenture is on file at the principal corporate
trust office of the Trustee and the Credit Facility Trustee. Reference is hereby
made to the Indenture for the provisions, among others, with respect to the
custody and application of the proceeds of the Bonds; the collection and
disposition of revenues; a description of the funds charged with and pledged to
the payment of the principal of and interest on and any other amounts payable
under the Bonds; the nature and extent of the security; the terms and conditions
under which the Bonds are or may be issued; and the rights, duties and
obligations of the Issuer and of the Trustee and the rights of the owners of the
Bonds, and, by the acceptance of this Bond, the owner hereof assents to all of
the provisions of the Indenture.
The Issuer has entered into a Lease Agreement, dated as of December 1, 1997
(herein called the "Lease Agreement"), with the Company, under which the Issuer
has agreed to use the proceeds of the Bonds to provide financing for the
acquisition, equipping, and renovation of an industrial facility located in
McDuffie County, Georgia (the "Project") and to pay a portion of the costs of
issuing the Bonds, and in consideration therefor, the Company has agreed to make
rental payments, bearing interest at a rate or rates and payable at times
corresponding to the principal amount of interest rates on and due dates of the
Bonds. The Lease Agreement also provides for the payment by the Company of
certain fees and expenses of the Issuer and the Trustee, and the Lease Agreement
further obligates the Company (a) to pay the cost of maintaining the Project in
good repair in all material respects and keeping the same properly insured and
(b) to maintain a Credit Facility (as hereinafter defined) during the period of
time the Bonds bear interest at the Variable Rate (herein called the "Variable
Rate Period").
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As security for the payment of the Bonds, all right, title and interest of
the Issuer in (a) the Lease Agreement (except certain rights reserved by the
Issuer under the terms of the Indenture), together with the Lease Agreement; (b)
all money and securities at any time on deposit in, in transit to or credited to
any account or Fund created under the Indenture, including without limitation
the Project Fund and the Bond Fund (as defined in the Indenture); and (c)
Revenues (as defined in the Indenture) have been assigned to the Trustee under
the Indenture and pledged to the payment of the principal of, and the redemption
premium (if any) and the interest on, the Bonds. The Issuer shall not be vested
with any interest in the Project by virtue of the issuance of the Bonds to
finance the construction and installation of the Project, and the Project shall
not otherwise constitute any part of the security for the payment of the Bonds.
Reference to the Indenture is hereby made for a description of the
aforesaid Bond Fund which is charged with, and pledged to, the payment of the
principal of, and the redemption premium (if any) and the interest on, the
Bonds, the nature and extent of the security, the rights, duties and obligations
of the Issuer, the Company and the Trustee, the rights of the owners of the
Bonds, the terms and conditions under and upon the occurrence of which the
Indenture and the Lease Agreement may be modified and the terms and conditions
under and upon the occurrence of which the lien of the Indenture may be defeased
as to this Bond prior to the maturity or redemption date hereof, to all of the
provisions of which the owner hereof, by the acceptance of this Bond, assents.
Credit Facility. The Company has entered into a Letter of Credit and
---------------
Reimbursement Agreement, dated as of December 1, 1997 (herein called the
"Reimbursement Agreement"), by and among the Company, Advance Holding
Corporation, a Virginia corporation (the "Parent") and First Union National
Bank, Roanoke, Virginia (in such capacity, herein called the "Bank").
Pursuant to the Reimbursement Agreement, the Company and the Parent have
caused a Letter of Credit issued by the Bank (herein called the "Letter of
Credit"; such Letter of Credit and any extensions or renewals thereof or any
amendment thereto and any Alternate Credit Facility (as hereinafter defined)
referred to herein as the "Credit Facility") to be delivered to the Credit
Facility Trustee. The Credit Facility Trustee will be entitled under the Letter
of Credit to draw up to an amount of $10,201,370 of which (a) $10,000,000 will
be available for the payment of principal or that portion of the purchase price
corresponding to principal of the Bonds and (b) $201,370 will support the
payment of up to forty-nine (49) days' interest or that portion of the purchase
price corresponding to interest on the Bonds at an assumed rate of fifteen
percent (15%) per annum, which is the maximum rate of interest borne by the
Bonds. Subject to the provisions of the Indenture, the Company is required
during the Variable Rate Period to provide an alternate credit facility with
terms and provisions substantially the same as those of the Letter of Credit (an
"Alternate Credit Facility") prior to the termination of Letter of Credit.
During the Variable Rate Period unless the Letter of Credit or the then current
Alternate Credit Facility
C-5
<PAGE>
is replaced prior to its expiration in accordance with the terms of the
Indenture, this Bond will become subject to mandatory redemption as provided in
the Indenture.
Source of Funds. The principal of, premium (if any) and interest on the
---------------
Bonds are payable solely from payments under the Lease Agreement and from any
other moneys held by the Trustee under the Indenture for such purpose,
including, with respect to principal and interest only, moneys drawn by the
Credit Facility Trustee under the Letter of Credit or Alternate Credit Facility
for the benefit of the Bondholders (the Bank as the issuer of the Letter of
Credit and the institution issuing any Alternate Credit Facility are herein
called the "Credit Facility Issuer"). Except as otherwise specified in the
Indenture, this Bond is entitled to the benefits of the Indenture equally and
ratably both as to principal (and redemption and purchase price) and interest
with all other Bonds issued under the Indenture.
INTEREST RATES
--------------
Initial Interest Rate.
---------------------
The Bonds will bear interest from the Original Delivery Date specified
above to January 7, 1998 at the Initial Interest Rate.
Variable Rate.
-------------
The Bonds will initially bear interest from the Original Delivery Date (as
defined in the Indenture) through January 7, 1998 at the initial interest rate
stated thereon as determined in accordance with the Indenture. Thereafter,
prior to and including the Conversion Date, the Bonds will bear interest at a
floating rate determined weekly by the Remarketing Agent as set forth below (the
"Variable Rate"). The Variable Rate will be equal to the rate of interest
certified to the Trustee by the Remarketing Agent on and as of each Wednesday
(or the next Business Day if such Wednesday is not a Business Day) (the
"Determination Date") as the minimum rate of interest necessary, in the judgment
of the Remarketing Agent taking into account market conditions prevailing on the
Determination Date, to enable the Remarketing Agent to arrange for the sale of
all of the Bonds in the secondary market on the Determination Date at a price
equal to the principal amount thereof (plus accrued interest to the date of
settlement). If the Remarketing Agent fails to certify such rate for the Bonds
for four consecutive Calculation Periods, the rate for the Bonds for each
Calculation Period thereafter (if none is certified by the Remarketing Agent) to
be determined by the Trustee shall be a rate equal to the 30 day LIBOR Rate. For
purposes hereof, "LIBOR Rate" shall mean, for any period, an interest rate per
annum (based on a 360-day year) determined by the Trustee or its designee to be
the rate or the arithmetic mean of rates (rounded upward, if necessary, to the
nearest one-sixteenth (1/16) of one percentage point of the rate per annum) for
deposits in immediately available and freely transferable dollars of the United
States of America that appears on Telerate Screen, page 3747, as published daily
by the British Bankers Association Interest Settlement Rates
C-6
<PAGE>
(or another comparable international financial data service satisfactory to the
Trustee, or its designee, in its discretion, if Telerate no longer publishes
such rates) and that is offered by first class banks in the London InterBank
market to the offices of the Trustee or its designee at 10:00 a.m. on the
applicable Determination Date, and "Calculation Period" shall mean the period
from and including the day following the Determination Date of each week (even
if not a Business Day) to and including the following Determination Date;
provided that if during the Variable Rate Period the Determination Date at the
end of such Calculation Period is a Regular Record Date, such Calculation Period
will extend until the Business Day following such Determination Date. If for any
reason the Variable Rate is not determined as described above or is held to be
invalid or unenforceable by a court of competent jurisdiction for any period,
the interest rate for such period shall be equal to ten percent (10%) per annum.
While the Bonds bear interest at a Variable Rate, interest on the Bonds shall be
computed on the basis of a year of 365 or 366 days, as applicable, for the
number of days actually elapsed and shall be payable on each Interest Payment
Date.
Fixed Rate.
----------
(a) The interest rate on this Bond will be converted to the Fixed Rate upon
an election by the Company pursuant to the Indenture to convert the rate of
interest on all Bonds then outstanding from the Variable Rate to the Fixed Rate
(herein called the "Fixed Rate Election"), on any Interest Payment Date by
giving written notice, accompanied by the items described in Section 2.2(e) of
the Indenture, to the Issuer, the Trustee, the Credit Facility Issuer, the
Tender Agent and the Remarketing Agent, which notice will specify, among other
things, the name and address of the Placement Agent which has agreed to use its
best efforts to arrange for the sale of any Bonds to be tendered or deemed
tendered for purchase on the Conversion Date (herein called the "Placement
Agent"). At least twenty-five (25) days prior to the Conversion Date, the
Placement Agent will determine a rate (the "Preliminary Fixed Rate") which will
be the minimum rate of interest on the Bonds determined by the Placement Agent
to be the fixed annual rate of interest (for the period beginning on the
Conversion Date and ending on the Maturity Date) necessary, in the judgment of
the Placement Agent taking into account market conditions prevailing on the
date such rate is determined, to enable the Placement Agent to arrange for the
sale of all of the Bonds in the secondary market at a price equal to the
principal amount thereof if the Bonds were tendered for purchase on the
Conversion Date. The Placement Agent will promptly notify the Trustee of the
Preliminary Fixed Rate.
(b) As soon after the receipt of notice from the Placement Agent of the
Preliminary Fixed Rate as practicable (but in no event more than two (2)
Business Days thereafter) a notice will be mailed by the Trustee to each
registered owner of Bonds stating, among other things, (1) the Preliminary Fixed
Rate, (2) that, depending on market conditions, the Fixed Rate may be higher but
in no event will be lower than the Preliminary Fixed Rate, (3) the Conversion
Date, (4) that after the tenth (10th) day preceding the Conversion Date, the
owner will not be entitled to tender this Bond for purchase as described below,
(5) that payment of this Bond will not be supported by an Alternate Credit
C-7
<PAGE>
Facility after the Conversion Date, (6) that the rating on the Bonds (if at such
time there is a rating in effect on the Bonds) may be reduced or withdrawn on
the Conversion Date, (7) that unless such registered owner delivers to the
Trustee a notice (an "Optional Retention Notice") at least ten days prior to the
Conversion Date, this Bond will be deemed tendered for purchase on the
Conversion Date, (8) that in order to receive payment of the purchase price of
any Bond which is deemed to have been tendered, the registered owner of such
Bond must deliver such Bond to the office of the Tender Agent before 10:00 a.m.
on the Conversion Date specifying such address, and (9) that interest on any
Bond deemed to have been tendered will be payable only to (but not including)
the Conversion Date.
(c) Upon the Conversion Date stated in such notice, the Fixed Rate to be
borne by the Bonds for the period beginning on the Conversion Date until the
Maturity Date or prior redemption of the Bonds (the "Fixed Rate"), will be
determined as follows:
(1) if any of the Bonds have been tendered or deemed tendered for
purchase (herein called the "Tendered Bonds"), then:
(A) if the Placement Agent shall have arranged for the sale of
any or all of the Tendered Bonds, at a price equal to the principal
amount thereof, the Fixed Rate will be equal to the interest rate at
which all such Bonds were sold by the Placement Agent, provided that
all such Bonds will be sold at a rate greater than or equal to the
Preliminary Fixed Rate; and
(B) if the Placement Agent shall have arranged for the sale of
none of the Tendered Bonds, the Fixed Rate will be equal to the
Preliminary Fixed Rate; or
(2) if all owners of the outstanding Bonds elect to retain such Bonds,
the Fixed Rate will be equal to the Preliminary Fixed Rate.
(d) If, for any reason, the Fixed Rate is held to be invalid or
unenforceable by a court of competent jurisdiction, the Fixed Rate will be ten
percent (10%) per annum.
(e) The Fixed Rate will be computed on the basis of a three hundred sixty
(360)-day year, computed for the actual number of days elapsed, and will be
payable on each Interest Payment Date after the Conversion Date until the
principal of, and premium, if any, and interest on the Bonds shall have been
paid in full.
Interest Rate Determination Binding.
-----------------------------------
The determination of the interest rate on the Bonds by the Remarketing
Agent or Placement Agent, as appropriate, in accordance with the terms of the
Indenture will be conclusive and binding upon the owners of the Bonds, the
Issuer, the Company, the
C-8
<PAGE>
Trustee, the Credit Facility Trustee, the Remarketing Agent, the Placement
Agent, the Tender Agent and the Credit Facility Issuer.
REDEMPTION OF BONDS
-------------------
Optional Redemption.
-------------------
(a) While the Bonds bear interest at the Variable Rate, the Bonds will be
subject to redemption upon the written direction of the Issuer, given at the
request of the Company, with the consent of the Credit Facility Issuer, on any
Interest Payment Date and on the Conversion Date, in whole or in part, at
redemption price equal to one hundred percent (100%) of the principal amount
thereof without premium plus interest accrued to the redemption date.
(b) While the Bonds bear interest at the Fixed Rate, the Bonds will be
subject to redemption upon the written direction of the Issuer, given at the
request of the Company, in whole on any date, or in part on any Interest Payment
Date, occurring on or after the dates set forth below, at the redemption prices
(with a premium expressed as a percentage of principal amount to be redeemed)
set forth below plus interest accrued to the redemption date as follows:
<TABLE>
<CAPTION>
Commencement of
Redemption Period Redemption Price
----------------- ----------------
<S> <C>
The Business Day four 103% declining by 1/2% on each
(4) years from the succeeding anniversary date of
Conversion Date the first day of the redemption period until
reaching 100% and thereafter at 100%
</TABLE>
(c) The Bonds will be subject to redemption upon the written direction of
the Issuer, given at the request of the Company, at any time in whole or in part
at a redemption price equal to one hundred percent (100%) of the principal
amount thereof plus interest accrued to the redemption date in the event of
damage, destruction or condemnation of the Project, all as more fully described
in Section 7.1(b) of the Indenture.
Mandatory Redemption.
--------------------
(a) During the Variable Rate Period, the Bonds will be subject to
mandatory redemption in whole on the Interest Payment Date occurring closest to
but not after fifteen (15) days prior to the date of expiration of the then
current Credit Facility unless prior to such date an Alternate Credit Facility
has been provided in accordance with the Indenture, at a redemption price or
purchase price equal to one hundred percent (100%) of the principal amount
thereof, without premium, plus interest accrued to the redemption date.
C-9
<PAGE>
(b) The Bonds are subject to redemption without premium from proceeds of
the Bonds not used to complete the Project or from moneys drawn under the Credit
Facility for which the Credit Facility Issuer is reimbursed from such excess
proceeds in accordance with the provisions of the Indenture, which redemption
date shall be no more than sixty (60) days following the date of transfer of
moneys to the Bond Fund established under the Indenture from the Project Fund
established under the Indenture.
Purchase in Lieu of Redemption.
------------------------------
The Bonds are subject to optional call and purchase in whole prior to the
Conversion Date on any Interest Payment Date upon the written direction of the
Issuer, given at the request of the Company, which purchase may be in lieu of
redemption, from monies deposited with the Trustee sufficient for payment of
100% of the principal amount due upon such call together with accrued interest
on the Bonds to the call date.
Notice of Redemption and Selection of Bonds.
-------------------------------------------
Any notice of redemption, identifying the Bonds or portions thereof to be
redeemed, will be given not more than sixty (60) days and not less than twenty
(20) days prior to the redemption date, by mailing a copy of the redemption
notice by first class mail to the owner of each Bond to be redeemed in whole or
in part at the address shown on the Bond Register (as defined in the Indenture)
maintained by the Bond Registrar (as hereinafter described). Notice of optional
redemption may be conditioned upon the deposit of moneys with the Trustee before
the date fixed for redemption and such notice will be of no effect unless such
moneys are so deposited. All Bonds so called for redemption, including Bonds
purchased by the Company as provided in the Indenture but not yet surrendered
for payment of the purchase price, will cease to bear interest on the specified
redemption date provided funds for the payment of their redemption price and any
accrued interest payable on the specified redemption date are on deposit at the
principal place of payment at that time. If less than all the Bonds are to be
redeemed, the particular Bonds to be called for redemption will be selected in
the following order of priority: first, Bonds pledged to the Credit Facility
Issuer; second, Bonds owned by the Company and third, Bonds selected by any
random or other method determined by the Trustee in its sole discretion.
Mandatory Tender for Purchase Upon Conversion to Fixed Rate.
-----------------------------------------------------------
The Bonds will be subject to mandatory purchase in whole (and not in part)
on the Conversion Date at a purchase price equal to one hundred percent (100%)
of the principal amount thereof plus interest accrued thereon to the date of
purchase; provided that there will not be so purchased (a) Bonds or portions
thereof in authorized denominations which the owners have irrevocably elected to
retain on the Conversion Date in accordance with the Indenture by the delivery
of an Optional Retention Notice in accordance with the provisions of Section
2.2(e) of the Indenture, or (b) Bonds issued in exchange for or upon the
registration of transfer of Bonds referred to in clause (a) above.
C-10
<PAGE>
THE OWNER OF THIS BOND, BY ACCEPTANCE HEREOF, AGREES TO THE MANDATORY
PURCHASE OF THIS BOND AS PROVIDED IN THE INDENTURE, AND AGREES THAT THIS BOND
WILL BE PURCHASED ON THE DATE SPECIFIED UPON DEPOSIT WITH THE TRUSTEE OF AN
AMOUNT SUFFICIENT TO PAY THE PURCHASE PRICE HEREOF. THE OWNER OF THIS BOND ALSO
UNDERSTANDS AND AGREES THAT IN THE EVENT THE OWNER FAILS TO DELIVER THIS BOND,
PROPERLY ENDORSED FOR TRANSFER, TO THE TRUSTEE ON THE DATE SPECIFIED, INTEREST
WILL CEASE TO ACCRUE HEREON ON SUCH SPECIFIED DATE AND THE OWNER HEREOF WILL
THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE
BENEFIT OF THE INDENTURE.
Purchase at Option of the Owner During Variable Rate Period.
-----------------------------------------------------------
While the Bonds bear interest at the Variable Rate, any Bond or portion
thereof in an authorized denomination will be purchased on the demand of the
owner thereof, on any Business Day at a purchase price equal to one hundred
percent (100%) of the principal amount thereof plus interest accrued to the date
of purchase upon delivery to the Tender Agent of a notice (herein called an
"Optional Tender Notice") in the form attached hereto as Exhibit B specifying
---------
the date on which such Bond will be purchased, which date will be a Business Day
not prior to the seventh (7th) day after the date of delivery of the Optional
Tender Notice. To receive payment of the purchase price, the owner will be
required to deliver such Bond to the Tender Agent, accompanied by an executed
form of assignment and any other instruments of transfer satisfactory to the
Trustee, not less than five (5) days prior to the purchase date specified in
such notice as provided in the Indenture; provided, however, that any owner
which is an investment company registered pursuant to the Investment Company Act
of 1940 may deliver such Bond to the Tender Agent at or prior to 10:00 am. on
the date of purchase. No purchase of Bonds at the option of the owner thereof or
on the Conversion Date will be deemed to be a payment or redemption of the Bonds
or any portion thereof. Notwithstanding the foregoing, no owner will have a
right to tender such owner's Bond(s) for purchase as described in this paragraph
following acceleration of the payment of the Bonds pursuant to the terms of the
Indenture or after the Conversion Date.
THE OWNER OF THIS BOND, BY ACCEPTANCE HEREOF, AGREES THAT DELIVERY OF THE
WRITTEN NOTICE DESCRIBED IN THE PRECEDING PARAGRAPH BY THE OWNER CONSTITUTES AN
IRREVOCABLE OFFER TO SELL THIS BOND ON THE DATE SPECIFIED, AND THAT THIS BOND
WILL BE PURCHASED ON SUCH DATE UPON DEPOSIT WITH THE TENDER AGENT OF AN AMOUNT
SUFFICIENT TO PAY THE PURCHASE PRICE HEREOF. THE OWNER OF THIS BOND ALSO
UNDERSTANDS AND AGREES THAT IN THE EVENT THE OWNER FAILS TO DELIVER THIS BOND,
PROPERLY ENDORSED FOR TRANSFER, TO THE TENDER AGENT ON THE DATE SPECIFIED IN THE
NOTICE, THIS BOND WILL BE HELD BY THE OWNER AS AGENT FOR THE COMPANY, INTEREST
WILL CEASE TO ACCRUE HEREON AS
C-11
<PAGE>
OF THE DATE SPECIFIED IN THE NOTICE AND THE OWNER HEREOF WILL THEREAFTER BE
ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE BENEFITS OF THE
INDENTURE, AND THE ISSUER WILL, TO THE EXTENT PERMITTED BY LAW, EXECUTE AND THE
TRUSTEE WILL AUTHENTICATE AND DELIVER A SUBSTITUTE BOND IN LIEU OF THE
UNDELIVERED BOND.
Tender Agent.
------------
The Issuer had appointed First Union National Bank, Richmond, Virginia as
Tender Agent. The Tender Agent may be changed at any time by the Company with
the consent of the Issuer and the Trustee.
Authorized Denominations.
------------------------
Subject to the provisions of the Indenture, the Bonds are issuable as
registered Bonds in the denomination of One Hundred Thousand Dollars ($100,000)
or any integral multiple of $5,000 in excess thereof; provided that if less than
$100,000 in principal amount of Bonds is Outstanding (as defined in the
Indenture), one Bond shall be issued in such smaller denomination; and provided
further, that if as a result of redemption pursuant to Article 7 of the
Indenture the unredeemed portion of a redeemed Bond shall be less than $100,000,
a replacement Bond in the amount of such unredeemed portion may be issued.
Subject to the limitations provided in the Indenture and upon payment of any tax
or governmental charge, if any, Bonds may be exchanged for a like aggregate
principal amount of Bonds of other authorized denominations.
Transfer.
--------
This Bond is transferable by the registered owner hereof or his duly
authorized attorney at the corporate trust office of First Union National Bank,
as Bond Registrar, in the City of Richmond, Virginia, in compliance with the
terms and conditions set forth in the Indenture and upon surrender of this Bond,
provided that transfers in connection with the remarketing hereof will be made
at the corporate trust office of the Credit Facility Trustee in Wilson, North
Carolina, accompanied by a duly executed instrument of transfer in form
satisfactory to the Bond Registrar, subject to such reasonable regulations as
the Issuer, the Bond Registrar or the Trustee may prescribe and upon payment of
any tax or other governmental charge incident to such transfer, PROVIDED THAT IF
MONEYS FOR THE PURCHASE OF THIS BOND HAVE BEEN PROVIDED PURSUANT TO A DRAW UNDER
THE CREDIT FACILITY, THIS BOND IS NOT TRANSFERABLE TO ANYONE OTHER THAN THE
COMPANY OR ITS ASSIGNEE OR PLEDGEE. Upon any such transfer, a new Bond or Bonds
registered in the name of the transferee or transferees in denominations
authorized by the Indenture and in the same aggregate principal amount as the
principal amount of this Bond (and of the same maturity and bearing interest at
the same rate) will be issued to the transferee. Except as set forth in this
Bond and as otherwise provided in the Indenture, the person in whose name this
Bond is registered will
C-12
<PAGE>
be deemed the owner hereof for all purposes, and the Issuer, the Bond Registrar
and the Trustee will not be affected by any notice to the contrary.
The owner of this Bond will have no right to enforce the provisions of the
Indenture or to institute action to enforce the covenants therein, or to take
any action with respect to any Event of Default under the Indenture or to
institute, appear in or defend any suit or other proceeding with respect
thereto, except as provided in the Indenture.
In certain events, on the conditions, in the manner and with the effect set
forth in the Indenture, the principal of this Bond may become or may be declared
due and payable before the stated maturity hereof, together with the interest
accrued hereon.
Modifications or alterations of the Lease Agreement and the Indenture and
any supplement or amendment thereto may be made only to the extent and in the
circumstances permitted by the Indenture and may be made in certain cases
without the consent of the owners of the Bonds.
No recourse shall be had for the enforcement of any obligation, promise or
agreement of the Issuer contained herein or other documents to which the Issuer
is a party or for any claim based hereon or thereon or otherwise in respect
hereof or thereof against any director, member, officer, agent, attorney or
employee, as such, in his/her individual capacity, past, present or future, of
the Issuer or of any successor entity, either directly or through the Issuer or
any successor entity, under or by reason of any of the obligations, promises or
agreements entered into in this Bond or between the Issuer and the Trustee; and
all personal liability of that character against every such director, member,
officer, agent, attorney and employee is, by the execution of the Indenture and
as a condition of, and as part of the consideration for, the execution of this
Indenture, expressly waived and released.
Notwithstanding anything to the contrary, any liability for payment of
money and any other liability or obligation which the Issuer may incur under
this Bond shall not constitute a general obligation of the Issuer but shall
constitute limited obligations of the Issuer payable solely from and enforced
only against the Trust Estate. No recourse shall be had for the enforcement of
any obligation, promise or agreement of the Issuer contained herein or in the
Bonds or the Lease Agreement to which the Issuer is a party or for any claim
based hereon or thereon or otherwise in respect hereof or thereof against any
director, member, officer, agent, attorney or employee, as such, in his
individual capacity, past, present or future, of the Issuer or of any successor
entity, either directly or through the Issuer or any successor entity whether by
virtue of any constitutional provision, statute or rule o law, or by the
enforcement of any assessment or penalty otherwise. No personal liability
whatsoever shall attach to, or be incurred by, any director, member, officer,
agent, attorney or employee as such, past, present or future, of the Issuer or
of any successor entity, either directly or through the Issuer or any successor
entity, under or by reason of any of the obligations, promises or agreements
entered into in this Bond or between the
C-13
<PAGE>
Issuer and the Trustee, whether herein contained or to be implied herefrom as
being supplemental hereto; and to all personal liability of that character
against every such director, member, officer, agent, attorney and employee is ,
by the execution of the Indenture and as a condition of, and as part of the
consideration for, the execution of the Indenture, expressly waived and
released.
Anything herein or in the Indenture to the contrary notwithstanding, the
obligations of the Issuer hereunder will be subject to the limitation that
payment of interest to the owner of this Bond will not be required to the extent
that receipt of any such payment by the owner of this Bond would be contrary to
the provisions of law applicable to such Bond which limits the maximum rate of
interest which may be charged or collected by such owner.
In any case where the date of maturity of interest on or principal of the
Bonds or the date fixed for redemption of the Bonds shall be in the city of
payment a day other than a Business Day, then payment of interest or principal
need not be made on such date but may be made on the next succeeding Business
Day with the same force and effect as if made on the date of maturity or the
date fixed for redemption, provided that interest will accrue for the period of
any such extension.
This Bond will be governed by and construed in accordance with the laws of
the State of Georgia.
All acts, conditions and things required to happen, exist and be performed
precedent to and in the issuance of this Bond and the execution of the Indenture
have happened, exist and have been performed as so required.
C-14
<PAGE>
IN WITNESS WHEREOF, Development Authority of McDuffie County has caused
this Bond to be executed with the manual signature of the Chairman of the
Issuer, its official seal to be impressed or imprinted hereon and the same to be
attested by the manual signature of the Chairman of the Issuer, all as of
December 31, 1997.
MCDUFFIE COUNTY DEVELOPMENT
AUTHORITY
[SEAL]
By:________________________________
Chairman
Attest:______________________________
Secretary
C-15
<PAGE>
CERTIFICATE OF AUTHENTICATION
This Bond is one of the Bonds of the series designated therein and issued
under the provisions of the within-mentioned Indenture.
FIRST UNION NATIONAL BANK,
as Trustee
By:________________________________
Authorized Signatory
Date of Authentication: December 31, 1997
C-16
<PAGE>
VALIDATION CERTIFICATE
----------------------
STATE OF GEORGIA
COUNTY OF MCDUFFIE
The undersigned Clerk of the Superior Court of McDuffie County,
Georgia, HEREBY CERTIFIES that the within bond was confirmed and validated by
judgment of the Superior Court of McDuffie County, Georgia, rendered on the 29th
day of December, 1997, that no intervention or objection was filed thereto and
that no appeal has been taken therefrom.
WITNESS the manual or duly authorized reproduced facsimile of my
signature and the reproduced facsimile seal of said Court.
(SEAL) _________________________________
Clerk, Superior Court,
McDuffie County, Georgia
C-17
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
the within bond of the ____________________________ and does hereby constitute
and appoint _______________________________ attorney to transfer the said bond
on the books of the within named Issuer, with full power of substitution in the
premises.
Dated:
In the presence of: ________________________________
Bondholder
Signature Guaranteed:
_____________________________
C-18
<PAGE>
EXHIBIT D
Description of Project
<PAGE>
EXHIBIT E
REQUISITION CERTIFICATE
-----------------------
TO: FIRST UNION NATIONAL BANK, AS TRUSTEE
FROM: ADVANCE STORES COMPANY, INCORPORATED (THE "COMPANY")
SUBJECT: LEASE AGREEMENT DATED AS OF DECEMBER 1, 1997
This represents Requisition Certificate No. _______ in the total amount of
$___________ for payment of those Costs of the Project detailed in the schedule
attached.
The undersigned does certify that"
1. All of the expenditures for which monies are requested hereby
represent proper Costs of the Project, have not been included in a previous
Requisition Certificate and have been properly recorded on the Company's books.
2. The monies requested thereby are not greater than those necessary to
meet obligations due and payable or to reimburse the company for funds actually
advanced for Costs of the Project. The monies requested do not include
retention or other monies not yet due or earned under construction contracts.
3. After payment of monies hereby requested, there will remain available
to the Company sufficient funds to complete the Project substantially in
accordance with the plans.
4. The Company is not in default under the Lease Agreement or the
Reimbursement Agreement and nothing has occurred to the knowledge of the Company
that would prevent the performance of its obligations under the Lease Agreement
or the Reimbursement Agreement.
Executed this _________ day of ________________, 19___.
ADVANCE STORES COMPANY,
INCORPORATED
By:____________________________
Its:
E-1
<PAGE>
EXHIBIT 10.10
LEASE AGREEMENT
between
_______________________________________
DEVELOPMENT AUTHORITY OF MCDUFFIE COUNTY
and
ADVANCE STORES COMPANY, INCORPORATED
_______________________________________
relating to
$10,000,000
DEVELOPMENT AUTHORITY OF MCDUFFIE COUNTY
TAXABLE INDUSTRIAL DEVELOPMENT REVENUE BONDS
(ADVANCE STORES COMPANY, INCORPORATED PROJECT), SERIES 1997
_______________________________________
NOTE: CERTAIN RIGHTS OF THE DEVELOPMENT AUTHORITY OF MCDUFFIE COUNTY UNDER THIS
LEASE AGREEMENT HAVE BEEN ASSIGNED TO, AND ARE SUBJECT TO A SECURITY
INTEREST IN FAVOR OF, FIRST UNION NATIONAL BANK, AS TRUSTEE, UNDER A TRUST
INDENTURE OF EVEN DATE HEREWITH, AS AMENDED OR SUPPLEMENTED FROM TIME TO
TIME. INFORMATION CONCERNING SUCH SECURITY INTEREST MAY BE OBTAINED FROM
THE TRUSTEE AT FIRST UNION NATIONAL BANK, RICHMOND, VIRGINIA, ATTENTION:
CORPORATE TRUST DEPARTMENT.
_______________________________________
DATED AS OF DECEMBER 1, 1997
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION ..................................... 2
Section 1.1 Definitions ........................................ 2
Section 1.2 Rules of Construction .............................. 6
ARTICLE II
REPRESENTATIONS ........................................................... 8
Section 2.1 Representations by the Issuer ...................... 8
Section 2.2 Representations, Warranties and Covenants
by the Company ..................................... 9
ARTICLE III
PERMITS AND APPROVALS; COMPANY CONSENT TO ASSIGNMENT ...................... 12
Section 3.1 Approvals Required for the Project ................. 12
Section 3.2 Company Consent to Assignment of Agreement
and Execution of Indenture ......................... 12
ARTICLE IV
ISSUANCE OF THE BONDS ..................................................... 13
Section 4.1 Agreement to Issue the Bonds ....................... 13
Section 4.2 Disbursements from the Project Fund ................ 13
Section 4.3 Closeout of the Project Fund ....................... 13
Section 4.4 Disposition of the Balance in the Project Fund ..... 13
Section 4.5 Company Required to Pay in Event Project
Fund Insufficient .................................. 13
Section 4.6 No Third Party Beneficiary ......................... 14
Section 4.7 Construction of Project ............................ 14
ARTICLE V
LEASE PROVISIONS .......................................................... 15
Section 5.1 Agreement to Lease the Project ..................... 15
Section 5.2 Rental Payments .................................... 15
Section 5.3 Security for Payments Under the Lease Agreement .... 16
Section 5.4 Company's Performance Under Indenture .............. 16
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Section 5.5 No Set-Off ......................................... 16
Section 5.6 Letter of Credit and Reimbursement Agreement ....... 16
Section 5.7 Quiet Enjoyment .................................... 16
ARTICLE VI
MAINTENANCE AND MODIFICATIONS; TAXES AND UTILITY
CHARGES; INSURANCE AND EMINENT DOMAIN ..................................... 18
Section 6.1 Maintenance and Modification of the
Project by the Company ............................. 18
Section 6.2 Taxes and Utility Charges .......................... 18
Section 6.3 Casualty and Liability Insurance Required .......... 19
Section 6.4 Advances by the Issuer or the Trustee .............. 19
Section 6.5 Company to Make Up Deficiency in Insurance Coverage. 19
Section 6.6 Eminent Domain ..................................... 20
Section 6.7 Application of Net Proceeds of Insurance and
Eminent Domain ..................................... 20
Section 6.8 Parties to Give Notice ............................. 21
Section 6.9 No Warranty of Condition or Suitability by Issuer .. 21
ARTICLE VII
SPECIAL COVENANTS ......................................................... 22
Section 7.1 Access to the Project and Inspection ................ 22
Section 7.2 Further Assurances and Corrective Instruments ....... 22
Section 7.3 Recording and Filing; Other Instruments ............. 22
Section 7.4 Administrative Expenses ............................. 23
Section 7.5 Indemnity Against Claims ............................ 23
Section 7.6 Indemnity of Issuer and Trustee ..................... 23
Section 7.7 Additional Information .............................. 25
Section 7.8 Default Certificates ................................ 25
Section 7.9 Observe Laws ........................................ 25
ARTICLE VIII
ASSIGNMENT, LEASING AND SELLING ........................................... 26
Section 8.1 Assignment of this Lease Agreement or Lease
or Sale of the Project by the Company ............... 26
Section 8.2 Restrictions on Transfer of the Issuer's Rights ..... 26
Section 8.3 Assignment by the Issuer ............................ 26
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ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES ............................................ 27
Section 9.1 Events of Default Defined ........................... 27
Section 9.2 Remedies on Default ................................. 28
Section 9.3 Application of Amounts Realized in Enforcement
of Remedies ......................................... 28
Section 9.4 No Remedy Exclusive ................................. 28
Section 9.5 Agreement to Pay Attorneys' Fees and Expenses ....... 29
Section 9.6 Correlative Waivers ................................. 29
ARTICLE X
PREPAYMENTS; OPTIONS ...................................................... 30
Section 10.1 Optional Prepayments ................................ 30
Section 10.2 Mandatory Prepayment ................................ 30
Section 10.3 Other Mandatory Prepayments ......................... 31
Section 10.4 Conveyance of Project ............................... 31
ARTICLE XI
MISCELLANEOUS ............................................................. 32
Section 11.1 References to the Bonds Ineffective After Bonds Paid. 32
Section 11.2 No Implied Waiver ................................... 32
Section 11.3 Issuer Representative ............................... 32
Section 11.4 Company Representative .............................. 32
Section 11.5 Notices ............................................. 32
Section 11.6 If Payment or Performance Date Is Other Than
a Business Day ...................................... 33
Section 11.7 Binding Effect ...................................... 33
Section 11.8 Severability ...................................... 33
Section 11.9 Amendments, Changes and Modifications ............... 33
Section 11.10 Execution in Counterparts ........................... 33
Section 11.11 Applicable Law ...................................... 33
Section 11.12 No Charge Against McDuffie County Credit ............ 34
Section 11.13 Issuer Not Liable ................................... 34
Section 11.14 Expenses ............................................ 34
Section 11.15 Amounts Remaining with the Trustee .................. 34
Section 11.16 References to the Credit Facility Issuer, Credit
Facility and Credit Facility Trustee ................ 35
Section 11.17 Net Lease ........................................... 35
Section 11.18 Term of Lease Agreement ............................. 35
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LEASE AGREEMENT
This LEASE AGREEMENT, dated as of December 1, 1997 between the DEVELOPMENT
AUTHORITY OF MCDUFFIE COUNTY (the "Issuer"), a public body corporate and politic
under the laws of the State of Georgia (the "State"), and ADVANCE STORES
COMPANY, INCORPORATED (the "Company"), a Virginia corporation.
W I T N E S S E T H:
--------------------
WHEREAS, the Issuer has been created pursuant to the provisions of an act
of the General Assembly of the State of Georgia (O.C.G.A. Section 36-62 et seq.)
-- ---
as amended (the "Act") and an activating resolution of the Board of
Commissioners of McDuffie County, duly adopted on January 17, 1970, and its
directors have been appointed as provided therein and are currently acting in
that capacity; and
WHEREAS, the Issuer has heretofore indicated its willingness to issue
industrial development revenue bonds under the Act and to use the proceeds of
the sale of the Bonds (hereinafter defined) to finance, in whole or in part, the
cost of the acquisition, construction, installation and equipping of an
industrial facility to be located in McDuffie County, Georgia; and
WHEREAS, to obtain funds for such purposes the Issuer will issue and sell
its Taxable Industrial Development Revenue Bonds (Advance Stores Company,
Incorporated Project), Series 1997 (the "Series 1997 Bonds"), in the aggregate
principal amount of $10,000,000 (the "Bonds"), under and pursuant to the Act, to
be secured by and contain such terms and provisions as are set forth in that
certain Trust Indenture (the "Indenture") dated as of December 1, 1997 among the
Issuer, Branch Banking and Trust Company as Credit Facility Trustee (the "Credit
Facility Trustee"), and First Union National Bank, Richmond, Virginia, as
Trustee (the "Trustee"), and the proceeds from the sale of the Bonds shall be
deposited with the Trustee and disbursed in the manner and for the purposes set
forth herein and in the Indenture, all as more fully provided herein and
therein; and
NOW, THEREFORE, in consideration of the respective representations and
agreements contained herein, the parties hereto, recognizing that under the Act
this Lease Agreement shall never constitute an indebtedness or a charge against
the general credit of the Issuer, the State of Georgia or any political
subdivision thereof within the meaning of any constitutional provision or
statutory limitation nor give rise to any pecuniary liability of the Issuer and
the Issuer shall not pay or promise to pay any debt or meet any financial
obligation to any person at any time in relation to the Project, except from
moneys received or to be received under the provisions of this Lease Agreement
and from the Credit Facility Issuer under a Credit Facility (each as hereinafter
defined) or derived from the exercise of the rights of the Issuer thereunder,
agree as follows:
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ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
SECTION 1.1 DEFINITIONS. In addition to words and terms elsewhere defined
in this Lease Agreement or in the Indenture, the following words and terms shall
have the following meanings:
"Act" shall mean Section 36-62 et seq., as amended, Official Code of
-- ----
Georgia Annotated, and other applicable provisions of applicable law.
"Administrative Expenses" shall mean the amounts payable pursuant to
Section 7.8 hereof by the Company to or for the account of the Issuer to provide
for payment of the costs and expenses incurred by the Issuer.
"Bank" shall initially mean First Union National Bank as issuer of the
Credit Facility.
"Bond" or "Bonds" shall mean the Series 1997 Bonds, authorized to be
issued pursuant to the Indenture, including such Bonds issued in replacement for
mutilated, destroyed, lost or stolen Bonds pursuant to Section 2.10 of the
Indenture, and any amendments and supplements thereto, and any renewals and
extensions thereof, permitted by the Indenture.
"Bond Documents" shall mean collectively the Indenture, the Bonds, this
Lease Agreement, the Letter of Credit Documents, the Tender Agency Agreement and
the Remarketing Agreement.
"Bond Resolution" shall mean collectively the resolutions adopted by the
Issuer on December 15, 1997, authorizing, among other things, the execution and
delivery of the Issuer Documents to be signed by the Issuer and the issuance of
the Bonds by the Issuer.
"Business Day" means a day on which (a) banks located in each of the
cities in which the principal office of the Trustee, the Credit Facility
Trustee, the Credit Facility Issuer and the Remarketing Agent is located are not
required or authorized by law or executive order to close for business, and (b)
The New York Stock Exchange is not closed.
"Closing Date" means the date of the issuance and delivery of the Bonds.
"Company" shall mean Advance Stores Company, Incorporated, a Virginia
corporation, and its successors or assigns and any surviving, resulting or
transferee partnership or other entity.
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"Company Representative" shall mean any one of the persons at the time
designated to act on behalf of the Company by written certificate furnished to
the Trustee and the Credit Facility Trustee containing the specimen signatures
of such persons.
"Completion Date" shall mean the date of completion of the Project, as
that date shall be certified as provided in Section 4.3 hereof.
"Construction," when used in connection with the Project, shall mean,
without limitation, the construction, installation, equipping and improving of
the Project.
"Costs of the Project" shall mean all costs and allowances for the
acquisition, equipping and renovation of the Project which are permitted under
the Act and which include, but are not limited to, all capital costs of the
Project, including the following:
(i) the acquisition, expansion and improving of the Project,
including the acquisition of all machinery and equipment;
(ii) preparation of the plans and specifications for the Project
(including any preliminary study or plan of the Project or any aspect
thereof), any labor, services, materials and supplies used or furnished in
the Construction of the Project, the construction and installation
necessary to provide utility services or other services and all real and
tangible personal property deemed necessary by the Company in connection
with the Project;
(iii) the fees for architectural, engineering, supervisory and
consulting services in connection with Construction of the Project;
(iv) to the extent they shall not be paid by a contractor, the
premiums of all insurance and surety and performance bonds required to be
maintained in connection with the Construction of the Project;
(v) any fees and expenses incurred in connection with construction,
perfection and protection of title to the Project;
(vi) interest prior to and during the period until completion of
construction of the Project; and
(vii) any administrative or other fees charged by the Issuer or
reimbursement thereof of expenses, in connection with the Project to the
completion of construction of the Project.
"Counsel" shall mean an attorney or firm of attorneys acceptable to the
Trustee, and may, but need not, be counsel to the Issuer or the Company.
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"Credit Facility" shall mean the Letter of Credit or any Alternate Credit
Facility delivered to the Trustee pursuant to Section 6.3 of the Indenture.
"Credit Facility Issuer" shall mean the Bank with respect to the Letter of
Credit and the institution issuing any Alternate Credit Facility.
"Credit Facility Trustee" shall mean Branch Banking and Trust Company,
Wilson, North Carolina.
"Eminent Domain" shall mean the taking of title to, or the temporary use
of, the Project or any part thereof pursuant to eminent domain or condemnation
proceedings, or any voluntary conveyance of any part of the Project during the
pendency of, or as a result of a threat of, such proceedings.
"Event of Default" or "Default" shall have the meaning set forth in
Section 9.1 hereof.
"Financing Statements" means any and all financing statements (including
continuation statements) filed for record from time to time to perfect the
security interests created or assigned pursuant to the Bond Documents.
"Indenture" shall mean the Trust Indenture of even date herewith by and
among the Issuer, the Credit Facility Trustee and the Trustee, together with any
amendments or supplements thereof permitted thereby.
"Issuer" shall mean the Development Authority of McDuffie County and its
successors and assigns.
"Issuer Documents" shall mean collectively the Indenture, the Placement
Agent Agreement and this Lease Agreement.
"Issuer Representative" shall mean any one of the persons at the time
designated to act on behalf of the Issuer by written certificate furnished to
the Company, the Trustee and the Credit Facility Trustee containing the specimen
signatures of such persons and signed on behalf of the Issuer by the Chairman.
"Letter of Credit" shall mean the irrevocable direct pay letter of credit
dated December 31, 1997 in the amount of $10,201,370 issued by the Bank, with an
initial term of three (3) years, subject to any extensions thereof.
"Letter of Credit Documents" shall mean the Letter of Credit, the
Reimbursement Agreement, and the Pledge Agreement.
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"Lease Agreement" shall mean this Lease Agreement and any amendments and
supplements thereto permitted by the Indenture.
"Net Proceeds," when used with respect to (i) any insurance proceeds or
(ii) any award resulting from, or other amount received in connection with,
Eminent Domain, means the gross proceeds from such proceeds, award or other
amount, less all expenses (including attorneys' fees) incurred in the
realization thereof.
"Overdue Rate" shall mean the Prime Rate, or the maximum contract rate
permitted by law, whichever is lower.
"Payment of the Bonds" shall mean payment of (i) the principal of and
interest on the Bonds in accordance with their terms whether through payment at
maturity, upon acceleration or prepayment, (ii) all amounts due as
Administrative Expenses or otherwise, and (iii) any and all other liabilities
and obligations arising under the Indenture and this Lease Agreement; in any
case, payment in such a manner that all such amounts due and owing with respect
to the Bonds shall have been paid.
"Placement Agent" shall mean the securities dealer, bank or trust company
which is designated by the Company with the consent of the Credit Facility
Issuer, which will use its best efforts to arrange for the initial placement of
the Bonds and which will agree to establish the Preliminary Fixed Rate and to
use its best efforts to arrange for the sale of Tendered Bonds on the Conversion
Date, all as more particularly described in Section 2.2(e) of the Indenture.
"Placement Agent Agreement" shall mean that certain letter agreement dated
the date of issuance of the Bonds among the Issuer the Company and Placement
Agent for the initial placement of the Bonds.
"Pledge Agreement" shall mean the Pledge Agreement of even date herewith
by the Company to the Bank, and any amendments or supplements thereof.
"Prime Rate", prior to the Conversion Date, shall mean that rate of
interest per annum announced by First Union National Bank at its principal
office in Charlotte, North Carolina, from time to time to be its "prime rate",
and after the Conversion Date shall mean the interest rate published in the
"Money Rate" table of The Wall Street Journal as such rate (or if a range of
rates is published, then the highest rate in such range). In the event that The
Wall Street Journal shall abolish or abandon the practice of publishing a "prime
rate", or should the same become unascertainable, the Trustee shall designate a
comparable reference rate which shall be deemed to be the Prime Rate for
purposes hereof.
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"Project" shall mean the financing, in whole or in part, of the
acquisition, construction, installation and equipping of an industrial facility
on approximately 49 acres of land located in McDuffie, Georgia and all related
real and personal property thereto, as more fully set forth on Exhibit B hereto.
"Project Fund" shall mean the trust fund so designated which is
established pursuant to Section 4.1 of the Indenture.
"Reimbursement Agreement" shall mean the Letter of Credit and
Reimbursement Agreement, of even date herewith, by and between the Company and
the Bank, and any supplements or amendments thereto.
"Remarketing Agent" shall mean First Union National Bank, Charlotte, North
Carolina and its successors as provided in Section 12.1 of the Indenture.
"Remarketing Agreement" shall mean the Remarketing Agreement of even date
herewith between the Company and the Remarketing Agent.
"Security Interest" or "security interests" shall refer to the security
interests created in the Indenture.
"Series 1997 Bonds" shall mean the Development Authority of McDuffie
County Taxable Industrial Development Revenue Bonds (Advance Stores Company,
Incorporated Project), Series 1997, issued by the Issuer under this Indenture.
"State" shall mean the State of Georgia.
"Tender Agency Agreement" means the Tender Agency Agreement of even date
herewith among the Company, the Trustee and the Tender Agent, and any amendments
or supplements thereof.
"Term of Lease Agreement" means the duration of the usufruct or leasehold
interest created hereby as specified in Section 11.18 hereof.
"Trustee" shall mean the banking institution at the time serving as
Trustee under the Indenture.
SECTION 1.2 RULES OF CONSTRUCTION.
1. Words of masculine gender shall be deemed and construed to include
correlative words of the feminine and neuter genders, and words of the neuter
gender shall be deemed and construed to include correlative words of the
masculine and feminine genders.
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2. The table of contents, captions and headings in this Lease Agreement
are for convenience only and in no way define, limit or describe the scope or
intent of any provisions or Sections of this Lease Agreement.
3. All references herein to particular Articles or Sections are
references to Articles or Sections of this Lease Agreement unless some other
reference is established.
4. All references herein to the Company shall be deemed to refer to
each of the Persons if more than one are described by such term. Obligation,
duty or liability of the Company shall be a joint and several agreement,
obligation, duty or liability of each of the Persons so described by such term.
5. Any terms not defined herein but defined in any of the other Bond
Documents shall have the same meaning herein.
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ARTICLE II
REPRESENTATIONS
SECTION 2.1 REPRESENTATIONS BY THE ISSUER. The Issuer represents,
warrants and agrees as follows:
(a) The Issuer is a public body corporate and politic under the laws of
the State of Georgia.
(b) Under the provisions of the Act, the Issuer is duly authorized to
enter into, execute and deliver or, if appropriate, accept the Issuer Documents,
to issue and deliver the Bonds, to undertake the transactions contemplated by
the Issuer Documents and the Bonds and to carry out its obligations hereunder
and thereunder.
(c) The Issuer proposes to issue the Bonds in the aggregate principal
amount of $10,000,000 to finance, in whole or in part, the acquisition,
construction, installation and equipping of the Project.
(d) By the Bond Resolution, the Issuer has duly authorized the execution,
delivery and performance or, if appropriate, acceptance of the Issuer Documents,
including the borrowing under and the issuance and performance of the Bonds.
(e) The Bonds will be issued under and pursuant to the Indenture and will
mature, bear interest, and have the other terms and provisions set forth or
provided for in the Indenture.
(f) To the best of its knowledge, no event has occurred and no condition
exists with respect to the Issuer which would constitute an "event of default"
as defined in this Lease Agreement or the Indenture or which, with the lapse of
time or with the giving of notice or both, would become an "event of default"
under this Lease Agreement or the Indenture.
(g) Neither this Lease Agreement nor any of the Pledged Revenues have been
pledged or hypothecated in any manner or for any purpose other than as provided
in the Indenture as security for the payment of the Bonds. The Bonds constitute
the only bonds or other obligations of the Issuer in any manner payable from the
revenues to be derived from this Lease Agreement, and except for the Bonds, no
bonds or other obligations have been or will be issued on the basis of this
Lease Agreement.
(h) No member of the Issuer voting on this financing has any interest
whatsoever in the Company or in the transactions contemplated by this Lease
Agreement.
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(i) The Issuer will not enter into any agreement or instrument which might
in any way prevent or materially impair its ability to perform its obligations
under the Bond Documents.
(j) So long as any Bonds shall remain unpaid, the Issuer will, upon
request of the Trustee or the Credit Facility Trustee and provided it shall be
furnished with sufficient funds to pay all costs and expenses (including
attorney's fees) reasonably incurred by it as such costs and expenses accrue:
(i) take all action and do all things which it is authorized by law
to take and do in order to perform and observe all covenants and
agreements on its part to be performed and observed under the Bond
Documents; and
(ii) execute, acknowledge, where appropriate, and deliver from time
to time promptly at the request of the Trustee or the Credit Facility
Trustee all such instruments and documents as in the opinion of the
Trustee or the Credit Facility Trustee are necessary or desirable to
carry out the intent and purpose of the Bonds Documents or any of them.
(k) So long as any Bonds shall remain unpaid, the Issuer will not, without
the written consent of the Trustee and the Credit Facility Trustee:
(i) take any action which, directly or indirectly, adversely
affects its existence or status as a public body, corporate and politic
under the laws of the State; or
(ii) pledge any interest in this Lease Agreement, or the amounts to
be derived herefrom, other than as contemplated by the Indenture.
SECTION 2.2 REPRESENTATIONS, WARRANTIES AND COVENANTS BY THE COMPANY. The
Company represents, warrants and covenants and agrees as follows:
(a) The Company is a corporation duly organized and validly existing under
the laws of the State of Virginia. The Company is not in violation of any
provision of its Articles of Incorporation, as amended, has the corporate power
to enter into and perform this Agreement, and has duly authorized by proper
corporate action the execution and delivery of this Agreement, and is qualified
to do business and is in good standing under the laws of the State.
(b) Neither the execution and delivery of this Lease Agreement, the
Remarketing Agreement, the Tender Agency Agreement or the Pledge Agreement, nor
the consummation of the transactions contemplated hereby and thereby, nor the
fulfillment of or compliance with the terms and conditions hereof or thereof (i)
conflicts with or results
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in a breach of the articles of incorporation or the bylaws of the Company or
constitutes a default under the articles or bylaws of the Company, (ii)
materially conflicts with or results in a material breach of the terms,
conditions, or provisions of any agreement or instrument to which the Company is
now a party or by which the Company is bound, or constitutes a material default
under any of the foregoing, or (iii) results in the creation or imposition of
any lien, charge or encumbrance whatsoever upon any of the property or assets of
the Company other than as expressly contemplated by the terms of any such
instrument or agreement.
(e) There is no action, suit, proceeding, inquiry or investigation, at law
or in equity, before or by any court, public board or body, known to be pending
or threatened against or affecting the Company or any of its officers, nor to
the best knowledge of the Company is there any basis therefor wherein an
unfavorable decision, ruling, or finding would materially adversely affect the
transactions contemplated by this Lease Agreement or which would adversely
affect, in any way, the validity or enforceability of the Bonds, this Lease
Agreement, the Pledge Agreement, the Tender Agency Agreement, the Remarketing
Agreement, or any agreement or instrument to which the Company is a party, used
or contemplated for use in the consummation of the transactions contemplated
hereby.
(f) The Project is of the type authorized and permitted by the Act.
(g) The Company will use due diligence to cause the Project to be operated
in accordance with the laws, rulings, regulations and ordinances of the State
and the departments, agencies and political subdivisions thereof. The Company
has obtained or will cause to be obtained all requisite approvals of the State
and of other federal, state, regional and local governmental bodies for the
construction and equipping of the Project.
(h) The Company will keep all taxes and assessments against the Project
fully paid before the same become delinquent.
(i) The Company will fully and faithfully perform all the duties and
obligations which the Issuer has covenanted and agreed in the Indenture to cause
the Company to perform, any duties and obligations which the Company is
required in the Indenture to perform and any delegable or assignable duties and
obligations which the Issuer is required in the Indenture to perform. The
foregoing shall not apply to any duty or undertaking of the Issuer which by its
nature cannot be delegated or assigned.
(j) As of the date of execution and delivery of this Lease Agreement,
there exists no Event of Default or any condition or event which would
constitute, or with the passage of time or the giving of notice, or both, would
constitute an Event of Default hereunder.
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(k) The Company shall promptly provide written notice to the Issuer, the
Trustee and the Credit Facility Trustee if the Company becomes aware of an Event
of Default as such term is used in Section 9.1 hereof.
All of the above representations, warranties, covenants and agreements
shall survive the execution of this Lease Agreement.
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ARTICLE III
PERMITS AND APPROVALS; COMPANY CONSENT TO ASSIGNMENT
SECTION 3.1 APPROVALS REQUIRED FOR THE PROJECT. The Company has obtained
or caused to be obtained all necessary material permits and approvals for the
operation and maintenance of the Project and has complied and will continue to
comply in all material respects with all lawful requirements of any governmental
body regarding the use or condition of the Project. The Company may, however,
contest any such requirement by an appropriate proceeding diligently prosecuted.
SECTION 3.2 COMPANY CONSENT TO ASSIGNMENT OF AGREEMENT AND EXECUTION OF
INDENTURE. The Company understands that the Issuer, as security for the payment
of the principal of, and the interest on, the Bonds, will assign and pledge to,
and create a security interest in favor of, the Trustee and the Credit Facility
Trustee pursuant to the Indenture certain of its rights, title and interest in
and to this Lease Agreement including all Pledged Revenues, reserving, however,
its rights (a) pursuant to this Lease Agreement providing that notices,
approvals, consents, requests and other communications be given to the Issuer,
(b) to reimbursement and payment of costs and expenses under this Lease
Agreement, and (c) to indemnification and to exemption from liability, both
individual and corporate, under this Lease Agreement, and the Company hereby
agrees and consents to such assignment and pledge. The Company acknowledges that
it has received a copy of the Indenture and consents to the execution of the
same by the Issuer.
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ARTICLE IV
ISSUANCE OF THE BONDS
SECTION 4.1 AGREEMENT TO ISSUE THE BONDS. To provide funds to finance the
acquisition, construction and improving of the Project, the Issuer agrees that
it will authorize, sell, issue and deliver the Bonds in the aggregate principal
amount of $10,000,000 in the manner set forth in the Indenture and cause the
proceeds of the Bonds to be applied as provided in the Indenture.
SECTION 4.2 DISBURSEMENTS FROM THE PROJECT FUND. The Issuer has, in the
Indenture, authorized and directed the Trustee to make disbursements from the
Project Fund in accordance with the terms of this Lease Agreement including
refinancing any loan as more fully set forth in the Indenture.
SECTION 4.3 CLOSEOUT OF THE PROJECT FUND. The Completion Date for the
Project shall be promptly established and evidenced to the Trustee and shall be
the date on which the Company Representative delivers to the Trustee a
certificate stating that, except for amounts retained by the Trustee at the
Company's direction for any Cost of the Project not then due and payable, the
Construction of the Project has been completed substantially in accordance with
the plans and specifications, if any, and all costs and expenses incurred in
connection therewith have been paid. Notwithstanding the foregoing, such
certificate may state that it is given without prejudice to any rights against
third parties that exist at the date of such certificate or that may
subsequently come into being.
SECTION 4.4 DISPOSITION OF THE BALANCE IN THE PROJECT FUND. Pursuant to
Section 4.7 of the Indenture, as soon as practicable after, and in any event
within sixty (60) days from, the Trustee's receipt of the certificate mentioned
in Section 4.3 hereof, all amounts remaining in the Project Fund, including any
unliquidated investments made with money theretofore deposited in the Project
Fund, except for amounts to be retained in the Project Fund for any Cost of the
Project not then due and payable as provided in Section 4.3 hereof, shall be
transferred by the Trustee to the Bond Fund and shall be applied immediately as
set forth in the written direction of the Company as described in subsections
(a) through (c) of Section 4.7 of the Indenture.
SECTION 4.5 COMPANY REQUIRED TO PAY IN EVENT PROJECT FUND INSUFFICIENT.
In the event the moneys in the Project Fund available for the Project are not
sufficient for the Project, the Company agrees to provide such funds and to pay
the amount in excess of the moneys available therefor in the Project Fund. The
Issuer does not make any warranty, either express or implied, that the moneys
paid into the Project Fund will be sufficient for such purpose. The Company
agrees that if after exhaustion of the moneys in the Project Fund, the Company
should pay any amount to finance the construction and equipping of the Project
pursuant to the provisions of this Section, the Company shall not be entitled to
any reimbursement therefor from the Issuer, the Trustee or the Bondholders,
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nor shall the Company be entitled to any diminution of the amounts payable under
Section 5.2 hereof.
SECTION 4.6 NO THIRD PARTY BENEFICIARY. It is specifically agreed between
the parties executing this Lease Agreement that it is not intended by any of the
provisions of any part of this Lease Agreement to create in the public or any
member thereof, other than as may be expressly provided herein or as
contemplated in the Indenture, a third party beneficiary hereunder, or to
authorize anyone not a party to this Lease Agreement to maintain a suit for
personal injuries or property damage pursuant to the terms or provisions of this
Lease Agreement. The duties, obligations, and responsibilities of the parties to
this Lease Agreement with respect to third parties shall remain as imposed by
law.
SECTION 4.7 CONSTRUCTION OF PROJECT. The Issuer shall have a building
constructed at the Project according to the requirements and specifications of
the Company.
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ARTICLE V
LEASE PROVISIONS
SECTION 5.1 AGREEMENT TO LEASE THE PROJECT. The Issuer hereby demises and
leases to the Company and the Company hereby leases from the Issuer, for and
during the Term of Lease Agreement, the Project.
SECTION 5.2 RENTAL PAYMENTS.
(a) One day prior to the first Business Day of each month beginning on the
first Business Day of February, 1998, and in each year thereafter until payment
in full of the Bonds, the Company shall pay or cause to be paid to the Trustee
for the account of the Issuer as rent a sum equal to the amount payable on each
such date as principal of (whether at maturity or upon redemption prior to
maturity) and interest on the Bonds, as provided in the Indenture. Each rental
payment under this Section shall be sufficient to pay the total amount of
principal (whether at maturity or upon redemption prior to maturity) and
interest payable on such payment date, and if at any payment date the balance in
the Bond Fund is insufficient to make required payments of principal and
interest on such date, the Company shall forthwith pay any such deficiency.
Such payments may be applied by the Trustee to reimburse the Credit Facility
Issuer if funds for such payment or redemption are obtained or are to be
obtained pursuant to a draw under the Credit Facility. On or by the third
Business Day before the first Business Day of each month the Company's payment
has not been received, the Issuer hereby directs the Trustee, in accordance with
Section 5.2(d) of the Indenture, to give telephonic and written notice to the
Company of the upcoming rental payment date.
Anything herein to the contrary notwithstanding, any amount at any time
held by the Trustee in the Bond Fund shall be credited against the next
succeeding rental payment and such credit shall reduce the payment to be then
made by the Company; and further, if the amount held by the Trustee in the Bond
Fund should be sufficient to pay at the times required the principal of and
interest on all Bonds then remaining unpaid, the Company shall not be obligated
to make any further rental payments under the provisions of this Section.
(b) As additional rent, the Company agrees to pay to the Trustee and the
Credit Facility Trustee until the Bonds are paid in full, (i) an amount equal to
the aggregate annual fee of the Trustee and the Credit Facility Trustee which is
$3,500 for the ordinary services of the Trustee rendered and its ordinary
expenses incurred under the Indenture, (ii) the reasonable fees and charges of
the Trustee and any other paying agent for acting as paying agent and as Bond
Registrar as and when the same become due, and (iii) the reasonable fees and
charges of the Trustee for extraordinary services rendered by it and
extraordinary expenses incurred by it under the Indenture, as and when the same
become due.
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If the Company should fail to make any of the payments required in this
paragraph, the item or installment so in default shall continue as an obligation
of the Company until the same shall have been fully paid, and the Company
agrees to pay the same with interest thereon, to the extent legally enforceable,
at the Overdue Rate until paid.
SECTION 5.3 SECURITY FOR PAYMENTS UNDER THE LEASE AGREEMENT. It is
understood and agreed that payments required to be made to the Issuer under this
Lease Agreement are assigned and pledged to the Credit Facility Trustee and the
Trustee under the Indenture. The Company hereby assents to such assignment and
pledge. The Company further agrees that (i) all payments under this Lease
Agreement shall be paid directly to the Trustee for the account of the Issuer
and shall be deposited in the Bond Fund; and (ii) all payments required to be
made as provided in Section 5.2(b) hereof shall be paid directly to the Trustee
for its own use or for payment to the Credit Facility Trustee, or any paying
agents or Counsel.
SECTION 5.4 COMPANY'S PERFORMANCE UNDER INDENTURE. The Company agrees,
for the benefit of the holders from time to time of the Bonds, to do and perform
all acts and things contemplated in the Indenture to be done or performed by it.
SECTION 5.5 NO SET-OFF. The obligation of the Company to make the
payments required by this Lease Agreement shall be absolute and unconditional.
The Company will pay without abatement, diminution or deduction (whether for
taxes or otherwise) all such amounts regardless of any cause or circumstance
whatsoever including, without limitation, any defense, set-off, recoupment or
counterclaim that the Company may have or assert against the Issuer, the
Trustee, the Credit Facility Trustee, any Bondholder or any other person. The
provisions of this Section 5.5, however, are subject to the provisions of the
last paragraph of Section 5.2.
SECTION 5.6 LETTER OF CREDIT AND REIMBURSEMENT AGREEMENT. As a further
condition to the Issuer's financing the Project hereunder, the Company shall:
(a) cause the Letter of Credit to be issued and delivered to the Credit
Facility Trustee as security for the Bonds and until the Conversion Date, cause
a Credit Facility meeting the requirements of Section 6.3 of the Indenture to be
maintained with the Credit Facility Trustee; and
(b) enter into the Reimbursement Agreement with the Bank in form and
substance satisfactory to the Bank and execute and deliver the other Letter of
Credit Documents required by the Bank.
SECTION 5.7 QUIET ENJOYMENT. The Issuer warrants and agrees that it will
defend the Company in the quiet enjoyment and peaceable possession of the
Project, free from all claims of all persons claiming by, through or under the
Issuer, throughout the Term
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of Lease Agreement, so long as the Company shall perform the agreements to be
performed by it hereunder, or so long as the period for remedying any failure in
such performance shall not have expired.
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ARTICLE VI
MAINTENANCE AND MODIFICATIONS; TAXES AND UTILITY
CHARGES; INSURANCE AND EMINENT DOMAIN
SECTION 6.1 MAINTENANCE AND MODIFICATION OF THE PROJECT BY THE COMPANY.
(a) The Company agrees that, until Payment of the Bonds shall be made, it
will at its own expense, (1) keep the Project or cause the Project to be kept in
as reasonably safe condition as its operations shall permit, (2) make or cause
to be made from time to time all necessary repairs thereto and renewals and
replacements thereof and otherwise keep the Project in good repair and in good
operating condition, and (3) not permit or suffer others to commit a nuisance on
or about the Project. The Company shall pay or cause to be paid all costs and
expenses of operation and maintenance of the Project.
(b) The Company may, at its own expense, make from time to time any
additions, modifications or improvements to the Project that it may deem
desirable for its business purposes and that do not materially impair the
effective use or decrease the value of the Project.
SECTION 6.2 TAXES AND UTILITY CHARGES.
(a) The Company shall pay as the same respectively become due, (i) all
taxes, assessments, levies, claims and charges of any kind whatsoever that may
at any time be lawfully assessed or levied against or with respect to the
Project (including, without limiting the generality of the foregoing, any tax
upon or with respect to the income or profits of the Issuer from the Project and
that, if not paid, would become a charge on the payments to be made under this
Lease Agreement prior to or on a parity with the charge thereon created by the
Indenture and including ad valorem, sales and excise taxes, assessments and
charges upon the Company's interest in the Project), (2) all utility and other
charges incurred in the operation, maintenance, use, occupancy and upkeep of the
Project and (3) all assessments and charges lawfully made by any governmental
body for public improvements that may be secured by a lien on any portion of the
Project.
(b) The Company may, at its expense, contest in good faith any such levy,
tax, assessment, claim or other charge, but the Company may permit the items so
contested to remain undischarged and unsatisfied during the period of such
contest and any appeal therefrom only if the Company shall notify the Issuer and
the Trustee that in the opinion of Counsel, by non-payment of any such items,
the rights of the Trustee with respect to this Loan Agreement created by the
assignment under the Indenture, as to the rights assigned under this Lease
Agreement or any part of the payments to be made under this Lease Agreement will
not be materially endangered, nor will the Project or any part thereof be
subject to loss or forfeiture. If the Company is unable to deliver such an
opinion
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of Counsel, the Company shall promptly pay or bond and cause to be satisfied or
discharged all such unpaid items or furnish, at the expense of the Company,
indemnity satisfactory to the Trustee; but provided further, that any tax,
assessment, charge, levy or claim shall be paid forthwith upon the commencement
of proceedings to foreclose any lien securing the same. The Issuer, the Credit
Facility Trustee and the Trustee, at the expense of the Company, will cooperate
fully in any such permitted contest.
(c) If the Company shall fail to pay any of the items required to be paid
by it pursuant to (a) above, the Issuer or the Trustee may (but shall be under
no obligation to) pay the same, and any amounts so advanced therefor by the
Issuer or the Trustee shall become an additional obligation of the Company to
the one making the advancement which amounts, together with interest thereon at
the Overdue Rate, from the date of payment, the Company agrees to pay on demand
therefor.
(d) The Company shall furnish the Issuer and the Trustee, upon request,
with proof of payment of any taxes, governmental charges, utility charges,
insurance premiums or other charges required to be paid by the Company under
this Lease Agreement.
SECTION 6.3 CASUALTY AND LIABILITY INSURANCE REQUIRED. Until Payment of
the Bonds shall be made, the Company will keep the Project properly and
continuously insured against such risks as are customarily insured against by
businesses of like size and type engaged in the same or similar operations
including, without limiting the generality of the foregoing, all insurance
required under the Reimbursement Agreement.
SECTION 6.4 ADVANCES BY THE ISSUER OR THE TRUSTEE. In the event the
Company shall fail to maintain, or cause to be maintained, the full insurance
coverage required by this Lease Agreement or shall fail to keep or cause to be
kept the Project in good repair and good operating condition, the Issuer or the
Trustee may (but shall be under no obligation to), after ten (10) days written
notice to the Company, contract for the required policies of insurance and pay
the premiums on the same or make any required repairs, renewals and
replacements; and the Company agrees to reimburse the Issuer and the Trustee to
the extent of the amounts so advanced by them or any of them with interest
thereon at the Overdue Rate, from the date of advance to the date of
reimbursement. Any amounts so advanced by the Issuer or the Trustee shall become
an additional obligation of the Company, shall be payable on demand, and shall
be deemed a part of the obligation of the Company.
SECTION 6.5 COMPANY TO MAKE UP DEFICIENCY IN INSURANCE COVERAGE. The
Company agrees that to the extent that it shall not carry insurance required by
Section 6.3 hereof, it shall pay promptly to the Trustee for application in
accordance with the provisions of Section 6.7 hereof, such amount as would have
been received as Net Proceeds by the Trustee under the provisions of Section 6.7
hereof had such insurance been carried to the extent required.
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SECTION 6.6 EMINENT DOMAIN. Unless the Company shall have prepaid its
obligations pursuant to the provisions of Article 10 hereof, in the event that
title to, or the temporary use of, the Project or any part thereof shall be
taken by Eminent Domain, the Company shall be obligated to continue to make the
payments required to be made pursuant to this Lease Agreement and the Net
Proceeds received as a result of such Eminent Domain shall be applied as
provided in Section 6.7(b) hereof.
SECTION 6.7 APPLICATION OF NET PROCEEDS OF INSURANCE AND EMINENT DOMAIN.
(a) The Net Proceeds of the insurance carried pursuant to the provisions
of Section 6.3 hereof shall be applied by the Company toward extinguishment of
the defect or claim or satisfaction of the liability with respect to which such
insurance proceeds may be paid.
(b) The Net Proceeds of the insurance carried with respect to the Project
pursuant to the provisions of Section 6.3 hereof, and the Net Proceeds resulting
from Eminent Domain shall be paid to the Trustee and applied as follows:
(1) If the amount of the Net Proceeds does not exceed $50,000, the
Net Proceeds shall be paid to the Company and shall be applied to any
repair, replacement, renewal or improvement of the Project, if any, as the
Company deems necessary.
(2) If the amount of the Net Proceeds exceeds $50,000, the Net
Proceeds shall be paid to and held by the Trustee as a special trust fund
and invested in accordance with Section 6.2 of the Indenture and the
provisions of Article 11 hereof pending receipt of written instructions
from the Company. At the option of the Company, to be exercised within
the period of ninety (90) days from the receipt by the Trustee of such Net
Proceeds, the Company shall advise the Trustee that (A) the Company will
use the Net Proceeds for the repair, replacement, renewal or improvement
of the Project (such funds to be delivered by the Trustee to the Company),
or (B) the Net Proceeds shall be applied to the prepayment of the Bonds as
provided in Article 10 hereof. If the Company does not advise the Trustee
within said period of ninety (90) days that it elects to proceed under
clause (A) to use such Net Proceeds for the repair, replacement, renewal
or improvement of the Project, such Net Proceeds shall be applied to the
prepayment of the Bonds pursuant to Article 10 hereof. Any prepayment
pursuant to the preceding sentence shall be effected on the next Interest
Payment Date not less than thirty (30) days after the expiration of said
period of ninety (90) days without an election by the Company.
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(c) The Company agrees that if it shall elect to use the moneys paid to
the Trustee pursuant to subsection (b)(2) of this Section 6.7 for the repair,
replacement, renewal or improvement of the Project, it will restore the Project,
or cause the same to be done, to a condition substantially equivalent to its
condition prior to the occurrence of the event to which the Net Proceeds were
attributable. To the extent that the Net Proceeds are not sufficient to restore
or replace the Project, the Company shall use its own funds to complete the
restoration or replacement of the Project. Prior to the commencement of such
work, the Trustee may require the Company to furnish a completion bond, escrow
deposit or other satisfactory evidence of the Company's ability to pay or
provide for the payment of any estimated costs in excess of the amount of the
Net Proceeds. Any balance remaining after any such application of such Net
Proceeds shall be paid to the Company. The Company shall be entitled to the Net
Proceeds of any insurance or resulting from Eminent Domain relating to property
of the Company not included in the Project and not providing security for this
Lease Agreement.
SECTION 6.8 PARTIES TO GIVE NOTICE. In case of any material damage to or
destruction of all or any part of the Project, the Company shall give prompt
notice thereof to the Issuer, the Credit Facility Issuer and the Trustee. In
case of a taking or proposed taking of all or any part of the Project or any
right therein by Eminent Domain, the Company shall give prompt notice thereof to
the Issuer, the Credit Facility Issuer and the Trustee. Each such notice shall
describe generally the nature and extent of such damage, destruction, taking,
loss, proceeding or negotiations.
SECTION 6.9 NO WARRANTY OF CONDITION OR SUITABILITY BY ISSUER. THE ISSUER
MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE PROJECT OR THE CONDITION
THEREOF, OR THAT THE PROJECT WILL BE SUITABLE FOR THE PURPOSES OR NEEDS OF THE
COMPANY. THE ISSUER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
THAT THE COMPANY WILL HAVE QUIET AND PEACEFUL POSSESSION OF THE PROJECT. THE
ISSUER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO
THE MERCHANTABILITY, CONDITION OR WORKMANSHIP OF ANY PART OF THE PROJECT OR ITS
SUITABILITY FOR THE COMPANY'S PURPOSES.
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ARTICLE VII
SPECIAL COVENANTS
SECTION 7.1 ACCESS TO THE PROJECT AND INSPECTION. The Credit Facility
Issuer, the Trustee and the Issuer shall have the right, at all reasonable times
upon the furnishing of reasonable notice to the Company under the circumstances,
to enter upon the Project site and to examine and inspect the Project. The
Trustee, the Credit Facility Issuer, the Issuer and their duly authorized agents
shall also have such right of access to the Project as may be reasonably
necessary for its proper maintenance, in the event of failure by the Company to
perform its obligations relating to maintenance under this Lease Agreement. The
Company hereby covenants to execute, acknowledge and deliver all such further
documents, and do all such other acts and things as may be reasonably necessary
to grant to the Credit Facility Issuer, the Trustee and the Issuer such right of
entry. The Credit Facility Issuer, the Trustee and the Issuer shall also be
permitted, at all reasonable times, to examine the books and records of the
Company with respect to obligations of the Company hereunder, but neither shall
be entitled to access to trade secrets or other proprietary information (other
than financial information) of the Company. All information obtained in any such
examination shall be kept confidential and shall not be disclosed except in
connection with any proceedings to enforce the Company's obligations hereunder.
SECTION 7.2 FURTHER ASSURANCES AND CORRECTIVE INSTRUMENTS. Subject to the
provisions of the Indenture, the Issuer and the Company agree that they will,
from time to time, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, such supplements and amendments hereto and such
further instruments as may reasonably be required for correcting any inadequate
or incorrect description of the Project and for carrying out the intention or
facilitating the performance of this Lease Agreement.
SECTION 7.3 RECORDING AND FILING; OTHER INSTRUMENTS.
(a) The Company covenants that it will, upon the request of the Credit
Facility Trustee and at the Company's expense, cause Counsel in the State to
take all steps as are reasonably necessary to render an opinion to the Issuer
and the Credit Facility Trustee to the effect that all financing statements,
continuation statements, notices and other instruments required by applicable
law have been recorded or filed or re-recorded or re-filed in such manner and in
such places required by law in order to fully preserve and protect the rights of
the Trustee and the Credit Facility Trustee in the granting by the Issuer of
certain rights of the Issuer, pursuant to the Indenture, under this Lease
Agreement.
(b) The Company, the Issuer and the Trustee shall execute and deliver all
instruments and shall furnish all information and evidence deemed necessary or
advisable by such Counsel to enable such Counsel to render the opinion referred
to in subsection (a) of this Section. The Company, at the request of the Credit
Facility Trustee, shall file
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and re-file and record and re-record or cause to be filed and re-filed and
recorded and re-recorded all instruments required to be filed and re-filed and
recorded or re-recorded pursuant to the opinion of such Counsel and shall
continue or cause to be continued the liens of such instruments for so long as
the Bonds shall be outstanding, except as otherwise required by this Lease
Agreement.
SECTION 7.4 ADMINISTRATIVE EXPENSES. The Company shall pay to or for the
account of the Issuer within thirty (30) days after notice thereof all
reasonable costs and expenses incurred by the Issuer in connection with the
financing and administration of the Project, except such as may be paid out of
the proceeds of the Bonds, including, without limitation, the costs of
administering this Lease Agreement and the fees and expenses of the Trustee, and
the Credit Facility Trustee, attorneys, consultants and others.
SECTION 7.5 INDEMNITY AGAINST CLAIMS.
(a) The Company will pay and discharge and will indemnify and hold
harmless the Issuer and the Trustee from (1) any lien or charge upon amounts
payable hereunder by the Company to the Issuer, and (2) any taxes, assessments,
impositions and other charges in respect of the Project.
(b) If any claim of any such lien or charge upon payments, or any such
taxes, assessments, impositions or other charges, are sought to be imposed, the
Issuer or the Trustee, as the case may be, will give prompt notice to the
Company, and the Company shall have the right and duty to assume, and shall
assume, the defense thereof, with full power to litigate, compromise or settle
the same in its sole discretion.
SECTION 7.6 INDEMNITY OF ISSUER AND TRUSTEE. If the Issuer or the
Trustee, or any director, member, employee, officer, attorney or agent thereof
(collectively the "Indemnified Persons") is made a party defendant to any
litigation concerning the Project or any part thereof, or concerning the
occupancy thereof by the Company, or concerning the issuance of the Bonds, the
Company agrees to indemnify, defend and hold Indemnified Persons harmless from
and against any and all liability by reason of such litigation, including
reasonable attorneys' fees and expenses incurred by the Indemnified Persons,
whether or not any such litigation is prosecuted to judgment. If the Issuer
commences an action against the Company to enforce any of the terms of any of
the documents executed in connection with the Bonds, or for the breach by the
Company of any such terms, the Company shall pay to the Issuer reasonable
attorneys' fees and expenses in connection with such action, and the right to
such attorneys' fees and expenses shall be enforceable whether or not such
action is prosecuted to judgment. If the Company breaches any term of any of the
documents executed in connection with the Bonds, the Issuer may employ an
attorney or attorneys to protect its rights, and in the event of such employment
following any such breach by the Company, the Company shall pay the reasonable
attorneys' fees
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and expenses of the Issuer so incurred, whether or not any action is actually
commenced against the Company by reason of such breach.
It is the intention of the parties that the Indemnified Persons shall not
incur pecuniary liability by reason of the terms of this Agreement or by reason
of the undertakings of the Indemnified Persons required hereunder in connection
with the issuance of the Bonds or execution of this Lease Agreement or the
Indenture or in connection with the performance of any act by the Indemnified
Persons requested by the Company or in any way arising from the transaction with
which this Agreement is a part arising in any manner in connection with the
Project or financing of the Project; nevertheless, if any of the Indemnified
Persons should incur any such pecuniary liability, then in such event the
Company shall indemnify and hold the Indemnified Persons harmless against all
claims by and on behalf of any person arising out of the same, and all costs
incurred in connection with any claim, action or proceeding brought thereon, and
upon notice from the Issuer, the Company shall defend the Indemnified Persons in
any such action, or proceeding in consultation with counsel for the Issuer. In
the event any proceeding shall be initiated against any of the Indemnified
Persons, the Company shall furnish a defense to the Indemnified Persons, shall
be permitted to control, in the exercise of its reasonable judgment, the defense
of any such action or proceeding, and pay all fees of counsel to the Issuer.
Any settlement of litigation that involves the Issuer shall require the consent
of the Issuer.
Notwithstanding anything to the contrary contained herein, the Company
shall have no liability to indemnify the Issuer or the Trustee against claims or
damages resulting from the Issuer's or the Trustee's own gross negligence or
willful misconduct.
(b) No recourse shall be had for the enforcement of any obligation,
promise or agreement of the Issuer contained herein or in the other documents to
which the Issuer is a party or for any claim based hereon or otherwise in
respect hereof or thereof against any director, member, officer, agent, attorney
or employee, as such, in his individual capacity, past, present or future, of
the Issuer or of any successor entity, either directly or through the Issuer or
any successor entity whether by virtue of any constitutional provision, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise.
No personal liability whatsoever shall attach to, or be incurred by, any
director, member, officer, agent, attorney or employee as such, past, present or
future, of the Issuer or any successor entity, either directly or through the
Issuer or any successor entity, under or by reason of any of the obligations,
promises or agreements entered into between the Issuer and the Company, whether
herein contained or to be implied herefrom as being supplemental hereto; and all
personal liability of that character against every such director, member,
officer, agent, attorney and employee is, by the execution of this Lease
Agreement and as a condition of, and as part of the consideration for execution
of this Lease Agreement, expressly waived and released.
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Notwithstanding any other provision of this Lease Agreement, the Issuer
shall not be liable to the Company or the Trustee or any other person for any
failure of the Issuer to take action under this Lease Agreement unless the
Issuer (a) is requested in writing by an appropriate person to take such action,
(b) is assured of payment of, or reimbursement for, any reasonable expenses in
such action, and (c) is afforded, under the existing circumstances, a reasonable
period to take such action. In acting under this Lease Agreement, or in
refraining from acting under this Lease Agreement, the Issuer may conclusively
rely on the advice of its counsel.
SECTION 7.7 ADDITIONAL INFORMATION. Until payment of the Bonds shall have
occurred, the Company shall promptly from time to time deliver to the Trustee
such information regarding the operations, business affairs and financial
condition of the Company as the Trustee may reasonably request. The Trustee is
hereby authorized to deliver a copy of any such financial information delivered
hereunder to any regulatory authority having jurisdiction over the Trustee and
to any other Person as may be required by law. The Issuer and the Trustee are
authorized to provide information concerning the outstanding principal amount
and payment history of, and other information pertaining to, the Bonds to any
agency or regulatory authority of the State requesting such information.
SECTION 7.8 DEFAULT CERTIFICATES. The Company shall deliver to the
Trustee and the Credit Facility Trustee forthwith, upon obtaining knowledge of
any Event of Default hereunder, under the Indenture or the Reimbursement
Agreement, or an event which would constitute such an Event of Default but for
the requirement that notice be given or time elapse or both, a certificate of
the Company specifying the nature and period of existence thereof and what
action the Company proposes to take with respect thereto.
SECTION 7.9 OBSERVE LAWS. The Issuer and the Company shall observe in all
material respects all applicable laws, regulations and other valid requirements
of any regulatory authority with respect to its operations at the Project.
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ARTICLE VIII
ASSIGNMENT, LEASING AND SELLING
SECTION 8.1 ASSIGNMENT OF THIS LEASE AGREEMENT OR LEASE OR SALE OF THE
PROJECT BY THE COMPANY. The rights of the Company under this Lease Agreement may
be assigned, and the Project may be leased or sold as a whole or in part,
without the necessity of obtaining the consent of the Issuer, the Trustee or the
Credit Facility Trustee, subject to the following conditions:
(a) no assignment, transfer, sale or lease shall relieve the Company from
primary liability for any of its obligations hereunder, and if any such
assignment, transfer, sale or lease occurs, the Company shall continue to remain
primarily liable for the payments specified herein and for performance and
observance of the other agreements on its part herein provided to be performed
and observed by it, subject to the provisions of the last paragraph of Section
5.2;
(b) the assignee, lessee or purchaser shall assume the obligations of the
Company hereunder to the extent of the interest assigned, leased or sold;
(c) the Company shall, within thirty (30) days after the delivery thereof,
furnish or cause to be furnished to the Issuer, to the Trustee and to the Credit
Facility Trustee a true and complete copy of each such assignment, instrument of
transfer, lease or sale agreement, as the case may be, together with any
instrument of assumption; and
(d) if a Credit Facility is in effect, such assignment, transfer, sale or
lease must be permitted under the Reimbursement Agreement or the Credit Facility
Issuer must have given its prior written consent to such assignment, transfer,
sale or lease.
SECTION 8.2 RESTRICTIONS ON TRANSFER OF THE ISSUER'S RIGHTS. Except for
the assignment made pursuant to the Indenture of certain of its rights under
this Lease Agreement, the Issuer will not during the term of this Lease
Agreement sell, assign, transfer or convey any of its interests in this Lease
Agreement except as hereinafter provided in Section 8.3 hereof.
SECTION 8.3 ASSIGNMENT BY THE ISSUER. It is understood, agreed and
acknowledged that the Issuer, as security for payment of the principal of and
interest on the Bonds, will grant to the Trustee pursuant to the Indenture,
inter alia, certain of its right, title and interest in and to this Lease
Agreement (reserving certain of its rights, as more particularly described in
the Indenture).
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ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
SECTION 9.1 EVENTS OF DEFAULT DEFINED. The term "Event of Default" shall
mean any one or more of the following events:
(a) the failure by the Company to pay when due on the first Business Day
of each month beginning on February 1, 1998, any payment of principal of or
interest on or other amount payable under Section 5.2 of this Lease Agreement;
(b) the occurrence of an "Event of Default" or "event of default" under
any of the other Bond Documents upon the expiration of any applicable notice or
cure period;
(c) any representation or warranty of the Company contained in Section 2.2
hereof, or in any document, instrument or certificate delivered pursuant hereto
or to the Indenture or in connection with the issuance and sale of the Bonds
shall be false, misleading or incomplete in any material respect on the date as
of which made and to the extent curable, has not been cured within thirty (30)
days after notice of same from the Issuer, the Trustee or the Credit Facility
Trustee;
(d) failure by the Company to observe and perform any covenant, condition
or agreement on the part of the Company under this Lease Agreement, other than
as referred to in the preceding paragraphs of this Section 9.1, for a period of
thirty (30) days after written notice, specifying such failure and requesting
that it be remedied, is given to the Company by the Issuer, the Credit Facility
Trustee or the Trustee, unless the Issuer, the Credit Facility Trustee and the
Trustee shall agree in writing to an extension of such time prior to its
expiration; provided, however, if such default shall be such that it cannot be
corrected within the applicable period, it shall not constitute an Event of
Default if corrective action is instituted by the Company within the applicable
period and diligently pursued until the default is corrected;
(e) the commencement against the Company of an involuntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or of
any action or proceeding for the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) of the Company
or for any substantial part of its property, or for the winding-up or
liquidation of its affairs and the continuance of any such case, action, or
proceeding unstayed and in effect for a period of ninety (90) consecutive days;
or
(f) the commencement by the Company of a voluntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or the
consent by it to, or its acquiescence in the appointment of or taking possession
by a receiver, liquidator,
27
<PAGE>
assignee, trustee, custodian, sequestrator (or other similar official) of the
Company or of any substantial part of its property, or the making by it of or
the consent by it to any assignment for the benefit of creditors, or the failure
of the Company generally to pay its debts as such debts become due, or the
taking of any action by the Company in furtherance of any of the foregoing.
SECTION 9.2 REMEDIES ON DEFAULT.
(a) If Payment of the Bonds shall not have been made, whenever any Event
of Default referred to in Section 9.1 hereof shall have happened and shall not
have been waived:
(1) The Issuer may, by written notice, declare all installments of
principal repayable pursuant to this Lease Agreement for the remainder of
the term hereof to be immediately due and payable, whereupon the same,
together with accrued interest thereon as provided for in this Lease
Agreement, shall become immediately due and payable without presentment,
demand, protest or any other notice whatsoever, all of which are hereby
expressly waived by the Company; provided, however, all such amounts shall
automatically be and become immediately due and payable without notice
upon the occurrence of any event described in Section 9.1(e) or 9.1(f)
hereof, which notice the Company hereby expressly waives.
(2) The Issuer may take whatever other action at law or in equity
may appear necessary or desirable to collect the amounts payable pursuant
to this Lease Agreement then due and thereafter to become due, or to
enforce the performance and observance of any obligation, agreement or
covenant of the Company under this Lease Agreement or under any of the
other Bond Documents.
(b) In the enforcement of the remedies provided in this Section 9.2, the
Issuer may treat all reasonable expenses of enforcement including, without
limitation, legal, accounting and advertising fees and expenses, as additional
amounts payable by the Company then due and owing, and the Company agrees to
pay such additional amounts upon demand, the amount of such legal fees to be
without regard to any statutory presumption.
SECTION 9.3 APPLICATION OF AMOUNTS REALIZED IN ENFORCEMENT OF REMEDIES.
Any amounts collected pursuant to action taken under Section 9.2 hereof shall be
paid to the Credit Facility Trustee and applied as set forth in Article IX of
the Indenture.
SECTION 9.4 NO REMEDY EXCLUSIVE. No remedy herein conferred upon or
reserved to the Issuer is intended to be exclusive of any other available remedy
or remedies, but each and every such remedy shall be cumulative and shall be in
addition to
28
<PAGE>
every other remedy given under this Lease Agreement or now or hereafter existing
at law or in equity or by statute. No delay or omission to exercise any right or
power accruing upon the occurrence of an Event of Default shall impair any such
right or power or shall be construed to be a waiver thereof, but any such right
and power may be exercised from time to time and as often as may be deemed
expedient.
SECTION 9.5 AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. In any Event
of Default, if the Issuer, the Trustee, the Credit Facility Trustee, the Credit
Facility Issuer or any Bondholder employs attorneys or incurs other expenses for
the collection of amounts payable hereunder or for the enforcement of the
performance or observance of any covenants or agreements on the part of the
Company herein contained, the Company agrees that it will on demand therefor pay
to the Issuer, the Trustee, the Credit Facility Trustee, the Credit Facility
Issuer or such Bondholder the reasonable fees of such attorneys and such other
reasonable expenses so incurred by the Issuer, the Trustee, the Credit Facility
Trustee, the Credit Facility Issuer or such Bondholder, the amount of such fees
of attorneys to be without regard to any statutory presumption.
SECTION 9.6 CORRELATIVE WAIVERS. If an "Event of Default" under Section
9.1 of the Indenture shall be cured or waived and any remedial action by the
Credit Facility Trustee or the Trustee rescinded, any correlative default under
this Lease Agreement shall be deemed to have been cured or waived.
29
<PAGE>
ARTICLE X
PREPAYMENTS; OPTIONS
SECTION 10.1 OPTIONAL PREPAYMENTS.
(a) The Company is hereby granted, and shall have, the option to prepay
the unpaid principal of the Bonds in whole or in part in accordance with and as
set forth in Section 7.1 of the Indenture with respect to the prepayment of the
Bonds; provided, all prepayments shall be made in immediately available funds
and with interest accrued to the date of prepayment and that any prepayment of
the Bonds in part shall be applied to unpaid installments of principal in
inverse order of maturity. Any prepayment pursuant to this subsection (a) shall
be made by the Company taking, or causing the Issuer to take, the actions
required (1) for Payment of the Bonds, in the case of prepayment of the Bonds in
whole, or (2) to effect prepayment of less than all of the Bonds according to
their terms in the case of a partial prepayment of the Bonds.
(b) In the event of damage, destruction or condemnation of the Project or
any part thereof, the Company may, at its option, pursuant to Section 6.7 hereof
and without penalty or premium, prepay the Bonds in whole or in part; provided
that any such prepayment shall be made in immediately available funds with the
interest accrued to the date of whole or partial prepayment. Any prepayment
pursuant to this subsection (b) shall be made by the Company taking, or causing
the Issuer to take, the actions required for the full or partial prepayment of
the Bond as provided for in subsection (a) hereof.
(c) To exercise the option granted in subsection (a) or (b) of this
Section 10.1, the Company shall give written notice to the Issuer and the
Trustee which shall specify therein (i) the date of the intended prepayment of
the Bonds, which shall not be less than thirty (30) nor more than sixty (60)
days from the date the notice is mailed and (ii) the principal amount of the
Bonds to be prepaid. When given, such notice shall be irrevocable by the
Company unless the Company in such notice states that it is revocable and
requests that the notice of the Trustee to the Bondholders pursuant to Section
7.4 of the Indenture be conditioned on the deposit of Available Moneys (as
defined in the Indenture) with the Trustee no later than the redemption date of
the Bonds.
SECTION 10.2 MANDATORY PREPAYMENT. During the Variable Rate Period, in the
event any Credit Facility is not renewed and an Alternate Credit Facility has
not been provided in accordance with Section 6.3 of the Indenture, the Company
shall on or before the Interest Payment Date occurring closest to but not after
fifteen (15) days prior to the expiration date of the then current Credit
Facility, prepay the entire unpaid principal balance of the Bonds in full. The
Company shall promptly notify the Issuer, the Credit Facility Trustee and the
Trustee of the date selected for such payment.
30
<PAGE>
SECTION 10.3 OTHER MANDATORY PREPAYMENTS. The amounts required to be
applied to the repayment of the Bonds by Section 6.7 hereof shall be applied by
the Company to prepay, together with accrued interest, all or a portion of the
unpaid principal of the Bonds. Such prepayment shall be made by the Company
taking, or causing the Issuer to take, the actions required (a) for Payment of
the Bonds, in the case of prepayment of the Bonds in whole, or (b) to effect the
prepayment of less than all of the Bonds in inverse order of their maturities.
SECTION 10.4 CONVEYANCE OF PROJECT. Upon either the exercise of the option
of the Company to prepay the outstanding Bonds in accordance with Section 10.1
hereof or the end of the Term of Lease Agreement, the Issuer shall convey all of
its right, title and interest in the Project to the Company for the amount of
$10.00. The Issuer shall cooperate with the Company to effectuate such
conveyance.
31
<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 REFERENCES TO THE BONDS INEFFECTIVE AFTER BONDS PAID. Upon
Payment of the Bonds, all references in this Lease Agreement to the Bonds shall
be ineffective and the Issuer and any owner of the Bonds shall not thereafter
have any rights hereunder, except rights of the Issuer to indemnification and
payment of expenses contained, without limitation, in Sections 7.8, 7.9 and 7.10
hereof.
SECTION 11.2 NO IMPLIED WAIVER. In the event any agreement contained in
this Lease Agreement should be breached by either party and thereafter waived by
the other party, such waiver shall be limited to the particular breach so waived
and shall not be deemed to waive any other breach hereunder. Neither any failure
nor any delay on the part of the Trustee to exercise any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or privilege preclude any other or
further exercise thereof, or the exercise of any other right, power or
privilege.
SECTION 11.3 ISSUER REPRESENTATIVE. Whenever under the provisions of this
Lease Agreement the approval of the Issuer is required or the Issuer is required
to take some action at the request of the Company, such approval may be made or
such action may be taken by the Issuer Representative or by the Issuer; and the
Company, the Trustee and the Bondholders shall be authorized to rely on any such
approval or action.
SECTION 11.4 COMPANY REPRESENTATIVE. Whenever under the provisions of this
Lease Agreement the approval of the Company is required or the Company is
required to take some action upon the request of the Issuer, such approval shall
be made or such action shall be taken by the Company Representative; and the
Issuer, the Trustee and the Bondholders shall be authorized to act on any such
approval or action.
SECTION 11.5 NOTICES.
(a) All notices, certificates or other communications hereunder shall be
sufficiently given and shall be deemed given when delivered by hand delivery,
sent via overnight courier service or mailed by first class, postage prepaid,
registered or certified mail, addressed as follows:
(1) if to the Issuer, to Development Authority of McDuffie County,
c/o Samuel A. Fowler, Jr., Esquire, P.O. Box 1620, 318 Jackson Street,
Thomson, Georgia 30824-1150.
32
<PAGE>
(2) if to the Company, to Advance Stores Company Incorporated, P.O.
Box 2710, 5673 Airport Road, Roanoke, Virginia 24012, Attention: Chief
Financial Officer.
(3) if to the Trustee, to First Union National Bank, 901 East Cary
Street, 2nd Floor, Richmond, Virginia 23219 (Attention: Corporate Trust
Department);
(4) if to the Credit Facility Trustee, to Branch Banking and Trust
Company, 223 West Nash Street, Wilson, North Carolina 27893 (Attention:
Corporate Trust Department); and
(5) if to any successor Trustee, successor Credit Facility Trustee
or Co-Trustee, addressed to it at its principal corporate trust office
(Attention: Corporate Trust Department).
(b) The Issuer, the Company, the Credit Facility Trustee or the Trustee
may, by notice given hereunder, designate from time to time any further or
different addresses to which subsequent notices, certificates or other
communications shall be sent.
SECTION 11.6 IF PAYMENT OR PERFORMANCE DATE IS OTHER THAN A BUSINESS DAY.
If the specified or last date for the making of any payment, the performance of
any act or the exercising of any right, as provided in this Lease Agreement,
shall be a day other than a Business Day, such payment may be made or act
performed or right exercised on the next succeeding Business Day; provided that
interest shall accrue during any such period during which payment shall not
occur.
SECTION 11.7 BINDING EFFECT. This Lease Agreement shall inure to the
benefit of and shall be binding upon the Issuer, the Company and their
respective successors and assigns, subject to the provisions of Sections 8.1 and
8.3 hereof.
SECTION 11.8 SEVERABILITY. In the event any provision of this Lease
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof or thereof.
SECTION 11.9 AMENDMENTS, CHANGES AND MODIFICATIONS. Subsequent to the
issuance of the Bonds and prior to Payment of the Bonds, this Lease Agreement
and the Indenture may not be effectively amended, changed, modified, altered or
terminated except in accordance with the Indenture.
SECTION 11.10 EXECUTION IN COUNTERPARTS. This Lease Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall
33
<PAGE>
constitute but one and the same instrument, and no one counterpart of which need
be executed by all parties.
SECTION 11.11 APPLICABLE LAW. This Lease Agreement shall be governed by
and construed in accordance with the laws of the State.
SECTION 11.12 NO CHARGE AGAINST MCDUFFIE COUNTY CREDIT. No provision
hereof shall be construed to impose a charge against the general credit or
taxing power of McDuffie County or any personal or pecuniary liability upon any
member, official, employee or agent of the Issuer.
SECTION 11.13 ISSUER NOT LIABLE. Notwithstanding any other provision of
this Lease Agreement (a) the Issuer shall not be liable to the Company, the
Trustee, the Credit Facility Trustee, any Bondholder or any other Person for any
failure of the Issuer to take action under this Lease Agreement other than such
actions as have been agreed to herein and in the Indenture, and (b) neither the
Issuer nor any officer or member of the Issuer nor any other official, employee,
attorney or agent of the Issuer shall be liable to the Company, the Trustee, the
Credit Facility Trustee, any Bondholder or any other Person for any action taken
by the Issuer or by any of its officers, attorney, servants, agents or employees
or for any failure to take action under this Lease Agreement or the Indenture
other than such actions as have been agreed to herein and in the Indenture. In
acting under this Lease Agreement, or in refraining from acting under this Lease
Agreement, the Issuer may conclusively rely on the advice of its Counsel.
SECTION 11.14 EXPENSES. The Company agrees to pay all reasonable fees and
expenses incurred in connection with the preparation, execution, delivery,
modification, waiver, and amendment of this Lease Agreement, the other Bond
Documents and related documents, and the fees and expenses of Bond Counsel,
Counsel for the Issuer and Counsel for the Trustee. The Company also agrees to
pay to the Trustee and the Credit Facility Trustee, as and when the same become
due, an aggregate of $3,500 each year for services rendered and its expenses
incurred as Trustee and the Credit Facility Trustee, including the reasonable
fees of their respective counsel, and such other amounts as the Company herein
assumes or agrees to pay, including any costs or expenses necessary to cancel
and discharge the Indenture. The Company also agrees to pay all expenses
incurred by the Trustee or the Issuer in collection of any indebtedness incurred
hereunder in the event of default by the Company, including reasonable attorneys
fees, provided that the amount of any legal fees so incurred shall be without
regard to any statutory presumption.
SECTION 11.15 AMOUNTS REMAINING WITH THE TRUSTEE. Any amounts remaining in
the Bond Fund, the Project Fund or otherwise in trust with the Trustee under the
Indenture or this Lease Agreement shall, after Payment of the Bonds and all
Administrative
34
<PAGE>
Expenses in accordance with this Lease Agreement, be disbursed by the Trustee in
accordance with the provisions of the Indenture or otherwise as may be required
by law.
SECTION 11.16 REFERENCES TO THE CREDIT FACILITY ISSUER, CREDIT FACILITY
AND CREDIT FACILITY TRUSTEE. If the Credit Facility is not in effect at any
time, all references herein to the Credit Facility Issuer, the Credit Facility
and the Credit Facility Trustee shall be deemed ineffective during such time.
SECTION 11.17 NET LEASE. This Lease Agreement shall be deemed a "net
lease", and the Company shall pay absolutely net during the Term of Lease
Agreement the rents specified herein, without abatement, deduction or set-off
other than those herein expressly provided.
SECTION 11.18 TERM OF LEASE AGREEMENT. This Lease agreement shall remain
in full force and effect form the date hereof to and including November 1, 2002
or until such time as Payment of the Bonds and all amounts payable to the Bank
under the Reimbursement Agreement shall have been fully paid or provision made
for such payments, whichever is later; provided, however, that this Lease
Agreement may be terminated prior to such date pursuant to Section 10.1 of this
Lease Agreement.
35
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Company have caused this Lease
Agreement to be executed in their respective corporate names and their
respective corporate seals to be hereunto affixed and attested by their duly
authorized officers, all as of the date first above written.
(SEAL) DEVELOPMENT AUTHORITY OF
MCDUFFIE COUNTY
Attest: By: /s/
------------------------------
Title: Chairman
By: /s/
--------------------------
Title: Secretary
36
<PAGE>
(SEAL) ADVANCE STORES COMPANY,
INCORPORATED
Attest: By: J. O'Neil Leftwich
-------------------------------------------
J. O'Neil Leftwich
Sr. Vice President/Chief Financial Officer
Assistant Secretary/Assistant Treasurer
By: /s/ Garnett E. Smith
--------------------------
Title: President and Chief
Executive Officer
<PAGE>
STATE OF Virginia
-----------------)
COUNTY OF Roanoke )
----------------)
I, the undersigned, a Notary Public in and for said county and said
state, hereby certify that J. O'Neil Leftwich, whose name as Vice
President/Chief Financial Officer of ADVANCE STORES COMPANY, INCORPORATED, a
Virginia corporation, is signed to the foregoing instrument and who is known to
me, acknowledged before me on this day that, being informed of the contents of
the within instrument, he, as such officer and with full authority, executed the
same voluntarily for and as the act of said corporation.
GIVEN under my hand and official seal of office, this 29th day of
----
December, 1997.
/s/ Casey E. Dugan
______________________________
Notary Public
[NOTARIAL SEAL]
<PAGE>
AMENDMENT NO. 1 TO LEASE AGREEMENT
THIS AMENDMENT NO. 1 TO LEASE AGREEMENT, dated April 1, 1998, is entered
into between DEVELOPMENT AUTHORITY OF MCDUFFIE COUNTY (the "Issuer"), and
ADVANCE STORES COMPANY, INCORPORATED (the "Company");
W I T N E S S E T H:
WHEREAS, the Issuer has issued its Taxable Industrial Development Revenue
Bonds (Advance Stores Company, Incorporated Project), Series 1997, in the
aggregate principal amount of $10,000,000 (the "Bonds"); and
WHEREAS, the Bonds were issued under and pursuant to an Indenture of Trust,
dated as of December 1, 1997 (the "Indenture"), by and among the Issuer, First
Union National Bank, as trustee (the "Trustee") and Branch Banking and Trust
Company, as credit facility trustee (the "Credit Facility Trustee"); and
WHEREAS, the proceeds derived from the issuance of the Bonds were made
available to the Company pursuant to a Lease Agreement, dated as of December 1,
1997 (the "Lease Agreement"), between the Issuer and the Company, for the
purpose of financing the acquisition, construction, installation and equipping
of an industrial facility (the "Project") located in McDuffie County, Georgia;
and
WHEREAS, the Company has requested that the Issuer amend the Lease
Agreement to correct a minor ambiguity relating to the definition of "Project";
NOW, THEREFORE, in consideration of the premises, mutual covenants
hereinafter contained and other good and valuable consideration, the Company and
the Issuer do hereby amend the Lease Agreement as follows:
Section 1. Definition of "Project" in Section 1.1 of the Lease Agreement
-------------------------------------------------------------
Amended. The definition of the capitalized term "Project" in Section 1.1 of the
- -------
Lease Agreement is hereby amended by deleting in its entirety said definition in
Section 1.1 of the Lease Agreement and inserting in lieu of the following:
" "Project" shall mean an industrial facility on approximately 49 acres
of land located in McDuffie County, Georgia and all related real and
personal property thereto, as more fully set forth on Exhibit B hereto."
Section 2. Effect of Modification and Amendment of Lease Agreement.
-------------------------------------------------------
The Lease Agreement shall be deemed to be modified and amended in
accordance with the provisions of this Amendment No. 1 and the respective
rights, duties and obligations of the Company and the Issuer under the
Lease Agreement shall remain to be determined, exercised and enforced under
the
<PAGE>
Agreement subject in all respects to such modifications and amendments
in writing, and all the terms and conditions of this Amendment No. 1 shall
be part of the terms and conditions of the Lease Agreement for any and all
purposes. All the other terms of the Lease Agreement shall continue in
full force and effect subject to the amendments set forth herein.
Section 3. Counterparts. This Amendment No. 1 may be executed in any
------------
number of counterparts, each of which shall be deemed to be an original,
but all of which together shall constitute one and the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Company have caused this
Agreement to be executed in their respective corporate names and their
respective corporate seals to be hereunto affixed and attested by their
duly authorized officers, all as of the date first above written.
(SEAL) DEVELOPMENT AUTHORITY OF MCDUFFIE COUNTY
Attest: By: /s/
----------------------------------
Title:
By: /s/
--------------------------
Title:
(SEAL) ADVANCE STORES COMPANY, INCORPORATED
Attest: By: /s/ Garnett E. Smith
----------------------------------
Name: Garnett E. Smith
Title: President & CEO
By: /s/
--------------------------
Secretary
3
<PAGE>
CONSENTED:
FIRST UNION NATIONAL BANK, as trustee
/s/
________________________________
Title:
BRANCH BANKING AND TRUST COMPANY, as credit facility trustee
/s/
________________________________
Title:
FIRST UNION NATIONAL BANK, as provider of the credit facility
/s/
________________________________
Title:
4
<PAGE>
EXHIBIT 10.11
LETTER OF CREDIT AND
REIMBURSEMENT AGREEMENT
by and among
ADVANCE STORES COMPANY, INCORPORATED,
ADVANCE HOLDING CORPORATION
and
FIRST UNION NATIONAL BANK
Dated as of December 1, 1997
<PAGE>
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS.................................................... 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE BORROWERS ............... 13
Section 2.1 Organization and Good Standing ................ 13
Section 2.2. Corporate and Governmental Authorization;
Contravention ................................. 13
Section 2.3. Binding Effect ................................ 13
Section 2.4. Financial Information ......................... 13
Section 2.5. Litigation .................................... 14
Section 2.6. ERISA ......................................... 14
Section 2.7. Taxes ......................................... 14
Section 2.8. Subsidiaries .................................. 14
Section 2.9. Investment Company Act ........................ 14
Section 2.10. Ownership of Property; Liens .................. 14
Section 2.11. No Default .................................... 14
Section 2.12. Full Disclosure ............................... 15
Section 2.13. Representations Upon Requests for Advances .... 15
Section 2.14. Use of Proceeds: Margin Stock ................. 15
Section 2.15. Insider ....................................... 15
Section 2.16. Environmental ................................. 16
Section 2.17. Survival of Representations and Warranties .... 16
ARTICLE III REIMBURSEMENT AND OTHER PAYMENTS .............................. 17
Section 3.1. Letter of Credit .............................. 17
Section 3.2. Reimbursement and Other Payments .............. 17
Section 3.3. Tender Advances ............................... 17
Section 3.4. [Intentionally Left Blank] .................... 19
Section 3.5. Commission and Fees ........................... 19
Section 3.6. Increased Costs Due to Change in Law .......... 19
Section 3.7. Computation ................................... 19
Section 3.8. Payment Procedure ............................. 20
Section 3.9. Business Days ................................. 20
Section 3.10. Reimbursement of Expenses ..................... 20
Section 3.11. Extension of Expiration Date .................. 20
Section 3.12. Obligations Absolute .......................... 20
ARTICLE IV INSURANCE; NET PROCEEDS ....................................... 22
Section 4.1. Insurance ..................................... 22
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.2. Application of Net Proceeds of Insurance
and Eminent Domain ............................. 22
ARTICLE V AFFIRMATIVE COVENANTS ......................................... 23
Section 5.1. Financial Statements, Reports and Documents .... 23
Section 5.2. Maintenance of Existence ....................... 24
Section 5.3. Notice of Default .............................. 24
Section 5.4. Inspection of Property, Books and Records ...... 24
Section 5.5. Compliance with Laws;
Payment of Taxes ............................... 25
Section 5.6. Maintenance of Property ........................ 25
Section 5.7. Environmental Matters .......................... 25
Section 5.8 Certificate of Occupancy ....................... 25
ARTICLE VI NEGATIVE COVENANTS ............................................ 26
Section 6.1. Negative Pledge ................................ 26
Section 6.2. Ratio of Consolidated Funded Debt to
Total Capitalization ........................... 26
Section 6.3. Minimum Consolidated Tangible Net Worth ........ 26
Section 6.4. Ratio of Consolidated Current Assets ........... 26
Section 6.5. Fixed Charge Coverage .......................... 26
Section 6.6. Accounting Method .............................. 26
Section 6.7. Loans or Advances .............................. 26
Section 6.8. Dissolution .................................... 27
Section 6.9. Consolidations, Mergers and Sales of Assets .... 27
Section 6.10. Acquisitions ................................... 27
Section 6.11. Dividends ...................................... 27
ARTICLE VII CONDITIONS TO ISSUANCE OF LETTER OF CREDIT .................... 28
Section 7.1. Conditions on Issuance ......................... 28
Section 7.2. Additional Conditions Precedent to
Issuance of the Letter of Credit ............... 28
Section 7.3. Conditions Precedent to Each Tender Advance .... 29
ARTICLE VIII DEFAULT ....................................................... 30
Section 8.1. Events of Default .............................. 30
Section 8.2. No Remedy Exclusive ............................ 32
Section 8.3. Anti-Marshaling Provisions ..................... 32
ARTICLE IX MISCELLANEOUS ................................................. 33
Section 9.1. Indemnification ................................ 33
Section 9.2. Transfer of Letter of Credit ................... 34
Section 9.3. Reduction of Letter of Credit .................. 34
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 9.4. Liability of the Bank .......................... 34
Section 9.5. Successors and Assigns ......................... 35
Section 9.6. Notices ........................................ 35
Section 9.7. Amendment ...................................... 35
Section 9.8. Effect of Delay and Waivers .................... 35
Section 9.9. Counterparts ................................... 36
Section 9.10. Severability ................................... 36
Section 9.11. Cost of Collection ............................. 36
Section 9.12. Set Off ........................................ 36
Section 9.13. Governing Law .................................. 36
Section 9.14. References ..................................... 36
Section 9.15. Taxes, Etc ..................................... 36
Section 9.16. Consent to Jurisdiction, Venue;
Waiver of Jury Trial ........................... 37
Section 9.17 Assignment and Pledge of Agreement ............. 37
</TABLE>
Exhibit A - Irrevocable Letter of Credit Relating to the Bonds
Exhibit B - Form of Opinion of Counsel to the Borrowers
Exhibit C - Litigation
iii
<PAGE>
LETTER OF CREDIT AND
REIMBURSEMENT AGREEMENT
THIS AGREEMENT, dated as of December 1, 1997, by and among ADVANCE STORES
COMPANY, INCORPORATED, a Virginia corporation (the "Company"), ADVANCE HOLDING
CORPORATION, a Virginia corporation (the "Parent", and together with the
Company, the "Borrowers") and FIRST UNION NATIONAL BANK, a national banking
association organized and existing under the laws of the United States with an
office located at Roanoke, Virginia (the "Bank");
W I T N E S S E T H:
-------------------
WHEREAS, arrangements have been made pursuant to a Trust Indenture of even
date herewith (the "Indenture") between the Development Authority of McDuffie
County (the "Issuer"), Branch Banking and Trust Company, as credit facility
trustee (the "Credit Facility Trustee") and First Union National Bank, Richmond,
Virginia, as trustee (the "Trustee") for the issuance and sale by the Issuer of
its Taxable Industrial Development Revenue Bonds (Advance Stores Company,
Incorporated Project), Series 1997 in the aggregate principal amount of
$10,000,000 (the "Bonds"); and
WHEREAS, the proceeds from the sale of the Bonds will be used to finance,
in whole or in part, the cost of the acquisition, construction, installation and
equipping of an industrial facility to be located in McDuffie County, Georgia
(the "Project");
WHEREAS, the proceeds of the Bonds will be made available to the Company
pursuant to a Lease Agreement of even date herewith between the Issuer and the
Company (the "Lease Agreement"); and
WHEREAS, in order to enhance the marketability of the Bonds, the Borrowers
have requested that the Bank issue an irrevocable direct pay letter of credit in
the form attached hereto as Exhibit "A" (such letter of credit or any successor
or substitute letter of credit issued by the Bank herein called the "Letter of
Credit") in an aggregate amount not exceeding $10,201,370 of which (a)
$10,000,000 shall support the payment of principal or portion of the purchase
price corresponding to principal of the Bonds and (b) $201,370 shall support the
payment of up to 49 days interest or portion of the purchase price corresponding
to interest on the Bonds at an assumed interest rate of 15% per annum;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, including the covenants, terms and conditions
hereinafter appearing, and to induce the Bank to issue the Letter of Credit, the
Borrowers do hereby covenant and agree with the Bank as follows:
<PAGE>
ARTICLE I
DEFINITIONS
All words and terms defined in Article I of the Lease Agreement shall have
the same meanings in this Agreement, unless otherwise specifically defined
herein. The terms defined in this Article I have, for all purposes of this
Agreement, the meanings specified hereinabove or in this Article, unless defined
elsewhere herein or the context clearly requires otherwise.
1.1. "Accountant" means an independent certified public accountant or a
firm thereof as approved by the Borrowers. Initially, the Borrowers have
designated and approved Arthur Andersen & Co. as the Accountant.
1.2. "Affiliate" means any other Person directly or indirectly,
controlling, controlled by, or under common control with, the first Person; or
any other Person which directly or indirectly owns or controls at least five
percent (5%) of the Voting Stock, partnership or other equity interests of, or
at least five percent (5%) of its Voting Stock, partnership or other equity
interests are owned or controlled by, directly or indirectly, the first Person.
1.3. "Agreement" means this Letter of Credit and Reimbursement Agreement,
as the same may from time to time be amended, modified or supplemented in
accordance with the terms hereof.
1.4. "Alternate Credit Facility" means any irrevocable direct pay letter
of credit, insurance policy or similar credit enhancement or support facility
for the benefit of the Trustee, the terms of which Alternate Credit Facility
shall in all respects material to the registered owners of the Bonds be the same
(except for the term set forth in such Alternate Credit Facility) as those of
the Letter of Credit.
1.5. "Bank" means First Union National Bank, a national banking
association.
1.6. "Bankruptcy Code" means 11 U.S.C. (S) 101 et seq., as amended.
------
1.7. "Bondholder" or "Bondholders" means the initial and any future
registered owners of the Bond or Bonds as registered on the books and records of
the Bond Registrar pursuant to Section 2.4 of the Indenture.
1.8. "Bond Documents" means, collectively, the Lease Agreement, the
Security Instruments, the Indenture, the Bonds, the Remarketing Agreement, the
Tender Agency Agreement, the Private Placement Memorandum and the Placement
Letter, as the same may be amended, modified or supplemented from time to time
in accordance with their respective terms.
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1.9. "Bonds" means the Development Authority of McDuffie County Taxable
Industrial Development Revenue Bonds (Advance Stores Company, Incorporated
Project), Series 1997, in the original aggregate principal amount of
$10,000,000.
1.10. "Borrowers" mean the Company and the Parent.
1.11. "Capital Stock" means any capital stock of the Parent or any
Consolidated Subsidiary (to the extent issued to a Person other than the
Parent), whether common or preferred.
1.12. "CERCLA" means Comprehensive, Environmental, Response, Compensation
and Liability Act of 1980, as amended from time to time, and all rules and
regulations from time to time promulgated thereunder.
1.13. "Code" means the Internal Revenue Code of 1986, as amended.
1.14. "Closing Date" means the date of issuance of the Bonds.
1.15. "Consistent Basis" means, in reference to the application of GAAP
applied on a basis consistent with that of the preceding year, that the
accounting principles observed in the period referred to are comparable in all
material respects to those applied in the preceding period, except as to any
changes consented to by the Bank.
1.16. "Company" means Advance Stores Company, Incorporated, a Virginia
corporation, and its successors and assigns.
1.17. "Consolidated Current Assets" and "Consolidated Current Liabilities"
mean, at any time, all assets or liabilities, respectively, of the Parent and
its Consolidated Subsidiaries that, in accordance with GAAP on a Consistent
Basis, should be classified as current assets or current liabilities,
respectively, on a consolidated balance sheet of the Parent and its Consolidated
Subsidiaries.
1.18. "Consolidated Fixed Charges" for any period means the sum of (i)
Consolidated Interest Expense for such period, and (ii) all payment obligations
of the Parent and its Consolidated Subsidiaries for such period under all
operating leases and rental agreements on any of the Properties.
1.19. "Consolidated Funded Debt" means at any date, without duplication,
all short-term obligations for borrowed money, all long-term obligations for
borrowed money, all private placement debt and all capital leases made in
connection with industrial development bond financings of the Parent or any of
its Consolidated Subsidiaries.
1.20. "Consolidated Interest Expense" for any period means interest,
whether expensed or capitalized, in respect of Debt of the Parent or any of its
Consolidated
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Subsidiaries outstanding during such period.
1.21. "Consolidated Liabilities" means the sum of all liabilities that, in
accordance with GAAP on a Consistent Basis, should be classified as liabilities
on a consolidated balance sheet of the Parent and its Consolidated Subsidiaries.
1.22. "Consolidated Net Income" means, for any period, the Net Income of
the Parent and its Consolidated Subsidiaries determined on a consolidated basis
in accordance with GAAP, but excluding (i) extraordinary items and (ii) any
equity interests of the Parent or any Subsidiary in the unremitted earnings of
any Person that it not a Subsidiary.
1.23. "Consolidated Operating Profits" means, for any period, the
Operating Profits of the Parent and its Consolidated Subsidiaries determined on
a consolidated basis in accordance with GAAP.
1.24. "Consolidated Subsidiary" means at any date any Subsidiary or other
entity the accounts of which, in accordance with GAAP, would be consolidated
with those of the Parent in its consolidated financial statements as of such
date.
1.25. "Consolidated Tangible Net Worth" means, at any time, Stockholder's
Equity, less the sum of the value, as set forth or reflected on the most recent
consolidated balance sheet of the Parent and its Consolidated Subsidiaries,
prepared in accordance with GAAP on a Consistent Basis, of
(A) Any surplus resulting from any write-ups of assets subsequent to
December 31, 1994;
(B) All assets which would be treated as intangibles under GAAP,
including without limitation goodwill (whether representing the excess of
cost over book value of assets acquired, or otherwise), trademarks, trade
names, copyrights, patents and technologies, and unamortized debt discount
and expense;
(C) To the extent not included in (B) of this Section, any amount at
which shares of capital stock of the Parent appear as an asset on the
balance sheet of the Parent and its Consolidated Subsidiaries; and
(D) To the extent not included in (B) of this Section, deferred
expenses.
1.26. "Consolidated Total Assets" means, at any time, the total assets of
the Parent and its Consolidated Subsidiaries, determined on a consolidated
basis, as set forth or reflected on the most recent consolidated balance sheet
of the Parent and its Consolidated Subsidiaries, prepared in accordance with
GAAP on a Consistent Basis.
4
<PAGE>
1.27. "Controlled" or "controlling" or "under common control with" means,
with respect to any Person, the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of Voting
Stock, by agreement or otherwise.
1.28. "Controlled Group" means (i) the controlled group of corporations as
defined in Section 1563 of the Code, or (ii) the group of trades or businesses
under common control as defined in Section 414(c) of the Code, of which the
Borrowers are a part or may become a part.
1.29. "Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee under capital leases in
connection with industrial development revenue bonds, (v) all obligations of
such Person to reimburse any bank or other Person in respect of amounts payable
under a banker's acceptance, (vi) all obligations of such Person to reimburse
any bank or other Person in respect of amounts paid under a letter of credit or
similar instrument, (vii) all Debt of others secured by a Lien on any asset of
such Person, whether or not such Debt is assumed by such Person, to the extent
of the fair market value of such assets and (viii) all Debt of others Guaranteed
by such Person to the extent of the Debt which has been Guaranteed; provided,
however, the term "Debt" shall not include trade indebtedness of the Company.
1.30. "Debtor Laws" means all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization,
fraudulent transfer or similar laws from time to time in effect affecting the
rights of creditors generally and general principles of equity.
1.31. "Default" means an event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both become an Event of
Default.
1.32. "Environmental Claim" means any accusation, allegation, notice of
violation, claim, demand, abatement order, or other order or direction
(conditional or otherwise) by any governmental authority or any Person for any
damage, including, without limitation, personal injury (including sickness,
disease, or death), tangible or intangible property damage, contribution,
indemnity, direct or consequential damages, damage to the environment, nuisance,
pollution, contamination, or other adverse effects on the environment, or for
fines, penalties, or restrictions, in each case relating to, resulting from, or
in connection with Hazardous Materials and relating to the Borrowers, or any
property leased, owned, operated, or used by the Borrowers.
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<PAGE>
1.33. "Environmental Laws" means any and all federal, state, local, or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, or requirements of any governmental authority regulating, relating to
or imposing liability or standards of conduct concerning, any Hazardous
Materials or environmental protection or health and safety, as now or may at any
time hereafter be in effect, including without limitation: the Clean Water Act
also known as the Federal Water Pollution Control Act ("FWPCA"), 33 U.S.C.
Section 1251 et seq.; the Clean Air Act ("CAA"), 42 U.S.C. Section 7401 et seq.;
-- --- -- ---
the Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"), 7 U.S.C.
Section 136 et seq.; the Surface Mining Control and Reclamation Act ("SMCRA"),
-- ---
30 U.S.C. Section 1201 et seq.; the Comprehensive Environmental Response,
-- ---
Compensation, and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq.; the
-- ---
Superfund Amendment and Reauthorization Act of 1986 ("SARA"), Public Law 99-499,
100 Stat. 1613; the Emergency Planning and Community Right to Know Act
("ECPCRKA"), 42 U.S.C. Section 11001 et seq.; the Resource Conservation and
-- ---
Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq.; and the Occupational
-- ---
Safety and Health Act as amended ("OSHA"), 29 U.S.C. Section 655 and Section
657; together, in each case, with any amendment thereto, and the regulations
adopted and publications promulgated thereunder and all substitutions thereof.
1.34. "ERISA" means the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time, and all regulations promulgated under
that Act.
1.35. "Event of Default" has the meaning specified in Section 8.1 hereof.
1.36. "Fiscal Quarter" means any fiscal quarter of the Parent.
1.37. "Fiscal Year" means any fiscal year of the Parent.
1.38. "Generally Accepted Accounting Principles" or "GAAP" means those
generally accepted accounting principles and practices which are recognized as
such by the American Institute of Certified Public Accountants acting through
its Accounting Principles Board or the Financial Accounting Standards Board or
through other appropriate boards or committees thereof and which are
consistently applied for all periods after the date hereof so as to reflect the
financial condition, results of operations and changes in financial position of
any Person, except that any accounting principle or practice required to be
changed by such Accounting Principles Board or Financial Accounting Standards
Board (or other appropriate board or committee of such Boards) in order to
continue as a generally accepted accounting principle or practice may so be
changed, as provided in Section 1.02(c) thereof. After any change in GAAP that
affects any covenants of this Agreement, the Bank and the Borrowers will
negotiate in good faith to revise those covenants in order to make them
consistent with GAAP then in effect.
1.39. "Governmental Authority" means any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency, department or other
governmental
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<PAGE>
subdivision having jurisdiction over the Borrowers, any Affiliate of the
Borrowers or any of their respective businesses, operations or properties.
1.40. "Guarantee" of any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to secure, purchase or pay (or advance or supply funds for the
purchase or payment of ) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or other services, to provide collateral security, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the obligee of such
Debt or other obligation of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part), provided that the term
--------
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has the
corresponding meaning.
1.41. "Hazardous Materials" means any flammable materials, explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic
substances, or similar materials defined as such in any Environmental Claim.
1.42. "Income Available for Fixed Charges" for any period means the sum of
(i) Consolidated Net Income, (ii) taxes on income and (iii) Consolidated Fixed
Charges, all determined with respect to the parent and its Consolidated
Subsidiaries on a consolidated basis for such period and in accordance with GAAP
on a Consistent Basis.
1.43. "Indemnities" has the meaning assigned in Section 9.1 hereof.
1.44. "Indemnified Matters" has the meaning assigned in Section 9.1
hereof.
1.45. "Indenture" means the Trust Indenture, dated as of December 1, 1997,
among the Issuer, the Credit Facility Trustee and the Trustee, as from time to
time supplemented and amended.
1.46. "Lease Agreement" means that Lease Agreement, dated as of December
1, 1997 between the Issuer and the Company, as supplemented and amended from
time to time.
1.47. "Letter of Credit" means the Letter of Credit, dated December 31,
1997 issued by the Bank relating to the Bonds for the account of the Borrowers
pursuant hereto and the Bond Documents.
1.48. "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For purposes of this
7
<PAGE>
Agreement, the Borrowers or any Subsidiary shall be deemed to own subject to a
Lien any asset which they have acquired or hold subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
1.49. "Material Adverse Effect" means any (i) material adverse effect upon
the validity, performance or enforceability of this Agreement or any of the
Security Instruments or any of the transactions contemplated hereby or thereby,
(ii) material adverse effect upon the properties, business, prospects or
condition financial or otherwise) of the Borrowers, or (iii) material adverse
effect upon the ability of the Borrowers or any other Person to fulfill any
obligation under this Agreement or any of the Security Instruments.
1.50. "Multiemployer Plan" means the multiemployer plan as set forth in
Section 4001(a)(3) of ERISA.
1.51. "Obligations" means all loans and all other advances, debts,
liabilities, obligations, covenants and duties owing, arising, due or payable
from the Borrowers to the Bank, whether or not evidenced by any note, guaranty
or other instrument, whether arising under this Agreement or any of the other
Bond Documents or Security Instruments or otherwise, whether direct or indirect
(including those acquired by assignment), joint, several, absolute or
contingent, primary or secondary, due or to become due, now existing or
hereafter arising and however acquired. The term includes, without limitation,
all interest, charges, expenses, fees, attorney's fees and any other sums
chargeable to the Borrowers under any of the Bond Documents or Security
Instruments.
1.52. "Parent" means Advance Holding Corporation, a Virginia corporation,
and its successors and assigns.
1.53. "PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or any of the Pension Benefit Guaranty Corporation's functions
under ERISA.
1.54. "Permitted Encumbrances" means (i) any Lien existing on any asset of
any corporation at the time such corporation becomes a Consolidated Subsidiary
and not created in contemplation of such event; (ii) any Lien on any asset
securing Debt incurred or assumed for the purpose of financing all or any part
of the cost of acquiring or constructing such asset, provided that such Lien
attaches to such asset concurrently with or within 18 months after the
acquisition or completion of construction thereof; (iii) any Lien on any asset
of any corporation existing at the time such corporation is merged or
consolidated with or into the Parent or a Consolidated Subsidiary and not
created in contemplation of such event; (iv) any Lien existing on any asset
prior to the acquisition thereof by the Parent or a Consolidated Subsidiary and
not created in contemplation of such event; (v) Liens securing Debt owing by any
Subsidiary to the Parent; (vi) any Lien arising out of the refinancing,
extension, renewal or refunding of any Debt secured by any Lien permitted by any
of the foregoing clauses of this Section, provided that (a) such Debt
--------
8
<PAGE>
is not secured by any additional assets, and (b) the amount of such Debt secured
by any such Lien is not increased; (vii) Liens incidental to the conduct of the
Borrowers' businesses or the ownership of their assets which (a) do not secure
Debt and (b) do not in the aggregate materially detract from the value of their
assets or materially impair the use thereof in the operation of their
businesses; (viii) any Lien on Margin Stock; and (ix) Liens not otherwise
permitted by the foregoing clauses of this Section securing Debt (other than
indebtedness represented hereunder) in an aggregate principal amount at any time
outstanding not to exceed 10% of Consolidated Tangible Net Worth.
1.55. "Person" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a government or
agency or political subdivision or instrumentality thereof.
1.56. "Placement Letter" means the Placement Agent Agreement, dated
December 31, 1997 by and among the Company, the Issuer and First Union National
Bank, Charlotte, North Carolina, as Placement Agent for the Bonds.
1.57. "Plan" means an employee benefit plan or other plan maintained for
employees of the Borrowers and covered by Title IV of ERISA, or subject to the
minimum funding standards under Section 412 of the Code and is either (i)
maintained by a member of the Controlled Group or (ii) maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contribution and to which a member of the Controlled Group is
then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions.
1.58. "Pledge Agreement" means the Pledge Agreement dated as of even date
herewith from the Company to the Bank relating to the Bonds.
1.59. "Private Placement Memorandum" means the Private Placement
Memorandum dated December 31, 1997 relating to the Bonds.
1.60. "Prohibited Transaction" means any transaction set forth in Section
406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended
from time to time.
1.61. "Project" shall mean the financing, in whole or in part, of the
acquisition, construction, installation and equipping of an industrial facility
to be located in McDuffie County. Georgia.
1.62. "Project Fund" means the trust fund so designated and established
under the Indenture.
1.63. "Property" or "Properties" means all real property owned, leased or
otherwise used or occupied by the Borrowers or any Subsidiary, wherever located.
9
<PAGE>
1.64. "RCRA" means the Resource Conservation and Recovery Act, as amended
from time to time, and all rules and regulations from time to time promulgated
thereunder.
1.65. "Release" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching, or migration of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, the abandonment or disposal of any
barrels, containers, or other closed receptacles containing any Hazardous
Materials), or into or out of any property owned, leased, operated, or used by
the Borrowers or any subsidiaries (if any), including the movement of any
Hazardous Material through the air, soil, surface water, groundwater, or
property.
1.66. "Remarketing Agreement" means the Remarketing Agreement, dated as of
December 1, 1997, by and between the Company and First Union National Bank, as
Remarketing Agent, as supplemented and amended from time to time.
1.67. "Reportable Event" means any of the events set forth in Section
4043(b) of Title V of ERISA.
1.68. "SARA" means the Superfund Reauthorization and Amendments Act of
1986, as amended from time to time, and all rules and regulations promulgated
thereunder.
1.69. "Security Instruments" means, collectively, the Pledge Agreement,
any Swap Agreement, and any and all other agreements or instruments relating to
the Project now or hereafter executed and delivered by any of the Borrowers or
any other Person in connection with, or as security for the payment or
performance of, the Letter of Credit or this Agreement or any other obligations
of any of the Borrowers to the Bank as described therein, as such agreements may
be amended, modified or supplemented from time to time in accordance with their
respective terms.
1.70. "Solvent" means, as to any Person, that such Person has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage and is able to pay its debts as they
mature and owns property having a value, both at fair valuation and at present
fair saleable value, greater than the amount required to pay its debts.
1.71. "State" means the State of Georgia.
1.72. "Stated Expiration Date" means November 1, 2000.
1.73. "Stated Termination Date" means November 1, 2000, the expiration
date of the Letter of Credit, as such date may be extended in accordance with
terms of Section 3.11 hereof.
10
<PAGE>
1.74. "Stockholders' Equity" means, at any time, the shareholders' equity
of the Parent and its Consolidated Subsidiaries, as set forth or reflected on
the most recent consolidated balance sheet of the Parent and its Consolidated
Subsidiaries prepared in accordance with GAAP on a Consistent Basis,
shareholders' equity would generally include, but not limited to (i) the par or
stated value of all outstanding Capital Stock, (ii) capital surplus, (iii)
retained earnings, and (iv) various deductions such as (A) purchases of treasury
stock, (B) valuation allowances, (C) receivables due from an employee stock
ownership plan, (D) employee stock ownership plan debt guarantees, and (E)
translation adjustments for foreign currency transactions.
1.75. "Subsidiary" means any corporation, more than fifty percent (50%) of
the outstanding Voting Stock of which is at the time, directly or indirectly,
owned by the Borrowers and/or one or more Subsidiaries (irrespective of whether,
at the time, capital stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency).
1.76. "Swap Agreement" means (A) an agreement (including teams and
conditions incorporated by reference therein) which is a rate swap agreement,
basis swap, forward rate agreement, commodity swap, interest rate option,
forward foreign exchange agreement, spot foreign exchange agreement, rate cap
agreement, rate floor agreement, rate collar agreement, currency swap agreement,
cross-currency rate swap agreement, currency option, any other similar agreement
(including any option to enter into any of the foregoing); (B) any combination
of the foregoing; or (C) a master agreement for any of the forgoing together
with all supplements.
1.77. "Tender Advance" has the meaning assigned to that term in Section
3.3 of this Agreement.
1.78. "Tender Agency Agreement" means the Tender Agency Agreement dated as
of December 1, 1997 by and between the Company and the Trustee, as Tender Agent,
as amended, from time to time thereunder.
1.79. "Tender Draft" has the meaning assigned to that term in the Letter
of Credit.
1.80. "Termination Date" means the last day a drawing is available under
the Letter of Credit.
1.81. "Total Capitalization" means at any date the sum of Consolidated
Funded Debt plus Consolidated Tangible Net Worth.
1.82. "Trustee" means any Person or group of Persons at the time serving
as trustee under the Indenture.
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<PAGE>
1.83. "UCC" means the Uniform Commercial Code in effect in jurisdictions
where assets of the Borrowers are located at anytime during the term hereof, as
the same may be amended from time to time.
1.84. "Voting Stock" of any corporation means shares of any class or
classes (however designated) of capital stock of such corporation having
ordinary voting power for the election of at least a majority of the members of
the board of directors (or other governing bodies) of such corporation, other
than shares having such power only by reason of the happening of a contingency.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE BORROWERS
The Borrowers represent and warrant to the Bank (which representations and
warranties shall survive the delivery of the documents mentioned herein and the
issuance of the Letter of Credit) that:
Section 2.1. Organization and Good Standing. The Borrowers are each a
------------------------------
Virginia corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of their incorporation, are each duly qualified to
transact business in every jurisdiction where, by the nature of its business,
such qualification is necessary, and each has all corporate powers and
governmental licenses, authorizations, consents and approvals required to carry
on their businesses as now conducted.
Section 2.2. Corporate and Governmental Authorization; Contravention.
-------------------------------------------------------
The execution, delivery and performance by the Borrowers of this Agreement, the
Security Instruments and Bond Documents to which the Borrowers are a party, (i)
are within the Borrowers' corporate powers, (ii) have been duly authorized by
all necessary corporate action, (iii) require no action by or in respect of, or
filing with, any governmental body (except for the validation of the Bonds),
agency or official, (iv) do not contravene, or constitute a default under, any
provision of applicable law or regulation or of the certificate of incorporation
or by-laws of the Borrowers or of any agreement, judgment, injunction, order,
decree or other instrument binding upon the Borrowers or any of their
Subsidiaries, and (v) do not result in the creation or imposition of any Lien on
any asset of the Borrowers or any of their Subsidiaries.
Section 2.3. Binding Effect. This Agreement, the Bond Documents and
--------------
Security Instruments to which the Borrowers are a party constitute valid and
binding agreements of the Borrowers enforceable in accordance with their terms,
provided, that the enforceability hereof and thereof are limited by Debtor Laws.
Section 2.4. Financial Information. (a) The consolidated balance sheet
---------------------
of the Parent and its Consolidated Subsidiaries as of December 28, 1996 and the
related consolidated statements of income, shareholders' equity and cash flows
for the Fiscal Year then ended, reported by the Accountant, copies of which have
been delivered to the Bank, fairly present, in conformity with GAAP, the
consolidated financial position of the Parent and its Consolidated Subsidiaries
as of such date and their consolidated results of operations and cash flows for
such Fiscal Year.
(b) Since the date of the financial statements referred to above, there has
been no Material Adverse Change in the business, financial position, results of
operations or prospects of the Parent and its Consolidated Subsidiaries.
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Section 2.5. Litigation. Except as disclosed in Exhibit C attached
----------
hereto, there is no action, suit or proceeding pending, or to the knowledge of
the Borrowers threatened, against or affecting the Borrowers or any of their
Subsidiaries before any court or arbitrator or any governmental body, agency or
official which could have a Material Adverse Effect on the business,
consolidated financial position or consolidated results of operations of the
Parent and its Consolidated Subsidiaries, considered as a whole.
Section 2.6. ERISA. (a) Except as previously disclosed in writing to the
-----
Bank, the Borrowers and each member of the Controlled Group have fulfilled their
obligations under minimum funding standards of ERISA and the Code with respect
to each Plan and are in compliance in all material respects with the presently
applicable provisions of ERISA and the Code, and have not incurred any liability
to the Pension Benefit Guaranty Corporation (or any successor thereto)
established under ERISA or a Plan under Title IV of ERISA.
(b) Neither the Borrowers nor any member of the Controlled Group is or ever
has been obligated to contribute to any Multiemployer Plan.
Section 2.7. Taxes. There have been filed on behalf of the Borrowers and
-----
its Subsidiaries all federal, state and local income and other tax returns which
are required to be filed by them and all taxes due pursuant to such returns or
pursuant to any assessment received by or on behalf of the Borrowers or any
Subsidiary have been paid. The charges, accruals and reserves on the books of
the Borrowers and their subsidiaries in respect of taxes or other governmental
charges are, in the opinion of the Borrowers, adequate.
Section 2.8. Subsidiaries. Each of the Borrowers' Subsidiaries is a
------------
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, and has all corporate powers and all
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
Section 2.9. Investment Company Act. The Borrowers are not an
----------------------
"investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended, and is not controlled by such
company.
Section 2.10. Ownership of Property, Liens. Each of the Parent and its
----------------------------
Consolidated Subsidiaries has title to its Properties sufficient for the conduct
of its business, and none of such Property is subject to any Lien except for
Permitted Liens.
Section 2.11. No Default. Except as previously disclosed in writing to the
----------
Bank, neither the Parent nor any of its Consolidated Subsidiaries is in default
under or with respect to any agreement, instrument or undertaking to which it is
a party or by which it or any of its property is bound which will have a
Material Adverse Effect to the business, operations, property or financial or
other condition of the Parent or any of its Consolidated Subsidiaries,
considered as a whole, or which will have a Material Adverse Effect to the
14
<PAGE>
Company to perform its obligations under the Bond Documents. No Default has
occurred and is continuing.
Section 2.12. Full Disclosure. There is no material fact which is known
---------------
or which should be known by the Borrowers or any Affiliate that the Borrowers
have not disclosed to the Bank which could have a Material Adverse Effect.
Neither this Agreement nor any agreement, document, certificate or statement
delivered by the Borrowers or any Affiliate of the Borrowers to the Bank,
contains any untrue statement of a material fact or omits to state any material
fact which is known or which should be known by the Borrowers necessary to keep
the other statements from being misleading.
Section 2.13. Representations Upon Requests for Advances. Every draw
------------------------------------------
under the Letter of Credit shall constitute, without the necessity of
specifically containing a written statement, a representation and warranty by
the Borrowers that no Default or Event of Default exists and that all
representations and warranties by the Borrowers contained in this Agreement, the
Bond Documents and Security Instruments are true and correct as of the date the
advance is to be made.
Section 2.14. Use of Proceeds: Margin Stock. The proceeds of the Bonds
-----------------------------
will be used by the Borrowers only for the purposes set forth herein and in the
Bond Documents. The Borrowers' uses of the proceeds are, and continue to be,
legal and proper corporate uses, and the uses are and will be consistent with
all applicable laws and regulations, as in effect from time to time. None of
the proceeds of the Bonds will be used for the purpose of purchasing or carrying
any "margin stock" as defined in Regulation U, Regulation X, or Regulation G of
the Code of Federal Regulations, Parts 221, 224 and 207, respectively, or for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry "margin stock," or for any other purpose which
might cause this transaction to be deemed a "purpose credit" within the meaning
of Regulation U, Regulation X or Regulation G. The Borrowers are not engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stocks. The Borrowers, or any Person acting on behalf of the Borrowers,
have not taken or will take any action which might cause any violation of
Regulation U, Regulation X, or Regulation G or any other regulations of the
Board of Governors of the Federal Reserve System or any violation of Section 8
of the Securities Exchange Act of 1934 or any rule or regulation thereunder as
now or hereafter in effect.
Section 2.15. Insider. The Borrowers are not, and no Person having
-------
"control" (as that term is defined in 12 U.S.C. (S) 375(b)(5) or in regulations
promulgated pursuant thereto) of such Person is, an "executive officer",
"director", or "principal shareholder" (as those terms are defined in 12 U.S.C.
(S) 375(b) or in regulations promulgated pursuant thereto) of the Bank, of a
bank holding COMPANY of which the Bank is a subsidiary, or of any subsidiary of
a bank holding COMPANY of which the Bank is a subsidiary, or of any bank at
which the Bank maintains a "correspondent account" (as such term is defined in
15
<PAGE>
such statute or regulations), or of any bank which maintains a correspondent
account with the Bank.
Section 2.16. Environmental. Except as previously disclosed in writing to
-------------
the Bank, the Borrowers and their Subsidiaries are to the best of their
knowledge, in compliance with the provisions of the Environmental Laws
Section 2.17. Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties by the Borrowers shall survive delivery of this
Agreement, the Bond Documents and the Security Instruments. Any investigation
at any time made by or on behalf of the Bank will not diminish the Bank's right
to rely on the representations and warranties.
16
<PAGE>
ARTICLE III
REIMBURSEMENT AND OTHER PAYMENTS
Section 3.1. Letter of Credit. The Bank agrees, on the terms and
----------------
conditions hereinafter set forth, to issue and deliver the Letter of Credit in
favor of the Credit Facility Trustee in substantially the form of Exhibit A
---------
attached hereto upon fulfillment of the applicable conditions set forth in
Article VII hereof. The Bank agrees that any and all payments under the Letter
of Credit will be made with the Bank's own funds.
Section 3.2. Reimbursement and Other Payments. Except as otherwise
--------------------------------
provided in Section 3.3 below, the Borrowers shall pay to the Bank:
(a) on or before 3:00 P.M. (prevailing Eastern time), but after the
honoring of a draw by the Bank, on the date that any amount is drawn under
the Letter of Credit, a sum together with interest on such sum equal to
such amount so drawn under the Letter of Credit, plus to the extent
permitted by applicable law, any and all reasonable charges and expenses
that the Bank may pay or incur relative to the Letter of Credit which have
not been previously paid by or on behalf of the Borrowers; provided,
further, the Borrowers and the Bank acknowledge that such amounts due under
this subparagraph (a) shall be due and payable and subject to interest
thereon (at a fluctuating interest rate per annum equal at all times to the
rate applicable to the Bonds plus two percent (2%) even though no Event of
Default has occurred under Section 8.1 hereof;
(b) on demand, interest on any and all amounts remaining unpaid by the
Borrowers when due hereunder from the date such amounts become due until
payment thereof in full, at a fluctuating interest rate per annum equal at
all times to the rate applicable to the Bonds plus two percent (2%);
(c) on demand, any and all reasonable expenses incurred by the Bank in
enforcing any rights under this Agreement and the other Security
Instruments which have not been previously paid by or on behalf of the
Borrowers; and
(d) on demand all charges, commissions, costs and expenses set forth
in Sections 3.4, 3.5 and 3.9 hereof which have not been previously paid by
or on behalf of the Borrowers.
Section 3.3. Tender Advances.
---------------
(a) If the Bank shall make any payment of that portion of the purchase
price corresponding to principal and interest of the Bonds drawn under the
Letter of Credit pursuant to a Tender Draft and the conditions set forth in
Section 7.3 shall have been fulfilled, such payment shall constitute a tender
advance made by the Bank to the
17
<PAGE>
Borrowers on the date and in the amount of such payment (a "Tender Advance");
provided that if the conditions of said Section 7.3 have not been fulfilled, the
amount so drawn pursuant to the Tender Draft shall be payable in accordance with
the terms of Section 3.2(a) above. Notwithstanding any other provision hereof,
the Borrowers shall repay the unpaid amount of each Tender Advance, together
with all unpaid interest thereon, on the earlier to occur of (i) such date as
any Bonds purchased pursuant to a Tender Draft are resold as provided in
paragraph 3.3(d) hereof, (ii) on the date one year and one day following the
date of such Tender Advance, or (iii) the Termination Date. The Borrowers may
prepay the outstanding amount of any Tender Advance in whole or in part,
together with accrued interest to the date of such prepayment on the amount
prepaid. The Borrowers shall notify the Bank prior to 11:00 A.M. (prevailing
Eastern time) on the date of such prepayment of the amount to be prepaid.
(b) The Borrowers shall pay interest on the unpaid amount of each
Tender Advance from the date of such Tender Advance until such amount is paid in
full, payable monthly, in arrears, on the first day of each month during the
term of each Tender Advance and on the date such amount is paid in full, at a
fluctuating interest rate per annum in effect from time to time equal to the
rate applicable to the Bonds, provided that the unpaid amount of any Tender
Advance which is not paid when due shall bear interest at the rate applicable to
the Bonds plus two percent (2%), payable on demand and on the date such amount
is paid in full.
(c) Pursuant to the Pledge Agreement, the Company has agreed that, in
accordance with the terms of the Indenture, Bonds purchased with proceeds of any
Tender Draft shall be delivered by the Tender Agent to the Bank or its designee
(or otherwise in the manner provided in the Pledge Agreement, as applicable) to
be held by the Bank or its designee in pledge as collateral securing the
Borrowers' payment obligations to the Bank hereunder. Bonds so delivered to the
Bank or its designee shall be registered in the name of the Bank, or its
designee, as pledgee of the Company, as provided for in the Pledge Agreement, as
applicable.
(d) Prior to or simultaneously with the resale of Pledged Bonds, the
Borrowers shall prepay the then outstanding Tender Advances (in the order in
which they were made) by paying to the Bank an amount equal to the sum of (a)
the amounts advanced by the Bank pursuant to the corresponding Tender Drafts
relating to such Bonds, plus (b) the aggregate amount of accrued and unpaid
interest on such Tender Advances. Such payment shall be applied by the Bank in
reimbursement of such drawings (and as prepayment of Tender Advances resulting
from such drawings in the manner described below), and, upon receipt by the Bank
of a certificate completed and signed by the Credit Facility Trustee in
substantially the form of Annex F to the Letter of Credit, the Borrowers
irrevocably authorize the Bank to rely on such certificate and to reinstate the
Letter of Credit in accordance therewith. Funds held by the Tender Agent as a
result of sales of the Pledged Bonds by the Remarketing Agent shall be paid to
the Bank by the Tender Agent to be applied to the amounts owing by the Borrowers
to the Bank pursuant to this
18
<PAGE>
paragraph (d). Upon payment to the Bank of the amount of such Tender Advance to
be prepaid, together with accrued interest on such Tender Advance to the date of
such prepayment on the amount to be prepaid, the principal amount outstanding of
Tender Advances shall be reduced by the amount of such prepayment and interest
shall cease to accrue on the amount prepaid.
Section 3.4. [Intentionally Left Blank].
--------------------------
Section 3.5. Commission and Fees.
-------------------
(a) The Borrowers shall pay to the Bank a commission at the rate of
.30% per annum on the undrawn amount available to be drawn under the Letter of
Credit (computed on the date that such commission is payable) from and including
the date of issuance of the Letter of Credit until the Stated Termination Date,
payable annually in advance on the date of issuance of the Letter of Credit and
on each anniversary of the issuance of the Letter of Credit, subject to
adjustment upon demand by the Bank due to any event that may increase the cost
to the Bank of issuing or maintaining the Letter of Credit.
(b) The Borrowers shall pay to the Bank, upon each drawing under the
Letter of Credit in accordance with the terms, a fee of $100 per drawing.
(c) The Borrowers shall pay to the Bank, upon transfer of the Letter
of Credit in accordance with its terms, a transfer fee of $1,000.
Section 3.6. Increased Costs Due to Change in Law. In the event of any
------------------------------------
change in any existing or future law, regulation, ruling or other interpretation
affecting the Bank which shall either (a) impose, modify or make applicable any
reserve, special deposit, capital requirement, assessment or similar requirement
against the Letter of Credit or (b) impose on the Bank any other condition
regarding the Letter of Credit, and the result of any event referred to in
clause (a) or (b) above shall be to increase the cost (including a reasonable
allocation of resources) or decrease the yield to the Bank of issuing or
maintaining the Letter of Credit (which increase in cost shall be the result of
the Bank's reasonable allocation of the aggregate of such cost increases or
yield decreases resulting from such events), then, upon demand by the Bank, the
Borrowers shall immediately pay to the Bank, from time to time as specified by
the Bank, additional amounts which shall be sufficient to compensate the Bank
for such increased cost or decreased yield. A statement of charges submitted by
the Bank, shall be conclusive, absent manifest error, as to the amount owed.
Section 3.7. Computation. All payments of interest, commission and other
-----------
charges under this Agreement shall be computed on the per annum basis, based on
a 360-day year days calculated for the actual number of days elapsed.
19
<PAGE>
Section 3.8. Payment Procedure. All payments made by the Borrowers under
-----------------
this Agreement shall be made to the Bank in lawful currency of the United States
of America and in immediately available funds at the Bank's offices in Roanoke,
Virginia, or at another location as designated in writing by the Bank to the
Borrowers, before 12:00 Noon (prevailing Eastern time) on the date when due,
except for payments made pursuant to Section 3.2(a).
Section 3.9. Business Days. If the date for any payment hereunder falls
-------------
on a day which is not a Business Day, then for all purposes of this Agreement
the same shall be deemed to have fallen on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
payments of interest or commission, as the case may be.
Section 3.10. Reimbursement of Expenses. The Borrowers will pay all
-------------------------
reasonable legal fees (computed without regard to any statutory presumption)
incurred by the Bank in connection with the preparation, execution and delivery
of this Agreement, the Letter of Credit, the Security Instruments, any and all
other agreements and transactions contemplated hereby and thereby and by the
Bond Documents (including any amendments hereto or thereto or consents or
waivers hereunder or thereunder) and will also pay all fees, charges or taxes
for the recording or filing of Security Instruments. The Borrowers will also
pay for all reasonable out-of-pocket expenses of the Bank in connection with the
administration of the Letter of Credit, this Agreement and the Security
Instruments consisting of filing fees, if any. The Borrowers will, upon
request, promptly reimburse the Bank for all amounts expended, advanced or
incurred by the Bank to collect or satisfy any obligation of the Borrowers under
this Agreement or any Security Instrument, or to enforce the rights of the Bank
under this Agreement, or any Security Instrument, which amounts will include,
without limitation, all court costs, reasonable attorneys' fees, fees of
auditors and accountants and out-of-pocket investigation expenses incurred by
the Bank in connection with any such matters.
Section 3.11. Extension of Expiration Date. Except as hereinafter
----------------------------
provided, the Letter of Credit will expire on the Stated Expiration Date. The
Letter of Credit shall automatically be extended for an additional one-year
period from the then applicable Stated Termination Date, unless the Bank shall
have notified the Borrowers and the Trustee in writing at least 90 days prior
to the Stated Termination Date that the Bank will not extend such applicable
Stated Termination Date for an additional one-year period from the then
applicable Stated Termination Date.
Section 3.12. Obligations Absolute. The Obligations of the Borrowers
--------------------
under this Agreement shall be joint, several, absolute, unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including, without limitation,
the following circumstances:
20
<PAGE>
(a) any lack of validity or enforceability of the Letter of Credit,
the Bonds, any of the other Bond Documents, any of the Security Instruments
or any other agreement or instrument related thereto;
(b) any amendment or waiver of or any consent to departure from the
terms of the Letter of Credit, the Bonds, any of the other Bond Documents,
any of the Security Instruments or any other agreement or instrument
related thereto;
(c) the existence of any claim, set off, defense or other right which
either the Borrowers or the Issuer may have at any time against the
Trustee, any beneficiary or any transferee of the Letter of Credit (or any
Person for whom the Trustee, any such beneficiary or any such transferee
may be acting), the Bank or any other Person, whether in connection with
this Agreement, the Security Instruments, the Letter of Credit, the Bond
Documents, the Project or any unrelated transaction;
(d) any statement, draft or other document presented under the Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect, or any statement therein being untrue or inaccurate in any respect
whatsoever;
(e) the surrender, exchange or impairment of any security for the
performance or observance of any of the terms of this Agreement; or
(f) any other circumstance which might otherwise constitute a defense
available to, or a discharge of the Borrowers, except subject to the
qualification that obligations may be reinstated upon bankruptcy,
notwithstanding payment in full of the Borrowers' obligations to the Bank.
21
<PAGE>
ARTICLE IV
INSURANCE; NET PROCEEDS
Section 4.1. Insurance. The Borrowers will maintain, and will cause
---------
each of its Subsidiaries to maintain (either in the name of the Borrowers or in
such Subsidiary's own name), with financially sound and reputable insurance
companies, insurance on all its Property in at least such amounts and against at
least such risks as are usually insured against in the same general area by
companies of established repute engaged in the same or similar business.
Section 4.2. Application of Net Proceeds of Insurance and Eminent
----------------------------------------------------
Domain. Except as provided in the Lease Agreement or the Indenture, the Net
- ------
Proceeds of the insurance carried hereunder shall be applied by the Borrowers
toward extinguishment of the defect or claim or satisfaction of the liability
with respect to which such insurance proceeds may be paid. "Net Proceeds" when
used with respect to any insurance proceeds or award resulting from, or other
amount received in connection with, eminent domain, shall mean the gross
proceeds from such proceeds, award or other amount, less all expenses
(including attorneys' fees) incurred in the realization thereof.
22
<PAGE>
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.1. Financial Statements, Reports and Documents. The Borrowers
-------------------------------------------
will deliver the following to the Bank:
(a) Annual Statements. As soon as available and in any event
-----------------
within 120 days after the end of each Fiscal Year, a consolidated balance sheet
of the Parent and its Consolidated Subsidiaries as of the end of such Fiscal
year and the related consolidated statements of income, shareholders' equity and
cash flows for such Fiscal Year, setting forth in each case in comparative form
the figures for the previous Fiscal Year, all certified by the Accountant or
independent public accountants of nationally recognized standing.
As soon as available and in any event within 120 days after the end
of each Fiscal Year, a consolidated balance sheet of the Company and its
consolidated Subsidiaries as of the end of such Fiscal year and the related
consolidated statements of income, shareholders' equity and cash flows for such
Fiscal Year, setting forth in each case in comparative form the figures for the
previous Fiscal Year, all certified by the Accountant or independent public
accountants of nationally recognized standing.
(b) Quarterly Reports. As soon as available and in any event
-----------------
within 45 days after the end of each of the first three quarters of each Fiscal
Year, a consolidated balance sheet of the Parent and its Consolidated
Subsidiaries as of the end of such quarter and the related statements of income
and cash flows for the portion of the Fiscal Year ended at the end of such
quarter setting forth in each case in comparative form the figures for the
corresponding quarter and the corresponding portion of the previous Fiscal Year,
all certified (subject to normal year-end adjustments) as to fairness and
presentation, GAAP and consistency by the chief financial officer or chief
accounting officer of the Parent.
As soon as available and in any event within 45 days after the end
of each of the first three quarters of each Fiscal Year, a consolidated balance
sheet of the Company and its consolidated Subsidiaries as of the end of such
quarter and the related statements of income and cash flows for the portion of
the Fiscal Year ended at the end of such quarter setting forth in each case in
comparative form the figures for the corresponding quarter and the corresponding
portion of the previous Fiscal Year, all certified (subject to normal year-end
adjustments) as to fairness and presentation, GAAP and consistency by the chief
financial officer or chief accounting officer of the Company.
(c) Compliance Certificate. Simultaneously with the delivery of
----------------------
each set of financial statements referred to in clauses (a) and (b) above, a
certificate of the chief financial officer or the chief accounting officer of
the Parent (i) setting forth in reasonable
23
<PAGE>
detail the calculations required to establish whether the Parent was in
compliance with the requirements of Sections 6.2 through 6.5 (inclusive) hereof,
on the date of such financial statements and (ii) stating whether any Default or
Event of Default exists on the date of such certificate and, if any Default or
Event of Default then exists, setting forth the details thereof and the action
which the Parent is taking or proposes to take with respect thereto.
(d) Proxy Statements. Promptly upon the mailing thereof to the
----------------
shareholders of the Parent generally, copies of all financial statements,
reports, proxy statement so mailed, provided that copies of financial statements
--------
and other reports delivered solely to shareholders who are also officers or
employees of the Parent in their capacities as such need not be delivered
hereunder unless included within the scope of a request for additional
information made pursuant to Section 5.1 (g) hereof.
(e) SEC Reports. Promptly upon filing thereof, copies of all
-----------
registration statements (other than the exhibits thereto and any registration
statements on Form S-8 or its equivalent) and annual, quarterly or monthly
reports which the Parent shall have filed with the Securities Exchange
Commission.
(f) ERISA. If and when any member of the Controlled Group (i)
-----
gives or is required to give notice to the PBGC of any Reportable Event with
respect to any Plan which might constitute grounds for a termination of such
Plan under Title IV of ERISA, or knows that the plan administrator of any Plan
has given or is required to give notice of any such Reportable Event, a copy of
the notice of such Reportable Event given or required to be given to the PBGC;
(ii) receives notice of complete or partial withdrawal liability under Title IV
of ERISA, a copy of such notice; or (iii) receives notice from the PBGC under
Title IV of ERISA of an intent to terminate or appoint a trustee to administer
any Plan, a copy of such notice.
(g) Additional Information. From time to time, such additional
----------------------
information regarding the financial position or business of the Borrowers and
their Subsidiaries as the Bank may reasonably request.
Section 5.2. Maintenance of Existence. The Borrowers shall, and shall
------------------------
cause each Subsidiary to, maintain their corporate existence and carry on their
businesses in substantially the same manner and in substantially the same fields
as such businesses are now carried on and maintained.
Section 5.3. Notice of Default. The Borrowers will furnish to the Bank
-----------------
within five (5) days of becoming aware of a Default or Event of Default written
notice specifying the nature and period of existence of the Default or Event of
Default and the action which the Borrowers are taking or proposes to take to
remedy the Default or Event of Default.
Section 5.4. Inspection of Property, Books and Records. The Borrowers
-----------------------------------------
will keep, and will cause each Subsidiary to keep, proper books of record and
account in which full,
24
<PAGE>
true and correct entries in conformity with GAAP shall be made of all dealings
and transactions in relation to their businesses and activities; and will
permit, and will cause each Subsidiary to permit, representatives of the Bank at
the Bank's expense prior to the occurrence of an Event of Default and at the
Borrowers' expense after the occurrence of an Event of Default to visit and
inspect any of their respective properties, to examine and make abstracts from
any of their respective books and records and to discuss their respective
affairs, finances and accounts with their respective officers, employees and
independent public accountants. The Borrowers agree to cooperate and assist in
such visits and inspections, in each case at such reasonable times and as often
as may reasonably be desired.
Section 5.5. Compliance with Laws; Payment of Taxes. The Borrowers will,
--------------------------------------
and will cause each of its Subsidiaries and each member of the Controlled Group
to, comply with applicable laws (including but not limited to ERISA, the Code,
and all other applicable Federal and State laws), regulations and similar
requirements of Governmental Authorities (including but not limited to PBGC),
except where the necessity of such compliance is being contested in good faith
through appropriate proceedings. The Borrowers will, and will cause each of its
Subsidiaries to, pay promptly when due all taxes, assessments, governmental
charges, claims for labor, supplies, rent and other obligations which, if
unpaid, might become a Lien against the Property of the Borrowers or any
Subsidiary, except liabilities being contested in good faith and against which
the Borrowers shall have established reserves consistent with GAAP.
Section 5.6. Maintenance of Property. The Borrowers shall, and shall
-----------------------
cause each Subsidiary to, maintain all of its Properties and assets in good
condition, repair and working order, ordinary wear and tear excepted.
Section 5.7. Environmental Matters. The Borrowers shall, and shall cause
---------------------
each Subsidiary to: (i) be and remain in compliance with the provisions of any
Environmental Laws, (ii) notify the Bank immediately of any notice of a Release
of any Hazardous Materials, (iii) notify the Bank immediately of a Release of
any Hazardous Materials from or affecting any of their properties, (iv)
immediately contain and remove any Release in compliance with all applicable
laws, (v) promptly pay any fine or penalty assessed in connection with any
Release, (iv) permit the Bank to inspect any such affected properties, to
conduct tests thereon and to inspect any such affected properties; and (vii) at
the Bank's request and the Borrowers' expense, provide a report of a qualified
environmental engineer, satisfactory in scope, form and content to the Bank, and
such other and further assurances reasonably satisfactory to the Borrowers,
confirming that any such condition has been corrected.
Section 5.8. Certificate of Occupancy. The Borrowers shall provide a copy
------------------------
of a certificate of occupancy to the Bank upon the completion of the Project.
25
<PAGE>
ARTICLE VI
NEGATIVE COVENANTS
Until all the Obligations to be performed and paid shall have been
performed and paid in full, and for so long as the Letter of Credit shall be
outstanding, unless the Bank shall otherwise consent in writing:
Section 6.1. Negative Pledge. The Borrowers and its Subsidiaries will
---------------
not create, incur, permit or suffer to exist any Lien upon any asset, now owned
or hereafter acquired, except for Permitted Encumbrances.
Section 6.2. Ratio of Consolidated Funded Debt to Total Capitalization.
---------------------------------------------------------
The ratio of Consolidated Funded Debt to Total Capitalization will not at any
time exceed .60 to 1.0 prior to November 30, 1997 or .55 to 1.0 at any time
thereafter.
Section 6.3. Minimum Consolidated Tangible Net Worth. Consolidated
---------------------------------------
Tangible Net Worth will at no time be less than $110,000,000 plus 50% of the
cumulative Reported Net Income of the Parent and its Consolidated Subsidiaries
during any period after December 28, 1996 (taken as one accounting period)
calculated quarterly.
Section 6.4. Ratio of Consolidated Current Assets to Consolidated Current
------------------------------------------------------------
Liabilities. The ratio of Consolidated Current Assets to Consolidated Current
- -----------
Liabilities will not be less than 1.25 to 1.00 at any time during the course of
any Fiscal Year.
Section 6.5. Fixed Charge Coverage. At the end of each of the following
---------------------
Fiscal Quarter (commencing with the Fiscal Quarter ending January 3, 1998),
Income Available for Fixed Charges for the twelve months then ended, expressed
as a multiple of Consolidated Fixed Charges for the twelve months then ended,
shall not have been less than 1.50.
Section 6.6. Accounting Method. The Borrowers will not change their
-----------------
method of accounting, without the consent of the Bank, which consent shall not
be unreasonably or untimely withheld, except as permitted in the Bond Documents.
Section 6.7. Loans or Advances. Neither the Borrowers nor any of their
-----------------
Subsidiaries shall make loans or advances to any Person except: (i) loans or
advances to employees not exceeding $2,000,000 in the aggregate outstanding made
in the ordinary course of business and consistent with practices existing on
December 1, 1994, (ii) deposits required by government agencies or public
utilities, (iii) loans by the Borrowers to a Subsidiary, and (iv) loans by a
Subsidiary to the Borrowers or to another Subsidiary; provided that after giving
effect to the making of any loans, advances or deposits permitted
26
<PAGE>
by clauses (i) through (iv) of this Section, the Borrowers will be in full
compliance with all the provisions of this Agreement.
Section 6.8 Dissolution. Neither the Borrowers nor any of their
-----------
Subsidiaries shall suffer or permit dissolution or liquidation either in whole
or in part or redeem or retire any shares of their own stock or that of any
Subsidiary, except through corporate reorganization to the extent permitted by
Section 6.9 hereof.
Section 6.9. Consolidations, Mergers and Sales of Assets. The Borrowers
-------------------------------------------
will not, nor will they permit any Subsidiary to, consolidate or merge with or
into, or sell, lease or otherwise transfer all or any substantial part of their
assets to, any other Person, or discontinue or eliminate any business line or
segment provided that
--------
(a) the Borrowers may merge with another Person if (i) such Person was
organized under the laws of the United States of America or one of its states,
(ii) the Borrowers are the corporation surviving such merger and (iii)
immediately after giving effect to such merger, no Default shall have occurred
and be continuing,
(b) Subsidiaries of the Borrowers may merge with one another,
(c) the Company shall do business under the name Advance Auto Parts, and
(d) the foregoing limitation on the sale, lease or other transfer of assets
and on the discontinuation or elimination of a business line or segment shall
not prohibit, during any Fiscal Quarter, a transfer of assets or the
discontinuance or elimination of a business line or segment (in a single
transaction or in a series of related transactions) unless the aggregate assets
to be so transferred or utilized in a business line or segment to be so
discontinued, when combined with all other assets transferred, and all other
assets utilized in all other business lines or segments discontinued, during
such Fiscal Quarter and the immediately preceding seven Fiscal Quarters, either
(x) constituted more than 15% of the Consolidated Total Assets at the end of the
eight Fiscal Quarters immediately preceding such Fiscal Quarter, or (y)
contributed more than 15% of Consolidated Operating Profits during the eight
Fiscal Quarters immediately preceding such Fiscal Quarter.
Section 6.10. Acquisitions. The Borrowers will give the Bank prior
------------
written notice before consummating any acquisition by one of the Borrowers in
which the purchase price is $10,000,000 or more. Such notice shall include pro
forma financial statements of such Borrower for the three years following such
acquisition.
Section 6.11 Dividends. The Parent will not pay dividends in excess of
---------
$10,000,000 in any Fiscal Year (computed on a non-cumulative basis).
27
<PAGE>
ARTICLE VII
CONDITIONS TO ISSUANCE OF LETTER OF CREDIT
Section 7.1. Conditions on Issuance. On or prior to the Closing Date,
----------------------
the Borrowers shall have furnished to the Bank, in form satisfactory to the
Bank, the following:
(a) two executed counterparts of this Agreement and the executed
counterparts of the Security Instruments;
(b) executed counterparts of each of the Bond Documents (except
for the Bonds, as to which a specimen copy may be furnished);
(c) opinion of Bond Counsel in form and substance acceptable to
the Bank;
(d) opinion of counsel for the Borrowers dated the date hereof
addressed to, and substantially in the form attached hereto as Exhibit B
---------
otherwise in form and substance acceptable to the Bank;
(e) the Certificates of the Borrowers including references to
(i) articles of incorporation and by-laws of the Borrowers, (ii)
resolutions authorizing the execution, delivery and performance of the
appropriate Bond Documents, this Agreement and the Security Instruments,
(iii) incumbency and specimen signatures of officers, and (iv) such other
matters as the Bank may require;
(f) a copy of the Articles of Incorporation and By-Laws of the
Borrowers;
(g) copies of all governmental approvals required in connection
with this transaction, including resolution of the Issuer authorizing the
issuance of the Bonds;
(h) evidence of payment to the Bank of the initial annual letter
of credit commission pursuant to Section 3.4 of this Agreement;
(i) such other documents, instruments and certifications as the
Bank may require.
Section 7.2. Additional Conditions Precedent to Issuance of the Letter of
------------------------------------------------------------
Credit.
- ------
(a) The obligation of the Bank to issue the Letter of Credit
shall be subject to the further conditions precedent that on the date of
issuance the following statements shall be true and the Bank shall have received
a certificate signed by an authorized officer of the Borrowers, dated the date
of issuance, stating that:
28
<PAGE>
(i) The representations and warranties contained in Article II
of this Agreement, Section 6 of the Pledge Agreement and Section 2.02 of
the Lease Agreement are correct on and as of the date of issuance of the
Letter of Credit as though made on and as of such date; and
(ii) No event has occurred or would result from the issuance of
the Letter of Credit, which constitutes an Event of Default or would
constitute an Event of Default but for the requirement that notice be given
or time elapse or both; and
(b) there shall have been no introduction of or change in, or in
the interpretation of, any law or regulation that would make it unlawful or
unduly burdensome for the Bank to issue the Letter of Credit, no outbreak or
escalation of hostilities or other calamity or crisis affecting the Bank, no
suspension of or material limitation on trading on the New York Stock Exchange
or any other national securities exchange, no declaration of a general banking
moratorium by United States or Georgia or Virginia banking authorities, and no
establishment of any new restrictions on transactions in securities or on banks
materially affecting the free market for securities or the extension of credit
by banks.
Section 7.3. Conditions Precedent to Each Tender Advance. Each payment
-------------------------------------------
made by the Bank under the Letter of Credit pursuant to a Tender Draft shall
constitute a Tender Advance hereunder only if on the date of such payment the
---- --
following statements shall be true:
(i) The representations and warranties contained in Article II
of this Agreement, Section 6 of the Pledge Agreement and Section 2.02 of
the Lease Agreement are correct on and as of the date of such Tender
Advance as though made on and as of such date; and
(ii) No event has occurred or would result from such Tender
Advance, which constitutes an Event of Default or would constitute an Event
of Default but for the requirement that notice be given or time elapse or
both.
Unless the Borrowers shall have previously advised the Bank in writing or the
Bank has actual knowledge that one or more of the above statements is no longer
true, the Borrowers shall be deemed to have represented and warranted, on the
date of payment by the Bank under the Letter of Credit pursuant to a Tender
Draft, that on the date of such payment the above statements are true and
correct.
29
<PAGE>
ARTICLE VIII
DEFAULT
Section 8.1. Events of Default. Each of the following shall constitute
-----------------
an Event of Default under this Agreement, whereupon all Obligations of the
Borrowers hereunder, whether then owing or contingently owing, will, at the
option of the Bank or its successors or assigns, immediately become due and
payable by the Borrowers without presentation, demand, protest or notice of any
kind, all of which are hereby expressly waived, and the Borrowers will pay the
reasonable attorneys' fees incurred by the Bank, or its successors or assigns,
in connection with such Event of Default or recourse against any collateral held
by the Bank, or its successors or assigns, as security for the Obligations:
(a) Failure of the Borrowers to pay when due any payment of
principal, interest, commission, charge or expense referred to in Article
III hereof within 10 business days after such payment shall become due; or
(b) The occurrence of an "Event of Default" under any of the
Security Instruments or any of the Bond Documents; or
(c) Default shall occur in the performance of any of the
covenants in Sections 6.2 to 6.5 of this Agreement, inclusive, which
failure shall not have been fully cured within 30 days after the occurrence
thereof
(d) Default shall occur in the performance of any of covenant
(not covered by clause (c) above) and such Default shall continue for 30
days after written notice thereof has been given to the Borrowers by the
Bank;
(e) Any representation or warranty made under this Agreement,
the Bond Documents, Security Instruments, or in any certificate or
statement furnished or made to the Bank pursuant hereto or in connection
herewith or with the Letter of Credit hereunder, oral or written, shall
prove to be untrue or inaccurate in any material respect as of the date on
which such representation or warranty is made;
(f) an Event of Default shall occur under that certain Credit
Agreement, dated as of December 5, 1994, by and between the Parent and the
Bank, as amended.
(g) This Agreement or any of the Security Instruments or the
Bond Documents to which the Borrowers is a party shall cease to be legal,
valid and binding agreements enforceable against the Person executing the
same in accordance with the respective terms thereof, except as may be
limited by Debtor Laws, or shall in any way be terminated or become or be
declared ineffective or inoperative or shall in any way whatsoever cease to
give or provide the respective
30
<PAGE>
liens, security interests, rights, titles, interests, remedies, powers or
privileges intended to be created thereby, except as may be limited by
Debtor Laws;
(h) The Borrowers or any Subsidiary shall (i) apply for or
consent to the appointment of a receiver, trustee, custodian, intervenor or
liquidator of itself or of all or a substantial part of its assets, (ii)
file a voluntary petition in bankruptcy, (iii) admit in writing that it is
unable to pay its debts as they become due or generally not pay its debts
as they become due, (iv) make a general assignment for the benefit of
creditors, (v) file a petition or answer seeking reorganization or an
arrangement with creditors or to take advantage of any bankruptcy or
insolvency laws, (vi) file an answer admitting the material allegations of,
or consent to, or default in answering, a petition filed against it in any
bankruptcy, reorganization or insolvency proceeding, or (vii) take
corporate action for the purpose of effecting any of the foregoing;
(i) An involuntary petition or complaint shall be filed against
the Borrowers or any Subsidiary seeking bankruptcy relief or reorganization
or the appointment of a receiver, custodian, trustee, intervenor or
liquidator of such Person, or all or substantially all of its assets, and
such petition or complaint shall not have been dismissed within ninety (90)
days of the filing thereof; or an order, order for relief, judgment or
decree shall be entered by any court of competent jurisdiction or other
competent authority approving or ordering any of the foregoing actions;
(j) one or more judgments or orders for the payment of money in
an aggregate amount in excess of $2,000,000 shall be rendered against the
Parent or any Subsidiary and such judgment or order shall continue
unsatisfied and unstayed for a period of 30 days;
(k) a federal tax lien shall be filed against the Parent under
Section 6323 of the Code or a lien of PBGC shall be filed against the
Parent under Section 4068 of ERISA and in either case such lien shall
remain undischarged for a period of 25 days after the date of filing;
(l) controlling ownership of the Parent shall be held
beneficially by any Person or Persons other than Nicholas F. Taubman and
his spouse or issue acquiring ownership by will, trust or gift (as used
herein, "controlling ownership" means beneficial ownership by any Person or
two or more Persons acting in concert(within the meaning of Rule 13d-3 of
the Securities Exchange Commission under the Securities Exchange Act of
1934, as amended) sufficient to influence or control, directly or
indirectly, the decisions of the Parent's Board of Directors or to elect a
majority of such board);
31
<PAGE>
then upon the occurrence of an Event of Default and at any time thereafter, the
Bank may (a) pursuant to Section 9.1 of the Indenture, advise the Trustee that
an Event of Default has occurred and instruct the Trustee to declare the
principal of all Bonds then outstanding and interest thereon to be immediately
due and payable, and (b) proceed hereunder, and under any of the Security
Instruments and, to the extent therein provided, under the Bond Documents, in
such order as it may elect and the Bank shall have no obligation to proceed
against any Person or exhaust any other remedy or remedies which it may have and
without resorting to any other security, whether held by or available to the
Bank.
Upon the occurrence of an Event of Default, any obligation of the Borrowers
to an Affiliate shall be subordinated to the Obligations.
Section 8.2. No Remedy Exclusive. No remedy herein conferred upon or
-------------------
reserved to the Bank is intended to be exclusive of any other available remedy
or remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder, under the Security Instruments,
or now or hereafter existing at law or in equity or by statute.
Section 8.3. Anti-Marshaling Provisions. The right is hereby given by
--------------------------
the Borrowers to the Bank to make releases (whether in whole or in part) of all
or any part of the collateral under the Security Instruments agreeable to the
Bank without notice to, or the consent, approval or agreement of other parties
and interests, including junior lienors, which releases shall not impair in any
manner the validity of or priority of the liens and security interest in the
remaining collateral conferred under such documents, nor release the Borrowers
from liability for the obligations hereby secured. Notwithstanding the
existence of any other security interest in the collateral held by the Bank, the
Bank shall have the right to determine the order in which any or all of the
collateral shall be subjected to the remedies provided herein, or in the
Security Instruments. The Borrowers hereby waive any and all right to require
the marshaling of assets in connection with the exercise of any of the remedies
permitted by applicable law or provided herein or therein.
32
<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 9.1. Indemnification.
---------------
(a) The Borrowers hereby indemnify and hold the Bank and its
Affiliates and all of their respective officers, directors, employees,
attorneys, consultants and agents (collectively, the "Indemnities") harmless
from and against any and all claims, damages, losses, liabilities, costs or
expenses whatsoever which the Bank may incur (or which may be claimed against
the Bank by any Person) (i) by reason of or in connection with the execution and
delivery or transfer of, or payment or failure to pay under, the Letter of
Credit, provided that the Borrowers shall not be required to indemnify the Bank
for any claims, damages, losses, liabilities, costs or expenses to the extent,
but only to the extent, caused by (a) the gross negligence or willful misconduct
of the Bank in connection with paying drafts presented under the Letter of
Credit or (b) the Bank's wrongful failure to pay under the Letter of Credit
(other than in connection with a court order) after the presentation to it by
the Credit Facility Trustee or a successor corporate fiduciary under the
Indenture of a sight draft and certificate strictly complying with the terms and
conditions of the Letter of Credit; or (ii) by reason of or in connection with
the execution, delivery or performance of any of this Agreement, the Bond
Documents, the Security Instruments or any transaction contemplated by any
thereof.
(b) The Borrowers hereby indemnify and hold the Bank harmless from
and against any and all damages, penalties, fines, claims, liens, suits,
liabilities, costs (including cleanup costs), judgments and expenses (including
attorneys', consultants' or experts' fees and expenses) of every kind and nature
suffered by or asserted against the Bank as a direct or indirect result of any
warranty or representation made by the Borrowers herein, being false or untrue
in any material respect or any requirement under any law, regulation or
ordinance, local, state, or federal, which requires the elimination or removal
of any hazardous materials, substances, wastes or other environmentally
regulated substances.
(c) The Borrowers' obligations hereunder to the Bank (collectively,
the "Indemnified Matters") shall not be limited to any extent by the term of
this Agreement, and, as to any act or occurrence prior to the termination of
this Agreement which gives rise to liability hereunder, shall continue, survive
and remain in full force and effect notwithstanding the termination of the
Bank's obligations hereunder.
Anything herein to the contrary notwithstanding, nothing in this
Section 9.1 is intended or shall be construed to limit the Borrowers'
reimbursement obligations contained in Article IV hereof. Without prejudice to
the survival of any other obligation of the Borrowers, the indemnities and
obligations of the Borrowers contained in this Section 9.1 shall survive the
payment in full of amounts payable pursuant to Article IV and the Termination
Date.
33
<PAGE>
Section 9.2. Transfer of Letter of Credit. The Letter of Credit may be
----------------------------
transferred and assigned in accordance with the terms of the Letter of Credit.
Section 9.3. Reduction of Letter of Credit.
-----------------------------
(a) The Letter of Credit is subject to reduction pursuant to its
terms.
(b) If the amount available to be drawn under the Letter of
Credit shall be permanently reduced in accordance with the terms thereof, then
the Bank shall have the right to require the Credit Facility Trustee to
surrender the Letter of Credit to the Bank and to issue on such date, in
substitution for such outstanding Letter of Credit, a substitute irrevocable
letter of credit, substantially in the form of the Letter of Credit but with
such changes therein as shall be appropriate to give effect to such reduction,
dated such date, for the amount to which the amount available to be drawn under
the Letter of Credit shall have been reduced.
Section 9.4. Liability of the Bank. The Borrowers, to the extent
---------------------
permitted by applicable law, assume all risks of the acts or omissions of the
Credit Facility Trustee and any beneficiary or transferee of the Letter of
Credit with respect to its use of the Letter of Credit. Neither the Bank nor
any of its officers, directors, employees, agents or consultants shall be liable
or responsible for:
(a) the use which may be made of the Letter of Credit or for any
acts or omissions of the Credit Facility Trustee or any beneficiary or
transferee in connection therewith;
(b) the validity, sufficiency or genuineness of documents, or of
any endorsement(s) thereon, even if such documents should in fact prove to
be in any or all respects invalid, insufficient, inaccurate, fraudulent or
forged;
(c) payment by the Bank against presentation of documents which
do not comply with the terms of the Letter of Credit, including failure of
any documents to bear any reference or adequate reference to the Letter of
Credit; or
(d) any other circumstances whatsoever in any way related to the
making or failure to make payment under the Letter of Credit;
except only that the Borrowers shall have a claim against the Bank, and the Bank
shall be liable to the Borrowers, to the extent but only to the extent, of any
direct, as opposed to consequential, damages suffered by the Borrowers which the
Borrowers prove were caused by (i) willful misconduct or gross negligence of the
Bank in determining whether documents presented under the Letter of Credit
complied with the terms of the Letter of Credit or (ii) wrongful failure of the
Bank to pay under the Letter of Credit after the presentation to it by the
Credit Facility Trustee or a successor trustee under the Indenture of a sight
draft and certificate strictly complying with the terms and conditions of the
Letter
34
<PAGE>
of Credit. In furtherance and not in limitation of the foregoing, the Bank may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
Section 9.5. Successors and Assigns. This Agreement shall be binding
----------------------
upon the Borrowers and their successors and assigns and all rights against the
Borrowers arising under this Agreement shall be for the sole benefit of the
Bank, its successors and assigns, all of whom shall be entitled to enforce
performance and observance of this Agreement to the same extent as if they were
parties hereto.
Section 9.6. Notices. All notices, requests and demands to or upon the
-------
respective parties hereto shall be deemed to have been given or made when hand
delivered or mailed first class, certified or registered mail, postage prepaid,
or by overnight courier service, addressed as follows or to such other address
as the parties hereto shall have been notified pursuant to this Section 9.6:
The Bank: First Union National Bank
201 South Jefferson Street
Roanoke, Virginia 24011
Attention: R. Grayson Goldsmith
The Borrowers: Advance Holding Corporation
Post Office Box 2710
5673 Airport Road
Roanoke, Virginia 24012
Attention: Chief Financial Officer
except in cases where it is expressly herein provided that such notice, request
or demand is not effective until received by the party to whom it is addressed,
in which event said notice, request or demand shall be effective only upon
receipt by the addressee. Any change in notice addresses shall be effective
upon the giving of such new address to the respective party.
Section 9.7. Amendment. This Agreement may be amended, modified or
---------
discharged only upon an agreement in writing of the Borrowers and the Bank.
Section 9.8. Effect of Delay and Waivers. No delay or omission to
---------------------------
exercise any right or power accruing upon any default, omission or failure of
performance hereunder shall impair any such right or power or shall be construed
to be a waiver thereof, but any such right and power may be exercised from time
to time and as often as may be deemed expedient. In order to entitle the Bank
to exercise any remedy now or hereafter existing at law or in equity or by
statute, it shall not be necessary to give any notice, other than such notice as
may be herein expressly required. In the event any provision contained in this
Agreement should be breached by any party and thereafter waived by the other
party so empowered to act, such waiver shall be limited to the particular breach
hereunder. No
35
<PAGE>
waiver, amendment, release or modification of this Agreement shall be
established by conduct, custom or course of dealing, but solely by an instrument
in writing duly executed by the parties thereunto duly authorized by this
Agreement.
Section 9.9. Counterparts. This Agreement may be executed simultaneously
------------
in several counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 9.10. Severability. The invalidity or unenforceability of any one
------------
or more phrases, sentences, clauses or Sections contained in this Agreement
shall not affect the validity or enforceability of the remaining portions of
this Agreement, or any part thereof.
Section 9.11. Cost of Collection. The Borrowers shall be liable for the
------------------
payment of all fees and out-of-pocket expenses, including reasonable attorneys'
fees (computed without regard to any statutory presumption), incurred in
connection with the enforcement of this Agreement.
Section 9.12. Set Off. Upon the occurrence of an Event of Default
-------
hereunder, the Bank is hereby authorized, without notice to the Borrowers, to
set off, appropriate and apply any and all monies, securities and other
properties of the Borrowers hereafter held or received by or in transit to the
Bank from or for the Borrowers, against the obligations of the Borrowers
irrespective of whether the Bank shall have made any demand hereunder or under
any Security Instrument although such obligations may be contingent or
unmatured; provided, however, that the Bank hereby waives any such right, and
-------- -------
any other right which it may have at law or otherwise to set off and apply such
deposits at any time held, if, when and after there shall be a drawing under the
Letter of Credit during the pendency of any proceeding by or against the
Borrowers or the Issuer seeking to adjudicate it as bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of either of them or either of their debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, custodian, trustee or other similar official for either of them or for
any substantial part of either of their property.
Section 9.13. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Virginia. The Borrowers
hereby acknowledge that the Letter of Credit shall be governed by and construed
in accordance with Uniform Customs and Practice for Documentary Credits (1993
Revisions), International Chamber of Commerce Publication No. 500.
Section 9.14. References. The words "herein", "hereof", "hereunder" and
----------
other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
36
<PAGE>
Section 9.15. Taxes, Etc. Any taxes (excluding income taxes) payable or
-----------
ruled payable by federal or state authority in respect of the Letter of Credit,
this Agreement or the Security Instruments shall be paid by the Borrowers upon
demand by the Bank, together with interest and penalties, if any.
Section 9.16. Consent to Jurisdiction, Venue; Waiver of Jury Trial. In the
----------------------------------------------------
event that any action, suit or other proceeding is brought against the Borrowers
by or on behalf of the Bank to enforce the observance or performance of any of
the provisions of this Agreement or of any of the Security Instruments,
including without limitation the collection of any amounts owing thereunder, the
Borrowers hereby (i) irrevocably consent to the exercise of jurisdiction over
the Borrowers and to the extent permitted by applicable laws, its property, by
any United States District Court or State Court of Virginia, and (ii)
irrevocably waive any objection they might now or hereafter have or assert to
the venue of any such proceeding in any court described in clause (i) above, and
(iii) constitute and appoint the Secretary of State of Virginia (and, so long as
the Borrowers shall appoint and maintain any other qualified Person located
within the State of Virginia as agent for service of process and shall give
notice (effective upon receipt) thereof to the Bank, then such other Person) for
service of process upon it in connection with any such proceeding.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWERS HEREBY IRREVOCABLY
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE SECURITY INSTRUMENTS OR THE ACTIONS OF THE BANK IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
Section 9.17 Assignment and Pledge of Agreement. Nothing herein or in
----------------------------------
any other Bond Document shall prohibit the Bank from pledging or assigning the
obligations hereunder including the Collateral therefor, to any Federal Reserve
Bank in accordance with applicable law. The Borrowers hereby consent to any
such pledge or assignment pursuant to this Section.
37
<PAGE>
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this Agreement
to be executed in their respective names and their respective seals to be
hereunto affixed and attested by their duly authorized representatives, all as
of the date first above written.
THE BORROWERS:
-------------
ADVANCE STORES COMPANY,
INCORPORATED
By: /s/ J. O'Neil Leftwich
--------------------------
Title: Assistant Secretary and Assistant
Treasurer
ATTEST:
/s/ Garnett E. Smith
- --------------------------
Title: President and Chief Executive
Officer
ADVANCE HOLDING CORPORATION
By: /s/ J. O'Neil Leftwich
--------------------------
Title: Assistant Secretary and Assistant
Treasurer
ATTEST:
/s/ Garnett E. Smith
- --------------------------
Title: President and Chief Operating
Officer
[Execution Page - Reimbursement Agreement]
38
<PAGE>
THE BANK:
--------
FIRST UNION NATIONAL BANK
ATTEST: By: /s/
___________________________
Title: Vice President
__________________
/s/
____________________________
Title: SVP
(Corporate Seal)
[Execution Page - Reimbursement Agreement]
39
<PAGE>
EXHIBIT A
---------
IRREVOCABLE LETTER OF CREDIT
----------------------------
RELATING TO THE BONDS
---------------------
DATE: DECEMBER 31, 1997
LETTER OF CREDIT NO.: S141130
Branch Banking and Trust Company,
as Credit Facility Trustee
223 West Nash Street
Wilson, North Carolina 27893
Attention: Corporate Trust Department
Ladies and Gentlemen:
We hereby issue to you, Branch Banking and Trust Company, as Credit
Facility Trustee under the Trust Indenture, dated as of December 1, 1997 (the
"Indenture"), by and between the Development Authority of McDuffie County (the
"Issuer"), First Union National Bank, Richmond, Virginia, as Trustee and you,
pursuant to which $10,000,000 aggregate principal amount of Taxable Industrial
Development Bonds (Advance Stores Company, Incorporated Project), Series 1997
(the "Bonds"), are being issued, this irrevocable Letter of Credit No. S141130
(the "Letter of Credit") for the account of Advance Stores Company, Incorporated
and Advance Holding Corporation (collectively, the "Borrowers") in the amount of
$10,201,370 (the "Initial Stated Amount" and, as from time to time reduced and
reinstated as hereinafter provided, the "Amount Available"), of which (i)
subject to the provisions below reducing amounts available hereunder,
$10,000,000 (as from time to time reduced and reinstated as hereinafter
provided, the "Principal Amount Available") shall be available for the payment
of principal or the portion of the purchase price corresponding to principal of
the Bonds and (ii) subject to the provisions below reducing amounts available
hereunder, $201,370 (as from time to time reduced and reinstated as hereinafter
provided, the "Interest Amount Available") shall be available for the payment of
up to 49 days' interest or the portion of the purchase price corresponding to
interest on the Bonds at an assumed rate of 15% per annum (computed on the basis
of a year of 365 days). Subject to such aggregate limits and to the conditions
set forth herein, funds may be drawn upon hereunder (i) with respect to payment
of the unpaid principal amount or the portion of purchase price corresponding to
the principal of the Bonds and (ii) with respect to payment of up to 49 days'
interest accrued and payable or the portion of purchase price corresponding to
interest accrued on the Bonds on or prior to their stated maturity date. This
Letter of Credit is effective immediately and expires at 3:00 p.m. (prevailing
Eastern
1
<PAGE>
time) at our Presentation Office (as hereinafter defined) on November 1, 2000
(as may be extended from time to time as hereinafter described, the "Stated
Termination Date") or earlier as hereinafter provided. This Letter of Credit
shall automatically be extended for an additional one-year period from the then
applicable Stated Termination Date unless we give you, or any successor Credit
Facility Trustee, written notice of our election not to renew this Letter of
Credit at least 90 days prior to the then applicable Stated Termination Date by
U.S. certified mail, return receipt requested. All drawings under this Letter of
Credit will be paid with our own funds.
We hereby irrevocably authorize you to draw on us, in an aggregate amount
not to exceed the Amount Available and in accordance with the terms and
conditions and subject to the reductions in amount as hereinafter set forth, (1)
in a single drawing (subject to the provisions contained in the next following
paragraph) by your draft drawn on us at sight, presented for payment on a day on
which banks are not required or authorized to close in Charlotte, North Carolina
(a "Business Day") and referring therein to the number of this Letter of Credit,
and accompanied by your written and completed certificate signed by you in the
form of Annex A attached hereto (such draft accompanied by such certificate
being your "Interest Draft"), an amount not exceeding the Interest Amount
Available on the date of such drawing; (2) in one or more drawings by one or
more of your drafts drawn on us at sight, presented for payment on a Business
Day and referring therein to the number of this Letter of Credit, and
accompanied by your written completed certificate signed by you in the form of
Annex B attached hereto (any such draft accompanied by such certificate being
your "Tender Draft"), an aggregate amount not exceeding the Amount Available on
the date of such drawing; (3) in one or more drawings by one or more of your
drafts drawn on us at sight, presented for payment on a Business Day and
referring therein to the number of this Letter of Credit, and accompanied by
your written and completed certificate signed by you in the form of Annex C
attached hereto (any such draft accompanied by such certificate being your
"Partial Redemption Draft"), an aggregate amount not exceeding the Amount
Available on the date of such drawing; (4) in a single drawing by your draft
drawn on us at sight presented for payment on a Business Day and referring
therein to the number of this Letter of Credit, and accompanied by your written
and completed certificate signed by you in the form of Annex D hereto (any such
draft accompanied by such certificate being your "Conversion Draft"), an amount
not exceeding the Amount Available on the date of such drawing; and (5) in a
single drawing by your draft drawing on us at sight, presented for payment on a
Business Day and referring therein to the number of this Letter of Credit, and
accompanied by your written and completed certificate signed by you in the form
of Annex E attached hereto (such draft accompanied by such certificate being
your "Final Draft"), an amount not exceeding the Amount Available on the date of
such drawing.
If you shall draw on us by an Interest Draft and you shall not have
received from us within ten (10) calendar days from the date of our payment in
respect of such drawing a notice to the effect that we have not been reimbursed
for such drawing and that the interest portion of the Letter of Credit will not
be reinstated, then (x) your right to draw on us in a single drawing by your
Interest Draft under clause (1) of the immediately preceding
2
<PAGE>
paragraph shall be automatically reinstated and (y) effective as of the eleventh
(11th) calendar day from the date of our payment in respect of such drawing, you
shall again be authorized to draw on us by your Interest Draft in accordance
with said clause (1). The provisions of this paragraph providing for the
reinstatement of your right to draw on us by your Interest Draft in a succeeding
single drawing shall be applicable to each successive drawing by your Interest
Draft under clause (1) of the immediately preceding paragraph so long as this
Letter of Credit shall not have terminated as set forth below.
Upon our honoring any Tender Draft presented by you hereunder, the Amount
Available under this Letter of Credit shall be automatically reduced by the
amount drawn under such Tender Draft, the Principal Amount Available to be drawn
hereunder by you shall be automatically reduced by an amount equal to the
principal component of such Tender Draft and the Interest Amount Available to be
drawn hereunder by you shall be automatically reduced by an amount equal to the
amount of the interest component of such Tender Draft.
Upon our honoring any Partial Redemption Draft presented by you hereunder,
the Amount Available under this Letter of Credit shall be automatically and
permanently reduced by the amount drawn under any such Partial Redemption Draft,
the Principal Amount Available to be drawn hereunder by you shall be
automatically and permanently reduced by an amount equal to the principal
component of such Partial Redemption Draft honored by us hereunder and the
Interest Amount Available to be drawn hereunder by you shall be automatically
and permanently reduced by an amount equal to the amount of the interest
component of any such Partial Redemption Draft honored by us hereunder.
Upon our honoring any Conversion Draft presented by you hereunder, the
Amount Available under this Letter of Credit shall be automatically and
permanently reduced by the amount drawn under any such Conversion Draft, the
Principal Amount Available to be drawn hereunder by you shall be automatically
and permanently reduced by an amount equal to the principal component of such
Conversion Draft honored by us hereunder, and the Interest Amount Available to
be drawn hereunder by you shall be automatically and permanently reduced by an
amount equal to the amount of the interest component of any such Conversion
Draft honored by us hereunder.
The Amount Available, the Principal Amount Available and the Interest
Amount Available to be drawn under this Letter of Credit with respect to any
Tender Draft shall be reinstated as provided in this paragraph to the extent,
but only to the extent, that we are reimbursed by or on behalf of the Company in
immediately available funds delivered to us at the Presentation Office on or
before 3:00 P.M. (Prevailing Eastern time) on a Business Day for any amount
drawn in respect of principal and interest under any Tender Draft. If we
receive such reimbursement by or on behalf of the Company, all in strict
conformity with the terms and conditions of this Letter of Credit after 3:00
P.M. (Prevailing Eastern time) on a Business Day prior to the termination
hereof, such reimbursement will be honored as stated above as if received on the
next succeeding Business Day. Any amount received by us from or on behalf of
the Company in reimbursement of amounts drawn hereunder
3
<PAGE>
by a Tender Draft shall, if accompanied by your completed certificate signed by
you in the form of Annex F attached hereto, be applied to the extent of the
amount received by us and indicated therein to reimburse us for amounts drawn
hereunder by your Tender Drafts and we will confirm to you the amount of the
Principal Amount Available and the Interest Amount Available increased by such
reimbursement by delivering to you the executed and completed acknowledgment
accompanying the form of Annex F delivered by you in connection with such
reimbursement. The Amount Available, the Principal Amount Available and the
Interest Amount Available shall be increased only in compliances with the
provisions of this paragraph.
Each draft and certificate (other than a draft or certificate in the form
of Annex A, C or E) presented hereunder shall be dated the date of its
presentation and each such draft and certificate shall be presented at our
office located at 301 South Tryon Street, M7, Charlotte, North Carolina 28288-
0742, Attention: International Operations (or at any other office in the State
of North Carolina or Georgia which may be designated by us by written notice
delivered to you at least three Business Days prior to a date on which interest
is payable on the Bonds) (the "Presentation Office") and shall be presented on a
Business Day. Notwithstanding the foregoing, all drawings hereunder may be made
by telefax copy to (704) 383-6984 and promptly confirmed by written certificate.
If we receive any of your drafts and certificates (other than a draft or
certificate in the form of Annex A, C or E) at such office, all in strict
conformity with the terms and conditions of this Letter of Credit, not later
than 11:00 A.M. (Prevailing Eastern time) on a Business Day on or prior to the
termination hereof, we will honor the same by initiating the wiring of funds by
2:30 P.M. (Prevailing Eastern time) on the same day in accordance with your
payment instructions. If we receive any of your drafts and certificates (other
than a draft or certificate in the form of Annex A, C or E) at such office, all
in strict conformity with the terms and conditions of this Letter of Credit,
after 11:00 A.M. (Prevailing Eastern time) on a Business Day prior to the
termination hereof, we will honor the same on the next succeeding Business Day
in accordance with your payment instructions. If requested by you, payment
under this Letter of Credit may be made by wire transfer of Federal Reserve Bank
of Richmond, Virginia (or such other federal reserve bank as applicable) funds
to your account in a bank on the Federal Reserve wire system or by deposit of
same day funds into a designated account that you maintain with us.
Each draft and certificate in the form of Annex A, C or E presented
hereunder shall be dated the date of its presentation and each such draft and
certificate in the form of Annex A, C or E shall be presented at the
Presentation Office and shall be presented on a Business Day. If we receive any
of your drafts and certificates in the form of Annex A, C or E at such office,
all in strict conformity with the terms and conditions of this Letter of Credit,
not later than 9:30 A.M. (Prevailing Eastern time) on a Business Day on or prior
to the termination hereof, we will honor the same by initiating the wiring of
funds by 10:30 A.M. (Prevailing Eastern time) on the same day in accordance with
your payment instructions. If we receive any of your drafts and certificates in
the form of Annex A, C or E at such office, all in strict conformity with the
terms and conditions of this Letter of Credit, after 9:30 A.M. (Prevailing
Eastern time) on a Business Day prior to the termination hereof,
4
<PAGE>
we will honor the same on the next succeeding Business Day by initiating the
wiring of funds by 9:30 A.M. (Prevailing Eastern time) in accordance with your
payment instructions. If requested by you, payment under this Letter of Credit
may be made by wire transfer of Federal Reserve Bank of Richmond, Virginia (or
such other federal reserve bank as applicable) funds to your account in a bank
on the Federal Reserve wire system or by deposit of same day funds into a
designated account that you maintain with us.
In connection with the presentation of any Tender Draft or Conversion
Draft, Bonds in aggregate principal amount equal to the principal amount of such
Tender Draft or Conversion Draft shall be delivered to the First Union National
Bank (the "Bank") or its designee as promptly as practicable, and in any event
within five Business Days after such presentation, registered in the name of the
Bank, or its designee, as pledgee of the Company, pledged to the Bank pursuant
to the Pledge Agreement, dated as of December 1, 1997 (the "Pledge Agreement"),
between Advance Stores Company, Incorporated and the Bank relating to the Bonds.
With respect to any Tender Draft, the Bank agrees that it shall not release any
Bonds pledged to it until the Letter of Credit shall have been reinstated so
that the Amount Available, as so reinstated, shall equal or exceed the aggregate
principal and 49 days' interest calculated at an assumed rate of 15% per annum
on all Bonds for which drawings are available hereunder after giving effect to
such release.
Upon the earliest of (i) our honoring your Final Draft presented hereunder,
(ii) the second day following the date on which we receive a certificate signed
by you stating that the interest rate on the Bonds has been converted to a fixed
interest rate, (iii) the date on which we receive a certificate signed by you
stating that the Company has provided and you have accepted an Alternate Credit
Facility in accordance with the terms of the Indenture which is effective the
date of such certificate, or (iv) the Stated Termination Date, this Letter of
Credit shall terminate.
Notwithstanding anything in Article 48 of the Uniform Customs hereinafter
referred to, to the contrary, this Letter of Credit is transferable more than
once, only in its entirety to any transferee whom you certify to us has
succeeded you as Credit Facility Trustee under the Indenture, and may be
successively transferred. Transfer of the Amount Available under this Letter of
Credit to such transferee shall be effected by the presentation to us of this
Letter of Credit accompanied by a certificate in the form of Annex G attached
hereto and payment of the transfer commission referred to therein. Upon such
presentation we shall forthwith transfer the same to your transferee or, if so
requested by your transferee, issue a letter of credit to your transferee with
provisions therein consistent with this Letter of Credit.
This Letter of Credit sets forth in full our undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein
(including, without limitation, the Bonds or the Indenture), except only the
certificates and the drafts referred to herein which are hereby incorporated by
reference; and any such reference shall not be deemed to incorporate
5
<PAGE>
herein by reference any document, instrument or agreement except for such
certificates and such drafts.
Except as otherwise provided herein, this Letter of Credit shall be
governed by and construed in accordance with the Uniform Customs and Practice
for Documentary Credits (1993 Revisions), International Chamber of Commerce
Publication No. 500 (the "UCP") and, to the extent not inconsistent therewith,
the laws of the State of North Carolina. Communications with respect to this
Letter of Credit other than presentations of drafts and certificates hereunder
shall be in writing and shall be addressed to us at 301 South Tryon Street, M7,
Charlotte, North Carolina 28288-0742, Attention: International Operations,
specifically referring to the number of the Letter of Credit.
Very truly yours,
FIRST UNION NATIONAL BANK
By ___________________________
Title: Vice President
6
<PAGE>
Annex A
-------
[Form of Certificate for Interest Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF UP TO 49 DAYS' INTEREST
Irrevocable Letter of Credit No. S141130
----------------------------------------
The undersigned, a duly authorized officer of the undersigned Credit
Facility Trustee (the "Credit Facility Trustee"), hereby certifies to First
Union National Bank (the "Bank"), with reference to Irrevocable Letter of Credit
No. S141130 (the "Letter of Credit; the terms defined therein and not otherwise
defined herein being used herein as therein defined) issued by the Bank in favor
of the Credit Facility Trustee, as follows:
(1) The Credit Facility Trustee is the Credit Facility Trustee under the
Indenture for the holders of the Bonds.
(2) The Credit Facility Trustee is making a drawing under the Letter of
Credit with respect to a payment of interest on the Bonds, which payment is due
and payable on a regular Interest Payment Date. On the record date for such
Interest Payment Date, none of such Bonds for which interest is drawn pursuant
to the draft were held of record by the Company, or by the Bank, or its
designee, as pledgee of the Company.
(3) [The Interest Draft accompanying this Certificate is the first Interest
Draft presented by the Credit Facility Trustee under the Letter of Credit.]*
[The Interest Draft last presented by the Credit Facility Trustee under the
Letter of Credit was honored and paid by the Bank on _____________________,
______, and the Credit Facility Trustee had not received a notice within ten
days of presentation of such Interest Draft from the Bank that the Bank has not
been reimbursed.]**
(4) The amount of the Interest Draft accompanying this Certificate is
$_______. It was computed in compliance with the terms and conditions of the
Bonds and the Indenture and does not exceed the Interest Amount Available to be
drawn by the Credit Facility Trustee under the Letter of Credit.
(5) Upon receipt by the undersigned of the amount demanded hereby, (a) the
undersigned will apply the same directly to the payment when due of the interest
amount owing on account of the Bonds pursuant to the Indenture, (b) no portion
of said amount shall be applied by the undersigned for any other purpose, and
(c) no portion of said amount shall be commingled with other funds held by the
undersigned.
7
<PAGE>
IN WITNESS WHEREOF, the Credit Facility Trustee has executed and delivered
this Certificate as of the ______ day of _________________, 19__.
BRANCH BANKING AND TRUST COMPANY,
as Credit Facility Trustee
By: __________________________
Name: ___________________
Title: ___________________
________________
* To be used in the Certificate relating to the first Interest
Draft only.
**To be used in each Certificate relating to each Interest Draft
other than the first Interest Draft.
8
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Annex B
-------
[Form of Certificate for Tender Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF PRINCIPAL PURCHASE PRICE AND PORTION OF PURCHASE PRICE
CORRESPONDING TO INTEREST OF BONDS TENDERED
Irrevocable Letter of Credit No. S141130
----------------------------------------
The undersigned, a duly authorized officer of the undersigned Credit
Facility Trustee (the "Credit Facility Trustee"), hereby certifies to First
Union National Bank (the "Bank"), with reference to Irrevocable Letter of Credit
No. S141130 (the "Letter of Credit"; the terms defined herein and not otherwise
defined herein being used herein as therein defined) issued by the Bank in favor
of the Credit Facility Trustee, as follows:
(1) The Credit Facility Trustee is the Credit Facility Trustee under
the Indenture for the registered owners of the Bonds.
(2) The Credit Facility Trustee is making a drawing under the Letter
of Credit with respect to a payment, upon a tender of all or less than all
of the Bonds, which are Outstanding (as defined in the Indenture), or the
unpaid principal amount of the Bonds and accrued interest thereon to be
purchased as a result of such tender pursuant to the terms of Article III
of the Indenture (other than Bonds, presently held of record by the
Company, or by the Bank, or its designee, as pledge of the Company) which
payment is due on the date on which this Certificate and the Tender Draft
it accompanies are being presented to the Bank.
(3) The amount of the Tender Draft accompanying this Certificate is
equal to the sum of (i) $_________ being drawn in respect of the payment of
unpaid principal of Bonds (other than Bonds presently held of record by the
Company or by the Bank, or its designee, as pledgee of the Company) to be
purchased as a result of a tender, which amount does not exceed the
Principal Amount Available under the Letter of Credit, and (ii) $__________
being drawn in respect of the payment of ________ days' [not to exceed 49
days'] accrued and unpaid interest on such Bonds constituting a portion of
the purchase price of such Bonds being purchased as a result of a tender,
which amount does not exceed the Interest Amount Available under the Letter
of Credit.
9
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(4) The Credit Facility Trustee shall register or cause to be
registered in the name of the Bank, or its designee, as pledgee of the
Company, pursuant to Section 3 of the Pledge Agreement, and shall deliver
or cause to be delivered to the Bank or its designee Bonds in the principal
amount of the Tender Draft accompanying this Certificate as promptly as
practicable, and in any event within five Business Days after presentation
of the Tender Draft accompanying this Certificate.
(5) Upon receipt of the undersigned of the amount demanded hereby, (a)
the undersigned will apply the same directly to the payment when due of the
purchase price of Bonds tendered pursuant to the Indenture, (b) no portion
of said amount shall be applied by the undersigned for any other purpose,
and (c) no portion of said amount shall be commingled with other funds held
by the undersigned.
(6) The amount of the Tender Draft accompanying this Certificate was
computed in compliance with the terms and conditions of the Bonds and the
Indenture and does not exceed the Amount Available under the Letter of
Credit.
The Credit Facility Trustee acknowledges that, pursuant to the terms of the
Letter of Credit, upon the Bank's honoring of the Tender Draft accompanying this
Certificate, (i) the Amount Available under the Letter of Credit shall be
automatically reduced by the aggregate amount of such Tender Draft, (ii) the
Principal Amount Available under the Letter of Credit shall be automatically
reduced by an amount equal to the amount of the principal component of such
draft set forth in paragraph 3 above, and (iii) the Interest Amount Available
under the Letter of Credit shall be automatically reduced by an amount equal to
the amount of the interest component of such draft set forth in paragraph 3
above, subject to reinstatement as set forth in the Letter of Credit.
IN WITNESS WHEREOF, the Credit Facility Trustee has executed and delivered
this Certificate as of the ____ day of _______________, _____.
BRANCH BANKING AND TRUST COMPANY, as Credit
Facility Trustee
By:_________________________
Name:____________________
Title:_____________________
10
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Annex C
-------
[Form of Certificate for Partial Redemption Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF PRINCIPAL AND UP TO 49 DAYS' INTEREST UPON
PARTIAL REDEMPTION
Irrevocable Letter of Credit No. S141130
----------------------------------------
The undersigned, a duly authorized officer of the undersigned Credit
Facility Trustee (the "Credit Facility Trustee"), hereby certifies to First
Union National Bank (the "Bank"), with reference to Irrevocable Letter of Credit
No. S141130 (the "Letter of Credit"; the terms defined therein and not otherwise
defined herein being used herein as therein defined) issued by the Bank in favor
of the Credit Facility Trustee, as follows:
(1) The Credit Facility Trustee is the Credit Facility Trustee under
the Indenture for the registered owners of the Bonds.
(2) The Credit Facility Trustee is making a drawing under the Letter
of Credit with respect to a payment, upon redemption of less than all of
the Bonds which are Outstanding (as defined in the Indenture), of the
unpaid principal amount of, and up to 49 days' accrued and unpaid interest
on, the Bonds to be redeemed pursuant to the Indenture (other than Bonds
presently held of record by the Company, or by the Bank, or its designee,
as pledgee of the Company).
(3) The amount of the Partial Redemption Draft accompanying this
Certificate is $__________ and is equal to the sum of (i) $________ being
drawn in respect of the payment of unpaid principal of Bonds (other than
Bonds presently held of record by the Company or by Bank, or its designee,
as pledgee of the Company) to be redeemed, which amount does not exceed the
Principal Amount Available under the Letter of Credit and (ii) $__________
being drawn in respect of the payment of ____ days' [not to exceed 49
days'] accrued and unpaid interest on such Bonds, which amount does not
exceed the Interest Amount Available under the Letter of Credit.
(4) The amount of the Partial Redemption Draft accompanying this
Certificate was computed in accordance with the terms and conditions of the
Bonds and the Indenture and does not exceed the Amount Available under the
Letter of Credit.
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<PAGE>
(5) This Certificate and the Partial Redemption Draft it accompanies
are dated, and are being presented to the Bank on, the date on which the
unpaid principal amount of, and accrued and unpaid interest on, Bonds to be
redeemed are due and payable under the Indenture upon redemption of less
than all of the Bonds which are Outstanding (as defined in the Indenture).
(6) Upon receipt by the undersigned of the amount demanded hereby, (a)
the undersigned will apply the same directly to the payment when due of the
principal amount of and accrued and unpaid interest on the Bonds pursuant
to the Indenture, (b) no portion of said amount shall be applied by the
undersigned for any other purpose and (c) no portion of said amount shall
be commingled with other funds held by the undersigned.
The Credit Facility Trustee acknowledges that, pursuant to the terms of
Letter of Credit, upon the Bank's honoring the Partial Redemption Draft
accompanying this Certificate, (i) the Amount Available under the Letter of
Credit shall be permanently reduced by the aggregate amount of such Partial
Redemption Draft, (ii) the Principal Amount Available under the Letter of Credit
shall be permanently reduced by an amount equal to the amount of the principal
component of such draft set forth in paragraph 3 above and (iii) the Interest
Amount Available under the Letter of Credit shall be permanently reduced by
$_________, which is equal to an amount of interest which would accrue on an
amount of principal equal to the principal component set forth in paragraph 3
above for a period of forty-nine (49) days at a maximum rate of fifteen percent
(15%) per annum.
IN WITNESS WHEREOF, the Credit Facility Trustee has executed and delivered
this Certificate as of the ____ day of _______________, 19__.
BRANCH BANKING AND TRUST COMPANY, as Credit
Facility Trustee
By:________________________
Name:___________________
Title:____________________
12
<PAGE>
Annex D
-------
[Form of Certificate for Conversion Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE
PAYMENT OF PRINCIPAL PLUS ACCRUED INTEREST
UPON A MANDATORY PURCHASE
(CONVERSION TO A FIXED INTEREST RATE)
Irrevocable Letter of Credit No. S141130
----------------------------------------
The undersigned, a duly authorized officer of the undersigned Credit
Facility Trustee (the "Credit Facility Trustee"), hereby certifies to First
Union National Bank (the "Bank"), with reference to Irrevocable Letter of Credit
No. S141130 (the "Letter of Credit"; the terms defined therein and not otherwise
defined herein being used herein as therein defined) issued by the Bank in favor
of the Credit Facility Trustee, as follows:
(1) The Credit Facility Trustee is the Credit Facility Trustee under
the Indenture for the registered owners of the Bonds.
(2) The Credit Facility Trustee is making a drawing under the Letter
of Credit with respect to a payment, upon a mandatory tender for purchase
pursuant to Section 2.2(e) of the Indenture (conversion to a Fixed Interest
Rate within the meaning of the Indenture) of all or less than all of the
Bonds which are Outstanding (as defined in the Indenture), of the unpaid
principal amount of, and up to 49 days' accrued and unpaid interest on, the
Bonds to be so purchased (other than Bonds presently held of record by the
Company, or the Bank, or its designee, as pledgee of the Company), which
payment is due on the date on which this Certificate and the Conversion
Draft it accompanies are being presented to the Bank.
(3) The amount of the Conversion Draft accompanying this Certificate
is $______ and is equal to the sum of (i) $______ being drawn in respect of
the payment of unpaid principal of Bonds (other than Bonds presently held
of record by the Company, or by the Bank, or its designee, as pledgee of
the Company) to be purchased, which amount does not exceed the Principal
Amount Available under the Letter of Credit, and (ii) $_____ being drawn in
respect of the payment of ___ days' [not to exceed 49 days'] accrued and
unpaid interest on such Bonds, which amount does not exceed the Interest
Amount Available under the Letter of Credit.
(4) The amount of the Conversion Draft accompanying this Certificate
was computed in compliance with the terms and conditions of the Bonds and
the Indenture and does not exceed the Amount Available under the Letter of
Credit.
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<PAGE>
(5) Upon receipt by the undersigned of the amount demanded hereby,
(a) the undersigned will apply the same directly to the payment when due of
the principal amount of, and interest accrued and unpaid on, the Bonds
pursuant to the Indenture, (b) no portion of said amount shall be applied
by the undersigned for any other purpose and (c) no portion of said amount
shall be commingled with other funds held by the undersigned.
(6) The Credit Facility Trustee shall register or cause to be
registered in the name of the Bank, or its designee, as pledgee of Advance
Stores Company, Incorporated (the "Company"), pursuant to Section 3 of the
Pledge Agreement and shall deliver or cause to be delivered to the Bank or
its designee a principal amount of Bonds equal to the principal amount of
the Conversion Draft accompanying this Certificate as promptly as
practicable, and in any event within five Business Days after presentation
of the Conversion Draft accompanying this Certificate.
(7) The Credit Facility Trustee acknowledges that, pursuant to the
terms of the Letter of Credit, upon the Bank's honoring the Conversion
Draft accompanying this Certificate, the Amount Available under the Letter
of Credit (i) shall be permanently reduced by the aggregate amount of such
Conversion Draft, (ii) the Principal Amount Available under the Letter of
Credit shall be permanently reduced by an amount equal to the amount of the
principal component of such draft set forth above, and (iii) the Interest
Amount Available under the Letter of Credit shall be permanently reduced by
an amount equal to the amount of interest component of such draft set forth
above.
IN WITNESS WHEREOF, the Credit Facility Trustee has executed and delivered
this Certificate as of the ___ day of ______________, 19__.
BRANCH BANKING AND TRUST COMPANY,
as Credit Facility Trustee
By:___________________________
Name:______________________
Title:_______________________
14
<PAGE>
Annex E
-------
[Form of Certificate for Final Draft]
CERTIFICATE FOR DRAWING IN CONNECTION WITH THE PAYMENT
OF PRINCIPAL PLUS ACCRUED INTEREST, UPON STATED
OR ACCELERATED MATURITY OR OPTIONAL OR MANDATORY
REDEMPTION AS A WHOLE
Irrevocable Letter of Credit No. S141130
----------------------------------------
The undersigned, a duly authorized officer of the undersigned Credit
Facility Trustee (the "Credit Facility Trustee"), hereby certifies to First
Union National Bank (the "Bank"), with reference to Irrevocable Letter of Credit
No. S141130 (the "Letter of Credit"; the terms defined therein and not otherwise
defined herein being used herein as therein defined) issued by the Bank in favor
of the Credit Facility Trustee, as follows:
(1) The Credit Facility Trustee is the Credit Facility Trustee under
the Indenture for the registered owners of the Bonds.
(2) The Credit Facility Trustee is making a drawing under the Letter
of Credit with respect to a payment, either at stated maturity, upon
acceleration, or as a result of a redemption as a whole pursuant to the
Indenture, of the unpaid principal amount of and up to 49 days' accrued and
unpaid interest on, all of the Bonds which are "Outstanding" within the
meaning of the Indenture (other than Bonds presently held of record by the
Company or by the Bank, or its designee, as pledgee of the Company).
(3) The amount of the Final Draft accompanying this Certificate is
$__________________ and is equal to the sum of (i) $____________________
being drawn in respect of the payment of unpaid principal of Bonds (other
than Bonds presently held of record by the Company or by the Bank, or its
designee, as pledgee of the Company), which amount does not exceed the
Principal Amount Available under the Letter of Credit, and (ii) $______
being drawn in respect of the payment of ____ days' [not to exceed 49
days'] accrued and unpaid interest on such Bonds, which amount does not
exceed the Interest Amount Available under the Letter of Credit.
(4) The amount of the Final Draft accompanying this Certificate was
computed in compliance with the terms and conditions of the Bonds and the
Indenture and does not exceed the Amount Available under the Letter of
Credit.
15
<PAGE>
(5) Upon receipt by the undersigned of the amount demanded hereby,
(a) the undersigned will apply the same directly to the payment when due of
the principal amount and accrued and unpaid interest thereon owing on
account of the Bonds pursuant to the Indenture, (b) no portion of said
amount shall be applied by the undersigned for any other purpose and (c) no
portion of said amount shall be commingled with other funds held by the
undersigned.
IN WITNESS WHEREOF, the Credit Facility Trustee has executed and
delivered this Certificate as of the __ day of _______________, 19__.
BRANCH BANKING AND TRUST COMPANY,
as Credit Facility Trustee
By:___________________________
Name:______________________
Title:_______________________
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<PAGE>
Annex F
-------
[Form of Reinstatement Certificate For Tender Draft]
CERTIFICATE FOR THE REINSTATEMENT OF AMOUNTS AVAILABLE
------------------------------------------------------
UNDER IRREVOCABLE LETTER OF CREDIT NO. S141130
----------------------------------------------
The undersigned, a duly authorized officer of the undersigned Credit
Facility Trustee (the "Credit Facility Trustee"), hereby certifies to First
Union National Bank (the "Bank"), with reference to Irrevocable Letter of Credit
No. S141130 (the "Letter of Credit"; the terms defined therein and not otherwise
defined herein being used herein as therein defined) issued by the Bank in favor
of the Credit Facility Trustee, as follows:
(1) The Credit Facility Trustee is the Credit Facility Trustee under
the Indenture for the holders of the Bonds.
(2) The amount of $________ paid to you today by or on behalf of the
Company is a payment made to reimburse you, pursuant to Section 3.2 of the
Letter of Credit and Reimbursement Agreement, dated as of December 1, 1997
(the "Reimbursement Agreement"), by and among the Borrowers and the Bank,
for amounts drawn under the Letter of Credit by Tender Drafts. The Credit
Facility Trustee hereby requests that you reinstate the Letter of Credit
upon receipt of such payment in an amount equal to the amount of payment so
received.
(3) Of the amount referred to in paragraph (2), $_________ represents
the aggregate principal amount of Bonds resold or to be sold on behalf of
the Company.
(4) Of the amount referred to in paragraph (2), $__________
represents accrued and unpaid interest on the Bonds.
17
<PAGE>
IN WITNESS WHEREOF, the Credit Facility Trustee has executed and delivered
this Certificate as of the __ day of ________________, 19__.
BRANCH BANKING AND TRUST COMPANY,
as Credit Facility Trustee
By:___________________________
Name:______________________
Title:_____________________
18
<PAGE>
[attached to Annex F]
ACKNOWLEDGMENT
--------------
The Bank hereby confirms to the Credit Facility Trustee that the
Principal Amount Available under the Letter of Credit has been reinstated by the
amount of $______________ and the Interest Amount Available under the Letter of
Credit has been reinstated by the amount of $_____________.
This ___ day of _________, 19__.
FIRST UNION NATIONAL BANK
By:___________________________
Name:______________________
Title:_____________________
19
<PAGE>
Annex G
-------
[Form of Transfer Certificate]
INSTRUCTION TO TRANSFER
First Union National Bank
301 South Tryon Street, M7
Charlotte, North Carolina 28288-0742
Attention: International Operations
Re: Your Irrevocable Letter of Credit No. S141130
---------------------------------------------
Ladies and Gentlemen:
For value received, the undersigned beneficiary (the "Transferor")
hereby irrevocably transfer to:
___________________________
[Name of Transferee]
___________________________
[Address]
(the "Transferee") all rights of the Transferor with respect to the above-
referenced Letter of Credit, including the right to draw under said Letter of
Credit in the Amount Available. Said Transferee has succeeded the Transferor as
Credit Facility Trustee under that certain Trust Indenture dated as of December
1, 1997, by and among the Development Authority of McDuffie County, First Union
National Bank, Richmond, Virginia, as trustee and Branch Banking and Trust
Company, as the initial Credit Facility Trustee thereunder (the "Indenture"),
with respect to the Bonds as described in the Indenture and has complied with
the provisions of the Indenture.
By virtue of this transfer, the Transferee shall have the sole rights
as beneficiary of said Letter of Credit, including sole rights relating to any
past or future amendments thereof, whether increases or extensions or otherwise.
All amendments are to be advised directly to the Transferee without necessity of
any consent of or notice to the Transferor.
By its signature below, the Transferee acknowledges that it has duly
succeeded the Transferor as Credit Facility Trustee pursuant to the Indenture.
20
<PAGE>
The advice of such Letter of Credit is returned herewith, along with a
transfer fee of $1,000.00, and we ask you to endorse the transfer on the reverse
side thereof and to forward it directly to the Transferee with your customary
notice of transfer.
Very truly yours,
BRANCH BANKING AND TRUST COMPANY,
as Credit Facility Trustee
By:_____________________________
[insert name and title of
authorized officer]
[Corporate Seal]
Acknowledged by:
_______________________________
[insert name of Transferee]
By:____________________________
[insert name and title of
authorized officer]
[Corporate Seal]
21
<PAGE>
EXHIBIT B
---------
[FORM OF OPINION OF COUNSEL TO THE BORROWERS]
December 31, 1997
First Union National Bank, as Trustee
Richmond, Virginia
Branch Banking and Trust Company,
as Credit Facility Trustee
Wilson, North Carolina
First Union National Bank, as
Placement Agent
Charlotte, North Carolina
First Union National Bank, as
Letter of Credit Provider
Roanoke, Virginia
Re: $10,000,000 Development Authority of McDuffie County Taxable
Industrial Development Revenue Bonds (Advance Stores Company,
Incorporated Project), Series 1997
Ladies and Gentlemen:
We have acted as counsel to Advance Stores Company, Incorporated (the
"Company") and Advance Holding Corporation (the "Parent", and together with the
Company, the "Borrowers") and are familiar with the matters relating to the
preparation, execution and delivery of a Letter of Credit and Reimbursement
Agreement, dated as of December 1, 1997 (the "Reimbursement Agreement"), by and
among the Borrowers and First Union National Bank (the "Bank").
Terms defined in the Reimbursement Agreement are used herein as therein
defined. Among other things, we have examined:
(1) a fully executed counterpart of the Reimbursement Agreement, dated as
of December 1, 1997;
(2) fully executed and acknowledged counterparts of the Security
Instruments;
B-1
<PAGE>
(3) the Placement Agreement, dated December 31, 1997 (the "Placement
Agreement") among the Company, Development Authority of McDuffie County (the
"Issuer") and First Union National Bank, Charlotte, North Carolina, as Placement
Agent;
(4) the Bond Documents (as defined in the Reimbursement Agreement);
(5) certificate of good standing for Company issued by the Virginia
Secretary of State:
(6) the Articles of Incorporation of the Company, as applicable, and all
amendments thereto;
(7) the Bylaws of the Company, as applicable, as now in effect (the
"Bylaws");
(8) certificate of good standing for Parent issued by the Virginia
Secretary of State:
(9) the Articles of Incorporation of the Parent, as applicable, and all
amendments thereto; and
(10) the Bylaws of the Parent, as applicable, as now in effect (the
"Bylaws").
We have also examined the originals, or copies certified to our
satisfaction, of (i) such other records of the Borrowers, certificates of public
officials and of officers of the Borrowers, and (ii) such other agreements,
instruments and documents as we have deemed necessary as a basis for the
opinions hereinafter expressed. As to questions of fact material to such
opinions, we have, when relevant facts were not independently established by me,
relied upon certificates of the Borrowers or of public officials. We have
assumed the due execution and delivery of the Reimbursement Agreement and other
Loan Documents by the Bank.
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the opinion that:
(a) The Company is a duly organized and validly existing corporation
under the laws of the State of Virginia. The Company has the requisite
corporate power and authority to execute and deliver the Bonds Documents to
which it is a party, the Security Instruments and the Reimbursement
Agreement and to perform its obligations thereunder;
(b) The Parent is a duly organized and validly existing corporation
under the laws of the State of Virginia. The Parent has the requisite
corporate power and authority to execute and deliver the Bonds Documents to
which it is a party, the
B-2
<PAGE>
Security Instruments and the Reimbursement Agreement and to perform its
obligations thereunder;
(c) All Bond Documents to which the Borrowers are a party, the
Reimbursement Agreement and the Security Instruments have been duly
authorized, executed and delivered by the Borrowers, and subject to the
last paragraph of this letter, each of them is the legal, valid and binding
obligation and agreement of the Borrowers, enforceable in accordance with
their terms;
(d) To the best of our knowledge, no authorization or approval or
other action by, and no notice to or filing or registration with, any
governmental authority or regulatory body is required for (i) the due
execution, delivery and performance by the Borrowers of the Reimbursement
Agreement or any of the Security Instruments or Bond Documents to which
they are a party;
(e) To the best of our knowledge, neither the issuance and sale of the
Bonds, nor the consummation of any other of the transactions contemplated
in the Placement Agreement, the Bond Documents, the Security Instrument or
the Reimbursement Agreement nor the fulfillment of the terms thereof will
conflict with, result in a breach of, constitute a default or require any
consent under (i) the terms of the Articles of Incorporation of the
Borrowers, as applicable, (ii) any indenture or other agreement or
instrument to which the Borrowers or any of their affiliates may be bound
or affected, or (iii) any order or regulation to be applicable to the
Borrowers, of any Federal or Virginia court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction
over the Borrowers, as applicable. Additionally, to the best of our
knowledge, neither the issuance and the sale of the Bonds, nor the
consummation of any other of the transactions contemplated in the Placement
Agreement, the Security Instruments, the Reimbursement Agreement or the
Bond Documents, nor the fulfillment of the terms thereof will result in the
creation of any lien, pledge, charge or encumbrance upon any of the assets
or property of the Borrowers, as applicable, other than those expressly
contemplated by such documents, the Borrowers are not in default under any
material agreement or indenture instrument; and
(f) To our best knowledge after due inquiry, there are no judicial,
regulatory or arbitral proceedings pending or threatened in and federal or
Virginia court at law or in equity against the Borrowers, as applicable,
which, if decided adversely to the Borrowers, as applicable, would have a
material adverse effect on the financial condition or operations of the
Borrowers, as applicable, or adversely affect the validity or
enforceability of the Bond Documents, the Reimbursement Agreement or the
transactions contemplated therein.
Although we have made certain inquiries and investigations in connection
with the preparation of the Placement Memorandum, we did not independently
verify the accuracy or completeness of the statements made in the Placement
Memorandum and cannot and
B-3
<PAGE>
do not assume responsibility for or pass on the accuracy and completeness of
such statements, except insofar as such statements relate to the Borrowers.
Subject to the foregoing, we can state to you that our work in connection with
this matter did not disclose any information that caused us to believe that the
Placement Memorandum contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, not misleading.
Our opinion concerning the validity, binding effect and enforceability of
the Reimbursement Agreement or any of the Loan Documents to which Borrowers are
a party means that said documents (i) constitute effective contracts under
applicable law, (ii) are not invalid in their entirety because a specific
statutory prohibition or public policy and are not subject in their entirety to
a contractual defense, and (iii) subject to the last two sentences of this
paragraph, applicable law provides remedies for enforcement of the security
interests and liens created by the documents if the Borrowers, as applicable, is
in material default under the documents. This opinion does not mean that (i)
any particular remedy is available upon a material default, or (ii) every
provision of the documents will be upheld or enforced in any or each
circumstance by a court. Furthermore, the validity, binding effect and
enforceability of the documents may be limited or otherwise affected by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or
other similar statutes, rules, regulations or other laws affecting the
enforcement of creditor's rights and remedies generally and (ii) the
unavailability of, or limitation on the availability of, a particular right or
remedy (whether in a proceeding in equity or at law) because of an equitable
principle or a requirement as to commercial reasonableness, conscionability or
good faith. We express no opinion as to the enforceability of any provision in
the documents which provides for the waiver by Borrowers, as applicable, of any
rights or protections in bankruptcy, including, without limitation, agreement to
the lifting of automatic stay provisions.
Sincerely,
B-4
<PAGE>
EXHIBIT C
LITIGATION
----------
On November 5, 1997, Joe C. Proffitt, ("Plaintiff") on behalf of himself
and others similarly situated filed in the Circuit Court for Jefferson County,
Tennessee, a class action complaint and Motion for Class Certification against
Advance Stores Company, Inc. ("Advance") alleging misconduct in the sale of
automobile batteries.
The gravamen of Plaintiffs' complaint is the allegation that Advance
implemented a uniform scheme to promote, offer, and sell old, used, and "out of
warranty" batteries to unsuspecting customers as if the batteries were new.
The putative class is alleged to include "All persons and entities in the
States of Alabama, California, Georgia, Kentucky, Michigan, North Carolina,
Ohio, South Carolina, Tennessee, Texas, Virginia and West Virginia, who
purchased automotive batteries from Advance or any Advance retail store
locations at any time during the period November 1, 1991 to the present."
The complaint seeks compensatory damages in an amount not to exceed $200.00
per class member, and punitive damages in an amount not to exceed $74,000.00 per
class member. Advance believes that the amounts of damages have been limited to
less than $75,000.00 to avoid the possibility of removal to Federal Court.
The case is in the very early stages of discovery. Advance, believes that
there is no merit to the complaint, or to the Motion for Class Certification,
and accordingly plans a vigorous defense.
C-1
<PAGE>
EXHIBIT 10.12
ADVANCE HOLDING CORPORATION
1998 SENIOR EXECUTIVE STOCK OPTION PLAN
Section 1. Description of Plan. This is the 1998 Senior Executive
-------------------
Stock Option Plan, dated April 15, 1998 (the "Plan") of Advance Holding
Corporation, a Virginia corporation (the "Company"). This Plan will provide a
means whereby designated employees, directors or consultants of the Company
and/or of any directly or indirectly majority or wholly-owned entities of the
Company (individually, a "Subsidiary" and collectively, the "Subsidiaries") may
purchase shares of the common stock, par value $0.01 per share of the Company
(the "Shares"). It is intended that the options under this Plan will either
qualify for treatment as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") and be designated
"Incentive Stock Options" or not qualify for such treatment and be designated
"Nonqualified Stock Options." Incentive Stock Options may only be granted to
employees.
Section 2. Purpose of Plan. The purpose of the Plan and of
---------------
granting options (the "Options") to specified persons is to further the growth,
development and financial success of the Company and its Subsidiaries by
providing additional incentives to their employees, directors or consultants.
By assisting such persons in acquiring Shares, the Company can ensure that such
persons will themselves benefit directly from the Company's and its
Subsidiaries' growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to
-----------
receive grants of Options under the Plan shall be the designated senior
executives of the Company and/or its Subsidiaries as determined from time to
time by the Board of Directors (the "Board") of the Company. A person who holds
an Option is herein referred to as a "Participant," and more than one Option may
be granted to any Participant.
The aggregate fair market value (determined as of the time an Option
is granted) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by any participant in any calendar year under
this Plan and any other incentive stock option plans (which qualify under
Section 422 of the Code) of the Company or any Subsidiary shall not exceed
$100,000.
Section 4. Administration.
--------------
(a) Except as otherwise provided herein, the Plan shall be
administered by the Board or, at the Board's option, by a compensation committee
thereof from time to time constituted, to whom administration of this Plan has
been duly delegated (the Board and such committee, are collectively referred to
hereinafter as the "Committee"). Any action of the Board
<PAGE>
or the Committee with respect to administration of the Plan shall be taken by a
majority vote or written consent of its members. Upon the first registration of
an equity security of the Company under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), to the extent possible and advisable, the
Committee may be constituted so as to permit this Plan to comply with Rule 16b-3
promulgated under Section 16 of the Exchange Act and Section 162(m) of the Code.
(b) The Committee is authorized and empowered to administer
the Plan and, subject to the Plan, including but not limited to Section 19,
----------
(i) to determine the dates upon which Options shall be granted and the terms and
conditions thereof in a manner consistent with the Plan, which terms and
conditions need not be identical as to the various Options granted; (ii) to
interpret the Plan; (iii) to grant Options; (iv) to determine the Participants;
(v) to specify the terms of the Options; (vi) to determine the number of Shares
which may be purchased; (vii) to determine the fair market value of the Shares;
(viii) to accelerate the time during which an Option may be exercised in
accordance with the provisions of Section 14 hereof, and to otherwise accelerate
----------
the time during which an Option may be exercised, in each case notwithstanding
the provisions in the Option Agreement (as defined in Section 11 hereof) stating
----------
the time during which it may be exercised; (ix) to reissue the Plan and related
benefits hereunder as a direct plan of a Subsidiary or Subsidiaries, converting
the Options and Shares issued under this Plan to options and shares of such
Subsidiary or Subsidiaries, as the case may be; (x) to prescribe, amend and
rescind rules relating to the Plan; (xi) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Option previously granted by the Committee; (xii) to determine the rights and
obligations of Participants under the Plan; and (xiii) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The interpretation and construction by the Committee of any provision of the
Plan or of any Option granted under it shall be final. No member of the
Committee shall be liable for any action or determination made with respect to
the Plan or any Option granted hereunder.
Section 5. Shares Subject to Plan. The aggregate number of Shares
----------------------
for which Options may be granted pursuant to the Plan shall be Five Hundred Ten
Thousand (510,000). Such number shall be automatically adjusted for any
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction of the Company. The number of
Shares which may be purchased by a Participant upon exercise of each Option
shall be determined by the Committee and set forth in each Option Agreement (as
such term is defined in Section 11 hereof). Upon the expiration or termination,
----------
in whole or in part, for any reason of an outstanding Option or any portion
thereof which shall not have vested or shall not have been exercised in full or
in the event that any Shares acquired pursuant to the Plan are reacquired by the
Company, (a) any Shares which have not been purchased or (b) the Shares
reacquired, as the case may be, shall again become available for the granting of
additional Options under the Plan.
Section 6. Restrictions on Grants; Vesting of Options.
------------------------------------------
Notwithstanding any other provisions set forth herein or in any Option
Agreement, no Options may be granted under
2
<PAGE>
the Plan subsequent to ten (10) years from the date hereof. Each Option shall
grant the Participant the right to purchase a specified number of Shares at the
price determined by the Committee, as set forth in each respective Option
Agreement (the "Exercise Price"); provided, however, that if the Participant is
a 10% stockholder of the Company (as defined in Section 422(b)(6) of the Code)
at the time such Participant is granted an Incentive Stock Option, the Exercise
Price shall be not less than 110% of the fair market value of such shares on the
date of grant of the Option. Such fair market value shall be determined by the
Committee (i) if the Company's securities are traded on a national securities
exchange or on the Nasdaq National Market, on the basis of the reported closing
sales price on such date or, in the absence of a reported sales price on such
date, on the basis of the average of the reported closing bid and ask price on
such date, or (ii) in the absence of both a reported sales price and a reported
bid and ask price under clause (i), the Committee shall determine such fair
market value on the basis of such evidence as it deems appropriate in its sole
discretion. The Options shall vest based on longevity of service, targeted goals
and/or other schedules established by the Committee, as set forth in each Option
Agreement, with respect to the Company and/or its Subsidiaries. In the case of
options which vest based on the achievement of targeted goals, the Committee
shall determine the performance criteria, the performance measurement period(s)
and the schedule of exercisability applicable to each Option or group of Options
in a schedule, a copy of which shall be filed with the records of the Committee
and attached to each Option Agreement to which the same applies. The performance
criteria, the performance measurement period(s), and the schedule of
exercisability need not be identical for all Options granted hereunder.
Following the conclusion of each applicable performance measurement period, the
Committee shall determine, in its sole good faith judgment, the extent, if at
all, that each Option subject thereto shall have become exercisable based upon
the applicable performance criteria and the schedule of exercisability. To the
extent each such Option shall remain nonexercisable following the final
performance measurement period because the applicable performance criteria have
not been met, it shall, to that extent, automatically terminate and cease to be
exercisable to such extent notwithstanding the stated term during which it
otherwise may have been exercised. The Committee shall promptly notify each
affected Participant of such determination. The Committee may periodically
review the performance criteria applicable to any Option or Options and, in its
sole good faith judgment, may adjust the same to reflect mergers, acquisitions,
asset sales, catastrophes and significant increases in the level of capital
expenditures or inventory levels.
Section 7. Exercise of Options. Once vested, the Options may be
-------------------
exercised by the Participant by giving written notice to the Company specifying
the number of Shares to be purchased and accompanied by payment of the full
Exercise Price therefor in cash, by check or in such other form of lawful
consideration as the Committee may approve from time to time, including without
limitation and in the sole discretion of the Committee, the assignment in
transfer by the Participant to the Company of outstanding shares of common stock
theretofore held by the Participant in a manner intended to comply with the
provisions of Rule 16b-3 under the Exchange Act, if applicable. Once vested,
the Options may only be exercised by the Participant or in the event of death of
the Participant, by the person or persons (including the deceased Participant's
3
<PAGE>
estate) to whom the deceased Participant's rights under such Option shall have
passed by will or the laws of descent and distribution. Notwithstanding the
immediately preceding sentence, in the event of disability (within the meaning
of Section 22(e)(3) of the Code) of a Participant, a designee of the Participant
(or the legal representative of the Participant if the Participant has no
designee) may exercise the Option on behalf of such Participant (provided such
Option would have been exercisable by such Participant) until the right to
exercise such Option expires, as set forth in such Participant's particular
Option Agreement.
Section 8. Issuance of Shares. The Company's obligation to issue
------------------
Shares upon exercise of an Option is expressly conditioned upon (i) the
compliance by the Company with any registration or other qualification
obligations with respect to such Shares under any state and/or federal law or
rulings and regulations of any government regulatory body, and/or (ii) the
making of such investment representations or other representations and
undertakings by the Participant (or the Participant's designee legal
representative, heir or legatee, as the case may be) in order to comply with the
requirements of any exemption from any such registration or other qualification
obligations with respect to such Shares which the Company in its sole discretion
shall deem necessary or advisable. Such required representations and
undertakings may include representations and agreements that such Participant
(or the Participant's designee legal representative, heir or legatee): (a) is
purchasing such Shares for investment and not with any present intention of
selling or otherwise disposing of such Shares in violation of Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder; and (b) agrees to have a legend placed upon the face and
reverse of any certificates evidencing such Shares setting forth (i) any
representations and undertakings which such Participant has given to the Company
or a reference thereto, and (ii) that, prior to effecting any sale or other
disposition of any such Shares, the Participant must furnish to the Company an
opinion of counsel, form and substance satisfactory to the Company and its
counsel, to the effect that such sale or disposition will not violate the
applicable requirements of state and federal laws and regulatory agencies;
provided, however, that any such legend or data entry shall be removed when no
longer applicable. The inability of the Company to obtain, from any regulatory
body having jurisdiction, authority reasonably deemed by the Company's counsel
to be necessary for the lawful issuance and sale of any Shares hereunder shall
relieve the Company of any liability in respect of the nonissuance or sale of
such Shares as to which such requisite authority shall not have been obtained.
Any Shares issued by the Company upon exercise of an Option granted hereunder
shall be subject to (x) a right of first refusal of the Company with respect to
all Shares proposed to be transferred by Participant, (y) certain drag-along
rights, as described in Section 11 hereof, and (z) certain other restrictions
----------
set forth in each particular Option Agreement.
Section 9. Nontransferability. An Option may not be sold,
------------------
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution. Any permitted
transferee shall be required prior to any transfer of an Option or Shares
acquired pursuant to the exercise of an Option to execute a written undertaking
to be bound by the provisions of the applicable Option Agreement.
4
<PAGE>
Section 10. Adjustments Upon Recapitalization or Reorganization.
---------------------------------------------------
Subject to Section 13(b) hereof, if the outstanding shares of the Common Stock
-------------
of the Company are changed into, or exchanged for, a different number or kind of
shares or securities of the Company through any capital reorganization or
reclassification, or if the number of outstanding shares is changed through a
stock split or stock dividend, an appropriate adjustment shall be made by the
Committee in the number, kind or exercise price of shares as to which Options
may be granted under the Plan. A corresponding adjustment shall likewise be
made in the number, kind or exercise price of shares with respect to which
unexercised Options have theretofore been granted. Any such adjustment in an
outstanding Option, however, shall be made without change in the total price
applicable to the unexercised portion of the Option but with a corresponding
adjustment in the price for each share covered by the Option. In making such
adjustments, or in determining that no such adjustments are necessary, the
Committee may rely upon the advice of counsel and accountants to the Company,
and the good faith determination of the Committee shall be final, conclusive and
binding. No fractional shares of stock shall be issued or issuable under the
Plan on account of any such adjustment.
Section 11. Option Agreement. Each Option granted under the Plan
----------------
shall be evidenced by a written option agreement (an "Option Agreement")
executed by the Company and the Participant which (a) shall contain each of the
provisions and agreements herein specifically required to be contained therein;
(b) shall contain provisions which give the Company a right of first refusal to
purchase any Shares issued pursuant to the exercise of Options granted under the
Plan which a Participant proposes to sell; (c) shall contain certain "drag-
along" rights; and (d) may contain such other terms and conditions as the
Committee deems desirable and which are not inconsistent with the Plan.
Section 12. Privileges of Stock Ownership. Persons entitled to
-----------------------------
exercise any Options granted under this Plan shall have all of the rights or
privileges of a shareholder of the Company in respect of any shares of common
stock issuable upon exercise of such Option from and after the date of exercise
of an Option. No shares shall be issued and delivered upon exercise of any
Option unless and until, in the opinion of counsel for the Company, there shall
have been full compliance with any applicable registration requirements of the
Securities Act, any applicable listing requirements of any national securities
exchange or automated quotation system on which the common stock of the Company
is then listed or quoted, and any other requirements of law or of any regulatory
bodies having jurisdiction over such issuance and delivery. The Company agrees
to take all actions reasonably necessary to comply with all such requirements.
The Company agrees that shares of common stock issued upon the
exercise of Options shall, at the time of delivery, be validly issued and
outstanding, fully paid and nonassessable. The Company covenants and agrees
that it will pay, when due and payable, any and all federal and state stamp,
original issue, or similar taxes which may be payable in respect of the issue of
the Option or of Shares upon the exercise thereof.
5
<PAGE>
Section 13. Termination of Options.
----------------------
(a) Each Option granted under the Plan shall set forth a
termination date thereof, which shall be not later than seven (7) years from
the date such Option is granted subject to earlier termination as set forth in
---------
Section 6, Section 13(b), or Section 14 hereof, or as otherwise set forth in
- --------- ------------- ----------
each particular Option Agreement; provided, however, with respect to Incentive
Stock Options, such termination shall be not later than five (5) years from the
date such Option is granted if the Participant is a 10% stockholder of the
Company (as defined in Section 422(b)(6) of the Code) at the time such Option is
granted. An Incentive Stock Option shall contain any termination events required
by Section 422 of the Code. The termination of employment, or service as a
director or consultant, of a Participant for any reason shall not accelerate or
otherwise affect the number of Shares which may be purchased upon exercise of an
Option; provided, however, that the Option may only be exercised with respect to
that number of Shares which could have been purchased under the Option had the
Option been exercised by the Participant on the date of such termination.
(b) Subject to Section 14 hereof (i) upon the dissolution,
----------
liquidation or sale of all or substantially all of the business, properties and
assets of the Company, (ii) upon any reorganization, merger, consolidation, sale
or exchange of securities in which the Company does not survive, or (iii) upon
any sale, reorganization, merger, consolidation or exchange of securities in
which the Company does survive and any of the Company's stockholders have the
opportunity to receive cash, securities of another corporation, partnership or
limited liability company and/or other property in exchange for their capital
stock of the Company, or (iv) upon any acquisition by any person or group (as
defined in Section 13d of the Securities Act of 1934) of beneficial ownership of
more than fifty percent (50%) of the Company's then outstanding shares of common
stock (each of the events described in clauses (i), (ii), (iii) or (iv) is
referred to herein individually as an "Extraordinary Event" and collectively as
the "Extraordinary Events"), the Plan and each outstanding Option shall
terminate, unless the Surviving Entity (defined below) elects to have such
Option survive the Extraordinary Event pursuant to the next paragraph. In such
event each Participant shall have the right, by giving notice ten (10) days
before the effective date of such Extraordinary Event (the "Effective Date"), to
exercise on or before the Effective Date, in whole or in part, any unexpired
Option issued to the Participant, to the extent that said Option is vested as of
the Effective Date and exercisable as of the Effective Date, and otherwise is
vested and exercisable pursuant to the provisions of said Option and of Section
-------
6 of the Plan.
- -
In its sole and absolute discretion, the surviving entity (which may
be the Company) or the entity that has acquired all or substantially all of the
Company's assets (the "Surviving Entity") may, but shall not be so obligated, to
permit an Option to survive an Extraordinary Event or tender to any Participant
an option or options to purchase shares or equity interests in such Surviving
Entity, and such continuing or new option or options shall contain such terms
and provisions as shall be required to substantially preserve the rights and
benefits of any
6
<PAGE>
Option then outstanding under the Plan with any reasonable changes to take into
account the circumstances of the Surviving Entity.
Section 14. Acceleration of Options. Notwithstanding the
-----------------------
provisions of Section 6 or Section 13 hereof, or any provision to the contrary
--------- ----------
contained in a particular Option Agreement, the Committee, in its sole
discretion, may accelerate the vesting of all or any portion of any Option then
outstanding. The decision by the Committee to accelerate an Option or to
decline to accelerate an Option shall be final. In the event of the
acceleration of the exercisability of Options as the result of a decision by the
Committee pursuant to this Section 14, each outstanding Option so accelerated
----------
shall be exercisable for a period from and after the date of such acceleration
and upon such other terms and conditions as the Committee may determine in its
sole discretion, provided that such terms and conditions (other than terms and
conditions relating solely to the acceleration of exercisability and the related
termination of an Option) may not adversely affect the rights of any Participant
without the consent of the Participant so adversely affected. Any outstanding
Option which has not been exercised by the holder at the end of such period
shall terminate automatically at that time.
Section 15. Substitute Options. If the Company at any time should
------------------
succeed to the business of another entity through a merger, consolidation,
corporate reorganization or exchange, or through the acquisition of stock or
assets of such entity or its subsidiaries or otherwise, Options may be granted
under the Plan to option holders of such entity or its subsidiaries, in
substitution for options to purchase Shares in such entity held by them at the
time of succession. The Committee, in its sole and absolute discretion, shall
determine the extent to which such substitute Options shall be granted (if at
all), the person or persons to receive such substitute Options (who need not be
all option holders of such entity), the number of Options to be received by each
such person, the exercise price of such Option and the other terms and
conditions of such substitute Options.
Section 16. Withholding of Taxes. The Company, or a Subsidiary, as
--------------------
the case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company (or such Subsidiary) to the Participant the requisite
tax upon the amount of taxable income, if any, recognized by the Participant in
connection with the exercise in whole or in part of any Option, or the sale of
the Shares issued to the Participant upon the exercise of an Option, as may be
required from time to time under any federal or state tax laws and regulations.
This withholding of tax shall be made from the Company's (or such Subsidiary's)
concurrent or next payment of wages, salary, bonus or other income to the
Participant or by payment to the Company (or such Subsidiary) by the Participant
of the required withholding tax, as the Committee may determine; provided,
however, that, in the sole discretion of the Committee, the Participant may pay
such tax by reducing the number of Shares issued upon exercise of an Option
(for which purpose such Shares shall be valued at fair market value as
determined in good faith by the Committee based on the fair market value of such
Shares determined by the Board, which determination shall be final).
Notwithstanding the foregoing, the Company shall not be obligated
7
<PAGE>
to issue certificates representing the shares of common stock of the Company to
be acquired through the exercise of such Option if such Participant fails to
provide the Company with adequate assurance that such Participant will pay such
amounts to the Company as herein above required. Participants shall notify the
Company in writing of any amounts included as income in the Participants'
federal income tax returns in connection with an Option.
Section 17. Effectiveness and Termination of the Plan. The Plan
-----------------------------------------
shall be effective as of the date on which this Plan is approved by the Board.
The Plan shall terminate at the earliest of the time when all Shares which may
be issued hereunder have been so issued. However, the Board may, in its sole
discretion, terminate the Plan at any prior time. Subject to Section 13 hereof,
----------
no such termination shall in any way affect any Option then outstanding.
Section 18. Time of Granting Options. The date of grant of an
------------------------
Option shall, for all purposes, be the date on which the Board makes the
determination granting such an Option. Notice of the determination shall be
given to each Participant to whom an Option is so granted within a reasonable
time after the date of such grant.
Section 19. Amendment of Plan. Subject to Section 14, the
----------------- ----------
Committee may make such amendments to the Plan as it shall deem advisable.
Subject to Section 14, no amendment shall in any way adversely affect any Option
----------
then outstanding, without the consent of the Participant so adversely affected.
Section 20. Transfers and Leaves of Absence. For purposes of the
-------------------------------
Plan, (a) a transfer of a Participant's employment, without an intervening
period, between the Company and a Subsidiary (or vice versa) or between
Subsidiaries shall not be deemed a termination of employment and (b) a
Participant who is granted in writing a leave of absence shall be deemed to have
remained in the employ of the Company (or a Subsidiary, whichever is applicable)
during such leave of absence.
Section 21. No Obligation to Exercise Option. The granting of an
--------------------------------
Option shall impose no obligation on the Participant to exercise such Option.
Section 22. Indemnification. In addition to such other rights of
---------------
indemnification as they may have as members of the Board of Directors, the
members of the Committee shall be indemnified by the Company to the fullest
extent permitted by law against the reasonable expenses, including attorney's
fees, actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any Option granted thereunder, and
against all amounts paid by them in satisfaction of a judgment in any such
action, suit or proceeding except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Committee member is not
entitled to indemnification under applicable law; provided, however, that within
sixty (60)
8
<PAGE>
days after institution of any such action, suit or proceeding such Committee
member shall in writing offer the Company the opportunity, at the Company's
expense to handle and defend the same, and such Committee member shall cooperate
with and assist the Company in the defense of any such action, suit or
proceeding. The Company shall not be obligated to indemnify any Committee member
with regard to any settlement of any action, suit or proceeding of which the
Company did not consent to in writing prior to such settlement.
Section 23. Governing Law. The Plan and any Option granted
-------------
pursuant to the Plan shall be construed under and governed by the laws of the
Commonwealth of Virginia without regard to conflict of law provisions thereof.
Section 24. Not an Employment or Consulting Agreement. Nothing
-----------------------------------------
contained in the Plan or in any Option Agreement shall confer, intend to confer
or imply any rights of employment or rights to continued employment by the
Company or any Subsidiary in favor of any Participant or limit the ability of
the Company or any Subsidiary to terminate, with or without cause, in its sole
and absolute discretion, the employment of any Participant, subject to the terms
of any written employment to which a Participant is a party. In addition,
nothing contained in the Plan or in any Option Agreement shall preclude any
lawful action by the Company or the Board.
9
<PAGE>
EXHIBIT 10.13
ADVANCE HOLDING CORPORATION
1998 SENIOR EXECUTIVE STOCK OPTION AGREEMENT
THIS 1998 SENIOR EXECUTIVE STOCK OPTION AGREEMENT (this "Agreement")
is entered into as of ________, 1998 by and between Advance Holding Corporation,
a Virginia corporation (the "Company"), and ________________ ("Optionee"),
pursuant to the Advance Holding Corporation 1998 Senior Executive Stock Option
Plan (the "Plan"). All capitalized terms not otherwise defined herein shall
have the meanings set forth in the Plan.
R E C I T A L S:
- - - - - - - -
A. Optionee is a senior executive of the Company and/or of a direct
or indirect subsidiary of the Company (individually, a "Subsidiary" and
collectively, the "Subsidiaries") and the Company considers it desirable to give
Optionee an added incentive to advance the Company's and the Subsidiaries'
interests.
B. The Committee has determined to grant Optionee the right to
purchase shares of common stock of the Company pursuant to the terms and
conditions of this Agreement and the Plan.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the covenants hereinafter set
forth, the parties agree as follows:
1. Options; Number of Shares. The Company hereby grants to Optionee
-------------------------
the right to purchase (the "Options") up to
_____________________________________________ (_______) shares (the "Shares") of
$0.01 par value common stock of the Company at the following prices per share
(the "Purchase Price"):
(a) Options to purchase __________________________________ (______)
Shares at a price equal to ten dollars ($10.00) per Share (the "Fixed Price
Service Options");
1.
<PAGE>
(b) Options to purchase ________________________________________
(_______) Shares at a price equal to the amount set forth opposite the date of
exercise of the Option on Schedule A attached hereto (the "Variable Price
----------
Service Options"); and
(c) Options to purchase _________________________________ (_______)
Shares at a price equal to ten dollars ($10.00) per Share (the "Performance
Options").
The Fixed Price Service Options, Variable Price Service Options and the
Performance Options are sometimes hereinafter collectively referred to as the
"Options" and individually as an "Option." The Options and the right to purchase
all or any portion of the Shares are subject to the terms and conditions stated
in this Agreement and in the Plan, including, without limitation, the provisions
of Section 4, Section 6, Section 10, Section 13(b), Section 14 and Section 19 of
the Plan and Section 3 and Section 4 hereof. Upon exercise of an Option and
--------- ---------
payment of the Purchase Price, Optionee shall become a shareholder of the
Company, with all rights and privileges of a shareholder of the Company in
respect of any shares of common stock of the Company issuable upon such
exercise. It is intended that the Options will not qualify for treatment as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Exercise Criteria. The Variable Price Service Options shall
-----------------
become exercisable as set forth on Schedule A. The Fixed Price Service Options
----------
shall become exercisable, in whole or in part, over time as set forth on
Schedule B attached hereto. The Performance Options shall become exercisable,
- ----------
in whole or in part, as set forth on Schedule C attached hereto.
----------
3. Term of Agreement. Except for the rights conferred upon the
-----------------
Company pursuant to Section 7 below, the Options, and Optionee's right to
---------
exercise the Options, shall terminate when the first of the following occurs:
(a) termination of the Options pursuant to Section 6, Section 13 or
Section 14 of the Plan or Section 2 hereof;
(b) the expiration of seven (7) years from the date hereof;
(c) ninety (90) days after the date of termination of Optionee's
employment or other relationship with the Company and all of the Subsidiaries,
unless such termination results from Optionee's death or disability (within the
meaning of Section 22(e)(3) of the Code, or Optionee dies within ninety (90)
days after the date of termination of Optionee's employment or other
relationship with the Company and all of the Subsidiaries, in which case this
Agreement and the Option shall terminate one hundred twenty (120) days after the
date of
2.
<PAGE>
termination of Optionee's employment or other relationship with the Company and
all of the Subsidiaries; or
(d) on the date of termination of Optionee's employment or other
relationship with the Company and all of the Subsidiaries if such termination
was for cause (as determined in good faith by the Board of Directors of the
Company).
4. Termination of Employment or Other Relationship. The termination
-----------------------------------------------
for any reason of Optionee's employment or other relationship with the Company
and all of the Subsidiaries shall not accelerate the vesting of the Options.
The Options may only be exercised with respect to that number of Shares which
could have been made under the Options had such Options been exercised by
Optionee on the date of such termination.
5. Death of Optionee; No Assignment. The rights of Optionee under
--------------------------------
this Agreement may not be assigned or transferred except by will, by the laws of
descent or distribution and may be exercised during the lifetime of Optionee
only by such Optionee; provided, however, that in the event of disability
(within the meaning of Section 22(e)(3) of the Code) of Optionee, a designee of
Optionee (or the Optionee's legal representative if Optionee has not designated
anyone) may exercise the Options on behalf of Optionee (provided the Options
would have been exercisable by Optionee) until the right to exercise the Options
expires pursuant to Section 3 hereof. Any attempt to sell, pledge, assign,
---------
hypothecate, transfer or otherwise dispose of the Options in contravention of
this Agreement or the Plan shall be void. If Optionee should die while Optionee
is engaged in an employment relationship with the Company and/or any Subsidiary
or within ninety (90) days after termination of such relationship, and provided
Optionee's rights hereunder shall have vested, in whole or in part, pursuant to
Section 2 hereof, Optionee's designee, legal representative, or legatee, the
- ---------
successor trustee of Optionee's inter vivos trust or the person who acquired the
right to exercise the Options by reason of the death of Optionee (individually,
a "Successor") shall succeed to Optionee's rights under this Agreement. After
the death of Optionee, only a Successor may exercise the Options.
6. Exercise of Options. No option granted under this Agreement shall be
-------------------
exercisable until it has vested. On or after the vesting of the Options in
accordance with Section 2 hereof and until termination of the Options in
---------
accordance with Section 3 hereof, the Options may be exercised by Optionee (or
---------
such other person specified in Section 5 hereof) to the extent exercisable as
---------
determined under Section 2 hereof, upon delivery of the following to the Company
---------
at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement, the
type of Option to be exercised, and states the number of Shares to be purchased;
3.
<PAGE>
(b) a check, cash or any combination thereof in the amount of the
aggregate Purchase Price (or payment of the aggregate Purchase Price in such
other form of lawful consideration as the Committee may approve from time to
time under the provisions of Section 7 of the Plan);
(c) a check or cash in the amount reasonably requested by the Company
to satisfy the Company's withholding obligations under federal, state or other
applicable tax laws with respect to the taxable income, if any, recognized by
Optionee in connection with the exercise, in whole or in part, of the Options
(unless the Company and Optionee shall have made other arrangements for
deductions or withholding from Optionee's wages, bonus or other income paid to
Optionee by the Company or any Subsidiary, provided, however, such arrangements
must satisfy the requirements of all applicable tax laws);
(d) a written representation and undertaking, in such form and
substance as the Company may require, that the Shares underlying the Option are
being acquired by Optionee for Optionee's personal account, for investment
purposes only, and not with a view to the distribution, resale or other
disposition thereof;
(e) a written representation and undertaking, in such form and
substance as the Company may require, setting forth the investment intent of
Optionee, or a Successor, as the case may be, and such other agreements,
representations and undertakings as described in the Plan, including an
acknowledgment that Optionee has reviewed the memorandum regarding Section 83(b)
of the Internal Revenue Code of 1986, as amended, attached hereto as Exhibit A;
and
(f) such further acts as may be necessary to register Optionee as
a shareholder of the Company.
7. Restriction on Transfer of Shares; Right of First Refusal; Drag Along
---------------------------------------------------------------------
Rights.
- ------
(a) Restriction on Transfer of the Shares.
-------------------------------------
(i) Except as otherwise provided herein, Optionee may not sell,
transfer, assign, pledge, hypothecate or otherwise dispose of (collectively,
"Transfer") any of the Shares, or any right, title or interest therein prior to
the third anniversary of the Closing Date and, thereafter, any Transfer must be
in compliance with Section 7 and Section 9 hereof. Any purported Transfer or
--------- ---------
Transfers (including involuntary Transfers initiated by operation of legal
process) of any of the Shares or any right, title or interest therein, except in
strict compliance with the terms and conditions of this Agreement, shall be null
and void.
4.
<PAGE>
(ii) Permitted Transfers. Optionee may, at any time or times,
-------------------
transfer any or all of the Shares: (a) inter vivos to Optionee's spouse or
issue, a trust for their benefit, or pursuant to any will or testamentary trust;
or (b) upon Optionee's death, to any person in accordance with the laws of
descent and/or testamentary distribution (such persons described in clauses (a)
and (b) hereof are collectively referred to herein as "Permitted Transferees").
Notwithstanding the foregoing, Shares shall not be Transferred until the
Permitted Transferee executes a valid undertaking, in form and substance
reasonably satisfactory to the Company, to the effect that the Permitted
Transferee and the Shares so Transferred shall thereafter remain subject to all
of the provisions of this Agreement (including the Repurchase Option), as though
the Permitted Transferee were a party to this Agreement, bound in every respect
in the same way as Optionee. Transfers made in accordance with this clause (ii)
------
shall not be subject to the provisions of Section 7(b) of this Agreement.
------------
(b) Right of First Refusal.
----------------------
(i) Sales; Notice. At any time on or after the third anniversary
-------------
of this Agreement, Optionee may transfer for cash (and only for such form of
consideration) any or all of the Shares to any third party ("Transfer") subject
to the provisions of this Section 7 and Section 10(b). Prior to any such
intended Transfer, Optionee shall first give at least thirty (30) days' advance
written notice (the "Notice") to the Company specifying (i) Optionee's bona fide
intention to sell such Shares; (ii) the name(s) and address(es) of the proposed
transferee(s); (iii) the number of Shares Optionee proposes to Transfer
(individually, an "Offered Share," and collectively, the "Offered Shares"); (iv)
the price for which Optionee proposes to Transfer each Offered Share (the
"Proposed Purchase Price"); (v) such evidence as the Company may reasonably
request to demonstrate the ability of the proposed transferee(s) to pay the
Proposed Purchase Price; and (vi) all other material terms and conditions of the
proposed transfer.
(ii) Election by the Company. Within twenty (20) days after
-----------------------
receipt of the Notice, the Company may elect to purchase any or all of the
Offered Shares at the price and on the terms and conditions set forth in the
Notice by delivery of written notice of such election to Optionee, specifying a
day, which shall not be more than twenty (20) days after such notice is
delivered, on or before which Optionee shall surrender (if Optionee has not
already done so) the certificate or certificates representing the Offered Shares
(duly endorsed in blank for transfer) at the administrative office of the
Company. Within twenty (20) days after delivery of such notice to Optionee, the
Company shall deliver to Optionee a check, payable to Optionee or to such person
as Optionee shall request, in the amount equal to the product of the Proposed
Purchase Price multiplied by the number of Offered Shares (the "First Refusal
Price") in exchange for the Offered Shares. If Optionee fails to so surrender
such certificate or certificates on or before such date, from and after such
date the Offered Shares shall be deemed to be no longer outstanding, and
Optionee shall cease to be a Shareholder with respect to such Shares and shall
have no rights with respect thereto except only the right to receive payment of
the First Refusal
5.
<PAGE>
Price, without interest, upon surrender of the certificate or certificates
therefor (duly endorsed in blank for Transfer). Notwithstanding the foregoing,
if any Outstanding Amount (as defined in that certain Stock Subscription
Agreement between the Company and the Optionee dated April 15, 1998) is owed to
the Company by Optionee, the First Refusal Price shall be reduced (to an amount
not less than zero) by such Outstanding Amount, which reduction shall be
specified in reasonable detail in the Company's written notice of election to
purchase the Offered Shares. If the Company does not elect to purchase all of
the Offered Shares, Optionee shall be entitled to Transfer the Offered Shares to
the transferee(s) named in the Notice at the Proposed Purchase Price, or at a
higher price, and on the terms and conditions set forth in the Notice; provided,
however, that such Transfer must be consummated within ninety (90) days after
the date of the Notice and any proposed Transfer after such ninety (90) day
period may be made only by again complying with the procedures set forth in this
Section 7(b). This right of first refusal shall terminate upon an underwritten
- ------------
public offering of Common Stock by the Company registered under the Act (as
defined below) (other than an offering registered on Form S-4 or Form S-8 or any
substitute for such forms) resulting in gross proceeds to the Company in excess
of $25 million (an "Initial Public Offering").
(c) Obligation to Sell Shares. If FS Equity Partners IV, L.P., a
-------------------------
Delaware limited partnership ("FSEP IV"), finds a third-party buyer for all the
shares of common stock of the Company held by it (whether such sale is by way of
purchase, exchange, merger or other form of transaction), upon the request of
FSEP IV, Optionee shall sell all of Optionee's Shares for the same per share
consideration (which may be less than the exercise price for any Share) and
otherwise on the same terms and conditions as apply to FSEP IV sale. In
addition, FSEP IV may require Optionee to Transfer this Option to such buyer for
the same per share consideration (less the then aggregate Purchase Price of this
Option) and otherwise pursuant to the terms and conditions applicable to FSEP IV
for the sale of its shares of common stock. In the event the per share
consideration for the common stock is less than the Purchase Price applicable at
the time a binding agreement with respect to such transaction is entered into,
this Option shall be canceled without payment to Optionee. Optionee hereby
consents to any sale, transfer, reorganization, exchange, merger, combination or
other form of transaction covered under this Section 7(c) and agrees to execute
such agreements, powers of attorney, voting proxies or other documents and
instruments as may be necessary or desirable to consummate such sale, transfer,
reorganization, exchange, merger, combination or other form of transaction.
Optionee further agrees to timely take such other actions as FSEP IV may
reasonably request in connection with the approval of the consummation of such
sale, transfer, reorganization, exchange, merger, combination or other form of
transaction, including voting as a stockholder to approve any such sale,
transfer, reorganization, exchange, merger, combination or other form of
transaction and waiving any appraisal rights Optionee may have in connection
therewith. The obligations of Optionee pursuant to this Section shall be
binding on any transferee of this Option (other than a transferee in a Public
Market Sale, as defined below), and Optionee (and any of his transferees) shall
obtain and deliver to the Company and FSEP IV prior to any Transfers (other than
Transfers
6.
<PAGE>
constituting a Public Market Sale) a written commitment, in form and substance
satisfactory to the Company and FSEP IV, from a subsequent transferee to be
bound by such provisions. The term "Public Market Sale" means sale of Common
Stock after the Initial Public Offering which is made pursuant to Rule 144
promulgated under the Act or which is made pursuant to a registration statement
filed with the declared effective by the Securities and Exchange Commission. Any
Transfer effected in violation of this provision shall be void. Optionee's
obligations pursuant to this Section, and the obligations of any such
transferee, shall survive the expiration or non-vesting of any portion of the
Options.
8. Tag Along Rights. If FSEP IV finds a third-party buyer (other
----------------
than a buyer that is an investment fund or partnership affiliated with FSEP IV,
a general or limited partner of FSEP IV, or, for the period ending one year from
the date hereof, an unaffiliated institutional investor or merchant banking firm
(each, a "FS Permitted Transferee") or is a transferee in a Public Market Sale),
for all or part of the shares of Common Stock held by FSEP IV (whether such sale
is by way of purchase, exchange, merger or other form of transaction), the
Purchaser shall have the right to sell, on the terms set forth in a written
notice (the "Offering Notice") delivered by FSEP IV to the Optionee describing
the terms of the proposed sale (including the minimum sale price for the shares
of Common stock that FSEP IV plans to sell), that amount of the Shares he then
owns which constitute the same percentage of his Shares as the percentage of
Common Stock sold by FSEP IV. Each such right shall be exercisable by
delivering written notice to FSEP IV within 15 days after receipt of the
Offering Notice. Failure to exercise such right within such 15-day period shall
be regarded as a waiver of such rights. The obligations of FSEP IV under this
Section 8 shall terminate upon an Initial Public Offering.
9. Repurchase Option Upon Termination.
----------------------------------
(a) In the event that Optionee's employment or other relationship
with the Company and all of its Subsidiaries terminates for any reason
(including, without limitation, by reason of Optionee's death, disability,
retirement, voluntary resignation or dismissal by the Company or any of its
Subsidiaries, with or without cause), the Company shall have the option (the
"Repurchase Option") to purchase from Optionee all or any portion of the Shares
acquired by Optionee pursuant to this Option Agreement for a period of six (6)
months after the effective date of such termination (the effective date of
termination is hereinafter referred to as the "Termination Date"); provided,
however, that such six-month period shall be extended to a date 10 days after
the six-month anniversary of the date on which Optionee purchased any Shares
pursuant to this Option Agreement after the Termination Date.
(b) The purchase price (the "Repurchase Price") for each Share to
be purchased pursuant to the Repurchase Option shall equal (a) the greater of
the applicable exercise price of such Share and Book Value (as defined herein)
if the Termination Date occurs within the two (2) year period commencing on the
date hereof and (b) the greater of the applicable exercise
7.
<PAGE>
price of such Share and Fair Market Value (as defined herein) thereof (subject
to adjustment as set forth herein) thereafter after the initial two (2) year
period described previously in subsection (a) hereof. The "Book Value" of a
Share shall equal $10.00 per Share (subject to adjustment as set forth in
Section 9(c)) below plus the net income or minus the net loss per share to the
end of the fiscal quarter immediately preceding the Termination Date, as
determined by the Board, acting in good faith and based upon the books and
records of the Company prepared in accordance with generally accepted accounting
principles consistently applied. The "Fair Market Value" of a Share shall be
determined in accordance with clause (e) below.
(c) The Repurchase Price for any Shares to be purchased pursuant
to the Repurchase Option shall be increased or decreased appropriately to
reflect any distribution of stock or other securities of the Company or any
successor or assign of the Company which is made in respect of, in exchange for
or in substitution of the Shares by reason of any split, reverse split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise.
(d) The Repurchase Option shall be exercised by the Company by
delivery to Optionee, within the six-month period specified above, of (a) a
written notice specifying the number of Shares to be purchased and (b) a day,
which shall not be more than 30 days after the date such notice is delivered, on
or before which Optionee shall surrender the certificate or certificates
representing the Shares to be purchased pursuant to the Repurchase Option (duly
endorsed in blank for Transfer) at the principal office of the Company in
exchange for a check, payable to Optionee, in the amount equal to the Repurchase
Price, calculated as provided in this Section 9, multiplied by the number of the
Shares to be purchased. If Optionee fails to so surrender such certificate or
certificates on or before such date, from and after such date the Shares which
the Company elected to repurchase shall be deemed to be no longer outstanding,
and Optionee shall cease to be a stockholder with respect to such Shares and
shall have no rights with respect thereto except only the right to receive
payment of the Repurchase Price, without interest, upon surrender of the
certificate or certificates therefor (duly endorsed in blank for Transfer).
(e) As used herein, the "Fair Market Value" of a Share shall be
determined as follows: the board of directors of the Company shall act in good
faith to determine the Fair Market Value of each Share as of the Termination
Date (the "Initial Valuation"). All costs incurred in connection with the
Initial Valuation shall be borne by the Company. The Initial Valuation shall be
set forth in a written notice (the "Valuation Notice") delivered by the Company
to Purchaser at least 20 days prior to the repurchase date specified in the
notice of exercise. If Purchaser shall not have disputed the Initial Valuation
by delivery of a written notice of said dispute to the Company within 20 days
after the Company's delivery of the Valuation Notice, the Initial Valuation
shall be binding upon the parties as the Fair Market Value to be used for
calculating the Repurchase Price. In the event that Purchaser shall dispute the
Initial Valuation within such 20-day period, Purchaser shall, at his sole
expense, retain an appraiser (the "Second
8.
<PAGE>
Appraiser") of his own choosing to make a second appraisal (the "Second
Appraisal") of the Fair Market Value of each Share. If the Second Appraisal is
less than the Initial Valuation, the Initial Valuation shall be binding upon the
parties. If the Second Appraisal exceeds the Initial Valuation by an amount not
greater than 10% of the Initial Valuation, the Fair Market Value of each vested
share shall be the average of the sum of the Initial Valuation and the Second
Appraisal. In the event that the Second Appraisal exceeds the Initial Valuation
by an amount greater than 10% of the Initial Valuation, the Board and the Second
Appraiser shall act in good faith to select a third appraiser who shall conduct
a third appraisal (the "Third Appraisal") which shall be final and binding upon
the parties. If the Third Appraisal of the Fair Market Value of each Share
determines an amount which is closer to the amount determined by the Second
Appraisal than to the amount determined by the Initial Valuation then the
Company shall reimburse the Purchaser for the cost of the Second Appraisal. All
costs with respect to the fees and expenses paid or payable to the appraiser
that issues the Third Appraisal shall be shared equally by the Company and
Purchaser. All other costs incurred in connection with the Third Appraisal shall
be borne by the party incurring such costs.
(f) This Repurchase Option shall terminate upon an Initial Public
Offering.
10. Representations and Warranties of Optionee.
------------------------------------------
(a) Optionee represents and warrants that the Options are being
acquired by Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof.
(b) Optionee acknowledges that the Company may issue Shares upon
the exercise of the Options without registering such securities under the
Securities Act of 1933, as amended (the "Act"), on the basis of certain
exemptions from such registration requirements. Accordingly, Optionee agrees
that Optionee's exercise of the Options may be expressly conditioned upon
Optionee's delivery to the Company of such representations and undertakings as
the Company may reasonably require in order to secure the availability of such
exemptions, including a representation that Optionee is acquiring the Shares for
investment and not with a present intention of selling or otherwise disposing of
such Shares. Optionee acknowledges that, because Shares received upon exercise
of an Option may be unregistered, Optionee may be required to hold the Shares
indefinitely unless they are subsequently registered for resale under the Act or
an exemption from such registration requirements is available.
(c) Optionee acknowledges receipt of this Agreement granting the
Options, and the Plan, and understands that all rights and liabilities connected
with the Options are set forth herein and in the Plan.
9.
<PAGE>
11. No Rights as a Stockholder. Optionee shall have no rights as a
--------------------------
stockholder of any shares of common stock of the Company covered by the Options
until the Exercise Date and entry evidencing such ownership is made in the stock
transfer books of the Company. Except as my be provided under Section 10 of the
Plan, the Company will make no adjustment for dividends (ordinary or
extraordinary whether in cash, securities or other property) or distributions or
other rights for which the record date is prior to the Exercise Date.
12. Limitation of Company's Liability for Nonissuance. Inability of
-------------------------------------------------
the Company to obtain, from any regulatory body having jurisdiction, authority
reasonably deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any Shares hereunder and under the Plan shall relieve the
Company of any liability in respect of the nonissuance or sale of such Shares as
to which such requisite authority shall not have been obtained.
13. This Agreement Subject to Plan. This Agreement is made under the
------------------------------
provisions of the Plan and shall be interpreted in a manner consistent with it.
To the extent that any provision in this Agreement is inconsistent with the
Plan, the provisions of the Plan shall control. The interpretation of the
Committee of any provision of the Plan, the Options or this Agreement, and any
determination with respect thereto or hereto by the Committee, shall be binding
on all parties.
14. Restrictive Legends. Optionee hereby acknowledges that federal
-------------------
securities laws and the securities laws of the state in which Optionee resides
or works may require the placement of certain restrictive legends upon the
Shares issued upon exercise of the Options, and Optionee hereby consents to the
placing of any such legends upon certificates evidencing the Shares as the
Company, or its counsel, may reasonably deem necessary; provided, however, that
any such legend or legends shall be removed when no longer applicable. Any and
all certificates now or hereafter issued evidencing the Shares shall have
endorsed upon them a legend substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE
WITH THE TERMS AND CONDITIONS OF THAT CERTAIN OPTION AGREEMENT DATED
AS OF ________, 1998, BY AND BETWEEN ADVANCE HOLDING CORPORATION, A
VIRGINIA CORPORATION, AND THE ORIGINAL PURCHASER HEREOF, A COPY OF
WHICH AGREEMENT IS ON FILE AT
10.
<PAGE>
THE PRINCIPAL EXECUTIVE OFFICES OF ADVANCE HOLDING CORPORATION."
15. Notices. Except as otherwise provided herein, all notices,
-------
requests, demands and other communications under this Agreement shall be in
writing, and if by telegram or telecopy, shall be deemed to have been validly
served, given or delivered when sent, or if by personal delivery or messenger or
courier service, shall be deemed to have been validly served, given or delivered
upon actual delivery (but in no event may notice be given by deposit in the
United States mail), at the following addresses, telephone and facsimile numbers
(or such other address(es), telephone and facsimile numbers a party may
designate for itself by like notice):
If to the Company:
Advance Holding Corporation
c/o Freeman Spogli & Co. Incorporated
599 Lexington Avenue, Suite 1800
New York, New York 10022
Attention: John M. Roth
Telephone: (212) 758-2555
Telecopy: (212) 758-7499
If to Optionee:
------------------
------------------
------------------
Telephone: (___) ___-____
Fax: (___) ___-____
With a copy to:
John G. Rocovich, Jr., Esq.
Moss & Rocovich
4415 Electric Road
Roanoke, Virginia 24035-4014
Telephone: (540) 774-8800
Fax: (540) 774-8808
16. Not an Employment Agreement. Nothing contained in this Agreement
---------------------------
shall confer, intend to confer or imply any rights to an employment relationship
or rights to a continued employment relationship with the Company and/or any
Subsidiary in favor of Optionee or limit
11.
<PAGE>
the ability of the Company and/or any Subsidiary to terminate, with or without
cause, in its sole and absolute discretion, the employment relationship with
Optionee, subject to the terms of any written employment agreement to which
Optionee is a party.
17. Governing Law. This Agreement shall be construed under and
-------------
governed by the laws of the Commonwealth of Virginia without regard to the
conflict of law provisions thereof.
18. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
19. Amendments. This Agreement may be amended only by a written
----------
agreement executed by both of the parties hereto and by FSEP IV.
20. Recapitalizations or Exchanges Affecting the Company's Capital.
--------------------------------------------------------------
The provisions of this Agreement shall apply to any and all stock or other
securities of the Company or any successor or assign of the Company, which may
be issued in respect of, in exchange for or in substitution of, the Shares by
reason of any split, reverse split, recapitalization, reclassification,
combination, merger, consolidation or otherwise, and such Shares or other
securities shall be encompassed within the term "Shares" for purposes of this
Agreement.
21. Disclosure. Except in connection with Optionee's exercise of
----------
rights under Section 9(e), the Company shall have no duty or obligation to
------------
affirmatively disclose to Optionee, and Optionee shall have no right to be
advised of, any material information regarding the Company or any of its
Subsidiaries at any time prior to, upon or in connection with the Company's
repurchase of the Shares under this Agreement at the cessation or termination of
Optionee's employment with the Company and/or any of its Subsidiaries. The
Company shall have no obligation to provide confidential information to the
Optionee in connection with Section 9(e) unless the Purchaser shall execute a
------------
confidentiality agreement with respect to such information.
22. Successors and Assigns. The Company may assign with absolute
----------------------
discretion any or all of its rights and/or obligations and/or delegate any of
its duties under this Agreement to any of its affiliates, successors and/or
assigns and this Agreement shall inure to the benefit of, and be binding upon,
such respective affiliates, successors and/or assigns of the Company in the same
manner and to the same extent as if such affiliates, successors and/or assigns
were original parties hereto. Without limiting the foregoing, the Company may
assign the Repurchase Option and/or the right of first refusal provided for in
Section 9 and Section 7(b) of this Agreement, respectively, to any of its
- --------- ------------
affiliates, successors and/or assigns. FSEP IV may assign its rights under
Section 7(c) to any FS Permitted Transferee or to a purchaser of shares of
- ------------
Common Stock
12.
<PAGE>
then owned by FSEP IV. For purposes of this Agreement, the term "Shares" shall
include shares of capital stock or other securities of the Company or any
successor or assign of the Company, which are issued in respect of, in exchange
for or in substitution of the Shares by reason of any split, reverse split,
recapitalization, reclassification, combination, merger, exchange or
consolidation. Unless specifically provided herein to the contrary, Optionee may
not assign any or all of its rights and/or obligations and/or delegate any or
all its duties under this Agreement without the prior written consent of the
Company and FSEP IV. Upon an assignment of any or all of Optionee's rights
and/or obligations and/or a delegation of any or all of its duties under this
Agreement in accordance with the terms of this Agreement, this Agreement shall
inure to the benefit of, and be binding upon, Optionee's respective affiliates,
successors and/or assigns in the same manner and to the same extent as if such
affiliates, successors and/or assigns were original parties hereto.
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the date first above written.
THE COMPANY:
Advance Holding Corporation,
a Virginia corporation
-----------------------------
J. O'Neil Leftwich
Chief Financial Officer
OPTIONEE:
-----------------------------
[ ]
13.
<PAGE>
EXHIBIT 10.14
ADVANCE HOLDING CORPORATION
1998 EXECUTIVE STOCK OPTION PLAN
Section 1. Description of Plan. This is the 1998 Executive Stock
-------------------
Option Plan, dated April 15, 1998 (the "Plan") of Advance Holding Corporation, a
Virginia corporation (the "Company"). This Plan will provide a means whereby
designated employees, directors or consultants of the Company and/or of any
directly or indirectly majority or wholly-owned entities of the Company
(individually, a "Subsidiary" and collectively, the "Subsidiaries") may purchase
shares of the common stock, par value $0.01 per share of the Company (the
"Shares"). It is intended that the options under this Plan will either qualify
for treatment as incentive stock options under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and be designated "Incentive Stock
Options" or not qualify for such treatment and be designated "Nonqualified Stock
Options." Incentive Stock Options may only be granted to employees.
Section 2. Purpose of Plan. The purpose of the Plan and of
---------------
granting options (the "Options") to specified persons is to further the growth,
development and financial success of the Company and its Subsidiaries by
providing additional incentives to their employees, directors or consultants.
By assisting such persons in acquiring Shares, the Company can ensure that such
persons will themselves benefit directly from the Company's and its
Subsidiaries' growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to
-----------
receive grants of Options under the Plan shall be the designated employees,
directors or consultants of the Company and/or its Subsidiaries as determined
from time to time by the Board of Directors (the "Board") of the Company. A
person who holds an Option is herein referred to as a "Participant," and more
than one Option may be granted to any Participant.
The aggregate fair market value (determined as of the time an Option
is granted) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by any participant in any calendar year under
this Plan and any other incentive stock option plans (which qualify under
Section 422 of the Code) of the Company or any Subsidiary shall not exceed
$100,000.
Section 4. Administration.
--------------
(a) Except as otherwise provided herein, the Plan shall be
administered by the Board or, at the Board's option, by a compensation committee
thereof from time to time constituted, to whom administration of this Plan has
been duly delegated (the Board and such
<PAGE>
committee, are collectively referred to hereinafter as the "Committee"). Any
action of the Board or the Committee with respect to administration of the Plan
shall be taken by a majority vote or written consent of its members. Upon the
first registration of an equity security of the Company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), to the extent possible
and advisable, the Committee may be constituted so as to permit this Plan to
comply with Rule 16b-3 promulgated under Section 16 of the Exchange Act and
Section 162(m) of the Code.
(b) The Committee is authorized and empowered to administer the Plan
and, subject to the Plan, including but not limited to Section 19, (i) to
----------
determine the dates upon which Options shall be granted and the terms and
conditions thereof in a manner consistent with the Plan, which terms and
conditions need not be identical as to the various Options granted; (ii) to
interpret the Plan; (iii) to grant Options; (iv) to determine the Participants;
(v) to specify the terms of the Options; (vi) to determine the number of Shares
which may be purchased; (vii) to determine the fair market value of the Shares;
(viii) to accelerate the time during which an Option may be exercised in
accordance with the provisions of Section 14 hereof, and to otherwise accelerate
----------
the time during which an Option may be exercised, in each case notwithstanding
the provisions in the Option Agreement (as defined in Section 11 hereof) stating
----------
the time during which it may be exercised; (ix) to reissue the Plan and related
benefits hereunder as a direct plan of a Subsidiary or Subsidiaries, converting
the Options and Shares issued under this Plan to options and shares of such
Subsidiary or Subsidiaries, as the case may be; (x) to prescribe, amend and
rescind rules relating to the Plan; (xi) to authorize any person to execute on
behalf of the Company any instrument required to effectuate the grant of an
Option previously granted by the Committee; (xii) to determine the rights and
obligations of Participants under the Plan; and (xiii) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The interpretation and construction by the Committee of any provision of the
Plan or of any Option granted under it shall be final. No member of the
Committee shall be liable for any action or determination made with respect to
the Plan or any Option granted hereunder.
Section 5. Shares Subject to Plan. The aggregate number of Shares
----------------------
for which Options may be granted pursuant to the Plan shall be One Million Two
Hundred Forty Thousand (1,240,000). Such number shall be automatically adjusted
for any reorganization, recapitalization, reclassification, stock dividend,
stock split, reverse stock split or other similar transaction of the Company.
The number of Shares which may be purchased by a Participant upon exercise of
each Option shall be determined by the Committee and set forth in each Option
Agreement (as such term is defined in Section 11 hereof). Upon the expiration
----------
or termination, in whole or in part, for any reason of an outstanding Option or
any portion thereof which shall not have vested or shall not have been exercised
in full or in the event that any Shares acquired pursuant to the Plan are
reacquired by the Company, (a) any Shares which have not been purchased or (b)
the Shares reacquired, as the case may be, shall again become available for the
granting of additional Options under the Plan.
2
<PAGE>
Section 6. Restrictions on Grants; Vesting of Options.
------------------------------------------
Notwithstanding any other provisions set forth herein or in any Option
Agreement, no Options may be granted under the Plan subsequent to ten (10) years
from the date hereof. Each Option shall grant the Participant the right to
purchase a specified number of Shares at the price determined by the Committee,
as set forth in each respective Option Agreement (the "Exercise Price");
provided, however, that if the Participant is a 10% stockholder of the Company
(as defined in Section 422(b)(6) of the Code) at the time such Participant is
granted an Incentive Stock Option, the Exercise Price shall be not less than
110% of the fair market value of such shares on the date of grant of the Option.
Such fair market value shall be determined by the Committee (i) if the Company's
securities are traded on a national securities exchange or on the Nasdaq
National Market, on the basis of the reported closing sales price on such date
or, in the absence of a reported sales price on such date, on the basis of the
average of the reported closing bid and ask price on such date, or (ii) in the
absence of both a reported sales price and a reported bid and ask price under
clause (i), the Committee shall determine such fair market value on the basis of
such evidence as it deems appropriate in its sole discretion. The Options shall
vest based on longevity of service, targeted goals and/or other schedules
established by the Committee, as set forth in each Option Agreement, with
respect to the Company and/or its Subsidiaries. In the case of options which
vest based on the achievement of targeted goals, the Committee shall determine
the performance criteria, the performance measurement period(s) and the schedule
of exercisability applicable to each Option or group of Options in a schedule, a
copy of which shall be filed with the records of the Committee and attached to
each Option Agreement to which the same applies. The performance criteria, the
performance measurement period(s), and the schedule of exercisability need not
be identical for all Options granted hereunder. Following the conclusion of
each applicable performance measurement period, the Committee shall determine,
in its sole good faith judgment, the extent, if at all, that each Option subject
thereto shall have become exercisable based upon the applicable performance
criteria and the schedule of exercisability. To the extent each such Option
shall remain nonexercisable following the final performance measurement period
because the applicable performance criteria have not been met, it shall, to that
extent, automatically terminate and cease to be exercisable to such extent
notwithstanding the stated term during which it otherwise may have been
exercised. The Committee shall promptly notify each affected Participant of
such determination. The Committee may periodically review the performance
criteria applicable to any Option or Options and, in its sole good faith
judgment, may adjust the same to reflect mergers, acquisitions, asset sales,
catastrophes and significant increases in the level of capital expenditures or
inventory levels.
Section 7. Exercise of Options. Once vested, the Options may be
-------------------
exercised by the Participant by giving written notice to the Company specifying
the number of Shares to be purchased and accompanied by payment of the full
Exercise Price therefor in cash, by check or in such other form of lawful
consideration as the Committee may approve from time to time, including without
limitation and in the sole discretion of the Committee, the assignment in
transfer by the Participant to the Company of outstanding shares of common stock
theretofore held by the Participant in a manner intended to comply with the
provisions of Rule 16b-3 under the Exchange
3
<PAGE>
Act, if applicable. Once vested, the Options may only be exercised by the
Participant or in the event of death of the Participant, by the person or
persons (including the deceased Participant's estate) to whom the deceased
Participant's rights under such Option shall have passed by will or the laws of
descent and distribution. Notwithstanding the immediately preceding sentence, in
the event of disability (within the meaning of Section 22(e)(3) of the Code) of
a Participant, a designee of the Participant (or the legal representative of the
Participant if the Participant has no designee) may exercise the Option on
behalf of such Participant (provided such Option would have been exercisable by
such Participant) until the right to exercise such Option expires, as set forth
in such Participant's particular Option Agreement.
Section 8. Issuance of Shares. The Company's obligation to issue
------------------
Shares upon exercise of an Option is expressly conditioned upon (i) the
compliance by the Company with any registration or other qualification
obligations with respect to such Shares under any state and/or federal law or
rulings and regulations of any government regulatory body, and/or (ii) the
making of such investment representations or other representations and
undertakings by the Participant (or the Participant's designee legal
representative, heir or legatee, as the case may be) in order to comply with the
requirements of any exemption from any such registration or other qualification
obligations with respect to such Shares which the Company in its sole discretion
shall deem necessary or advisable. Such required representations and
undertakings may include representations and agreements that such Participant
(or the Participant's designee legal representative, heir or legatee): (a) is
purchasing such Shares for investment and not with any present intention of
selling or otherwise disposing of such Shares in violation of Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder; and (b) agrees to have a legend placed upon the face and
reverse of any certificates evidencing such Shares setting forth (i) any
representations and undertakings which such Participant has given to the Company
or a reference thereto, and (ii) that, prior to effecting any sale or other
disposition of any such Shares, the Participant must furnish to the Company an
opinion of counsel, form and substance satisfactory to the Company and its
counsel, to the effect that such sale or disposition will not violate the
applicable requirements of state and federal laws and regulatory agencies;
provided, however, that any such legend or data entry shall be removed when no
longer applicable. The inability of the Company to obtain, from any regulatory
body having jurisdiction, authority reasonably deemed by the Company's counsel
to be necessary for the lawful issuance and sale of any Shares hereunder shall
relieve the Company of any liability in respect of the nonissuance or sale of
such Shares as to which such requisite authority shall not have been obtained.
Any Shares issued by the Company upon exercise of an Option granted hereunder
shall be subject to (x) a right of first refusal of the Company with respect to
all Shares proposed to be transferred by Participant, (y) certain drag-along
rights, as described in Section 11 hereof, and (z) certain other restrictions
----------
set forth in each particular Option Agreement.
Section 9. Nontransferability. An Option may not be sold,
------------------
pledged, assigned, hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent or distribution. Any permitted
transferee shall be required prior to any transfer of an
4
<PAGE>
Option or Shares acquired pursuant to the exercise of an Option to execute a
written undertaking to be bound by the provisions of the applicable Option
Agreement.
Section 10. Adjustments Upon Recapitalization or Reorganization.
---------------------------------------------------
Subject to Section 13(b) hereof, if the outstanding shares of the Common Stock
-------------
of the Company are changed into, or exchanged for, a different number or kind of
shares or securities of the Company through any capital reorganization or
reclassification, or if the number of outstanding shares is changed through a
stock split or stock dividend, an appropriate adjustment shall be made by the
Committee in the number, kind or exercise price of shares as to which Options
may be granted under the Plan. A corresponding adjustment shall likewise be
made in the number, kind or exercise price of shares with respect to which
unexercised Options have theretofore been granted. Any such adjustment in an
outstanding Option, however, shall be made without change in the total price
applicable to the unexercised portion of the Option but with a corresponding
adjustment in the price for each share covered by the Option. In making such
adjustments, or in determining that no such adjustments are necessary, the
Committee may rely upon the advice of counsel and accountants to the Company,
and the good faith determination of the Committee shall be final, conclusive and
binding. No fractional shares of stock shall be issued or issuable under the
Plan on account of any such adjustment.
Section 11. Option Agreement. Each Option granted under the Plan
----------------
shall be evidenced by a written option agreement (an "Option Agreement")
executed by the Company and the Participant which (a) shall contain each of the
provisions and agreements herein specifically required to be contained therein;
(b) shall contain provisions which give the Company a right of first refusal to
purchase any Shares issued pursuant to the exercise of Options granted under the
Plan which a Participant proposes to sell; (c) shall contain certain "drag-
along" rights; and (d) may contain such other terms and conditions as the
Committee deems desirable and which are not inconsistent with the Plan.
Section 12. Privileges of Stock Ownership. Persons entitled to
-----------------------------
exercise any Options granted under this Plan shall have all of the rights or
privileges of a shareholder of the Company in respect of any shares of common
stock issuable upon exercise of such Option from and after the date of exercise
of an Option. No shares shall be issued and delivered upon exercise of any
Option unless and until, in the opinion of counsel for the Company, there shall
have been full compliance with any applicable registration requirements of the
Securities Act, any applicable listing requirements of any national securities
exchange or automated quotation system on which the common stock of the Company
is then listed or quoted, and any other requirements of law or of any regulatory
bodies having jurisdiction over such issuance and delivery. The Company agrees
to take all actions reasonably necessary to comply with all such requirements.
The Company agrees that shares of common stock issued upon the
exercise of Options shall, at the time of delivery, be validly issued and
outstanding, fully paid and nonassessable. The Company covenants and agrees
that it will pay, when due and payable, any
5
<PAGE>
and all federal and state stamp, original issue, or similar taxes which may be
payable in respect of the issue of the Option or of Shares upon the exercise
thereof.
Section 13. Termination of Options.
----------------------
(a) Each Option granted under the Plan shall set forth a termination
date thereof, which shall be not later than seven (7) years from the date such
Option is granted subject to earlier termination as set forth in Section 6,
---------
Section 13(b), or Section 14 hereof, or as otherwise set forth in each
- ------------- ----------
particular Option Agreement; provided, however, with respect to Incentive Stock
Options, such termination shall be not later than five (5) years from the date
such Option is granted if the Participant is a 10% stockholder of the Company
(as defined in Section 422(b)(6) of the Code) at the time such Option is
granted. An Incentive Stock Option shall contain any termination events
required by Section 422 of the Code. The termination of employment, or service
as a director or consultant, of a Participant for any reason shall not
accelerate or otherwise affect the number of Shares which may be purchased upon
exercise of an Option; provided, however, that the Option may only be exercised
with respect to that number of Shares which could have been purchased under the
Option had the Option been exercised by the Participant on the date of such
termination.
(b) Subject to Section 14 hereof (i) upon the dissolution, liquidation
----------
or sale of all or substantially all of the business, properties and assets of
the Company, (ii) upon any reorganization, merger, consolidation, sale or
exchange of securities in which the Company does not survive, or (iii) upon any
sale, reorganization, merger, consolidation or exchange of securities in which
the Company does survive and any of the Company's stockholders have the
opportunity to receive cash, securities of another corporation, partnership or
limited liability company and/or other property in exchange for their capital
stock of the Company, or (iv) upon any acquisition by any person or group (as
defined in Section 13d of the Securities Act of 1934) of beneficial ownership of
more than fifty percent (50%) of the Company's then outstanding shares of common
stock (each of the events described in clauses (i), (ii), (iii) or (iv) is
referred to herein individually as an "Extraordinary Event" and collectively as
the "Extraordinary Events"), the Plan and each outstanding Option shall
terminate, unless the Surviving Entity (defined below) elects to have such
Option survive the Extraordinary Event pursuant to the next paragraph. In such
event each Participant shall have the right, by giving notice ten (10) days
before the effective date of such Extraordinary Event (the "Effective Date"), to
exercise on or before the Effective Date, in whole or in part, any unexpired
Option issued to the Participant, to the extent that said Option is vested as of
the Effective Date and exercisable as of the Effective Date, and otherwise is
vested and exercisable pursuant to the provisions of said Option and of Section
-------
6 of the Plan.
- -
In its sole and absolute discretion, the surviving entity (which may
be the Company) or the entity that has acquired all or substantially all of the
Company's assets (the "Surviving Entity") may, but shall not be so obligated, to
permit an Option to survive an Extraordinary Event or tender to any Participant
an option or options to purchase shares or equity
6
<PAGE>
interests in such Surviving Entity, and such continuing or new option or options
shall contain such terms and provisions as shall be required to substantially
preserve the rights and benefits of any Option then outstanding under the Plan
with any reasonable changes to take into account the circumstances of the
Surviving Entity.
Section 14. Acceleration of Options. Notwithstanding the
-----------------------
provisions of Section 6 or Section 13 hereof, or any provision to the contrary
--------- ----------
contained in a particular Option Agreement, the Committee, in its sole
discretion, may accelerate the vesting of all or any portion of any Option then
outstanding. The decision by the Committee to accelerate an Option or to
decline to accelerate an Option shall be final. In the event of the
acceleration of the exercisability of Options as the result of a decision by the
Committee pursuant to this Section 14, each outstanding Option so accelerated
----------
shall be exercisable for a period from and after the date of such acceleration
and upon such other terms and conditions as the Committee may determine in its
sole discretion, provided that such terms and conditions (other than terms and
conditions relating solely to the acceleration of exercisability and the related
termination of an Option) may not adversely affect the rights of any Participant
without the consent of the Participant so adversely affected. Any outstanding
Option which has not been exercised by the holder at the end of such period
shall terminate automatically at that time.
Section 15. Substitute Options. If the Company at any time should
------------------
succeed to the business of another entity through a merger, consolidation,
corporate reorganization or exchange, or through the acquisition of stock or
assets of such entity or its subsidiaries or otherwise, Options may be granted
under the Plan to option holders of such entity or its subsidiaries, in
substitution for options to purchase Shares in such entity held by them at the
time of succession. The Committee, in its sole and absolute discretion, shall
determine the extent to which such substitute Options shall be granted (if at
all), the person or persons to receive such substitute Options (who need not be
all option holders of such entity), the number of Options to be received by each
such person, the exercise price of such Option and the other terms and
conditions of such substitute Options.
Section 16. Withholding of Taxes. The Company, or a Subsidiary, as
--------------------
the case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company (or such Subsidiary) to the Participant the requisite
tax upon the amount of taxable income, if any, recognized by the Participant in
connection with the exercise in whole or in part of any Option, or the sale of
the Shares issued to the Participant upon the exercise of an Option, as may be
required from time to time under any federal or state tax laws and regulations.
This withholding of tax shall be made from the Company's (or such Subsidiary's)
concurrent or next payment of wages, salary, bonus or other income to the
Participant or by payment to the Company (or such Subsidiary) by the Participant
of the required withholding tax, as the Committee may determine; provided,
however, that, in the sole discretion of the Committee, the Participant may pay
such tax by reducing the number of Shares issued upon exercise of an Option
(for which purpose such Shares shall be valued at fair market value as
determined in good faith by the
7
<PAGE>
Committee based on the fair market value of such Shares determined by the Board,
which determination shall be final). Notwithstanding the foregoing, the Company
shall not be obligated to issue certificates representing the shares of common
stock of the Company to be acquired through the exercise of such Option if such
Participant fails to provide the Company with adequate assurance that such
Participant will pay such amounts to the Company as herein above required.
Participants shall notify the Company in writing of any amounts included as
income in the Participants' federal income tax returns in connection with an
Option.
Section 17. Effectiveness and Termination of the Plan. The Plan
-----------------------------------------
shall be effective as of the date on which this Plan is approved by the Board.
The Plan shall terminate at the earliest of the time when all Shares which may
be issued hereunder have been so issued. However, the Board may, in its sole
discretion, terminate the Plan at any prior time. Subject to Section 13 hereof,
----------
no such termination shall in any way affect any Option then outstanding.
Section 18. Time of Granting Options. The date of grant of an
------------------------
Option shall, for all purposes, be the date on which the Board makes the
determination granting such an Option. Notice of the determination shall be
given to each Participant to whom an Option is so granted within a reasonable
time after the date of such grant.
Section 19. Amendment of Plan. Subject to Section 14, the
----------------- ----------
Committee may make such amendments to the Plan as it shall deem advisable.
Subject to Section 14, no amendment shall in any way adversely affect any Option
----------
then outstanding, without the consent of the Participant so adversely affected.
Section 20. Transfers and Leaves of Absence. For purposes of the
-------------------------------
Plan, (a) a transfer of a Participant's employment, without an intervening
period, between the Company and a Subsidiary (or vice versa) or between
Subsidiaries shall not be deemed a termination of employment and (b) a
Participant who is granted in writing a leave of absence shall be deemed to have
remained in the employ of the Company (or a Subsidiary, whichever is applicable)
during such leave of absence.
Section 21. No Obligation to Exercise Option. The granting of an
--------------------------------
Option shall impose no obligation on the Participant to exercise such Option.
Section 22. Indemnification. In addition to such other rights of
---------------
indemnification as they may have as members of the Board of Directors, the
members of the Committee shall be indemnified by the Company to the fullest
extent permitted by law against the reasonable expenses, including attorney's
fees, actually and necessarily incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any Option granted thereunder, and
against all amounts paid by them in satisfaction of a judgment in any such
action, suit or proceeding except in relation to matters
8
<PAGE>
as to which it shall be adjudged in such action, suit or proceeding that such
Committee member is not entitled to indemnification under applicable law;
provided, however, that within sixty (60) days after institution of any such
action, suit or proceeding such Committee member shall in writing offer the
Company the opportunity, at the Company's expense to handle and defend the same,
and such Committee member shall cooperate with and assist the Company in the
defense of any such action, suit or proceeding. The Company shall not be
obligated to indemnify any Committee member with regard to any settlement of any
action, suit or proceeding of which the Company did not consent to in writing
prior to such settlement.
Section 23. Governing Law. The Plan and any Option granted
-------------
pursuant to the Plan shall be construed under and governed by the laws of the
Commonwealth of Virginia without regard to conflict of law provisions thereof.
Section 24. Not an Employment or Consulting Agreement. Nothing
-----------------------------------------
contained in the Plan or in any Option Agreement shall confer, intend to confer
or imply any rights of employment or rights to continued employment by the
Company or any Subsidiary in favor of any Participant or limit the ability of
the Company or any Subsidiary to terminate, with or without cause, in its sole
and absolute discretion, the employment of any Participant, subject to the terms
of any written employment to which a Participant is a party. In addition,
nothing contained in the Plan or in any Option Agreement shall preclude any
lawful action by the Company or the Board.
9
<PAGE>
EXHIBIT 10.15
ADVANCE HOLDING CORPORATION
1998 STOCK OPTION AGREEMENT
THIS 1998 STOCK OPTION AGREEMENT (this "Agreement") is entered into as
of ________, 1998 by and between Advance Holding Corporation, a Virginia
corporation (the "Company"), and __________________ ("Optionee"), pursuant to
the Advance Holding Corporation 1998 Executive Stock Option Plan (the "Plan").
All capitalized terms not otherwise defined herein shall have the meanings set
forth in the Plan.
R E C I T A L S:
- - - - - - - -
A. Optionee is an employee of the Company and/or of a direct or
indirect subsidiary of the Company (individually, a "Subsidiary" and
collectively, the "Subsidiaries") and the Company considers it desirable to give
Optionee an added incentive to advance the Company's and the Subsidiaries'
interests.
B. The Committee has determined to grant Optionee the right to
purchase shares of common stock of the Company pursuant to the terms and
conditions of this Agreement and the Plan.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the covenants hereinafter set
forth, the parties agree as follows:
1. Options; Number of Shares. The Company hereby grants to Optionee
-------------------------
the right to purchase (the "Options") up to _________________________________
(_____) shares (the "Shares") of $0.01 par value common stock of the Company at
the following prices per share (the "Purchase Price");
(a) Options to purchase _______________________ (_____) Shares at
a price equal to ten dollars ($10.00) per Share (the "Fixed Price Service
Options");
(b) Options to purchase _________________________ (_____) Shares
at a price equal to the amount set forth opposite the date of exercise of the
Option on Schedule A attached hereto (the "Variable Price Service Options");
----------
and
1
<PAGE>
(c) Options to purchase _________________________ (_____) Shares
at a price equal to ten dollars ($10.00) per Share (the "Performance Options").
The Fixed Price Service Options, Variable Price Service Options and the
Performance Options are sometimes hereinafter collectively referred to as the
"Options" and individually as an "Option." The Options and the right to purchase
all or any portion of the Shares are subject to the terms and conditions stated
in this Agreement and in the Plan, including, without limitation, the provisions
of Section 4, Section 6, Section 10, Section 13(b), Section 14 and Section 19 of
the Plan and Section 3 and Section 4 hereof. Upon exercise of an Option and
--------- ---------
payment of the Purchase Price, Optionee shall become a shareholder of the
Company, with all rights and privileges of a shareholder of the Company in
respect of any shares of common stock of the Company issuable upon such
exercise. It is intended that the Options will not qualify for treatment as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
2. Exercise Criteria. The Variable Price Service Options shall
-----------------
become exercisable as set forth on Schedule A. The Fixed Price Service Options
----------
shall become exercisable, in whole or in part, over time as set forth on
Schedule B attached hereto. The Performance Options shall become exercisable,
- ----------
in whole or in part, as set forth on Schedule C attached hereto.
----------
3. Term of Agreement. Except for the rights conferred upon the
-----------------
Company pursuant to Section 7 below, the Options, and Optionee's right to
---------
exercise the Options, shall terminate when the first of the following occurs:
(a) termination of the Options pursuant to Section 6, Section 13
or Section 14 of the Plan or Section 2 hereof;
(b) the expiration of seven (7) years from the date hereof;
(c) ninety (90) days after the date of termination of Optionee's
employment or other relationship with the Company and all of the Subsidiaries,
unless such termination results from Optionee's death or disability (within the
meaning of Section 22(e)(3) of the Code, or Optionee dies within ninety (90)
days after the date of termination of Optionee's employment or other
relationship with the Company and all of the Subsidiaries, in which case this
Agreement and the Option shall terminate one hundred twenty (120) days after the
date of termination of Optionee's employment or other relationship with the
Company and all of the Subsidiaries; or
(d) on the date of termination of Optionee's employment or other
relationship with the Company and all of the Subsidiaries if such termination
was for cause (as determined in good faith by the Board of Directors of the
Company (the "Board")).
2
<PAGE>
4. Termination of Employment or Other Relationship. The termination
-----------------------------------------------
for any reason of Optionee's employment or other relationship with the Company
and all of the Subsidiaries shall not accelerate the vesting of the Options.
The Options may only be exercised with respect to that number of Shares which
could have been made under the Options had such Options been exercised by
Optionee on the date of such termination.
5. Death of Optionee; No Assignment. The rights of Optionee under
--------------------------------
this Agreement may not be assigned or transferred except by will, by the laws of
descent or distribution and may be exercised during the lifetime of Optionee
only by such Optionee; provided, however, that in the event of disability
(within the meaning of Section 22(e)(3) of the Code) of Optionee, a designee of
Optionee (or the Optionee's legal representative if Optionee has not designated
anyone) may exercise the Options on behalf of Optionee (provided the Options
would have been exercisable by Optionee) until the right to exercise the Options
expires pursuant to Section 3 hereof. Any attempt to sell, pledge, assign,
---------
hypothecate, transfer or otherwise dispose of the Options in contravention of
this Agreement or the Plan shall be void. If Optionee should die while Optionee
is engaged in an employment relationship with the Company and/or any Subsidiary
or within ninety (90) days after termination of such relationship, and provided
Optionee's rights hereunder shall have vested, in whole or in part, pursuant to
Section 2 hereof, Optionee's designee, legal representative, or legatee, the
- ---------
successor trustee of Optionee's inter vivos trust or the person who acquired the
right to exercise the Options by reason of the death of Optionee (individually,
a "Successor") shall succeed to Optionee's rights under this Agreement. After
the death of Optionee, only a Successor may exercise the Options.
6. Exercise of Options. No option granted under this Agreement
-------------------
shall be exercisable until it has vested. On or after the vesting of the
Options in accordance with Section 2 hereof and until termination of the Options
---------
in accordance with Section 3 hereof, the Options may be exercised by Optionee
---------
(or such other person specified in Section 5 hereof) to the extent exercisable
---------
as determined under Section 2 hereof, upon delivery of the following to the
---------
Company at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement,
the type of Option to be exercised, and states the number of Shares to be
purchased (which shall be no less than 100 Shares);
(b) a check, cash or any combination thereof in the amount of the
aggregate Purchase Price (or payment of the aggregate Purchase Price in such
other form of lawful consideration as the Committee may approve from time to
time under the provisions of Section 7 of the Plan);
(c) a check or cash in the amount reasonably requested by the
Company to satisfy the Company's withholding obligations under federal, state or
other applicable tax laws
3
<PAGE>
with respect to the taxable income, if any, recognized by Optionee in connection
with the exercise, in whole or in part, of the Options (unless the Company and
Optionee shall have made other arrangements for deductions or withholding from
Optionee's wages, bonus or other income paid to Optionee by the Company or any
Subsidiary, provided, however, such arrangements must satisfy the requirements
of all applicable tax laws);
(d) a written representation and undertaking, in such form and
substance as the Company may require, that the Shares underlying the Option are
being acquired by Optionee for Optionee's personal account, for investment
purposes only, and not with a view to the distribution, resale or other
disposition thereof;
(e) a written representation and undertaking, in such form and
substance as the Company may require, setting forth the investment intent of
Optionee, or a Successor, as the case may be, and such other agreements,
representations and undertakings as described in the Plan, including an
acknowledgment that Optionee has reviewed the memorandum regarding Section 83(b)
of the Internal Revenue Code of 1986, as amended, attached hereto as Exhibit A;
and
(f) such further acts as may be necessary to register Optionee as
a shareholder of the Company.
7. Restriction on Transfer of Shares; Right of First Refusal; Drag
---------------------------------------------------------------
Along Rights.
- ------------
(a) Restriction on Transfer of the Shares.
-------------------------------------
(i) Except as otherwise provided herein, Optionee may not
sell, transfer, assign, pledge, hypothecate or otherwise dispose of
(collectively, "Transfer") any of the Shares, or any right, title or interest
therein prior to the fifth anniversary of the Closing Date and, thereafter, any
Transfer must be in compliance with Section 7 and Section 9 hereof. Any
--------- ---------
purported Transfer or Transfers (including involuntary Transfers initiated by
operation of legal process) of any of the Shares or any right, title or interest
therein, except in strict compliance with the terms and conditions of this
Agreement, shall be null and void.
(ii) Permitted Transfers. Optionee may, at any time or
-------------------
times, transfer any or all of the Shares: (a) inter vivos to Optionee's spouse
or issue, a trust for their benefit, or pursuant to any will or testamentary
trust; or (b) upon Optionee's death, to any person in accordance with the laws
of descent and/or testamentary distribution (such persons described in clauses
(a) and (b) hereof are collectively referred to herein as "Permitted
Transferees"). Notwithstanding the foregoing, Shares shall not be Transferred
until the Permitted Transferee executes a valid undertaking, in form and
substance reasonably satisfactory to the Company, to
4
<PAGE>
the effect that the Permitted Transferee and the Shares so Transferred shall
thereafter remain subject to all of the provisions of this Agreement (including
the Repurchase Option), as though the Permitted Transferee were a party to this
Agreement, bound in every respect in the same way as Optionee. Transfers made in
accordance with this clause (ii) shall not be subject to the provisions of
-----------
Section 7(b) of this Agreement.
- ------------
(b) Right of First Refusal.
----------------------
(i) Sales; Notice. At any time on or after the fifth
-------------
anniversary of this Agreement, Optionee may transfer for cash (and only for such
form of consideration) any or all of the Shares to any third party ("Transfer")
subject to the provisions of this Section 7 and Section 10(b). Prior to any such
intended Transfer, Optionee shall first give at least thirty (30) days' advance
written notice (the "Notice") to the Company specifying (i) Optionee's bona fide
intention to sell such Shares; (ii) the name(s) and address(es) of the proposed
transferee(s); (iii) the number of Shares Optionee proposes to Transfer
(individually, an "Offered Share," and collectively, the "Offered Shares"); (iv)
the price for which Optionee proposes to Transfer each Offered Share (the
"Proposed Purchase Price"); (v) such evidence as the Company may reasonably
request to demonstrate the ability of the proposed transferee(s) to pay the
Proposed Purchase Price; and (vi) all other material terms and conditions of the
proposed transfer.
(ii) Election by the Company. Within twenty (20) days after
-----------------------
receipt of the Notice, the Company may elect to purchase any or all of the
Offered Shares at the price and on the terms and conditions set forth in the
Notice by delivery of written notice of such election to Optionee, specifying a
day, which shall not be more than twenty (20) days after such notice is
delivered, on or before which Optionee shall surrender (if Optionee has not
already done so) the certificate or certificates representing the Offered Shares
(duly endorsed in blank for transfer) at the administrative office of the
Company. Within twenty (20) days after delivery of such notice to Optionee, the
Company shall deliver to Optionee a check, payable to Optionee or to such person
as Optionee shall request, in the amount equal to the product of the Proposed
Purchase Price multiplied by the number of Offered Shares (the "First Refusal
Price") in exchange for the Offered Shares. If Optionee fails to so surrender
such certificate or certificates on or before such date, from and after such
date the Offered Shares shall be deemed to be no longer outstanding, and
Optionee shall cease to be a Shareholder with respect to such Shares and shall
have no rights with respect thereto except only the right to receive payment of
the First Refusal Price, without interest, upon surrender of the certificate or
certificates therefor (duly endorsed in blank for Transfer). Notwithstanding
the foregoing, if any Outstanding Amount (as defined in that certain Stock
Subscription Agreement between the Company and the Optionee dated April 15,
1998) is owed to the Company by Optionee, the First Refusal Price shall be
reduced (to an amount not less than zero) by such Outstanding Amount, which
reduction shall be specified in reasonable detail in the Company's written
notice of election to purchase the Offered Shares. If the Company does not
elect to purchase all of the Offered Shares, Optionee shall be entitled to
Transfer the
5
<PAGE>
Offered Shares to the transferee(s) named in the Notice at the Proposed Purchase
Price, or at a higher price, and on the terms and conditions set forth in the
Notice; provided, however, that such Transfer must be consummated within ninety
(90) days after the date of the Notice and any proposed Transfer after such
ninety (90) day period may be made only by again complying with the procedures
set forth in this Section 7(b). This right of first refusal shall terminate
------------
upon an underwritten public offering of Common Stock by the Company registered
under the Act (as defined below) (other than an offering registered on Form S-4
or Form S-8 or any substitute for such forms) resulting in gross proceeds to the
Company in excess of $25 million (an "Initial Public Offering").
(c) Obligation to Sell Shares. If FS Equity Partners IV, L.P., a
-------------------------
Delaware limited partnership ("FSEP IV"), finds a third-party buyer for all the
shares of common stock of the Company held by it (whether such sale is by way of
purchase, exchange, merger or other form of transaction), upon the request of
FSEP IV, Optionee shall sell all of Optionee's Shares for the same per share
consideration (which may be less than the exercise price for any Share) and
otherwise on the same terms and conditions as apply to FSEP IV sale. In
addition, FSEP IV may require Optionee to Transfer this Option to such buyer for
the same per share consideration (less the then aggregate Purchase Price of this
Option) and otherwise pursuant to the terms and conditions applicable to FSEP IV
for the sale of its shares of common stock. In the event the per share
consideration for the common stock is less than the Purchase Price applicable at
the time a binding agreement with respect to such transaction is entered into,
this Option shall be canceled without payment to Optionee. Optionee hereby
consents to any sale, transfer, reorganization, exchange, merger, combination or
other form of transaction covered under this Section 7(c) and agrees to execute
such agreements, powers of attorney, voting proxies or other documents and
instruments as may be necessary or desirable to consummate such sale, transfer,
reorganization, exchange, merger, combination or other form of transaction.
Optionee further agrees to timely take such other actions as FSEP IV may
reasonably request in connection with the approval of the consummation of such
sale, transfer, reorganization, exchange, merger, combination or other form of
transaction, including voting as a stockholder to approve any such sale,
transfer, reorganization, exchange, merger, combination or other form of
transaction and waiving any appraisal rights Optionee may have in connection
therewith. The obligations of Optionee pursuant to this Section shall be
binding on any transferee of this Option (other than a transferee in a Public
Market Sale, as defined below), and Optionee (and any of his transferees) shall
obtain and deliver to the Company and FSEP IV prior to any Transfers (other than
Transfers constituting a Public Market Sale) a written commitment, in form and
substance satisfactory to the Company and FSEP IV, from a subsequent transferee
to be bound by such provisions. The term "Public Market Sale" means a sale of
Common Stock after the Initial Public Offering which is made pursuant to Rule
144 promulgated under the Act or which is made pursuant to a registration
statement filed with the declared effective by the Securities and Exchange
Commission. Any Transfer effected in violation of this provision shall be void.
Optionee's
6
<PAGE>
obligations pursuant to this Section, and the obligations of any such
transferee, shall survive the expiration or non-vesting of any portion of the
Options.
8. Tag Along Rights. If FSEP IV finds a third-party buyer (other
----------------
than a buyer that is an investment fund or partnership affiliated with FSEP IV,
a general or limited partner of FSEP IV, or, for the period ending one year from
the date hereof, an unaffiliated institutional investor or merchant banking firm
(each, a "FS Permitted Transferee") or is a transferee in a Public Market Sale),
for all or part of the shares of Common Stock held by FSEP IV (whether such sale
is by way of purchase, exchange, merger or other form of transaction), the
Purchaser shall have the right to sell, on the terms set forth in a written
notice (the "Offering Notice") delivered by FSEP IV to the Optionee describing
the terms of the proposed sale (including the minimum sale price for the shares
of Common stock that FSEP IV plans to sell), that amount of the Shares he then
owns which constitute the same percentage of his Shares as the percentage of
Common Stock sold by FSEP IV. Each such right shall be exercisable by
delivering written notice to FSEP IV within 15 days after receipt of the
Offering Notice. Failure to exercise such right within such 15-day period shall
be regarded as a waiver of such rights. The obligations of FSEP IV under this
Section 8 shall terminate upon an Initial Public Offering.
9. Repurchase Option Upon Termination.
----------------------------------
(a) In the event that Optionee's employment or other relationship
with the Company and all of its Subsidiaries terminates for any reason
(including, without limitation, by reason of Optionee's death, disability,
retirement, voluntary resignation or dismissal by the Company or any of its
Subsidiaries, with or without cause), the Company shall have the option (the
"Repurchase Option") to purchase from Optionee all or any portion of the Shares
acquired by Optionee pursuant to this Option Agreement for a period of six (6)
months after the effective date of such termination (the effective date of
termination is hereinafter referred to as the "Termination Date"); provided,
however, that such six-month period shall be extended to a date 10 days after
the six-month anniversary of the date on which Optionee purchased any Shares
pursuant to this Option Agreement after the Termination Date.
(b) The purchase price (the "Repurchase Price") for each Share to
be purchased pursuant to the Repurchase Option shall equal (a) the greater of
the applicable exercise price of such Share and Book Value (as defined herein)
if the Termination Date occurs within the two (2) year period commencing on the
date hereof and (b) the greater of the applicable exercise price of such Share
and Fair Market Value (as defined herein) thereof (subject to adjustment as set
forth herein) thereafter after the initial two (2) year period described
previously in subsection (a) hereof. The "Book Value" of a Share shall equal
$10.00 per Share (subject to adjustment as set forth in Section 9(c) below) plus
the net income or minus the net loss per share to the end of the fiscal quarter
immediately preceding the Termination Date, as determined by the Board, acting
in good faith and based upon the books and records of the Company prepared in
accordance with
7
<PAGE>
generally accepted accounting principles consistently applied. The "Fair Market
Value" of a Share shall be the fair market value of a Share as of the
Termination Date, as determined by the Board, acting in good faith and based
upon the best available evidence, which determination shall be final and
binding.
(c) The Repurchase Price for any Shares to be purchased pursuant
to the Repurchase Option shall be increased or decreased appropriately to
reflect any distribution of stock or other securities of the Company or any
successor or assign of the Company which is made in respect of, in exchange for
or in substitution of the Shares by reason of any split, reverse split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise.
(d) The Repurchase Option shall be exercised by the Company by
delivery to Optionee, within the six-month period specified above, of (a) a
written notice specifying the number of Shares to be purchased and (b) a day,
which shall not be more than 30 days after the date such notice is delivered, on
or before which Optionee shall surrender the certificate or certificates
representing the Shares to be purchased pursuant to the Repurchase Option (duly
endorsed in blank for Transfer) at the principal office of the Company in
exchange for a check, payable to Optionee, in the amount equal to the Repurchase
Price, calculated as provided in this Section 9, multiplied by the number of the
Shares to be purchased. If Optionee fails to so surrender such certificate or
certificates on or before such date, from and after such date the Shares which
the Company elected to repurchase shall be deemed to be no longer outstanding,
and Optionee shall cease to be a stockholder with respect to such Shares and
shall have no rights with respect thereto except only the right to receive
payment of the Repurchase Price, without interest, upon surrender of the
certificate or certificates therefor (duly endorsed in blank for Transfer).
(e) This Repurchase Option shall terminate upon an Initial Public
Offering.
10. Representations and Warranties of Optionee.
------------------------------------------
(a) Optionee represents and warrants that the Options are being
acquired by Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof.
(b) Optionee acknowledges that the Company may issue Shares upon
the exercise of the Options without registering such securities under the
Securities Act of 1933, as amended (the "Act"), on the basis of certain
exemptions from such registration requirements. Accordingly, Optionee agrees
that Optionee's exercise of the Options may be expressly conditioned upon
Optionee's delivery to the Company of such representations and undertakings
8
<PAGE>
as the Company may reasonably require in order to secure the availability of
such exemptions, including a representation that Optionee is acquiring the
Shares for investment and not with a present intention of selling or otherwise
disposing of such Shares. Optionee acknowledges that, because Shares received
upon exercise of an Option may be unregistered, Optionee may be required to hold
the Shares indefinitely unless they are subsequently registered for resale under
the Act or an exemption from such registration requirements is available.
(c) Optionee acknowledges receipt of this Agreement granting the
Options, and the Plan, and understands that all rights and liabilities connected
with the Options are set forth herein and in the Plan.
11. No Rights as a Stockholder. Optionee shall have no rights as a
--------------------------
stockholder of any shares of common stock of the Company covered by the Options
until the Exercise Date and entry evidencing such ownership is made in the stock
transfer books of the Company. Except as my be provided under Section 10 of the
Plan, the Company will make no adjustment for dividends (ordinary or
extraordinary whether in cash, securities or other property) or distributions or
other rights for which the record date is prior to the Exercise Date.
12. Limitation of Company's Liability for Nonissuance. Inability of
-------------------------------------------------
the Company to obtain, from any regulatory body having jurisdiction, authority
reasonably deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any Shares hereunder and under the Plan shall relieve the
Company of any liability in respect of the nonissuance or sale of such Shares as
to which such requisite authority shall not have been obtained.
13. This Agreement Subject to Plan. This Agreement is made under the
------------------------------
provisions of the Plan and shall be interpreted in a manner consistent with it.
To the extent that any provision in this Agreement is inconsistent with the
Plan, the provisions of the Plan shall control. The interpretation of the
Committee of any provision of the Plan, the Options or this Agreement, and any
determination with respect thereto or hereto by the Committee, shall be binding
on all parties.
14. Restrictive Legends. Optionee hereby acknowledges that federal
-------------------
securities laws and the securities laws of the state in which Optionee resides
or works may require the placement of certain restrictive legends upon the
Shares issued upon exercise of the Options, and Optionee hereby consents to the
placing of any such legends upon certificates evidencing the Shares as the
Company, or its counsel, may reasonably deem necessary; provided, however, that
any such legend or legends shall be removed when no longer applicable. Any and
all certificates now or hereafter issued evidencing the Shares shall have
endorsed upon them a legend substantially as follows:
9
<PAGE>
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE
WITH THE TERMS AND CONDITIONS OF THAT CERTAIN OPTION AGREEMENT DATED
AS OF ________, 1998, BY AND BETWEEN ADVANCE HOLDING CORPORATION, A
VIRGINIA CORPORATION, AND THE ORIGINAL PURCHASER HEREOF, A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF
ADVANCE HOLDING CORPORATION."
15. Notices. Except as otherwise provided herein, all notices,
-------
requests, demands and other communications under this Agreement shall be in
writing, and if by telegram or telecopy, shall be deemed to have been validly
served, given or delivered when sent, or if by personal delivery or messenger or
courier service, shall be deemed to have been validly served, given or delivered
upon actual delivery (but in no event may notice be given by deposit in the
United States mail), at the following addresses, telephone and facsimile numbers
(or such other address(es), telephone and facsimile numbers a party may
designate for itself by like notice):
If to the Company:
Advance Holding Corporation
c/o Freeman Spogli & Co. Incorporated
599 Lexington Avenue, Suite 1800
New York, New York 10022
Attention: John M. Roth
Telephone: (212) 758-2555
Telecopy: (212) 758-7499
If to Optionee:
________________
________________
________________
10
<PAGE>
16. Not an Employment Agreement. Nothing contained in this Agreement
---------------------------
shall confer, intend to confer or imply any rights to an employment relationship
or rights to a continued employment relationship with the Company and/or any
Subsidiary in favor of Optionee or limit the ability of the Company and/or any
Subsidiary to terminate, with or without cause, in its sole and absolute
discretion, the employment relationship with Optionee, subject to the terms of
any written employment agreement to which Optionee is a party.
17. Governing Law. This Agreement shall be construed under and
-------------
governed by the laws of the Commonwealth of Virginia without regard to the
conflict of law provisions thereof.
18. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original and both of which together shall be
deemed one Agreement.
19. Amendments. This Agreement may be amended only by a written
----------
agreement executed by both of the parties hereto and by FSEP IV.
20. Recapitalizations or Exchanges Affecting the Company's Capital.
--------------------------------------------------------------
The provisions of this Agreement shall apply to any and all stock or other
securities of the Company or any successor or assign of the Company, which may
be issued in respect of, in exchange for or in substitution of, the Shares by
reason of any split, reverse split, recapitalization, reclassification,
combination, merger, consolidation or otherwise, and such Shares or other
securities shall be encompassed within the term "Shares" for purposes of this
Agreement.
21. Disclosure. The Company shall have no duty or obligation to
----------
affirmatively disclose to Optionee, and Optionee shall have no right to be
advised of, any material information regarding the Company or any of its
Subsidiaries at any time prior to, upon or in connection with the Company's
repurchase of the Shares under this Agreement at the cessation or termination of
Optionee's employment with the Company and/or any of its Subsidiaries.
22. Successors and Assigns. The Company may assign with absolute
----------------------
discretion any or all of its rights and/or obligations and/or delegate any of
its duties under this Agreement to any of its affiliates, successors and/or
assigns and this Agreement shall inure to the benefit of, and be binding upon,
such respective affiliates, successors and/or assigns of the Company in the same
manner and to the same extent as if such affiliates, successors and/or assigns
were original parties hereto. Without limiting the foregoing, the Company may
assign the Repurchase Option and/or the right of first refusal provided for in
Section 9 and Section 7(b) of this Agreement, respectively, to any of its
- --------- ------------
affiliates, successors and/or assigns. FSEP IV may assign its rights under
Section 7(c) to any FS Permitted Transferee or to a purchaser of shares of
- ------------
Common Stock then owned by FSEP IV. For purposes of this Agreement, the term
"Shares" shall include shares
11
<PAGE>
of capital stock or other securities of the Company or any successor or assign
of the Company, which are issued in respect of, in exchange for or in
substitution of the Shares by reason of any split, reverse split,
recapitalization, reclassification, combination, merger, exchange or
consolidation. Unless specifically provided herein to the contrary, Optionee may
not assign any or all of its rights and/or obligations and/or delegate any or
all its duties under this Agreement without the prior written consent of the
Company and FSEP IV. Upon an assignment of any or all of Optionee's rights
and/or obligations and/or a delegation of any or all of its duties under this
Agreement in accordance with the terms of this Agreement, this Agreement shall
inure to the benefit of, and be binding upon, Optionee's respective affiliates,
successors and/or assigns in the same manner and to the same extent as if such
affiliates, successors and/or assigns were original parties hereto.
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the date first above written.
THE COMPANY:
Advance Holding Corporation,
a Virginia corporation
____________________________
Garnett E. Smith
President
OPTIONEE:
____________________________
[ ]
12
<PAGE>
EXHIBIT 10.16
ADVANCE HOLDING CORPORATION
1998 SENIOR EXECUTIVE STOCK SUBSCRIPTION PLAN
Section 1. Description of Plan. This is the 1998 Senior Executive
-------------------
Stock Subscription Plan, dated April 15, 1998 (the "Plan"), of Advance Holding
Corporation, a Virginia corporation (the "Company"). Under the Plan, certain
directors, officers, key employees and consultants of the Company or any of the
directly or indirectly owned subsidiaries of the Company (individually, a
"Subsidiary," and collectively, the "Subsidiaries"), to be selected as set forth
below, may be issued shares of the Common Stock, $.01 par value per share, of
the Company (the "Common Stock").
Section 2. Purpose of Plan. The purpose of the Plan and the issuance
---------------
and sale of the shares of Common Stock to specified persons is to further the
growth, development and financial success of the Company and the Subsidiaries by
providing additional incentives to certain directors, officers, key employees
and consultants. By assisting such persons in acquiring shares of Common Stock,
the Company can ensure that such persons will themselves benefit directly from
the Company's and the Subsidiaries' growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to receive
-----------
shares of Common Stock under the Plan shall be the senior executive officers of
the Company and the Subsidiaries (each, a "Participant").
Section 4. Administration. The Plan shall be administered by the
--------------
Company's Board of Directors (the "Board") or, at the Board's option, by a
compensation committee established by the Board (the Board and such committee,
the "Committee") who shall be empowered to interpret and administer the Plan in
its sole discretion.
Section 5. Shares Subject to the Plan. The number of shares of Common
--------------------------
Stock which may be issued pursuant to the Plan shall not exceed 400,000 subject
to adjustment to reflect any distribution of shares of capital stock or other
securities of the Company or any successor or assign of the Company which is
made in respect of, in exchange for or in substitution of the shares of Common
Stock by reason of any stock dividend, stock split, reverse split, combination,
recapitalization, reclassification, merger, consolidation or otherwise. In the
event that any shares of Common Stock issued pursuant to the Plan are reacquired
by the Company, such shares of Common Stock shall again become available for
issuance under the Plan.
Section 6. Issuance of Shares of Common Stock. The Company's
----------------------------------
obligation to issue shares of Common Stock pursuant to the Plan is expressly
conditioned upon the completion by the Company of any registration or other
qualification of such shares of Common Stock under any state and/or federal law
or rulings and regulations of any government regulatory body and the
1
<PAGE>
making of such investment representations or other representations and
undertakings by a Participant (or such person's legal representative, heir or
legatee, as the case may be) in order to comply with the requirements of any
exemption from any such registration or other qualification of such shares of
Common Stock which the Company in its sole discretion shall deem necessary or
advisable.
Section 7. Stock Subscription Agreement. The shares of Common Stock
----------------------------
issued and sold pursuant to the Plan shall be evidenced by a written stock
subscription agreement (the "Stock Subscription Agreement"). The Stock
Subscription Agreement shall contain such terms and conditions as the Committee
deems desirable and which are not inconsistent with the Plan.
Section 8. Withholding of Taxes. The Company or a Subsidiary, as the
--------------------
case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company or such Subsidiary to a Participant the requisite tax
upon the amount of taxable income, if any, recognized by such person in
connection with the issuance of shares of Common Stock, as may be required from
time to time under any federal or state tax laws and regulations. This
withholding of tax shall be made from the Company's (or such Subsidiary's)
concurrent or next payment of wages, salary, bonus or other income to a
Participant or by payment to the Company (or such Subsidiary) by the such person
of the required withholding tax, as the Committee may determine.
Section 9. Effectiveness and Termination of Plan. The Plan shall be
-------------------------------------
effective on the date on which it is adopted by the Board and the Board may in
its sole discretion terminate the Plan at any time.
Section 10. Amendment of Plan. The Committee may make such
-----------------
amendments to the Plan and, with the consent of each Participant affected, to
the terms and conditions of the Stock Subscription Agreement as it shall deem
advisable.
Section 11. Indemnification. In addition to such other rights
----------------
of indemnification as they may have as directors, the members of the Board and
the Committee shall be indemnified by the Company against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal thereof, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, and
against all amounts paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit or proceeding that such Board or Committee
member is liable for negligence or misconduct in the performance of his or her
duties; provided that within 60 days after institution of any such action, suit
or proceeding such Board or Committee member shall in writing offer the Company
the opportunity, at the Company's expense, to handle and defend the same.
Section 12. Governing Law. The Plan shall be construed under
-------------
and governed by the laws of the Commonwealth of Virginia without regard to
conflict of law provisions thereof.
2
<PAGE>
Section 13. Not an Employment or Other Agreement. Nothing
------------------------------------
contained in the Plan or in any Stock Subscription Agreement shall confer,
intend to confer or imply any rights of employment or rights to any other
relationship or rights to continued employment by, or rights to a continued
relationship with, the Company or any Subsidiary in favor of any Participant or
limit the ability of the Company or any Subsidiary to terminate, with or without
cause, in its sole and absolute discretion, the employment of, or relationship
with, any Participant subject to the terms of any written employment or other
agreement to which a Participant is a party.
3
<PAGE>
EXHIBIT 10.17
ADVANCE HOLDING CORPORATION
SENIOR EXECUTIVE STOCK SUBSCRIPTION AGREEMENT
THIS SENIOR EXECUTIVE STOCK SUBSCRIPTION AGREEMENT (this "Agreement")
is made and entered into as of ________, 1998, by and between Advance Holding
Corporation, a Virginia corporation (the "Company"), and ________________
("Purchaser").
R E C I T A L S:
---------------
A. The Company now desires to sell to Purchaser, who is a senior
executive of the Company and/or any directly or indirectly majority or wholly-
owned entities of the Company (individually, a "Subsidiary" and collectively,
the "Subsidiaries"), and Purchaser desires to purchase from the Company, Shares
(as hereinafter defined) of the Company, subject to the terms and conditions set
forth in this Agreement. The date on which such sale and purchase occur shall
be referred to herein as the "Closing Date."
B. In order to induce the Company to sell the Shares to the
Purchaser, Purchaser agrees to hold such shares subject to the restrictions and
interests created by this Agreement.
A G R E E M E N T:
-----------------
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties agree as follows:
1. Sales and Purchase of Shares. The Company hereby agrees to sell
----------------------------
to Purchaser, subject to the conditions and restrictions contained in this
Agreement, and Purchaser hereby agrees to purchase from the Company,
__________________________ (_______) shares of common stock $0.01 par value per
share (individually, a "Share," and collectively, the "Shares") of the Company,
at a price of $10.00 per Share, for an aggregate purchase price of
__________________________________Dollars ($________) (the "Purchase Price").
The Purchase Price shall be payable by delivery of cash or Purchaser's check in
the amount of _______________________________ Dollars ($_________). Purchaser
shall deliver the cash or check, to the Company prior to the Closing Date, each
dated as of the Closing Date. In connection with the purchase of Shares
hereunder, Purchaser acknowledges that he or she has reviewed the memorandum
regarding Section 83(b) of the Internal Revenue Code of 1986, as amended,
attached hereto as Exhibit C.
<PAGE>
2. Restriction on Transfer of the Shares. Except as otherwise
-------------------------------------
provided herein, Purchaser may not sell, transfer, assign, pledge, hypothecate
or otherwise dispose of (collectively, "Transfer") any of the Shares, or any
right, title or interest therein prior to the third anniversary of the Closing
Date and, thereafter, any Transfer must be in compliance with Section 4 and
---------
Section 9 hereof. All Transfers also must comply with Section 6 of the Pledge
- ---------
Agreement. Any purported Transfer or Transfers (including involuntary Transfers
initiated by operation of legal process) of any of the Shares or any right,
title or interest therein, except in strict compliance with the terms and
conditions of this Agreement, shall be null and void.
3. Repurchase Option Upon Termination.
----------------------------------
(a) In the event that Purchaser's employment or other
relationship with the Company and all of its Subsidiaries terminates for any
reason (including, without limitation, by reason of Purchaser's death,
disability, retirement, voluntary resignation or dismissal by the Company or any
of its Subsidiaries, with or without cause), the Company shall have the option
(the "Repurchase Option") to purchase from Purchaser all or any portion of the
Shares acquired by Purchaser under this Agreement for a period of six (6) months
after the effective date of such termination (the effective date of termination
is hereinafter referred to as the "Termination Date").
(b) The purchase price (the "Repurchase Price") for each Share to
be purchased pursuant to the Repurchase Option shall equal (a) the greater of
Purchase Price and Book Value (as defined herein) if the Termination Date occurs
within the two (2) year period commencing on the date hereof and (b) the greater
of the Purchase Price and the Fair Market Value (as defined herein) thereof
(subject to adjustment as set forth herein) thereafter. The "Book Value" of a
Share shall equal $10.00 per Share (subject to adjustment as set forth in
Section 3(c)) plus the net income or minus the net loss per share to the end of
the fiscal quarter immediately preceding the Termination Date, as determined by
the Board, acting in good faith and based upon the books and records of the
Company prepared in accordance with generally accepted accounting principles
consistently applied, which determination shall be final and binding. The "Fair
Market Value" of a Share shall be determined as set forth in clause (e) below.
(c) The Repurchase Price for any Shares to be purchased pursuant
to the Repurchase Option shall be increased or decreased appropriately to
reflect any distribution of stock or other securities of the Company or any
successor or assign of the Company which is made in respect of, in exchange for
or in substitution of the Shares by reason of any split, reverse split,
combination, recapitalization, reclassification, merger, consolidation or
otherwise.
(d) The Repurchase Option shall be exercised by the Company by
delivery to Purchaser, within the six-month period specified above, of a written
notice specifying (a) the number of Shares to be purchased and (b) a day, which
shall not be more than 30 days after the date such notice is delivered, on or
before which Purchaser shall surrender the certificate or certificates
representing the Shares to be purchased pursuant to the Repurchase Option (duly
endorsed in blank for Transfer) at the principal office of the Company in
exchange for a check,
2.
<PAGE>
payable to Purchaser in the amount equal to the Repurchase Price, calculated as
provided in this Section 3, multiplied by the number of the Shares to be
purchased. If Purchaser fails to so surrender such certificate or certificates
on or before such date, from and after such date the Shares which the Company
elected to repurchase shall be deemed to be no longer outstanding, and Purchaser
shall cease to be a stockholder with respect to such Shares and shall have no
rights with respect thereto except only the right to receive payment of the
Repurchase Price, without interest, upon surrender of the certificate or
certificates therefor (duly endorsed in blank for Transfer). Notwithstanding the
foregoing in this Section 3(d), in the event any principal, interest, fees,
expenses or other amounts due on or in connection with the Note (the
"Outstanding Amount") are owed to the Company by Purchaser, the Repurchase Price
for the number of the Shares to be repurchased hereunder shall be reduced (to an
amount not less than zero) by such Outstanding Amount, which reduction shall be
specified in reasonable detail in the Company's written notice of election to
exercise the Repurchase Option. If the Outstanding Amount exceeds the Repurchase
Price for the number of the Shares to be repurchased, Purchaser shall remain
obligated and liable to the Company for the unpaid balance thereof.
(e) As used herein, the "Fair Market Value" of a Share shall be
determined as follows: the board of directors of the Company shall act in good
faith to determine the Fair Market Value of each Share as of the Termination
Date (the "Initial Valuation"). All costs incurred in connection with the
Initial Valuation shall be borne by the Company. The Initial Valuation shall be
set forth in a written notice (the "Valuation Notice") delivered by the Company
to Purchaser at least 20 days prior to the repurchase date specified in the
notice of exercise. If Purchaser shall not have disputed the Initial Valuation
by delivery of a written notice of said dispute to the Company within 20 days
after the Company's delivery of the Valuation Notice, the Initial Valuation
shall be binding upon the parties as the Fair Market Value to be used for
calculating the Repurchase Price. In the event that Purchaser shall dispute the
Initial Valuation within such 20-day period, Purchaser shall, at his sole
expense, retain an appraiser (the "Second Appraiser") of his own choosing to
make a second appraisal (the "Second Appraisal") of the Fair Market Value of
each Share. If the Second Appraisal is less than the Initial Valuation, the
Initial Valuation shall be binding upon the parties. If the Second Appraisal
exceeds the Initial Valuation by an amount not greater than 10% of the Initial
Valuation, the Fair Market Value of each vested share shall be the average of
the sum of the Initial Valuation and the Second Appraisal. In the event that
the Second Appraisal exceeds the Initial Valuation by an amount greater than 10%
of the Initial Valuation, the Board and the Second Appraiser shall act in good
faith to select a third appraiser who shall conduct a third appraisal (the
"Third Appraisal") which shall be final and binding upon the parties. If the
Third Appraisal of the Fair Market Value of each Share determines an amount
which is closer to the amount determined by the Second Appraisal than to the
amount determined by the Initial Valuation then the Company shall reimburse the
Purchaser for the cost of the Second Appraisal. All costs with respect to the
fees and expenses paid or payable to the appraiser that issues the Third
Appraisal shall be shared equally by the Company and Purchaser. All other costs
incurred in connection with the Third Appraisal shall be borne by the party
incurring such costs.
3.
<PAGE>
(f) This Repurchase Option shall terminate upon an underwritten
public offering of Common Stock by the Company registered under the Act (as
defined below) (other than an offering registered on Form S-4 or Form S-8 or any
substitute for such forms) resulting in gross proceeds to the Company in excess
of $25 million (an "Initial Public Offering").
4. Right of First Refusal.
----------------------
(a) Sales; Notice. At any time on or after the third
-------------
anniversary of the Closing Date, Purchaser may Transfer for cash (and only for
such form of consideration) any or all of the Shares to any third party subject
to the provisions of Section 4, Section 7(c), Section 9 and Section 12(a)
--------- ------------ --------- -------------
hereof, and subject to Section 6 of the Pledge Agreement. Prior to any such
intended Transfer, Purchaser shall first give at least thirty (30) days' advance
written notice (the "Notice") to the Company specifying (i) Purchaser's bona
fide intention to sell such Shares; (ii) the name(s) and address(es) of the
proposed transferee(s); (iii) the number of Shares Purchaser proposes to
Transfer (individually, an "Offered Share," and collectively, the "Offered
Shares"); (iv) the price for which Purchaser proposes to Transfer each Offered
Share (the "Proposed Purchase Price"); (v) such evidence as the Company may
reasonably request to demonstrate the ability of the proposed transferee(s) to
pay the Proposed Purchase Price; and (vi) all other material terms and
conditions of the proposed transfer.
(b) Election by the Company. Within twenty (20) days after
-----------------------
receipt of the Notice, the Company may elect to purchase any or all of the
Offered Shares at the price and on the terms and conditions set forth in the
Notice by delivery of written notice of such election to Purchaser, specifying a
day, which shall not be more than twenty (20) days after such notice is
delivered, on or before which Purchaser shall surrender (if Purchaser has not
already done so) the certificate or certificates representing the Offered Shares
(duly endorsed in blank for transfer) at the administrative office of the
Company. Within twenty (20) days after delivery of such notice to Purchaser, the
Company shall deliver to Purchaser a check, payable to Purchaser or to such
person as Purchaser shall request, in the amount equal to the product of the
Proposed Purchase Price multiplied by the number of Offered Shares (the "First
Refusal Price") in exchange for the Offered Shares. If Purchaser fails to so
surrender such certificate or certificates on or before such date, from and
after such date the Offered Shares shall be deemed to be no longer outstanding,
and Purchaser shall cease to be a Shareholder with respect to such Shares and
shall have no rights with respect thereto except only the right to receive
payment of the First Refusal Price, without interest, upon surrender of the
certificate or certificates therefor (duly endorsed in blank for Transfer).
Notwithstanding the foregoing, if any Outstanding Amount is owed to the Company
by Purchaser, the First Refusal Price shall be reduced (to an amount not less
than zero) by such Outstanding Amount, which reduction shall be specified in
reasonable detail in the Company's written notice of election to purchase the
Offered Shares. If the Company does not elect to purchase all of the Offered
Shares, Purchaser shall be entitled to Transfer the Offered Shares, subject to
Section 9 of this Agreement and Section 6 of the Pledge Agreement, to the
- ---------
transferee(s) named in the Notice at the Proposed Purchase Price, or at a higher
price, and on the terms and
4.
<PAGE>
conditions set forth in the Notice; provided, however, that such Transfer must
be consummated within ninety (90) days after the date of the Notice and any
proposed Transfer after such ninety (90) day period may be made only by again
complying with the procedures set forth in this Section 4. This right of first
---------
refusal terminates upon an Initial Public Offering.
5. Permitted Transfers. Subject to and upon full compliance with
-------------------
Section 6 of the Pledge Agreement, Purchaser may, at any time or times, transfer
any or all of the Shares: (a) inter vivos to Purchaser's spouse or issue, a
trust for their benefit, or pursuant to any will or testamentary trust; or (b)
upon Purchaser's death, to any person in accordance with the laws of descent
and/or testamentary distribution (such persons described in clauses (a) and (b)
hereof are collectively referred to herein as "Permitted Transferees").
Notwithstanding the foregoing in this Section 5, Shares shall not be Transferred
---------
pursuant to this Section 5 until the Permitted Transferee executes a valid
---------
undertaking, in form and substance reasonably satisfactory to the Company, to
the effect that the Permitted Transferee and the Shares so Transferred shall
thereafter remain subject to all of the provisions of this Agreement (including
the Repurchase Option) and the Pledge Agreement, as though the Permitted
Transferee were a party to this Agreement and the Pledge Agreement, bound in
every respect in the same way as Purchaser. Transfers made in accordance with
this Section 5 shall not be subject to the provisions of Section 4 of this
--------- ---------
Agreement.
6. Security for Performance. The Company and Purchaser hereby
------------------------
acknowledge (a) that Purchaser has agreed to pledge the Shares to secure the
payment of all obligations existing under the Note whether for principal,
interest, fees, expenses or otherwise and/or to ensure Purchaser's compliance
with the terms and conditions of this Agreement and the Pledge Agreement and (b)
that in connection with such pledge, Purchaser shall enter into the Pledge
Agreement as of the Closing Date requiring that the certificates evidencing the
Shares (the "Certificates") be held by the Company as security for the payment
of all obligations existing under the Note, whether for principal, interest,
fees, expenses or otherwise, and for Purchaser's compliance with the terms and
conditions of this Agreement and the Pledge Agreement. Subject to compliance
with the terms and conditions of this Agreement and of the Pledge Agreement,
Purchaser shall exercise all rights and privileges of the registered holder of
the Shares held by the Company pursuant to the Pledge Agreement and shall be
entitled to receive any dividend or other distribution thereon.
7. Investment Representations. Purchaser represents and warrants to
--------------------------
the Company as follows:
(a) Purchaser's Own Account. Purchaser is acquiring the Shares
-----------------------
for Purchaser's own account and not with a view to or for sale in connection
with any distribution of the Shares.
(b) Access to Information. Purchaser (i) is familiar with the
---------------------
business of the Company and its Subsidiaries; (ii) has had an opportunity to
discuss with representatives
5.
<PAGE>
of the Company and its Subsidiaries the condition of and prospects for the
continued operation and financing of the Company and its Subsidiaries and such
other matters as Purchaser has deemed appropriate in considering whether to
invest in the Shares; and (iii) has been provided access to all available
information about the Company and its Subsidiaries reasonably requested by
Purchaser.
(c) Shares Not Registered. Purchaser understands that the
---------------------
Shares have not been registered under the Act or registered or qualified under
the securities laws of any state and that Purchaser may not Transfer the Shares
unless they are subsequently registered under the Act and registered or
qualified under applicable state securities laws, or unless an exemption is
available which permits Transfers without such registration and qualification.
8. Partial Termination. This Agreement shall terminate with respect
-------------------
to those Shares which are (a) acquired by the Company pursuant to Section 3(b)
------------
hereof upon such acquisition; or (b) acquired by the Company pursuant to Section
-------
4 hereof, upon such acquisition.
- -
9. Obligation to Sell Securities.
-----------------------------
(a) If FS Equity Partners IV, L.P., a Delaware limited
partnership, ("FSEP IV") finds a third-party buyer for all shares of common
stock of the Company held by it (whether such sale is by way of purchase,
exchange, merger or other form of transaction), upon the request of FSEP IV, the
Purchaser shall sell all of Purchaser's Shares for the same per share
consideration (which may be less than the Purchase Price per share paid by
Purchaser), and otherwise pursuant to the terms and conditions applicable to the
FSEP IV for the sale of its shares of its common stock of the Company.
(b) Purchaser hereby consents to any sale, transfer,
reorganization, exchange, merger, combination or other form of transaction
described in Section 9(a) and agrees to execute such agreements, powers of
attorney, voting proxies or other documents and instruments as may be necessary
or desirable to consummate such sale, transfer, reorganization, exchange,
merger, combination or other form of transaction. Purchaser further agrees to
timely take such other actions as FSEP IV may reasonably request in connection
with the approval of the consummation of such sale, transfer, reorganization,
exchange, merger, combination or other form of transaction, including voting as
a stockholder to approve any such sale, transfer, reorganization, exchange,
merger, combination or other form of transaction and waiving any appraisal
rights that Purchaser may have in connection therewith.
(c) The obligations of Purchaser pursuant to this Section 9
---------
shall be binding on any transferee (other than a transferee in a Public Market
Sale, as defined below) of any of the Shares and Purchaser and any of his
transferees shall obtain and deliver to FSEP IV a written commitment to be bound
by such provisions from a subsequent transferee prior to any Transfer (other
than Transfers constituting a Public Market Sale). The Purchaser's obligations
pursuant to this Section 9, and the obligations of any such transferee, shall
---------
survive the partial
6.
<PAGE>
termination of this Agreement pursuant to Section 8 hereof. Any transfer
---------
effected in violation of this provision shall be void. The term "Public Market
Sale" means any sale of Common Stock after the Initial Public Offering which is
made pursuant to Rule 144 promulgated under the Securities Act or which is made
pursuant to a registration statement filed with the declared effective by the
Securities and Exchange Commission.
10. Tag Along Rights. If FSEP IV finds a third-party buyer (other
----------------
than a buyer that is an investment fund or partnership affiliated with FSEP IV,
a general or limited partner of FSEP IV, or, for the period ending one year from
the date hereof, an unaffiliated institutional investor or merchant banking firm
(each, a "FS Permitted Transferee") or is a transferee in a Public Market
Sale)), for all or part of the shares of Common Stock held by FSEP IV (whether
such sale is by way of purchase, exchange, merger or other form of transaction),
the Purchaser shall have the right to sell, on the terms set forth in a written
notice (the "Offering Notice") delivered by FSEP IV to the Purchaser describing
the terms of the proposed sale (including the minimum sale price for the shares
of Common stock that FSEP IV plans to sell), that amount of the Shares he then
owns which constitute the same percentage of his Shares as the percentage of
Common Stock sold by FSEP IV. Each such right shall be exercisable by
delivering written notice to FSEP IV within 15 days after receipt of the
Offering Notice. Failure to exercise such right within such 15-day period shall
be regarded as a waiver of such rights. The obligations of FSEP IV under this
Section 10 shall terminate upon an Initial Public Offering.
11. Put Option. Until the third anniversary of the date of this
----------
Agreement, or, if later, the termination of the Employment and Noncompetition
Agreement dated the date hereof by and between the Purchaser and the Company
(including any renewals thereof), upon the death or disability (as such term is
defined in Section 22(e)(3) of the Code) of Purchaser, Purchaser's designee,
legal representative or legatee, the successor trustee of Purchaser's inter
vivos trust or the person who acquired the right to such Shares by reason of the
death of Purchaser (collectively, the Successor") may elect to cause the Company
to repurchase all or part of the Shares of Purchaser acquired under this
Agreement and under that certain Option Agreement dated as of the date hereof by
Purchaser for cash (the "Put Option"); provided, however, such election must be
made no earlier than 30 days and no later than 180 days after such death or
disability (the "Option Period"); and provided further that such repurchase is
permitted by the Company's debt agreements. If the Company's debt agreements do
not permit such repurchase, the Company's obligations under this Section 11
shall continue until 120 days after the date such repurchase shall be permitted;
provided that such obligations shall terminate in any event on the fourth
anniversary of this Agreement. The Put Option shall be exercised by the
Successor by (a) delivery to the Company within the Option Period a written
notice specifying the number of shares to be repurchased by the Company (the
"Notice"), and (b) surrendering to the Company, or its agent, the certificates,
properly endorsed for transfer, representing the Shares to which the Put Option
is being exercised within fifteen (15) days of delivery of the Notice to the
Company. The Notice Date shall be the day the Company receives the Notice. The
purchase price (the "Option Price") for each Share to be purchased pursuant to
the Put Option shall equal (A) the greater of the Purchase Price or the
applicable exercise price (in the case of Option Shares) (without interest)
7.
<PAGE>
and the Book Value (as defined in Section 3 of this Agreement) if the Notice
---------
Date occurs within the two (2) year period commencing with the effective date
hereof or, alternatively, (B) the greater of the Purchase Price or the
applicable exercise price (in the case of Option Shares) and the Fair Market
Value (as defined in Section 3 of this Agreement) thereof (subject to adjustment
---------
as set forth herein) thereafter. Within thirty (30) days of the Notice Date, the
Company shall deliver to Purchaser a check in the amount of the Option Price,
calculated as provided in this Section 11, for all Shares to be repurchased by
----------
the Company, provided, that if the Board of Directors determines in good faith
that it is in the best interests of the Company and its Stockholders to defer
payment, the Company may deliver 25% of such amount in cash and the remainder in
the form of a note due in three equal annual installments, bearing interest at
the prime rate. Nothing in this section shall require the Company to take any
action contrary to laws respecting limits on redemptions of outstanding
securities. The obligations of the Company under this Section 11 shall terminate
upon an Initial Public Offering.
12. Miscellaneous.
-------------
(a) Legends on Certificates. Any and all certificates now or
-----------------------
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE
WITH THE TERMS AND CONDITIONS OF THAT CERTAIN STOCK PURCHASE AGREEMENT
DATED AS OF ________, 1998, BY AND BETWEEN ADVANCE HOLDING
CORPORATION, A VIRGINIA CORPORATION, AND THE ORIGINAL PURCHASER
HEREOF, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF ADVANCE HOLDING CORPORATION."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
(b) Further Assurances. Each party hereto agrees to perform any
------------------
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the intent of this Agreement.
(c) Notices. Except as otherwise provided herein, all notices,
-------
requests, demands and other communications under this Agreement shall be in
writing, and if by telegram or telecopy, shall be deemed to have been validly
served, given or delivered when sent, or if by personal delivery or messenger or
courier service, shall be deemed to have been validly served,
8.
<PAGE>
given or delivered upon actual delivery (but in no event may notice be given by
deposit in the United States mail), at the following addresses, telephone and
facsimile numbers (or such other address(es), telephone and facsimile numbers a
party may designate for itself by like notice):
If to the Company:
Advance Holding Corporation
c/o Freeman Spogli & Co. Incorporated
599 Lexington Avenue, Suite 1800
New York, New York 10022
Attention: John M. Roth
Telephone: (212) 758-2555
Telecopy: (212) 758-7499
If to Purchaser:
________________
________________
________________
Telephone: (___) ___-____
Fax: (___) ___-____
With a copy to:
John G. Rocovich, Jr., Esq.
Moss & Rocovich
4415 Electric Road
Roanoke, Virginia 24035-4014
Telephone: (540) 774-8800
Fax: (540) 774-8808
(d) Amendments. This Agreement may be amended only by a written
----------
agreement executed by both of the parties hereto and by FSEP IV.
(e) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Virginia.
(f) Disputes. In the event of any dispute among the parties
--------
arising out of this Agreement, the prevailing party shall be entitled to recover
from the nonprevailing party the reasonable expenses of the prevailing party
including, without limitation, reasonable attorneys' fees.
9.
<PAGE>
(g) Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties pertaining to the subject matter
hereof and supersedes any and all prior agreements, whether written or oral,
relating hereto.
(h) Recapitalizations or Exchanges Affecting the Company's
------------------------------------------------------
Capital. The provisions of this Agreement shall apply to any and all stock or
- -------
other securities of the Company or any successor or assign of the Company, which
may be issued in respect of, in exchange for or in substitution of, the Shares
by reason of any split, reverse split, recapitalization, reclassification,
combination, merger, consolidation or otherwise, and such Shares or other
securities shall be encompassed within the term "Shares" for purposes of this
Agreement and the Pledge Agreement.
(i) No Rights as an Employee. Nothing in this Agreement shall
------------------------
affect in any manner whatsoever the rights of the Company or any of its
Subsidiaries to terminate Purchaser's employment for any reason, with or without
cause, subject to the terms and conditions of any employment agreement to which
Purchaser may be a party.
(j) Disclosure. Except in connection with Purchaser's exercise
----------
of rights under Section 3(e), the Company shall have no duty or obligation to
------------
affirmatively disclose to Purchaser, and Purchaser shall have no right to be
advised of, any material information regarding the Company or any of its
Subsidiaries at any time prior to, upon or in connection with the Company's
repurchase of the Shares under this Agreement at the cessation or termination of
Purchaser's employment with the Company and/or any of its Subsidiaries. The
Company shall have no obligation to provide confidential information to the
Purchaser in connection with Section 3(e) unless the Purchaser shall execute a
------------
confidentiality agreement with respect to such information.
(k) Successors and Assigns. The Company may assign with absolute
----------------------
discretion any or all of its rights and/or obligations and/or delegate any of
its duties under this Agreement to any of its affiliates, successors and/or
assigns and this Agreement shall inure to the benefit of, and be binding upon,
such respective affiliates, successors and/or assigns of the Company in the same
manner and to the same extent as if such affiliates, successors and/or assigns
were original parties hereto. Without limiting the foregoing, the Company may
assign the Repurchase Option and/or the right of first refusal provided for in
Section 3 and Section 4 of this Agreement, respectively, to any of its
- --------- ---------
affiliates, successors and/or assigns. FSEP IV may assign its rights under
Section 9 to any FS Permitted Transferee or to a purchaser of shares of Common
Stock then owned by FSEP IV. For purposes of this Agreement, the term "Shares"
shall include shares of capital stock or other securities of the Company or any
successor or assign of the Company, which are issued in respect of, in exchange
for or in substitution of the Shares by reason of any split, reverse split,
recapitalization, reclassification, combination, merger, exchange or
consolidation. Unless specifically provided herein to the contrary, Purchaser
may not assign any or all of its rights and/or obligations and/or delegate any
or all its duties under this Agreement without the prior written consent of the
Company and FSEP IV. Upon an assignment
10.
<PAGE>
of any or all of Purchaser's rights and/or obligations and/or a delegation of
any or all of its duties under this Agreement in accordance with the terms of
this Agreement, this Agreement shall inure to the benefit of, and be binding
upon, Purchaser's respective affiliates, successors and/or assigns in the same
manner and to the same extent as if such affiliates, successors and/or assigns
were original parties hereto.
(l) Headings. Introductory headings at the beginning of each
--------
section and subsection of this Agreement are solely for the convenience of the
parties and shall not be deemed to be a limitation upon or description of the
contents of any such section and subsection of this Agreement.
(m) Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original and both of which, when
taken together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
THE COMPANY:
Advance Holding Corporation,
a Virginia corporation
By:
-------------------------------------
J. O'Neil Leftwich
Chief Financial Officer
PURCHASER:
----------------------------------------
[ ]
11.
<PAGE>
EXHIBIT 10.18
ADVANCE HOLDING CORPORATION
1998 EMPLOYEE STOCK SUBSCRIPTION PLAN
Section 1. Description of Plan. This is the 1998 Employee Stock
-------------------
Subscription Plan, dated April 15, 1998 (the "Plan"), of Advance Holding
Corporation, a Virginia corporation (the "Company"). Under the Plan, certain
directors, officers, key employees and consultants of the Company or any of the
directly or indirectly owned subsidiaries of the Company (individually, a
"Subsidiary," and collectively, the "Subsidiaries"), to be selected as set forth
below, may be issued shares of the Common Stock, $.01 par value per share, of
the Company (the "Common Stock").
Section 2. Purpose of Plan. The purpose of the Plan and the issuance
---------------
and sale of the shares of Common Stock to specified persons is to further the
growth, development and financial success of the Company and the Subsidiaries by
providing additional incentives to certain directors, officers, key employees
and consultants. By assisting such persons in acquiring shares of Common Stock,
the Company can ensure that such persons will themselves benefit directly from
the Company's and the Subsidiaries' growth, development and financial success.
Section 3. Eligibility. The persons who shall be eligible to receive
-----------
shares of Common Stock under the Plan shall be the directors who are designated
as "independent" members of the company's Board of Directors (the "Board") and
the officers, key employees and consultants of the Company and the Subsidiaries,
including those directors of the Company and the Subsidiaries who are also
officers, key employees and/or consultants (each, a "Participant").
Section 4. Administration. The Plan shall be administered by the
--------------
Board or, at the Board's option, by a compensation committee established by the
Board (the Board and such committee, the "Committee") who shall be empowered to
interpret and administer the Plan in its sole discretion.
Section 5. Shares Subject to the Plan. The number of shares of Common
--------------------------
Stock which may be issued pursuant to the Plan shall not exceed 450,000 subject
to adjustment to reflect any distribution of shares of capital stock or other
securities of the Company or any successor or assign of the Company which is
made in respect of, in exchange for or in substitution of the shares of Common
Stock by reason of any stock dividend, stock split, reverse split, combination,
recapitalization, reclassification, merger, consolidation or otherwise. In the
event that any shares of Common Stock issued pursuant to the Plan are reacquired
by the Company, such shares of Common Stock shall again become available for
issuance under the Plan.
Section 6. Issuance of Shares of Common Stock. The Company's
----------------------------------
obligation to issue shares of Common Stock pursuant to the Plan is expressly
conditioned upon the completion by the Company of any registration or other
qualification of such shares of Common Stock under
1
<PAGE>
any state and/or federal law or rulings and regulations of any government
regulatory body and the making of such investment representations or other
representations and undertakings by a Participant (or such person's legal
representative, heir or legatee, as the case may be) in order to comply with the
requirements of any exemption from any such registration or other qualification
of such shares of Common Stock which the Company in its sole discretion shall
deem necessary or advisable.
Section 7. Stock Subscription Agreement. The shares of Common Stock
----------------------------
issued and sold pursuant to the Plan shall be evidenced by a written stock
subscription agreement (the "Stock Subscription Agreement"). The Stock
Subscription Agreement shall contain such terms and conditions as the Committee
deems desirable and which are not inconsistent with the Plan.
Section 8. Withholding of Taxes. The Company or a Subsidiary, as the
--------------------
case may be, may deduct and withhold from the wages, salary, bonus and other
income paid by the Company or such Subsidiary to a Participant the requisite tax
upon the amount of taxable income, if any, recognized by such person in
connection with the issuance of shares of Common Stock, as may be required from
time to time under any federal or state tax laws and regulations. This with
holding of tax shall be made from the Company's (or such Subsidiary's)
concurrent or next payment of wages, salary, bonus or other income to a
Participant or by payment to the Company (or such Subsidiary) by the such person
of the required withholding tax, as the Committee may determine.
Section 9. Effectiveness and Termination of Plan. The Plan shall be
-------------------------------------
effective on the date on which it is adopted by the Board and the Board may in
its sole discretion terminate the Plan at any time.
Section 10. Amendment of Plan. The Committee may make such
-----------------
amendments to the Plan and, with the consent of each Participant affected, to
the terms and conditions of the Stock Subscription Agreement as it shall deem
advisable.
Section 11. Indemnification. In addition to such other rights of
----------------
indemnification as they may have as directors, the members of the Board and the
Committee shall be indemnified by the Company against the reasonable expenses,
including attorneys' fees actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
thereof, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan, and against all
amounts paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Board or Committee member is liable
for negligence or misconduct in the performance of his or her duties; provided
that within 60 days after institution of any such action, suit or proceeding
such Board or Committee member shall in writing offer the Company the
opportunity, at the Company's expense, to handle and defend the same.
Section 12. Governing Law. The Plan shall be construed under and
-------------
governed by the laws of the Commonwealth of Virginia without regard to conflict
of law provisions thereof.
2
<PAGE>
Section 13. Not an Employment or Other Agreement. Nothing contained
------------------------------------
in the Plan or in any Stock Subscription Agreement shall confer, intend to
confer or imply any rights of employment or rights to any other relationship or
rights to continued employment by, or rights to a continued relationship with,
the Company or any Subsidiary in favor of any Participant or limit the ability
of the Company or any Subsidiary to terminate, with or without cause, in its
sole and absolute discretion, the employment of, or relationship with, any
Participant subject to the terms of any written employment or other agreement to
which a Participant is a party.
3
<PAGE>
EXHIBIT 10.19
ADVANCE HOLDING CORPORATION
STOCK SUBSCRIPTION AGREEMENT
THIS STOCK SUBSCRIPTION AGREEMENT (this "Agreement") is made and
entered into as of ________, 1998, by and between Advance Holding Corporation, a
Virginia corporation (the "Company"), and ________________ ("Purchaser").
R E C I T A L S:
- - - - - - - -
A. The Company now desires to sell to Purchaser, who is an employee
of the Company and/or any directly or indirectly majority or wholly-owned
entities of the Company (individually, a "Subsidiary" and collectively, the
"Subsidiaries"), and Purchaser desires to purchase from the Company, Shares (as
hereinafter defined) of the Company, subject to the terms and conditions set
forth in this Agreement. The date on which such sale and purchase occur shall
be referred to herein as the "Closing Date."
B. In order to induce the Company to sell the Shares to the
Purchaser, Purchaser agrees to hold such shares subject to the restrictions and
interests created by this Agreement.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties agree as follows:
1. Sales and Purchase of Shares. The Company hereby agrees to sell
----------------------------
to Purchaser, subject to the conditions and restrictions contained in this
Agreement, and Purchaser hereby agrees to purchase from the Company,
_________________ (______) shares of common stock $0.01 par value per share
(individually, a "Share," and collectively, the "Shares") of the Company, at a
price of $10.00 per Share, for an aggregate purchase price of
___________________________ Dollars ($_______) (the "Purchase Price"). The
Purchase Price shall be payable by delivery of (a) cash or Purchaser's check in
the amount of ___________________ Dollars ($______), and (b) a secured
promissory note of Purchaser issued to the Company (in the form attached hereto
as Exhibit A) for _______________ Dollars ($______) of the Purchase Price due
---------
five years from the effective date hereof (the "Note"). Payment of all amounts
owed under the Note and compliance by Purchaser with the terms and conditions of
this Agreement and the Pledge Agreement (as hereinafter defined) shall be
secured
<PAGE>
by a pledge of the Shares, in conjunction with which Purchaser shall execute a
Stock Pledge Agreement in the form attached hereto as Exhibit B (the "Pledge
---------
Agreement"). Purchaser shall deliver the cash or check, the Note and the Pledge
Agreement to the Company prior to the Closing Date, each dated as of the Closing
Date. In connection with the purchase of Shares hereunder, Purchaser
acknowledges that he or she has reviewed the memorandum regarding Section 83(b)
of the Internal Revenue Code of 1986, as amended, attached hereto as Exhibit C.
2. Restriction on Transfer of the Shares. Except as otherwise
-------------------------------------
provided herein, Purchaser may not sell, transfer, assign, pledge, hypothecate
or otherwise dispose of (collectively, "Transfer") any of the Shares, or any
right, title or interest therein prior to the fifth anniversary of the Closing
Date and, thereafter, any Transfer must be in compliance with Section 4 and
---------
Section 9 hereof. All Transfers also must comply with Section 6 of the Pledge
- ---------
Agreement. Any purported Transfer or Transfers (including involuntary Transfers
initiated by operation of legal process) of any of the Shares or any right,
title or interest therein, except in strict compliance with the terms and
conditions of this Agreement, shall be null and void.
3. Repurchase Option Upon Termination.
----------------------------------
(a) In the event that Purchaser's employment or other
relationship with the Company and all of its Subsidiaries terminates for any
reason (including, without limitation, by reason of Purchaser's death,
disability, retirement, voluntary resignation or dismissal by the Company or any
of its Subsidiaries, with or without cause), the Company shall have the option
(the "Repurchase Option") to purchase from Purchaser all or any portion of the
Shares acquired by Purchaser under this Agreement for a period of six (6) months
after the effective date of such termination (the effective date of termination
is hereinafter referred to as the "Termination Date").
(b) The purchase price (the "Repurchase Price") for each Share to
be purchased pursuant to the Repurchase Option shall equal (a) the greater of
Purchase Price and Book Value (as defined herein) if the Termination Date occurs
within the two (2) year period commencing on the date hereof and (b) the greater
of the Purchase Price and the Fair Market Value (as defined herein) thereof
(subject to adjustment as set forth herein) thereafter. The "Book Value" of a
Share shall equal $10.00 per Share (subject to adjustment as set forth in
Section 3(c)) plus the net income or minus the net loss per share to the end of
the fiscal quarter immediately preceding the Termination Date, as determined by
the Board, acting in good faith and based upon the books and records of the
Company prepared in accordance with generally accepted accounting principles
consistently applied, which determination shall be final and binding. The "Fair
Market Value" of a Share shall be the fair market value of a Share as of the
Termination Date, as determined by the Board of Directors of the Company, acting
in good faith and based upon the best available evidence, which determination
shall be final and binding.
(c) The Repurchase Price for any Shares to be purchased pursuant
to the Repurchase Option shall be increased or decreased appropriately to
reflect any distribution of stock or other securities of the Company or any
successor or assign of the Company which is
2
<PAGE>
made in respect of, in exchange for or in substitution of the Shares by reason
of any split, reverse split, combination, recapitalization, reclassification,
merger, consolidation or otherwise.
(d) The Repurchase Option shall be exercised by the Company by
delivery to Purchaser, within the six-month period specified above, of a written
notice specifying (a) the number of Shares to be purchased and (b) a day, which
shall not be more than 30 days after the date such notice is delivered, on or
before which Purchaser shall surrender the certificate or certificates
representing the Shares to be purchased pursuant to the Repurchase Option (duly
endorsed in blank for Transfer) at the principal office of the Company in
exchange for a check, payable to Purchaser in the amount equal to the Repurchase
Price, calculated as provided in this Section 3, multiplied by the number of the
Shares to be purchased. If Purchaser fails to so surrender such certificate or
certificates on or before such date, from and after such date the Shares which
the Company elected to repurchase shall be deemed to be no longer outstanding,
and Purchaser shall cease to be a stockholder with respect to such Shares and
shall have no rights with respect thereto except only the right to receive
payment of the Repurchase Price, without interest, upon surrender of the
certificate or certificates therefor (duly endorsed in blank for Transfer).
Notwithstanding the foregoing in this Section 3(d), in the event any principal,
interest, fees, expenses or other amounts due on or in connection with the Note
(the "Outstanding Amount") are owed to the Company by Purchaser, the Repurchase
Price for the number of the Shares to be repurchased hereunder shall be reduced
(to an amount not less than zero) by such Outstanding Amount, which reduction
shall be specified in reasonable detail in the Company's written notice of
election to exercise the Repurchase Option. If the Outstanding Amount exceeds
the Repurchase Price for the number of the Shares to be repurchased, Purchaser
shall remain obligated and liable to the Company for the unpaid balance thereof.
(e) This Repurchase Option shall terminate upon an underwritten
public offering of Common Stock by the Company registered under the Act (as
defined below) (other than an offering registered on Form S-4 or Form S-8 or any
substitute for such forms) resulting in gross proceeds to the Company in excess
of $25 million (an "Initial Public Offering").
4. Right of First Refusal.
----------------------
(a) Sales; Notice. At any time on or after the fifth anniversary
-------------
of the Closing Date, Purchaser may Transfer for cash (and only for such form of
consideration) any or all of the Shares to any third party subject to the
provisions of Section 4, Section 7(c), Section 9 and Section 12(a) hereof, and
--------- ------------ --------- -------------
subject to Section 6 of the Pledge Agreement. Prior to any such intended
Transfer, Purchaser shall first give at least thirty (30) days' advance written
notice (the "Notice") to the Company specifying (i) Purchaser's bona fide
intention to sell such Shares; (ii) the name(s) and address(es) of the proposed
transferee(s); (iii) the number of Shares Purchaser proposes to Transfer
(individually, an "Offered Share," and collectively, the "Offered Shares"); (iv)
the price for which Purchaser proposes to Transfer each Offered Share (the
"Proposed Purchase Price"); (v) such evidence as the Company may reasonably
request to demonstrate the
3
<PAGE>
ability of the proposed transferee(s) to pay the Proposed Purchase Price; and
(vi) all other material terms and conditions of the proposed transfer.
(b) Election by the Company. Within twenty (20) days after
-----------------------
receipt of the Notice, the Company may elect to purchase any or all of the
Offered Shares at the price and on the terms and conditions set forth in the
Notice by delivery of written notice of such election to Purchaser, specifying a
day, which shall not be more than twenty (20) days after such notice is
delivered, on or before which Purchaser shall surrender (if Purchaser has not
already done so) the certificate or certificates representing the Offered Shares
(duly endorsed in blank for transfer) at the administrative office of the
Company. Within twenty (20) days after delivery of such notice to Purchaser, the
Company shall deliver to Purchaser a check, payable to Purchaser or to such
person as Purchaser shall request, in the amount equal to the product of the
Proposed Purchase Price multiplied by the number of Offered Shares (the "First
Refusal Price") in exchange for the Offered Shares. If Purchaser fails to so
surrender such certificate or certificates on or before such date, from and
after such date the Offered Shares shall be deemed to be no longer outstanding,
and Purchaser shall cease to be a Shareholder with respect to such Shares and
shall have no rights with respect thereto except only the right to receive
payment of the First Refusal Price, without interest, upon surrender of the
certificate or certificates therefor (duly endorsed in blank for Transfer).
Notwithstanding the foregoing, if any Outstanding Amount is owed to the Company
by Purchaser, the First Refusal Price shall be reduced (to an amount not less
than zero) by such Outstanding Amount, which reduction shall be specified in
reasonable detail in the Company's written notice of election to purchase the
Offered Shares. If the Company does not elect to purchase all of the Offered
Shares, Purchaser shall be entitled to Transfer the Offered Shares, subject to
Section 9 of this Agreement and Section 6 of the Pledge Agreement, to the
- ---------
transferee(s) named in the Notice at the Proposed Purchase Price, or at a higher
price, and on the terms and conditions set forth in the Notice; provided,
however, that such Transfer must be consummated within ninety (90) days after
the date of the Notice and any proposed Transfer after such ninety (90) day
period may be made only by again complying with the procedures set forth in this
Section 4. This right of first refusal terminates upon an Initial Public
- ---------
Offering.
5. Permitted Transfers. Subject to and upon full compliance with
-------------------
Section 6 of the Pledge Agreement, Purchaser may, at any time or times, transfer
any or all of the Shares: (a) inter vivos to Purchaser's spouse or issue, a
trust for their benefit, or pursuant to any will or testamentary trust; or (b)
upon Purchaser's death, to any person in accordance with the laws of descent
and/or testamentary distribution (such persons described in clauses (a) and (b)
hereof are collectively referred to herein as "Permitted Transferees").
Notwithstanding the foregoing in this Section 5, Shares shall not be Transferred
---------
pursuant to this Section 5 until the Permitted Transferee executes a valid
---------
undertaking, in form and substance reasonably satisfactory to the Company, to
the effect that the Permitted Transferee and the Shares so Transferred shall
thereafter remain subject to all of the provisions of this Agreement (including
the Repurchase Option) and the Pledge Agreement, as though the Permitted
Transferee were a party to this Agreement and the Pledge Agreement, bound in
every respect in the same way as Purchaser. Transfers made in
4
<PAGE>
accordance with this Section 5 shall not be subject to the provisions of Section
--------- -------
4 of this Agreement.
- -
6. Security for Performance. The Company and Purchaser hereby
------------------------
acknowledge (a) that Purchaser has agreed to pledge the Shares to secure the
payment of all obligations existing under the Note whether for principal,
interest, fees, expenses or otherwise and/or to ensure Purchaser's compliance
with the terms and conditions of this Agreement and the Pledge Agreement and (b)
that in connection with such pledge, Purchaser shall enter into the Pledge
Agreement as of the Closing Date requiring that the certificates evidencing the
Shares (the "Certificates") be held by the Company as security for the payment
of all obligations existing under the Note, whether for principal, interest,
fees, expenses or otherwise, and for Purchaser's compliance with the terms and
conditions of this Agreement and the Pledge Agreement. Subject to compliance
with the terms and conditions of this Agreement and of the Pledge Agreement,
Purchaser shall exercise all rights and privileges of the registered holder of
the Shares held by the Company pursuant to the Pledge Agreement and shall be
entitled to receive any dividend or other distribution thereon.
7. Investment Representations. Purchaser represents and warrants to
--------------------------
the Company as follows:
(a) Purchaser's Own Account. Purchaser is acquiring the Shares
-----------------------
for Purchaser's own account and not with a view to or for sale in connection
with any distribution of the Shares.
(b) Access to Information. Purchaser (i) is familiar with the
---------------------
business of the Company and its Subsidiaries; (ii) has had an opportunity to
discuss with representatives of the Company and its Subsidiaries the condition
of and prospects for the continued operation and financing of the Company and
its Subsidiaries and such other matters as Purchaser has deemed appropriate in
considering whether to invest in the Shares; and (iii) has been provided access
to all available information about the Company and its Subsidiaries reasonably
requested by Purchaser.
(c) Shares Not Registered. Purchaser understands that the Shares
---------------------
have not been registered under the Act or registered or qualified under the
securities laws of any state and that Purchaser may not Transfer the Shares
unless they are subsequently registered under the Act and registered or
qualified under applicable state securities laws, or unless an exemption is
available which permits Transfers without such registration and qualification.
8. Partial Termination. This Agreement shall terminate with respect
-------------------
to those Shares which are (a) acquired by the Company pursuant to Section 3(b)
------------
hereof upon such acquisition; or (b) acquired by the Company pursuant to Section
-------
4 hereof, upon such acquisition.
- -
5
<PAGE>
9. Obligation to Sell Securities.
-----------------------------
(a) If FS Equity Partners IV, L.P., a Delaware limited
partnership, ("FSEP IV") finds a third-party buyer for all shares of common
stock of the Company held by it (whether such sale is by way of purchase,
exchange, merger or other form of transaction), upon the request of FSEP IV, the
Purchaser shall sell all of Purchaser's Shares for the same per share
consideration (which may be less than the Purchase Price per share paid by
Purchaser), and otherwise pursuant to the terms and conditions applicable to the
FSEP IV for the sale of its shares of its common stock of the Company.
(b) Purchaser hereby consents to any sale, transfer,
reorganization, exchange, merger, combination or other form of transaction
described in Section 9(a) and agrees to execute such agreements, powers of
attorney, voting proxies or other documents and instruments as may be necessary
or desirable to consummate such sale, transfer, reorganization, exchange,
merger, combination or other form of transaction. Purchaser further agrees to
timely take such other actions as FSEP IV may reasonably request in connection
with the approval of the consummation of such sale, transfer, reorganization,
exchange, merger, combination or other form of transaction, including voting as
a stockholder to approve any such sale, transfer, reorganization, exchange,
merger, combination or other form of transaction and waiving any appraisal
rights that Purchaser may have in connection therewith.
(c) The obligations of Purchaser pursuant to this Section 9 shall
---------
be binding on any transferee (other than a transferee in a Public Market Sale,
as defined below) of any of the Shares and Purchaser and any of his transferees
shall obtain and deliver to FSEP IV a written commitment to be bound by such
provisions from a subsequent transferee prior to any Transfer (other than
Transfers constituting a Public Market Sale). The Purchaser's obligations
pursuant to this Section 9, and the obligations of any such transferee, shall
---------
survive the partial termination of this Agreement pursuant to Section 8 hereof.
---------
Any transfer effected in violation of this provision shall be void. The term
"Public Market Sale" means any sale of Common Stock after the Initial Public
Offering which is made pursuant to Rule 144 promulgated under the Securities Act
or which is made pursuant to a registration statement filed with the declared
effective by the Securities and Exchange Commission.
10. Tag Along Rights. If FSEP IV finds a third-party buyer (other
----------------
than a buyer that is an investment fund or partnership affiliated with FSEP IV,
a general or limited partner of FSEP IV, or, for the period ending one year from
the date hereof, an unaffiliated institutional investor or merchant banking firm
(each, a "FS Permitted Transferee") or is a transferee in a Public Market Sale),
for all or part of the shares of Common Stock held by FSEP IV (whether such sale
is by way of purchase, exchange, merger or other form of transaction), the
Purchaser shall have the right to sell, on the terms set forth in a written
notice (the "Offering Notice") delivered by FSEP IV to the Purchaser describing
the terms of the proposed sale (including the minimum sale price for the shares
of Common stock that FSEP IV plans to sell), that amount of the Shares he then
owns which constitute the same percentage of his Shares as the percentage of
6
<PAGE>
Common Stock sold by FSEP IV. Each such right shall be exercisable by delivering
written notice to FSEP IV within 15 days after receipt of the Offering Notice.
Failure to exercise such right within such 15-day period shall be regarded as a
waiver of such rights. The obligations of FSEP IV under this Section 10 shall
terminate upon an Initial Public Offering.
11. Miscellaneous.
-------------
(a) Legends on Certificates. Any and all certificates now or
-----------------------
hereafter issued evidencing the Shares shall have endorsed upon them a legend
substantially as follows:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS UPON TRANSFER AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE
WITH THE TERMS AND CONDITIONS OF THAT CERTAIN STOCK PURCHASE AGREEMENT
DATED AS OF ________, 1998, BY AND BETWEEN ADVANCE HOLDING
CORPORATION, A VIRGINIA CORPORATION, AND THE ORIGINAL PURCHASER
HEREOF, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF ADVANCE HOLDING CORPORATION."
Such certificates shall also bear such legends and shall be subject to such
restrictions on transfer as may be necessary to comply with all applicable
federal and state securities laws and regulations.
(b) Further Assurances. Each party hereto agrees to perform any
------------------
further acts and execute and deliver any documents which may be reasonably
necessary to carry out the intent of this Agreement.
(c) Notices. Except as otherwise provided herein, all notices,
-------
requests, demands and other communications under this Agreement shall be in
writing, and if by telegram or telecopy, shall be deemed to have been validly
served, given or delivered when sent, or if by personal delivery or messenger or
courier service, or by registered or certified mail, shall be deemed to have
been validly served, given or delivered upon actual delivery, at the following
addresses, telephone and facsimile numbers (or such other address(es), telephone
and facsimile numbers a party may designate for itself by like notice):
7
<PAGE>
If to the Company:
Advance Holding Corporation
c/o Freeman Spogli & Co. Incorporated
599 Lexington Avenue, Suite 1800
New York, New York 10022
Attention: John M. Roth
Telephone: (212) 758-2555
Telecopy: (212) 758-7499
If to Purchaser:
________________
________________
________________
(d) Amendments. This Agreement may be amended only by a written
----------
agreement executed by both of the parties hereto and by FSEP IV.
(e) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Virginia.
(f) Disputes. In the event of any dispute among the parties
--------
arising out of this Agreement, the prevailing party shall be entitled to recover
from the nonprevailing party the reasonable expenses of the prevailing party
including, without limitation, reasonable attorneys' fees.
(g) Entire Agreement. This Agreement constitutes the entire
----------------
agreement and understanding among the parties pertaining to the subject matter
hereof and supersedes any and all prior agreements, whether written or oral,
relating hereto.
(h) Recapitalizations or Exchanges Affecting the Company's
------------------------------------------------------
Capital.
- -------
The provisions of this Agreement shall apply to any and all stock or other
securities of the Company or any successor or assign of the Company, which may
be issued in respect of, in exchange for or in substitution of, the Shares by
reason of any split, reverse split, recapitalization, reclassification,
combination, merger, consolidation or otherwise, and such Shares or other
securities shall be encompassed within the term "Shares" for purposes of this
Agreement and the Pledge Agreement.
(i) No Rights as an Employee. Nothing in this Agreement shall
------------------------
affect in any manner whatsoever the rights of the Company or any of its
Subsidiaries to terminate
8
<PAGE>
Purchaser's employment for any reason, with or without cause, subject to the
terms and conditions of any employment agreement to which Purchaser may be a
party.
(j) Disclosure. The Company shall have no duty or obligation to
----------
affirmatively disclose to Purchaser, and Purchaser shall have no right to be
advised of, any material information regarding the Company or any of its
Subsidiaries at any time prior to, upon or in connection with the Company's
repurchase of the Shares under this Agreement at the cessation or termination of
Purchaser's employment with the Company and/or any of its Subsidiaries.
(k) Successors and Assigns. The Company may assign with absolute
----------------------
discretion any or all of its rights and/or obligations and/or delegate any of
its duties under this Agreement to any of its affiliates, successors and/or
assigns and this Agreement shall inure to the benefit of, and be binding upon,
such respective affiliates, successors and/or assigns of the Company in the same
manner and to the same extent as if such affiliates, successors and/or assigns
were original parties hereto. Without limiting the foregoing, the Company may
assign the Repurchase Option and/or the right of first refusal provided for in
Section 3 and Section 4 of this Agreement, respectively, to any of its
- --------- ---------
affiliates, successors and/or assigns. FSEP IV may assign its rights under
Section 9 to any FS Permitted Transferee or to a purchaser of shares of Common
Stock then owned by FSEP IV. For purposes of this Agreement, the term "Shares"
shall include shares of capital stock or other securities of the Company or any
successor or assign of the Company, which are issued in respect of, in exchange
for or in substitution of the Shares by reason of any split, reverse split,
recapitalization, reclassification, combination, merger, exchange or
consolidation. Unless specifically provided herein to the contrary, Purchaser
may not assign any or all of its rights and/or obligations and/or delegate any
or all its duties under this Agreement without the prior written consent of the
Company and FSEP IV. Upon an assignment of any or all of Purchaser's rights
and/or obligations and/or a delegation of any or all of its duties under this
Agreement in accordance with the terms of this Agreement, this Agreement shall
inure to the benefit of, and be binding upon, Purchaser's respective affiliates,
successors and/or assigns in the same manner and to the same extent as if such
affiliates, successors and/or assigns were original parties hereto.
(l) Headings. Introductory headings at the beginning of each
--------
section and subsection of this Agreement are solely for the convenience of the
parties and shall not be deemed to be a limitation upon or description of the
contents of any such section and subsection of this Agreement.
(m) Counterparts. This Agreement may be executed in two
------------
counterparts, each of which shall be deemed an original and both of which, when
taken together, shall constitute one and the same agreement.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
THE COMPANY:
Advance Holding Corporation,
a Virginia corporation
By:______________________________
Garnett E. Smith
President
PURCHASER:
_________________________________
[ ]
10
<PAGE>
EXHIBIT 10.20
SECURED PROMISSORY NOTE
$_____ _________,1998
FOR VALUE RECEIVED, the undersigned __________________ ("Borrower")
hereby promises to pay to the order of Advance Holding Corporation, a Virginia
corporation ("Payee"), the principal sum of ___________________________
($______) together with interest on the unpaid balance of such principal amount
from the date hereof at the rate of interest equal to the rate of interest
reported by The Wall Street Journal as the "prime rate," as it may change from
time to time. Any change in the interest rate to be paid on this Promissory
Note resulting from a change in the prime rate shall be effective as of the date
of such change. Accrued interest to be paid on this Secured Promissory Note
(this "Promissory Note") shall be payable in arrears commencing on March 1, 1999
(with respect to interest accrued through the preceding December 31) and
continuing on each succeeding March 1 thereafter with respect to interest
accrued during the previous year ending December 31 until this Note is paid in
full. The principal balance of, and all accrued and unpaid interest on, this
Promissory Note shall be payable in full by Borrower on that date which is five
(5) years from the date hereof.
Payments of principal and interest on this Promissory Note shall be
made in legal tender of the United States of America and shall be made at such
place as Payee shall have designated to Borrower (and may be made by payroll
deduction by mutual consent of Payor and Payee). If the date set for any
payment of principal or interest on this Promissory Note is a Saturday, Sunday
or legal holiday, then such payment shall be due on the next succeeding business
day.
As of the date hereof, Borrower has purchased certain shares of common
stock of the Company, par value $0.01 per share (the "Shares") of the Payee
pursuant to the terms of that certain Advance Holding Corporation Stock
Subscription Agreement (the "Stock Subscription Agreement") dated on even date
herewith, by and between Payee and Borrower. Payment of this Promissory Note
shall be secured by the Shares as provided in that certain Stock Pledge
Agreement of even date herewith by and between Payee and Borrower (the "Pledge
Agreement").
The principal balance of, and accrued and unpaid interest on, this
Promissory Note may be prepaid at any time, in whole or in part, without premium
or penalty. Any such prepayment shall be first applied to the payment of any
accrued and unpaid interest and then to the unpaid balance of the principal
amount. In the event of a Transfer (as defined in the Stock Subscription
Agreement) by Borrower (or Permitted Transferees (as defined in the Stock
Subscription Agreement)) of Shares to anyone (other than to a Permitted
Transferee), Borrower shall pay the principal balance of, and accrued but unpaid
interest on, this Promissory Note in accordance with the provisions of Section 6
of the Pledge Agreement.
<PAGE>
In the event Borrower shall (i) cease to be an employee of the Company
or its Subsidiaries, (ii) fail to make complete payment of any installment of
accrued interest under this Promissory Note on the date such installment of
accrued interest is due (but Payee shall give Borrower notice of nonpayment and
at least five (5) days to cure such nonpayment); (iii) fail to make complete
payment of principal when due under this Promissory Note; (iv) fail to make the
prepayment of principal and accrued interest on this Promissory Note upon a sale
of Shares as required by the fourth paragraph hereof; or (v) commit a material
breach of or default under the Stock Subscription Agreement or the Pledge
Agreement, Payee may accelerate this Promissory Note and declare the entire
unpaid principal amount of this Promissory Note and all accrued and unpaid
interest hereon to be immediately due and payable and, thereupon, the unpaid
principal amount and all such accrued and unpaid interest shall become and be
immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor, or other notices or
demands of any kind (all of which are hereby expressly waived by Borrower). The
failure of Payee to accelerate this Promissory Note shall not constitute a
waiver of any of Payee's rights under this Promissory Note as long as Borrower's
default under this Promissory Note or breach of or default under the Stock
Subscription Agreement or the Pledge Agreement continues.
The provisions of this Promissory Note shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia without
regard to the conflicts of law rules thereof. In the event that Payee is
required to take any action to collect or otherwise enforce payment of this
Promissory Note, Borrower agrees to pay such reasonable attorneys' fees, court
costs and other expenses as Payee may incur as a result thereof, whether or not
suit is commenced.
The terms and provisions of this Note shall be binding upon the
parties hereto and their respective successors and assigns and shall inure to
the benefit of the parties hereto and the successors and assigns of Payee and
any assignee or transferee of this Note. In the event of such transfer or
assignment, the rights and privileges conferred upon Payee shall automatically
extend to and be vested in such assignee or transferee, all subject to the terms
and conditions hereof. Borrower's obligations, rights or any interest hereunder
may not be delegated or assigned without the written consent of Payee.
All notices, requests, demands or other communications under this
Promissory Note shall be delivered in accordance with the provisions of Section
11(c) of the Stock Subscription Agreement to the address(es) set forth therein.
IN WITNESS WHEREOF, this Promissory Note has been duly executed and
delivered by Borrower on the date first above written.
BORROWER:
_________________________________
[ ]
2
<PAGE>
EXHIBIT 10.21
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Pledge Agreement") is made as of
________, 1998, between __________________ as pledgor ("Pledgor"), and Advance
Holding Corporation, a Virginia corporation, as pledgee ("Pledgee").
R E C I T A L S:
- - - - - - - -
A. Pursuant to that certain Stock Purchase Agreement of even date
herewith (the "Purchase Agreement") by and between Pledgee and Pledgor, Pledgor
was issued ____________________ (_______) shares (the "Shares") of common stock,
$0.01 par value per share of Pledgee in exchange for an aggregate purchase price
of $_______.
B. Pursuant to the terms of the Stock Subscription Agreement and
that certain Secured Promissory Note in the amount of $_______ of even date
herewith delivered by Pledgor to Pledgee (the "Note"), Pledgor has agreed to
make payments of principal and interest to Pledgee as provided in the Note.
C. Pursuant to the terms of the Purchase Agreement and the Note,
Pledgor is required to execute this Pledge Agreement to secure payment in full
of all obligations under the Note, whether for principal, interest, fees,
expenses or otherwise and to ensure compliance with the terms and conditions of
the Purchase Agreement and this Pledge Agreement.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and conditions contained herein, the parties hereto agree as
follows:
1. Grant of Security Interest in the Shares. Pledgor hereby grants
----------------------------------------
to Pledgee a security interest in the Shares, pledges and hypothecates the
Shares to Pledgee, and deposits the certificates evidencing the Shares (the
"Certificates") with Pledgee as collateral security for the payment by Pledgor
of all obligations existing under the Note, whether for principal, interest,
fees, expenses or otherwise, and the satisfaction of all obligations of Pledgor
under the Purchase Agreement and this Pledge Agreement. The Certificates,
together with one or more stock assignments duly executed in blank with
signatures appropriately guaranteed or witnessed, are being delivered herewith
to Pledgee, to be retained by Pledgee as the pledgeholder for the Shares.
<PAGE>
2. Representation and Warranty of Pledgor. Pledgor represents and
--------------------------------------
warrants to Pledgee that the Shares are free and clear of all claims, mortgages,
pledges, liens and other encumbrances of any nature whatsoever, except (a) the
liens and restrictions set forth herein and in the Note and (b) any restrictions
upon sale and distribution imposed by the Securities Act of 1933, as amended
(the "Act"), applicable state securities laws, and the Purchase Agreement.
3. Voting of Shares. So long as there shall exist no Event of
----------------
Default (as hereinafter defined), Pledgor shall be entitled to exercise, as
Pledgor deems proper but in a manner not inconsistent with the terms hereof,
Pledgor's rights to voting power with respect to the Shares. Pledgee, and not
Pledgor, shall be entitled to vote the Shares at any time that there exists an
Event of Default.
4. Dividends. So long as there shall exist no Event of Default,
---------
Pledgor shall be entitled to receive any dividend (ordinary or extraordinary,
whether paid in cash, stock or property) or other distribution with respect to
the Shares. If there exists an Event of Default, such dividend or other
distribution shall be delivered to Pledgee to be held as additional collateral
security under this Pledge Agreement.
5. Pledgee's Duties. So long as Pledgee exercises reasonable care
----------------
with respect to the Shares in its possession, Pledgee shall have no liability
for any loss or damage to such Shares, and in no event shall Pledgee have
liability for any diminution in value of the Shares occasioned by economic or
market conditions or events. Pledgee shall be deemed to have exercised
reasonable care within the meaning of the preceding sentence if the Shares in
its possession are accorded treatment substantially equal to that which Pledgee
accords its own property, it being understood that Pledgee shall not have any
responsibility under this Pledge Agreement for (a) ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relating to the Shares, whether or not Pledgee has or is deemed to have
knowledge of such matters, or (b) taking any necessary steps to preserve rights
against any person or entity with respect to the Shares.
6. Release from Pledge; Transfers to Permitted Transferees. In the
-------------------------------------------------------
event of a purchase by Pledgee of any or all of the Shares pursuant to Section 3
of the Purchase Agreement, such Shares shall be released from this Pledge
Agreement. Pledgor hereby authorizes and directs Pledgee, upon receipt by
Pledgor of payment pursuant to Section 3 of the Purchase Agreement, to complete
and execute the stock assignment or stock assignments delivered herewith to
effectuate such Transfer.
No Shares may be Transferred (as defined in the Purchase Agreement)
(except as set forth in the next sentence), unless Pledgor has made payment to
Pledgee of all unpaid obligations existing under the Note (whether or not then
due and payable), whether for principal, interest, fees, expenses or otherwise
and all unsatisfied obligations of Pledgor under the Purchase Agreement and this
Pledge Agreement. In the event of a Transfer pursuant to Section 5 of the
Purchase Agreement, the Pledgor authorizes the pledgee to cause the certificate
or certificates
2.
<PAGE>
evidencing the Shares to be reissued in the name of the Permitted Transferee (as
defined in the Purchase Agreement) or Transferees; provided, however, that (a)
the Shares shall continue to be subject to this Agreement and the Permitted
Transferees shall execute an undertaking agreeing to be bound by this Agreement
in accordance with Section 5 of the Purchase Agreement, (b) the reissued
certificate or certificates shall continue to be held by the Pledgee pursuant
hereto, and (c) the Permitted Transferee or Transferees shall execute and
deliver to the Pledgee stock assignments in blank with respect to the Shares.
Upon receipt by Pledgee of the payment as required by this paragraph, the Shares
shall be released from this Pledge Agreement.
7. Sale of Collateral. Upon the occurrence of any Event of Default,
------------------
Pledgee shall have all the rights and remedies of a secured party under the
applicable Uniform Commercial Code and also may, without notice, except as
specified below, at its option, sell all or any part of the Shares, for cash,
note or other property upon credit for future delivery or upon such other terms
as Pledgee may deem commercially reasonable. Upon such sale, Pledgee, unless
prohibited by a provision of any applicable statute, may purchase all or any
part of the Shares being sold, free from and discharged of all trusts, claims,
rights of redemption and equities of Pledgor. If the proceeds of any sale of
the Shares shall be insufficient to pay all amounts due under the Notes and
satisfy the obligations of Pledgor under the Purchase Agreement and this Pledge
Agreement, including collection costs and expenses of such sale, Pledgor shall
remain obligated and liable for any deficiency with respect thereto. If, at any
time when Pledgee shall determine to exercise its rights to sell all or any part
of the Shares pursuant to this Section 7, such Shares, or the part thereof to be
---------
sold, shall not be effectively registered under the Act as then in effect or any
similar statute then in force, subject to the provisions of Section 9 hereof,
---------
Pledgee, in its sole and absolute discretion, is hereby expressly authorized to
sell such Shares, or any part thereof, by private sale in such manner and under
such circumstances as Pledgee may deem necessary or advisable in order that such
sale may be effectuated legally without such registration. Without limiting the
generality of the foregoing, Pledgee, in its sole and absolute discretion, may
approach and negotiate with a restricted number of potential purchasers to
effectuate such sale or restrict such sale to a purchaser or purchasers who
shall represent and agree that such purchaser or purchasers are purchasing for
its or their own account, for investment only, and not with a view to the
distribution or sale of such Shares or any part thereof. Any sale conducted in
the manner described in the foregoing sentence shall be deemed to be a sale
conducted in a commercially reasonable manner within the meaning of the
applicable Uniform Commercial Code, and Pledgor hereby consents and agrees that
Pledgee shall incur no responsibility or liability for selling all or any part
of the Shares at a price which is not unreasonably low, notwithstanding the
possibility that a substantially higher price might be realized if the sale were
public. Pledgee shall not be obligated to make any sale of the Shares
regardless of notice of sale having been given. Pledgee may adjourn any public
or private sale from time to time by announcement at the time and place fixed
therefor, and any such sale may, without further notice, be made at the time and
place to which it was so adjourned.
8. Redemption of Collateral. Notwithstanding any other provision of
------------------------
this Pledge Agreement, upon the occurrence of an Event of Default, Pledgee shall
give Pledgor written
3.
<PAGE>
notice of the time and place of any public sale or of the time on or after which
any private sale or other Transfer is to be made at least five (5) days before
the date fixed for any public sale or before the day on or after which any
private sale or other Transfer is to be made. Pledgor agrees that, to the extent
notice of sale shall be required by law, such five (5) days' notice shall
constitute reasonable notification. This notice shall also specify the aggregate
outstanding monetary obligations of the Pledgor to Pledgee at the date of such
notice (the "Total Obligation"). At any time during such five-day period,
Pledgor shall have the right to redeem the Shares by the payment by certified or
bank cashier's check of an amount equal to the Total Obligation.
9. Events of Default. At the option of Pledgee, the principal
-----------------
balance of the Note and all accrued and unpaid interest thereon, and all other
obligations of Pledgor to Pledgee thereunder, under the Purchase Agreement and
hereunder, shall become and be immediately due and payable, without notice of
default, presentment or demand for payment, protest or notice of nonpayment or
dishonor, or other notices or demands of any kind (all of which are hereby
expressly waived by Pledgor), upon the occurrence of any of the events set forth
below (individually, an "Event of Default"):
(a) Pledgor shall cease to be an employee of the Company or its
subsidiaries;
(b) Pledgor shall fail to make complete payment of any
installment of accrued interest under the Note on the date such installment of
accrued interest is due, after being given notice and an opportunity of at least
five (5) days to cure such nonpayment;
(c) Pledgor shall fail to make complete payment of principal when
due under the Note;
(d) Pledgor shall fail to make the prepayment of principal and
accrued interest on the Note as required by the fourth paragraph of the Note; or
(e) Pledgor shall commit a breach of or default under the
Purchase Agreement or this Pledge Agreement.
10. Termination. This Pledge Agreement shall terminate only upon (a)
-----------
payment to Pledgee of all unpaid obligations existing under the Note, whether
for principal, interest, fees, expenses or otherwise and all unsatisfied
obligations of Pledgor under the Purchase Agreement and this Pledge Agreement,
and (b) upon termination of the Purchase Agreement and all obligations
thereunder with respect to all Shares. Upon termination of this Pledge
Agreement, Pledgor shall be entitled to the return of the Certificates then held
by Pledgee and any other collateral security then held by Pledgee pursuant to
Section 4 of this Pledge Agreement.
- ---------
11. Cumulation of Remedies; Waiver of Rights. The remedies provided
----------------------------------------
herein in favor of Pledgee shall not be deemed exclusive but shall be cumulative
and shall be in addition
4.
<PAGE>
to all of the remedies in favor of Pledgee existing at law or in equity. Nothing
in this Pledge Agreement shall require Pledgee to proceed against or exhaust its
remedies against the Shares before proceeding against Pledgor or executing
against any other security or collateral securing performance of Pledgor's
obligations to Pledgee under the Note, the Purchase Agreement or this Pledge
Agreement. No delay on the part of Pledgee in exercising any of its options,
powers or rights, or the partial or single exercise thereof, shall constitute a
waiver thereof.
12. Execution of Endorsements, Assignments, Etc. Upon the occurrence
-------------------------------------------
of an Event of Default, Pledgee shall have the right for and in the name, place
and stead of Pledgor to execute endorsements, assignments or other instruments
of conveyance or transfer with respect to all or any of the Shares and any other
shares of the capital stock of Pledgee or other property which is held by
Pledgee as collateral security pursuant to this Pledge Agreement.
13. Miscellaneous.
-------------
(a) Further Assurances; Changes in Capitalization. Each party
---------------------------------------------
hereto agrees to perform any further acts and execute and deliver any documents
which may be reasonably necessary to carry out the intent of this Pledge
Agreement. The provisions of this Pledge Agreement shall apply to any and all
stock or other securities of the Pledgee or any successor or assign of the
Pledgee, which may be issued in respect of, in exchange for or in substitution
of, the Shares by reason of any split, reverse split, recapitalization,
reclassification, combination, merger, consolidation or otherwise, and such
Shares or other securities shall be encompassed within the term "Shares" for
purposes of this Pledge Agreement and the Pledgee shall have a security interest
in all such securities on the same terms set forth in this Pledge Agreement.
(b) Notice. Except as otherwise provided herein, all notices,
------
requests, demands and other communications under this Agreement shall be in
writing, and if by telegram or telecopy, shall be deemed to have been validly
served, given or delivered when sent, or if by personal delivery or messenger or
courier service, or by registered or certified mail, shall be deemed to have
been validly served, given or delivered upon actual delivery, at the following
addresses, telephone and facsimile numbers (or such other address(es), telephone
and facsimile numbers a party may designate for itself by like notice):
If to Pledgee:
Advance Auto Corporation
c/o Freeman Spogli & Co. Incorporated
599 Lexington Avenue, Suite 1800
New York, New York 10022
Attention: John M. Roth
Telephone: (212) 758-2555
Telecopy: (212) 758-7499
5.
<PAGE>
If to Pledgor:
__________________
__________________
__________________
(c) Amendments. This Pledge Agreement may be amended only by a
----------
written agreement executed by the parties hereto.
(d) Governing Law. This Pledge Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Virginia.
(e) Disputes. In the event of any dispute between the parties arising
--------
out of this Pledge Agreement, the prevailing party shall be entitled to recover
from the nonprevailing party the reasonable expenses of the prevailing party
including, without limitation, reasonable attorneys' fees.
(f) Entire Agreement. This Pledge Agreement constitutes the entire
----------------
agreement and understanding among the parties pertaining to the subject matter
hereof and supersedes any and all prior agreements, whether written or oral,
relating hereto.
(g) Successors and Assigns. Pledgee shall have the right to assign
----------------------
with absolute discretion any or all of its rights and/or obligations and/or
delegate any or all of its duties under this Agreement to any of its affiliates,
successors and/or assigns, including, without limitation (i) to any of its banks
or lending institutions as collateral security, or (ii) to any entity succeeding
the Pledgee by merger, consolidation or acquisition of all or substantially all
of the Pledgee's assets, and this Agreement shall inure to the benefit of, and
be binding upon, such respective affiliates, successors and/or assigns of
Pledgee in the same manner and to the same extent as if such affiliates,
successors and/or assigns were original parties hereto. Unless specifically
provided herein to the contrary, Pledgor may not assign any or all of its rights
and/or obligations and/or delegate any or all of its duties under this Pledge
Agreement without the prior written consent of Pledgee. Upon an assignment of
any or all of Pledgor's rights and/or obligations and/or a delegation of any or
all of its duties under this Pledge Agreement in accordance with the terms of
this Pledge Agreement, this Pledge Agreement shall inure to the benefit of, and
be binding upon, Pledgor's respective affiliates, successors and/or assigns in
the same manner and to the same extent as if such affiliates, successors and/or
assigns were original parties hereto.
(h) Headings. Introductory headings at the beginning of each section
--------
and subsection of this Pledge Agreement are solely for the convenience of the
parties and shall not be deemed to be a limitation upon or description of the
contents of any such section and subsection of this Pledge Agreement.
6.
<PAGE>
(i) Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and both of which, when taken
together, shall constitute one and the same Pledge Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Pledge
Agreement as of the day and year first above written.
PLEDGEE:
Advance Holding Corporation,
a Virginia corporation
By:__________________________________
Garnett E. Smith
President
PLEDGOR:
_____________________________________
[ ]
7.
<PAGE>
EXHIBIT 10.22
EMPLOYMENT AND NONCOMPETITION AGREEMENT
---------------------------------------
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (the "Agreement") is made and
entered into as of the _______________, 1998 by and between Advance Stores
Company, Incorporated, a Virginia corporation (the "Company"), and
___________________ (the "Executive").
W I T N E S S E T H:
A. Pursuant to that certain Agreement and Plan of Merger dated as of
March 4, 1998, (the "Merger Agreement") by and among AHC Corporation
("Investor"), a Virginia corporation and Advance Holding Corporation, parent of
the Company, with FS Equity Partners III, L.P., a Delaware limited partnership,
FS Equity Partners IV, L.P., a Delaware limited partnership, and FS Equity
Partners International, L.P., a Delaware limited partnership (collectively,
"FS"), as Guarantors, Investor will merge with and into the Company (the
"Merger").
B. Immediately upon consummation of the Merger, the Company desires to
continue to employ Executive as __________________________________________ of
the Company on the terms and conditions hereinafter set forth, and Executive is
desirous of accepting said employment.
C. The Company is engaged in the highly competitive business of marketing
and sale of automotive parts, accessories, and services. During his continued
employment with the Company, Executive will have obligations relating to the
business operations of the Company.
D. Executive is recognized as having significant expertise in the retail
automotive parts and accessories industry. Executive's industry experience and
knowledge is greatly valued by the Company and would be extremely valuable to
competitors of the Company.
E. For purposes of this Agreement, "Confidential Information" means any
data or information with respect to the business conducted by the Company, that
is material to the Company's business operations and is not generally known by
the public, including business and trade secrets. To the extent consistent with
the foregoing definition, Confidential Information includes without limitation:
(a) reports, pricing, sales manuals and training manuals, selling, purchasing,
and pricing procedures, and financing methods of the Company, together with any
techniques utilized by the Company in designing, developing, testing or
marketing its products, designing stores, locating stores, product mix and
supplier information or in performing services for clients, customers and
accounts of the Company; and (b) the business plans and financial statements,
reports and projections of the Company. The Company will grant Executive access
to and knowledge of the Company's Confidential Information during the course of
his employment with the Company. Executive recognizes and acknowledges that the
Confidential Information which he will acquire in the course of his employment
is utilized by the Company in all geographic areas in which the Company does
business. Further, the Confidential Information will
<PAGE>
also be utilized in all geographic areas into which the Company expands its
business. Thus, Executive acknowledges that he will be a formidable competitor
in all areas where the Company conducts business. Executive also acknowledges
that the restrictive covenants in this Agreement serve to protect the Company's
investment in the Confidential Information.
F. Each of the Executive and the Company are sophisticated parties
experienced in business transactions of this type, and fully understand (i) the
ramifications of the noncompetition, non-solicitation and confidentiality
restrictions of this Agreement and (ii) that the laws of each state with respect
to the enforceability of such provisions vary. The parties are specifically
selecting the internal laws of the Commonwealth of Virginia to govern this
Agreement in order that it be enforceable against each of them.
NOW, THEREFORE, in consideration of Executive's continued employment with
the Company, the mutual terms and conditions set forth below, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Employment and Term. Subject to the terms and conditions of this
-------------------
Agreement, the Company agrees to employ the Executive for a term commencing on
the effective date of the Merger (the "Effective Date") and ending April 15,
1999 (the "Term") or such other date on which such employment shall terminate as
provided herein. Executive will carry out faithfully and to the best of his
abilities such duties and have such responsibilities as would normally be
carried out by ________________________________________ of a Company, subject to
the control of and in accordance with the directives and policies of the Board
of Directors and Chief Executive Officer of the Company. The employment of
Executive shall be on an exclusive basis, but the Executive may be a passive
investor or otherwise have a passive interest in other businesses, partnerships
and entities so long as such other activities of the Executive do not interfere
with the performance of his duties hereunder and so long as such other
businesses, partnerships and entities do not cause the Executive to violate the
non-competition, non-solicitation, and confidentiality restrictions of this
Agreement.
2. Compensation.
------------
2.1 The Company shall provide Executive with an annual salary equal
to $______ payable in equal monthly installments, or such other schedule
established by the Company, less required withholding. The annual salary may,
at the option of the Board of Directors, be subject to annual increases upon
review by the Board of Directors. Any such reviews will be made after
completion of the Company's fiscal year, and shall be in the sole discretion of
the Board of Directors.
2.2 The Executive shall be reimbursed in accordance with the policies
of the Company as adopted by the Board from time to time for his reasonable
travel, entertainment, business, meeting and similar expenditures, incurred for
the benefit of the Company and subject
2
<PAGE>
to approval of the Board. As an additional condition to the reimbursement of
such expenses by the Company to the Executive, the Executive shall provide the
Company with copies of all available invoices and receipts, and otherwise
account to the Company in sufficient detail and with adequate documentation to
allow the Company to confirm the business nature of the expenses and claim an
income tax deduction for such paid items, if such items are deductible.
3. Bonus Program and Other Benefits. Executive shall be eligible to
--------------------------------
participate in a manner commensurate with other senior management executives of
the Company in all benefits or other programs generally available to such
executives to the extent such exist or are sponsored by the Company, at a level
consistent in overall terms with such bonus and benefit programs on the date
hereof. Without limiting the generality of the foregoing, Executive shall be
entitled to receive an incentive bonus as determined by the Board of Directors
and Chief Executive Officer of the Company, which may be based upon achievement
of targeted annual earnings goals for the Company or other factors deemed
relevant by the Board of Directors and Chief Executive Officer.
4. Termination of Employment.
-------------------------
4.1 Termination By The Company. The Company may terminate
--------------------------
Executive's employment upon the occurrence of any of the following:
(a) At the election of the Company for cause, immediately upon
written notice by the Company to Executive. For the purpose of this Section
4.1(a), "cause" for termination shall be deemed to exist in the event of: (A)
the engaging by Executive in conduct which is demonstrably and materially
injurious to the Company, including fraud, embezzlement or other material
illegal conduct, (B) the conviction of Executive of, or the entry of a pleading
of guilty or nolo contendere by Executive to, any crime involving moral
turpitude or any felony, (C) material breach by Executive of any of the terms of
this Agreement, which, if curable, is not cured by Executive within fourteen
(14) days of written notice by the Company to Executive of such breach, (D)
gross negligence or willful misconduct by Executive in the performance of his
duties, which, if curable, is not cured by Executive within fourteen (14) days
of written notice by the Company to Executive of such non-performance, or (E)
Executive's material failure to perform duties assigned to him by the Board of
Directors or the Chief Executive Officer or to comply with the Company's
standard policies and procedures generally applicable to employees, which
failure, if curable, is not cured by Executive within fourteen (14) days of
written notice by the Company to Executive of such failure to so perform or
comply.
(b) Upon death or upon determination of disability of Executive.
As used in this Section 4, the term "disability" or "disabled" shall mean the
failure of Executive, due to a physical or mental disability, despite reasonable
accommodation made by the Company for a period of 180 days, during any
consecutive 12-month period to substantially perform the services contemplated
under this Agreement.
3
<PAGE>
(c) At the election of the Company at any time, without cause,
subject to the provisions of Section 4.3(a).
4.2 Termination By The Executive. The Executive may terminate his
----------------------------
employment upon 30 days' notice to the Company for any reason. If Executive
terminates his employment for "Good Reason" the termination shall be treated as
a termination under Section 4.1(c) for purposes of determining the Executive's
benefits under this Agreement. For purposes of this Agreement, "Good Reason"
shall mean that, without Executive's express written consent, the occurrence of
any of the following circumstances:
(a) The assignment to Executive of any duties materially
inconsistent (except in the nature of a promotion) with the position in the
Company that he held immediately prior to the reassignment or a substantial
adverse alteration in the nature or status of his position or responsibilities
from those in effect immediately prior to the reassignment;
(b) A reduction by the Company in Executive's annual base salary
as in effect on the date hereof or as the same may be increased from time to
time;
(c) The Company's requiring Executive to be based more than 50
miles from the Company's office at which he was principally employed immediately
prior to the date of the relocation; or
(d) A material breach by the Company of its duties under this
Agreement.
4.3 Effect of Termination.
---------------------
(a) In the event Executive's employment is terminated without
cause or should the Executive terminate his employment with Good Reason, (i) the
Company shall pay to Executive the then applicable salary payable to him under
Section 2 (in monthly installments, less required withholding) through the later
of (A) the remainder of the term of employment hereunder or (B) one year after
the effective date of termination; provided, however, that in the event that,
subsequent to termination, Executive engages in other employment, Executive
shall receive the difference, if any, between his salary with the Company and
his new salary, (ii) Executive shall receive a pro rata portion of any bonus due
to him with respect to all periods prior to termination of employment and (iii)
if possible under the provisions of such plan, the Company shall continue
Executive's medical insurance coverage through the later of (A) the remainder of
the term of this Agreement or (B) until he engages in other employment. In the
event Executive is ineligible under such plan, the Company shall arrange to
provide Executive with substantially similar benefits until he engages in other
employment.
(b) If Executive's employment is terminated by death or because
of disability pursuant to Section 4.1(b), the Company shall pay to the estate of
the Executive or to
4
<PAGE>
Executive, as the case may be, one year's salary in 12 equal monthly
installments (less any amounts paid Executive under any disability plan
maintained by the Company), plus the pro rata portion of any bonus, if any,
payable for the portion of the fiscal year in which death or disability occurred
that Executive was still employed.
(c) If Executive is terminated for cause or if Executive
terminates his employment without Good Reason, Executive is entitled to no
salary or benefits beyond the effective date of termination and Executive shall
not be entitled to any bonus or incentive compensation payments whatsoever.
5. Covenants.
---------
5.1 Definitions.
-----------
(a) The term "Person" shall mean any corporation, partnership,
joint venture, trust, sole proprietorship, limited liability company,
unincorporated business association, natural person, and any other entity that
may be treated as a person under applicable law.
(b) The term "Affiliate" shall mean an affiliate as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the "Exchange
Act").
(c) The term "Control" shall mean control as such term is defined
in Rule 12b-2 under the Exchange Act.
(d) The term "Prohibited Business" shall mean any Person that
sells or offers to sell automotive parts, accessories, or services in
competition with the automotive parts, accessories, or services sold or offered
to be sold by the Company (whether conducted by the Company or any subsidiary or
Affiliate of the Company, or any person, corporation, partnership, trust or
other organization or entity deriving title from the Company). The term
includes, but is not limited to Persons engaged in competition with the Company
as a chain of automotive parts and accessories stores or chain of automotive
service facilities, including any retail chain offering other products and
services that engages in a significant line of business of offering automotive
parts, accessories or services. Such a Person is engaged in a significant line
of business competitive with the Company if the sale of automotive parts,
accessories or services exceeds the lesser of 10% of the revenues or $10 million
in revenue of such Person. Nothing herein shall be construed as prohibiting
Executive from working for a Prohibited Business in any division, subsidiary or
aspect of that business that is not competitive with the Company.
(e) The term "directly or indirectly carry on or participate in a
Prohibited Business" shall include the Executive, directly or indirectly, doing
any of the following listed acts:
5
<PAGE>
(i) Whether or not for compensation, directly or indirectly
engaging in any Prohibited Business, or any part thereof, whether as a
director, officer, employee, consultant, adviser, independent contractor or
otherwise, or assisting any other Person in such Person's conduct of a
Prohibited Business, or any part thereof; or
(ii) Holding legal or beneficial interest in any Person that is
engaged in any Prohibited Business, or any part thereof, whether such
interest is as an owner, investor, partner, creditor, joint venturer or
otherwise; provided, however, that Executive may acquire and own up to two
percent (2%) of the outstanding securities of any corporation which is a
publicly traded reporting corporation under the Exchange Act; or
(iii) As agent or principal carrying on or engaging in any
activities or negotiations with respect to the acquisition or the
disposition of any Prohibited Business; or
(iv) Giving advice to any other Person, firm or association
engaging in any Prohibited Business; or
(v) Lending or allowing his name or reputation to be used in
or associated with any Prohibited Business; or
(vi) Soliciting, diverting or attempting to divert from the
Company any business constituting, or any customer of, or any supplier of,
any part of the business conducted by the Company; or
(vii) Allowing his skill, knowledge or experience to be used in
any Prohibited Business.
(f) The term "Covenant Period" shall mean the period extending to the
later of (i) April 15, 2000 or (ii) the one year anniversary of the effective
date of termination of employment of Executive.
5.2 Agreement Not to Compete Nationally. Executive acknowledges that the
-----------------------------------
Company intends to extend its business operations throughout the United States
of America. Therefore, during the Covenant Period, Executive agrees that he
shall not directly or indirectly carry on or participate in any Prohibited
Business anywhere within the United States of America.
5.3 Agreement Not to Compete Where the Company Does Business. Independent
--------------------------------------------------------
of the preceding provision, Executive agrees that, during the Covenant Period,
he shall not directly or indirectly carry on or participate in a Prohibited
Business which sells or offers to sell products
6
<PAGE>
or services (in competition with the Company) within any county or city in which
the Company, during the Covenant Period, sells or offers to sell its products or
services.
5.4 Non-Recruitment. Independent of the foregoing provisions, Executive
---------------
agrees that, during the Covenant Period, Executive shall not, directly or
indirectly, cause any person engaged or employed by the Company or its
Affiliates (whether part-time or full-time and whether as an officer, employee,
consultant, agent, adviser or independent contractor) (an "Employee") to
voluntarily leave the employ of or engagement with the Company or its
Affiliates, as the case may be, or to cease providing the services to or on
behalf of the Company or its Affiliates, as the case may be, then provided by
such Employee. Executive further agrees that, during the same time period, he
will not in any manner seek to engage or employ any such Employee (whether or
not for compensation) as an officer, employee, consultant, agent, adviser or
independent contractor for any Person other than the Company.
5.5 Non-Solicitation. Independent of the foregoing provisions, Executive
----------------
agrees that, during the Covenant Period, Executive shall not, other than in
connection with his employment, directly or indirectly, sell or offer to sell
automotive parts, accessories, or services (or directly or indirectly carry on
or participate in a Prohibited Business that sells or offers to sell automotive
parts, accessories, or services) to any Person who is a customer of the Company.
Executive also agrees that, during the Covenant Period, Executive shall not,
directly or indirectly, interfere, in any way, with the business relationship
between the Company or its Affiliates and any business which supplies automotive
parts, accessories, or services to the Company.
5.6 Confidential Information. This covenant is independent of, and in
------------------------
addition to, those set forth above.
(a) Executive hereby covenants and agrees that, during the Covenant
Period and at all times thereafter, he will not use or disclose any Confidential
Information, except for the benefit of the Company and to authorized
representatives of the Company or except as required by any governmental or
judicial authority; provided, however, that the foregoing restrictions shall not
apply to items that, through no fault of Executive's, have entered the public
domain.
(b) Executive acknowledges that all Confidential Information is and
shall remain the sole, exclusive and valuable property of the Company and that
Executive has and shall acquire no right, title or interest therein. Any and
all printed, typed, written or other material which Executive has or may obtain
with respect to Confidential Information (including without limitation all
copyrights therein) shall be and remain the exclusive property of the Company,
and any and all material (including any copies) shall, upon request of the
Company, be promptly delivered by Executive to the Company.
(c) Executive hereby assigns to the Company all right, title and
interest in and to any ideas, inventions, original works or authorship,
developments, improvements or trade secrets which Executive solely or jointly
have conceived or reduced to practice, or will conceive
7
<PAGE>
or reduce to practice, or cause to be conceived or reduced to practice, during
the Covenant Period. All original works of authorship which are made by
Executive (solely or jointly with others) within the scope of Executive's
services hereunder and which are protectable by copyright are "works made for
hire," as that term is defined in the United States Copyright Act.
5.7 Representation and Warranties. Executive represents and warrants to,
-----------------------------
and agrees with, the Company and its Affiliates that:
(a) Executive has carefully reviewed the restrictive covenants
contained in this Section 5 and considered all of its terms, and agrees that its
scope, duration and terms are reasonable; and
(b) This Agreement constitutes the legal, valid and binding obligation
of Executive enforceable in accordance with its terms.
5.8 Scope and Reasonableness. The parties agree that it is not their
------------------------
intention to violate any public policy or statutory or common law. The parties
intend that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought.
6. Validity of Covenants. Executive agrees that the restrictive
---------------------
covenants contained in this Agreement are reasonably necessary to protect the
legitimate business and other interests of the Company, are reasonable with
respect to time and territory, and do not interfere with the interests of the
public.
7. Specific Performance. Executive acknowledges that it would be
--------------------
impossible to determine the amount of damages that would result from any breach
of any of the provisions of this Agreement and that the remedy at law for any
breach, or threatened breach, of any of the provisions of this Agreement would
likely be inadequate and, accordingly, agrees that the Company and its
Affiliates shall, in addition to any other rights or remedies which they may
have, be entitled to seek such equitable and injunctive relief as may be
available from any court of competent jurisdiction to restrain Executive from
violating any of the provisions of this Agreement. In connection with any
action or proceeding for injunctive relief, Executive hereby waives the claim or
defense that a remedy at law alone is adequate and agrees, to the maximum extent
permitted by law, to have each provision of this Agreement specifically enforced
against him, without the necessity of posting bond or other security against
him, and consents to the entry of injunctive relief against him enjoining or
restraining any breach or threatened breach of this Agreement. If Executive
takes action in violation of a restrictive covenant set forth in Section 5 of
this Agreement, Executive acknowledges that the effective period for the
restrictive covenants which are violated will be extended for a period of time
equivalent to the period of time during which Executive is in violation of the
restrictive covenants.
8
<PAGE>
8. Notices. Any and all notices, designations, consents, offers,
-------
acceptances, or any other communications provided for herein shall be given in
writing and shall be deemed given on the date received if sent by registered or
certified mail, return receipt requested; or on the date actually received if
sent by express mail or other similar overnight delivery or if hand delivered or
if sent via facsimile, which shall be addressed:
If to the Company:
Advance Holding Corporation
c/o Freeman Spogli & Co. Incorporated
599 Lexington Avenue, Suite 1800
New York, New York 10022
Attention: John M. Roth
Telephone: (212) 758-2555
Telecopy: (212) 758-7499
If to Executive:
__________________
__________________
__________________
9. Governing Law. This Agreement shall be subject to and governed by the
-------------
laws of the Commonwealth of Virginia.
10. Severability. The restrictive covenants set forth in Section 5 are
------------
separate and independent contractual provisions. The invalidity or
unenforceability of any particular restrictive covenant or any other provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were omitted.
11. Successors and Assigns Binding Effect. This Agreement shall be
-------------------------------------
binding upon and inure to the benefit of the Company and Executive and their
respective heirs, legal representatives, executors, administrators, successors
and assigns, provided that Executive may not assign his rights or delegate his
obligations hereunder. The Company may assign its rights under the restrictive
covenants in Section 5 to any beneficial owner of 10% or more of the Company or
any other Affiliate.
12. No Waiver. The failure by the Company or any Affiliate to enforce any
---------
of its rights hereunder shall not be deemed to be a waiver of such rights,
unless such waiver is in writing and signed by the waiving party, and, in the
case of any corporation, approved by its
9
<PAGE>
Board of Directors, or in the case of a partnership, approved by the Board of
Directors of its corporate general partner. Waiver of any one breach shall not
be deemed to be a waiver of any other breach of the same or any other provision
hereof.
13. No Construction Against Any Party. This Agreement was reviewed by
---------------------------------
legal counsel for each of Executive and the Company. This Agreement is the
product of informed negotiations among Executive and the Company and if any part
of this Agreement is deemed to be unclear or ambiguous, it shall be construed as
if it were drafted jointly by all parties. Moreover, Executive and the Company
each acknowledge that no party was in a superior bargaining position regarding
the substantive terms of this Agreement.
14. Disputes. In the event of any dispute between the parties arising out
--------
of this Agreement, the prevailing party shall be entitled to recover from the
nonprevailing party the reasonable expenses of the prevailing party including,
without limitation, reasonable attorneys' fees.
15. Effectiveness. This Agreement shall become effective upon the
-------------
Effective Date.
16. Entire Agreement.
----------------
(a) This Agreement constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersedes any and all other
agreements, either oral or in writing, among the parties hereto with respect to
the subject matter hereof (including any employment agreement in effect prior to
the date hereof).
(b) This Agreement may not be changed orally, but may be amended,
revoked, changed or modified at any time by a written agreement executed by the
Executive and the Company upon approval of the Board of Directors.
10
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed on the day and
year set forth above.
ADVANCE HOLDING CORPORATION
By:_____________________________________________
Title:__________________________________________
EXECUTIVE
_________________________________________________
[ ]
11
<PAGE>
EXHIBIT 10.23
EMPLOYMENT AND NONCOMPETITION AGREEMENT
---------------------------------------
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (the "Agreement") is made and
entered into as of the ________________, 1998 by and between Advance Stores
Company, Incorporated, a Virginia corporation (the "Company"), and
__________________ (the "Executive").
W I T N E S S E T H:
A. Pursuant to that certain Agreement and Plan of Merger dated as of
March 4, 1998, (the "Merger Agreement") by and among AHC Corporation
("Investor"), a Virginia corporation and Advance Holding Corporation, parent of
the Company, with FS Equity Partners III, L.P., a Delaware limited partnership,
FS Equity Partners IV, L.P., a Delaware limited partnership, and FS Equity
Partners International, L.P., a Delaware limited partnership (collectively,
"FS"), as Guarantors, Investor will merge with and into the Company (the
"Merger").
B. Immediately upon consummation of the Merger, the Company desires to
continue to employ Executive as ________________________________ of the Company
on the terms and conditions hereinafter set forth, and Executive is desirous of
accepting said employment.
C. The Company is engaged in the highly competitive business of marketing
and sale of automotive parts, accessories, and services. During his continued
employment with the Company, Executive will have obligations relating to the
business operations of the Company.
D. Executive is recognized as having significant expertise in the retail
automotive parts and accessories industry. Executive's industry experience and
knowledge is greatly valued by the Company and would be extremely valuable to
competitors of the Company.
E. For purposes of this Agreement, "Confidential Information" means any
data or information with respect to the business conducted by the Company, that
is material to the Company's business operations and is not generally known by
the public, including business and trade secrets. To the extent consistent with
the foregoing definition, Confidential Information includes without limitation:
(a) reports, pricing, sales manuals and training manuals, selling, purchasing,
and pricing procedures, and financing methods of the Company, together with any
techniques utilized by the Company in designing, developing, testing or
marketing its products, designing stores, locating stores, product mix and
supplier information or in performing services for clients, customers and
accounts of the Company; and (b) the business plans and financial statements,
reports and projections of the Company. The Company will grant Executive access
to and knowledge of the Company's Confidential Information during the course of
his employment with the Company. Executive recognizes and acknowledges that the
Confidential Information which he will acquire in the course of his employment
is utilized by the Company in all geographic areas in which the Company does
business. Further, the Confidential Information will also be utilized in all
geographic areas into which the Company expands its business. Thus,
<PAGE>
Executive acknowledges that he will be a formidable competitor in all areas
where the Company conducts business. Executive also acknowledges that the
restrictive covenants in this Agreement serve to protect the Company's
investment in the Confidential Information.
F. Each of the Executive and the Company are sophisticated parties
experienced in business transactions of this type, and fully understand (i) the
ramifications of the noncompetition, non-solicitation and confidentiality
restrictions of this Agreement and (ii) that the laws of each state with respect
to the enforceability of such provisions vary. The parties are specifically
selecting the internal laws of the Commonwealth of Virginia to govern this
Agreement in order that it be enforceable against each of them.
NOW, THEREFORE, in consideration of Executive's continued employment with
the Company, the mutual terms and conditions set forth below, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Employment and Term. Subject to the terms and conditions of this
-------------------
Agreement, the Company agrees to employ the Executive for a term commencing on
the effective date of the Merger (the "Effective Date") and ending April 15,
2000 (the "Initial Term") or such other date on which such employment shall
terminate as provided herein. The term of this Agreement and Executive's
employment hereunder will automatically be extended for an additional one-year
period following the expiration of the Initial Term and following each year of
employment hereunder after the Initial Term (each, a "Renewal Date"), without
further action by Executive or the Company unless written notice not to renew
for an additional one-year period is given by either the Company or Executive to
the other not less than sixty (60) days prior to the expiration of the Initial
Term or any Renewal Date, as applicable. In the event a notice not to renew is
given by one party to the other as provided in the immediately preceding
sentence, then the automatic extension of the term of this Agreement shall
thereafter no longer be of any further force or effect. Executive will carry out
faithfully and to the best of his abilities such duties and have such
responsibilities as would normally be carried out by the
_________________________________of a Company, subject to the control of and in
accordance with the directives and policies of the Board of Directors and Chief
Executive Officer of the Company. The employment of Executive shall be on an
exclusive basis, but the Executive may be a passive investor or otherwise have a
passive interest in other businesses, partnerships and entities so long as such
other activities of the Executive do not interfere with the performance of his
duties hereunder and so long as such other businesses, partnerships and entities
do not cause the Executive to violate the non-competition, non-solicitation, and
confidentiality restrictions of this Agreement.
2. Compensation.
------------
2.1 The Company shall provide Executive with an annual salary equal
to $_______ payable in equal monthly installments, or such other schedule
established by the Company, less required withholding. The annual salary may,
at the option of the Board of
2
<PAGE>
Directors, be subject to annual increases upon review by the Board of Directors.
Any such reviews will be made after completion of the Company's fiscal year, and
shall be in the sole discretion of the Board of Directors.
2.2 The Executive shall be reimbursed in accordance with the policies
of the Company as adopted by the Board from time to time for his reasonable
travel, entertainment, business, meeting and similar expenditures, incurred for
the benefit of the Company and subject to approval of the Board. As an
additional condition to the reimbursement of such expenses by the Company to the
Executive, the Executive shall provide the Company with copies of all available
invoices and receipts, and otherwise account to the Company in sufficient detail
and with adequate documentation to allow the Company to confirm the business
nature of the expenses and claim an income tax deduction for such paid items, if
such items are deductible.
3. Bonus Program and Other Benefits. Executive shall be eligible to
--------------------------------
participate in a manner commensurate with other senior management executives of
the Company in all benefits or other programs generally available to such
executives to the extent such exist or are sponsored by the Company, at a level
consistent in overall terms with such bonus and benefit programs on the date
hereof. Without limiting the generality of the foregoing, Executive shall be
entitled to receive an incentive bonus as determined by the Board of Directors
and Chief Executive Officer of the Company, which may be based upon achievement
of targeted annual earnings goals for the Company or other factors deemed
relevant by the Board of Directors and Chief Executive Officer.
4. Termination of Employment.
-------------------------
4.1 Termination By The Company. The Company may terminate
--------------------------
Executive's employment upon the occurrence of any of the following:
(a) At the election of the Company for cause, immediately upon written
notice by the Company to Executive. For the purpose of this Section 4.1(a),
"cause" for termination shall be deemed to exist in the event of: (A) the
engaging by Executive in conduct which is demonstrably and materially injurious
to the Company, including fraud, embezzlement or other material illegal conduct,
(B) the conviction of Executive of, or the entry of a pleading of guilty or nolo
contendere by Executive to, any crime involving moral turpitude or any felony,
(C) material breach by Executive of any of the terms of this Agreement, which,
if curable, is not cured by Executive within fourteen (14) days of written
notice by the Company to Executive of such breach, (D) gross negligence or
willful misconduct by Executive in the performance of his duties, which, if
curable, is not cured by Executive within fourteen (14) days of written notice
by the Company to Executive of such non-performance, or (E) Executive's material
failure to perform duties assigned to him by the Board of Directors or the Chief
Executive Officer or to comply with the Company's standard policies and
procedures generally applicable to employees, which failure, if curable, is not
cured by Executive within fourteen (14) days of written notice by the Company to
Executive of such failure to so perform or comply.
3
<PAGE>
(b) Upon death or upon determination of disability of Executive.
As used in this Section 4, the term "disability" or "disabled" shall mean the
failure of Executive, due to a physical or mental disability, despite reasonable
accommodation made by the Company for a period of 180 days, during any
consecutive 12-month period to substantially perform the services contemplated
under this Agreement.
(c) At the election of the Company at any time, without cause,
subject to the provisions of Section 4.3(a).
4.2 Termination By The Executive. The Executive may terminate his
----------------------------
employment upon 30 days' notice to the Company for any reason. If Executive
terminates his employment for "Good Reason" the termination shall be treated as
a termination under Section 4.1(c) for purposes of determining the Executive's
benefits under this Agreement. For purposes of this Agreement, "Good Reason"
shall mean that, without Executive's express written consent, the occurrence of
any of the following circumstances:
(a) The assignment to Executive of any duties materially
inconsistent (except in the nature of a promotion) with the position in the
Company that he held immediately prior to the reassignment or a substantial
adverse alteration in the nature or status of his position or responsibilities
from those in effect immediately prior to the reassignment;
(b) A reduction by the Company in Executive's annual base salary
as in effect on the date hereof or as the same may be increased from time to
time;
(c) The Company's requiring Executive to be based more than 50
miles from the Company's office at which he was principally employed immediately
prior to the date of the relocation; or
(d) A material breach by the Company of its duties under this
Agreement.
4.3 Effect of Termination.
---------------------
(a) In the event Executive's employment is terminated without
cause or should the Executive terminate his employment with Good Reason, (i) the
Company shall pay to Executive the then applicable salary payable to him under
Section 2 (in monthly installments, less required withholding) through the later
of (A) the remainder of the term of employment hereunder or (B) one year after
the effective date of termination; provided, however, that in the event that,
subsequent to termination, Executive engages in other employment, Executive
shall receive the difference, if any, between his salary with the Company and
his new salary, (ii) Executive shall receive a pro rata portion of any bonus due
to him with respect to all periods prior to termination of employment and (iii)
if possible under the provisions of such plan, the Company shall continue
Executive's medical insurance coverage through the later of (A) the remainder of
the term of this
4
<PAGE>
Agreement or (B) until he engages in other employment. In the event Executive is
ineligible under such plan, the Company shall arrange to provide Executive with
substantially similar benefits until he engages in other employment.
(b) If Executive's employment is terminated by death or because of
disability pursuant to Section 4.1(b), the Company shall pay to the estate of
the Executive or to Executive, as the case may be, one year's salary in 12 equal
monthly installments (less any amounts paid Executive under any disability plan
maintained by the Company), plus the pro rata portion of any bonus, if any,
payable for the portion of the fiscal year in which death or disability occurred
that Executive was still employed.
(c) If Executive is terminated for cause or if Executive terminates
his employment without Good Reason, Executive is entitled to no salary or
benefits beyond the effective date of termination and Executive shall not be
entitled to any bonus or incentive compensation payments whatsoever.
5. Covenants.
---------
5.1 Definitions.
-----------
(a) The term "Person" shall mean any corporation, partnership,
joint venture, trust, sole proprietorship, limited liability company,
unincorporated business association, natural person, and any other entity that
may be treated as a person under applicable law.
(b) The term "Affiliate" shall mean an affiliate as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the "Exchange
Act").
(c) The term "Control" shall mean control as such term is defined
in Rule 12b-2 under the Exchange Act.
(d) The term "Prohibited Business" shall mean any Person that
sells or offers to sell automotive parts, accessories, or services in
competition with the automotive parts, accessories, or services sold or offered
to be sold by the Company (whether conducted by the Company or any subsidiary or
Affiliate of the Company, or any person, corporation, partnership, trust or
other organization or entity deriving title from the Company). The term
includes, but is not limited to Persons engaged in competition with the Company
as a chain of automotive parts and accessories stores or chain of automotive
service facilities, including any retail chain offering other products and
services that engages in a significant line of business of offering automotive
parts, accessories or services. Such a Person is engaged in a significant line
of business competitive with the Company if the sale of automotive parts,
accessories or services exceeds the lesser of 10% of the revenues or $10 million
in revenue of such Person. Nothing herein shall be
5
<PAGE>
construed as prohibiting Executive from working for a Prohibited Business in any
division, subsidiary or aspect of that business that is not competitive with the
Company.
(e) The term "directly or indirectly carry on or participate in a
Prohibited Business" shall include the Executive, directly or indirectly, doing
any of the following listed acts:
(i) Whether or not for compensation, directly or indirectly
engaging in any Prohibited Business, or any part thereof, whether as a
director, officer, employee, consultant, adviser, independent contractor or
otherwise, or assisting any other Person in such Person's conduct of a
Prohibited Business, or any part thereof; or
(ii) Holding legal or beneficial interest in any Person that is
engaged in any Prohibited Business, or any part thereof, whether such
interest is as an owner, investor, partner, creditor, joint venturer or
otherwise; provided, however, that Executive may acquire and own up to two
percent (2%) of the outstanding securities of any corporation which is a
publicly traded reporting corporation under the Exchange Act; or
(iii) As agent or principal carrying on or engaging in any
activities or negotiations with respect to the acquisition or the
disposition of any Prohibited Business; or
(iv) Giving advice to any other Person, firm or association
engaging in any Prohibited Business; or
(v) Lending or allowing his name or reputation to be used in
or associated with any Prohibited Business; or
(vi) Soliciting, diverting or attempting to divert from the
Company any business constituting, or any customer of, or any supplier
of, any part of the business conducted by the Company; or
(vii) Allowing his skill, knowledge or experience to be used in
any Prohibited Business.
(f) The term "Covenant Period" shall mean the period extending to the
later of (i) April 15, 2001 or (ii) the one year anniversary of the effective
date of termination of employment of Executive which includes the non-renewal of
the term of this Agreement by either party pursuant to Section 1.
6
<PAGE>
5.2 Agreement Not to Compete Nationally. Executive acknowledges that the
-----------------------------------
Company intends to extend its business operations throughout the United States
of America. Therefore, during the Covenant Period, Executive agrees that he
shall not directly or indirectly carry on or participate in any Prohibited
Business anywhere within the United States of America.
5.3 Agreement Not to Compete Where the Company Does Business. Independent
--------------------------------------------------------
of the preceding provision, Executive agrees that, during the Covenant Period,
he shall not directly or indirectly carry on or participate in a Prohibited
Business which sells or offers to sell products or services (in competition with
the Company) within any county or city in which the Company, during the Covenant
Period, sells or offers to sell its products or services.
5.4 Non-Recruitment. Independent of the foregoing provisions, Executive
---------------
agrees that, during the Covenant Period, Executive shall not, directly or
indirectly, cause any person engaged or employed by the Company or its
Affiliates (whether part-time or full-time and whether as an officer, employee,
consultant, agent, adviser or independent contractor) (an "Employee") to
voluntarily leave the employ of or engagement with the Company or its
Affiliates, as the case may be, or to cease providing the services to or on
behalf of the Company or its Affiliates, as the case may be, then provided by
such Employee. Executive further agrees that, during the same time period, he
will not in any manner seek to engage or employ any such Employee (whether or
not for compensation) as an officer, employee, consultant, agent, adviser or
independent contractor for any Person other than the Company.
5.5 Non-Solicitation. Independent of the foregoing provisions, Executive
----------------
agrees that, during the Covenant Period, Executive shall not, other than in
connection with his employment, directly or indirectly, sell or offer to sell
automotive parts, accessories, or services (or directly or indirectly carry on
or participate in a Prohibited Business that sells or offers to sell automotive
parts, accessories, or services) to any Person who is a customer of the Company.
Executive also agrees that, during the Covenant Period, Executive shall not,
directly or indirectly, interfere, in any way, with the business relationship
between the Company or its Affiliates and any business which supplies automotive
parts, accessories, or services to the Company.
5.6 Confidential Information. This covenant is independent of, and in
------------------------
addition to, those set forth above.
(a) Executive hereby covenants and agrees that, during the Covenant
Period and at all times thereafter, he will not use or disclose any Confidential
Information, except for the benefit of the Company and to authorized
representatives of the Company or except as required by any governmental or
judicial authority; provided, however, that the foregoing restrictions shall not
apply to items that, through no fault of Executive's, have entered the public
domain.
(b) Executive acknowledges that all Confidential Information is and
shall remain the sole, exclusive and valuable property of the Company and that
Executive has and shall acquire no right, title or interest therein. Any and
all printed, typed, written or other material which
7
<PAGE>
Executive has or may obtain with respect to Confidential Information (including
without limitation all copyrights therein) shall be and remain the exclusive
property of the Company, and any and all material (including any copies) shall,
upon request of the Company, be promptly delivered by Executive to the Company.
(c) Executive hereby assigns to the Company all right, title and
interest in and to any ideas, inventions, original works or authorship,
developments, improvements or trade secrets which Executive solely or jointly
have conceived or reduced to practice, or will conceive or reduce to practice,
or cause to be conceived or reduced to practice, during the Covenant Period.
All original works of authorship which are made by Executive (solely or jointly
with others) within the scope of Executive's services hereunder and which are
protectable by copyright are "works made for hire," as that term is defined in
the United States Copyright Act.
5.7 Representation and Warranties. Executive represents and warrants to,
-----------------------------
and agrees with, the Company and its Affiliates that:
(a) Executive has carefully reviewed the restrictive covenants
contained in this Section 5 and considered all of its terms, and agrees that its
scope, duration and terms are reasonable; and
(b) This Agreement constitutes the legal, valid and binding obligation
of Executive enforceable in accordance with its terms.
5.8 Scope and Reasonableness. The parties agree that it is not their
------------------------
intention to violate any public policy or statutory or common law. The parties
intend that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought.
6. Validity of Covenants. Executive agrees that the restrictive
---------------------
covenants contained in this Agreement are reasonably necessary to protect the
legitimate business and other interests of the Company, are reasonable with
respect to time and territory, and do not interfere with the interests of the
public.
7. Specific Performance. Executive acknowledges that it would be
--------------------
impossible to determine the amount of damages that would result from any breach
of any of the provisions of this Agreement and that the remedy at law for any
breach, or threatened breach, of any of the provisions of this Agreement would
likely be inadequate and, accordingly, agrees that the Company and its
Affiliates shall, in addition to any other rights or remedies which they may
have, be entitled to seek such equitable and injunctive relief as may be
available from any court of competent jurisdiction to restrain Executive from
violating any of the provisions of this Agreement. In connection with any
action or proceeding for injunctive relief, Executive hereby waives the claim or
defense that a remedy at law alone is adequate and agrees, to the maximum extent
permitted by law, to have each provision of this Agreement specifically enforced
against
8
<PAGE>
him, without the necessity of posting bond or other security against him, and
consents to the entry of injunctive relief against him enjoining or restraining
any breach or threatened breach of this Agreement. If Executive takes action in
violation of a restrictive covenant set forth in Section 5 of this Agreement,
Executive acknowledges that the effective period for the restrictive covenants
which are violated will be extended for a period of time equivalent to the
period of time during which Executive is in violation of the restrictive
covenants.
8. Notices. Any and all notices, designations, consents, offers,
-------
acceptances, or any other communications provided for herein shall be given in
writing and shall be deemed given on the date received if sent by registered or
certified mail, return receipt requested; or on the date actually received if
sent by express mail or other similar overnight delivery or if hand delivered or
if sent via facsimile, which shall be addressed:
If to the Company:
Advance Holding Corporation
c/o Freeman Spogli & Co. Incorporated
599 Lexington Avenue, Suite 1800
New York, New York 10022
Attention: John M. Roth
Telephone: (212) 758-2555
Telecopy: (212) 758-7499
If to Executive:
________________
________________
________________
9. Governing Law. This Agreement shall be subject to and governed by the
-------------
laws of the Commonwealth of Virginia.
10. Severability. The restrictive covenants set forth in Section 5 are
------------
separate and independent contractual provisions. The invalidity or
unenforceability of any particular restrictive covenant or any other provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were omitted.
11. Successors and Assigns Binding Effect. This Agreement shall be
-------------------------------------
binding upon and inure to the benefit of the Company and Executive and their
respective heirs, legal representatives, executors, administrators, successors
and assigns, provided that Executive may not assign his
9
<PAGE>
rights or delegate his obligations hereunder. The Company may assign its rights
under the restrictive covenants in Section 5 to any beneficial owner of 10% or
more of the Company or any other Affiliate.
12. No Waiver. The failure by the Company or any Affiliate to enforce any
---------
of its rights hereunder shall not be deemed to be a waiver of such rights,
unless such waiver is in writing and signed by the waiving party, and, in the
case of any corporation, approved by its Board of Directors, or in the case of a
partnership, approved by the Board of Directors of its corporate general
partner. Waiver of any one breach shall not be deemed to be a waiver of any
other breach of the same or any other provision hereof.
13. No Construction Against Any Party. This Agreement was reviewed by
---------------------------------
legal counsel for each of Executive and the Company. This Agreement is the
product of informed negotiations among Executive and the Company and if any part
of this Agreement is deemed to be unclear or ambiguous, it shall be construed as
if it were drafted jointly by all parties. Moreover, Executive and the Company
each acknowledge that no party was in a superior bargaining position regarding
the substantive terms of this Agreement.
14. Disputes. In the event of any dispute between the parties arising out
--------
of this Agreement, the prevailing party shall be entitled to recover from the
nonprevailing party the reasonable expenses of the prevailing party including,
without limitation, reasonable attorneys' fees.
15. Effectiveness. This Agreement shall become effective upon the
-------------
Effective Date.
16. Entire Agreement.
----------------
(a) This Agreement constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersedes any and all other
agreements, either oral or in writing, among the parties hereto with respect to
the subject matter hereof (including any employment agreement in effect prior to
the date hereof).
(b) This Agreement may not be changed orally, but may be amended,
revoked, changed or modified at any time by a written agreement executed by the
Executive and the Company upon approval of the Board of Directors.
10
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed on the day and
year set forth above.
ADVANCE HOLDING CORPORATION
By:_____________________________________________
Title:__________________________________________
EXECUTIVE
--------------------------------------------------
[ ]
11
<PAGE>
EXHIBIT 10.24
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (this "Agreement") dated as of ________,
1998, is made by and between Advance Holding Corporation, a Virginia corporation
(the "Company"), and ________________ (the "Indemnitee").
R E C I T A L S:
- - - - - - - -
A. The Company recognizes that competent and experienced persons are
increasingly reluctant to serve as directors and senior officers of corporations
unless they are protected by comprehensive liability insurance or
indemnification, or both, due to increased exposure to litigation costs and
risks resulting from their service to such corporations, and due to the fact
that the exposure frequently bears no reasonable relationship to the
compensation of such directors and senior officers.
B. The statutes and judicial decisions regarding the duties of
directors are often difficult to apply, ambiguous, or conflicting, and therefore
fail to provide such directors with adequate, reliable knowledge of legal risks
to which they are exposed or information regarding the proper course of action
to take.
C. The Company and the Indemnitee recognize that plaintiffs often
seek damages in such large amounts and the costs of litigation may be so
substantial (whether or not the case is meritorious), that the defense and/or
settlement of such litigation is often beyond the personal resources of
directors and senior officers.
D. The Company believes that it is unfair for certain of its
directors and senior officers to assume the risk of substantial judgments and
other expenses which may occur in cases in which the director or senior officer
has not engaged in willful misconduct or a knowing violation of law.
E. Section 13.1-697 (together with any successor provisions thereof,
"Section 697") and Section 13.1-704 (together with any successor provisions
thereof, "Section 704") of the Virginia Stock Corporation Act, under which the
Company is organized, empowers the Company to indemnify its directors and
officers by agreement and with the approval of the shareholders and to indemnify
persons who serve, at the request of the Company, as the directors of other
corporations or enterprises, and Section 704 expressly provides that the
indemnification provided by Section 697 is not exclusive.
<PAGE>
F. The Board of Directors and the shareholders of the Company have
determined that contractual indemnification as set forth herein is not only
reasonable and prudent but necessary to promote the best interests of the
Company and its shareholders.
G. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director and Chairman of the Board of the Company.
H. The Indemnitee only is willing to serve, or to continue to serve,
as a director and Chairman of the Board of the Company, provided that the
Indemnitee is furnished the indemnity provided for herein by the Company.
A G R E E M E N T:
- - - - - - - - -
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth below, the parties hereto, intending to be legally bound, hereby agree
as follows:
1. Definitions.
-----------
(a) Agent. For purposes of this Agreement, "Agent" of the Company
-----
means any person who: (i) is or was a director or senior officer, consultant or
representative of the Company or a subsidiary of the Company; or (ii) is or was
serving at the request of, for the convenience of, or to represent the interest
of the Company or a Subsidiary of the Company as a director, consultant,
representative, trustee, partner or officer of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise.
(b) Effective Time. For purposes of this Agreement, "Effective
--------------
Time" means the effective time of the merger of AHC Corporation, a Virginia
corporation, ("AHC") with and into the Company, pursuant to the Agreement and
Plan of Merger dated March 4, 1998, by and among the Company, AHC and the
guarantors described therein (the "Merger Agreement").
(c) Expenses. For purposes of this Agreement, "expenses" includes
--------
all direct and indirect costs of any type or nature whatsoever (including,
without limitation, all attorneys' fees and related disbursements, bonds, expert
fees, travel expenses, other out-of-pocket costs and reasonable compensation for
time spent by the Indemnitee for which he is not otherwise compensated by the
Company or any third party, provided that the rate of compensation and estimated
time involved is approved in advance by the Board of Directors of the Company),
actually and reasonably incurred by the Indemnitee in connection with either the
investigation, defense or appeal of a proceeding or establishing or enforcing a
right to indemnification under this Agreement, Sections 697 and 698 or
otherwise, and amounts paid in settlement by or on behalf of the Indemnitee.
2
<PAGE>
(d) Proceedings. For the purposes of this Agreement, "proceeding"
-----------
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
(e) Subsidiary. For purposes of this Agreement, "subsidiary" means
----------
any corporation or other entity of which more than 50% of the outstanding voting
securities are owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.
2. No Employment. From and after the Effective Time, the Indemnitee
-------------
agrees to serve and/or continue to serve as an Agent of the Company at the will
of such corporation (or under separate agreement, if such agreement exists), in
the capacity the Indemnitee currently serves as an Agent of such corporation, so
long as the Indemnitee is duly appointed or elected and qualified in accordance
with the applicable provisions of the Bylaws of such corporation or of any
subsidiary thereof, or until such time as the Indemnitee tenders his resignation
in writing; provided, however, that nothing contained in this Agreement is
intended to create any right or obligation of employment of the Indemnitee in
any capacity.
3. Indemnification and Exculpation.
-------------------------------
(a) Indemnification. Subject to Section 10 below, the Company shall
---------------
indemnify the Indemnitee if the Indemnitee is a party to or threatened to be
made a party to or otherwise involved in any proceeding (including a proceeding
by or in the name of the Company to procure a judgment in its favor) by reason
of the fact that, at or after the Effective Time, the Indemnitee is or was an
Agent of the Company, or by reason of any act or inaction by him, at or after
the Effective Time, in any such capacity, against any and all expenses and
liabilities of any type whatsoever, actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding to the maximum extent permitted by Sections 697 and 704, subject to
Section 13 hereof. The termination of any proceeding by judgment, order of
court, settlement, conviction or on plea of nolo contendere, or its equivalent,
---- ----------
shall not, of itself, create a presumption that the Indemnitee engaged in
willful misconduct or a knowing violation of the criminal law.
(b) Exculpation. To the fullest extent permitted by law, in any
-----------
proceeding brought by or in the right of the Company or brought by or on behalf
of shareholders of the Company, the Indemnitee shall not be liable to the
Company 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 Agreement, except for liability resulting from the
Indemnitee's having engaged in willful misconduct or a knowing violation of the
criminal law or of any federal or state securities law.
(c) Any indemnification under Subsections 3(a) and 3(b) of this
Agreement (unless ordered by a court) shall be made by the Company only as
authorized in the
3
<PAGE>
specific case upon a determination that indemnification is proper in the
circumstances because the Indemnitee has met the applicable standard of conduct
set forth in Subsections 3(a) and 3(b).
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:
(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.
(d) In the event the Indemnitee is involved in a proceeding by reason
of the fact that the Indemnitee was an Agent of the Company prior to the
Effective Time, or by reason of any act or inaction by him prior to the
Effective Time, the Company agrees to be bound by, and the Indemnitee is
entitled to all rights under, Section 5.11 of the Merger Agreement.
4. Indemnification of Expenses of Successful Party. Notwithstanding
-----------------------------------------------
and without limiting any other provisions of this Agreement, to the extent that
the Indemnitee has been successful on the merits or otherwise in defense of any
claim, issue or matter therein, including the dismissal of any action without
prejudice, the Company shall indemnify the Indemnitee against all expenses
actually and reasonably incurred in connection with the investigation, defense
or appeal of such proceeding.
5. Partial Indemnification. Notwithstanding and without limiting
-----------------------
any other provisions of this Agreement, if the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines or penalties) actually and
4
<PAGE>
reasonably incurred by him in the investigation, defense, settlement or appeal
of a proceeding but is not entitled, however, to indemnification for the total
amount thereof, the Company shall nevertheless indemnify the Indemnitee for the
portion thereof to which the Indemnitee is entitled to the fullest extent
permitted by law, subject to the provisions of this Agreement.
6. Advancement of Expenses. Subject to Subsection 10(b) below, the
-----------------------
Company shall advance all expenses reasonably incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that, at or after the Effective Time, the Indemnitee
is or was an Agent of the Company or by reason of any act or inaction at or
after the Effective Time in such capacity. The Company shall pay for or
reimburse the reasonable expenses incurred by the Indemnitee in advance of final
disposition of a proceeding or the making of any determination under Subsection
3(a) or 3(b) if the Indemnitee furnishes the Company:
(a) a written statement of his good faith belief that he has met
the standard of conduct described in Subsections 3(a) or 3(b); and
(b) a written undertaking, executed personally or on his behalf,
to repay the advance if it is ultimately determined that he did not meet such
standard of conduct.
(c) The undertaking required by paragraph (b) of this Section
shall be an unlimited general obligation of the Indemnitee but need not be
secured and may be accepted without reference to financial ability to make
repayment.
(d) Authorizations of payments under this Section shall be made
by the persons specified in Subsection 3(c).
7. Notice and Other Indemnification Procedures.
-------------------------------------------
(a) Notification of Proceeding. Promptly after receipt by the
--------------------------
Indemnitee of notice of the commencement of or the threat of commencement of any
proceeding, the Indemnitee shall, if the Indemnitee believes that
indemnification with respect thereto may be sought from the Company under this
Agreement, notify the Company of the commencement or threat of commencement
thereof; provided that the failure to so notify shall not affect Indemnitee's
rights or the Company's obligations hereunder except to the extent the Company
is actually prejudiced thereby.
(b) Request for Indemnification. Any indemnification requested by
---------------------------
the Indemnitee under this Agreement shall be made no later than 10 days after
receipt of the written request of the Indemnitee, unless a good faith
determination is made within said 10-day period in accordance with one of the
methods set forth in Section 3(c) above that the Indemnitee
5
<PAGE>
is not or (subject to final judgment or other final adjudication as provided in
Section 10(a) below) ultimately will not be entitled to indemnification
hereunder.
(c) Application for Enforcement. Notwithstanding a determination
---------------------------
under Section 7(b) above that the Indemnitee is not entitled to indemnification
with respect to any specific proceeding, the Indemnitee shall have the right to
apply to any court of competent jurisdiction for the purpose of enforcing the
Indemnitee's right to indemnification pursuant to this Agreement. Neither the
failure of the Company (including its Board of Directors, stockholders,
independent legal counsel or the panel of arbitrators) to have made a
determination prior to the commencement of such action that the Indemnitee is
entitled to indemnification hereunder, nor an actual determination by the
Company (including its Board of Directors or independent legal counsel or the
panel of arbitrators) that the Indemnitee is not entitled to indemnification
hereunder, shall be a defense to the action or create any presumption that the
Indemnitee is not entitled to indemnification hereunder.
(d) Indemnification of Certain Expenses. The Company shall indemnify
-----------------------------------
the Indemnitee against all expenses incurred in connection with any hearing or
proceeding under Section 7 except to the extent the Company prevails in such
hearing or proceeding.
8. Assumption of Defense. In the event the Company shall be
---------------------
obligated to pay the expenses of any proceeding against the Indemnitee, the
Company, if appropriate, shall be entitled to assume the defense of such
proceeding, with counsel reasonably acceptable to the Indemnitee, upon the
delivery to the Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by the Indemnitee and the
retention of such counsel by the Company, the Company shall not be liable to the
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
the Indemnitee with respect to the same proceeding except for reasonable costs
of ongoing investigation, provided that (a) the Indemnitee shall have the right
to employ his counsel in such proceeding at the Indemnitee's expense; and (b) if
(i) the employment of counsel by the Indemnitee has been previously authorized
in writing by the Company, (ii) the Indemnitee's counsel delivers a written
notice to the Company stating that such counsel has reasonably concluded that
there may be a conflict of interest between the Company and the Indemnitee in
the conduct of any such defense or that the Indemnitee may have defenses
available to it that are not available to the Company or (iii) the Company shall
not, in fact, have employed counsel to assume the defense of such proceeding
within a reasonable time, then in any such event the fees and expenses of the
Indemnitee's counsel shall be at the expense of the Company.
9. Insurance.
---------
(a) So long as the Indemnitee shall continue to serve as a director or
officer of or consultant to the Company and thereafter so long as the Indemnitee
shall be subject to any possible claim or proceeding by reason of the fact that
the Indemnitee is or was an agent
6
<PAGE>
of the Company, the Company, subject to Section 9(b), shall use its reasonable
best efforts to maintain in full force and effect directors' and officers'
liability insurance issued by the one or more reputable insurers providing
coverage at least comparable to and in the same amount as that provided under
the policies held by the Company at January 31, 1998 ("D&O Insurance") with
respect to acts or omissions occurring at or after the Effective Time. In all
policies of D&O Insurance maintained by or for the benefit of other directors or
officers of the Company, the Indemnitee shall be named as an insured in such a
manner as to provide the Indemnitee the same rights and benefits, subject to the
same limitations, as are accorded to the Company's directors or officers most
favorably insured by such policy. Notwithstanding any other provision of this
Agreement, the Company shall not be obligated to indemnify the Indemnitee for
expenses, judgments, fines or penalties which have been paid directly to the
Indemnitee by D&O Insurance. Without limiting any other provisions of this
Agreement, including Sections 6 and 7, if the Company has D&O Insurance in
effect at the time the Company receives from the Indemnitee any notice of the
commencement of a proceeding, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the policy. The Company shall thereafter take all
necessary or desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such proceeding in accordance
with the terms of such policy.
(b) The Company shall have no obligation to maintain D&O Insurance if
the Board of Directors of the Company determines in good faith that (i) such
insurance is not reasonably available, (ii) the premium costs for such insurance
is disproportionate to the amount of coverage provided, (iii) the premium costs
exceed 175% of the amount per annum the Company paid in the last full fiscal
year, or (iv) the coverage provided by such insurance is limited by exclusions
so as to provide an insufficient benefit (it being understood that if such
exclusions are not materially greater than those in effect as of January 31,
1998, this clause (iv) cannot be invoked).
10. Exceptions.
----------
(a) Certain Matters. Any provision herein to the contrary
---------------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement to indemnify the Indemnitee on account of any proceeding with
respect to (i) remuneration paid to the Indemnitee if it is determined by final
judgment or other final adjudication that such remuneration was in violation of
law; (ii) which final and unappealable judgment is rendered against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934, as amended, [or similar provisions
of any federal, state or local statute]; or (iii) which (but only to the extent
that) it is determined by final and unappealable judgment of a court of
competent jurisdiction that the Indemnitee was guilty of willful misconduct or a
knowing violation of criminal law. For purposes of the foregoing sentence, a
final judgment or other adjudication may be reached in either the underlying
proceeding or action
7
<PAGE>
in connection with which indemnification is sought or a separate proceeding or
action to establish rights and liabilities under this Agreement.
(b) Claims Initiated by the Indemnitee. Any provision herein to the
----------------------------------
contrary notwithstanding, the Company shall not be obligated pursuant to the
terms of this Agreement to indemnify or advance expenses to the Indemnitee with
respect to proceedings or claims initiated or brought voluntarily by the
Indemnitee and not by way of defense, except with respect to cross-claims or
counter-claims in any proceedings brought against the Indemnitee, any
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise, including as required
under Section 4, but such indemnification or advancement of expenses may be
provided by the Company in specific cases if the Board of Directors of the
Company finds it to be appropriate.
(c) Unauthorized Settlements. Any provision herein to the contrary
------------------------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement to indemnify the Indemnitee under this Agreement for any amounts
paid in settlement of a proceeding effected without the Company's written
consent. Neither the Company nor the Indemnitee shall unreasonably withhold
consent to any proposed settlement; [provided, however, that the Company may in
any event decline to consent to (or to otherwise admit or agree to any liability
for indemnification hereunder in respect of) any proposed settlement if the
Company determines (pursuant to Section 7(b) above) that the Indemnitee is not
or ultimately will not be entitled to indemnification hereunder].
(d) Indemnification Unlawful. Any provision herein to the contrary
------------------------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement to indemnify the Indemnitee if a final and unappealable decision
by a court of competent jurisdiction shall determine that such indemnification
is not lawful.
11. Nonexclusivity. The provisions for indemnification and
--------------
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Articles of Incorporation or Bylaws, in any court in which
a proceeding is brought, the vote of the Company's stockholders or disinterested
directors, other agreements or otherwise, both as to action in the Indemnitee's
official capacity and to action in another capacity while occupying his position
as an Agent of the Company, in either case after the Effective Time, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an Agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee. Any provision herein to the
contrary notwithstanding, the Company may provide, in specific cases, the
Indemnitee with full or partial indemnification if the Board of Directors of the
Company determines that such indemnification is appropriate. This Agreement
shall not be construed to restrict any right to indemnification that the
Indemnitee may otherwise have under the Articles of Incorporation or Bylaws of
the Company. This Agreement shall not be deemed to limit in any manner
Indemnitee's rights as a third-party beneficiary under Section 5.11 of the
Merger Agreement.
8
<PAGE>
12. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who, at the request and expense of the Company,
shall execute all papers required and shall do everything that may be reasonably
necessary to secure such rights, including the execution of such documents
necessary to enable the Company effectively to bring suit to enforce such
rights.
13. Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law. To the extent that a change in the Virginia Stock Corporation
Act (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Company's articles of
incorporation and bylaws and this Agreement, it is the intent of the parties
hereto that the Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change. In the event the Company grants to any person rights
with respect to exculpation from liability or indemnification that are more
favorable than those granted to the Indemnitee pursuant to this Agreement, the
Indemnitee shall be entitled to the benefit of such improved rights as though
set forth in this Agreement.
14. Severability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(a) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give maximum effect to the
intent manifested by the provision held invalid, illegal or unenforceable and to
give maximum effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification or
-----------------------
amendment of this Agreement shall be binding unless executed in writing by the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver. The
indemnification rights afforded to the Indemnitee hereby are contract rights and
may not be diminished, eliminated or otherwise affected by amendments to the
Articles of Incorporation or Bylaws of the Company or by other agreements.
16. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Company, spouses, heirs, executors and
9
<PAGE>
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation,
liquidation or otherwise) to all, substantially all, or a substantial part of
the business and/or assets of the Company, by written agreement in form and
substance satisfactory to the Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place. This
Agreement shall continue in effect regardless of whether the Indemnitee
continues to serve as an officer or director or Agent of the Company or of any
other enterprise at the Company's request. In the event of the death or
disability of the Indemnitee and his replacement on the Board of Directors by
his legal representative pursuant to the Stockholders Agreement, the Company
shall enter into an indemnification agreement with such legal representative on
the terms set forth herein.
17. Notice. Except as otherwise provided herein, any notice or
------
demand which, by the provisions hereof, is required or which may be given to or
served upon the parties hereto shall be in writing and, if by telegram, telecopy
or telex, shall be deemed to have been validly served, given or delivered when
sent, if by personal delivery, shall be deemed to have been validly served,
given or delivered upon actual receipt of delivery and, if mailed, shall be
deemed to have been validly served, given or delivered three business days after
deposit in the United States mails, as registered or certified mail, with proper
postage prepaid and addressed to the party or parties to be notified at the
addresses set forth on the signature page of this Agreement (or such other
address(es) as a party may designate for itself by like notice).
18. Governing Law. This Agreement shall be governed exclusively by
-------------
and construed according to the laws of the Commonwealth of Virginia as applied
to contracts between Virginia residents entered into and to be performed
entirely within Virginia.
19. Consent to Jurisdiction. The Company and the Indemnitee each
-----------------------
hereby irrevocably consent to the jurisdiction of the courts of the Commonwealth
of Virginia for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the state courts of (or, if
jurisdiction in such state courts shall not be available, the federal courts
located in) the Commonwealth of Virginia.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement effective as of the date first above written.
THE COMPANY:
Advance Holding Corporation,
a Virginia corporation
By:
----------------------------------
Name:
Title:
Address: 5673 Airport Road
Roanoke, VA 24102
THE INDEMNITEE:
---------------------------------------
[ ]
Address: c/o Advance Holding Corporation
5673 Airport Road
Roanoke, VA 24102
11
<PAGE>
EXHIBIT 10.25
CONSULTING AND NON-COMPETITION AGREEMENT
----------------------------------------
THIS CONSULTING AND NON-COMPETITION AGREEMENT (the "Agreement") is made and
entered into as of the 15th day of April, 1998 by and among Advance Holding
Corporation, a Virginia corporation (the "Corporation"), Advance Stores Company,
Incorporated, a Virginia corporation ("ASCI") and Nicholas F. Taubman
("Consultant").
W I T N E S S E T H:
WHEREAS, the Corporation, AHC Corporation, a Virginia corporation
("Investor"), FS Equity Partners III, L.P., a Delaware limited Partnership, FS
Equity Partners IV, L.P. (collectively, "FS Equity Partners"), and FS Equity
International, L.P., a Delaware limited partnership (collectively with FS Equity
Partners, "Guarantor"), have entered into an Agreement and Plan of Merger, dated
as of March 4, 1998 (the "Merger Agreement"), pursuant to which Investor has,
effective as of the time of execution and delivery of this Agreement, merged
with and into the Corporation with the Corporation as the surviving corporation
in the merger (the "Merger"); and
WHEREAS, pursuant to the Merger Agreement, (a) Consultant and the Arthur
Taubman Trust dated July 13, 1964 (the "1964 Trust") became the owners of a
total of 1,750,000 shares of common stock of the Corporation as of the effective
time of the Merger (the "Effective Time") and (b) Consultant and the 1964 Trust
have been granted at the Effective Time options to purchase in the aggregate
500,000 shares of common stock of the Corporation; and
WHEREAS, ASCI, a wholly-owned subsidiary of the Corporation, is engaged in
the highly competitive business of retail marketing and sale of automotive
parts, accessories and services, with stores in 12 states as of the date hereof;
and
WHEREAS, Consultant is recognized as a leading company owner and executive
with significant expertise in the retail automotive parts and accessories
industry. Consultant's industry experience and knowledge is greatly valued by
the Corporation and would be extremely valuable to competitors of ASCI.
Accordingly, Guarantor is unwilling to cause Investor to consummate the Merger
unless Consultant enters into this Agreement, which is a material inducement to
Guarantor to cause Investor to merge with and into the Corporation; and
WHEREAS, pursuant to the Merger Agreement, it is a condition to the
Corporation's and Investor's respective obligations
<PAGE>
to consummate the Merger that Consultant and the Corporation enter into this
Agreement as of the Effective Time; and
WHEREAS, each of Consultant and the Corporation are sophisticated parties
experienced in business transactions of this type, and fully understand (a) the
ramifications of the non-competition, non-solicitation and confidentiality
provisions of this Agreement and (b) that the laws of each state with respect to
the enforceability of such provisions vary. The parties are specifically
selecting the internal laws of the Commonwealth of Virginia to govern this
Agreement in order that it be enforceable against all of them; and
WHEREAS, to provide Guarantor with the full value of its investment in the
Corporation through the Merger, particularly the goodwill of the Corporation
represented thereby, in consideration of the Corporation's entering into a
consulting relationship with Consultant with a three-year term, and as a
material inducement to the Corporation to enter into this Agreement and to
consummate the transactions contemplated hereby, the Merger Agreement requires
that the Consultant execute and deliver this consulting and noncompetition
agreement with the Corporation immediately effective upon the effective date of
the Merger and that the obligation of Investor to consummate the Merger is
conditioned upon the Consultant entering into this Agreement; and
WHEREAS, in consideration for the payments to be made to Consultant
pursuant hereto and the covenants of Consultant hereunder, each of the
Corporation and Consultant desires to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual terms and conditions set
forth below, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Consulting Services and Term.
----------------------------
(a) Term. Consultant shall make himself available to render
----
consulting services, on the terms and conditions set forth in this Agreement,
for the period beginning at the Effective Time and ending on the third
anniversary thereof (the "Term").
(b) Nature and Time of Rendering Services. During the Term,
-------------------------------------
Consultant shall render such services as may be requested from time to time by
the Board of Directors of the Corporation (the "Board") and/or the Chief
Executive Officer of the Corporation, subject to the following provisions of
this
-2-
<PAGE>
Section 1(b). Consultant's services shall be performed at such time and
locations as shall be mutually convenient to Consultant and the Corporation;
provided, however, that in no event shall Consultant be required to render
- -------- -------
consulting services hereunder (i) for more than twenty (20) hours in any one
week during the period from the Effective Time to the six-month anniversary
thereof, (ii) for more than ten (10) hours in any one week during the period
from the day following the six-month anniversary of the Effective Time to the
one-year anniversary thereof, (iii) for more than ten (10) hours in any month
during the period from the day following the one-year anniversary of the
Effective Time to the two-year anniversary thereof or (iv) for more than five
(5) hours in any month during the period from the day following the two-year
anniversary of the Effective Time through the remainder of the Term; and
provided, further, that Consultant shall be excused from rendering consulting
- -------- -------
services hereunder during reasonable vacation periods. For purposes of
determining the number of hours of service rendered during the periods covered
by clauses (iii) and (iv) above, Consultant shall be deemed to have rendered the
greater of (x) five hours and (y) the actual number of hours of service
rendered, on any day during which he is required to render consulting services
hereunder.
(c) Compensation. The Corporation or ASCI shall pay Consultant an
------------
annual consulting and noncompetition fee equal to $300,000 payable in equal
monthly installments. The annual fee may, at the option of the Board, be
subject to annual increases upon review by the Board. Any such review will be
made after completion of the Corporation's fiscal year, and shall be at the sole
discretion of the Board.
(d) Expense Reimbursement. Consultant shall be reimbursed in
---------------------
accordance with the generally applicable policies of the Corporation as adopted
by the Board from time to time for his reasonable travel, entertainment,
business, meeting and similar expenditures, incurred for the benefit of the
Corporation and subject to approval of the Chief Executive Officer of the
Corporation or the Board. As an additional condition to the reimbursement of
such expenses by the Corporation to Consultant, Consultant shall provide the
Corporation with copies of all available invoices and receipts, and otherwise
account to the Corporation in sufficient detail and with adequate documentation
to allow the Corporation to confirm the business nature of the expenses and
claim an income tax deduction for such paid items, if such items are deductible.
(e) Bonus Program and Other Benefits. Consultant shall be eligible to
--------------------------------
participate in a manner commensurate with
-3-
<PAGE>
the senior management executives of the Corporation in all benefits or other
programs available, to the extent such exist or are sponsored by the
Corporation. Without limiting the generality of the foregoing, Consultant shall
participate in an incentive bonus program which shall provide for a payout to
Consultant of a minimum of $300,000 annually upon the achievement of targeted
annual earnings goals for the Corporation determined by the Board and applicable
to the senior management executives of the Corporation no later than the first
quarter of each fiscal year.
(f) COBRA Benefits. Consultant shall have the option to convert and
--------------
continue his health insurance on or after the Effective Time as may be required
or authorized by law under the Consolidated Omnibus Budget Reconciliation Act of
1985, and shall be entitled after the Effective Time to participate in all
health, accident, disability or other insurance policies and programs provided
to retirees of the Corporation generally for which he is eligible. Consultant
acknowledges and agrees that, except as set forth in this Agreement, no other
health, accident, disability or other insurance policies (other than directors'
and officers' insurance as provided in the Indemnity Agreement between the
Corporation and Consultant) will be provided for him by the Corporation after
the Effective Time.
(g) Taxes. Consultant agrees to accept liability, to the extent
-----
Consultant is liable under the law, for the payment of all federal and state
taxes or contributions for unemployment insurance or old age pensions or
annuities or social security payments which in each case are measured by
payments to Consultant for the performance of his obligations under this
Agreement. Consultant further agrees to comply with all valid administrative
regulations applicable to Consultant respecting liability for such taxes and
contributions. Consultant and the Corporation each agree that (i) the services
provided by Consultant pursuant to this Section 1 are services provided by an
independent contractor, (ii) the consideration described in this Section 1 is
the entire consideration for the services to be rendered by Consultant pursuant
to this Section 1 and for Consultant's noncompetition covenants pursuant to
Section 2 and (iii) except as otherwise required by a "determination" within the
meaning of Section 1313(a) of the Internal Revenue Code of 1986, as amended,
each of Consultant and the Corporation will take no action inconsistent with the
treatments described in clauses (i) and (ii).
2. Non-Competition.
---------------
(a) General. During the Term, Consultant shall not directly or
-------
indirectly carry on or participate in any business
-4-
<PAGE>
in competition with the Business (whether conducted by the Corporation or ASCI
or any subsidiary or controlled Affiliate of the Corporation or ASCI, all of
whom collectively are sometimes called the "Protected Entities"). The "Business"
as used in this Section 2 means the sale of automotive parts and accessories at
retail or wholesale or by catalogue and the rendering of services relating
thereto. In furtherance and not in limitation of the foregoing covenant,
Consultant shall not, subject to the last proviso of Section 2(d), carry on or
participate in the business of selling automotive parts or accessories or
rendering services relating thereto including, without limitation, carrying on
or participating in the business of any chain of retail automotive parts and
accessories stores, any chain of automotive service facilities, any wholesale or
catalog operation or retail chain that is engaged as a significant line of
business in the distribution or sale of automotive parts or accessories or
rendering services relating thereto. For purposes of this Section 2, a
significant line of business is one that constitutes 10% or more of consolidated
revenues.
(b) Agreement Not to Compete Nationally. Consultant acknowledges that
-----------------------------------
the Corporation intends to extend ASCI's business operations throughout the
United States of America. Therefore, during the Term, Consultant agrees that he
shall not directly or indirectly carry on or participate in the Business
anywhere within the United States of America.
(c) Agreement Not to Compete Where the Corporation Does Business.
------------------------------------------------------------
Independent of the preceding provision, Consultant agrees that, during the Term,
Consultant shall not directly or indirectly carry on or participate in the
Business (in competition with the Corporation) within any United States county
or United States city in which the Corporation, during the Term, maintains a
retail store, distribution center or other facility.
(d) Prohibited Activities. The term "directly or indirectly carry on
---------------------
or participate in any business in competition with the Business" shall include
Consultant, directly or indirectly, doing any of the following listed acts
within the geographic areas specified in Sections 2(b) and 2(c):
(i) Whether or not for compensation, directly or indirectly
engaging in the Business, or any part thereof, or assisting any other
Person (defined below) in such Person's conduct of the Business in the
Covenant Area, whether as a director, officer, employee, consultant,
adviser, independent contractor or otherwise; or
-5-
<PAGE>
(ii) Holding legal or beneficial interest in any Person
that is engaged in the Business, whether such interest is as an owner,
investor, partner or joint venturer or otherwise; provided, however,
-------- -------
that Consultant may acquire and own up to five percent (5%) of the
outstanding securities of any class of securities of any corporation
which is a publicly traded reporting corporation under the Securities
Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"); or
(iii) As agent or principal, carrying on or engaging in any
activities or negotiations with respect to the acquisition or the
disposition of any business engaged in the Business; or
(iv) Engaging in giving advice to any other Person, firm or
association engaging in the Business; or
(v) Lending or allowing his name or reputation to be used
in any such Business; or
(vi) On behalf of a competitor, soliciting, diverting or
attempting to divert from the Protected Entities any business
constituting, or any customer of, or any supplier to, any part of the
Business then conducted by the Protected Entities; or
(vii) Using his skill, knowledge or experience in the
Business for the benefit of any Person;
provided, however, that nothing herein shall prevent Consultant from (i) being
- -------- -------
or becoming a passive investor in any LBO or similar fund or any privately owned
Person so long as he does not hold or assume a management position therein, (ii)
collecting, trading, investing in or engaging in any other activity relating to
the collection of, antique or otherwise collectible automobiles or automotive
parts, (iii) making any non-directed blind investment, (iv) selling, leasing or
exchanging any real estate or pursuing the remedies of a lessor with respect to
any such real estate, other than sales, leases or exchanges to a competitor of
the Corporation engaged in the Business, (v) rendering consulting services
hereunder or taking any action in his capacity as a director of the Corporation,
or (vi) serving in any otherwise proscribed capacity or taking any otherwise
proscribed action with respect to a Person where the Business of such Person
does not constitute and does not propose to constitute a significant line of
business.
-6-
<PAGE>
(e) Non-Solicitation. Independent of the foregoing provisions,
----------------
Consultant shall not, during the Term, induce or attempt to induce any Person
(i) engaged or employed currently or within the prior 12 months (whether part-
time or full-time) by the Corporation or ASCI or their subsidiaries (an
"Employee"), whether as an officer, employee, consultant, agent, adviser or
independent contractor, to leave the employ of or engagement with the
Corporation, ASCI or their controlled Affiliates, as the case may be, or to
cease providing the services to or on behalf of the Corporation or ASCI or their
controlled Affiliates, as the case may be, then provided by such Person;
provided, that the prohibitions contained in this clause (i) shall not apply
- --------
with respect to any Employee whose engagement or employment is terminated by the
Corporation, ASCI or any of their controlled Affiliates or by the Employee
because of a significant reduction in his or her compensation, benefits,
responsibilities or employment level or because of a significant relocation of
his or her place of work; and provided further, that, subject to the foregoing
-------- -------
proviso, Consultant agrees that, during the Term, he will not in any manner seek
to engage or employ (whether or not for compensation) any of the Corporation's
officers who will be receiving a bonus (as described in the Merger Agreement),
or other persons holding substantially similar ranking in the Corporation, as an
officer, employee, consultant, agent, adviser or independent contractor for any
Person other than the Corporation; or (ii) that is then or has been within the
prior 12 months a customer or supplier to the Protected Entities with respect to
the Business to do business with any other Person or to interfere, in any way,
directly or indirectly, with the business relationship between the Corporation
or ASCI or their Affiliates and any such customer or supplier (including selling
or offering to sell any automotive parts or accessories to any Person who is a
customer of the Corporation); provided, that the prohibitions contained in this
--------
clause (ii) shall not apply to the extent any such inducement to do business is
with respect to any business other than the Business.
(f) Other Definitions. For the purpose of this Agreement:
-----------------
(i) "Affiliate" shall mean an affiliate as such term is
defined in Rule 12b-2 under the Exchange Act; and
(ii) "Person" means any corporation, partnership, joint
venture, trust, sole proprietorship, limited liability company,
unincorporated business association, natural person and any other
entity that may be treated as a person under applicable law.
-7-
<PAGE>
(g) Scope and Reasonableness. Consultant has carefully reviewed the
------------------------
restrictive covenants contained in this Agreement and considered all of its
terms, and agrees that its scope, duration and terms are reasonable. Consultant
represents and warrants that this Agreement constitutes the legal, valid and
binding obligation of Consultant. The parties agree that it is not their
intention to violate any public policy or statutory or common law. The parties
intend that the provisions of this Agreement be enforced to the fullest extent
permissible under applicable laws and public policies. The parties intend that
the non-competition covenants contained in this Section 2 be construed as a
series of separate covenants by Consultant, one covenant for each area, or
portion thereof, included in the geographic areas specified in Sections 2(b) and
2(c), and for each year, or portion thereof, included in the Term. Accordingly,
to the extent that the covenants hereunder shall be adjudicated to be invalid or
unenforceable with respect to any one such area, this Agreement shall be deemed
amended to delete therefrom or reform the portion thus adjudicated to be invalid
or unenforceable, such deletion or reformation to apply only with respect to the
operation of the particular section or provision of this Agreement with respect
to the particular area for which such adjudication is made.
3. Trade Secrets; Confidential Information.
---------------------------------------
(a) General. Consultant recognizes and acknowledges that Consultant
-------
will have access to certain highly sensitive, special, unique information of the
Corporation that is confidential or proprietary. Consultant recognizes and
acknowledges that the Confidential Information (as defined herein) which he will
acquire in the course of his engagement is utilized by the Corporation in all
geographic areas in which the Corporation does business. Further, the
Confidential Information will also be utilized in all geographic areas into
which the Corporation expands its business. Thus, Consultant acknowledges that
he will be a formidable competitor in all areas where the Corporation conducts
business. Consultant also acknowledges that the restrictive covenants in this
Agreement serve to protect the Corporation's investment in the Confidential
Information. Consultant hereby covenants and agrees during the term of this
Agreement and for two years thereafter not to disclose any Confidential
Information (as hereinafter defined) or trade secrets except for the benefit of
the Corporation and to authorized representatives of the Corporation or except
as required by any governmental or judicial authority; provided, however, that
-------- -------
the foregoing restrictions shall not apply to items that, through no fault of
Consultant's, have entered the public domain.
-8-
<PAGE>
(b) Confidential Information. For purposes of this Agreement,
------------------------
"Confidential Information" means any data or information with respect to the
business conducted by the Corporation, that is material to the Corporation and
not generally known by the public. To the extent consistent with the foregoing
definition, Confidential Information includes without limitation: (A) reports,
pricing, sales manuals and training manuals, selling and pricing procedures, and
financing methods of the Corporation, together with any techniques utilized by
the Corporation in designing, developing, manufacturing, testing or marketing
its products, designing stores, locating stores, product mix and supplier
information or in performing services for clients, customers and accounts of the
Corporation; and (B) the business plans and financial statements, reports and
projections of the Corporation.
(c) Ownership Return. Consultant acknowledges that all trade secrets
----------------
and Confidential Information are and shall remain the sole, exclusive and
valuable property of the Corporation and that Consultant has and shall acquire
no right, title or interest therein. Any and all printed, typed, written or
other material which Consultant may have or obtain with respect to trade secrets
or Confidential Information (including without limitation all copyrights
therein) shall be and remain the exclusive property of the Corporation, and all
material (including any copies) with respect to trade secrets or Confidential
Information which is in Consultant's possession shall, upon request of the
Corporation, be promptly delivered by Consultant to the Corporation.
(d) Assignment. Consultant hereby assigns to the Corporation all
----------
right, title and interest in and to any inventions, original works or
authorship, developments, improvements or trade secrets relating specifically to
the Business which Consultant solely or jointly with an employee
of the Corporation, as part of Consultant's engagement hereunder, has conceived
or reduced to practice, or will conceive or reduce to practice, or cause to be
conceived or reduced to practice, during the Covenant Period. All original
works of authorship which are made by Consultant (solely or jointly with
employees of the Corporation) as part of Consultant's engagement hereunder and
relating specifically to the Business and which are protectable by copyright
shall constitute "works made for hire," as that term is defined in the United
States Copyright Act.
(e) Validity of Covenants. Consultant agrees that the restrictive
---------------------
covenants contained in this Agreement are reasonably necessary to protect the
legitimate business and other interests of the Corporation, and reasonable with
respect to
-9-
<PAGE>
time and territory, and do not interfere with the interests of the public.
4. Specific Performance. Consultant acknowledges that it would be
--------------------
impossible to determine the amount of damages that would result from any breach
of any of the provisions of this Agreement and that the remedy at law for any
breach, or threatened breach, of any of the provisions of this Agreement would
likely be inadequate and, accordingly, agrees that the Corporation and its
Affiliates shall, in addition to any other rights or remedies which they may
have, be entitled to seek such equitable and injunctive relief as may be
available from any court of competent jurisdiction to restrain Consultant from
violating any of the provisions of this Agreement. In connection with any
action or proceeding for injunctive relief, Consultant hereby waives the claim
or defense that a remedy at law alone is adequate and agrees, to the maximum
extent permitted by law, to have each provision of this Agreement specifically
enforced against him, without the necessity of posting bond or other security
against him and consents to the entry of injunctive relief against him enjoining
or restraining any breach or threatened breach of this Agreement.
5. Independent Contractor Relationship. This Agreement establishes
-----------------------------------
between the Consultant and the Corporation an independent contractor
relationship and all the terms and conditions of this Agreement shall be
interpreted in light of that relationship. There is no intention to create, by
way of this Agreement, an employer-employee relationship with Consultant.
Consultant hereby covenants that he will not take any action in his capacity as
Chairman of the Board of the Corporation that is beyond the authority granted to
him by the Board.
6. Indemnity Agreement. The Corporation and Consultant are
-------------------
simultaneously herewith entering into an indemnity agreement in the form
attached hereto as Exhibit A indemnifying Consultant under the terms and
conditions set forth therein for acts taken or omitted to be taken by him while
an officer or director of the Corporation at or after the Effective Time.
7. Governing Law; Consent to Jurisdiction. This Agreement shall be
--------------------------------------
subject to and governed by the laws of the Commonwealth of Virginia. Each of
the parties hereto hereby irrevocably and unconditionally consents to submit to
the exclusive jurisdiction of the courts of the Commonwealth of Virginia and of
the United States of America, in each case located in the City of Roanoke or in
the County of Roanoke, for any action, proceeding or investigation in any court
or before any governmental authority ("Litigation") arising out of or relating
to this Agreement and the transactions contemplated hereby
-10-
<PAGE>
and agrees that any such Litigation shall be brought in such courts. Each party
further agrees that service of any process, summons, notice or document by
United States mail to his or its respective address set forth in this Agreement
shall be effective service of process for any Litigation brought against him or
it in any such court. Each of the parties hereto hereby irrevocably and
unconditionally waives any objection to the laying of venue of any Litigation
arising out of this Agreement or the transactions contemplated hereby in the
courts of the Commonwealth of Virginia or the United States of America, in each
case located in the City of Roanoke or the County of Roanoke, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such Litigation brought in any such court has been brought
in an inconvenient forum. In the event of a legal or arbitral dispute, claim or
controversy arising out of this Agreement, the court or arbitrator, as the case
may be, shall award reasonable expenses (including reimbursement of court costs
and attorneys' fees and expenses) to the prevailing party upon application
therefor.
8. Independent Remedies. Nothing herein shall in any way affect
--------------------
Consultant's or the Corporation's respective rights, or his or its ability to
pursue any claim or cause of action against the other party or any of its
Affiliates, successors or assigns under, the Stockholders Agreement dated the
date hereof among Consultant, the 1964 Trust, Investor and Guarantor, the Option
Agreement between the Corporation and Consultant dated the date hereof, any
lease between the Corporation or any Affiliate of the Corporation and Consultant
or any of his Affiliates, or any other agreement to which Consultant is a party,
whether such agreement is in effect on the date hereof or shall thereafter
become effective.
9. Termination. (a) The Corporation may terminate this Agreement in the
-----------
event that Consultant (i) fails to materially perform the consulting services
contemplated by Section 1, or materially breaches any other provisions of this
Agreement, including without limitation the non-competition covenants, and such
material nonperformance or material breach continues for 30 days after written
notice thereof by the Corporation to Consultant, by written notice thereof to
Consultant accompanied by the Corporation's payment, if any, of any accrued and
unpaid amounts payable pursuant to Section 1 hereof; (ii) is convicted of or
pleads guilty or nolo contendere to criminal conduct which is demonstrably and
materially injurious to the Corporation, including fraud, embezzlement or other
illegal conduct; or (iii) is convicted of, or enters a pleading of guilty or
nolo contendere to any crime involving moral turpitude or any felony which is
demonstrably and materially injurious to the
-11-
<PAGE>
Corporation; provided, that in the event of Consultant's death or disability
--------
this Agreement shall remain in full force and effect.
(b) Consultant may terminate this Agreement in the event that the
Corporation fails to materially perform its obligations under Section 1, or
materially breaches any other provisions of this Agreement, and such material
nonperformance or material breach continues for 30 days after written notice
thereof by Consultant to the Corporation, by written notice thereof to the
Corporation.
(c) Unless earlier terminated pursuant to Section 9(a) or Section
9(b), this Agreement shall terminate on the third anniversary of the Effective
Time.
10. Miscellaneous.
-------------
(a) Notices. Any and all notices, designations, consents, offers,
-------
acceptances, or any other communications provided for herein shall be given in
writing by express mail or other similar overnight delivery or by facsimile or
if hand delivered and shall be deemed given on the date actually received, which
shall be addressed as set forth below:
If to the Corporation:
---------------------
Advance Holding Corporation
c/o Freeman Spogli & Co. Incorporated
599 Lexington Avenue
New York, NY 10022
Facsimile: (212) 758-7499
Attention: John M. Roth
with a copy to:
Riordan & McKinzie
300 South Grand Avenue,
29th Floor
Los Angeles, CA 90071
Facsimile: (213) 229-8550
Attention: Richard J. Welch
If to Consultant:
----------------
Nicholas F. Taubman
2818 Avenham Avenue
Roanoke, Virginia 24014
Facsimile: (540) 342-5455
-12-
<PAGE>
with a copy to:
Flippin, Densmore, Morse, Rutherford & Jessee
300 First Campbell Square
Drawer 1200
Roanoke, Virginia 24006
Facsimile: (540) 510-3050
Attention: Douglas W. Densmore
(b) No Waiver; Amendment. The failure by any party to enforce any of
--------------------
its rights hereunder shall not be deemed to be a waiver of such rights, unless
such waiver is in writing and signed by the waiving party, and, in the case of
any corporation, approved by its Board of Directors, or in the case of a
partnership, approved by the Board of Directors of its corporate general
partner. Waiver of any one breach shall not be deemed to be a waiver of any
other breach of the same or any other provision hereof. This Agreement can be
amended only by a written agreement executed by each party hereto.
(c) Definitions; Headings. A term defined in any part of this
---------------------
Agreement shall have the defined meaning wherever such term is used herein. The
headings contained in this Agreement are for reference purposes only and shall
not affect in any manner the meaning or interpretation of this Agreement.
(d) No Construction Against Any Party. This Agreement was reviewed by
---------------------------------
legal counsel for Consultant and the Corporation. This Agreement is the product
of informed negotiations among Consultant, the Corporation and Freeman Spogli &
Co. Incorporated and if any part of this Agreement is deemed to be unclear or
ambiguous, it shall be construed as if it were drafted jointly by all parties.
Moreover, Consultant and the Corporation each acknowledge that no party was in a
superior bargaining position regarding the substantive terms of this Agreement.
(e) Invalid Provision. Whenever possible, each provision and term of
-----------------
this Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision or term of this Agreement shall
be held to be prohibited by or wholly invalid under such applicable law, then
such provision or term shall be ineffective only to the extent of such provision
or invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provision or term or the remaining provisions or terms of this
Agreement. The restrictive covenants contained in this Agreement are separate
and independent contractual provisions. The invalidity or unenforceability of
any particular restrictive covenant or any other provision of this Agreement
shall not
-13-
<PAGE>
affect the other provisions hereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provision were omitted.
(f) Successors. This Agreement shall be binding upon and inure to the
----------
benefit of the Corporation and Consultant and their respective heirs, legal
representatives, executors, administrators and successors. Neither the
Corporation nor Consultant may assign its obligations hereunder.
(g) Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the parties with respect to the subject matter hereof and supersedes any
and all other agreements, either oral or in writing, among the parties hereto
with respect to the subject matter hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed on the day and
year set forth above.
ADVANCE HOLDING CORPORATION
By: /s/ Garnett E. Smith
--------------------------------------
Title: President
----------------------------------
ADVANCE STORES COMPANY, INCORPORATED
By: /s/ Garnett E. Smith
--------------------------------------
Title: President
-----------------------------------
CONSULTANT
/s/ Nicholas F. Taubman
------------------------------------------
Nicholas F. Taubman
-14-
<PAGE>
EXHIBIT 10.26
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (this "Agreement") dated as of April 15,
1998, is made by and between Advance Holding Corporation, a Virginia corporation
(the "Company"), and Nicholas F. Taubman (the "Indemnitee").
R E C I T A L S:
- - - - - - - -
A. The Company recognizes that competent and experienced persons are
increasingly reluctant to serve as directors and senior officers of corporations
unless they are protected by comprehensive liability insurance or
indemnification, or both, due to increased exposure to litigation costs and
risks resulting from their service to such corporations, and due to the fact
that the exposure frequently bears no reasonable relationship to the
compensation of such directors and senior officers.
B. The statutes and judicial decisions regarding the duties of
directors are often difficult to apply, ambiguous, or conflicting, and therefore
fail to provide such directors with adequate, reliable knowledge of legal risks
to which they are exposed or information regarding the proper course of action
to take.
C. The Company and the Indemnitee recognize that plaintiffs often
seek damages in such large amounts and the costs of litigation may be so
substantial (whether or not the case is meritorious), that the defense and/or
settlement of such litigation is often beyond the personal resources of
directors and senior officers.
D. The Company believes that it is unfair for the Indemnitee to
assume the risk of substantial judgments and other expenses which may occur
where the Indemnitee has not engaged in willful misconduct or a knowing
violation of the law.
E. Section 13.1-697 (together with any successor provisions thereof,
"Section 697") and Section 13.1-704 (together with any successor provisions
thereof, "Section 704") of the Virginia Stock Corporation Act, under which the
Company is organized, empowers the Company to indemnify its directors and
officers by agreement and with the approval of the shareholders and to indemnify
persons who serve, at the request of the Company, as the directors of other
corporations or enterprises, and Section 704 expressly provides that the
indemnification provided by Section 697 is not exclusive.
F. The Board of Directors and the shareholders of the Company have
determined that contractual indemnification as set forth herein is not only
reasonable and prudent but necessary to promote the best interests of the
Company and its shareholders.
<PAGE>
G. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director and Chairman of the Board of the Company.
H. The Indemnitee only is willing to serve, or to continue to serve,
as a director and Chairman of the Board of the Company, provided that the
Indemnitee is furnished the indemnity provided for herein by the Company.
A G R E E M E N T:
- - - - - - - - -
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth below, the parties hereto, intending to be legally bound, hereby agree
as follows:
1. Definitions.
-----------
(a) Agent. For purposes of this Agreement, "Agent" of the
-----
Company means any person who: (i) is or was a director or senior officer,
consultant or representative of the Company or a subsidiary of the Company; or
(ii) is or was serving at the request of, for the convenience of, or to
represent the interest of the Company or a Subsidiary of the Company as a
director, consultant, representative, trustee, partner or officer of another
foreign or domestic corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise.
(b) Effective Time. For purposes of this Agreement, "Effective
--------------
Time" means the effective time of the merger of AHC Corporation, a Virginia
corporation, ("AHC") with and into the Company, pursuant to the Agreement and
Plan of Merger dated _________, 1998, by and among the Company, AHC and the
guarantors described therein (the "Merger Agreement").
(c) Expenses. For purposes of this Agreement, "expenses"
--------
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, all attorneys' fees and related disbursements,
bonds, expert fees, travel expenses, other out-of-pocket costs and reasonable
compensation for time spent by the Indemnitee for which he is not otherwise
compensated by the Company or any third party, provided that the rate of
compensation and estimated time involved is approved in advance by the Board of
Directors of the Company), actually and reasonably incurred by the Indemnitee in
connection with either the investigation, defense or appeal of a proceeding or
establishing or enforcing a right to indemnification under this Agreement,
Sections 697 and 698 or otherwise, and amounts paid in settlement by or on
behalf of the Indemnitee.
(d) Proceedings. For the purposes of this Agreement, "proceeding"
-----------
means any threatened, pending, or completed action, suit or other proceeding,
whether civil, criminal, administrative, investigative or any other type
whatsoever.
2
<PAGE>
(e) Subsidiary. For purposes of this Agreement, "subsidiary"
----------
means any corporation or other entity of which more than 50% of the outstanding
voting securities are owned directly or indirectly by the Company, by the
Company and one or more other subsidiaries, or by one or more other
subsidiaries.
2. No Employment. From and after the Effective Time, the Indemnitee
-------------
agrees to serve and/or continue to serve as an Agent of the Company under the
terms of the Consulting and Non-Competition Agreement dated _______, 1998
between the Company and the Indemnitee; provided, however, that nothing
contained in this Agreement is intended to create any right or obligation of
employment of the Indemnitee in any capacity.
3. Indemnification and Exculpation.
-------------------------------
(a) Indemnification. Subject to Section 10 below, the Company
---------------
shall indemnify the Indemnitee if the Indemnitee is a party to or threatened to
be made a party to or otherwise involved in any proceeding (including a
proceeding by or in the name of the Company to procure a judgment in its favor)
by reason of the fact that, at or after the Effective Time, the Indemnitee is or
was an Agent of the Company, or by reason of any act or inaction by him, at or
after the Effective Time, in any such capacity, against any and all expenses and
liabilities of any type whatsoever, actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding to the maximum extent permitted by Sections 697 and 704, subject to
Section 13 hereof. The termination of any proceeding by judgment, order of
court, settlement, conviction or on plea of nolo contendere, or its equivalent,
---- ----------
shall not, of itself, create a presumption that the Indemnitee engaged in
willful misconduct or a knowing violation of the criminal law.
(b) Exculpation. To the fullest extent permitted by law, in any
-----------
proceeding brought by or in the right of the Company or brought by or on behalf
of shareholders of the Company, the Indemnitee shall not be liable to the
Company 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 Agreement.
(c) Presumption. To the maximum extent permitted by law, with
-----------
respect to Section 3(a) and 3(b), the Indemnitee shall be presumed not to have
engaged in willful misconduct and not to have engaged in a knowing violation of
law.
(d) In the event the Indemnitee is involved in a proceeding by
reason of the fact that the Indemnitee was an Agent of the Company prior to the
Effective Time, or by reason of any act or inaction by him prior to the
Effective Time, the Company agrees to be bound by, and the Indemnitee is
entitled to all rights under, Section 5.11 of the Merger Agreement.
3
<PAGE>
4. Indemnification of Expenses of Successful Party. Notwithstanding
-----------------------------------------------
and without limiting any other provisions of this Agreement, to the extent that
the Indemnitee has been successful on the merits or otherwise in defense of any
proceeding or in defense of any claim, issue or matter therein, including the
dismissal of any action without prejudice, the Company shall indemnify the
Indemnitee against all expenses actually and reasonably incurred in connection
with the investigation, defense or appeal of such proceeding.
5. Partial Indemnification. Notwithstanding and without limiting
-----------------------
any other provisions of this Agreement, if the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines or penalties) actually and reasonably incurred
by him in the investigation, defense, settlement or appeal of a proceeding but
is not entitled, however, to indemnification for the total amount thereof, the
Company shall nevertheless indemnify the Indemnitee, to the fullest extent
permitted by law, for the portion thereof to which the Indemnitee is entitled.
6. Advancement of Expenses. Subject to Subsection 10(b) below, the
-----------------------
Company shall advance all expenses reasonably incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
proceeding for which the Indemnitee is entitled to indemnification pursuant to
Subsection 3(a) above. The Company shall pay for or reimburse the reasonable
expenses incurred by the Indemnitee in advance of final disposition of a
proceeding or the making of any determination under Subsection 3(a) if the
Indemnitee furnishes the Company a written statement of his good faith belief
that he has met the standard of conduct described in Subsection 3(a). The
Indemnitee hereby undertakes to repay any advance pursuant to this Section 6 if
it is ultimately determined that he did not meet such standard of conduct. This
undertaking shall be an unlimited general obligation of the Indemnitee and is
hereby accepted without need for security or reference to financial ability to
make repayment.
7. Notice and Other Indemnification Procedures.
-------------------------------------------
(a) Notification of Proceeding. Promptly after receipt by the
--------------------------
Indemnitee of notice of the commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement of such proceeding; provided that the failure to so notify shall
not affect Indemnitee's rights or the Company's obligations hereunder except to
the extent the Company is actually prejudiced thereby.
(b) Request for Indemnification. Any indemnification to which the
---------------------------
Indemnitee under this Agreement is entitled pursuant to Subsection 3(a) hereof
shall be made no later than 10 days after receipt of the written request of the
Indemnitee.
4
<PAGE>
(c) Application for Enforcement. In the event the Indemnitee is
---------------------------
not indemnified in accordance with Subsection 7(b), the Indemnitee shall have
the right to apply to any court of competent jurisdiction for the purpose of
enforcing the Indemnitee's right to indemnification pursuant to this Agreement.
Neither the failure of the Company (including its Board of Directors,
stockholders, or independent legal counsel) to have made a determination prior
to the commencement of such action that the Indemnitee is entitled to
indemnification hereunder, nor an actual determination by the Company (including
its Board of Directors or independent legal counsel) that the Indemnitee is not
entitled to indemnification hereunder, shall be a defense to the action or
create any presumption that the Indemnitee is not entitled to indemnification
hereunder.
(d) Indemnification of Certain Expenses. The Company shall
-----------------------------------
indemnify the Indemnitee against all expenses incurred in connection with any
hearing or proceeding under this Section 7 except to the extent the Company
prevails in such hearing or proceeding.
8. Assumption of Defense. In the event the Company shall be
---------------------
obligated to pay the expenses of any proceeding against the Indemnitee, the
Company, if appropriate, shall be entitled to assume the defense of such
proceeding, with counsel reasonably acceptable to the Indemnitee, upon the
delivery to the Indemnitee of written notice of its election to do so. After
delivery of such notice, approval of such counsel by the Indemnitee and the
retention of such counsel by the Company, the Company shall not be liable to the
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
the Indemnitee with respect to the same proceeding except for reasonable costs
of ongoing investigation, provided that (a) the Indemnitee shall have the right
to employ his counsel in such proceeding at the Indemnitee's expense; and (b) if
(i) the employment of counsel by the Indemnitee has been previously authorized
in writing by the Company, (ii) the Indemnitee's counsel delivers a written
notice to the Company stating that such counsel has reasonably concluded that
there may be a conflict of interest between the Company and the Indemnitee in
the conduct of any such defense or that the Indemnitee may have defenses
available to it that are not available to the Company or (iii) the Company shall
not, in fact, have employed counsel to assume the defense of such proceeding
within a reasonable time, then in any such event the fees and expenses of the
Indemnitee's counsel shall be at the expense of the Company.
9. Insurance.
---------
(a) So long as the Indemnitee shall continue to serve as a
director or officer of or consultant to the Company and thereafter so long as
the Indemnitee shall be subject to any possible claim or proceeding by reason of
the fact that the Indemnitee is or was an agent of the Company, the Company,
subject to Section 9(b), shall use its reasonable best efforts to maintain in
full force and effect directors' and officers' liability insurance issued by the
one or more reputable insurers providing coverage at least comparable to and in
the same amount as that provided under the policies held by the Company at
January 31, 1998 ("D&O Insurance") with
5
<PAGE>
respect to acts or omissions occurring at or after the Effective Time. In all
policies of D&O Insurance maintained by or for the benefit of other directors or
officers of the Company, the Indemnitee shall be named as an insured in such a
manner as to provide the Indemnitee the same rights and benefits, subject to the
same limitations, as are accorded to the Company's directors or officers most
favorably insured by such policy. Notwithstanding any other provision of this
Agreement, the Company shall not be obligated to indemnify the Indemnitee for
expenses, judgments, fines or penalties which have been paid directly to the
Indemnitee by D&O Insurance. Without limiting any other provisions of this
Agreement, including Sections 6 and 7, if the Company has D&O Insurance in
effect at the time the Company receives from the Indemnitee any notice of the
commencement of a proceeding, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the policy. The Company shall thereafter take all
necessary or desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such proceeding in accordance
with the terms of such policy.
(b) The Company shall have no obligation to maintain D&O
Insurance if the Board of Directors of the Company determines in good faith that
(i) such insurance is not reasonably available, (ii) the premium costs for such
insurance is disproportionate to the amount of coverage provided, (iii) the
premium costs exceed 175% of the amount per annum the Company paid in the last
full fiscal year, or (iv) the coverage provided by such insurance is limited by
exclusions so as to provide an insufficient benefit (it being understood that if
such exclusions are not materially greater than those in effect as of January
31, 1998, this clause (iv) cannot be invoked).
10. Exceptions.
----------
(a) Claims Initiated by the Indemnitee. Any provision herein to
----------------------------------
the contrary notwithstanding, the Company shall not be obligated pursuant to the
terms of this Agreement to indemnify or advance expenses to the Indemnitee with
respect to proceedings or claims initiated or brought voluntarily by the
Indemnitee and not by way of defense, except with respect to cross-claims or
counter-claims in any proceedings brought against the Indemnitee, any
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise, including as required
under Section 4, but such indemnification or advancement of expenses may be
provided by the Company in specific cases if the Board of Directors of the
Company finds it to be appropriate.
(b) Unauthorized Settlements. Any provision herein to the
------------------------
contrary notwithstanding, the Company shall not be obligated pursuant to the
terms of this Agreement to indemnify the Indemnitee under this Agreement for any
amounts paid in settlement of a proceeding effected without the Company's
written consent. Neither the Company nor the Indemnitee shall unreasonably
withhold consent to any proposed settlement.
6
<PAGE>
(c) Indemnification Unlawful. Any provision herein to the
------------------------
contrary notwithstanding, the Company shall not be obligated pursuant to the
terms of this Agreement to indemnify the Indemnitee if a final and unappealable
decision by a court of competent jurisdiction shall determine that such
indemnification is not lawful.
11. Nonexclusivity. The provisions for indemnification and
--------------
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Articles of Incorporation or Bylaws, in any court in which
a proceeding is brought, the vote of the Company's stockholders or disinterested
directors, other agreements or otherwise, both as to action in the Indemnitee's
official capacity and to action in another capacity while occupying his position
as an Agent of the Company, in either case after the Effective Time, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an Agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee. Any provision herein to the
contrary notwithstanding, the Company may provide, in specific cases, the
Indemnitee with indemnification if the Board of Directors of the Company
determines that such indemnification is appropriate. This Agreement shall not
be construed to restrict any right to indemnification that the Indemnitee may
otherwise have under the Articles of Incorporation or Bylaws of the Company.
This Agreement shall not be deemed to limit in any manner Indemnitee's rights as
a third-party beneficiary under Section 5.11 of the Merger Agreement.
12. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who, at the request and expense of the Company,
shall execute all papers required and shall do everything that may be reasonably
necessary to secure such rights, including the execution of such documents
necessary to enable the Company effectively to bring suit to enforce such
rights.
13. Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law. To the extent that a change in the Virginia Stock Corporation
Act (whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Company's articles of
incorporation and bylaws and this Agreement, it is the intent of the parties
hereto that the Indemnitee shall enjoy by this Agreement the greater benefits so
afforded by such change. In the event the Company grants to any person rights
with respect to exculpation from liability or indemnification that are more
favorable than those granted to the Indemnitee pursuant to this Agreement, the
Indemnitee shall be entitled to the benefit of such improved rights as though
set forth in this Agreement.
14. Severability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(a) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation,
7
<PAGE>
all portions of any paragraphs of this Agreement containing any such provision
held to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall not in any way be affected or impaired thereby;
and (b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portions of any paragraph of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall be construed so as
to give maximum effect to the intent manifested by the provision held invalid,
illegal or unenforceable and to give maximum effect to Section 13 hereof.
15. Modification and Waiver. No supplement, modification or
-----------------------
amendment of this Agreement shall be binding unless executed in writing by the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver. The
indemnification rights afforded to the Indemnitee hereby are contract rights and
may not be diminished, eliminated or otherwise affected by amendments to the
Articles of Incorporation or Bylaws of the Company or by other agreements.
16. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns, including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Company, spouses, heirs, executors and personal
and legal representatives. The Company shall require and cause any successor
(whether direct or indirect by purchase, merger, consolidation, liquidation or
otherwise) to all, substantially all, or a substantial part of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to the Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect regardless of whether the Indemnitee continues to serve as an
officer or director or Agent of the Company or of any other enterprise at the
Company's request. In the event of the death or disability of the Indemnitee
and his replacement on the Board of Directors by his legal representative
pursuant to the Stockholders Agreement, the Company shall enter into an
indemnification agreement with such legal representative on the terms set forth
herein.
17. Notice. Except as otherwise provided herein, any notice or
------
demand which, by the provisions hereof, is required or which may be given to or
served upon the parties hereto shall be in writing and, if by telegram, telecopy
or telex, shall be deemed to have been validly served, given or delivered when
sent, if by personal delivery, shall be deemed to have been validly served,
given or delivered upon actual receipt of delivery and, if mailed, shall be
deemed to have been validly served, given or delivered three business days after
deposit in the United States mails, as registered or certified mail, with proper
postage prepaid and addressed to the party or parties to be notified at the
addresses set forth on the signature page of this Agreement (or such other
address(es) as a party may designate for itself by like notice).
8
<PAGE>
18. Governing Law. This Agreement shall be governed exclusively by
-------------
and construed according to the laws of the Commonwealth of Virginia as applied
to contracts between Virginia residents entered into and to be performed
entirely within Virginia.
19. Consent to Jurisdiction. The Company and the Indemnitee each
-----------------------
hereby irrevocably consent to the exclusive jurisdiction of the courts of the
Commonwealth of Virginia for all purposes in connection with any action or
proceeding which arises out of or relates to this Agreement and agree that any
action instituted under this Agreement shall be brought only in the state courts
of (or, if jurisdiction in such state courts shall not be available , the
federal courts located in) the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement effective as of the date first above written.
THE COMPANY:
Advance Holding Corporation,
a Virginia corporation
By: /s/ Garnett E. Smith
---------------------------------
Name: Garnett E. Smith
Title: President
Address: 5673 Airport Road
Roanoke, VA 24102
THE INDEMNITEE:
/s/ Nicholas F. Taubman
--------------------------------------
Nicholas F. Taubman
Address: c/o Advance Holding Corporation
5673 Airport Road
Roanoke, VA 24102
9
<PAGE>
EXHIBIT 10.27
THIS OPTION AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. THIS OPTION MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF BY THE ORIGINAL HOLDER HEREOF
EXCEPT IN ACCORDANCE WITH SECTION 1.8 HEREOF AND THE STOCKHOLDERS AGREEMENT (AS
DEFINED BELOW). THE SECURITIES ISSUABLE UPON EXERCISE OF THIS OPTION MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO (i) EFFECTIVE REGISTRATION STATEMENT(S) UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS, (ii) RULE 144, RULE 144A OR ANY SUCCESSOR RULE UNDER THE
ACT AND ANY SIMILAR RULES UNDER APPLICABLE STATE LAW PERMITTING SUCH DISPOSITION
OF SECURITIES IN COMPLIANCE WITH THE ACT AND APPLICABLE STATE SECURITIES LAWS OR
(iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS RELATING TO THE DISPOSITION OF SUCH SECURITIES, PROVIDED THAT
THE HOLDER OF SUCH SECURITIES ISSUABLE HEREUNDER DELIVERS AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE. THIS OPTION AND THE SECURITIES ISSUABLE
UPON EXERCISE OF THIS OPTION ARE SUBJECT TO CERTAIN RESTRICTIONS WITH RESPECT TO
THE TRANSFER THEREOF AS SET FORTH IN THAT CERTAIN STOCKHOLDERS AGREEMENT DATED
AS OF APRIL 15, 1998 (AS THE SAME MAY BE AMENDED FROM TIME TO TIME, THE
"STOCKHOLDERS AGREEMENT"). IN ADDITION, THIS OPTION AND THE SECURITIES ISSUABLE
UPON EXERCISE OF THIS OPTION ARE SUBJECT TO AN OBLIGATIONS TO SELL AS SET FORTH
IN SECTION 1.8 HEREOF AND IN THE STOCKHOLDERS AGREEMENT. A COPY OF SUCH
STOCKHOLDERS AGREEMENT MAY BE EXAMINED AT THE PRINCIPAL PLACE OF BUSINESS OF THE
COMPANY AND A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY WITHOUT CHARGE UPON
WRITTEN REQUEST THEREFORE.
ADVANCE HOLDING CORPORATION
A Virginia corporation
OPTION TO PURCHASE COMMON STOCK
This certifies that for value received Mr. Nicholas F. Taubman (the
"Holder"), is entitled to subscribe for and purchase from Advance Holding
Corporation, a Virginia corporation (the "Company"), at the then applicable
Exercise Price (as defined in Section 1.1 below) at any time during the Option
Exercise Period (as defined in Section 1.2 below) an initial maximum of 250,000
fully paid and nonassessable shares (the "Option Shares") of the Company's Class
A
<PAGE>
Common Stock, par value $0.01 per share (the "Common Stock"), subject to the
provisions and upon the terms and conditions hereinafter set forth.
This Option is subject to the following terms and conditions:
ARTICLE 1
OPTION EXERCISE PRICE AND EXERCISE OF OPTION;
OBLIGATION TO SELL
SECTION 1.1 Exercise Price. This Option, when signed by the
--------------
President or a Vice President of the Company and by the Secretary or Assistant
Secretary of the Company, shall entitle the Holder to purchase from the Company
the number of Option Shares set forth above, at a purchase price per Option
Share equal to the Exercise Price, or such adjusted number of shares at such
adjusted Exercise Price as may be established from time to time pursuant to the
provisions of Article 2 hereof, at any time during the Option Exercise Period
(as such term is defined in Section 1.2 below) in accordance with the procedures
set forth in Section 1.3 below.
The "Exercise Price" shall initially be $10.00 per Option Share and
shall increase by $2.00 on each anniversary of the date hereof during the Option
Exercise Period. Except as the context otherwise requires, the term Exercise
Price as used in this Option shall mean the purchase price upon exercise of this
Option to purchase one Option Share, reflecting all appropriate adjustments made
in accordance with the provisions of Article 2 hereof.
SECTION 1.2 Exercisability of Option. This Option shall be
------------------------
exercisable solely by the Holder, in whole or in part, and from time to time
during the period commencing on April 16, 1998 and terminating at 5:00 p.m., New
York time, on April 15, 2005 (the "Option Exercise Period").
SECTION 1.3 Procedure for Exercise of Option. During the Option
--------------------------------
Exercise Period, this Option may be exercised by the Holder by surrendering this
Option to the Company, or its agent, with the Election to Exercise Form attached
to this Option duly completed and executed, accompanied by payment in full to
the Company of the Exercise Price in effect at the time of such exercise for
each Option Share with respect to which this Option is being exercised. Such
Exercise Price shall be paid in full, by delivery of cash or check payable in
United States currency to the order of the Company or payment of the Exercise
Price by (i) the assignment and transfer by Holder to the Company of outstanding
shares of Common Stock theretofore held by Holder or (ii) the surrender of that
number of exercisable Options necessary (based on the amount that the aggregate
fair market value of the Option Shares covered by the Options being surrendered
exceeds the aggregate Exercise Price with respect to such Option Shares), to pay
the Exercise Price with respect to those Options being exercised. The date on
2.
<PAGE>
which this Option is exercised in accordance with this Section 1.3 is sometimes
referred to herein as the "Date of Exercise" of this Option. The fair market
value of Option Shares or of Options being surrendered shall be on the Current
Market Price determined as set forth in Section 2.1(e).
SECTION 1.4 Issuance of Common Stock; Issue Tax. As soon as
-----------------------------------
practicable after the Date of Exercise of this Option, the Company shall issue a
certificate or certificates for the number of Option Shares to which the Holder
is entitled, registered in the Holder's name and shall mail such certificate to
the Holder. All Option Shares issued upon the exercise of this Option shall be
validly authorized and issued, fully paid and nonassessable, and free from all
preemptive rights, taxes, liens and charges created by the Company in respect of
the issue thereof; provided however that all Option Shares shall be subject to
the provisions of that certain Stockholders Agreement dated as of April 15, 1998
(and as the same may be amended from time to time, the "Stockholders'
Agreement"). The issuance of certificates for Option Shares shall be made
without charge to the Holder for any issue tax in respect thereof. The Holder,
for all purposes, shall be deemed to have become the holder of record of the
Common Stock represented by the certificate for Option Shares on the Date of
Exercise of this Option resulting in the issuance of such Option Shares which
shall be the date of issuance, irrespective of the date of delivery of such
certificate for Option Shares.
SECTION 1.5 New Option. In the event that less than all of the
----------
Option Shares covered by this Option are purchased, the Company shall execute
and mail, by first-class mail, and within 20 days of the Date of Exercise, to
the Holder a new Option representing the right to purchase the number of Option
Shares not purchased upon exercise of the surrendered Option. In no event shall
a fraction of an Option Share be issued.
SECTION 1.6 Reservation of Shares. The Company shall at all times
---------------------
reserve and keep available for issuance upon the exercise of this Option, free
from preemptive rights, a number of its authorized but unissued shares of Common
Stock that will be sufficient to permit the exercise in full of this Option.
SECTION 1.7 Rights of Holder; Voting. This Option shall not
------------------------
entitle the Holder to any of the rights of a stockholder of the Company,
including without limitation the right to vote, to receive dividends and other
distributions, to receive any notice of, or to attend, meetings of stockholders
or any other proceedings of the Company (except as provided in Section 2.5).
SECTION 1.8 Obligation to Sell.
------------------
(a) In addition to the rights of FS Stockholder (as defined in
the Stockholders Agreement) and the obligations of Holder (and any transferee
from Holder) as set forth in the Stockholders Agreement, if the FS Stockholder
sells to a buyer all of the shares of Common Stock held by the FS Stockholder
(whether such sale is by way of purchase, merger or
3.
<PAGE>
other form of transaction), FS Stockholder may require the Holder to sell this
Option (and, as provided in the Stockholders Agreement, any holder of Option
Shares) to such buyer for the same per share consideration (less the then
aggregate Exercise Price of this Option, and otherwise pursuant to the terms and
conditions applicable to the FS Stockholder for the sale of its shares of Common
Stock. In the event the per share consideration for the Common Stock is less
than the Exercise Price applicable at the time a binding agreement with respect
to such transaction is entered into, this Option shall be canceled without
payment to the Holder. In addition, the FS Stockholder may require the Holder to
approve or consent to such sale and to execute such agreements, powers of
attorney, voting proxies or other instruments and to take such other actions as
the FS Stockholder may reasonably request in connection with such sale. The
Holder and each holder of Option Shares shall pay the reasonable, incremental
out-of-pocket expenses incurred by the FS Stockholder in connection with a sale
as a result of the Holder's participation therein.
(b) The obligations of the Holder pursuant to this Section 1.8
shall be binding on any transferee of this Option, and each of the Holder and
any such transferee shall obtain and deliver to the FS Stockholder prior to any
transfers (other than transfers constituting a Public Market Sale, as defined in
the Stockholders Agreement) a written commitment, in form and substance
satisfactory to the FS Stockholder, from such transferee to be bound by such
provisions. As provided in the Stockholders Agreement, any holder of Option
Shares is bound by the Stockholders Agreement. Any transfer effected in
violation of this provision shall be void. The Holders' obligations pursuant to
this Section 1.8, and the obligations of any such transferee, shall survive the
termination of this Option pursuant to Section 4.5 below. All obligations
relating to this Option pursuant to this Section 1.8 shall expire in accordance
with the provisions of Section 4.2 of the Stockholders Agreement.
SECTION 1.9 The Company further agrees (i) that it will not, by
amendment of its certificate of incorporation or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
the Company, and (ii) to promptly take all action as may from time to time be
required to permit the Holder to exercise this Option and the Company duly and
effectively to issue the Option Shares as provided herein upon the exercise
hereof. The Company shall cause the Option Shares to be listed or eligible to
be quoted for trading on the NASDAQ Stock Market or on any other stock exchange
or market on which Common Stock is then listed or eligible to be quoted for
trading.
4.
<PAGE>
ARTICLE 2
ADJUSTMENTS AND NOTICE PROVISIONS
SECTION 2.1 Adjustment of Exercise Price. Subject to the
----------------------------
provisions of this Article 2, the Exercise Price in effect from time to time
upon the exercise of this Option shall be subject to adjustment, as follows:
(a) In the event that the Company shall (i) declare a dividend
or make a distribution on the outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately after the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately before such dividend, distribution, subdivision,
combination or reclassification, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such dividend,
distribution, subdivision, combination or reclassification. Such adjustments
shall be made successively whenever any event specified above shall occur.
(b) In the event that the Company shall fix a record date for
the issuance of rights or warrants to all holders of Common Stock entitling them
to subscribe for or purchase shares of Common Stock for less than the Current
Market Price (as such term is defined in Section 2.1(e) below) of a share of
Common Stock on such record date, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares of such Common Stock
so offered to such holders would purchase at the Current Market Price (as
defined in Section 2.1(e) below) per share on such record date, and the
denominator of which shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of Common Stock offered
to such holders for subscription or purchase. Such adjustment shall be made
successively whenever such a record date is fixed. To the extent that any such
rights or warrants are not so issued or expire unexercised, the Exercise Price
then in effect shall be readjusted to the Exercise Price which would then be in
effect if such unissued or unexercised rights or warrants had not been issuable.
(c) In the event that the Company shall fix a record date for
the making of a distribution to all holders of shares of Common Stock (i) of
securities of any class other than Common Stock, (ii) of evidences of its
indebtedness, (iii) of assets (excluding cash dividends or
5.
<PAGE>
distributions, and dividends or distributions referred to in Section 2.1(a)
above) or (iv) of rights, options or warrants to acquire securities of the
Company (excluding those rights, options or warrants referred to in Section
2.1(b) above), then in each such case the Exercise Price in effect immediately
after the record date shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the total number of shares of Common Stock outstanding on such record date
multiplied by the Current Market Price per share on such record date, less the
aggregate fair market value as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary, of said securities or evidences of indebtedness, assets, rights,
options or warrants so distributed to such holders, and the denominator of which
shall be the total number of shares of Common Stock outstanding on such record
date multiplied by such Current Market Price per share. Such adjustment shall be
made successively whenever such a record date is fixed. In the event that such
distribution is not so made, or rights, options or warrants described in clause
(iv) expire without being exercised, the Exercise Price then in effect shall be
readjusted to the Exercise Price which would then be in effect if such record
date had not been fixed or such rights, options or warrants had not been
distributed, as the case may be.
(d) In the event that the Company shall sell and issue shares of
Common Stock, or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock (excluding shares, rights, options, warrants or convertible or
exchangeable securities issued in any of the transactions described in Sections
2.1(a), (b) or (c) above), at a price per share of Common Stock (determined, in
the event of such rights, options, warrants or convertible or exchangeable
securities, by dividing (y) the total amount receivable by the Company in
consideration of the sale and issuance of such rights, options, warrants or
convertible or exchangeable securities, plus the total consideration payable to
the Company upon exercise, conversion or exchange thereof by (z) the total
number of shares of Common Stock covered by such rights, options, warrants or
convertible or exchangeable securities) lower than the Current Market Price on
the date the Company fixes the offering price of such shares, rights, options,
warrants or convertible or exchangeable securities, then the Exercise Price
shall be adjusted so that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, (i) the
numerator of which shall be the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such sale and issuance plus (B) the number of
shares of Common Stock which the aggregate consideration received (determined as
provided below) for such sale or issuance would purchase at such Current Market
Price per share, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such sale and issuance.
Such adjustment shall be made successively whenever such an issuance is made but
no adjustment shall be made with respect to the issuance of an underlying
security for which an adjustment in respect of the related right, option,
warrant or convertible or exchangeable security has been made. For the purposes
of such adjustment, the shares of Common Stock which the holder of any such
rights, options, warrants or convertible or exchangeable securities shall be
entitled to subscribe for or
6.
<PAGE>
purchase shall be deemed to be issued and outstanding as of the date of such
sale and issuance and the consideration received by the Company therefor shall
be deemed to be the consideration received by the Company for such rights,
options, warrants or convertible or exchangeable securities, plus the
consideration or premium stated in such rights, options, warrants or convertible
or exchangeable securities to be paid for the shares of Common Stock covered
thereby. In the event that the Company shall sell and issue shares of Common
Stock, or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent or services, then in determining the "price per share of Common
Stock" and the "consideration received by the Company" for purposes of the first
sentence of this Section 2.1(d), the Board of Directors of the Company shall
determine, in reasonable good faith, the fair value of said property or
services, and such determination, which shall be described in a duly adopted
board resolution certified by the Company's Secretary or Assistant Secretary, in
the absence of fraud or bad faith, shall be binding upon the Holder. In case the
Company shall sell and issue rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock together with one or more other securities as part of a unit at
a price per unit, then in determining the "price per share of Common Stock" and
the "consideration received by the Company" for purposes of the first sentence
of this Section 2.1(d), the Board of Directors of the Company shall determine,
in reasonable good faith, whose determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary, the fair value of the rights, options, warrants or convertible or
exchangeable securities then being sold as part of such unit, and such
determination, in the absence of fraud or bad faith, shall be binding upon the
Holder. For purposes of this Agreement, the term "subsidiary" shall mean any
entity or person a majority of whose equity interests are owned by the Company,
by a subsidiary of the Company or by the Company and one or more subsidiaries.
To the extent any options, warrants or convertible securities subject to this
Section 2.1(d) expire without being exercised or converted, the Exercise Price
in effect at such time shall be readjusted to the Exercise Price which would
then be in effect if such security had not been issued.
(e) For the purpose of any computation under Sections 2.1(b),
(c) or (d) above, the "Current Market Price" at any date (the "Computation
Date") shall be deemed to be the average of the daily closing prices of the
Common Stock for 20 consecutive trading days ending the tenth trading day before
such date. The closing price for each day shall be the last reported sale price
or, in case no such reported sale takes place on such date, the average of the
last reported bid and asked prices, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading or listed
if that is the principal market for the Common Stock or if not listed or
admitted to trading on any national securities exchange or if such national
securities exchange is not the principal market for the Common Stock, the
closing bid price as reported by the Nasdaq National Market or its successor, if
any, or such other generally accepted source of publicly reported bid and asked
quotations as the Company may reasonably designate. If the price of the Common
Stock is not so reported or the Common Stock is not
7.
<PAGE>
publicly traded, the Current Market Price per share as of any Computation Date
shall be determined by the Board of Directors in reasonable good faith on such
basis as it considers appropriate, and such determination, which shall be
described in a duly adopted board resolution certified by the Company's
Secretary or Assistant Secretary, in the absence of fraud or bad faith, shall be
binding upon the Holder.
(f) All calculations under this Section 2.1 shall be made to the
nearest cent.
(g) For the purposes of all calculations under this Section 2.1,
shares of Common Stock or other securities held in the treasury of the Company
shall not be deemed to be outstanding, and the sale or other disposition of any
shares of Common Stock or other securities held in the treasury of the Company
shall be deemed an issuance thereof.
(h) For purposes of adjusting the Exercise Price pursuant to
Sections 2.1(a), (b), (c) or (d) hereof, in no event shall the Exercise Price be
adjusted to a price which is less than the par value of Common Stock; provided,
however, that in the event such full adjustment would have been made but for
this Section 2.1(h), the Exercise Price shall be adjusted to the par value and
the number of shares issuable upon exercise of this Option shall still be
adjusted in accordance with Section 2.3 below as though such full adjustment in
the Exercise Price had been made.
(i) For purposes of adjusting the Exercise Price pursuant to
Sections 2.1(b), (c) or (d) hereof, the following issuances of securities shall
be exempt from such provisions: all securities (whether Common Stock or
warrants, options or convertible or other securities convertible into or
exchangeable for Common Stock) which are issued and sold by the Company
constituting (i) the Initial Shares (as defined in the Stockholders Agreement),
(ii) any securities issued or issuable to any employees pursuant to any equity
incentive plan, individual agreement, bonus, award, stock purchase plan, stock
option plan or other stock agreement or arrangement approved by the Board, (iii)
any securities issued in exchange for debt securities of the Company or any
subsidiary, provided, that the overall terms of the exchange transaction are
fair and in the best interests of the Company as determined in reasonable good
faith by the Board and, provided, further, that if the FS Stockholder (as
defined in the Stockholder's Agreement) or its Affiliates and the Holder each
own debt securities being exchanged, then the Holder shall have been given the
right to participate in such exchange on the same terms as the FS Stockholder or
its Affiliates; (iv) any securities issued to any source of, or to any party
arranging, financing for the Company or any subsidiary of the Company, provided,
that the overall terms of the financing transaction involving the issuance of
debt and securities are fair and in the best interests of the Company as
determined in reasonable good faith by the Board and, provided further, that in
the event FS Stockholder or any of its Affiliates is participating in or
providing such financing that the Holder has an opportunity to participate, and
if he so participates, to purchase or otherwise receive on the same terms his
pro rata share of any securities, (v) any securities issued pursuant
8.
<PAGE>
to a public offering registered under the Securities Act, and (vi) any
securities that are issued or issuable in connection with the acquisition by the
Company of any business, business assets or securities from any person other
than an affiliate of Freeman, Spogli & Co.
SECTION 2.2 No Adjustments Required. No adjustment in the Exercise
-----------------------
Price in accordance with the provisions of Section 2.1 hereof, shall be made if
such adjustment would amount to a change in such Exercise Price of less than
$0.01, provided, however, that the amount by which any adjustment is not made by
reason of the provisions of this Section 2.2 shall be carried forward and taken
into account at the time of any subsequent adjustment in the Exercise Price.
SECTION 2.3 Adjustment to Number of Shares. Upon each adjustment
------------------------------
of the Exercise Price pursuant to Section 2.1 hereof, this Option shall
thereupon evidence the right to purchase that number of Option Shares
(calculated to the nearest share) obtained by multiplying the number of Option
Shares purchasable immediately prior to such adjustment upon exercise of this
Option by the Exercise Price in effect immediately prior to such adjustment and
dividing the product so obtained by the Exercise Price in effect immediately
after such adjustment.
SECTION 2.4 Reorganization, Etc.. Subject to Section 1.8(a) and
--------------------
the Stockholders Agreement, in case of any capital reorganization of the Company
in which the outstanding shares of Common Stock are changed into or exchanged
for different securities of the Company or any distribution is made with respect
to such shares of Common Stock, other than in the cases referred to in Section
2.1 hereof, or the consolidation or merger of the Company with or into another
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any change whatsoever in or
distribution with respect to, the outstanding Common Stock of the Company) or
the sale of the assets, property or business of the Company as an entirety or
substantially as an entirety (collectively such actions being hereinafter
referred to as "Reorganizations"), there shall thereafter be deliverable upon
exercise of this Option (in lieu of the number of shares of Common Stock
theretofore deliverable) the number of shares of stock or other securities or
property to which a holder of the number of Option Shares which would otherwise
have been deliverable upon the exercise of this Option would have been entitled
upon such Reorganization if this Option had been exercised in full immediately
prior to such Reorganization. In the event of any Reorganization, appropriate
adjustment, as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a duly adopted board
resolution certified by the Company's Secretary or Assistant Secretary, shall be
made in the application of the provisions herein set forth with respect to the
rights and interests of the Holder so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares or
other property thereafter deliverable upon exercise of this Option. Subject to
Section 1.8(a) and the Stockholders Agreement, the Company shall not effect any
such Reorganization, unless upon or prior to the consummation thereof the
successor corporation, or if the Company shall be the surviving corporation in
any such Reorganization and is not the issuer of the shares of stock or other
9.
<PAGE>
securities or property to be delivered to holders of shares of the Common Stock
outstanding at the effective time thereof, then such issuer shall assume by
written instrument the obligation to deliver to the Holder such shares of stock,
securities, cash or other property as the Holder shall be entitled to purchase
in accordance with the foregoing provisions. In the event of a sale or
conveyance or other transfer of all or substantially all of the assets of the
Company as a part of a plan for liquidation of the Company, all rights to
exercise this Option shall terminate 30 days after the Company gives written
notice to the Holder that such sale or conveyance or other transfer has been
consummated.
SECTION 2.5 Notice of Certain Actions. In the event the Company
-------------------------
shall: (a) declare any dividend payable in capital stock to all holders of
Common Stock or make any other distribution to all holders of Common Stock (b)
offer to all holders of Common Stock rights to subscribe for or purchase any
shares of any class of stock or any other rights or options or (c) effect any
reclassification of Common Stock or any capital reorganization, or any
consolidation or merger, or any sale, transfer or other disposition of its
property, assets and business substantially as an entirety, or the liquidation,
dissolution or winding up of the Company, in a transaction which gives the
Holder rights under Section 2.1 or Section 2.4; then, in each such case, the
Company shall cause written notice of such proposed action to be mailed to the
Holder. Such notice shall specify the date on which the books of the Company
shall close, or a record be taken, for determining holders of Common Stock
entitled to receive such stock dividend or other distribution or such rights or
options, or the date on which such reclassification, subdivision, combination,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, dissolution, winding up or exchange shall take place or commence,
as the case may be, and the date as of which it is expected that holders of
record of Common Stock shall be entitled to receive securities or other property
deliverable upon such action, if any such date has been fixed. Such notice
shall be mailed, in the case of any action covered by Sections 2.5(a) or (b)
above, at least fifteen (15) calendar days prior to the record date for
determining holders of the Common Stock for purposes of receiving such payment
or offer, and, in the case of any action covered by Section 2.5(c) above, at
least fifteen (15) calendar days prior to the earlier of the date upon which
such action is to take place or any record date to determine the holders of
Common Stock which are entitled to receive such securities or other property.
SECTION 2.6 Notice of Adjustments. Whenever any adjustment is made
---------------------
pursuant to this Article 2, the Company shall cause written notice certified by
the Chief Financial Officer of the Company of such adjustment to be mailed to
the Holder within thirty (30) days thereafter, such notice to include in
reasonable detail (a) a description of the events precipitating the adjustment
and (b) the computation of any adjustments, the Exercise Price, the number of
Option Shares or securities or other property purchasable upon exercise of this
Option after giving effect to such adjustment. The Company shall provide to the
Holder such additional information, including worksheets used in the calculation
of any adjustment made pursuant to this Article 2, as the Holder may reasonably
request for the purpose of confirming the accuracy of such adjustment.
10.
<PAGE>
SECTION 2.7 Fractional Shares. The Company shall not be required
-----------------
upon the exercise of this Option to issue fractional Option Shares which may
result from adjustments in accordance with this Article 2 to the Exercise Price
or number of Option Shares purchasable under this Option, or otherwise. With
respect to any fraction of an Option Share called for upon the exercise of this
Option, the Company shall pay a cash adjustment to the Holder in respect of such
final fraction in an amount equal to the same fraction of the market value of a
share of Common Stock, as determined by the Board of Directors on the basis of
the closing market price per share of Common Stock on the business day next
preceding the date of such exercise, or, if the Common Stock is not publicly
traded, on such other basis as the Board of Directors in good faith deems
appropriate. The Holder, by such Holder's acceptance of this Option, shall
expressly waive any right to receive any fractional Option Shares upon exercise
of this Option. All calculations under this Section 2.7 shall be made to the
nearest hundredth of a share.
SECTION 2.8 Other Adjustments. If any event occurs as to which the
-----------------
foregoing provisions of this Article 2 are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board of
Directors, fairly protect the purchase rights of the Holder of this Option in
accordance with the essential intent and principles of such provisions, then
such Board of Directors shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, as shall be
reasonably necessary, in the good faith opinion of such Board, to protect such
purchase rights as aforesaid, but in no event shall any such adjustment under
this Section 2.8 have the effect of increasing the Exercise Price or decreasing
the number of shares of Common Stock subject to purchase upon exercise of this
Option, or otherwise adversely affect the Holder. Under no circumstances (other
than (x) a reverse stock split, (y) a recapitalization or similar transaction in
which all holders of Common Stock (and securities exercisable for or convertible
into Common Stock, with respect to such exercise or conversion provisions) are
treated equally and (z) a merger, in each case in which each outstanding share
of Common Stock is converted into less than one share of Common Stock
(including, in the case of a merger, of the entity surviving such merger), shall
any adjustment pursuant to this Article 2 have the effect of raising the
Exercise Price or lowering the number of Option Shares issuable upon exercise of
this Option.
ARTICLE 3
FORM AND REGISTRATION OF
OPTIONS AND OPTION SHARE CERTIFICATES
SECTION 3.1 Form of Options and Option Share Certificates. This
---------------------------------------------
Option and certificates for Option Shares shall be issued in registered form
only, and may have such letters, numbers or other marks of identification or
designation stamped, printed, lithographed or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of this
Option and such legends, summaries, or endorsements as, in any particular case,
11.
<PAGE>
may be required, in the opinion of counsel for the Company, to comply with any
law or with any rule or regulation of any regulatory authority or agency.
SECTION 3.2 Execution of Option and Option Share Certificates.
-------------------------------------------------
This Option shall be executed on behalf of the Company by its President or Vice
President, either manually or by facsimile signature printed thereon, under its
corporate seal, affixed or in facsimile, attested by the manual or facsimile
signature of its Secretary or Assistant Secretary. In case any authorized
officer of the Company who shall have signed this Option shall cease to be such
officer of the Company either before or after delivery thereof by the Company,
the signature of such person on this Option, nevertheless, shall be valid and
may be issued and delivered to those persons entitled to receive this Option
represented thereby with the same force and effect as though the person who
signed such Option had not ceased to be such officer of the Company.
SECTION 3.3 Holder Sole Owner. Only the Holder shall be entitled
-----------------
to be treated as the registered holder of this Option as the owner in fact
thereof for all purposes (notwithstanding any notation of ownership or other
writing thereon made by anyone) and the Company shall not be bound to recognize
any equitable or other claim to or interest in this Option on the part of any
other person. Upon request by the Holder, the Company shall register the
transfer of this Option that is effected in accordance with the provisions of
this Option and the Stockholders Agreement.
SECTION 3.4 Mutilated, Lost, Stolen or Destroyed Option and Option
------------------------------------------------------
Share Certificates. In case any of this Option shall be mutilated, lost, stolen
- ------------------
or destroyed, the Company shall, upon the written request of the holder thereof,
issue and deliver to such holder, in replacement therefor, a new Option, as the
case may be, of like tenor and representing an equivalent right or interest. If
this Option or an Option Share certificate being replaced is mutilated, this
Option shall be surrendered to the Company for cancellation. If this Option
being replaced is lost, stolen or destroyed, the holder of this Option, shall
furnish to the Company such security or indemnity as may be reasonably required
by it to save it harmless from any loss as a result of such replacement and
evidence satisfactory to the Company of such loss, theft or destruction.
SECTION 3.5 Restrictions on Dispositions. The Holder, by
----------------------------
acceptance hereof, represents and warrants to the Company that this Option is
being acquired and any Option Shares will be purchased by such Holder for such
Holder's own account and not with a view to the distribution thereof in
violation of the Securities Act of 1933, as amended (the "Act") or any state
securities laws. The Holder may only offer, sell, transfer, pledge, hypothecate
or otherwise dispose of this Option or the Option Shares subject to the
provisions of Section 1.8 hereof and the Stockholders Agreement (including
Article V thereof, restricting transfer for a two-year period and maintaining
certain restrictions thereafter). This Option may only be exercised by the
Holder and, upon such exercise, Option Shares will be issued only in the name of
the Holder.
12.
<PAGE>
SECTION 3.6 Legends. This Option shall be subject to a stop-
-------
transfer order.
The Option Shares issued upon exercise of this Option shall be subject to a
stop-transfer order and the certificate or certificates evidencing any such
Option Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) EFFECTIVE
REGISTRATION STATEMENT(S) UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, (ii) RULE 144, RULE 144A OR ANY SUCCESSOR
RULE UNDER THE ACT AND ANY SIMILAR RULES UNDER APPLICABLE
STATE LAWS PERMITTING SUCH DISPOSITION OF SECURITIES IN
COMPLIANCE WITH THE ACT AND APPLICABLE STATE SECURITIES LAWS
OR (iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER THE ACT
OR APPLICABLE STATE SECURITIES LAWS RELATING TO THE
DISPOSITION OF SUCH SHARES, PROVIDED THAT THE REGISTERED
HOLDER OF SUCH SHARES DELIVERS AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT AN
EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. THE
SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS WITH RESPECT TO THE TRANSFER THEREOF AS
SET FORTH IN THAT CERTAIN STOCKHOLDERS AGREEMENT DATED AS OF
APRIL 15, 1998 (AS THE SAME MAY BE AMENDED FROM TIME TO
TIME, THE "STOCKHOLDERS AGREEMENT"). A COPY OF SUCH
STOCKHOLDERS AGREEMENT MAY BE EXAMINED AT THE PRINCIPAL
PLACE OF BUSINESS OF THE COMPANY AND A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY WITHOUT CHARGE UPON WRITTEN
REQUEST THEREFORE."
Option Share certificates without legend shall be issued if such Option Shares
are sold pursuant to an effective registration statement under the Act and any
applicable state securities laws or if the Company has received an opinion from
counsel, reasonably satisfactory to counsel for the
13.
<PAGE>
Company, that such legend is no longer required under the Act or any applicable
state securities laws and if the provisions of Section 1.8 and the Stockholders
Agreement are no longer in effect with respect to such Option Shares. Each
instrument representing any other securities issued in respect of this Option
upon any capital reorganization, merger, consolidation or sale, shall (unless
such securities have been registered or are exempt from registration under the
Securities Act of 1933, as amended) be stamped or otherwise imprinted with a
legend substantially in the form set forth above.
ARTICLE 4
OTHER MATTERS
SECTION 4.1 Notices. Any notice or demand which, by the provisions
-------
hereof, is required or which may be given to or served upon the parties hereto
shall be in writing and, if by telegram, telecopy or telex, shall be deemed to
have been validly served, given or delivered when sent, if by personal delivery,
shall be deemed to have been validly served, given or delivered upon actual
delivery and, if mailed, shall be deemed to have been validly served, given or
delivered three business days after deposit in the United States mails, as
registered or certified mail, with proper postage prepaid and addressed to the
party or parties to be notified, at the following addresses (or such other
address(es) as a party may designate for itself by like notice): (i) if to the
Holder, at Nicholas F. Taubman, 2818 Avenham Avenue, Roanoke, Virginia 24014,
with a copy to Flippin, Densmore, Morse, Rutherford & Jessee, 300 First Campbell
Square, Drawer 1200, Roanoke, Virginia 24006, Attention: Douglas W. Densmore,
Facsimile No. (540) 510-3050; (ii) if to a registered holder of any Option
Shares, at the most current address given by such holder to the Company in
accordance with the provisions of this Section 4, and (iii) if to the Company,
at Advance Holding Corporation, c/o Freeman Spogli & Co., Incorporated, 599
Lexington Avenue, New York, NY 10022, Attn: John M. Roth, Facsimile No. (212)
758-7499, with a copy to Riordan & McKinzie, 300 S. Grand Ave., 29/th/ Floor,
Los Angeles, CA 90071, Attention: Richard J. Welch, Facsimile No. (213) 229-
8550.
SECTION 4.2 Defects in Notice. Failure to file any certificate or
-----------------
notice or to mail any notice, or any defect in any certificate or notice
pursuant to this Option shall not affect in any way the rights of the Holder or
any holder of Option Shares or validity of any adjustment made pursuant to
Article 2 hereof, or any transaction giving rise to any such adjustment, or the
legality or validity of any action taken or to be taken by the Company.
SECTION 4.3 Supplements and Amendments. This Option may only be
--------------------------
amended or supplemented, and any waiver or departure from the provisions hereof
may only be given, with the written consent of the Company and the Holder and,
with respect to Section 1.8, the FS Stockholder.
14.
<PAGE>
SECTION 4.4 Successors. All of the covenants and provisions of
----------
this Option by or for the benefit of the Company or the Holder shall bind and
inure to the benefit of each of them and each of their respective successors and
assigns hereunder, including any holder of the Option Shares.
SECTION 4.5 Termination. This Option shall terminate at 5:00 p.m.,
-----------
New York time on April 15, 2005. Notwithstanding the foregoing, this Option
shall terminate on any earlier date when it has been exercised in full. The
provisions of Sections 1.8 and 3 shall survive both such terminations.
SECTION 4.6 Governing Law. This Option and the rights and
-------------
obligations of the parties hereunder shall be construed in accordance with and
be governed by the laws (without giving effect to the conflicts of laws
principles thereof) of the Commonwealth of Virginia.
SECTION 4.7 Standing. Nothing in this Option expressed and nothing
--------
that may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company and the registered holder of this Option any right, remedy or claim
under or by reason of this Option or of any covenant, condition, stipulation,
promise or agreement contained herein.
SECTION 4.8 Headings. The descriptive headings of the articles and
--------
sections of this Option are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, this Option has been duly executed by the Company
under its corporate seal as of the 15th day of April, 1998.
ADVANCE HOLDING CORPORATION,
a Virginia corporation
By: /s/ Garnett E. Smith
_______________________________
And By: /s/ J. O'Neil Leftwich
_______________________________
15.
<PAGE>
ELECTION TO EXERCISE FORM
(To be executed only upon partial
or full exercise of the within Option)
The undersigned, the Holder of the within Option, irrevocably
exercises the within Option for and purchases _______ shares of Common Stock of
Advance Holding Corporation and agrees to make payment thereof in the amount of
$__________, all at the price and on the terms and conditions specified in the
within Option and requests that a certificate for the shares of Common Stock of
Advance Holding Corporation hereby purchased be issued in the name of
_________________ and if such shares of Common Stock shall not include all the
shares of Common Stock issuable as provided in the within Option, that a new
Option of like tenor for the number of shares of Common Stock of Advance Holding
Corporation not being purchased hereunder be issued in the name of
__________________.
Dated: __________, _____
By: ________________________________
Holder
Signature Guaranteed:
______________________________
By: _________________________
Title:
NOTICE: The signature on this Election to Exercise Form must be that of
Nicholas F. Taubman or the Trustee of the Arthur Taubman Trust dated
July 1, 1964 (or, following the distribution of this option from such
Trust, a beneficiary thereof). The signature on this Election of
Exercise Form must be guaranteed by a commercial bank or trust company
in the United States or a member firm of any national securities
exchange.
<PAGE>
EXHIBIT 10.28
THIS OPTION AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. THIS OPTION MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF BY THE ORIGINAL HOLDER HEREOF
EXCEPT IN ACCORDANCE WITH SECTION 1.8 HEREOF AND THE STOCKHOLDERS AGREEMENT (AS
DEFINED BELOW). THE SECURITIES ISSUABLE UPON EXERCISE OF THIS OPTION MAY NOT BE
OFFERED, SOLD, TRANSFERRED, PLEDGED HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO (i) EFFECTIVE REGISTRATION STATEMENT(S) UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS, (ii) RULE 144, RULE 144A OR ANY SUCCESSOR RULE UNDER THE
ACT AND ANY SIMILAR RULES UNDER APPLICABLE STATE LAW PERMITTING SUCH DISPOSITION
OF SECURITIES IN COMPLIANCE WITH THE ACT AND APPLICABLE STATE SECURITIES LAWS OR
(iii) ANY OTHER EXEMPTION FROM REGISTRATION UNDER THE ACT OR APPLICABLE STATE
SECURITIES LAWS RELATING TO THE DISPOSITION OF SUCH SECURITIES, PROVIDED THAT
THE HOLDER OF SUCH SECURITIES ISSUABLE HEREUNDER DELIVERS AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE. THIS OPTION AND THE SECURITIES ISSUABLE
UPON EXERCISE OF THIS OPTION ARE SUBJECT TO CERTAIN RESTRICTIONS WITH RESPECT TO
THE TRANSFER THEREOF AS SET FORTH IN THAT CERTAIN STOCKHOLDERS AGREEMENT DATED
AS OF APRIL 15, 1998 (AS THE SAME MAY BE AMENDED FROM TIME TO TIME, THE
"STOCKHOLDERS AGREEMENT"). IN ADDITION, THIS OPTION AND THE SECURITIES ISSUABLE
UPON EXERCISE OF THIS OPTION ARE SUBJECT TO AN OBLIGATIONS TO SELL AS SET FORTH
IN SECTION 1.8 HEREOF AND IN THE STOCKHOLDERS AGREEMENT. A COPY OF SUCH
STOCKHOLDERS AGREEMENT MAY BE EXAMINED AT THE PRINCIPAL PLACE OF BUSINESS OF THE
COMPANY AND A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY WITHOUT CHARGE UPON
WRITTEN REQUEST THEREFORE.
ADVANCE HOLDING CORPORATION
A Virginia corporation
OPTION TO PURCHASE COMMON STOCK
This certifies that for value received the Arthur Taubman Trust dated
July 1, 1964 (the "Holder"), is entitled to subscribe for and purchase from
Advance Holding Corporation, a Virginia corporation (the "Company"), at the then
applicable Exercise Price (as defined in Section 1.1 below) at any time during
the Option Exercise Period (as defined in Section 1.2 below) an initial maximum
of 250,000 fully paid and nonassessable shares (the "Option Shares") of the
<PAGE>
Company's Class A Common Stock, par value $0.01 per share (the "Common Stock"),
subject to the provisions and upon the terms and conditions hereinafter set
forth.
This Option is subject to the following terms and conditions:
ARTICLE 1
OPTION EXERCISE PRICE AND EXERCISE OF OPTION;
OBLIGATION TO SELL
SECTION 1.1 Exercise Price. This Option, when signed by the
--------------
President or a Vice President of the Company and by the Secretary or Assistant
Secretary of the Company, shall entitle the Holder to purchase from the Company
the number of Option Shares set forth above, at a purchase price per Option
Share equal to the Exercise Price, or such adjusted number of shares at such
adjusted Exercise Price as may be established from time to time pursuant to the
provisions of Article 2 hereof, at any time during the Option Exercise Period
(as such term is defined in Section 1.2 below) in accordance with the procedures
set forth in Section 1.3 below.
The "Exercise Price" shall initially be $10.00 per Option Share and
shall increase by $2.00 on each anniversary of the date hereof during the Option
Exercise Period. Except as the context otherwise requires, the term Exercise
Price as used in this Option shall mean the purchase price upon exercise of this
Option to purchase one Option Share, reflecting all appropriate adjustments made
in accordance with the provisions of Article 2 hereof.
SECTION 1.2 Exercisability of Option. This Option shall be
------------------------
exercisable solely by the Holder, in whole or in part, and from time to time
during the period commencing on April 16, 1998 and terminating at 5:00 p.m., New
York time, on April 15, 2005 (the "Option Exercise Period").
SECTION 1.3 Procedure for Exercise of Option. During the Option
--------------------------------
Exercise Period, this Option may be exercised by the Holder by surrendering this
Option to the Company, or its agent, with the Election to Exercise Form attached
to this Option duly completed and executed, accompanied by payment in full to
the Company of the Exercise Price in effect at the time of such exercise for
each Option Share with respect to which this Option is being exercised. Such
Exercise Price shall be paid in full, by delivery of cash or check payable in
United States currency to the order of the Company or payment of the Exercise
Price by (i) the assignment and transfer by Holder to the Company of outstanding
shares of Common Stock theretofore held by Holder or (ii) the surrender of that
number of exercisable Options necessary (based on the amount that the aggregate
fair market value of the Option Shares covered by the Options being surrendered
exceeds the aggregate Exercise Price with respect to such Option Shares), to pay
the Exercise Price with respect to those Options being exercised. The date on
2.
<PAGE>
which this Option is exercised in accordance with this Section 1.3 is sometimes
referred to herein as the "Date of Exercise" of this Option. The fair market
value of Option Shares or of Options being surrendered shall be on the Current
Market Price determined as set forth in Section 2.1(e).
SECTION 1.4 Issuance of Common Stock; Issue Tax. As soon as
-----------------------------------
practicable after the Date of Exercise of this Option, the Company shall issue a
certificate or certificates for the number of Option Shares to which the Holder
is entitled, registered in the Holder's name and shall mail such certificate to
the Holder. All Option Shares issued upon the exercise of this Option shall be
validly authorized and issued, fully paid and nonassessable, and free from all
preemptive rights, taxes, liens and charges created by the Company in respect of
the issue thereof; provided however that all Option Shares shall be subject to
the provisions of that certain Stockholders Agreement dated as of April 15, 1998
(and as the same may be amended from time to time, the "Stockholders'
Agreement"). The issuance of certificates for Option Shares shall be made
without charge to the Holder for any issue tax in respect thereof. The Holder,
for all purposes, shall be deemed to have become the holder of record of the
Common Stock represented by the certificate for Option Shares on the Date of
Exercise of this Option resulting in the issuance of such Option Shares which
shall be the date of issuance, irrespective of the date of delivery of such
certificate for Option Shares.
SECTION 1.5 New Option. In the event that less than all of the
----------
Option Shares covered by this Option are purchased, the Company shall execute
and mail, by first-class mail, and within 20 days of the Date of Exercise, to
the Holder a new Option representing the right to purchase the number of Option
Shares not purchased upon exercise of the surrendered Option. In no event shall
a fraction of an Option Share be issued.
SECTION 1.6 Reservation of Shares. The Company shall at all times
---------------------
reserve and keep available for issuance upon the exercise of this Option, free
from preemptive rights, a number of its authorized but unissued shares of Common
Stock that will be sufficient to permit the exercise in full of this Option.
SECTION 1.7 Rights of Holder; Voting. This Option shall not
------------------------
entitle the Holder to any of the rights of a stockholder of the Company,
including without limitation the right to vote, to receive dividends and other
distributions, to receive any notice of, or to attend, meetings of stockholders
or any other proceedings of the Company (except as provided in Section 2.5).
SECTION 1.8 Obligation to Sell.
------------------
(a) In addition to the rights of FS Stockholder (as defined in
the Stockholders Agreement) and the obligations of Holder (and any transferee
from Holder) as set forth in the Stockholders Agreement, if the FS Stockholder
sells to a buyer all of the shares of Common Stock held by the FS Stockholder
(whether such sale is by way of purchase, merger or
3.
<PAGE>
other form of transaction), FS Stockholder may require the Holder to sell this
Option (and, as provided in the Stockholders Agreement, any holder of Option
Shares) to such buyer for the same per share consideration (less the then
aggregate Exercise Price of this Option, and otherwise pursuant to the terms and
conditions applicable to the FS Stockholder for the sale of its shares of Common
Stock. In the event the per share consideration for the Common Stock is less
than the Exercise Price applicable at the time a binding agreement with respect
to such transaction is entered into, this Option shall be canceled without
payment to the Holder. In addition, the FS Stockholder may require the Holder to
approve or consent to such sale and to execute such agreements, powers of
attorney, voting proxies or other instruments and to take such other actions as
the FS Stockholder may reasonably request in connection with such sale. The
Holder and each holder of Option Shares shall pay the reasonable, incremental
out-of-pocket expenses incurred by the FS Stockholder in connection with a sale
as a result of the Holder's participation therein.
(b) The obligations of the Holder pursuant to this Section 1.8
shall be binding on any transferee of this Option, and each of the Holder and
any such transferee shall obtain and deliver to the FS Stockholder prior to any
transfers (other than transfers constituting a Public Market Sale, as defined in
the Stockholders Agreement) a written commitment, in form and substance
satisfactory to the FS Stockholder, from such transferee to be bound by such
provisions. As provided in the Stockholders Agreement, any holder of Option
Shares is bound by the Stockholders Agreement. Any transfer effected in
violation of this provision shall be void. The Holders' obligations pursuant to
this Section 1.8, and the obligations of any such transferee, shall survive the
termination of this Option pursuant to Section 4.5 below. All obligations
relating to this Option pursuant to this Section 1.8 shall expire in accordance
with the provisions of Section 4.2 of the Stockholders Agreement.
SECTION 1.9 The Company further agrees (i) that it will not, by
amendment of its certificate of incorporation or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
the Company, and (ii) to promptly take all action as may from time to time be
required to permit the Holder to exercise this Option and the Company duly and
effectively to issue the Option Shares as provided herein upon the exercise
hereof. The Company shall cause the Option Shares to be listed or eligible to
be quoted for trading on the NASDAQ Stock Market or on any other stock exchange
or market on which Common Stock is then listed or eligible to be quoted for
trading.
4.
<PAGE>
ARTICLE 2
ADJUSTMENTS AND NOTICE PROVISIONS
SECTION 2.1 Adjustment of Exercise Price. Subject to the
----------------------------
provisions of this Article 2, the Exercise Price in effect from time to time
upon the exercise of this Option shall be subject to adjustment, as follows:
(a) In the event that the Company shall (i) declare a dividend
or make a distribution on the outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify the
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately after the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price determined
by multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately before such dividend, distribution, subdivision,
combination or reclassification, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such dividend,
distribution, subdivision, combination or reclassification. Such adjustments
shall be made successively whenever any event specified above shall occur.
(b) In the event that the Company shall fix a record date for
the issuance of rights or warrants to all holders of Common Stock entitling them
to subscribe for or purchase shares of Common Stock for less than the Current
Market Price (as such term is defined in Section 2.1(e) below) of a share of
Common Stock on such record date, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares of such Common Stock
so offered to such holders would purchase at the Current Market Price (as
defined in Section 2.1(e) below) per share on such record date, and the
denominator of which shall be the number of shares of Common Stock outstanding
on such record date plus the number of additional shares of Common Stock offered
to such holders for subscription or purchase. Such adjustment shall be made
successively whenever such a record date is fixed. To the extent that any such
rights or warrants are not so issued or expire unexercised, the Exercise Price
then in effect shall be readjusted to the Exercise Price which would then be in
effect if such unissued or unexercised rights or warrants had not been issuable.
(c) In the event that the Company shall fix a record date for
the making of a distribution to all holders of shares of Common Stock (i) of
securities of any class other than Common Stock, (ii) of evidences of its
indebtedness, (iii) of assets (excluding cash dividends or
5.
<PAGE>
distributions, and dividends or distributions referred to in Section 2.1(a)
above) or (iv) of rights, options or warrants to acquire securities of the
Company (excluding those rights, options or warrants referred to in Section
2.1(b) above), then in each such case the Exercise Price in effect immediately
after the record date shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the total number of shares of Common Stock outstanding on such record date
multiplied by the Current Market Price per share on such record date, less the
aggregate fair market value as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary, of said securities or evidences of indebtedness, assets, rights,
options or warrants so distributed to such holders, and the denominator of which
shall be the total number of shares of Common Stock outstanding on such record
date multiplied by such Current Market Price per share. Such adjustment shall be
made successively whenever such a record date is fixed. In the event that such
distribution is not so made, or rights, options or warrants described in clause
(iv) expire without being exercised, the Exercise Price then in effect shall be
readjusted to the Exercise Price which would then be in effect if such record
date had not been fixed or such rights, options or warrants had not been
distributed, as the case may be.
(d) In the event that the Company shall sell and issue shares of
Common Stock, or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock (excluding shares, rights, options, warrants or convertible or
exchangeable securities issued in any of the transactions described in Sections
2.1(a), (b) or (c) above), at a price per share of Common Stock (determined, in
the event of such rights, options, warrants or convertible or exchangeable
securities, by dividing (y) the total amount receivable by the Company in
consideration of the sale and issuance of such rights, options, warrants or
convertible or exchangeable securities, plus the total consideration payable to
the Company upon exercise, conversion or exchange thereof by (z) the total
number of shares of Common Stock covered by such rights, options, warrants or
convertible or exchangeable securities) lower than the Current Market Price on
the date the Company fixes the offering price of such shares, rights, options,
warrants or convertible or exchangeable securities, then the Exercise Price
shall be adjusted so that it shall equal the price determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, (i) the
numerator of which shall be the sum of (A) the number of shares of Common Stock
outstanding immediately prior to such sale and issuance plus (B) the number of
shares of Common Stock which the aggregate consideration received (determined as
provided below) for such sale or issuance would purchase at such Current Market
Price per share, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such sale and issuance.
Such adjustment shall be made successively whenever such an issuance is made but
no adjustment shall be made with respect to the issuance of an underlying
security for which an adjustment in respect of the related right, option,
warrant or convertible or exchangeable security has been made. For the purposes
of such adjustment, the shares of Common Stock which the holder of any such
rights, options, warrants or convertible or exchangeable securities shall be
entitled to subscribe for or
6.
<PAGE>
purchase shall be deemed to be issued and outstanding as of the date of such
sale and issuance and the consideration received by the Company therefor shall
be deemed to be the consideration received by the Company for such rights,
options, warrants or convertible or exchangeable securities, plus the
consideration or premium stated in such rights, options, warrants or convertible
or exchangeable securities to be paid for the shares of Common Stock covered
thereby. In the event that the Company shall sell and issue shares of Common
Stock, or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock for a
consideration consisting, in whole or in part, of property other than cash or
its equivalent or services, then in determining the "price per share of Common
Stock" and the "consideration received by the Company" for purposes of the first
sentence of this Section 2.1(d), the Board of Directors of the Company shall
determine, in reasonable good faith, the fair value of said property or
services, and such determination, which shall be described in a duly adopted
board resolution certified by the Company's Secretary or Assistant Secretary, in
the absence of fraud or bad faith, shall be binding upon the Holder. In case the
Company shall sell and issue rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock together with one or more other securities as part of a unit at
a price per unit, then in determining the "price per share of Common Stock" and
the "consideration received by the Company" for purposes of the first sentence
of this Section 2.1(d), the Board of Directors of the Company shall determine,
in reasonable good faith, whose determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary, the fair value of the rights, options, warrants or convertible or
exchangeable securities then being sold as part of such unit, and such
determination, in the absence of fraud or bad faith, shall be binding upon the
Holder. For purposes of this Agreement, the term "subsidiary" shall mean any
entity or person a majority of whose equity interests are owned by the Company,
by a subsidiary of the Company or by the Company and one or more subsidiaries.
To the extent any options, warrants or convertible securities subject to this
Section 2.1(d) expire without being exercised or converted, the Exercise Price
in effect at such time shall be readjusted to the Exercise Price which would
then be in effect if such security had not been issued.
(e) For the purpose of any computation under Sections 2.1(b),
(c) or (d) above, the "Current Market Price" at any date (the "Computation
Date") shall be deemed to be the average of the daily closing prices of the
Common Stock for 20 consecutive trading days ending the tenth trading day before
such date. The closing price for each day shall be the last reported sale price
or, in case no such reported sale takes place on such date, the average of the
last reported bid and asked prices, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading or listed
if that is the principal market for the Common Stock or if not listed or
admitted to trading on any national securities exchange or if such national
securities exchange is not the principal market for the Common Stock, the
closing bid price as reported by the Nasdaq National Market or its successor, if
any, or such other generally accepted source of publicly reported bid and asked
quotations as the Company may reasonably designate. If the price of the Common
Stock is not so reported or the Common Stock is not
7.
<PAGE>
publicly traded, the Current Market Price per share as of any Computation Date
shall be determined by the Board of Directors in reasonable good faith on such
basis as it considers appropriate, and such determination, which shall be
described in a duly adopted board resolution certified by the Company's
Secretary or Assistant Secretary, in the absence of fraud or bad faith, shall be
binding upon the Holder.
(f) All calculations under this Section 2.1 shall be made to the
nearest cent.
(g) For the purposes of all calculations under this Section 2.1,
shares of Common Stock or other securities held in the treasury of the Company
shall not be deemed to be outstanding, and the sale or other disposition of any
shares of Common Stock or other securities held in the treasury of the Company
shall be deemed an issuance thereof.
(h) For purposes of adjusting the Exercise Price pursuant to
Sections 2.1(a), (b), (c) or (d) hereof, in no event shall the Exercise Price be
adjusted to a price which is less than the par value of Common Stock; provided,
however, that in the event such full adjustment would have been made but for
this Section 2.1(h), the Exercise Price shall be adjusted to the par value and
the number of shares issuable upon exercise of this Option shall still be
adjusted in accordance with Section 2.3 below as though such full adjustment in
the Exercise Price had been made.
(i) For purposes of adjusting the Exercise Price pursuant to
Sections 2.1(b), (c) or (d) hereof, the following issuances of securities shall
be exempt from such provisions: all securities (whether Common Stock or
warrants, options or convertible or other securities convertible into or
exchangeable for Common Stock) which are issued and sold by the Company
constituting (i) the Initial Shares (as defined in the Stockholders Agreement),
(ii) any securities issued or issuable to any employees pursuant to any equity
incentive plan, individual agreement, bonus, award, stock purchase plan, stock
option plan or other stock agreement or arrangement approved by the Board, (iii)
any securities issued in exchange for debt securities of the Company or any
subsidiary, provided, that the overall terms of the exchange transaction are
fair and in the best interests of the Company as determined in reasonable good
faith by the Board and, provided, further, that if the FS Stockholder (as
defined in the Stockholder's Agreement) or its Affiliates and the Holder each
own debt securities being exchanged, then the Holder shall have been given the
right to participate in such exchange on the same terms as the FS Stockholder or
its Affiliates; (iv) any securities issued to any source of, or to any party
arranging, financing for the Company or any subsidiary of the Company, provided,
that the overall terms of the financing transaction involving the issuance of
debt and securities are fair and in the best interests of the Company as
determined in reasonable good faith by the Board and, provided further, that in
the event FS Stockholder or any of its Affiliates is participating in or
providing such financing that the Holder has an opportunity to participate, and
if he so participates, to purchase or otherwise receive on the same terms his
pro rata share of any securities, (v) any securities issued pursuant
8.
<PAGE>
to a public offering registered under the Securities Act, and (vi) any
securities that are issued or issuable in connection with the acquisition by the
Company of any business, business assets or securities from any person other
than an affiliate of Freeman, Spogli & Co.
SECTION 2.2 No Adjustments Required. No adjustment in the Exercise
-----------------------
Price in accordance with the provisions of Section 2.1 hereof, shall be made if
such adjustment would amount to a change in such Exercise Price of less than
$0.01, provided, however, that the amount by which any adjustment is not made by
reason of the provisions of this Section 2.2 shall be carried forward and taken
into account at the time of any subsequent adjustment in the Exercise Price.
SECTION 2.3 Adjustment to Number of Shares. Upon each adjustment
------------------------------
of the Exercise Price pursuant to Section 2.1 hereof, this Option shall
thereupon evidence the right to purchase that number of Option Shares
(calculated to the nearest share) obtained by multiplying the number of Option
Shares purchasable immediately prior to such adjustment upon exercise of this
Option by the Exercise Price in effect immediately prior to such adjustment and
dividing the product so obtained by the Exercise Price in effect immediately
after such adjustment.
SECTION 2.4 Reorganization, Etc.. Subject to Section 1.8(a) and
--------------------
the Stockholders Agreement, in case of any capital reorganization of the Company
in which the outstanding shares of Common Stock are changed into or exchanged
for different securities of the Company or any distribution is made with respect
to such shares of Common Stock, other than in the cases referred to in Section
2.1 hereof, or the consolidation or merger of the Company with or into another
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any change whatsoever in or
distribution with respect to, the outstanding Common Stock of the Company) or
the sale of the assets, property or business of the Company as an entirety or
substantially as an entirety (collectively such actions being hereinafter
referred to as "Reorganizations"), there shall thereafter be deliverable upon
exercise of this Option (in lieu of the number of shares of Common Stock
theretofore deliverable) the number of shares of stock or other securities or
property to which a holder of the number of Option Shares which would otherwise
have been deliverable upon the exercise of this Option would have been entitled
upon such Reorganization if this Option had been exercised in full immediately
prior to such Reorganization. In the event of any Reorganization, appropriate
adjustment, as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a duly adopted board
resolution certified by the Company's Secretary or Assistant Secretary, shall be
made in the application of the provisions herein set forth with respect to the
rights and interests of the Holder so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares or
other property thereafter deliverable upon exercise of this Option. Subject to
Section 1.8(a) and the Stockholders Agreement, the Company shall not effect any
such Reorganization, unless upon or prior to the consummation thereof the
successor corporation, or if the Company shall be the surviving corporation in
any such Reorganization and is not the issuer of the shares of stock or other
9.
<PAGE>
securities or property to be delivered to holders of shares of the Common Stock
outstanding at the effective time thereof, then such issuer shall assume by
written instrument the obligation to deliver to the Holder such shares of stock,
securities, cash or other property as the Holder shall be entitled to purchase
in accordance with the foregoing provisions. In the event of a sale or
conveyance or other transfer of all or substantially all of the assets of the
Company as a part of a plan for liquidation of the Company, all rights to
exercise this Option shall terminate 30 days after the Company gives written
notice to the Holder that such sale or conveyance or other transfer has been
consummated.
SECTION 2.5 Notice of Certain Actions. In the event the Company
-------------------------
shall: (a) declare any dividend payable in capital stock to all holders of
Common Stock or make any other distribution to all holders of Common Stock (b)
offer to all holders of Common Stock rights to subscribe for or purchase any
shares of any class of stock or any other rights or options or (c) effect any
reclassification of Common Stock or any capital reorganization, or any
consolidation or merger, or any sale, transfer or other disposition of its
property, assets and business substantially as an entirety, or the liquidation,
dissolution or winding up of the Company, in a transaction which gives the
Holder rights under Section 2.1 or Section 2.4; then, in each such case, the
Company shall cause written notice of such proposed action to be mailed to the
Holder. Such notice shall specify the date on which the books of the Company
shall close, or a record be taken, for determining holders of Common Stock
entitled to receive such stock dividend or other distribution or such rights or
options, or the date on which such reclassification, subdivision, combination,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, dissolution, winding up or exchange shall take place or commence,
as the case may be, and the date as of which it is expected that holders of
record of Common Stock shall be entitled to receive securities or other property
deliverable upon such action, if any such date has been fixed. Such notice
shall be mailed, in the case of any action covered by Sections 2.5(a) or (b)
above, at least fifteen (15) calendar days prior to the record date for
determining holders of the Common Stock for purposes of receiving such payment
or offer, and, in the case of any action covered by Section 2.5(c) above, at
least fifteen (15) calendar days prior to the earlier of the date upon which
such action is to take place or any record date to determine the holders of
Common Stock which are entitled to receive such securities or other property.
SECTION 2.6 Notice of Adjustments. Whenever any adjustment is made
---------------------
pursuant to this Article 2, the Company shall cause written notice certified by
the Chief Financial Officer of the Company of such adjustment to be mailed to
the Holder within thirty (30) days thereafter, such notice to include in
reasonable detail (a) a description of the events precipitating the adjustment
and (b) the computation of any adjustments, the Exercise Price, the number of
Option Shares or securities or other property purchasable upon exercise of this
Option after giving effect to such adjustment. The Company shall provide to the
Holder such additional information, including worksheets used in the calculation
of any adjustment made pursuant to this Article 2, as the Holder may reasonably
request for the purpose of confirming the accuracy of such adjustment.
10.
<PAGE>
SECTION 2.7 Fractional Shares. The Company shall not be required
-----------------
upon the exercise of this Option to issue fractional Option Shares which may
result from adjustments in accordance with this Article 2 to the Exercise Price
or number of Option Shares purchasable under this Option, or otherwise. With
respect to any fraction of an Option Share called for upon the exercise of this
Option, the Company shall pay a cash adjustment to the Holder in respect of such
final fraction in an amount equal to the same fraction of the market value of a
share of Common Stock, as determined by the Board of Directors on the basis of
the closing market price per share of Common Stock on the business day next
preceding the date of such exercise, or, if the Common Stock is not publicly
traded, on such other basis as the Board of Directors in good faith deems
appropriate. The Holder, by such Holder's acceptance of this Option, shall
expressly waive any right to receive any fractional Option Shares upon exercise
of this Option. All calculations under this Section 2.7 shall be made to the
nearest hundredth of a share.
SECTION 2.8 Other Adjustments. If any event occurs as to which the
-----------------
foregoing provisions of this Article 2 are not strictly applicable or, if
strictly applicable, would not, in the good faith judgment of the Board of
Directors, fairly protect the purchase rights of the Holder of this Option in
accordance with the essential intent and principles of such provisions, then
such Board of Directors shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, as shall be
reasonably necessary, in the good faith opinion of such Board, to protect such
purchase rights as aforesaid, but in no event shall any such adjustment under
this Section 2.8 have the effect of increasing the Exercise Price or decreasing
the number of shares of Common Stock subject to purchase upon exercise of this
Option, or otherwise adversely affect the Holder. Under no circumstances (other
than (x) a reverse stock split, (y) a recapitalization or similar transaction in
which all holders of Common Stock (and securities exercisable for or convertible
into Common Stock, with respect to such exercise or conversion provisions) are
treated equally and (z) a merger, in each case in which each outstanding share
of Common Stock is converted into less than one share of Common Stock
(including, in the case of a merger, of the entity surviving such merger), shall
any adjustment pursuant to this Article 2 have the effect of raising the
Exercise Price or lowering the number of Option Shares issuable upon exercise of
this Option.
ARTICLE 3
FORM AND REGISTRATION OF
OPTIONS AND OPTION SHARE CERTIFICATES
SECTION 3.1 Form of Options and Option Share Certificates. This
---------------------------------------------
Option and certificates for Option Shares shall be issued in registered form
only, and may have such letters, numbers or other marks of identification or
designation stamped, printed, lithographed or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions of this
Option and such legends, summaries, or endorsements as, in any particular case,
11.
<PAGE>
may be required, in the opinion of counsel for the Company, to comply with any
law or with any rule or regulation of any regulatory authority or agency.
SECTION 3.2 Execution of Option and Option Share Certificates.
-------------------------------------------------
This Option shall be executed on behalf of the Company by its President or Vice
President, either manually or by facsimile signature printed thereon, under its
corporate seal, affixed or in facsimile, attested by the manual or facsimile
signature of its Secretary or Assistant Secretary. In case any authorized
officer of the Company who shall have signed this Option shall cease to be such
officer of the Company either before or after delivery thereof by the Company,
the signature of such person on this Option, nevertheless, shall be valid and
may be issued and delivered to those persons entitled to receive this Option
represented thereby with the same force and effect as though the person who
signed such Option had not ceased to be such officer of the Company.
SECTION 3.3 Holder Sole Owner. Only the Holder shall be entitled
-----------------
to be treated as the registered holder of this Option as the owner in fact
thereof for all purposes (notwithstanding any notation of ownership or other
writing thereon made by anyone) and the Company shall not be bound to recognize
any equitable or other claim to or interest in this Option on the part of any
other person. Upon request by the Holder, the Company shall register the
transfer of this Option that is effected in accordance with the provisions of
this Option and the Stockholders Agreement.
SECTION 3.4 Mutilated, Lost, Stolen or Destroyed Option and Option
------------------------------------------------------
Share Certificates. In case any of this Option shall be mutilated, lost, stolen
- ------------------
or destroyed, the Company shall, upon the written request of the holder thereof,
issue and deliver to such holder, in replacement therefor, a new Option, as the
case may be, of like tenor and representing an equivalent right or interest. If
this Option or an Option Share certificate being replaced is mutilated, this
Option shall be surrendered to the Company for cancellation. If this Option
being replaced is lost, stolen or destroyed, the holder of this Option, shall
furnish to the Company such security or indemnity as may be reasonably required
by it to save it harmless from any loss as a result of such replacement and
evidence satisfactory to the Company of such loss, theft or destruction.
SECTION 3.5 Restrictions on Dispositions. The Holder, by
----------------------------
acceptance hereof, represents and warrants to the Company that this Option is
being acquired and any Option Shares will be purchased by such Holder for such
Holder's own account and not with a view to the distribution thereof in
violation of the Securities Act of 1933, as amended (the "Act") or any state
securities laws. The Holder may only offer, sell, transfer, pledge, hypothecate
or otherwise dispose of this Option or the Option Shares subject to the
provisions of Section 1.8 hereof and the Stockholders Agreement (including
Article V thereof, restricting transfer for a two-year period and maintaining
certain restrictions thereafter). This Option may only be exercised by the
Holder and, upon such exercise, Option Shares will be issued only in the name of
the Holder.
12.
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SECTION 3.6 Legends. This Option shall be subject to a stop-
-------
transfer order.
The Option Shares issued upon exercise of this Option shall be subject to a
stop-transfer order and the certificate or certificates evidencing any such
Option Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES LAWS. SUCH SHARES MAY
NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) EFFECTIVE
REGISTRATION STATEMENT(S) UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS, (ii) RULE 144, RULE 144A OR ANY
SUCCESSOR RULE UNDER THE ACT AND ANY SIMILAR RULES UNDER
APPLICABLE STATE LAWS PERMITTING SUCH DISPOSITION OF
SECURITIES IN COMPLIANCE WITH THE ACT AND APPLICABLE STATE
SECURITIES LAWS OR (iii) ANY OTHER EXEMPTION FROM
REGISTRATION UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS RELATING TO THE DISPOSITION OF SUCH SHARES, PROVIDED
THAT THE REGISTERED HOLDER OF SUCH SHARES DELIVERS AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO COUNSEL FOR
THE COMPANY, THAT AN EXEMPTION FROM REGISTRATION UNDER THE
ACT IS AVAILABLE. THE SECURITIES EVIDENCED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS WITH
RESPECT TO THE TRANSFER THEREOF AS SET FORTH IN THAT
CERTAIN STOCKHOLDERS AGREEMENT DATED AS OF APRIL 15, 1998
(AS THE SAME MAY BE AMENDED FROM TIME TO TIME, THE
"STOCKHOLDERS AGREEMENT"). A COPY OF SUCH STOCKHOLDERS
AGREEMENT MAY BE EXAMINED AT THE PRINCIPAL PLACE OF
BUSINESS OF THE COMPANY AND A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY WITHOUT CHARGE UPON WRITTEN REQUEST
THEREFORE."
Option Share certificates without legend shall be issued if such Option Shares
are sold pursuant to an effective registration statement under the Act and any
applicable state securities laws or if the Company has received an opinion from
counsel, reasonably satisfactory to counsel for the
13.
<PAGE>
Company, that such legend is no longer required under the Act or any applicable
state securities laws and if the provisions of Section 1.8 and the Stockholders
Agreement are no longer in effect with respect to such Option Shares. Each
instrument representing any other securities issued in respect of this Option
upon any capital reorganization, merger, consolidation or sale, shall (unless
such securities have been registered or are exempt from registration under the
Securities Act of 1933, as amended) be stamped or otherwise imprinted with a
legend substantially in the form set forth above.
ARTICLE 4
OTHER MATTERS
SECTION 4.1 Notices. Any notice or demand which, by the provisions
-------
hereof, is required or which may be given to or served upon the parties hereto
shall be in writing and, if by telegram, telecopy or telex, shall be deemed to
have been validly served, given or delivered when sent, if by personal delivery,
shall be deemed to have been validly served, given or delivered upon actual
delivery and, if mailed, shall be deemed to have been validly served, given or
delivered three business days after deposit in the United States mails, as
registered or certified mail, with proper postage prepaid and addressed to the
party or parties to be notified, at the following addresses (or such other
address(es) as a party may designate for itself by like notice): (i) if to the
Holder, at Eugenia Taubman, Trustee under the Arthur Taubman Trust dated July
13, 1984, c/o Nicholas F. Taubman, 2818 Avenham Avenue, Roanoke, Virginia
24014, with a copy to Flippin, Densmore, Morse, Rutherford & Jessee, 300 First
Campbell Square, Drawer 1200, Roanoke, Virginia 24006, Attention: Douglas W.
Densmore, Facsimile No. (540) 510-3050; (ii) if to a registered holder of any
Option Shares, at the most current address given by such holder to the Company
in accordance with the provisions of this Section 4, and (iii) if to the
Company, at Advance Holding Corporation, c/o Freeman Spogli & Co., Incorporated,
599 Lexington Avenue, New York, NY 10022, Attn: John M. Roth, Facsimile No.
(212) 758-7499, with a copy to Riordan & McKinzie, 300 S. Grand Ave., 29/th/
Floor, Los Angeles, CA 90071, Attention: Richard J. Welch, Facsimile No. (213)
229-8550.
SECTION 4.2 Defects in Notice. Failure to file any certificate or
-----------------
notice or to mail any notice, or any defect in any certificate or notice
pursuant to this Option shall not affect in any way the rights of the Holder or
any holder of Option Shares or validity of any adjustment made pursuant to
Article 2 hereof, or any transaction giving rise to any such adjustment, or the
legality or validity of any action taken or to be taken by the Company.
SECTION 4.3 Supplements and Amendments. This Option may only be
--------------------------
amended or supplemented, and any waiver or departure from the provisions hereof
may only be given, with the written consent of the Company and the Holder and,
with respect to Section 1.8, the FS Stockholder.
14.
<PAGE>
SECTION 4.4 Successors. All of the covenants and provisions of
----------
this Option by or for the benefit of the Company or the Holder shall bind and
inure to the benefit of each of them and each of their respective successors and
assigns hereunder, including any holder of the Option Shares.
SECTION 4.5 Termination. This Option shall terminate at 5:00 p.m.,
-----------
New York time on April 15, 2005. Notwithstanding the foregoing, this Option
shall terminate on any earlier date when it has been exercised in full. The
provisions of Sections 1.8 and 3 shall survive both such terminations.
SECTION 4.6 Governing Law. This Option and the rights and
-------------
obligations of the parties hereunder shall be construed in accordance with and
be governed by the laws (without giving effect to the conflicts of laws
principles thereof) of the Commonwealth of Virginia.
SECTION 4.7 Standing. Nothing in this Option expressed and nothing
--------
that may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company and the registered holder of this Option any right, remedy or claim
under or by reason of this Option or of any covenant, condition, stipulation,
promise or agreement contained herein.
SECTION 4.8 Headings. The descriptive headings of the articles and
--------
sections of this Option are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, this Option has been duly executed by the Company
under its corporate seal as of the 15th day of April, 1998.
ADVANCE HOLDING CORPORATION,
a Virginia corporation
By: /s/ Garnett E. Smith
_______________________________
And By: /s/ J. O'Neil Leftwich
_______________________________
15.
<PAGE>
ELECTION TO EXERCISE FORM
(To be executed only upon partial
or full exercise of the within Option)
The undersigned, the Holder of the within Option, irrevocably
exercises the within Option for and purchases _______ shares of Common Stock of
Advance Holding Corporation and agrees to make payment thereof in the amount of
$__________, all at the price and on the terms and conditions specified in the
within Option and requests that a certificate for the shares of Common Stock of
Advance Holding Corporation hereby purchased be issued in the name of
_________________ and if such shares of Common Stock shall not include all the
shares of Common Stock issuable as provided in the within Option, that a new
Option of like tenor for the number of shares of Common Stock of Advance Holding
Corporation not being purchased hereunder be issued in the name of
__________________.
Dated: __________, _____
By: ________________________________
Holder
Signature Guaranteed:
____________________________
By: ________________________
Title:
NOTICE: The signature on this Election to Exercise Form must be that of
Nicholas F. Taubman or the Trustee of the Arthur Taubman Trust dated
July 1, 1964 (or, following the distribution of this option from such
Trust, a beneficiary thereof). The signature on this Election of
Exercise Form must be guaranteed by a commercial bank or trust company
in the United States or a member firm of any national securities
exchange.
<PAGE>
EXHIBIT 10.29
EMPLOYMENT AND NONCOMPETITION AGREEMENT
---------------------------------------
THIS EMPLOYMENT AND NONCOMPETITION AGREEMENT (the "Agreement") is made and
entered into as of the April 15, 1998 by and between Advance Stores Company,
Incorporated, a Virginia corporation (the "Company"), Advance Holding
Corporation, a Virginia corporation ("Holding"), and Garnett E. Smith (the
"Executive").
W I T N E S S E T H:
A. Pursuant to that certain Agreement and Plan of Merger dated as of
March 4, 1998, (the "Merger Agreement") by and among AHC Corporation
("Investor"), a Virginia corporation and Holding, with FS Equity Partners III,
L.P., a Delaware limited partnership, FS Equity Partners IV, L.P., a Delaware
limited partnership, and FS Equity Partners International, L.P., a Delaware
limited partnership (collectively, "FS"), as Guarantors, Investor will merge
with and into the Company (the "Merger").
B. Immediately upon consummation of the Merger, the Company and Holding
desire to continue to employ Executive as President and Chief Executive Officer
and a Director of the Company and Holding on the terms and conditions
hereinafter set forth, and Executive is desirous of accepting said employment.
C. The Company is engaged in the highly competitive business of marketing
and sale of automotive parts, accessories, and services. During his continued
employment with the Company, Executive will have obligations relating to the
business operations of the Company. Unless otherwise indicated, all references
to the "Company" in this Agreement shall include the business operations of the
Company.
D. Executive is recognized as a leading executive with significant
expertise in the retail automotive parts and accessories industry. Executive's
industry experience and knowledge is greatly valued by the Company and would be
extremely valuable to competitors of the Company.
E. For purposes of this Agreement, "Confidential Information" means any
data or information with respect to the business conducted by the Company, that
is material to the Company's business operations and is not generally known by
the public, including business and trade secrets. To the extent consistent with
the foregoing definition, Confidential Information includes without limitation:
(a) reports, pricing, sales manuals and training manuals, selling, purchasing,
and pricing procedures, and financing methods of the Company, together with any
techniques utilized by the Company in designing, developing, testing or
marketing its products, designing stores, locating stores, product mix and
supplier information or in performing services for clients, customers and
accounts of the Company; and (b) the business plans and financial statements,
reports and projections of the Company. The Company has granted and will grant
Executive access to and knowledge of the Company's Confidential Information
during the course of his employment with the Company. Executive recognizes and
acknowledges that the
<PAGE>
Confidential Information which he has acquired and will acquire in the course of
his employment is utilized by the Company in all geographic areas in which the
Company does business. Further, the Confidential Information will also be
utilized in all geographic areas into which the Company expands its business.
Thus, Executive acknowledges that he will be a formidable competitor in all
areas where the Company conducts business. Executive also acknowledges that the
restrictive covenants in this Agreement serve to protect the Company's
investment in the Confidential Information.
F. Each of the Executive and the Company are sophisticated parties
experienced in business transactions of this type, and fully understand (i) the
ramifications of the noncompetition, non-solicitation and confidentiality
restrictions of this Agreement and (ii) that the laws of each state with respect
to the enforceability of such provisions vary. The parties are specifically
selecting the internal laws of the Commonwealth of Virginia to govern this
Agreement in order that it be enforceable against each of them.
NOW, THEREFORE, in consideration of Executive's continued employment with
the Company, the mutual terms and conditions set forth below, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Employment and Term. Subject to the terms and conditions of this
-------------------
Agreement, the Company agrees to employ the Executive for a term commencing on
the effective date of the Merger (the "Effective Date") and ending April 15,
2001 (the "Initial Term") or such other date on which such employment shall
terminate as provided herein. The term of this Agreement and Executive's
employment hereunder will automatically be extended for an additional one-year
period following the expiration of the Initial Term and following each year of
employment hereunder after the Initial Term (each, a "Renewal Date"), without
further action by Executive or the Company unless written notice not to renew
for an additional one-year period is given by either the Company or Executive to
the other not less than sixty (60) days prior to the expiration of the Initial
Term or any Renewal Date, as applicable. In the event a notice not to renew is
given by one party to the other as provided in the immediately preceding
sentence, then the automatic extension of the term of this Agreement shall
thereafter no longer be of any further force or effect. Executive will carry out
faithfully and to the best of his abilities such duties and have such
responsibilities as would normally be carried out by the President and Chief
Executive Officer and a Director of a Company, subject to the control of and in
accordance with the directives and policies of the Board of Directors of the
Company. The employment of Executive shall be on an exclusive basis, but the
Executive may be a passive investor or otherwise have a passive interest in
other businesses, partnerships and entities so long as such other activities of
the Executive do not interfere with the performance of his duties hereunder and
so long as such other businesses, partnerships and entities do not cause the
Executive to violate the non-competition, non-solicitation, and confidentiality
restrictions of this Agreement.
2
<PAGE>
2. Compensation.
------------
2.1 The Company shall provide Executive with an annual salary equal
to $_______ payable in equal monthly installments, or such other schedule
established by the Company, less required withholding. The annual salary may,
at the option of the Board of Directors, be subject to annual increases upon
review by the Board of Directors. Any such reviews will be made after
completion of the Company's fiscal year, and shall be in the sole discretion of
the Board of Directors.
2.2 The Executive shall be reimbursed in accordance with the policies
of the Company as adopted by the Board from time to time for his reasonable
travel, entertainment, business, meeting and similar expenditures, commensurate
with his position with the Company, incurred for the benefit of the Company and
subject to approval of the Board. As an additional condition to the
reimbursement of such expenses by the Company to the Executive, the Executive
shall provide the Company with copies of all available invoices and receipts,
and otherwise account to the Company in sufficient detail and with adequate
documentation to allow the Company to confirm the business nature of the
expenses and claim an income tax deduction for such paid items, if such items
are deductible.
3. Bonus Program and Other Benefits. Executive shall be eligible to
--------------------------------
participate in a manner commensurate with other senior management executives of
the Company in all benefits or other programs generally available to such
executives to the extent such exist or are sponsored by the Company, at a level
consistent in overall terms with such bonus and benefit programs on the date
hereof, including the maintenance of the split dollar life insurance program.
Without limiting the generality of the foregoing, Executive shall be entitled to
participate in any incentive bonus program available to senior management
executives that may be established from time to time by the Board; provided that
the amount of compensation which may be earned by Executive upon achievement of
targeted annual earnings goals for the Corporation determined by the Board shall
be consistent with the past practices of the Company, although the targets may
vary from those established under prior incentive programs.
4. Termination of Employment.
-------------------------
4.1 Termination By The Company. The Company may terminate
--------------------------
Executive's employment upon the occurrence of any of the following:
(a) At the election of the Company for cause, immediately upon
written notice by the Company to Executive. For the purpose of this Section
4.1(a), "cause" for termination shall be deemed to exist in the event of: (A)
the engaging by Executive in conduct which is demonstrably and materially
injurious to the Company, including fraud, embezzlement or other material
illegal conduct, (B) the conviction of Executive of, or the entry of a pleading
of guilty or nolo contendere by Executive to, any crime involving moral
turpitude or any felony, (C) material breach by Executive of any of the terms of
this Agreement, which, if curable, is not
3
<PAGE>
cured by Executive within fourteen (14) days of written notice by the Company to
Executive of such breach or (D) gross negligence or willful misconduct by
Executive in the performance of his duties, which, if curable, is not cured by
Executive within fourteen (14) days of written notice by the Company to
Executive of such non-performance.
(b) Upon death or upon determination of disability of Executive.
As used in this Section 4, the term "disability" or "disabled" shall mean the
failure of Executive, due to a physical or mental disability, despite reasonable
accommodation made by the Company, for a period of 180 days, during any
consecutive 12-month period to substantially perform the services contemplated
under this Agreement.
(c) At the election of the Company at any time, without cause,
subject to the provisions of Section 4.3(a).
4.2 Termination By The Executive. The Executive may terminate his
----------------------------
employment upon 30 days' notice to the Company for any reason. If Executive
terminates his employment for "Good Reason" the termination shall be treated as
a termination under Section 4.1(c) for purposes of determining the Executive's
benefits under this Agreement. For purposes of this Agreement, "Good Reason"
shall mean that, without Executive's express written consent, the occurrence of
any of the following circumstances:
(a) The assignment to Executive of any duties materially
inconsistent (except in the nature of a promotion) with the position in the
Company that he held immediately prior to the reassignment or a substantial
adverse alteration in the nature or status of his position or responsibilities
from those in effect immediately prior to the reassignment;
(b) A reduction by the Company in Executive's annual base salary
as in effect on the date hereof or as the same may be increased from time to
time;
(c) The Company's requiring Executive to be based more than 50
miles from the Company's office at which he was principally employed immediately
prior to the date of the relocation;
(d) A material breach by the Company of its duties under this
Agreement;
(e) The elimination or substantial reduction by the Company of
its incentive bonus program referred to in Section 3.
4.3 Effect of Termination.
---------------------
(a) In the event Executive's employment is terminated without
cause or should the Executive terminate his employment with Good Reason, (i) the
Company shall pay to
4
<PAGE>
Executive the then applicable salary payable to him under Section 2 (in monthly
installments, less required withholding) through the later of (A) the remainder
of the term of employment hereunder or (B) one year after the effective date of
termination; provided, however, that in the event that, subsequent to
termination, Executive engages in other employment, Executive shall receive the
difference, if any, between his salary with the Company and his new salary, (ii)
Executive shall receive a pro rata portion of any bonus due to him with respect
to all periods prior to termination of employment and (iii) if possible under
the provisions of such plan, the Company shall continue Executive's medical
insurance coverage through the later of (A) the remainder of the term of this
Agreement or (B) until he engages in other employment. In the event Executive is
ineligible under such plan, the Company shall arrange to provide Executive with
substantially similar benefits until he engages in other employment.
(b) If Executive's employment is terminated by death or because
of disability pursuant to Section 4.1(b), the Company shall pay to the estate of
the Executive or to Executive, as the case may be, one year's salary in 12 equal
monthly installments (less any amounts paid Executive under any disability plan
maintained by the Company), plus the pro rata portion of any bonus, if any,
payable for the portion of the fiscal year in which death or disability occurred
that Executive was still employed.
(c) If Executive is terminated for cause or if Executive
terminates his employment without Good Reason, Executive is entitled to no
salary or benefits beyond the effective date of termination and Executive shall
not be entitled to any bonus or incentive compensation payments whatsoever.
5. Covenants.
---------
5.1 Definitions.
-----------
(a) The term "Person" shall mean any corporation, partnership,
joint venture, trust, sole proprietorship, limited liability company,
unincorporated business association, natural person, and any other entity that
may be treated as a person under applicable law.
(b) The term "Affiliate" shall mean an affiliate as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the "Exchange
Act").
(c) The term "Control" shall mean control as such term is defined
in Rule 12b-2 under the Exchange Act.
(d) The term "Prohibited Business" shall mean any Person that
sells or offers to sell automotive parts, accessories, or services in
competition with the automotive parts, accessories, or services sold or offered
to be sold by the Company (whether conducted by the Company or Holding or any
subsidiary or Affiliate of the Company, or any person, corporation,
5
<PAGE>
partnership, trust or other organization or entity deriving title from the
Company or Holding). The term includes, but is not limited to Persons engaged in
competition with the Company as a chain of automotive parts and accessories
stores or chain of automotive service facilities, including any retail chain
offering other products and services that engages in a significant line of
business of offering automotive parts, accessories or services. Such a Person is
engaged in a significant line of business competitive with the Company if the
sale of automotive parts, accessories or services exceeds the lesser of 10% of
the revenues or $50 million in revenue of such Person. Nothing herein shall be
construed as prohibiting Executive from working for a Prohibited Business in any
division, subsidiary or aspect of that business that is not competitive with the
Company.
(e) The term "directly or indirectly carry on or participate in a
Prohibited Business" shall include the Executive, directly or indirectly, doing
any of the following listed acts:
(i) Whether or not for compensation, directly or indirectly
engaging in any Prohibited Business, or any part thereof, whether as a
director, officer, employee, consultant, adviser, independent
contractor or otherwise, or assisting any other Person in such
Person's conduct of a Prohibited Business, or any part thereof; or
(ii) Holding legal or beneficial interest in any Person that
is engaged in any Prohibited Business, or any part thereof, whether
such interest is as an owner, investor, partner, creditor, joint
venturer or otherwise; provided, however, that Executive may acquire
and own up to two percent (2%) of the outstanding securities of any
corporation which is a publicly traded reporting corporation under the
Exchange Act; or
(iii) As agent or principal carrying on or engaging in any
activities or negotiations with respect to the acquisition or the
disposition of any Prohibited Business; or
(iv) Giving advice to any other Person, firm or association
engaging in any Prohibited Business; or
(v) Lending or allowing his name or reputation to be used in
or associated with any Prohibited Business; or
(vi) Soliciting, diverting or attempting to divert from the
Company any business constituting, or any customer of, or any supplier
of, any part of the business conducted by the Company; or
6
<PAGE>
(vii) Allowing his skill, knowledge or experience to be used
in any Prohibited Business.
(f) The term "Covenant Period" shall mean the period extending to
the later of (i) April 15, 2002 or (ii) the one year anniversary of the
effective date of termination of employment of Executive which includes the non-
renewal of the term of this Agreement by either party pursuant to Section 1.
5.2 Agreement Not to Compete Nationally. Executive acknowledges that the
-----------------------------------
Company intends to extend its business operations throughout the United States
of America. Therefore, during the Covenant Period, Executive agrees that he
shall not directly or indirectly carry on or participate in any Prohibited
Business anywhere within the United States of America.
5.3 Agreement Not to Compete Where the Company Does Business. Independent
--------------------------------------------------------
of the preceding provision, Executive agrees that, during the Covenant Period,
he shall not directly or indirectly carry on or participate in a Prohibited
Business which sells or offers to sell products or services (in competition with
the Company) within any county or city in which the Company, during the Covenant
Period, sells or offers to sell its products or services.
5.4 Non-Recruitment. Independent of the foregoing provisions, Executive
---------------
agrees that, during the Covenant Period, Executive shall not, directly or
indirectly, cause any person engaged or employed by the Company or its
Affiliates (whether part-time or full-time and whether as an officer, employee,
consultant, agent, adviser or independent contractor) (an "Employee") to
voluntarily leave the employ of or engagement with the Company or its
Affiliates, as the case may be, or to cease providing the services to or on
behalf of the Company or its Affiliates, as the case may be, then provided by
such Employee. Executive further agrees that, during the same time period, he
will not in any manner seek to engage or employ any such Employee (whether or
not for compensation) as an officer, employee, consultant, agent, adviser or
independent contractor for any Person other than the Company.
5.5 Non-Solicitation. Independent of the foregoing provisions, Executive
----------------
agrees that, during the Covenant Period, Executive shall not, other than in
connection with his employment, directly or indirectly, sell or offer to sell
automotive parts, accessories, or services (or directly or indirectly carry on
or participate in a Prohibited Business that sells or offers to sell automotive
parts, accessories, or services) to any Person who is a customer of the Company.
Executive also agrees that, during the Covenant Period, Executive shall not,
directly or indirectly, interfere, in any way, with the business relationship
between the Company or its Affiliates and any business which supplies automotive
parts, accessories, or services to the Company.
5.6 Confidential Information. This covenant is independent of, and in
------------------------
addition to, those set forth above.
7
<PAGE>
(a) Executive hereby covenants and agrees that, during the
Covenant Period and at all times thereafter, he will not use or disclose any
Confidential Information, except for the benefit of the Company and to
authorized representatives of the Company or except as required by any
governmental or judicial authority; provided, however, that the foregoing
restrictions shall not apply to items that, through no fault of Executive's,
have entered the public domain.
(b) Executive acknowledges that all Confidential Information is
and shall remain the sole, exclusive and valuable property of the Company and
that Executive has and shall acquire no right, title or interest therein. Any
and all printed, typed, written or other material which Executive has or may
obtain with respect to Confidential Information (including without limitation
all copyrights therein) shall be and remain the exclusive property of the
Company, and any and all material (including any copies) shall, upon request of
the Company, be promptly delivered by Executive to the Company.
(c) Executive hereby assigns to the Company all right, title and
interest in and to any ideas, inventions, original works or authorship,
developments, improvements or trade secrets which Executive solely or jointly
have conceived or reduced to practice, or will conceive or reduce to practice,
or cause to be conceived or reduced to practice, during the Covenant Period.
All original works of authorship which are made by Executive (solely or jointly
with others) within the scope of Executive's services hereunder and which are
protectable by copyright are "works made for hire," as that term is defined in
the United States Copyright Act.
5.7 Representation and Warranties. Executive represents and warrants to,
-----------------------------
and agrees with, the Company and its Affiliates that:
(a) Executive has carefully reviewed the restrictive covenants
contained in this Section 5 and considered all of its terms, and agrees that its
scope, duration and terms are reasonable; and
(b) This Agreement constitutes the legal, valid and binding
obligation of Executive enforceable in accordance with its terms.
5.8 Scope and Reasonableness. The parties agree that it is not their
------------------------
intention to violate any public policy or statutory or common law. The parties
intend that the provisions of this Agreement be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought.
6. Validity of Covenants. Executive agrees that the restrictive
---------------------
covenants contained in this Agreement are reasonably necessary to protect the
legitimate business and other interests of the Company, are reasonable with
respect to time and territory, and do not interfere with the interests of the
public.
8
<PAGE>
7. Specific Performance. Executive acknowledges that it would be
--------------------
impossible to determine the amount of damages that would result from any breach
of any of the provisions of this Agreement and that the remedy at law for any
breach, or threatened breach, of any of the provisions of this Agreement would
likely be inadequate and, accordingly, agrees that the Company and its
Affiliates shall, in addition to any other rights or remedies which they may
have, be entitled to seek such equitable and injunctive relief as may be
available from any court of competent jurisdiction to restrain Executive from
violating any of the provisions of this Agreement. In connection with any
action or proceeding for injunctive relief, Executive hereby waives the claim or
defense that a remedy at law alone is adequate and agrees, to the maximum extent
permitted by law, to have each provision of this Agreement specifically enforced
against him, without the necessity of posting bond or other security against
him, and consents to the entry of injunctive relief against him enjoining or
restraining any breach or threatened breach of this Agreement. If Executive
takes action in violation of a restrictive covenant set forth in Section 5 of
this Agreement, Executive acknowledges that the effective period for the
restrictive covenants which are violated will be extended for a period of time
equivalent to the period of time during which Executive is in violation of the
restrictive covenants.
8. Notices. Any and all notices, designations, consents, offers,
-------
acceptances, or any other communications provided for herein shall be given in
writing and shall be deemed given if sent by registered or certified mail,
return receipt requested; or on the date actually received if sent by express
mail or other similar overnight delivery or if hand delivered or if sent via
facsimile, which shall be addressed:
If to the Company:
Advance Holding Corporation
c/o Freeman Spogli & Co. Incorporated
599 Lexington Avenue, Suite 1800
New York, New York 10022
Attention: John M. Roth
Telephone: (212) 758-2555
Telecopy: (212) 758-7499
If to Executive:
Garnett E. Smith
522 Anchor Drive
Moneta, Virginia 24121
Telephone: (540) 721-8057
Fax: (540) 721-8057
9
<PAGE>
With a copy to:
John G. Rocovich, Jr., Esq.
Moss & Rocovich
4415 Electric Road
Roanoke, Virginia 24035-4014
Telephone: (540) 774-8800
Fax: (540) 774-8808
9. Governing Law. This Agreement shall be subject to and governed by the
-------------
laws of the Commonwealth of Virginia.
10. Severability. The restrictive covenants set forth in Section 5 are
------------
separate and independent contractual provisions. The invalidity or
unenforceability of any particular restrictive covenant or any other provision
of this Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or unenforceable
provision were omitted.
11. Successors and Assigns Binding Effect. This Agreement shall be
-------------------------------------
binding upon and inure to the benefit of the Company and Executive and their
respective heirs, legal representatives, executors, administrators, successors
and assigns, provided that Executive may not assign his rights or delegate his
obligations hereunder. The Company may assign its rights under the restrictive
covenants in Section 5 to any beneficial owner of 10% or more of the Company or
any other Affiliate.
12. No Waiver. The failure by the Company or any Affiliate to enforce any
---------
of its rights hereunder shall not be deemed to be a waiver of such rights,
unless such waiver is in writing and signed by the waiving party, and, in the
case of any corporation, approved by its Board of Directors, or in the case of a
partnership, approved by the Board of Directors of its corporate general
partner. Waiver of any one breach shall not be deemed to be a waiver of any
other breach of the same or any other provision hereof.
13. No Construction Against Any Party. This Agreement was reviewed by
---------------------------------
legal counsel for each of Executive and the Company. This Agreement is the
product of informed negotiations among Executive and the Company and if any part
of this Agreement is deemed to be unclear or ambiguous, it shall be construed as
if it were drafted jointly by all parties. Moreover, Executive and the Company
each acknowledge that no party was in a superior bargaining position regarding
the substantive terms of this Agreement.
14. Disputes. In the event of any dispute between the parties arising out
--------
of this Agreement, the prevailing party shall be entitled to recover from the
nonprevailing party the reasonable expenses of the prevailing party including,
without limitation, reasonable attorneys' fees.
10
<PAGE>
15. Effectiveness. This Agreement shall become effective upon the
-------------
Effective Date.
16. Entire Agreement.
----------------
(a) This Agreement constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersedes any and all other
agreements, either oral or in writing, among the parties hereto with respect to
the subject matter hereof.
(b) This Agreement may not be changed orally, but may be amended,
revoked, changed or modified at any time by a written agreement executed by the
Executive and the Company upon approval of the Board of Directors.
11
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed on the day and
year set forth above.
ADVANCE HOLDING CORPORATION
By:_____________________________________________
Title:__________________________________________
------------------------------------------------
Garnett E. Smith
12
<PAGE>
EXHIBIT 10.30
10.25% Senior Subordinated Notes due 2008
No. R1 $200,000,000
CUSIP NO. 00751K A B 2
ADVANCE STORES COMPANY, INCORPORATED
promises to pay to Cede & Co. or registered assigns, the principal sum of Two
Hundred Million Dollars ($200,000,000) on April 15, 2008.
Interest Payment Dates: April 15 and October 15
Record Dates: April 1 and October 1
ADVANCE STORES COMPANY, INCORPORATED
By: _________________________________
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer,
Secretary and Treasurer
This is one of the 10.25% Senior
Subordinated Notes referred to in
the within-mentioned Indenture:
Dated: ____________________
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee
By:_______________________________
Authorized Signatory
1
<PAGE>
10.25% Senior Subordinated Notes due 2008
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.
2
<PAGE>
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Advance Stores Company, Incorporated or its successor (the
"Company"), promises to pay interest on the principal amount of this
Note at the rate of 10.25% per annum and shall pay the Liquidated
Damages, if any, payable pursuant to Section 5 of the Registration
Rights Agreement referred to below. The Company 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, 1998, 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, 1998; 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, 1998. The Company shall pay interest (including,
to the extent permitted by applicable law, post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal 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. The Company 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
the Company maintained for such purpose within or without the City and
State of New York, or, at the option of the Company, 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. The Company may change any Paying Agent or Registrar
without notice to any Holder. The Company or any of its Subsidiaries
may act in any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as
of April 15, 1998 ("Indenture") among the Company, the Guarantors and
the Trustee. The terms of the Notes
3
<PAGE>
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
TIA for a statement of such terms. The Notes are general unsecured
Obligations of the Company limited to $200 million in aggregate
principal amount.
5. OPTIONAL REDEMPTION.
Except as set forth in the next paragraph, the Notes shall not be
redeemable at the Company's option prior to April 15, 2003.
Thereafter, the Notes shall be subject to redemption at any time at
the option of the Company, in whole or in part, upon not less than 30
nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below 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........................................... 105.125%
2004........................................... 103.417%
2005........................................... 101.708%
2006 and thereafter............................ 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to April
15, 2001, the Company 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 the Notes originally issued at a redemption price
equal to 110.25% of the principal amount thereof, plus accrued and
unpaid interest and 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 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, the Company 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 the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such
Holder's Notes pursuant to the offer described below (the "Change of
Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest
and Liquidated Damages, if any, thereon, to the date of purchase.
Within 30 days following any Change of Control, the Company will mail
a notice to each
4
<PAGE>
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, the Company 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, 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 of Notes and any such Pari
Passu Indebtedness tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company or its Restricted Subsidiaries
may use any remaining Excess Proceeds for general corporate purposes.
If the aggregate principal amount of 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 the
Company 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, unless all
of the Notes held by a Holder are to be redeemed or repurchased. On
and after the redemption date or repurchased 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, unless the Company 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 the Company may
require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company 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.
5
<PAGE>
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the following paragraphs
and the provisions of the Indenture, the Indenture, the Notes and the
Subsidiary Guarantees 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, the Notes and the Subsidiary Guarantees
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). Any amendment to the provisions of
Article 10 or 12 shall require the consent of the Holders of at least
75% in aggregate principal amount of Notes then outstanding if such
amendment would adversely affect the rights of the Holders of Notes.
Without the consent of any Holder of Notes, the Company, the
Guarantors and the Trustee may amend or supplement the Indenture, the
Notes or the Subsidiary Guarantees to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or
in place of certificated Notes, to provide for the assumption of the
Company's or a Guarantor'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 the Company 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 the Company 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 the Company or any of
its Restricted Subsidiaries (or the payment of which is guaranteed by
the Company 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 the Company 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
6
<PAGE>
not paid, discharged or stayed for a period of 60 days; (vii) any
Subsidiary Guarantee of a Significant Subsidiary shall be held in any
judicial proceeding to be unenforceable or invalid or, except as
permitted by the Indenture, shall cease for any reason to be in full
force and effect or any Guarantor that is a Significant Subsidiary, or
any Person acting on behalf of any Guarantor that is a Significant
Subsidiary, shall deny or disaffirm its obligations under its
Subsidiary Guarantee; and (viii) certain events of bankruptcy or
insolvency with respect to the Company 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 the Company, 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 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 COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform
services for the Company, the Guarantors or their respective
Affiliates, and may otherwise deal with the Company, the Guarantors or
their respective Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder, of the Company or any Guarantor, as such,
shall have any liability for any obligations of the Company or any
Guarantor 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.
7
<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 the Company, the Guarantors and the Initial Purchasers (the
"Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company
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.
8
<PAGE>
The Company 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 Stores Company, Incorporated
5673 Airport Road
Roanoke, Virginia 24012
Telecopier: 540.561.1699
Attention: Chief Financial Officer
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 the Company. 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:
10
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
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 the
Company pursuant to Section 4.10 or Section 4.13 of the Indenture, state the
amount you elect to have purchased (which must be $1,000 or integral multiples
thereof): $___________
Date:___________________ Your Signature:__________________________________
(Sign exactly as your name appears on the Note)
Tax Identification No.:____________________
Signature Guarantee.
11
<PAGE>
EXHIBIT 12.1
ADVANCE STORES COMPANY, INCORPORATED
SCHEDULE OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Historical
------------------------------------------------------------------------
Sixteen
Weeks
Ended
Fiscal Year Ended April 25,
------------------------------------------------------------
1993 1994 1995 1996 1997 1998
------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $17,754 $36,285 $28,353 $33,947 $35,042 ($4,127)
------------------------------------------------------------------------
Fixed charges:
Interest expense 2,031 3,633 6,327 6,221 7,732 3,414
Interest portion of rentals 5,280 7,400 10,395 12,868 16,099 5,806
------------------------------------------------------------------------
Total fixed charges 7,311 11,033 16,722 19,089 23,831 9,220
------------------------------------------------------------------------
Earnings before income taxes and fixed charges $25,065 $47,318 $45,075 $53,036 $58,873 $5,093
=======================================================================
Ratio of earnings to fixed charges (2) 3.43 4.29 2.70 2.78 2.47 --
=======================================================================
<CAPTION>
Proforma (1)
----------------------------
Sixteen
Weeks
Ended
Fiscal Yr April 25,
1997 1998
----------------------------
<S> <C> <C>
Income (loss) before income taxes $10,302 $2,813
----------------------------
Fixed charges:
Interest expense $34,357 11,216
Interest portion of rentals 16,099 5,806
-----------------------------
Total fixed charges 50,456 17,022
-----------------------------
Earnings before income taxes and fixed charges $60,758 $19,835
=============================
Ratio of earnings to fixed charges (2) 1.20 1.17
=============================
</TABLE>
(1) Adjusted to reflect impact of recapitalization of the Parent.
(2) Ratio of earnings to fixed charges has not been computed since earnings were
not sufficient to cover fixed changes. The coverage deficiency was $4,127
for the sixteen weeks ended April 25, 1998.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
------------
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 STORES COMPANY, INCORPORATED
(Exact name of obligors as specified in its charter)
Virginia 54-0118110
(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)
__________________
10.25% Senior Subordinated Notes due 2008
(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 Stores Company, Incorporated 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 STORES COMPANY, INCORPORATED 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>
<CIK> 0001061890
<NAME> ADVANCE STORES COMPANY, INCORPORATED
<S> <C> <C> <C> <C>
<PERIOD-TYPE> OTHER YEAR YEAR YEAR
<FISCAL-YEAR-END> JAN-02-1999 JAN-03-1998 DEC-28-1998 DEC-30-1995
<PERIOD-END> APR-25-1998 JAN-03-1998 DEC-28-1998 DEC-30-1995
<CASH> 36,540 7,447 6,932 14,285
<SECURITIES> 0 0 0 0
<RECEIVABLES> 4,857 3,359 0 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 333,083 280,267 252,544 179,899
<CURRENT-ASSETS> 404,624 313,251 275,779 204,532
<PP&E> 223,226 212,836 166,256 122,933
<DEPRECIATION> (84,170) (77,940) (57,804) (41,006)
<TOTAL-ASSETS> 562,975 450,201 384,620 287,716
<CURRENT-LIABILITIES> 268,311 200,115 173,822 111,833
<BONDS> 335,000 106,542 93,653 79,277
0 0 0 0
0 0 0 0
<COMMON> 0 0 0 0
<OTHER-SE> (56,270) 129,169 108,797 88,585
<TOTAL-LIABILITY-AND-EQUITY> 562,975 450,201 384,620 287,716
<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> 113,183 279,924 228,049 196,153
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 3,414 7,732 6,221 6,327
<INCOME-PRETAX> (4,127) 35,042 33,947 28,353
<INCOME-TAX> (1,688) 14,670 13,735 11,648
<INCOME-CONTINUING> (2,439) 20,372 20,212 16,705
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (2,439) 20,372 20,212 16,705
<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 STORES COMPANY, INCORPORATED
LETTER OF TRANSMITTAL
10.25% SENIOR SUBORDINATED NOTES DUE 2008
<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 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 Stores Company,
Incorporated (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 of its 10.25% Series B Senior
Subordinated Notes due 2008 (the "Series B Notes") 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 of its outstanding 10.25% Series A Senior Subordinated Notes
due 2008 (the "Series A Notes"), of which $200,000,000 principal amount 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 Notes (i) if
certificates representing the Series A Notes are to be physically delivered
herewith; or (ii) if tender of Series A Notes 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 Notes; or (iii) if tender of Series A Notes 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 Notes 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 Notes are held of record by DTC who
desires to deliver such Series A Notes 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 Notes must complete this
letter in its entirety.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<TABLE>
<CAPTION>
__________________________________________________________________________________________________________________________________
DESCRIPTION OF 10.25% SERIES A SENIOR SUBORDINATED NOTES DUE 2008 ("SERIES A NOTES"):
__________________________________________________________________________________________________________________________________
<S> <C> <C>
PRINCIPAL AMOUNT TENDERED (MUST
NAME(S) AND ADDRESS(ES) OF AGGREGATE PRINCIPAL AMOUNT BE IN INTEGRAL MULTIPLE OF
REGISTERED HOLDER(S) REPRESENTED BY CERTIFICATE(S) $1,000)*
(PLEASE FILL IN, IF BLANK)
__________________________________________________________________________________________________________________________________
_____________________________ ______________________________
_____________________________ ______________________________
_____________________________ ______________________________
_____________________________ ______________________________
Total
__________________________________________________________________________________________________________________________________
* Unless indicated in the column labeled "Principal Amount Tendered," any tendering Holder of Series A Notes will be
deemed to have tendered the entire aggregate principal amount represented by the column labeled "Aggregate Principal Amount
Represented by Certificate(s)."
If the space provided above is inadequate, list the principal amounts on a separate signed schedule and affix the list to
this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount of Series A Notes. All other tenders must be in integral
multiples of $1,000.
__________________________________________________________________________________________________________________________________
</TABLE>
________________________________________________________________________________
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Series A Notes in a principal amount
not tendered or not accepted for exchange, or Series B Notes issued in
exchange for Series A Notes accepted for exchange, are to be issued in the
name of someone other than the undersigned, or if the Series A Notes 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 Notes in a principal amount
not tendered or not accepted for exchange, or Series B Notes issued in
exchange for Series A Notes 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 NOTES 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 NOTES YOU ARE
TENDERING WERE ACQUIRED DIRECTLY FROM THE COMPANY.
Principal Amount of Tendered Series A Notes 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 of Series A Notes indicated
above. Subject to and effective upon the acceptance for exchange of the
principal amount of Series A Notes 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 Notes
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 Notes with full power of substitution to (i) deliver
certificates for such Series A Notes to the Company, or transfer ownership of
such Series A Notes 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 Notes for transfer on the books of
the Company and receive all benefits and otherwise exercise all rights of
beneficial ownership of such Series A Notes, 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 Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by the Company.
THE UNDERSIGNED HEREBY FURTHER REPRESENTS THAT ANY SERIES B NOTES ACQUIRED IN
EXCHANGE FOR SERIES A NOTES TENDERED HEREBY WILL HAVE BEEN ACQUIRED IN THE
ORDINARY COURSE OF BUSINESS OF THE HOLDER RECEIVING SUCH SERIES B NOTES, 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
NOTES AND THAT NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE,"
AS DEFINED UNDER RULE 405 OF THE SECURITIES ACT, OF THE COMPANY 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 Notes. If the undersigned is a broker-dealer that will
receive Series B Notes, it represents that, except to the extent indicated at
the bottom of the preceding page, the Series A Notes to be exchanged for Series
B Notes 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
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. IF THE UNDERSIGNED IS A BROKER-DEALER, IT
ACKNOWLEDGES THAT IT MAY NOT USE THE PROSPECTUS IN CONNECTION WITH RESALES OF
SERIES B NOTES RECEIVED IN EXCHANGE FOR SERIES A NOTES 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 Notes tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Series A Notes when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
If any tendered Series A Notes are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted Series A
Notes 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 Notes 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 Notes issued in exchange for
the Series A Notes accepted for exchange and return any Series A Notes not
tendered or not exchanged, in the name(s) of the undersigned (or in either such
event in the case of Series A Notes 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 Notes issued in exchange for the Series A Notes accepted for exchange
and any certificates for Series A Notes not tendered or not exchanged (and
accompanying documents, as appropriate) to the undersigned at the address shown
below the undersigned's signature(s), unless, in either event, tender is being
made through DTC. In the event that both "Special Payment Instructions" and
"Special
3
<PAGE>
Delivery Instructions" are completed, please issue the certificates representing
the Series B Notes issued in exchange for the Series A Notes accepted for
exchange and return any Series A Notes 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 Notes from the name of the registered holder(s) thereof if the
Company does not accept for exchange any of the Series A Notes so tendered.
Holders of Series A Notes who wish to tender their Series A Notes and (i)
whose Series A Notes are not immediately available, or (ii) who cannot deliver
their Series A Notes, 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 Notes
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 NOTES 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
NOTES AS THEIR NAME(S) APPEAR(S) ON THE SERIES A NOTES OR, IF THE SERIES A NOTES
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 NOTES, 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 NOTES 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 NOTES. The
tendered Series A Notes (or a confirmation of a book-entry transfer into the
Exchange Agent's account at DTC of all Series A Notes 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 Notes, 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 Notes should be sent to
the Company.
Holders who wish to tender their Series A Notes and (i) whose Series A
Notes are not immediately available; or (ii) who cannot deliver their Series A
Notes, 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 Notes 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 Notes and the
principal amount of Series A Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within five New York Stock Exchange trading
days after the Expiration Date, this Letter of Transmittal (or facsimile hereof)
together with the certificate(s) representing the Series A Notes (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 Notes 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 Notes who wishes to tender his or
her Series A Notes 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 Notes 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 Notes and withdrawal of tendered
Series A Notes 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 Notes not properly tendered or any Series A
Notes 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 Notes. 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 Notes 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 Notes, nor
shall any of them incur any liability for failure to give such notification.
Tenders of Series A Notes will not be deemed to have been made until such
defects or irregularities have been cured or waived. Any Series A Notes
received by the Exchange
5
<PAGE>
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 Notes, 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 Notes may tender such
Series A Notes in the Exchange Offer. Any beneficial holder of Series A Notes
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 Notes, either make appropriate
arrangements to register ownership of the Series A Notes in such Holder's name
or obtain a properly completed bond power from the registered holder.
3. PARTIAL TENDERS. Tenders of Series A Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Series A Notes is tendered, the tendering Holder should fill in the principal
amount tendered in the third column of the box entitled "Description of 10.25%
Series A Senior Subordinated Notes due 2008 ("Series A Notes")" above. The
entire principal amount of Series A Notes delivered to the Exchange Agent will
be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all Series A Notes is not tendered, then Series A Notes for
the principal amount of Series A Notes not tendered and a certificate or
certificates representing Series B Notes issued in exchange for any Series A
Notes 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 Notes 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 Notes
tendered hereby, the signature must correspond with the name(s) as written on
the face of the Series A Notes or, if the Series A Notes 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 Notes, 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 Notes tendered and the certificate or
certificates for Series B Notes issued in exchange therefor are to be issued (or
any untendered principal amount of Series A Notes is to be reissued) to the
registered Holder, the said Holder need not and should not endorse any tendered
Series A Notes, nor provide a separate bond power. In any other case, such
Holder must either properly endorse the Series A Notes 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 Notes listed, such
Series A Notes must be endorsed or accompanied by appropriate bond powers signed
as the name of the registered Holder or Holders appears on the Series A Notes.
If this Letter of Transmittal (or facsimile hereof) or any Series A Notes
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 Notes 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
Notes tendered herewith and such Holder(s) have not completed the box set forth
herein entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions;" or (ii) such Series A Notes 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
Notes or substitute Series A Notes for principal amounts not
6
<PAGE>
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 Notes 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 Notes 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 Notes 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 Notes 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 Notes pursuant to the Exchange Offer.
If, however, certificates representing Series B Notes or Series A Notes 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 Notes tendered hereby, or if tendered Series A
Notes 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 Notes 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 Notes 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 Notes tendered.
9. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering Holder
whose Series A Notes 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)
<TABLE>
<CAPTION>
________________________________________________________
CERTIFICATE SERIES A NOTES SERIES A NOTES
SURRENDERED TENDERED ACCEPTED
________________________________________________________
<S> <C> <C>
________________________________________________________
________________________________________________________
</TABLE>
Delivery Prepared by_________________________________ Checked By________________
Date__________________
8
<PAGE>
<TABLE>
<S> <C>
____________________________________________________________________________________________________________________
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
____________________________________________________________________________________________________________________
</TABLE>
_______________________________________________________________________________
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 card. 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>
_______________________________________________________________________________
GIVE THE
FOR THIS TYPE OF ACCOUNT: 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)
<CAPTION>
__________________________________________________________________________________________________
GIVE THE
FOR THIS TYPE OF ACCOUNT: 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
10.25% SERIES A SENIOR SUBORDINATED NOTES DUE 2008
OF
ADVANCE STORES COMPANY, INCORPORATED
This form, or one substantially equivalent hereto, must be used to accept
the Exchange Offer of Advance Stores Company, Incorporated (the "Company") made
pursuant to the Prospectus dated ____________________, 1998 (the "Prospectus"),
if certificates for the 10.25% Series A Senior Subordinated Notes due 2008 (the
"Series A Notes") of the Company are not immediately available or if the Series
A Notes, 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.
TO: U.S. TRUST COMPANY OF NEW YORK, THE EXCHANGE AGENT
<TABLE>
<CAPTION>
By Mail: By Overnight Courier:
<S> <C>
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 Notes 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 Stores Company, Incorporated, 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 Notes pursuant to
(principal amount of Series A Notes)
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 Notes Name(s) of Record Holder(s)
...................................... ..................................
...................................... ..................................
PLEASE PRINT OR TYPE
Address ..........................
..................................
ZIP CODE
Area Code and Tel. No.............
Signature(s)......................
..................................
Dated:............................
If Series A Notes 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 Notes exactly as its (their) name(s) appear on
certificates for Series A Notes or on a security position listing as the owner
of Series A Notes, 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 Notes
tendered hereby within the meaning of Rule 10b-4 under the Exchange Act, (b)
represents that such tender of Series A Notes complies with Rule 10b-4 and (c)
guarantees that delivery to the Exchange Agent of certificates for the Series A
Notes tendered hereby, in proper form for transfer (or confirmation of the book-
entry transfer of such Series A Notes 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 NOTES 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
....................................... Title ..............................
ZIP CODE
Area Code and Tel. No. ................ Date ...............................
Dated: ________________, 1998
NOTE: DO NOT SEND SERIES A NOTES WITH THIS FORM; SERIES A NOTES 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
