<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) November 2, 1998
-----------------------
Advance Stores Company, Incorporated
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Virginia 333-56013 54-0118110
- --------------------------------------------------------------------------------
<S> <C> <C>
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
</TABLE>
5673 Airport Road, Roanoke, Virginia 24012
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (540) 362-4911
----------------------------
Not applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On November 2, 1998, the Registrant's wholly-owned subsidiary,
Advance Acquisition Corporation, a Delaware corporation ("AAC"), completed the
acquisition of Western Auto Supply Company, a Delaware corporation ("Western
Auto"), pursuant to the terms of an Agreement and Plan of Merger entered into on
August 17, 1998 (as amended, the "Merger Agreement") by and among the
Registrant, AAC, Western Auto, Sears, Roebuck and Co., a New York corporation
("Sears"), Western Auto Holding Co., a Delaware corporation ("WAHC"), and a
wholly-owned subsidiary of Sears and the parent of Western Auto, Advance Holding
Corporation ("Holding"), a Virginia corporation and the parent of the
Registrant, and certain shareholders of Holding. Pursuant to the terms of the
Merger Agreement, Western Auto merged with and into AAC, with AAC as the
surviving corporation (the "Merger"). For its shares in Western Auto, WAHC
received total consideration consisting of: (i) cash in the amount of $175.0
million; (ii) 11,474,606 shares of Class A common stock of Holding ("Holding
Common Stock"); and (iii) that portion of the loss sharing arrangement relating
to Western Auto's Credit Card Portfolio (as defined in the Merger Agreement), if
any, payable after the Merger following the sale of the Credit Card Portfolio,
not to exceed $10.0 million.
The acquisition was funded with (i) $175.0 million in cash and (ii)
11,474,606 shares of Holding Common Stock. The $175.0 million in cash and
transaction costs were funded through (a) the funding of approximately $90.0
million pursuant to a new deferred senior secured term loan under the Amended
and Restated Credit Facility, dated as of October 19, 1998, by and among the
Registrant, Holding, the Lenders party thereto, The Chase Manhattan Bank, Chase
Securities Inc., DLJ Capital Funding, Inc. and First Union National Bank, (b)
$70.0 million in cash from the gross proceeds of the sale of Holding Common
Stock and (c) cash on hand.
The Western Auto purchase price was arrived at by means of arm's
length bargaining among the parties to the Agreement. Prior to the Merger,
there was no material relationship between Sears, WAHC or Western Auto
(including their officers, directors and stockholders) and the Registrant,
Holding or AAC or any of their affiliates, or any director or officer of the
Registrant, Holding or AAC, or any associate of any such officer or director.
(b) Western Auto is a specialty retailer of automotive parts and
accessories and also supplies wholesale goods to independently owned and
operated Western Auto dealers. As of October 31, 1998, the closing date for
economic and accounting purposes only, Western Auto operated approximately 612
stores in the United States under the name "Parts America," and 36 stores in
Puerto Rico, two stores in the U.S. Virgin Islands and two specialty stores
under the name "Western Auto," all of which provide service and parts sales.
Western Auto also operates four distribution centers. AAC intends to convert
the majority of Parts America stores to "Advance Auto Parts" stores over time,
and to continue to run the wholesale supply operation and Puerto Rico, Virgin
Islands and specialty stores under the "Western Auto" name.
1
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The financial statements of Western Auto required to be filed as part
of this Report were filed with the Securities and Exchange Commission on October
6, 1998 as part of the Registrant's Amendment No. 2 to Registration Statement on
Form S-4 (Registration Nos. 333-56013 and 333-56013-001), under the caption
"Western Auto Supply Company and Subsidiaries Consolidated Financial Statements"
and are incorporated herein by this reference.
(b) PRO FORMA FINANCIAL INFORMATION.
The pro forma financial information required to be filed as part of
this Report is attached hereto as Exhibit 99.1.
(c) EXHIBITS.
<TABLE>
<S> <C>
2.3 Amendment No. 1 to Agreement and Plan of Merger dated as of
November 2, 1998 among the Registrant, Sears, WAHC, Western
Auto, Holding, AAC and certain stockholders of Holding.
4.3 Supplemental Indenture dated as of November 2, 1998 between
Western Auto and United States Trust Company of New York, as
trustee.
10.31 Amended and Restated Stockholders Agreement dated November 2,
1998 among FS Equity Partners IV, L.P., Ripplewood Partners,
L.P., Ripplewood Advance Auto Parts Employee Fund I L.L.C.,
Nicholas F. Taubman, The Arthur Taubman Trust dated July 13,
1964, WA Holding Co. and Holding.
10.32 Amended and Restated Credit Agreement dated as of October 19,
1998 among Holding, the Registrant, the lenders party thereto,
The Chase Manhattan Bank ("Chase"), Chase Securities Inc., DLJ
Capital Funding, Inc. and First Union National Bank.
10.33 Pledge Agreement dated as of April 15, 1998, as amended and
restated as of November 2, 1998, among the Registrant, Holding,
the Subsidiary Pledgors listed therein and Chase, as collateral
agent.
10.34 Guarantee Agreement dated as of April 15, 1998, as amended and
restated as of November 2, 1998, among Holding, the Subsidiary
Guarantors listed therein and Chase, as collateral agent.
10.35 Indemnity, Subrogation and Contribution Agreement dated as of
April 15, 1998, as amended and restated as of November 2, 1998,
among the Registrant, Holding, the Guarantors listed therein
and Chase, as collateral agent.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
10.36 Security Agreement dated as of April 15, 1998, as amended and
restated as of November 2, 1998, among the Registrant, Holding,
the Subsidiary Guarantors listed therein and Chase, as
collateral agent.
23.1 Consent of Deloitte & Touche LLP.
99.1 Pro Forma Financial Information.
</TABLE>
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 17, 1998
ADVANCE STORES COMPANY INCORPORATED
By: /s/ J. O'Neil Leftwich
--------------------------------------------
J. O'Neil Leftwich
Senior Vice President and
Chief Financial Officer
4
<PAGE>
EXHIBIT 2.3
FIRST AMENDMENT
---------------
TO AGREEMENT AND PLAN OF MERGER
-------------------------------
This FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (the "Amendment"),
dated as of November 2, 1998, is by and among SEARS, ROEBUCK AND CO., a New York
corporation ("Parent"), WESTERN AUTO HOLDING CO., a Delaware corporation and
wholly owned subsidiary of Parent ("Seller"), WESTERN AUTO SUPPLY COMPANY, a
Delaware corporation and wholly owned subsidiary of Seller (the "Company"),
ADVANCE HOLDING CORPORATION, a Virginia corporation ("Advance"), ADVANCE STORES
COMPANY, INCORPORATED, a Virginia corporation and a wholly owned subsidiary of
Advance ("ASCI"), ADVANCE ACQUISITION CORPORATION, a Delaware corporation and
wholly owned subsidiary of ASCI ("Purchaser"), and those stockholders of Advance
(the "Investors") listed on the signature pages of the Merger Agreement (as
defined below) or this Amendment, who are parties only for purposes of Sections
2.07, 2.09(a), 2.09(f), 12.04 and Article VI of the Merger Agreement.
RECITALS
--------
WHEREAS, Parent, Seller, Company, Advance, ASCI, Purchaser and Investors
have entered into that certain Agreement and Plan of Merger dated as of August
16, 1998 (the "Merger Agreement"); and
WHEREAS, the parties desire to amend the Merger Agreement in certain
respects.
NOW, THEREFORE, the parties agree as follows:
1. Addition of Parties. The parties listed below, who are parties only
-------------------
for purposes of Sections 2.07, 2.09(a), 2.09(f), 12.04 and Article VI of the
Merger Agreement, are hereby added to the signature pages of the Merger
Agreement and are added to the definition of "Investors" under the Merger
Agreement. By their execution of this Amendment, such parties agree to be bound,
together with FS Equity Partners IV, L.P., by Sections 2.07, 2.09(a), 2.09(f),
12.04 and Article VI of the Merger Agreement as amended hereby; provided,
however, FS Equity Partners IV, L.P. shall be responsible (without waiving any
rights it has to enforce those certain equity commitment letters delivered to
Advance as of August 16, 1998 by Ripplewood Partners, L.P., Nicholas F. Taubman
and The Arthur Taubman Trust), subject to Section 2.07 of the Merger Agreement,
for ensuring that the Investors invest the entire $70,000,000 consideration
specified in Section 2.07 of the Merger Agreement.
(a) Ripplewood Partners, L.P. and Ripplewood Advance Auto Parts
Employee Fund I L.L.C.
(b) Nicholas F. Taubman.
<PAGE>
(c) The Arthur Taubman Trust dated July 13, 1964.
2. Amendment to Schedules 2.07. 4.08(c) and 4.17. Schedules 2.07,
--------------------------------------------- --------------
4.08(c), and Schedule 4.17 of the Merger Agreement are hereby deleted in their
-------------
entirety and replaced with Schedules 2.07, 4.08(c), and 4.17, respectively, to
-------------- ---- ----
this Amendment.
3. Section 2.10.
------------
(a) The first sentence of Section 2.10 is hereby deleted and the
following inserted in its place:
"As soon as practicable after the Closing Date, Advance shall
deliver to Parent a statement of the Chief Financial Officer of
Advance, prepared in consultation with the current Chief Financial
Officer of the Company, setting forth the amount of the Retained
Working Capital as of October 31, 1998 (the "Closing Retained Working
Capital Statement"), after taking into account the transactions
described in Section 7.01(a)(i)(A), (B), (C), (D), (E) and (F) and
applying the same accounting principles and practices used in
determining Retained Working Capital as of July 4, 1998 as described
on Schedule 2.06 of the Seller Disclosure Memorandum."
-------------
(b) The fourth sentence of Section 2.10 is hereby deleted and the
following inserted in its place:
"If the amount of Retained Working Capital (other than cash) reflected
in the Closing Retained Working Capital Statement (such amount, the
"Adjusted Closing Retained Working Capital") is less than
$157,286,000, unless disputed as provided in the next sentence, Parent
shall within such thirty (30) day review period pay to ASCI by wire
transfer in immediately available funds the amount, if any, by which
the amount of the Adjusted Closing Retained Working Capital is less
than $157,286,000."
(c) The phrase "Retained Working Capital" in the sixth sentence of
Section 2.10 is hereby deleted and replaced with "Adjusted Closing Retained
Working Capital."
4. New Section 2.11. The following is inserted as a new Section 2.11:
----------------
"2. 11 Effective Closing Date. The parties intend that, for economic
and accounting purposes only, the Closing be
2
<PAGE>
deemed to have occurred as of 11:59 p.m. on October 31, 1998. At the
Effective Time, all benefits of ownership of the Company after October
31, 1998 shall inure to the benefit of the Purchaser and any
liabilities, losses, costs and expenses incurred by the Company after
October 31, 1998 shall be the sole responsibility of the Purchaser.
Parent and Advance hereby agree that proceeds from cash and credit
cards store sales by the Company after October 31, 1998 shall be
deposited in bank accounts designated by Purchaser ("Interim
Deposits"); provided, however, that prior to the Effective Time,
-------- -------
Parent may in its sole discretion terminate all accounts containing
Interim Deposits, and thereupon Purchaser shall immediately repay all
Interim Deposits upon Parent's written notice to Purchaser. Nothing in
this Section 2.11 shall be deemed to limit Parent's and Seller's
obligations under Section 7.01(a) through the Effective Time."
5. New Section 2.12. The following is inserted as a new Section 2.12:
----------------
"2.12 Cash Settlement. (a) Advance shall deliver to Parent a
---------------
preliminary statement of the Chief Financial Officer of Advance,
prepared in consultation with the current Chief Financial Officer of
the Company, setting forth the amount of cash ("Preliminary Closing
Cash") in the Company as of 11:59 p.m. October 31, 1998 determined in
accordance with GAAP and the accounting principles and practices used
in preparing Schedule 2.06 of the Seller Disclosure Memorandum (the
-------------
"Preliminary Closing Cash Statement") within ten Business Days of the
Closing Date. To the extent cash relating to any sales which occurred
on or prior to October 31, 1998 is deposited in Parent controlled
accounts on November 1, 1998 or thereafter, such amounts shall be the
property of Parent and shall not be considered cash for purposes of
determining Preliminary Closing Cash. Parent shall have ten Business
Days after receipt of the Preliminary Closing Cash Statement to review
the Preliminary Closing Cash Statement and propose any adjustments
thereto. Advance shall allow Parent to review all financial
information, bank statements, working papers, schedules and
calculations related to the Preliminary Closing Cash Statement. If the
amount of Preliminary Closing Cash reflected in the Preliminary
Closing Cash Statement is less than $6,000,000, unless disputed as
provided below, Parent shall within the ten Business Days review
period pay to Advance by wire transfer in immediately available funds
the amount of such deficiency. If the amount of
3
<PAGE>
Preliminary Closing Cash reflected on the Preliminary Closing Cash
Statement is greater than $6,000,000, unless disputed as provided
below, Advance shall within the ten Business Days review period pay to
Parent the amount of such excess. If Parent disagrees with the
Preliminary Closing Cash set forth on the Preliminary Closing Cash
Statement, Parent shall notify Advance in writing within the ten
Business Day review period and Parent and Advance shall immediately
confer to resolve such disagreement. If Parent and Advance cannot
resolve such disagreement by conferring, that disagreement shall be
resolved as provided below after delivery of the Final Closing Cash
Statement (as defined below); provided, however, that any undisputed
-------- -------
amounts shall be paid immediately.
(b) Advance shall deliver to Parent a final statement of the
Chief Financial Officer of Advance, prepared in consultation with the
current Chief Financial Officer of the Company, setting forth the
amount of cash ("Closing Cash") in the Company as of October 31, 1998
determined in accordance with GAAP and the accounting principles and
practices used in preparing Schedule 2.06 of the Seller Disclosure
-------------
Memorandum (the "Final Closing Cash Statement") within ten Business
Days after completion of an audited balance sheet of the Company on
October 31, 1998. If Parent disagrees with the Final Closing Cash
Statement within ten Business Days after receiving it and so notifies
Advance in writing, and the parties are unable to resolve this
disagreement by conferring with ten Business Days after such written
notification, the matter shall be submitted to the Arbitrator for
resolution. Parent and Advance shall cooperate to complete the
arbitration within fifteen days of submission of the matter to the
Arbitrator, and the Arbitrator shall be instructed to render a
decision within ten days after completion of the arbitration. Parent
and Advance shall each pay one-half of the fees and expenses of the
Arbitrator. The decision of the Arbitrator will be final and binding
on the parties. If, after final determination of the Closing Cash by
agreement of the parties or the Arbitrator (the "Final
Determination"), the Closing Cash (after appropriate adjustment to
reflect any payment of undisputed amounts after submission of the
Preliminary Closing Cash Statement) is less than $6,000,000, Parent
shall, within three Business Days, pay Advance by wire transfer in
immediately available funds the amount of such deficiency. If, after
the Final Determination, the Closing Cash (after appropriate
4
<PAGE>
adjustment to reflect any payment of undisputed amounts after
submission of the Preliminary Closing Cash Statement) exceeds
$6,000,000, Advance shall, within three Business Days, pay Parent by
wire transfer in immediately available funds the amount of such
excess. Upon Advance's request, Parent shall use reasonable efforts
to assist Advance in order to complete the audited balance sheet.
(c) Parent shall deposit cash in the Western Auto payroll
account in an amount no less than what is required to cover all
payroll checks issued prior to the close of business on October 31,
1998 and bank service fees. Upon determination that there is an excess
or shortfall in the payroll account, the difference will be reconciled
and paid promptly. Parent shall be responsible for all payroll
withholding taxes, FICA obligations and 401(k) contributions incurred
with respect to the Company's payroll obligations through and
including October 31, 1998, unless such taxes, obligations or
contributions are accrued as liabilities on the balance sheet of
Company as of the close of business on October 31, 1998 prepared in
accordance with GAAP and the accounting principles and practices used
in preparing Schedule 2.06 of the Seller Disclosure Memorandum.
(d) To the extent the Company or Purchaser deposit funds related
to sales on or after November 1, 1998 in Parent controlled bank
accounts, the Parent shall promptly remit such funds."
6. Representations and Warranties of Investors. Each Investor, severally
-------------------------------------------
and not jointly, certifies that the representations and warranties of such
Investor contained in Sections 6.01 and 6.02 of the Merger Agreement are true
and correct as of the date hereof and as of and at the Closing Date.
7. Bankruptcy Reaffirmation Orders. A new Section 7.21 shall be added, to
-------------------------------
read as follows:
"7.21. Bankruptcy Reaffirmation Orders. From and after the
-------------------------------
Closing, Parent shall, or shall cause its Subsidiaries to, inform
Advance, ASCI, Purchaser and their Subsidiaries of any steps relating
to actions or omissions which Parent should reasonably be aware of
needed to be taken by Advance, ASCI, Purchaser and their Subsidiaries
to comply with all orders and requirements relating to the orders and
litigation described on
5
<PAGE>
Schedule 4.08(c) (the "Bankruptcy Reaffirmation Orders").
----------------
Without limiting the foregoing obligation, Parent shall provide all
assistance that Advance, ASCI, Purchaser and their Subsidiaries may
reasonably require in order to comply with the Bankruptcy
Reaffirmation Orders, including providing advice and assistance from
Parent's compliance personnel and in-house and outside counsel, all at
no cost to Advance or its Subsidiaries. At the sole expensed Parent,
Advance shall, and shall cause ASCI, Purchaser and their Subsidiaries
to, comply with the Bankruptcy Reaffirmation Orders."
8. Section 9.01(b). The reference to "October 31, 1998" in Section
--------------
9.01(b) is hereby deleted and replaced with "November 3, 1998."
9. Additional Indemnification by Parent and Seller. Section 10.01 is
-----------------------------------------------
hereby amended by adding the following subsections (k) and (1):
"(k) the compliance or non-compliance of Parent, Seller, the
Company and all of the subsidiaries of the Company with the Bankruptcy
Reaffirmation Orders set forth on Schedule 4.08(c) (with respect to
----------------
the Company and its Subsidiaries, prior to the Closing Date), and any
of the matters described on Schedule 4.08(c), including all costs,
----------------
fees and attorney's fees associated with compliance by Advance, ASCI,
Purchaser, their Subsidiaries, and the Investors with the Bankruptcy
Reaffirmation Orders, or any subpoena or other discovery request
issued in connection with them or any matter described on Schedule
--------
4.08(c), their enforcement, or substantially similar matters; and
------
(1) any Damages arising out of or resulting from the Company's
guarantee of the payment of accrued retirement allowances relating to
Midland International Corporation under a Stock Purchase Agreement
dated October 11, 1993, whether or not reserved for on the balance
sheet of the Company."
10. Exception to Limitations on Indemnity Payments. In Section 10.04, the
----------------------------------------------
first parenthetical clause, that currently reads "(other than Sections 10.01(b)
through 10.01(i))," is hereby amended by adding inside the parenthetical the
additional words "and Sections 10.01(k) and (l)."
6
<PAGE>
11. New Section 10.09. The following shall be inserted as a new Section
-----------------
10.09:
"10.09 Retention and Severance Program Reimbursements and
--------------------------------------------------
Indemnity.
- ---------
(a) From and after the Effective Time, Purchaser shall cause Don
Shaffer to negotiate with each Western Auto employee designated by
Advance as eligible to shift to a different tier of the Western Auto
Supply Company Retention Bonus Plan that became effective August 17,
1998 (the "Retention Bonus Plan") (a copy of which plan is attached to
this Amendment as Schedule 10.09(a)) for the individual's continued
------------------
employment with Advance, Purchaser, the Surviving Corporation, or one
of their Affiliates, in return for such improved Retention Bonus Plan
tier, and on such terms of employment as designated by Advance. Parent
shall pay to Advance an additional $200,000 to cover the costs, or a
portion thereof as the case may be, of shifting such employees to
different tiers of the Retention Bonus Plan. Such payment will be made
under the terms of Section 7.07 of the Merger Agreement.
(b) With respect to each employee of the Company who (i) has
executed a General Release and Waiver Agreement in connection with the
Western Auto Supply Company Severance Program that became effective on
August 17, 1998 (the "Severance Program") (a copy of such program and
of such release is attached to this Amendment as Schedule 10.09(b));
------------------
(ii) is terminated from the Company or the Surviving Corporation; and
(iii) receives severance benefits under the Severance Program upon his
or her termination of employment, Parent agrees to indemnify the
Advance Indemnified Parties for 50% of the Damages, if any, payable
with respect to all claims and Proceedings described in the General
Release and Waiver Agreement filed by such an employee and arising
from or attributable to events, conduct, or conditions occurring or
existing during the period from and after August 16, 1998 through the
date of the employee's termination of employment other than claims for
severance or retention benefits relating to the Severance and
Retention Materials and Conduct (defined below) (referred to as the
"Severance Indemnity"). The parties agree that Parent shall have no
obligation to indemnify the Advance Indemnified Parties for any
Damages payable with respect to employees who have been offered
comparable positions
7
<PAGE>
or who accept a position with Advance or one of its Affiliates,
including Purchaser or the Surviving Corporation, or Parent or its
Affiliates, or who are for any other reason ineligible for benefits
under the Severance Program at the time of their termination of
employment.
(c) In consideration for Sections 10.09(a) and 10.09(b) above and
without limiting their rights thereunder, Advance, the Company and
their Affiliates hereby waive, and forever discharge the Seller
Indemnified Parties from liability with respect to the Retention Bonus
Plan, each and all of the Retention Bonus Plan Agreements distributed
to or executed by the Company's employees pursuant to the Retention
Bonus Plan (a form of which is attached hereto as Schedule
--------
10.09(c)(i)), the Severance Program, each and all of the Severance
-----------
Agreements distributed to or executed by the Company's employees
pursuant to the Severance Program (a form of which is attached hereto
as Schedule 10.09(c)(ii)), and each and all of the General Release and
----------------------
Waiver Agreement executed pursuant to the Severance Program, the
content of those materials (and any difference in content from that
approved by Advance), and all conduct of Parent, the Company and
Advance, and their Affiliates, relating thereto (all of the foregoing,
the "Severance and Retention Materials and Conduct"), including any
claims for breach of the Merger Agreement on account of the Severance
and Retention Materials and Conduct, any claims under any
circumstances for severance or retention benefits by any employee of
Advance, Purchaser, the Company, the Surviving Corporation or one of
their Affiliates relating to the Severance and Retention Materials and
Conduct, any costs, expenses or damages associated with the voluntary
departure of an employee of the Surviving Corporation or its
Affiliates after the Closing, any claims relating to language in the
various tiers of the Retention Bonus Plan providing that Associates
who accept a position with Advance Auto Parts will receive one hundred
percent (100%) of their accrued Retention Bonus payable within thirty
(30) days of the date of their transfer to Advance Auto Parts, and
without limitation from any and all Damages, whether known or unknown
at this time, arising out of, or connected with the Severance and
Retention Materials and Conduct, including all matters in law, in
equity, in contract, or in tort, or pursuant to statute. The foregoing
release shall not be in derogation of Parent's obligations under
Section 7.07(a)."
8
<PAGE>
12. New Section 12.02(c). The following is added as a new Section
--------------------
12.02(c):
"(c) Advance, Purchaser, the Company and their Affiliates hereby
release and forever discharge the Seller Indemnified Parties from all
actions, causes of action, suit, debts, claims and demands that arise
out of or are connected with the following acts, events, conditions or
omissions:
i) any alleged breach under the Merger Agreement relating to the
failure to disclose that the Company did not pay to Parent
interchange fees which were charged to Western Auto dealers with
respect to Sears credit card sales;
ii) any breach under the Merger Agreement relating to the failure to
disclose on Schedule 4.17 of the Seller Disclosure Memorandum
-------------
any items not currently reflected thereon; provided,
--------
notwithstanding this release, that the Advanced Indemnified
Parties shall be indemnified for any and all such items as set
forth in Section 11.09;
iii) any breach under the Merger Agreement relating to the failure to
disclose as of August 16, 1998 that the Company and its
Affiliates are subject to the orders and requirements relating
to the orders described in Schedule 4.08(c); provided,
---------------- --------
notwithstanding this release, that the Advance Indemnified
Parties shall be indemnified with respect to all such orders as
set forth in Section 10.01(k); and
iv) any failure to disclose the loss of income relating to the Tire
Store properties or leases described in Schedule 7.01(a)(i) of
----------------
the Seller Disclosure Memorandum, including the loss of any
rental income or proceeds from the sale thereof."
13. Section 11.12. The second sentence of Section 11.12 of the Agreement
is amended to provide that Parent shall deliver Internal Revenue Service Form
8023 to Advance with Sections 3a through 8h and 11a through 11g completed and
signed by Parent within 30 days after Seller and Purchaser have agreed to the
Allocation Schedule to be prepared in accordance with Section 11.06 of the
Agreement.
9
<PAGE>
14. Mutual Release Not Applicable. Section 7.21 is hereby added to the
-----------------------------
list of Sections and Articles covered by the "Except as provided in" language in
the first sentence of Section 12.02(a).
15. Section 10.01(c). Section 10.01(c) is amended to add, at the end of
----------------
the clause, "or which results from deferred compensation liability to Thomas J.
Augaitis, John H. Kamlowsky III, Rick Kyre or Brian H. Sexton."
16. Company Second Fiscal Quarter. All references in the Merger Agreement
-----------------------------
and the Schedules and Exhibits thereto intended to refer to the last day of the
Company's second fiscal quarter in 1998 shall be deemed to read July 4, 1998
instead of June 30, 1998.
17. Amendment. Except as affected by this Amendment, the Merger Agreement
---------
is unchanged and continues in full force and effect. All references to the
Merger Agreement shall refer to the Merger Agreement as amended by this
Amendment. This Amendment shall be binding upon and inure to the benefit of each
of the undersigned and their respective successors and permitted assigns.
18. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same Amendment.
19. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
10
<PAGE>
Each of the parties to this Agreement has caused this Agreement to be
executed as of the date first above written.
SEARS, ROEBUCK AND CO.
By: /s/ Sue Field
---------------------------------------
Name: Sue Field
Title:
WESTERN AUTO HOLDING CO.
By: /s/ Sue Field
---------------------------------------
Name: Sue Field
Title:
WESTERN AUTO SUPPLY COMPANY
By: /s/ Sue Field
---------------------------------------
Name: Sue Field
Title:
ADVANCE ACQUISITION CORPORATION
By: /s/ J. O'Neil Leftwich
---------------------------------------
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
ADVANCE HOLDING CORPORATION
By: /s/ J. O'Neil Leftwich
---------------------------------------
Name: J. O'Neil Leftwich
Title: Senior Vice President and Chief
Financial Officer
ADVANCE STORES COMPANY, INCORPORATED
By: /s/ J. O'Neil Lefwich
---------------------------------------
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
11
<PAGE>
For purposes of Sections 2.07, 2.09(a), 2.09(f), 12.04
and Article VI hereof only:
INVESTORS
FS EQUITY PARTNERS IV, L.P.
By: FS Capital Partners, LLC
Its: General Partner
By: /s/ Mark Doran
--------------
Name: Mark Doran
Title:
RIPPLEWOOD PARTNERS, L.P.
By: /s/ John R. Duryea
-----------------------------------------------
Its:________________________________________________
RIPPLEWOOD ADVANCE AUTO PARTS EMPLOYEE FUND I L.L.C.
By: /s/ John R. Duryea
------------------------------------------------
Its:_________________________________________________
THE ARTHUR TAUBMAN TRUST
DATED JULY 13, 1964
By: /s/ Eugenie L. Taubman
------------------------------------------------
Its: Trustee
NICHOLAS F. TAUBMAN
/s/ Nicholas F. Taubman
-----------------------------------------------------
12
<PAGE>
EXHIBIT 4.3
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
November 2, 1998, 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.
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.
<PAGE>
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.
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: November 2, 1998 WESTERN AUTO SUPPLY COMPANY
By: /s/ J. O'Neil Leftwich
------------------------------
J. O'Neil Leftwich
Senior Vice President and
Chief Financial Officer
Dated: November 2, 1998 UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By: /s/ Louis P. Young
------------------------------
Name: Louis P. Young
Title: Vice President
3
<PAGE>
EXHIBIT 10.31
AMENDED AND RESTATED
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,
THE ARTHUR TAUBMAN TRUST DATED JULY 13, 1964,
WA HOLDING CO.
AND
ADVANCE HOLDING CORPORATION
November 2, 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......................................................... 5
2.5 Termination and Assignment............................................. 6
3. Transfer of Shares by FS Stockholder, Sears 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........................................................... 10
3.5 Termination and Assignment............................................. 11
4. Obligation to Sell Securities............................................... 12
4.1 Sale Obligation........................................................ 12
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................................................... 16
5.3 Termination and Assignment............................................. 19
5.4 Taubman Option and Option Shares....................................... 19
6. Registration Rights; Acquisitions of Common Stock. ......................... 19
6.1 Registration Rights. .................................................. 19
6.2 Acquisition of Common Stock. .......................................... 20
7. Representation on the Board of Directors ................................... 20
7.1 The Board ............................................................. 20
7.2 Approval Right ........................................................ 21
7.3 Certain Actions of the Board .......................................... 22
7.4 Termination and Assignment ............................................ 25
8. Certain Covenants of the Company ......................................... 25
8.1 Audited Financial Statements ........................................ 25
8.2 Other Financial Information ........................................ 25
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
Page
<S> <C>
9. Copy of Agreement ...................................................... 26
10. Governing Law .......................................................... 26
11. Representations and Warranties ......................................... 26
12. Amendment and Waiver; Successors; After Acquired Shares ................ 26
13. Interpretation ......................................................... 27
14. Notices ................................................................ 27
15. Legends ................................................................ 27
16. Further Assurances ..................................................... 28
17. Injunctive Relief; Disputes ............................................ 28
18. Severability ........................................................... 29
19. Entire Agreement ....................................................... 29
20. Counterparts ........................................................... 29
||
SCHEDULE 1 Ownership of Capital Stock by Stockholders Upon Consummation
of Transactions Contemplated by Merger Agreement ............... 32
EXHIBIT A Terms of the Registration Rights of the Common Stock .......... A-1
EXHIBIT B Irrevocable Proxy ............................................. B-1
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement") is made
and entered into as of November 2, 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"), 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") and WA Holding Co., a Delaware corporation (the "Sears
Stockholder").
RECITALS
A. The Existing Stockholders, the FS Stockholder, Ripplewood Stockholder
and the Company entered into this Agreement effective as of April 15, 1998, to
establish certain rights, obligations and restrictions with respect to the
securities of the Company owned by them.
B. Pursuant to an Agreement and Plan of Merger dated as of August 16,
1998, by and among Sears, Roebuck and Co., the Sears Stockholder, the Company,
Western Auto Supply Company, Advance Acquisition Corporation ("Newco"), Advance
Stores Company, Incorporated and certain stockholders of the Company, (i)
Western Auto Supply Company will merge with and into Newco with Newco as the
surviving corporation, and in partial consideration for the shares of Western
Auto Supply Company converted as a result of said merger Sears Stockholder will
receive from Newco that number of shares of Common Stock of the Company shown on
Schedule 1 to this Agreement and (ii) FS Stockholder, Ripplewood Stockholder and
Existing Stockholder will purchase additional shares of Common Stock of the
Company so that their total ownership of the Common Stock will be as shown on
Schedule 1 hereto.
C. In connection with the transactions contemplated by the Merger
Agreement, and as a condition to consummation of the transactions contemplated
thereby, the parties wish to amend and restate this Agreement to add Sears
Stockholder as a party and to further establish certain rights, obligations and
restrictions with respect to the securities of the Company.
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:
<PAGE>
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 a Stockholder or its Affiliates own debt
Securities being exchanged, all other Stockholders owning such debt securities
being exchanged shall have the right to participate in such exchange on the same
terms as the other Stockholders or their 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 any Stockholder or any of its
Affiliates are participating in or providing such financing, that the other
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
Shares. Notwithstanding the foregoing, if Securities are issued to any
Stockholder(s) to finance an acquisition, such Securities shall be Additional
Securities.
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, supplying a dealer network with
automotive parts and accessories, or 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.
2
<PAGE>
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: Mark J. Doran, Bradford M. Freeman, Todd W. Halloran,
-------------
J. Frederick Simmons, Ronald P. Spogli, Jon D. Ralph, John M. Roth, Charles P.
Rullman, Jr. and William M. Wardlaw.
Initial Shares: Shall mean the 27,436,318 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.
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
corporation, 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 or (iv)
with respect to Stockholder, includes Sears, Roebuck and Co. or any controlled
Affiliate thereof, (x) with respect to the FS Stockholder, for the period ending
one year from the date of this Agreement, any institutional investor, merchant
banking firm, or institutional limited partner of an FS Stockholder who
purchases shares 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 25% 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 Sears
Stockholder, 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 in this Agreement upon such Unaffiliated Permitted
Transferee, (y) with respect to the Trust, the beneficiaries of the Trust (the
"Trust Transferees"), subject to Section 5.1, 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
3
<PAGE>
spouse or described relatives and provided, in 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. No person shall be deemed a
Permitted Transferee if a transfer to such person would be an event defined as a
"change of control" in either the indenture governing the Company's Senior
Discount Debentures or the indenture governing Advance Stores Company,
Incorporated's Subordinated Debentures, each as in existence on the date hereof
and to the extent the same remain in effect (a "Change in Control Event").
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 Sears 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
4
<PAGE>
such Person.
Taubman Option: The options to purchase 500,000 shares of Common
--------------
Stock as described in the option agreements dated as of April 15, 1998 ("Option
Agreements") issued one-half to Nicholas F. Taubman and one-half to the Trust by
the Company, as described in the Option Agreements.
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, or non-voting
securities convertible into, 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:
a. 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.
b. 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
5
<PAGE>
Securities owned by the party or parties who elect to
purchase such unsubscribed for portion) if oversubscribed.
c. 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.
d. 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.
e. 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 such
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 Stockholders' options to acquire Voting
Securities under the Taubman Option and as appropriately
adjusted for any stock split, recapitalization or similar
transaction) held by such Stockholder on the date hereof
other than transfers to a Permitted Transferee or permitted
assignee. For purposes of the immediately preceding sentence
(i) Ripplewood Partners and Ripplewood Employee Fund shall
be deemed to be one Stockholder and (ii) the Existing
Stockholders shall be deemed to be one Stockholder. 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
6
<PAGE>
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, Sears Stockholder or
----------------------------------------------------------
Ripplewood Stockholder; Rights of Inclusion.
-------------------------------------------
a. Right of Inclusion.
------------------
i. 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 Sears Stockholder, 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 Sears Stockholder, the Ripplewood
Stockholder and such Existing Stockholder as is determined in
accordance with Subsection 3.3 of this Section 3; provided,
--------
however, that the Sears Stockholder, 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) prior to one
year after the date hereof if after such Transfer, FS Stockholder
would own less than 25% 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 in
a transaction constituting either (x) a distribution or (y) on
isolated sale of less than 5% of the Common Stock for employment
incentive purposes.
ii. The Sears 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 FS Stockholder, 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 FS Stockholder, the Ripplewood
Stockholder and such Existing Stockholder as is determined in
accordance with Subsection 3.3 of this Section 3; provided,
--------
7
<PAGE>
however, that the FS Stockholder, the Ripplewood Stockholder and
-------
the Existing Stockholders shall have no rights pursuant to this
Section 3 with respect to Transfers by the Sears Stockholder or a
Permitted Transferee of the Sears Stockholder of Common Stock to
any Permitted Transferee of the Sears Stockholder or Permitted
Transferees of such Permitted Transferee.
iii. 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
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(c), the Existing
Stockholders and Sears Stockholder shall thereupon have the
rights described in Section 3.1(a).
b. Third-Party Offer.
-----------------
i. Prior to the consummation of any sale of all or any portion
of the shares of Common Stock held by the Sears Stockholder or FS
Stockholder ("Selling Stockholder") to a Third Party, the Selling
Stockholder shall cause each bona fide offer from such Third
Party to purchase such shares from the Selling 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
Stockholders holding rights under Section 3.1 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 Selling 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
Selling 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 Selling
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
8
<PAGE>
Selling 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 Selling 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 Selling 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 Selling 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 Selling
Stockholder to facilitate the sale), the participating
Stockholders shall furnish to the Selling 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 Selling 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.
ii. 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 (with a copy to Sears
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
9
<PAGE>
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 Ripplewood 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, including any shares
sold by other Stockholders exercising rights under Section
3.1(a), 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
10
<PAGE>
cooperate with all Stockholders to facilitate the transaction.
The fact that other Shareholders will have Tag-Along Rights upon
an exercise of the FS Stockholders' Tag-Along Rights hereunder
shall not result in an extension of any time periods specified in
this Section 3.2(b).
c. Allocation of Included Shares. The maximum number of
-----------------------------
shares of Common Stock that may be sold by FS Stockholder,
Sears 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 the FS
Stockholder, Sears Stockholder or Ripplewood Stockholder
pursuant to written agreements by and between the FS
Stockholder, the Sears 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 number
of shares of Common Stock owned by the FS Stockholder, the
Sears Stockholder, the Ripplewood Stockholder, 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 all of the FS
Stockholder, the Sears 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 Sears 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 other 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
11
<PAGE>
shall be allocated among such other holders on a pro rata
basis based upon the 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. The Stockholders shall use reasonable
best efforts to cause the Company to amend existing
agreements under the Company's stock plans for management,
and adopt new forms of agreements, so that Management
Stockholders having Tag-Along Rights can exercise such
rights in a sale either by FS Stockholder or Sears
Stockholder.
d. Consummation. The Sears Stockholder, 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 Sears Stockholder, 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 Sears Stockholder, 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 Sears Stockholder, FS Stockholder or
Ripplewood Stockholder, as the case may be, but which are
acceptable to the Sears Stockholder, FS Stockholder or
Ripplewood Stockholder, as the case may be, the Sears
Stockholder, 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 reduce the number of shares of Common
Stock it will sell to such Third Party as previously
indicated in the applicable Acceptance Notice and
12
<PAGE>
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 Sears Stockholder, FS Stockholder or
Ripplewood Stockholder, as the case may be, the Sears
Stockholder, 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 Sears Stockholder, 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 Sears Stockholder, 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 or Sears 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 Sears Stockholder, the Ripplewood Stockholder
or the FS Stockholder, of the pro rata portion (based on the
number of shares of Common Stock included by each
Stockholder compared to the aggregate number of shares of
Common Stock included in such sale) of the reasonable
out-of-pocket expenses incurred in connection with a sale
consummated pursuant to this Section 3. The Sears
Stockholder, FS Stockholder or Ripplewood Stockholder shall
furnish, or shall cause to be furnished, such other evidence
of the completion and time of
13
<PAGE>
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 Sears Stockholder, 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 Sears Stockholder, FS
Stockholder or Ripplewood Stockholder, as the case may be,
has not completed the sale contemplated thereby, the Sears
Stockholder, 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.
e. 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. Any Permitted Transferee of the Sears
Stockholder shall agree to be bound by this Section 3 to the
same extent as the Sears Stockholder. The obligations of the
FS Stockholder, Sears Stockholder and the Ripplewood
Stockholder and any Permitted Transferee or assignee
pursuant to the provisions of this 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 its stockholders or
the limited or general partners or employees of such holder
or their Affiliates. The rights granted to the Stockholders
pursuant to this Section 3 may not be assigned, except that
these rights shall inure to the benefit of a Permitted
Transferee of a Stockholder (and its Permitted Transferees)
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 Stockholder, and such rights
shall be further assignable to any purchaser of more than
50% of the shares of such transferee. No additional Tag-
Along Rights shall be granted without the approval of the
Company's Board of Directors and no such grant may be a Tag-
Along Right on sales by a specific Stockholder without its
consent, or a grant that would prevent a
14
<PAGE>
Stockholder from participating pro rata in a sale in which
it could exercise Tag-Along Rights. Nothing in this section
shall be construed as granting rights of inclusion in any
Public Market Sale.
4. Obligation to Sell Securities.
-----------------------------
a. Sale Obligation. From and after April 1, 2000, or
---------------
earlier if consented to by Sears Stockholder, 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 and
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
transaction) of the reasonable out-of-pocket expenses
incurred by the FS Stockholder in connection with a sale
consummated pursuant to this Section 4.
15
<PAGE>
b. 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(c). 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) that holds after such purchase more than
25% of the outstanding Common Stock or to a Permitted
Transferee of all of
16
<PAGE>
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 20% 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.
-------------------------------------------------------------
a. Transfer Restrictions.
---------------------
i. Transfer Restrictions Binding Existing Stockholders. No
---------------------------------------------------
Existing Stockholder shall, without the prior written approval of
FS Stockholder, Transfer any shares of Common Stock or any right,
title or interest therein except in a manner in compliance with
this Agreement, including (without limitation) Subsection 5.2; or
(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) ((i) and (ii) collectively, the "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
(other than to a Permitted Transferee, provided the documents
enumerated in clauses (i) - (iii) below are delivered), or any
right, title or interest therein, until after April 1, 2000 (the
"Permitted Transfer Date") or, if earlier, upon consummation of
an Initial Public Offering by the Company, 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
17
<PAGE>
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.
ii. 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. No Transfer shall be
effective which would cause a Change in Control Event. 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 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.
iii. Repurchase Option. If Voting Securities held by a Trust
-----------------
18
<PAGE>
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.
iv. Transfer Restrictions Binding Ripplewood Stockholder. The
----------------------------------------------------
Ripplewood Stockholder shall not, without the prior written
approval of FS Stockholder, Transfer any shares of Common Stock
or any right, title or interest therein except in a manner in
compliance with this Agreement, including (without limitation)
Subsection 5.2; or: (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 5.1; (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 (other than to its Permitted Transferee or as
expressly permitted by and in compliance with this Agreement)
until April 1, 2000, or if earlier, upon consummation of an
Initial Public Offering by the Company.
v. 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 pledgee agreeing to sell the shares
of Common Stock, the pledgee shall give written
19
<PAGE>
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 pledgee for such 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 pledgee of shares of Common Stock shall be
bound by Section 4 of this Agreement during such time it may hold shares of
Common Stock.
vi. Transfer Restrictions Binding Sears Stockholder. The
-----------------------------------------------
Sears Stockholder shall not, without the prior written approval
of FS Stockholder: (i) pledge, hypothecate or encumber any shares
of Common Stock; (ii) Transfer any shares of Common Stock, or any
right, title or interest therein, unless such Transfer is in
compliance with the Securities Act and all applicable State
Securities laws and in a manner in compliance with this
Agreement, including (without limitation) subsection 5.2; or
(iii) Transfer any shares of Common Stock, or any right, title or
interest therein (other than to its Permitted Transferee as is
expressly permitted by and in compliance with this Agreement)
until April 1, 2000, or if earlier, upon consummation of an
Initial Public Offering by the Company.
vii. Transfer Restrictions Binding FS Stockholder. The FS
--------------------------------------------
not, without the prior written approval of Sears Stockholder: (i)
pledge, hypothecate or encumber any shares of Common Stock; (ii)
Transfer any shares of Common Stock, or any right, title or
interest therein, unless such Transfer is in compliance with the
Securities Act and all applicable State Securities laws and in a
manner in compliance with this Agreement including (without
limitation) subsection 5.2; or (iii) Transfer any shares of
Common Stock, or any right, title or interest therein (other than
to its Permitted Transferees as expressly permitted by and in
compliance with this Agreement) until April 1, 2000, or, if
earlier,
20
<PAGE>
upon consummation of an Initial Public Offering by the Company.
b. Right of First Offer.
--------------------
i. First Offer by Existing Stockholder. Except in the case of
-----------------------------------
a transaction governed by Section 7.3(g) each of the Existing
Stockholders hereby agrees not to Transfer, prior to April 15,
2001, or until an Initial Public Offering, if earlier, any of the
shares of Common Stock or the Taubman Option held by it to any
Person (other than its Permitted Transferees) unless FS
Stockholder and Sears Stockholder, pro rata based on such
stockholder's then-current ownership of Common Stock (or any
third person(s) designated by FS Stockholder or Sears
Stockholder, as the case may be, which may include their
Affiliates 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.
ii. First Offer by Ripplewood Stockholder. Except in the case
-------------------------------------
of a transaction governed by Section 5.1(d) and (e) or 7.3(g) the
Ripplewood Stockholder agrees not to Transfer, until an Initial
Public Offering, any of the shares of Common Stock held by it to
any Person (other than its Permitted Transferees) unless FS
Stockholder and Sears Stockholder, pro rata based on such
Stockholder's then-current ownership of Common Stock (or any
third person(s) designated by FS Stockholder or Sears
Stockholder, as the case may be, which may include their
Affiliates or the Company) is given the right to acquire such
shares of Common Stock pursuant to the provisions of this
Subsection 5.2.
iii. First Offer by FS Stockholder. Except in the case of a
-----------------------------
transaction governed by Section 5.1(f) or 7.3(g), the FS
Stockholder agrees not to Transfer, until consummation of an
Initial Public Offering by the Company, any of the shares of
Common Stock held by it to any Person (other than its Permitted
Transferees) unless the Sears Stockholder (or any third person(s)
designated by Sears Stockholder, which may include Affiliates of
Sears Stockholder or the Company) is given the right to acquire
such shares of Common Stock pursuant to the provisions of
Subsection 5.2(e).
iv. First Offer by Sears Stockholder. Except in the case of a
--------------------------------
21
<PAGE>
transaction governed by Section 5.1(g) or 7.3(g), the Sears
Stockholder agrees not to Transfer, until consummation of an
Initial Public Offering by the Company, any of the shares of
Common Stock held by it to any person (other than a Permitted
Transferee) unless the FS Shareholder (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 Subsection
5.2(e).
v. First Offer Provisions. If a Stockholder while subject to
----------------------
the provisions of this Section 5.2 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 Offering Stockholder shall first give each other
Stockholder having rights with respect to the shares of Common
Stock held by such Offering Stockholder under this Subsection 5.2
(the "Offeree") 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 Stockholder would entertain for the shares of
Common Stock to be sold (the "Offered Securities"). The Offeree
(or its designee) shall have the right for a period of 20 days
following the delivery of the Stockholder Notice (the "Acceptance
Period") (provided, that if more than one Stockholder is an
--------
Offeree, the Acceptance Period shall be shortened to 15 days, and
if any Offeree declines to exercise its rights with respect to
the Stockholder Notice, those Offerees exercising their rights
may, by giving a written notice by the 20th day after the
Stockholder's Notice, purchase all, but not less than all, of the
portion of the shares of Common Stock not accepted by the
declining Offeree (the "Take-Up Right"), pro rata based on such
electing Offerees ownership of Common Stock) 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 Offeree (or its designee) shall exercise
its rights under this Section 5.2 by delivering to such Offering
Stockholder an irrevocable written notice of its election prior
to 2:00 p.m. Los Angeles time on the final day of the Acceptance
Period. If the Offeree (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 Offeree (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 Offering Stockholder shall have
the right (without limitation to other rights it may have) to
22
<PAGE>
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, provided, that if necessary in
order to receive approval of such sale under antitrust laws, the
Purchase Period Consummation Period may be extended for a
reasonable period by written notice to the Stockholders. If such
Offering Stockholder does not complete such sale, transfer or
conveyance within the Consummation Period, such Offering
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 Offering Stockholder intends to
sell the Offered Securities for consideration other than cash,
such Offering Stockholder shall notify the Offeree (or its
designee) of the terms and value of such non-cash consideration.
The Offeree (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 Offeree and Offering
Stockholder) 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 Offeree (or its designee) pursuant to this Subsection
5.2, the Offeree (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
Offering Stockholder receives a written offer for the Offered
Securities at any time during the Consummation Period which is
acceptable to such Offering Stockholder but is less than the
Target Price or is upon terms materially less favorable to such
Offering Stockholder than the terms provided to the Offeree (or
its designee) in the Stockholder Notice (the "Below Target Price
Offer"), such Stockholder shall promptly deliver a copy of such
written offer to the Offeree (or its designee). During the 20-day
period following delivery of such written offer (which period
shall be 15 days in the event there is more than one Offeree, and
such Offerees shall have a Take-Up Right), the Offeree (or its
designee) shall have the right to accept the offer to purchase
the Offered Securities on the terms reflected in such written
offer. The Offeree (or its designee)
23
<PAGE>
shall, if it so desires, exercise such right by delivery to such
Offering 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 (or 15 day period, as the case may be) and the sale of the
Offered Securities shall be consummated within 60 days of the
delivery of such written notice, provided, that if necessary in
order to obtain approval of such sale under antitrust laws, such
60-day period may be extended for a reasonable period by written
notice to the Stockholders. If the Offeree (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 of the Offered Securities within 60 days of the date
of the Offeree's (or its designee's) acceptance of the Below
Target Price Offer, such 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 Stockholder than
the price and terms specified in the written offer delivered to
the Offeree (or its designee), provided, that if necessary in
order to receive approval of such sale under antitrust laws, the
135-day period may be extended for a reasonable period by written
notice to the Stockholders. 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. Any sale consummated will be
subject to Section 3.1 hereof to the extent applicable.
c. Termination and Assignment. The rights granted to
--------------------------
Sears Stockholder and FS Stockholder under Subsection 5.2
shall be assignable to their 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 then held by
the FS Stockholder or Sears Stockholder. Any transferee of
shares of Common Stock from a Stockholder, other than a
purchaser of shares in a Public Market Sale or any
subsequent transferee thereof, shall be bound by the
provisions of this Section 5 and each Stockholder completing
a Transfer shall obtain and deliver to each other
Stockholder a written commitment by such transferee to be
bound by such provisions prior to any Transfer. Neither the
Ripplewood Stockholder nor the Existing Stockholder need
make a first offer if the Stockholders to whom such an offer
would be made own in the aggregate less than the lesser of
(i) 40% of the shares of Common Stock or (ii) 1.5 times the
number of shares owned by such
24
<PAGE>
offering Stockholder.
d. 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 (subject
to appropriate adjustment to take account of the exercise
price thereof).
6. Registration Rights; Acquisitions of Common Stock.
-------------------------------------------------
a. Registration Rights. FS Stockholder, the Sears
-------------------
Stockholder, 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 6.1 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).
b. Acquisition of Common Stock. After consummation of
---------------------------
an Initial Public Offering, no Stockholder shall purchase or
permit its Affiliates to purchase or otherwise acquire, or
agree or offer to purchase or otherwise acquire (subject, in
the case of the Trust, to Section 5.1(a)), beneficial
ownership of additional shares of Common Stock or
Securities.
7. Representation on the Board of Directors.
----------------------------------------
a. The Board. 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
25
<PAGE>
being elected to fill positions on the Board, the FS
Stockholder, the Sears 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) three
(3) candidates nominated by FS Stockholder, (ii) Mr. Taubman
or, in the event of his death or disability, his
representative designated in writing, (iii) one (1)
candidate nominated by the Ripplewood Stockholder, (iv) the
Chief Executive Officer of the Company and (v) three (3)
candidates nominated by the Sears Stockholder shall be
elected to fill and continue to hold positions on the Board.
Prior to an Initial Public Offering by the Company, the FS Stockholder
may require the Board to nominate, and the Stockholders to vote their shares in
favor of electing, up to two (2) independent members of the Board of Directors
(such persons being mutually acceptable to FS Stockholder and Sears
Stockholder), and each Stockholder shall take all actions necessary in
connection therewith. Upon consummation of an Initial Public Offering by the
Company, or as soon as practicable thereafter, the Company shall have at least
two (2) independent members of the Board of Directors (such persons being
mutually acceptable to FS Stockholder and Sears Stockholder), as may be required
by applicable law or stock exchange requirements or by the National Association
of Securities Dealers or underwriters in connection with the Initial Public
Offering, and each Stockholder shall 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. The Board of Directors shall have no fewer than
nine (9) and no more than eleven (11) directors and the Stockholders shall vote
to have the Bylaws provide that the Company shall have no fewer than nine (9)
nor more than eleven (11) directors. Notwithstanding the preceding sentence, in
the event of an acquisition by the Company where more than 10% of the Voting
Securities are issued to the seller, and as an important element of the
transaction additional Board seats are required (an "Acquisition Event"), the
Stockholders will use reasonable best efforts to make such Board seats available
including, without limitation, taking all necessary actions to amend this
Agreement and the Bylaws and cause their respective nominees to the Board to
approve an increase in the size of the Board, necessary amendments to this
Agreement, and the election of new members of the Board.
Notwithstanding any other provisions of this Section 7.1: (i) at such
time as either of the FS Stockholder or the Sears Stockholder (including, in
each case, their Permitted Transferees) have sold more than one-third but less
than two-thirds of their Initial Shares, the FS Stockholder or the Sears
Stockholder, as the case may be, shall be entitled to designate no more than two
(2) members of the Board; (ii) at such time as either of the FS Stockholder or
the Sears Stockholder (including, in each case, their Permitted Transferees)
have sold two-thirds or more of their Initial Shares, the FS Stockholder or the
Sears Stockholder, as the case may be, shall be entitled to designate no more
than one (1) member of the Board; and (iii) at such time as
26
<PAGE>
FS Stockholder or Sears Stockholder shall own less than 5% of the Common Stock,
such Stockholder's right to designate members of the Board shall terminate.
Sales to Permitted Transferees will not cause a reduction in rights under this
Section 7.1.
If, at any time from and after the date hereof until a Board Rights
Termination Event, a Stockholder shall give notice of its desire to remove any
director previously nominated by that party to serve on the Board, the
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 a Board Rights Termination Event any director
previously nominated by FS Stockholder, Sears 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), Sears Stockholder, 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 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 previously granted.
The irrevocable proxy shall be transferable to any Permitted Transferee (other
than Unaffiliated Permitted Transferees) 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 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.
b. Approval Right. Notwithstanding any other
--------------
provision of this Agreement to the contrary, until
April 15, 2001, 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 and Sears
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.
27
<PAGE>
c. Certain Actions of the Board.
----------------------------
i. 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 a
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, or the Sears 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, 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), and this Agreement and the Bylaws may be
amended pursuant to Section 7.1 with respect to an Acquisition
Event.
ii. 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 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
28
<PAGE>
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.
iii. 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, 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), and this Agreement and the Bylaws may be
amended pursuant to Section 7.1 with respect to an Acquisition
Event.
iv. 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
29
<PAGE>
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 Section 7.3(d), (ii) the Ripplewood Director shall exercise his or
her right to abstain pursuant to the last sentence of Section 7.3(d), or (iii)
Section 7.3(d) shall be determined (other than at the instance of the FS
Stockholder or its affiliates) to be invalid, illegal or unenforceable in whole
or in part in any respect, or the Ripplewood Director, Ripplewood Stockholder 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.
v. Without the affirmative approval of a majority of the
directors nominated by the FS Stockholder, the Company shall not
(i) enter into any transaction or series of related transactions
with any Affiliates of the Sears 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; (ii) execute any
amendment to the Articles of Incorporation or the Bylaws of the
Company, which would adversely affect the rights and obligations
of the FS Stockholder thereunder, except for amendments which are
applicable to holders of Voting Securities generally and do not
disproportionately disadvantage the FS Stockholder; (iii) execute
any amendment to the Articles of Incorporation or Bylaws having
the effect of creating super majority voting requirements for
meetings or consents of stockholders or directors; or (iv)
execute any amendment to this Agreement which adversely affects
the rights and obligations of the FS Stockholder and its
Permitted Transferees and representatives, provided that this
Agreement may be amended to add new parties hereto who are
purchasers of
30
<PAGE>
Securities (including an amendment granting additional
registration rights to such purchasers on terms permitted
hereunder), and this Agreement and the Bylaws may be amended
pursuant to Section 7.1 with respect to an Acquisition Event.
vi. Without the approval of a majority of the directors
nominated by the Sears 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; (ii) execute any
amendment to the Articles of Incorporation or the Bylaws of the
Company, which would adversely affect the rights and obligations
of the Sears Stockholder thereunder, except for amendments which
are applicable to holders of Voting Securities generally and do
not disproportionately disadvantage the Sears Stockholder; (iii)
execute any amendment to the Articles of Incorporation or Bylaws
having the effect of creating super majority voting requirements
for meetings or consents of stockholders or directors; or (iv)
execute any amendment to this Agreement which adversely affects
the rights and obligations of the Sears Stockholder and its
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), and this Agreement and the Bylaws may be
amended pursuant to Section 7.1 with respect to an Acquisition
Event.
vii. Subject to Sections 7.2 and 7.3(a) if, after a meeting of
the Board of Directors duly called and noticed (or for which
notice was waived), the Board of Directors approves in good faith
either (i) a sale of substantially all of the assets of the
Company or its operating subsidiaries or (ii) a sale of
substantially all of the capital stock of the Company or (iii) a
merger or other business combination transaction in which
substantially all of the shares of capital stock of the Company
will be converted into the right to receive cash or other
securities, then subject to receipt by the Company of an opinion
from a nationally-recognized investment banking firm that the
transaction is fair, from a financial point of view, to the
Company's stockholders, each Stockholder shall vote all of its
shares in favor of such transaction, waive any dissenting rights
it may have in connection with such transaction, execute such
agreements, powers of attorney, voting proxies or other documents
and instruments as may be necessary to consummate such
transaction, and timely take such other actions as the Board of
Directors may reasonably request as necessary in connection with
the approval of or consummation of such transaction. The Company
31
<PAGE>
shall use reasonable best efforts to amend existing agreements under
its stock plans for management, and to adopt new forms of agreements,
so that this Section 7.3(g) will be binding on management stockholders
and option holders. Each Stockholder agrees that no Transfer of its
Securities shall be effective unless the Transferee (other than a
Transferee in a Public Market Sale) agrees to be bound by this Section
7.3(g). The provisions of this Section 7.3(g) shall terminate at such
time as the Stockholders (including any additional parties hereto) no
longer are designating or have the right to designate a majority of
the members of the Board of Directors.
d. Termination and Assignment. The rights contained in Section
--------------------------
7.1 shall not be assignable other than by FS Stockholder or Sears
Stockholders to a Permitted Transferee 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 2.5% of the issued and
outstanding shares of Common Stock.
8. Certain Covenants of the Company.
--------------------------------
a. Audited Financial Statements. So long as any Stockholder
----------------------------
owns 5% or more of the Company's Voting Securities, the Board of
Directors shall engage a nationally recognized firm reasonably
acceptable to the FS Stockholder and the Sears Stockholder to
audit the annual financial statements of the Company, and copies
of such audited annual financial statements shall be delivered to
the Stockholders as promptly as possible after completion, and no
more than 90 days after the fiscal year end.
b. Other Financial Information. Within 45 days after the last
---------------------------
day of each fiscal quarter (other than the fourth quarter), the
financial statements of the Company, prepared in accordance with
past practice, for such quarter and for the elapsed portion of
the fiscal year then ended shall be delivered to the
Stockholders. In addition, each Stockholder holding 5% or more
(and, in the case of Mr. Taubman, 2.5% or more) of the Company's
Voting Securities shall be entitled to receive monthly financial
statements and other financial or business information it may
reasonably request regarding the operation of the business.
9. 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
32
<PAGE>
principal executive offices of Company.
10. 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.
11. 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). The execution, delivery and performance of this Agreement
will not violate any trust document establishing or governing the
Trust.
12. Amendment and Waiver; Successors; After Acquired Shares. 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) or in connection with an Acquisition Event,
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 the FS Stockholder and the Sears
Stockholder, the written consent of the Existing Stockholders holding
a majority of the shares of Common Stock then held by the Existing
Stockholders, and to the extent the terms of the specific rights
(including, without limitation, their Registration Rights, board
rights or Tag-Along Rights) of the Ripplewood Stockholder would be
prejudiced thereby, the written consent of 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), provided,
that to the extent either the FS Stockholder or Sears Stockholder or
their respective Permitted Transferees hold less than 10% of Common
Stock, any such amendment shall only require such Stockholder's
written consent if and to the extent the terms of their
33
<PAGE>
respective specific rights (including, without limitation, their
Registration Rights, board rights or Tag-Along Rights) would be
prejudiced thereby. 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. No party hereto nor their Affiliates will take any
action indirectly (such as the sale of a subsidiary) that would
otherwise be prohibited if taken directly by a party. Without the
consent of the other Stockholders holding a majority of the Common
Stock not held by Sears Stockholder, Sears, Roebuck and Co. shall not
transfer any voting equity interest in Sears Stockholder to a non-
Affiliate unless the Securities owned by Sears Stockholder are first
transferred to Sears, Roebuck and Co. or a controlled Affiliate
thereof.
13. 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.
14. 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 its principal business address,
attention Chief Executive Officer, (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; (v) if to the Ripplewood Stockholder at Ripplewood
Holdings L.L.C., 1 Rockefeller Plaza, 32nd Floor, New York, NY 10020,
Attention: John Duryea, facsimile: (212) 582-4110, with a copy to
Debevoise & Plimpton, 875 Third Avenue, New York, NY, Attention:
Robert F. Quaintance, Jr., facsimile (212) 909-6836; and (vi) if to
the Sears Stockholders at Sears, Roebuck and Co., 3333 Beverly Road,
Hoffman Estates, Illinois 60179,
34
<PAGE>
Attention: Assistant General Counsel Corporate and Securities,
facsimile: (847) 286-0959, with a copy to Mayer, Brown & Platt, 190
South LaSalle Street, Chicago, Illinois 60603-3441, Attention Scott J.
Davis, facsimile: (312) 701-7711 (or at such other address or
facsimile 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).
15. Legends. All certificates evidencing shares of Common Stock which
-------
are issued to any of FSEP IV, the Ripplewood Stockholder, the Sears
Stockholder and the Existing Stockholders shall bear the following
legend (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 AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT DATED AS OF _______________, 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 AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED AS OF
__________, 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."
16. 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
35
<PAGE>
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. Each 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 other
Stockholders 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.
17. 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.
18. 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.
19. 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.
20. 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.
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,
36
<PAGE>
Mr. Taubman's rights under Section 7.1 shall survive termination of this
Agreement so long as he shall live.
37
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
ADVANCE HOLDING CORPORATION
By: /s/ J. O'Neil Leftwich
-------------------------------------------------------
Its: Senior Vice President and Chief Financial Officer
----------------------------------------------------
NICHOLAS F. TAUBMAN
/s/ Nicholas F. Taubman
----------------------------------------------------------
THE ARTHUR TAUBMAN TRUST DATED JULY 13, 1964
By: /s/ Eugenie L. Taubman
-------------------------------------------------------
Trustee
RIPPLEWOOD PARTNERS, L.P.
a Delaware limited partnership
By: /s/ John Duryea
--------------------------------------------------------
Its:______________________________________________________
RIPPLEWOOD ADVANCE AUTO PARTS
EMPLOYEE FUND I L.L.C.,
a Delaware limited liability company
By: /s/ John Duryea
-------------------------------------------------------
Its:______________________________________________________
38
<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_____________________________________
WA HOLDING CO., formerly
WESTERN AUTO HOLDING CO.,
a Delaware corporation
By: /s/ Sue Field
-------------------------------------
Its_____________________________________
For purposes of the last sentence of Section 12 only:
SEARS, ROEBUCK AND CO.,
a New York corporation
By: /s/ Sue Field
-------------------------------------
Its _____________________________________
39
<PAGE>
EXHIBIT 10.32
CONFORMED COPY
================================================================================
CREDIT AGREEMENT
dated as of April 15, 1998
as Amended and Restated as of
October 19, 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 Book Manager and Arranger,
DLJ CAPITAL FUNDING, INC.,
as Syndication Agent,
and
FIRST UNION NATIONAL BANK,
as Documentation Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
Definitions
-----------
<S> <C>
SECTION 1.01. Defined Terms.............................................. 1
SECTION 1.02. Classification of Loans and Borrowings..................... 36
SECTION 1.03. Terms Generally............................................ 36
SECTION 1.04. Accounting Terms; GAAP;
Fiscal Month.............................................. 37
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments................................................ 37
SECTION 2.02. Loans and Borrowings....................................... 38
SECTION 2.03. Requests for Borrowings.................................... 39
SECTION 2.04. Swingline Loans............................................ 40
SECTION 2.05. Letters of Credit.......................................... 42
SECTION 2.06. Funding of Borrowings...................................... 48
SECTION 2.07. Interest Elections......................................... 49
SECTION 2.08. Termination and Reduction of Commitments................... 51
SECTION 2.09. Repayment of Loans; Evidence of Debt....................... 52
SECTION 2.10. Amortization of Term Loans................................. 53
SECTION 2.11. Prepayment of Loans........................................ 56
SECTION 2.12. Fees....................................................... 58
SECTION 2.13. Interest................................................... 59
SECTION 2.14. Alternate Rate of Interest................................. 60
SECTION 2.15. Increased Costs............................................ 61
SECTION 2.16. Break Funding Payments..................................... 62
SECTION 2.17. Taxes...................................................... 63
SECTION 2.18. Payments Generally; Pro Rata Treatment;
Sharing of Set-offs....................................... 65
SECTION 2.19. Mitigation Obligations; Replacement of
Lenders................................................... 67
ARTICLE III
Representations and Warranties
------------------------------
SECTION 3.01. Organization; Powers....................................... 68
SECTION 3.02. Authorization; Enforceability.............................. 69
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 3.03. Governmental Approvals; No Conflicts....................... 69
SECTION 3.04. Financial Condition; No Material
Adverse Change............................................ 69
SECTION 3.05. Properties................................................. 70
SECTION 3.06. Litigation and Environmental Matters....................... 71
SECTION 3.07. Compliance with Laws and Agreements........................ 72
SECTION 3.08. Investment and Holding Company
Status.................................................... 72
SECTION 3.09. Taxes...................................................... 72
SECTION 3.10. ERISA...................................................... 72
SECTION 3.11. Disclosure................................................. 73
SECTION 3.12. Subsidiaries............................................... 73
SECTION 3.13. Insurance.................................................. 73
SECTION 3.14. Labor Matters.............................................. 73
SECTION 3.15. Solvency................................................... 74
SECTION 3.16. Senior Indebtedness........................................ 74
SECTION 3.17. Security Documents......................................... 74
SECTION 3.18. Year 2000 Compliance....................................... 76
ARTICLE IV
Conditions
----------
SECTION 4.01. Conditions Precedent to Effectiveness
of Amendment and Making of Deferred
Term Loans................................................ 76
SECTION 4.02. Each Credit Event.......................................... 82
ARTICLE V
Affirmative Covenants
---------------------
SECTION 5.01. Financial Statements and
Other Information......................................... 83
SECTION 5.02. Notices of Material Events................................. 85
SECTION 5.03. Information Regarding Collateral........................... 86
SECTION 5.04. Existence; Conduct of Business............................. 87
SECTION 5.05. Payment of Obligations..................................... 87
SECTION 5.06. Maintenance of Properties.................................. 87
SECTION 5.07. Insurance.................................................. 87
SECTION 5.08. Casualty and Condemnation.................................. 88
SECTION 5.09. Books and Records; Inspection and
Audit Rights.............................................. 89
SECTION 5.10. Compliance with Laws....................................... 90
SECTION 5.11. Use of Proceeds and Letters
of Credit................................................. 90
SECTION 5.12. Additional Subsidiaries.................................... 91
SECTION 5.13. Further Assurances......................................... 91
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 5.14. Collection Deposit Accounts............................... 92
ARTICLE VI
Negative Covenants
------------------
SECTION 6.01. Indebtedness; Certain Equity
Securities............................................... 92
SECTION 6.02. Liens..................................................... 94
SECTION 6.03. Fundamental Changes....................................... 96
SECTION 6.04. Investments, Loans, Advances,
Guarantees and Acquisitions.............................. 97
SECTION 6.05. Asset Sales............................................... 99
SECTION 6.06. Hedging Agreements........................................ 100
SECTION 6.07. Restricted Payments; Certain Payments
of Indebtedness.......................................... 100
SECTION 6.08. Transactions with Affiliates.............................. 103
SECTION 6.09. Restrictive Agreements.................................... 104
SECTION 6.10. Amendment of Material Documents........................... 105
SECTION 6.11. Sale and Lease-Back Transactions.......................... 105
SECTION 6.12. Capital Expenditures...................................... 105
SECTION 6.13. Leverage Ratio............................................ 106
SECTION 6.14. Consolidated Interest Expense
Coverage Ratio........................................... 107
SECTION 6.15. Minimum Retained Cash Earnings............................ 107
SECTION 6.16. Purchase and Sale of Vehicles;
Vehicle Subsidiary....................................... 107
ARTICLE VII
Events of Default
-----------------
ARTICLE VIII
The Administrative Agent
------------------------
ARTICLE IX
Miscellaneous
-------------
SECTION 9.01. Notices................................................... 114
SECTION 9.02. Waivers; Amendments....................................... 115
SECTION 9.03. Expenses; Indemnity; Damage Waiver........................ 117
SECTION 9.04. Successors and Assigns.................................... 119
SECTION 9.05. Survival.................................................. 122
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 9.06. Counterparts; Integration;
Effectiveness............................................ 123
SECTION 9.07. Severability.............................................. 123
SECTION 9.08. Right of Setoff........................................... 123
SECTION 9.09. Governing Law; Jurisdiction; Consent to
Service of Process....................................... 124
SECTION 9.10. WAIVER OF JURY TRIAL...................................... 125
SECTION 9.11. Headings.................................................. 125
SECTION 9.12. Confidentiality........................................... 125
SECTION 9.13. Interest Rate Limitation.................................. 126
SECTION 9.14. Effect of Amendment and Restatement....................... 127
</TABLE>
SCHEDULES:
- ---------
Schedule 1.01(a) -- Adjustments to Adjusted Consolidated Net Income
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
EXHIBITS:
- --------
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
iv
<PAGE>
CREDIT AGREEMENT dated as of April 15, 1998, as amended and
restated as of October 19, 1998, among ADVANCE HOLDING
CORPORATION, ADVANCE STORES COMPANY, INCORPORATED, the LENDERS
party hereto, and THE CHASE MANHATTAN BANK, as Administrative
Agent.
The Borrower (such term and the other capitalized terms used herein
having the meanings hereinafter provided), Holdings, the Administrative Agent
and certain of the Lenders have entered into the Credit Agreement dated as of
April 15, 1998 (as in effect immediately prior to the date hereof, the "Original
Credit Agreement"). The parties hereto desire to amend and restate the Original
Credit Agreement in the form hereof in order to provide for the making of
Deferred Term Loans and to make certain other changes as set forth herein.
Accordingly, 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.
"Acquisition" means the merger of Western Auto Supply Company with and
-----------
into AcquisitionCo in accordance with the Acquisition Merger Agreement, with (a)
AcquisitionCo as the surviving company and continuing to be a wholly-owned
subsidiary of the Borrower and (b) the Seller receiving the Acquisition
Consideration in exchange for all the outstanding shares of capital stock of
Western Auto Supply Company.
"AcquisitionCo" means Advance Acquisition Corporation, a Delaware
-------------
corporation and a wholly owned subsidiary of the Borrower.
"Acquisition Consideration" means the consideration payable to the
-------------------------
Seller pursuant to the Acquisition Merger Agreement, consisting of (a) cash in
an aggregate amount of up to $175,000,000 plus (b) Credit Card
<PAGE>
2
Loss Sharing payments not in excess of $10,000,000 plus (c) additional
consideration in the form of common stock of Holdings.
"Acquisition Documents" means the Acquisition Merger Agreement and all
---------------------
other agreements and documents relating to the Acquisition.
"Acquisition Equity Financing" means the contribution on or prior to
----------------------------
the Amendment Effective Date by the FS&C Investors, Ripplewood and its
Affiliates and Nicholas Taubman and his Affiliates to Holdings of an aggregate
amount, in cash, of no less than $70,000,000, in exchange for common stock of
Holdings.
"Acquisition Expenses" means transition and integration expenses
--------------------
(other than Western Auto Pre-Acquisition Adjustments) of the Borrower and its
Subsidiaries relating to the Acquisition and bonuses paid for management and
other employees of the Borrower and its Subsidiaries (including the Subsidiaries
acquired in the Acquisition) in connection with the Acquisition.
"Acquisition Merger Agreement" means the Agreement and Plan of Merger
----------------------------
dated as of August 16, 1998 among Sears, Roebuck and Co., Western Auto Holding
Co., Holdings, the Borrower, Western Auto Supply Company, AcquisitionCo and
certain stockholders of Holdings.
"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
<PAGE>
3
Debentures), then such taxes or other expenses shall be deducted in determining
Adjusted Consolidated Net Income to the extent not otherwise deducted from the
calculation of Adjusted Consolidated Net Income as though such taxes or other
expenses had been incurred by the Borrower directly; provided further that,
----------------
except for the purposes of calculating the Applicable Rate, Consolidated Net
Income shall be determined (i) on a pro forma basis to give effect to the
Acquisition, any Permitted Acquisitions and any divestitures by the Borrower or
any Subsidiary of all or substantially all the assets of, or all the shares of
capital stock of or other equity interests in, a Person or division or line of
business of a Person occurring during such period as if such transactions had
occurred on the first day of such period and (ii) to exclude (A) Western Auto
Pre-Acquisition Adjustments, (B) Acquisition Expenses incurred on or prior to
December 30, 2000 in an aggregate amount not to exceed (1) $27,500,000 for all
such Acquisition Expenses incurred in the period from and including the
Amendment Effective Date to and including January 1, 2000 and (2) $9,100,000 for
all such Acquisition Expenses incurred in the fiscal year ending December 30,
2000, (C) reserves for Store closings relating to the Acquisition taken in the
period from the Amendment Effective Date to and including January 1, 2000 in an
aggregate amount not to exceed $15,000,000 and (D) to the extent not included in
Excluded Charges, private company expenses incurred in the first quarter of 1998
in an aggregate amount not to exceed $900,000.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing
------------------
for any Interest Period, an interest 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
<PAGE>
4
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.
"Amendment Effective Date" means the date on which the conditions
------------------------
specified in Section 4.01 are satisfied (or waived in accordance with Section
9.02).
"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, (b) with respect to any Deferred Term
Loan, the applicable Deferred Term Rate and (c) 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 four full fiscal
quarters commencing with the fiscal quarter ended April 25,
<PAGE>
5
1998, 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>
6
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>
7
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
<PAGE>
8
of any shares of capital stock of the Borrower; (b) prior to an IPO, (i) the
failure by FS&C and its 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 or (ii) 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, Ripplewood and its
Affiliates, Nicholas Taubman and his Affiliates or Sears, beneficially owning,
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 and its Affiliates
and Sears at such time; (c) after an IPO, (i) (A) the failure by FS&C Investors
and their Affiliates and Ripplewood and its Affiliates to collectively own,
directly or indirectly, beneficially and of record, shares representing at least
25% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of Holdings and (B) a Person or group (within the
meaning of Rule 13d-5 under the United States Securities and Exchange Act of
1934 in effect on the date hereof), other than FS&C Investors and their
Affiliates, Ripplewood and its Affiliates, Nicholas Taubman and his Affiliates
or Sears, beneficially owning, directly or indirectly, shares representing more
than the percentage of the aggregate ordinary voting power represented by the
shares of capital stock of Holdings beneficially owned, directly or indirectly
by FS&C Investors and their Affiliates and Ripplewood and its Affiliates or (ii)
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, Ripplewood and its Affiliates, Nicholas
Taubman and his Affiliates or Sears, beneficially owning, 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 and its Affiliates and Sears
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.
<PAGE>
9
"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, Deferred Term Loans
or Swingline Loans and, when used in reference to any Commitment, refers to
whether such Commitment is a Revolving Commitment, Delayed Draw I Commitment,
Delayed Draw II Commitment or Deferred Term 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 Deferred Term 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
<PAGE>
10
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
by the Original Credit Agreement, 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 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.
----------- ----------
"Credit Card Loss Sharing" shall have the meaning assigned to such term in
------------------------
the Acquisition Merger Agreement.
"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.
"Deferred Term Commitment" means, with respect to each Lender, the
------------------------
commitment, if any, of such Lender to make a Deferred Term Loan hereunder on the
Amendment Effective Date, expressed as an amount representing the maximum
principal amount of the Deferred 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
such Lender pursuant to Section 9.04. The initial amount of each Lender's
Deferred Term Commitment is set forth on Schedule 2.01, or in the assignment and
acceptance pursuant to which such Lender shall have assumed its Deferred Term
<PAGE>
11
Commitment, as applicable. The initial aggregate amount of the Lenders'
Deferred Term Commitments is $90,000,000.
"Deferred Term Exposure" means at any time, the sum of the outstanding
----------------------
principal amount of Deferred Term Loans.
"Deferred Term Lender" means a Lender with a Deferred Term Commitment or an
--------------------
outstanding Deferred Term Loan.
"Deferred Term Maturity Date" means April 15, 2004.
---------------------------
"Deferred Term Rate" means, with respect to any Deferred 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.
"Deferred Term Loan" means a Loan made pursuant to clause (a) of Section
------------------
2.01.
"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.
<PAGE>
12
"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.
"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 $75,000,000.
"Delayed Draw II Commitment Termination Date" means April 15, 2001.
-------------------------------------------
"Delayed Draw II Lender" means a Lender with a Delayed Draw II Commitment
----------------------
or an outstanding Delayed Draw II Loan.
"Delayed Draw II Loan" means a Loan made pursuant to clause (c) of Section
--------------------
2.01.
"Delayed Draw Exposure" means, at any time, the sum of the outstanding
---------------------
principal amount of Delayed Draw Loans at such time.
Delayed Draw Loans" means Delayed Draw I Loans and Delayed Draw II Loans.
------------------
"Delayed Draw Maturity Date" means April 15, 2004.
--------------------------
"Disclosed Matters" means the actions, suits and proceedings and the
-----------------
environmental matters disclosed in Schedule 3.06.
<PAGE>
13
"Distribution Centers" means any warehouse facility operated by the
--------------------
Borrower or any of the Subsidiary Loan Parties, which holds Inventory being held
pending the regular replenishment of Store Inventory.
"Documentation Agent" means First Union National Bank, in its capacity
-------------------
as documentation agent for the Lenders hereunder.
"dollars" or "$" refers to lawful money of the United States of
-------
America.
"Effective Date" means April 15, 1998 (the date on which the Original
--------------
Credit Agreement became effective).
"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 or accrued
vendor rebates/incentives recorded in accordance with historical accounting
practices, (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, (d) battery and tire warranty as accrued by the Borrower or any of its
Subsidiaries which is in addition to the manufacturer's warranty, (e) accrued
shrink reserves net of cycle count adjustments physically taken but not charged
against reserves and (f) level pricing reserves for capitalized favorable price
variances historically recorded by the Borrower and its Subsidiaries. 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
<PAGE>
14
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
(e) such item of Inventory is located at the Stores, 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 for any
item of Inventory for which such information is not available, such item
represents obsolete inventory recorded in accordance with historical
accounting practices; or
(f) such item of Inventory is comprised of rental tools; provided
that rental tools which the Borrower and its Subsidiaries continue to be in
the business of renting to their customers and which would not be Eligible
Inventory solely by reason of this clause (f) may comprise up to $750,000
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 (it being understood that the United States includes Puerto Rico
and the U.S. Virgin Islands); 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
<PAGE>
15
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); or
(l) such item of Inventory is a part of a discontinued line of
products or a line of products that has been substantially sold or
contemplated to be substantially sold or otherwise substantially conveyed
to a third party.
"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 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.
"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
<PAGE>
16
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 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
<PAGE>
17
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
-----
(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
<PAGE>
18
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. 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
<PAGE>
19
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 or will be a
party, the borrowing of Loans, the use of the proceeds thereof and the issuance
of Letters of Credit hereunder and (b) the Acquisition Equity Financing and 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 which are equity investors in Holdings as of the Amendment Effective Date.
"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
<PAGE>
20
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 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 aggregate 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
<PAGE>
21
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.
"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 issued by Holdings on or prior to the Effective Date.
"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
<PAGE>
22
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 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.
Except for purposes of the calculation of the Applicable Rate, Indebtedness
shall not include Indebtedness arising from Credit Card Loss Sharing in an
aggregate amount not in excess of $10,000,000.
"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 September 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
<PAGE>
23
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 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 $80,000,000 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.
<PAGE>
24
"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.
"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, 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 Dow Jones Markets
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
<PAGE>
25
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
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 on the Effective
------------------------------
Date by certain members of the existing management of Holdings and the Borrower
in Holdings of an aggregate amount of approximately $8,000,000 in cash in
exchange for shares of common stock of Holdings.
"Management Investors" means the members prior to the Effective Date
--------------------
of the management of Holdings and the Borrower who participated 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.
<PAGE>
26
"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 (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 Virginia corporation existing
--------
prior to the Merger whose capital stock was 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
<PAGE>
27
(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 (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.
"New Receivables Program" means an arrangement or arrangements under
-----------------------
which the Borrower and its Subsidiaries sell, transfer or otherwise receive
value with respect to accounts receivable pursuant to documentation reasonably
satisfactory to the Administrative Agent.
"New Receivables Indebtedness" means Indebtedness of the Borrower
----------------------------
and/or its Subsidiaries arising from the New Receivables Program in an aggregate
principal amount not exceeding, at any time, 7% of the total aggregate amount of
all accounts receivables sold or transferred by the Borrower or any Subsidiary
to any Person other than the Borrower and its Subsidiaries pursuant to the New
Receivables Program or for which value has been received from any Person other
than the Borrower and its Subsidiaries pursuant to the New Receivables Program
and, in each case, not collected from the relevant account debtors prior to such
time.
<PAGE>
28
"Obligations" has the meaning assigned to such term in the Security
-----------
Agreement.
"Original Credit Agreement" has the meaning given to it in the
-------------------------
introductory statement to this 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 (other than the
---------------------
Acquisition) by the Borrower or a Subsidiary of the Borrower of all or
substantially all the assets of, or all the shares of 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,
<PAGE>
29
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 $40,000,000.
"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
<PAGE>
30
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.
"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
<PAGE>
31
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, 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)
and (d) of Section 6.05, (ii) dispositions described in clause (e) of
Section 6.05 other than dispositions pursuant to sale and leaseback
transactions of real property acquired in the Acquisition, but including
dispositions of stores under construction on the Amendment Effective Date
and (iii) other dispositions resulting in aggregate Net Cash Proceeds not
exceeding $2,000,000 during any fiscal year of the Borrower; or
<PAGE>
32
(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 (iv) the issuance by Holdings of shares of its common stock in exchange
for Net Cash Proceeds which are used as Acquisition Consideration; 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 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; provided, however, that the foregoing proviso
-------- -------
shall not apply to
<PAGE>
33
dispositions pursuant to sale and leaseback transactions of real property
acquired in the Acquisition (other than dispositions of stores under
construction on the Amendment Effective Date) to the extent the aggregate amount
of Net Cash Proceeds from all such dispositions exceeds $60,000,000.
"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.
"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, cancelation 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 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) to the extent deducted in
<PAGE>
34
determining Adjusted Consolidated Net Income for such period, non cash charges
related to inventory adjustments in connection with the Acquisition, plus (c)
the aggregate amount of proceeds (other than proceeds from the Acquisition
Equity Financing) received by Holdings in respect of the issuance of capital
stock of Holdings after the Effective Date and invested by Holdings in the
Borrower as equity capital prior to such date of determination minus (d) 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 (i) Restricted Payments made to the Borrower or any of
its Subsidiaries and (ii) Restricted Payments contemplated by clause (viii) of
Section 6.07(a)) 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.
"Revolving Loan" means a Loan made pursuant to clause (d) of Section
--------------
2.01.
"Revolving Maturity Date" means April 15, 2004.
-----------------------
<PAGE>
35
"Ripplewood" means Ripplewood Holdings LLC.
----------
"S&P" means Standard & Poor's.
---
"Sears" means Sears Roebuck and Co. and its subsidiaries.
-----
"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.
"Seller" means Western Auto Holding Co., a Delaware corporation that,
------
prior to the acquisition, owns all outstanding shares of capital stock of
Western Auto Supply Company.
"Senior Subordinated Notes" means the Senior Subordinated Notes due
-------------------------
April 2008 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
<PAGE>
36
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.
"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.
<PAGE>
37
"Swingline Lender" means The Chase Manhattan Bank, in its capacity as
----------------
lender of Swingline Loans hereunder or any successor in such capacity pursuant
to Section 2.04(d.
"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.
"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, Deferred 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.
<PAGE>
38
"Total Exposure" means, at any time, the sum of the total Revolving
--------------
Exposures, the Deferred Term Exposure and the Delayed Draw Exposure at such
time.
"Tranche B Lender" means a Lender with 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 on the Effective Date pursuant
-------------------
to clause (a) of Section 2.01 of the Original Credit Agreement. The outstanding
principal amount of each Lender's Tranche B Term Loans as of the Amendment
Effective Date is set forth on Schedule 2.01.
"Transactions" means the Acquisition 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.
"Western Auto Dealer Store" means an independently owned and operated
-------------------------
store location utilizing the Western Auto Supply Company name under an associate
store agreement, a franchise agreement or similar document providing the dealer
or franchisee, among other things, rights to use intellectual property of
Western Auto Supply Company, rights and obligations related to the purchase of
inventory, and rights and obligations related to other services provided by
Western Auto Supply Company.
"Western Auto Pre-Acquisition Adjustments" shall mean expenses and/or
----------------------------------------
revenue of Western Auto Supply Company incurred or earned prior to the Amendment
Effective Date and
<PAGE>
39
related to private label receivables and credit card portfolios of Western Auto
Supply Company and its Subsidiaries.
"Western Auto Specialty Stores" means the Western Auto Supply Company
-----------------------------
Stores located in Calexico, California and Hilo, Hawaii, and any assets located
therein and inventory designated for sale therein.
"Western Auto Wholesale Network" means that portion of the business of
------------------------------
Western Auto Supply Company engaged in the sale of inventory to, and provision
of other services to, the Western Auto Dealer Stores.
"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 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
<PAGE>
40
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 the Borrower for
recording or reporting its interim financial information.
SECTION 1.05. Interim Financial Calculations. For purposes of
-------------------------------
determining the Applicable Rate, 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.
ARTICLE II
The Credits
-----------
SECTION 2.01. Commitments . Subject to the terms and conditions set
-----------
forth herein, each Lender agrees (a) to make a Deferred Term Loan to the
Borrower on the Amendment Effective Date in a principal amount not exceeding its
Deferred Term 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
<PAGE>
41
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,
- --------
Deferred Term 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 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 Deferred Term Borrowings made on the Amendment
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
<PAGE>
42
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 shall not at any time be more than a
--------
total of 8 Eurodollar Borrowings outstanding.
(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, Tranche B
Maturity Date or Deferred Term 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
Deferred Term Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) the date of such Borrowing, which shall be a Business Day;
<PAGE>
43
(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 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 $20,000,000, (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
<PAGE>
44
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 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
<PAGE>
45
in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower of
any default in the payment thereof.
(d) Replacement of Swingline Lender. A Swingline Lender may be
--------------------------------
replaced by any other Lender at any time that there are no outstanding Swingline
Loans by a written agreement among the Administrative Agent, the Borrower and
successor Swingline Lender. The Administrative Agent shall notify the Lenders
of any such replacement of the Swingline Lender. From and after the effective
date of any such replacement, (i) the successor Swingline Lender shall have all
the rights and obligations of the Swingline Lender under this Agreement and (ii)
references herein to the term "Swingline Lender" shall be deemed to refer to
such successor Swingline Lender. After the replacement of the Swingline Lender
pursuant to this clause (d), the replaced Swingline Lender shall not be required
to make any Swingline Loans. Notwithstanding any provisions to the contrary in
Section 9.04, at no time following the replacement of the Swingline Lender
pursuant to this clause (d), may the Swingline Lender as of such time make an
assignment or assignments the effect of which would be to reduce its Revolving
Commitment to zero.
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 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
<PAGE>
46
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 $35,000,000, (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 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
<PAGE>
47
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 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
<PAGE>
48
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 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
<PAGE>
49
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, 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
<PAGE>
50
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 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
<PAGE>
51
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 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
<PAGE>
52
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.
(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:
<PAGE>
53
(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 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
<PAGE>
54
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 Deferred Term Commitments shall terminate at 5:00
p.m., New York City time, on the Amendment 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 (iv) 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 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.
<PAGE>
55
(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 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
<PAGE>
56
(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 (e) of this Section, the Borrower shall repay Tranche B
Term 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, 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>
<PAGE>
57
(b) (i) Subject to adjustment pursuant to paragraph (e) 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 (e) 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>
(c) Subject to adjustment pursuant to paragraph (e) of this Section,
the Borrower shall repay Deferred Term 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
Deferred Term Maturity Date $87,500,000
</TABLE>
(d) To the extent not previously paid, (i) all Tranche B Term Loans
shall be due and payable on the Tranche B Maturity Date, (ii) all Deferred Term
Loans shall be due and payable on the Deferred Term Maturity Date and
<PAGE>
58
(iii) all Delayed Draw Loans shall be due and payable on the Delayed Draw
Maturity Date.
(e) If the initial aggregate amount of the Lenders' (i) Deferred Term
Commitments exceeds the aggregate principal amount of Deferred Term Loans that
are made on the Amendment 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 Deferred Term 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.
(f) 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 time to prepay any Borrowing in whole or in
part, subject to the requirements of this Section.
<PAGE>
59
(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, Deferred Term 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
--------
or Deferred Term 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 or Deferred Term Loans pursuant to this Section (other than an
optional prepayment pursuant to paragraph (a) of this Section, which may not be
declined), in which case the aggregate amount of the prepayment that would have
<PAGE>
60
been applied to prepay Tranche B Term Loans or Deferred 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, the Deferred Term Commitment and the
average daily unused amount of the Revolving Commitment of such Lender during
the period from and including the Effective Date (or, in the case of commitment
fees on the Deferred Term Commitment, the date hereof) 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, commencing on
<PAGE>
61
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 the amounts and at the times separately agreed upon
between the Borrower and the Administrative Agent.
<PAGE>
62
(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.
(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
<PAGE>
63
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
(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;
<PAGE>
64
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.
(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
<PAGE>
65
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, 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.
<PAGE>
66
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
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.
<PAGE>
67
(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 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
<PAGE>
68
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.
(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
<PAGE>
69
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 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,
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70
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 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
<PAGE>
71
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, 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.
<PAGE>
72
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, (ii) as of and for each of the fiscal quarters
ended April 25, 1998 and July 18, 1998, certified by one of its Financial
Officers and (iii) as of the end of and for each fiscal month ended after the
end of the fiscal quarter ended July 18, 1998 and prior to the date 30 days
prior to the Amendment 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 clauses (ii) and (iii)
above.
(b) Holdings and the Borrower have heretofore furnished to the
Lenders the pro forma consolidated balance sheet of Holdings as of July 18,
1998, prepared giving effect to the Transactions. Such pro forma consolidated
balance sheet (i) has 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
<PAGE>
73
reasonable), (ii) accurately reflects all adjustments necessary to give effect
to the Transactions and (iii) presents fairly, in all material respects, the pro
forma financial position of Holdings and its consolidated Subsidiaries as of the
Amendment Effective Date after giving effect to the Transactions.
(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 Amendment 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 Amendment Effective Date after
giving effect to the Transactions.
(d) As of the Amendment 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,
<PAGE>
74
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.
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
<PAGE>
75
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 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
--------
<PAGE>
76
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 Acquisition on the Amendment 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 Amendment Effective Date and after giving
effect to the Acquisition.
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 Amendment Effective Date. As of the Amendment Effective
Date, all premiums in respect of such insurance have been paid.
SECTION 3.14. Labor Matters. As of the Amendment 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 Amendment Effective Date and immediately following
the making of each Loan made on the Amendment Effective Date and after giving
effect to the 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,
<PAGE>
77
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 Amendment 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>
78
(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 and any amendments thereto contemplated by clause (j) of Section
4.01 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
<PAGE>
79
errors and the failure of others' systems or equipment) will not result in a
Default or a Material Adverse Effect.
ARTICLE IV
Conditions
----------
SECTION 4.01. Conditions Precedent to Effectiveness of Amendment and
------------------------------------------------------
Making of Deferred Term Loans. The amendment and restatement of the Original
- -----------------------------
Credit Agreement in the form hereof (other than the amendment to Section 2.12(a)
pursuant to this amendment and restatement, which shall become effective
immediately upon satisfaction of the condition set forth in clause (a) below)
and the obligation of each Deferred Term Lender to make its Deferred Term Loan
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 Holdings, the Borrower, the Required Lenders under and
as defined in the Original Credit Agreement, each Lender having a
Deferred Term Commitment and the Administrative Agent 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 Amendment 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, (iv) local counsel
in each jurisdiction where a Mortgaged Property is located on which a
Mortgage has not previously been granted to the Collateral Agent,
substantially in the form of Exhibit B-4 and (v) counsel to Sears
covering such matters relating to the Acquisition as the
Administrative Agent shall reasonably request, and, in the case of
each such opinion required by this paragraph, covering such other
matters relating to the Loan Parties, the Loan
<PAGE>
80
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.
(d) The Administrative Agent shall have received a certificate,
dated the Amendment 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 Amendment 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 (amending and restating the Pledge Agreement
executed in connection with the Original Credit 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 Amendment 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
Amendment 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.
<PAGE>
81
(g) The Administrative Agent shall have received counterparts of
the Security Agreement (amending and restating the Security Agreement
executed in connection with the Original Credit 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 Amendment
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 equivalent) filings
made with respect to the additional Loan Parties resulting from
the Acquisition 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 (amending and restating the
Guarantee Agreement executed in connection with the Original Credit
Agreement) signed on behalf of Holdings and each Subsidiary Loan
Party, (ii) counterparts of the Indemnity, Subrogation and
Contribution Agreement (amending and restating the Indemnity,
Subrogation and Contribution Agreement executed in connection with the
Original Credit Agreement) signed on behalf of each Loan Party and
(iii) evidence that the Cash Concentration Accounts shall have been
established.
(i) The Administrative Agent shall have received (i)
counterparts of a Mortgage with respect to each Mortgaged Property (on
which a Mortgage has not previously been granted) 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
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82
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 such 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
such 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 such Mortgaged Property to affix a zoning endorsement to each of
its lenders policy of title insurance covering each such Mortgage).
(j) The Administrative Agent shall have received counterparts of
amendments to each Mortgage granted prior to the Amendment Effective
Date, signed on behalf of the record owner of the relevant Mortgaged
Property, along with all other instruments and documents necessary or
advisable in the opinion of the Administrative Agent, to confirm that
the first priority liens created by each such Mortgage in favor of the
Collateral Agent for the benefit of the Lenders on all the collateral
described in such Mortgage secure all the Obligations after giving
effect to the Transactions (including Obligations in respect of the
Deferred Term Loans).
(k) The Administrative Agent shall have received evidence
satisfactory to it that the insurance required by Section 5.07 is in
effect.
(l) The Acquisition Equity Financing shall have been consummated
and Holdings shall have received gross cash proceeds therefrom in an
amount not less than $70,000,000. As part of the Acquisition Equity
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Financing (i) the FS&C Investors shall have invested in Holdings an
aggregate amount, in cash, of no less than $50,000,000, (ii)
Ripplewood and its Affiliates shall have invested in Holdings an
aggregate amount, in cash, of no less than $15,000,000, and (iii)
Nicholas Taubman and his Affiliates shall have invested in Holdings an
aggregate amount, in cash of no less than $5,000,000, in each case, in
exchange for common stock of Holdings. Holdings shall have invested
the proceeds from such Acquisition Equity Financing in the Borrower in
exchange for shares of the capital stock of the Borrower which shall
have been pledged pursuant to the Pledge Agreement. It is understood
that the Borrower may apply such proceeds to purchase shares of common
stock of Holdings to be delivered as part of the Acquisition
Consideration, in which case Holdings will again invest the proceeds
thereof in the Borrower.
(m) All material consents and approvals required to be obtained
from any Governmental Authority or other Person in connection with the
Acquisition 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 Acquisition shall
have been, or substantially simultaneously with the initial funding of
Deferred Term Loans on the Amendment Effective Date shall be,
consummated in accordance with the Acquisition Documents and
applicable law, without any amendment to or waiver of any material
terms or conditions of the Acquisition Documents not approved by the
Required Lenders. Following the Acquisition there shall not be any
outstanding preferred stock of Holdings. The Administrative Agent
shall have received copies of the Acquisition Documents and all
certificates, opinions and other documents delivered thereunder,
certified by a Financial Officer of Holdings or the Borrower as
complete and correct. The Required Lenders under the Original Credit
Agreement and all the Lenders with Deferred Term Loan Commitments
shall (i) be satisfied with the Acquisition Documents (to the extent
not delivered prior to date of the execution of this Agreement) and
(ii) the capitalization, structure and equity ownership of Holdings
after giving effect to the Transactions shall be substantially as set
forth in the Information Memorandum. On the Amendment Effective Date
and after giving effect to the Acquisition, Holdings shall not have
any Subsidiaries (other than the Borrower and its Subsidiaries).
<PAGE>
84
(n) The Lenders shall have received unaudited consolidated
balance sheets and related statements of income and stockholders'
equity of Holdings for each fiscal month ended after July 18, 1998,
and prior to the date 30 days prior to the Amendment 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 sheet of Holdings as of July 18, 1998, after giving effect to
the Transactions, and such pro forma consolidated balance sheet 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 payable or otherwise borne by Holdings, the Borrower
and their Subsidiaries in connection with the Transactions shall not
exceed $10,000,000.
(p) The Administrative Agent shall be reasonably satisfied with
the results of an examination for the purposes of determining the
Borrowing Base 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.
The Administrative Agent shall notify the Borrower and the Lenders of the
Amendment Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the amendment and restatement of the Original
Credit Agreement in the form hereof and the obligations of the Deferred Term
Lenders to make Deferred Term Loans hereunder shall not become effective unless
each of the foregoing conditions is satisfied (or waived pursuant to Section
9.02) at or prior to 3:00 p.m., New York City time, on November 30, 1998 (and,
in the event such conditions are not so satisfied or waived, the Deferred Term
Loan Commitments shall terminate at such time).
<PAGE>
85
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 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,
<PAGE>
86
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 consistently 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
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; provided that, with respect to the balance
--------
sheets and related statements as
<PAGE>
87
of the end of November 1998, the Borrower and Holdings may provide
consolidated balance sheets and related statements for Holdings and
all Subsidiaries which were Subsidiaries prior to the Acquisition and
separate consolidated balance sheets and related statements for all
other Subsidiaries;
(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
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;
<PAGE>
88
(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
(d) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
<PAGE>
89
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 Amendment 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 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
<PAGE>
90
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 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.
<PAGE>
91
(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, 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
<PAGE>
92
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 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
<PAGE>
93
Administrative Agent to conduct any such evaluation or appraisal (including
without limitation, the fees and expenses associated with the services performed
by the Administrative Agent's collateral monitoring department); 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 Deferred Term Loans, together with the proceeds of the Acquisition Equity
Financing, will be used only to pay the cash portion of the Acquisition
Consideration and fees and expenses 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 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 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 Amendment 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
<PAGE>
94
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.
(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 Amendment 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
<PAGE>
95
constituting leasehold interests in stores or Vehicles owned by the Vehicle
Subsidiary .
SECTION 5.14. Collection Deposit Accounts. As promptly as
---------------------------
practicable and in any event prior to June 30, 1999 and at all times thereafter,
the Borrower shall have entered into and maintain Collection Deposit Letter
Agreements for Collection Deposit Accounts representing the collections of
Stores which account for no less than 80% of Consolidated EBITDA for the fiscal
year most recently ended. The Borrower will use its reasonable best efforts to
enter into and maintain Collection Deposit Agreements for all other Collection
Deposit Accounts.
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 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
--------
<PAGE>
96
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 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) $30,000,000 at any time outstanding
prior to April 15, 2001 and (B) $50,000,000 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
<PAGE>
97
clause (vii) shall be subject to the limitations set forth in clause
(i) of Section 6.04;
(viii) other unsecured Indebtedness of the Borrower or any
Subsidiary Loan Party in an aggregate principal amount not exceeding
$10,000,000 at any time outstanding;
(ix) GE Capital Program Indebtedness; and
(x) New Receivables 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 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
<PAGE>
98
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 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;
<PAGE>
99
(vi) Liens arising under the GE Capital Program Agreements on
accounts receivables sold pursuant to the GE Capital Program
Agreements; and
(vii) Liens arising under the New Receivables Program on
accounts receivables sold or transferred to Persons other than the
Borrower and its Subsidiaries pursuant to the New Receivables Program.
(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, (iv) any
Subsidiary may merge with another entity to implement a Permitted Acquisition
and (v) the Borrower and its Subsidiaries may consummate the 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.
(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 and
Western Auto Supply Company and its 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
<PAGE>
100
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, 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
<PAGE>
101
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 employees of Holdings and its
Subsidiaries evidencing loans made for the purpose of permitting such
employees to purchase capital stock of Holdings in an aggregate
principal amount not exceeding $3,500,000 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 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
<PAGE>
102
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
$2,000,000 at any time outstanding;
(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;
(m) the Acquisition; and
(n) promissory notes contemplated by clause (ii) of the proviso
to Section 6.05.
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
upon this clause (c) shall not exceed $2,000,000 during any fiscal
year of the Borrower;
<PAGE>
103
(d) the Borrower may sell or otherwise convey accounts receivable
pursuant to and in accordance with the GE Capital Program Agreements
and the New Receivables Program;
(e) sales of fixed or capital assets made pursuant to sale and
lease-back transactions permitted under Section 6.11;
(f) sales, transfers and dispositions of assets constituting
Permitted Asset Swaps; and
(g) sales of assets which as of the date hereof are owned by
Western Auto of St. Thomas, Inc., a Delaware corporation, Western Auto
of Puerto Rico, Inc., a Delaware corporation or WASCO Insurance
Agency, Inc., a Missouri corporation or which constitute the Western
Auto Wholesale Network, Western Auto Specialty Stores or rights with
respect to Western Auto Dealer Stores or of the capital stock of any
Subsidiary of the Borrower substantially all the assets of which at
the time of such sale are assets permitted to be sold pursuant to this
clause (g);
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 (i) consideration for
Permitted Asset Swaps may consist of non-cash consideration as contemplated by
the definition of such term and (ii) up to 30% of the aggregate consideration
for transactions permitted by clause (g) above may consist of promissory notes.
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;
<PAGE>
104
(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 with respect to the Holdings Senior Discount
Debentures);
(iv) following April 15, 2003, 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 $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 April 15, 2003;
(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 following 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;
<PAGE>
105
(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;
(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 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; and
(viii) the Borrower may make payments to Holdings in exchange
for common stock of Holdings to be delivered by the Borrower on the
Amendment Effective Date as a part of the Acquisition Consideration;
provided that Holdings shall immediately invest the proceeds of all
--------
such payments to purchase newly issued capital stock of the Borrower
to be pledged pursuant to the Pledge Agreement.
(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;
<PAGE>
106
(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 April 15,
--------
2003, Holdings will be permitted to pay interest in cash on the
Holdings Senior Discount Debentures as and when due;
(vi) payment of intercompany Indebtedness between or among the
Borrower and its Subsidiaries permitted under clause (iv) of Section
6.01(a) and payment of Indebtedness permitted under clauses (viii) and
(ix) of Section 6.01(a);
(vii) payments, in an aggregate amount not to exceed
$25,000,000, to purchase Senior Subordinated Notes; provided that, (A)
--------
at the time of and after giving effect to each such purchase of Senior
Subordinated Notes, (1) no Default shall have occurred and be
continuing and (2) the ratio of (x) the aggregate principal amount of
all Indebtedness of Holdings and its Subsidiaries (determined on a
consolidated basis), excluding the Subordinated Debt and the Holdings
Senior Discount Debentures, to (y) Consolidated EBITDA for the period
of four consecutive fiscal quarters of the Borrower most recently
ended, shall not be greater than 2.5 to 1.0 and (B) all Senior
Subordinated Notes so purchased shall be retired and canceled; and
(viii) Credit Card Loss Sharing payments in an aggregate amount
(including any such payments made on the Amendment Effective Date) not
to exceed $10,000,000.
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
<PAGE>
107
$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 Amendment
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, (g) sales of common
stock of Holdings, when such sales are exclusively for cash and (h) Credit Card
Loss Sharing payments to Sears and other transactions with Sears pursuant to the
agreements listed on Schedule 6.08 hereto (without giving effect to any
amendment or modification thereof that is on terms and conditions less favorable
to the Borrower and its Subsidiaries than could be obtained on an arms-length
basis from unrelated third parties or is otherwise materially adverse to the
Lenders unless such amendment or modification has been approved by the Required
Lenders).
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
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
<PAGE>
108
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 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
<PAGE>
109
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 (which, in the case of assets acquired in the Acquisition, shall be the
date of the consummation of the Acquisition).
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 $25,000,000) 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 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 $ 85,000,000
January 1, 2000 $170,000,000
December 30, 2000 $140,000,000
December 29, 2001 $120,000,000
December 28, 2002 $120,000,000
January 3, 2004 $130,000,000
and each fiscal year
thereafter
</TABLE>
<PAGE>
110
SECTION 6.13. Leverage Ratio. 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. 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
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. 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.
<PAGE>
111
SECTION 6.16. Purchase and Sale of Vehicles; Vehicle Subsidiary.
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(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.
(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.
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
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112
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 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
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113
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;
(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
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114
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 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.
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115
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 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
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116
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 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
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117
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.
The provisions of this Article applicable to the Administrative Agent
also shall apply to the Collateral Agent, mutatis mutandis.
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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;
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118
(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.
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
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119
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 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
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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 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,
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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 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,
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122
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 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
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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 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
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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.
(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
<PAGE>
125
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 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
<PAGE>
126
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 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 the parties hereto referred to in
paragraph (a) of Section 4.01, 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.
<PAGE>
127
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.
(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
<PAGE>
128
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 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
<PAGE>
129
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 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
<PAGE>
130
at the Federal Funds Effective Rate to the date of repayment, shall have been
received by such Lender.
SECTION 9.14. Effect of Amendment and Restatement. Upon the
-----------------------------------
effectiveness of the amendment and restatement of the Original Credit Agreement
in the form hereof pursuant to Section 4.01:
(a) the Original Credit Agreement (including all Exhibits and
Schedules thereto) will be amended and restated in its entirety as set
forth herein; and
(b) all Loans outstanding under the Original Credit Agreement as of
the Amendment Effective Date shall continue to remain outstanding
hereunder, without affecting the Interest Period of any outstanding
Borrowing;
provided that the amendment and restatement of the Original Credit Agreement in
- --------
the form hereof shall not affect the Borrower's obligations accrued in respect
of any principal, interest, fees or other amounts under the Original Credit
Agreement, discharge or release the Lien under any Security Document, constitute
a novation of the obligations and liabilities existing under the Original Credit
Agreement, or be deemed to evidence or constitute repayment of all or any
portion of any such obligations or liabilities. Unless and until the Amendment
Effective Date occurs as provided herein, the Original Credit Agreement shall
remain in effect and shall not be affected by this Agreement; provided, however,
-------- -------
that the amendment to Section 2.12(a) pursuant to
<PAGE>
131
this amendment and restatement shall become effective as set forth in Section
4.01.
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>
132
DLJ CAPITAL FUNDING, INC.,
by /s/ Harold J. Philips
-------------------------------------
Name: Harold J. Philips
Title: Managing Director
FIRST UNION NATIONAL BANK,
by /s/ Mark B. Felker
-------------------------------------
Name: Mark B. Felker
Title:Sr. Vice President
<PAGE>
EXHIBIT 10.33
PLEDGE AGREEMENT dated as of April 15, 1998 as amended and
restated as of November 2, 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 and restated as of October 19, 1998 (as further 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 15, 1998 as amended and restated as of November 2, 1998 (as
further 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)
<PAGE>
2
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, 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
<PAGE>
3
promissory notes and any other instruments evidencing such debt securities (the
"Pledged Debt Securities"); (c) all other 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.
<PAGE>
4
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;
(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;
<PAGE>
5
(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
(i) the pledge of the Pledged Stock pursuant to this Agreement does
not violate Regulation T, U or X of the Federal Reserve Board or any
successor thereto as of the date hereof of this amendment and restatement.
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
<PAGE>
6
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 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
<PAGE>
7
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, 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.
<PAGE>
8
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 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
<PAGE>
9
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
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
<PAGE>
10
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 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
<PAGE>
11
provision of this Agreement or any other Loan Document or any 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 Securities, 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 the Federal
Securities Laws and (b) may approach and negotiate
<PAGE>
13
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 request referred to above, to use its best efforts to
qualify, file or register, or cause the issuer of such Pledged
<PAGE>
14
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 Section 7.14
shall be without recourse to or warranty by the Collateral Agent.
<PAGE>
15
(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 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
<PAGE>
16
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.
SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
--------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
17
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 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.
<PAGE>
18
(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
<PAGE>
19
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.
SECTION 25. Effectiveness of Amendment and Restatement. This amendment
--------------------------------------------
and restatement of the Pledge Agreement as in effect immediately prior to the
date hereof (the "Original Pledge Agreement") in the form hereof shall become
effective upon the receipt by the Collateral Agent of counterparts hereto that
collectively bear the signatures of each Guarantor and the Collateral Agent.
Upon effectiveness of this amendment and restatement, the Original Pledge
Agreement will be amended and restated in its entirety as set forth herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
ADVANCE STORES COMPANY, INCORPORATED,
/s/ J. O'Neil Leftwich
by________________________________________
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
ADVANCE HOLDING CORPORATION,
/s/ J. O'Neil Leftwich
by________________________________________
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
EACH SUBSIDIARY PLEDGOR LISTED ON SCHEDULE I
HERETO,
/s/ J. O'Neil Leftwich
by________________________________________
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
20
THE CHASE MANHATTAN BANK, as Collateral Agent,
/s/ Deborah Davey
by________________________________________
Name: Deborah Davey
Title: Vice President
<PAGE>
SCHEDULE I TO THE PLEDGE AGREEMENT
SUBSIDIARY PLEDGORS
-------------------
Name Address
- ---- -------
LARALEV, INC. 103 Foulk Road
Suite 270
Wilmington, DE 19899
Western Auto Supply Company 2107 Grand Boulevard
Kansas City, MO 64108
Parts America, Inc. 2107 Grand Boulevard
Kansas City, MO 64108
Western Auto of Puerto Rico, Inc. 2107 Grand Boulevard
Kansas City, MO 64108
Western Auto of St. Thomas, Inc. 2107 Grand Boulevard
Kansas City, MO 64108
WASCO Insurance Agency, Inc. 2107 Grand Boulevard
Kansas City, MO 64108
<PAGE>
EXHIBIT 10.34
GUARANTEE AGREEMENT dated as of April 15, 1998 as amended
and restated as of November 2, 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 and restated as of October 19, 1998 (as further 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,
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"). 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 or any other Guarantor under the
provisions of the Credit
<PAGE>
3
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 other act
or omission that may or might in any manner or to any extent vary the risk of
any Guarantor or that would
<PAGE>
4
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 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
<PAGE>
5
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 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
<PAGE>
6
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 relates
and the Collateral Agent, subject to any consent required in accordance with
Section 9.02 of the Credit Agreement.
<PAGE>
7
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 delivery of a manually executed
counterpart of this Agreement.
<PAGE>
8
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.
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
<PAGE>
9
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 and
remedies (including other rights of setoff) which such Secured Party may have.
SECTION 22. Effectiveness of Amendment and Restatement. This amendment
-------------------------------------------
and restatement of the Guarantee Agreement as in effect immediately prior to the
date hereof (the "Original Guarantee Agreement") in the form hereof shall become
effective upon the receipt by the Collateral Agent of counterparts hereto that
collectively
<PAGE>
10
bear the signatures of each Guarantor and the Collateral Agent. Upon
effectiveness of this amendment and restatement, the Original Guarantee
Agreement will be amended and restated in its entirety as set forth herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
EACH OF THE SUBSIDIARY
GUARANTORS LISTED ON SCHEDULE
I HERETO,
by /s/ J. O'Neil Leftwich
________________________
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
ADVANCE HOLDING CORPORATION,
as a Guarantor,
by /s/ J. O'Neil Leftwich
________________________
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
THE CHASE MANHATTAN BANK, as
by /s/ Deborah Davey
________________________
Name: Deborah Davey
Title: Vice President
<PAGE>
SCHEDULE I TO THE GUARANTEE AGREEMENT
Subsidiary Guarantor Address
-------------------- -------
LARALEV, INC. 103 Foulk Road
Suite 270
Wilmington, DE 19899
Western Auto Supply Company 2107 Grand Boulevard
Kansas City, MO 64108
Parts America, Inc. 2107 Grand Boulevard
Kansas City, MO 64108
Western Auto of Puerto Rico, Inc. 2107 Grand Boulevard
Kansas City, MO 64108
Western Auto of St. Thomas, Inc. 2107 Grand Boulevard
Kansas City, MO 64108
WASCO Insurance Agency, Inc. 2107 Grand Boulevard
Kansas City, MO 64108
<PAGE>
EXHIBIT 10.35
INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT dated as
of April 15, 1998 as amended and restated as of November 2, 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 and restated as of October 19, 1998 (as further 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 as amended and restated as of November 2, 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 Agreement) 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 Borrower, 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.
SECTION 12. Effectiveness of Amendment and Restatement. This amendment
and restatement of the Indemnity Subrogation and Contribution Agreement as in
effect immediately prior to the date hereof (the "Original Indemnity,
Subrogation and Contribution Agreement") in the form hereof shall become
effective upon the receipt by the Collateral Agent of counterparts hereto that
collectively bear the signatures of each Guarantor, the Borrower and the
Collateral Agent. Upon effectiveness of this amendment and restatement, the
Original Indemnity, Subrogation and Contribution Agreement will be amended and
restated in its entirety as set forth herein.
<PAGE>
6
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 and
Chief Financial Officer
ADVANCE HOLDING CORPORATION,
as a Grantor,
by /s/ J. O'Neil Leftwich
______________________________
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
EACH GRANTOR LISTED ON SCHEDULE I HERETO,
by /s/ J. O'Neil Leftwich
______________________________
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
THE CHASE MANHATTAN BANK,
as Collateral Agent,
by /s/ Deborah Davey
______________________________
Name: Deborah Davey
Title: Vice President
<PAGE>
SCHEDULE TO INDEMNITY AGREEMENT
GUARANTORS
----------
Name Address
- ---- -------
LARALEV, INC. 103 Foulk Road
Suite 270
Wilmington, DE 19899
Western Auto Supply Company 2107 Grand Boulevard
Kansas City, MO 64108
Parts America, Inc. 2107 Grand Boulevard
Kansas City, MO 64108
Western Auto of Puerto Rico, Inc. 2107 Grand Boulevard
Kansas City, MO 64108
Western Auto of St. Thomas, Inc. 2107 Grand Boulevard
Kansas City, MO 64108
WASCO Insurance Agency, Inc. 2107 Grand Boulevard
Kansas City, MO 64108
<PAGE>
EXHIBIT 10.36
SECURITY AGREEMENT dated as of April 15, 1998 as amended and
restated as of November 2, 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 and restated as of October 19, 1998 (as further 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 and restated as of November 2, 1998 (as
further 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
<PAGE>
2
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, 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
<PAGE>
3
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 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 and, at the Borrower's option, at any time prior
to September 30, 1999, a cash concentration account with NationsBank, N.A.
maintained pursuant to a Cash Concentration Letter Agreement.
"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,
<PAGE>
4
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 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 each collection deposit account
maintained by the Borrower and the Subsidiary Guarantors pursuant to a
Collection Deposit Letter Agreement (and prior to the execution of a Collection
Deposit Letter Agreement with respect to such account, 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.
<PAGE>
5
"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 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
<PAGE>
6
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.
"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
<PAGE>
7
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,
Trademarks, 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,
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
<PAGE>
8
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,
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.
<PAGE>
9
"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
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
<PAGE>
10
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 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
<PAGE>
11
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.
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
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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.
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
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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.
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
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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 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
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15
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 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
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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
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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 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
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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
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
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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.
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,
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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 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
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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 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 of this amendment and
restatement).
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ARTICLE V
Collections
SECTION 5.01. Collection Deposit Accounts. (a) From and after the
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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.
(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,
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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
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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.
(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
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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 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 exercise 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
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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 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
<PAGE>
25
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 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
<PAGE>
26
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 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
<PAGE>
27
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.
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.
<PAGE>
28
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 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
<PAGE>
29
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 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
<PAGE>
30
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.
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
<PAGE>
31
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 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.
<PAGE>
32
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 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
<PAGE>
33
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. 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.
SECTION 7.16. Effectiveness of Amendment and Restatement. This amendment
and restatement of the Security Agreement as in effect immediately prior to the
date hereof (the "Original Security Agreement") in the form hereof shall become
effective upon the receipt by the Collateral Agent of counterparts hereto that
collectively bear the signatures of each Guarantor and the Collateral Agent.
Upon effectiveness of this amendment and restatement, the Original Security
Agreement will be amended and restated in its entirety.
<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 and
Chief Financial Officer
ADVANCE HOLDING
CORPORATION,
by /s/ J. O'Neil Leftwich
____________________________
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
EACH SUBSIDIARY GUARANTOR
LISTED ON SCHEDULE I HERETO,
by /s/ J. O'Neil Leftwich
____________________________
Name: J. O'Neil Leftwich
Title: Senior Vice President and
Chief Financial Officer
THE CHASE MANHATTAN BANK, as
Collateral Agent,
by /s/ Deborah Davey
____________________________
Name: Deborah Davey
Title: Vice President
<PAGE>
SCHEDULE I TO THE SECURITY AGREEMENT
SUBSIDIARY GUARANTORS
---------------------
LARALEV, INC.
Western Auto Supply Company
Parts America, Inc.
Western Auto of Puerto Rico, Inc.
Western Auto of St. Thomas, Inc.
WASCO Insurance Agency, Inc.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this filing of Advance Stores
Company, Inc. on Form 8-K of our report dated July 17, 1998 (August 17, 1998 as
to Note 13) on the financial statements of Western Auto Supply Company and
Subsidiaries, appearing in Amendment No. 2 to Registration Statement Nos.
333-56013 and 333-56013-01 on Form S-4 of Advance Stores Company, Inc.
Kansas City, Missouri
November 13, 1998
<PAGE>
EXHIBIT 99.1
ADVANCE STORES COMPANY, INCORPORATED
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Consolidated Balance Sheet................... P-3
Notes to Unaudited Pro Forma Consolidated Balance Sheet.......... P-4
Unaudited Pro Forma Statements of Operations..................... P-9
Notes to Unaudited Pro Forma Statements of Operations............ P-11
</TABLE>
P-1
<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 by the
application of pro forma adjustments to the historical consolidated financial
statements of the Company and Western Auto and the notes thereto included
elsewhere in this Prospectus. 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 unaudited pro forma
consolidated balance sheet as of July 18, 1998 was prepared as if the
Acquisition had occurred on such date. In connection with the Acquisition,
Holding sold $70.0 million of Holding Common Stock to certain existing
stockholders representing 4,161,712 shares and the Company incurred $90.0
million of borrowings under a new term loan facility. The Company received 100%
of the outstanding common stock of Western Auto in exchange for $175.0 million
of cash and 11,474,606 shares of Holding Common Stock. The unaudited pro forma
consolidated statements of operations for the fiscal year ended January 3, 1998
and the twenty-eight weeks ended July 18, 1998 reflect adjustments as if the
Recapitalization and Acquisition had been consummated and were effective as of
December 29, 1996. In connection with the Recapitalization of Holding, the
Company used net proceeds of $325.0 million from borrowings under the New Credit
Facility and the issuance of Senior Subordinated Notes primarily to repay all
intercompany debt ($91.1 million) and to make a dividend to Holding ($183.0
million). The unaudited consolidated pro forma statements of operations give
effect to the changes in interest expense that result from the issuance of new
debt and repayment of existing debt and the pro forma purchase accounting
adjustments relating to the Recapitalization and the Acquisition.
The Acquisition will be accounted for under the purchase method of
accounting. The unaudited pro forma consolidated balance sheet as of July 18,
1998 reflects a pro forma allocation of purchase price for the Acquisition to
the tangible and intangible assets and liabilities acquired. The final
allocation of such purchase price, and the resulting depreciation and
amortization expense, will differ from the estimates contained herein due to the
final allocation being based on: (a) actual amounts of assets and liabilities on
the closing date; (b) final purchase price adjustments, including reserves that
may be recognized for additional exit costs; (c) final determination of values
of property and equipment and other assets; (d) actuarial valuations of certain
liabilities; and (e) resolution of the Credit Card Liability (as defined
herein). The actual allocation of the purchase price, and the resulting effect
on income from operations may differ significantly from the pro forma amounts
included herein.
The financial effects to the Company of the Recapitalization and
Acquisition as presented in the pro forma consolidated financial data are not
necessarily indicative of the Company's or the consolidated financial position
or results of operations which would have been obtained had the Recapitalization
and Acquisition 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 Western Auto and the notes thereto.
P-2
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
STORES
HISTORICAL WESTERN AUTO
JULY 18, HISTORICAL TOTAL FINAL
1998 JULY 4, 1998 ADJUSTMENTS PRO FORMA
--------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......... $ 44,759 $ 27,313 $ (46,313)(3) $ 25,759
Receivables, primarily from
vendors........................... 24,329 -- -- 24,329
Trade receivables.................. 5,325 82,073 (37,425)(2) 49,973
Inventories........................ 348,523 347,919 -- 696,442
Deferred Income Taxes.............. -- 45,391 (45,391)(1) --
Prepaid expenses and other
current assets.................... 5,056 17,133 -- 22,189
Refundable income taxes............ 3,087 56,858 (56,858)(1) 3,087
-------- ---------- --------- ----------
Total current assets............... 431,079 576,687 (185,987) 821,779
Property and equipment, net......... 143,176 350,234 (116,636)(5) 376,774
Goodwill............................ -- 114,555 (114,555)(4) --
Other assets........................ 18,966 9,114 2,000 (6) 30,080
-------- ---------- --------- ----------
Total assets...................... $593,221 $1,050,590 $(415,178) $1,228,633
======== ========== ========= ==========
Liabilities
Current liabilities:
Borrowings secured by trade
receivables....................... $ 5,325 $ 35,500 $ (35,500)(2) $ 5,325
Current portion of deferred
revenue........................... 3,089 -- -- 3,089
Accounts payable................... 216,832 159,133 -- 375,965
Accrued expenses................... 53,449 96,610 8,869 (7) 158,928
Due to Sears, net.................. -- 247,880 (247,880)(1) --
Deferred income taxes.............. 2,698 -- 11,000 (9) 13,698
-------- ---------- --------- ----------
Total current liabilities.......... 281,393 539,123 (263,511) 557,005
Long-term debt...................... 335,000 -- 90,000 (11) 425,000
Long-term debt--Sears............... -- 140,802 (140,802)(1) --
Other long-term liabilities......... 1,638 -- -- 1,638
Post-retirement benefits............ 1,092 39,720 (18,420)(4) 22,392
Deferred income taxes............... 14,168 12,897 (26,897)(10) 168
-------- ---------- --------- ----------
Total non-current liabilities..... 351,898 193,419 (96,119) 449,198
Stockholder's equity (deficit)...... (40,070) 318,048 (55,548)(8) 222,430
-------- ---------- --------- ----------
Total liabilities and
stockholder's equity (deficit)... $593,221 $1,050,590 $(415,178) $1,228,633
======== ========== ========= ==========
</TABLE>
(Footnotes on subsequent page)
P-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The Unaudited Pro Forma Consolidated Balance Sheet reflects the Acquisition as
if it occurred as of July 18, 1998 (actual amounts may differ significantly from
the pro forma amounts estimated below).
(1) Per the Acquisition Agreement, all intercompany accounts between Western
Auto and Sears will be settled prior to the Acquisition. This has been
reflected as a reclassification of all intercompany accounts in Western
Auto's historical consolidated balance sheet as of July 4, 1998 to equity
as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Deferred income taxes................................ $(45,391)
Income taxes receivable - Sears...................... (56,858)
Due to Sears, net.................................... 247,880
Deferred income taxes - Sears (See (9) below)........ 12,897
Long-term debt - Sears............................... 140,802
--------
Impact on stockholder's equity (deficit)............. $299,330
========
</TABLE>
(2) Reflects Western Auto assets and liabilities as of July 4, 1998 that will
be retained by Sears in accordance with the Acquisition Agreement:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash(a) (See (3) below).............................. $(21,313)
Trade receivables(b)................................. (37,425)
Property and equipment, net(c) (See (5) below)....... (11,079)
Accrued expenses(d) (See (7) below).................. 4,131
Borrowings secured by trade receivables(b)........... 35,500
--------
Impact on stockholder's equity (deficit)............. $(30,186)
========
</TABLE>
______________________
(a) The Acquisition Agreement provides that Western Auto will have at least
$6,000 in cash and a minimum level of Retained Working Capital on the
closing date; any excess amount will be distributed to Sears. (See (3)
below)
(b) The Acquisition Agreement provides that Sears will retain certain assets and
liabilities related to certain private label credit card programs, as well
as associated secured borrowings.
(c) The Acquisition Agreement provides that Sears will retain all tire store
properties, which are included in the historical balance sheet of Western
Auto as of July 4, 1998 but are excluded from Western Auto's operations to
be acquired. (See (5) below)
(d) The Acquisition Agreement provides that Sears will retain all accrued
liabilities associated with the tire store properties, as well as any
accrued liabilities not associated with operations acquired from Sears. (See
(7) below)
P-4
<PAGE>
(3) Reflects increases and decreases in cash resulting from pro forma
adjustments:
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
<S> <C>
Cash increases:
Proceeds from issuance of 263 new shares of Company
common stock to Holding........................................ $ 263,000
Proceeds from issuance of long-term debt under a new term
loan facility.................................................. 90,000
---------
Total cash inflows............................................. 353,000
Cash decreases:
Cash retained by Sears (See (2) above).......................... (21,313)
Purchase of Holding common stock (11,474,606 shares valued
@ $16.82 per share)............................................ (193,000)
Cash portion of purchase price for acquisition.................. (175,000)
Estimated debt issuance costs (See (6) below)................... (6,500)
Estimated stock issuance costs (See (8) below).................. (500)
Estimated acquisition related costs (See (4) below)............. (3,000)
---------
Total cash outflows............................................ (399,313)
---------
Net impact on cash..............................................$ (46,313)
---------
</TABLE>
______________________
(4) The Acquisition will be accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations." The
pro forma purchase price is being allocated first to the tangible and
identifiable intangible assets and liabilities of Western Auto based upon
preliminary estimates of their fair market values, assuming the Acquisition
had occurred on July 18, 1998, with the excess of the estimated fair market
value of the net assets acquired over the purchase price allocated to a
reduction in property and equipment for pro forma purposes as follows:
P-5
<PAGE>
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Components of purchase price:
Cash to Sears....................................................... $ 175,000
Holdings common stock to Sears (11,474,606 shares valued
@ $16.82 per share)................................................ 193,000
Estimated acquisition related costs................................. 3,000
---------
Total purchase price................................................. 371,000
Historical book value of Western Auto's net assets................... (318,048)
Adjustment to book value of net assets acquired for
elimination of intercompany accounts between Western
Auto and Sears (See (1) above)...................................... (299,330)
Adjustment to book value of net assets acquired for assets and
liabilities retained by Sears in the Acquisition (See
(2) above).......................................................... 30,186
Adjustments to recognize liabilities in purchase accounting:
Reserve for severance and relocation, net of $4,900 of
deferred income tax asset (See (9) below).......................... 8,100
Net additional deferred income tax liability (See (9) below)......... 1,900
Adjustments to reflect fair market value of net assets
acquired:
Elimination of net book value of goodwill acquired................... 114,555
Decrease in book value of intangible assets acquired
(See (6) below)................................................... 4,500
Adjustments to liabilities for post-retirement costs................ (18,420)
---------
Decrease to book value of property and equipment
(See (5) below)..................................................... $(105,557)
=========
</TABLE>
The foregoing pro forma purchase price allocation is based on available
information and certain assumptions the Company believes are reasonable.
In connection with the Acquisition Agreement, Sears has agreed to evaluate
the sale of certain private label credit card programs to a third party
buyer. The Company has agreed to share any losses incurred as a result of
the sale, or as a result of continuing the credit card programs, up to a
maximum amount of $10,000 (the "Credit Card Liability"). Any amounts due
under the Credit Card Liability will be reflected as additional purchase
price when payment becomes probable and the amount can be estimated. The
Company is currently evaluating certain exit costs that may be incurred in
connection with the Acquisition and may establish additional reserves, not
reflected in the accompanying pro forma statements, based on the results of
its evaluation. Any reserves established will result in an increase in
property and equipment, resulting in additional provisions for depreciation
and amortization expense. The final purchase price allocation will be
based on the outcome of the matters referred to above, final determination
of the fair values of the net assets acquired at the date of the
Acquisition as determined by appraisal, actuarial valuation or other
methods and actual amounts of assets and liabilities on the closing date.
The final purchase price allocation may differ significantly from the pro
forma allocation.
P-6
<PAGE>
(5) Reflects the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Property retained by Sears (See (2) above)......... $ (11,079)
Purchase accounting adjustment (See (4) above)..... (105,557)
---------
$(116,636)
=========
(6) Reflects the following:
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Purchase accounting adjustment (See (4) above)..... $ (4,500)
Deferred debt issuance costs (See (3) above)....... 6,500
---------
$ 2,000
=========
(7) Reflects the following:
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Accrued expenses retained by Sears (See (2) above)...... $ (4,131)
Reserve for severance and relocation (See (4) above).... 13,000
---------
$ 8,869
=========
(8) Reflects the following:
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Issuance of 263 new shares of Company common stock to
Holding, for cash (See (3) above)...................... $ 263,000
Estimated stock issuance costs (See (3) above).......... (500)
Elimination of historical Western Auto stockholder's
equity, as adjusted.................................... (318,048)
---------
$ (55,548)
=========
</TABLE>
(9) The Company anticipates that the Acquisition will be accounted for as the
purchase of assets for income tax purposes resulting in an allocation of
the purchase price to the income tax basis of the assets and liabilities
acquired. Pro forma adjustments to deferred income tax assets
(liabilities):
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Deferred tax on severance and relocation accrual
(See (4) above)................................... $ 4,900
Net additional deferred tax liability(a)
(See (4) above)................................... (1,900)
---------
Net pro forma change in deferred taxes............. $ 3,000
=========
</TABLE>
P-7
<PAGE>
Components of net pro forma change in deferred taxes:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Current deferred tax liability...................... (11,000)
Non-current deferred tax liability (See (10) below). 14,000
-------
$ 3,000
=======
</TABLE>
______________________
(a) Represents $4,900 deferred income tax liability related to property and
equipment, net of $3,000 net deferred income tax assets relating to a
wholly owned subsidiary of Western Auto.
(10) Reflects the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Elimination of Western Auto's deferred tax liability
to Sears (See (1) above)............................ $ 12,897
Adjustment to non-current deferred tax liability
(See (9) above)..................................... 14,000
---------
$ 26,897
=========
</TABLE>
(11) Reflects borrowings of $90,000 under a new term loan facility.
P-8
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 3, 1998
---------------------------------------------------------------------------------------
RECAPITALIZATION ACQUISITION
------------------------ ---------------------------
COMPANY WESTERN AUTO TOTAL
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales..................... $848,108 $ -- $848,108 $1,319,811 $(45,900)(3) $2,122,019
Cost of sales................. 524,586 -- 524,586 883,262 -- 1,407,848
-------- ----------- -------- ---------- -------- ----------
Gross profit.................. 323,522 -- 323,522 436,549 (45,900) 714,171
Selling, general and
administrative expenses...... 279,924 -- 279,924 475,037 (64,702)(4) 690,259
Restructuring................. -- -- -- 38,441 -- 38,441
-------- ----------- -------- --------- -------- --------
Income (loss) from
operations................... 43,598 -- 43,598 (76,929) 18,802 (14,529)
Total interest expense........ (7,732) (26,625)(1) (34,357) (15,379) 7,105 (5) (42,631)
Other income (expense),
net.......................... (824) -- (824) (6) -- (830)
------- ----------- -------- -------- -------- --------
Income (loss) before
provision for taxes.......... 35,042 (26,625) 8,417 (92,314) 25,907 (57,990)
Provision (benefit) for
income taxes................. 14,670 (10,650)(2) 4,020 (31,885) 10,363 (2) (17,502)
-------- -------- -------- ---------- -------- ----------
Net income (loss)............. $ 20,372 $(15,975) $ 4,397 $ (60,429) $ 15,544 $ (40,488)
======== ======== ======== ========== ======== ==========
</TABLE>
(Footnotes on subsequent page)
P-9
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
TWENTY-EIGHT WEEKS ENDED TWENTY-SIX WEEKS ENDED
JULY 18, 1998 JULY 4, 1998
--------------------------------------- ----------------------------
RECAPITALIZATION ACQUISITION
------------------------- ----------------------------
WESTERN
COMPANY AUTO TOTAL
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales....................... $544,000 $ -- $544,000 $586,194 $(18,932)(3) $1,111,262
Cost of sales................... 332,825 -- 332,825 380,876 -- 713,701
-------- ------- -------- -------- --------- ----------
Gross profit.................... 211,175 -- 211,175 205,318 (18,932) 397,561
Selling, general and
administrative expenses........ 178,700 -- 178,700 209,017 (26,467)(4) 361,250
Costs associated with the
recapitalization............... 14,005 -- 14,005 -- -- 14,005
-------- ------- -------- -------- ------- ----------
Income (loss) from operations... 18,470 -- 18,470 (3,699) 7,535 22,306
Total interest expense.......... (11,821) (7,802)(1) (19,623) (11,218) 6,503 (5) (24,338)
Other income (expense), net..... 119 -- 119 1 -- 120
-------- ------- -------- -------- ------- ----------
Income (loss) before
provision (benefit) for
income taxes................... 6,768 (7,802) (1,034) (14,916) 14,038 (1,912)
Provision (benefit) for
income taxes................... 3,116 (3,121)(2) (5) (5,022) 5,615 (2) 588
-------- ------ -------- -------- -------- ----------
Net income (loss)............... $ 3,652 $(4,681) $ (1,029) $ (9,894) $ 8,423 $ (2,500)
======== ======= ======== ======== ======== ==========
</TABLE>
(Footnotes on subsequent page)
P-10
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(dollars in thousands)
The Pro Forma Consolidated Statements of Operations reflect the Recapitalization
and Acquisition as if they had occurred on December 29, 1996.
(1) Gives effect to the increase in estimated interest expense from the use of
borrowings to finance the Recapitalization:
<TABLE>
<CAPTION>
FISCAL YEAR TWENTY-EIGHT WEEKS
ENDED JANUARY 3, 1998 ENDED JULY 18, 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 borrowings of $125,000 on the New Credit Facility and
10.25% per annum on borrowings of $200,000 on the Series A Notes and (ii)
commitment fees on unused borrowings of $250,000 related to the New Credit
Facility using a rate of 0.5% per annum. The interest rates on the New
Credit Facility and the Series A Notes are variable. A change in the rates
of 1/8 of 1% on these borrowings would change the pro forma interest expense
for the year ended January 3, 1998 by $200 and for the twenty-eight weeks
ended July 18, 1998 by less than $100. In September 1998, the interest rate
on the New Credit Facility declined to 7.88%, which would reduce pro forma
interest expense as presented in the unaudited pro forma statement of
operations for the Recapitalization by less than $200 for both the year
ended January 3, 1998 and the twenty-eight week period ended July 18, 1998.
(b) Historical interest expense represents interest on intercompany debt, all of
which was retired with proceeds from borrowings related to the New Credit
Facility and Series A Notes. Historical intercompany debt consisted of
unsecured notes payable, for which interest was typically paid on a
quarterly basis at variable rates based on the prime rate or LIBOR. Average
borrowings outstanding on these notes were $92,700 during the year ended
January 3, 1998 and $93,400 during the period in which the borrowings were
outstanding in fiscal 1998. Average interest rates on these notes were 8.2%
during the year ended January 3, 1998 and 6.6% during the period in which
the borrowings were outstanding in fiscal 1998.
(2) Estimated income tax effects of the pro forma adjustments at a statutory
tax rate of 40%.
(3) Pro forma adjustment eliminates the effect of various Western Auto private
label credit card programs retained by Sears in accordance with the
Acquisition Agreement:
P-11
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-EIGHT WEEKS
JANUARY 3, 1998 ENDED JULY 18, 1998
----------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Credit card revenues, included in net sales.................................. $(45,900) $(18,932)
Credit card operating expenses, included in selling, general and
administrative expenses (See (4) below).................................... 55,536 21,368
Credit card financing fees, included in interest expense (See (5) below).... 2,272 1,082
-------- --------
Net pre-tax loss eliminated.................................................. $ 11,908 $ 3,518
======== ========
</TABLE>
(4) Pro forma adjustment reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-EIGHT WEEKS
JANUARY 3, 1998 ENDED JULY 18, 1998
--------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Elimination of the credit card operating expenses (See (3) above)............ $(55,536) $(21,368)
Elimination of goodwill amortization......................................... (4,455) ( 2,228)
Reduction in other intangibles amortization(a)............................... (146) (73)
Reduction in depreciation as a result of preliminary purchase price
allocation(b)............................................................... (8,119) (4,372)
Adjustment to include the interchange fee of 1.3%(c)......................... 1,700 605
Elimination of gain amortization on the post retirement benefit
obligation.................................................................. 1,215 640
Elimination of rental income, net of depreciation expense, for the tire
store properties............................................................ 639 329
-------- ---------
Net decrease in selling, general and administrative expenses................. $(64,702) $(26,467)
======== ========
</TABLE>
___________________________
(a) The historical balance sheet for Western Auto includes other intangibles of
$9,114 which were being depreciated over 40 years. The pro forma adjustment
above is made in conjunction with the write-down of the intangible assets by
$4,500.
(b) Reflects elimination of depreciation related to the purchase price
allocation based on an average useful life of 13 years.
(c) Historically, Western Auto has not been charged for the interchange fee of
1.3% on Sears' credit card sales. The Company will enter into a Merchant
Agreement with Sears, whereby Sears will service its credit card used at the
Parts America, Western Auto dealer stores and Western Auto Puerto Rico
stores for a specified period of time, and will charge the Company an
interchange fee of 1.3% of related credit card sales.
(5) Pro forma adjustment reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-EIGHT WEEKS
JANUARY 3, 1998 ENDED JULY 18, 1998
--------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Elimination of historical Western Auto inter-company interest expense........ $(13,107) $(10,136)
Elimination of credit card financing fees relating to credit card program
retained by Sears (See (3) above)........................................... (2,272) (1,082)
Interest expense on $90,000 under a new term loan facility at 7.88%(a)....... 7,092 3,818
Amortization of deferred debt issuance costs over five and one-half
years....................................................................... 1,182 637
</TABLE>
P-12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-EIGHT WEEKS
JANUARY 3, 1998 ENDED JULY 18, 1998
--------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Reduction in interest income recognized on investment of $25,000,
earning interest at 4.5%.................................................... -- 260
Net decrease in interest expense............................................. $ (7,105) $ (6,503)
</TABLE>
_______________________
(a) The interest rates on the new credit facility are variable. A change in the
rates of 1/8 of 1% on these borrowings would change the pro forma interest
expense for the year ended January 3, 1998 by $200 and for the twenty-eight
weeks ended July 18, 1998 by $100.
P-13
