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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 333-61713
HEAFNER TIRE GROUP, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 56-0754594
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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2105 WATER RIDGE PARKWAY, SUITE 500
CHARLOTTE, NORTH CAROLINA 28217
(Address, including zip code, of principal executive offices)
(704) 423-8989
(Registrant's telephone number, including area code)
Securities registered pursuant To Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant: NONE
Number of common shares outstanding at March 14, 2000: 5,286,917
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TABLE OF CONTENTS
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PART I
ITEM 1. Description of Business..................................... 1
ITEM 2. Description of Properties................................... 8
ITEM 3. Legal Proceedings........................................... 11
ITEM 4. Submission of Matters to a Vote of Security Holders......... 11
PART II
ITEM 5. Market for Registrant's Common Stock and Related Security
Holder Matters.............................................. 11
ITEM 6. Selected Financial Data..................................... 12
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk... 18
ITEM 8. Financial Statements and Supplementary Data................. 18
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 41
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 41
ITEM 11. Executive Compensation...................................... 44
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 50
ITEM 13. Certain Relationships and Related Transactions.............. 51
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 54
Signatures.................................................. 59
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
This report contains trademarks, tradenames or registered marks of Heafner
including Regul(R) tires, Winston(R) tires, Pacer(R) custom wheels, ICW(R)
custom wheels and Magnum(R)automotive lifts.
GENERAL DEVELOPMENT OF BUSINESS
Founded in 1935, Heafner Tire Group, Inc. (formerly The J.H. Heafner
Company, Inc.) (together with its subsidiaries, "Heafner") has become one of the
leading tire distributors and retailers in the United States in terms of sales
and number of tires distributed. On May 24, 1999, the majority owners of
Heafner's Class A and Class B common stock sold their shares to Charlesbank
Equity Fund IV ("Charlesbank"), a Massachusetts limited partnership. This
transaction marked the end of over sixty years of continuous ownership of
Heafner by members of the Heafner and Gaither families. On August 20, 1999, the
Company reincorporated in Delaware (previously incorporated in North Carolina)
and simultaneously changed its name from The J.H. Heafner Company, Inc. to
Heafner Tire Group, Inc.
The development of the historical Heafner operations has been marked by
consistent growth in revenues exceeding industry average, the addition of eleven
warehouses in the Southeast, increased emphasis on its private-label brand
strategy, development of electronic data interlinks with its customers and
suppliers and by the construction of a mixing warehouse close to its North
Carolina headquarters. With Heafner's acquisition of Winston Tire Company
(formerly Oliver & Winston) ("Winston") in 1997, it entered the retail tire
distribution market in California, becoming one of the nation's largest tire
retailers in terms of number of outlets. With the acquisitions of Speed
Merchant, d/b/a Competition Parts Warehouse, and its subsidiary ("CPW") in 1998,
the merger of ITCO Logistics Corporation and its subsidiaries ("ITCO") in 1998
and the acquisition of California Tire Company ("California Tire") in 1999,
Heafner expanded its West Coast distribution network and solidified its position
in the Southeastern wholesale tire distribution market. Heafner's wholesale and
retail operations are divided among four principal corporate entities:
- Heafner, organized in 1935 and into which ITCO was merged in 1998, and
Heafner's subsidiaries:
- Winston, founded in 1962 and acquired by Heafner in 1997,
- CPW, founded in 1971 and acquired by Heafner in 1998, and
- California Tire, founded in 1933 and acquired by Heafner in 1999.
With the acquisitions of ITCO, CPW and California Tire, Heafner is one of
the largest independent suppliers of tires to the replacement tire market in the
United States in terms of sales and number of tires distributed. Heafner's
wholesale distribution operations accounted for approximately 83.9% of Heafner's
total net sales in 1999. With 65 distribution centers servicing all or parts of
26 states, Heafner believes that it is the largest independent distributor of
new replacement tires in terms of number of tires shipped in the Southeast and
in California. Through this distribution network, Heafner's wholesale divisions
supplied over 14 million tires in 1999 and currently serve an average of 30,000
customers each month. Through its retail division, Heafner operates over 200
retail tire and automotive service outlets in California and Arizona which sold
over 1.2 million tires in 1999. Winston, which operates 203 of Heafner's retail
tire and automotive service outlets, was the fifth largest independent tire
dealer in the United States in 1999 based on number of company-owned retail
stores. Heafner generally stocks approximately 12,000 stock keeping units, or
"SKUs," of tires in its distribution centers. Heafner supplies premium, economy
and private-label brands of tires manufactured by the major tire manufacturers,
including Michelin, which manufactures the B.F. Goodrich and Uniroyal brands,
Goodyear, which manufactures the Goodyear, Kelly-Springfield and Dunlop brands,
Bridgestone/Firestone and Pirelli. Heafner's private-label tires are sold under
the Winston and Regul trademarks. In addition to its tire sales, Heafner is a
significant independent distributor and retailer of aftermarket wheels,
automotive replacement parts and accessories and automotive service equipment.
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Heafner believes that the combination of its operations and the acquired
businesses has provided a distinct opportunity to broaden product offerings,
strengthen manufacturer relationships, develop new competencies in its
organization and strengthen its presence in the Southeast and the West. Heafner
believes that the ITCO merger has enabled its Southeastern wholesale division to
provide more cost-effective service and has increased its distribution capacity,
positioning it for expansion into new geographic areas. Heafner believes that
the acquisition of CPW, including CPW's distribution facilities, has established
a broader supply network with more frequent delivery capabilities for Winston
retail stores, improving Heafner's ability to restock inventory and obtain
customer-requested products on a more timely basis. In addition, Heafner expects
to continue to realize significant cost savings and operating efficiencies and
improvements that will contribute to its goal of increasing future
profitability.
In fiscal 1999, on a consolidated basis, Heafner generated net sales of
$1.0 billion, EBITDA of $36.2 million and a net loss of $6.6 million. In 1999,
sales of tires accounted for approximately 79.6% of Heafner's consolidated
sales, while sales of automotive service and parts accounted for 9.4% of
Heafner's consolidated sales, sales of custom wheels accounted for 6.3%, sales
of automotive service equipment accounted for 4.0%, and sales of other products
accounted for 0.7%.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The business of Heafner is principally conducted in three industry
segments: Southeastern Wholesale, Western Wholesale and Western Retail. The
financial statements for the years ended December 31, 1999, 1998 and 1997, which
are included in Item 8 of this report, reflect the information relating to these
segments for each of Heafner's last three fiscal years.
NARRATIVE DESCRIPTION OF BUSINESS
SOUTHEASTERN WHOLESALE
Following the acquisition of ITCO in 1998, ITCO and its subsidiaries were
merged into Heafner. Heafner's historical wholesale operations and ITCO's
business became the Heafner-ITCO Tires & Products division (Heafner-ITCO).
Heafner-ITCO had net sales for 1999 of approximately $662.5 million and shipped
more than 9.0 million passenger and light truck tires and 300,000 medium truck
tires. Heafner-ITCO's products include flag brands manufactured by Michelin,
including the B.F. Goodrich and Uniroyal brands, Bridgestone/Firestone and
Dunlop. House brands include Monarch, manufactured by Goodyear, as well as other
house brands manufactured by Michelin, Bridgestone/Firestone, Kelly-Springfield
and Dunlop. Private label products include Regul Tires, Winston tires, Pacer and
ICW custom wheels. Tire sales represented approximately 84.4% of Heafner-ITCO's
total sales in 1999 and 84.7% of pro forma total sales in 1998.
WESTERN RETAIL
Heafner entered the retail tire business with its acquisition of Winston in
1997. Winston has grown to become the fifth largest independent tire dealer in
the country in 1999, based on the number of company-owned retail stores. In
October 1999, Heafner acquired the assets and business of Tri-Valley/Dorman's
Tire ("Tri-Valley"), a tire retail chain of 17 stores in Southern California
which are now operated by Winston. Winston sold more than 1.2 million tires in
1999 as well as other automotive products through its chain of 203 retail stores
in California and Arizona and generated net sales in 1999 of $164.0 million.
Each Winston store offers customers multiple choices of flag brands manufactured
by Michelin, including the B.F. Goodrich and Uniroyal brands, Pirelli and
Goodyear, as well as the Winston tire private-label brand and related automotive
products and services, including Quaker State oil products and Monroe and
Raybestos ride control products. Through Winston's retail locations, which
average approximately 4,500 square feet, Heafner also provides automotive repair
and service, such as wheel alignment, oil changes and brake repair. Tire sales
represented approximately 58.3% and 58.5% of Winston's 1999 and 1998 total
sales, respectively and automotive repair and service sales represented
approximately 41.7% and 41.5% for the same periods.
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WESTERN WHOLESALE
Heafner acquired CPW in 1998 and California Tire in January 1999. CPW and
California Tire are primarily wholesale distributors specializing in replacement
market sales of tires, parts, wheels and equipment. CPW's flag brand tire
offerings include Michelin, Dunlop, B.F. Goodrich, Uniroyal and Pirelli. CPW
also distributes the company's private brand Regul and the Lee custom brand. CPW
believes that it is one of the largest distributors of high performance tires in
California. CPW also sells parts, wheels, and equipment built by nationally
recognized manufacturers. California Tire's products include flag brands
manufactured by Bridgestone/Firestone and Yokohama.
Net sales for 1999 for CPW and California Tire combined were approximately
$190.1 million, shipping more than 2.5 million passenger and light truck tires.
Tire sales in the Western Wholesale segment represented approximately 81.2% and
83.5% of total sales for 1999 and pro forma total sales for 1998, respectively.
INDUSTRY OVERVIEW
Purchasers in the United States spent approximately $19.9 billion on new
replacement tires in 1999. Of that amount, passenger tires accounted for
approximately 57% of sales, light truck tires accounted for approximately 17%,
truck tires accounted for approximately 22% and farm, specialty and other types
of tires accounted for approximately 4%. The number of new replacement tires
shipped in the United States for passenger cars and light trucks increased from
164.6 million tires in 1986 to 226.0 million tires in 1999. Heafner believes
that the factors that have contributed to this growth include increases in both
the number and average age of cars as well as passenger miles driven in the
United States.
Consumers of new replacement tires in the United States obtain them from
several principal sources, including independent tire dealers,
manufacturer-owned retail stores, mass merchandisers such as Sears and Wal-Mart,
auto supply chain stores and wholesale clubs and discounters. Independent tire
dealers, which represent the largest customer base served by Heafner, are the
largest suppliers of new replacement passenger tires in the United States.
Independent tire dealers accounted for approximately 60% of retail sales of
domestic replacement passenger tires in 1999.
Independent tire dealers obtain their inventory of new replacement tires
through three principal sources: tire manufacturers, independent wholesale
distributors like Heafner, and dealer-owned warehouses. Other sources include
discount or price clubs and other tire outlet chains. Heafner believes that, in
recent years, certain tire manufacturers have reduced their supply to small
independent tire dealers due to the inefficiencies of supplying small quantities
of product to a large number of locations. At the same time, manufacturers have
increased their supplies to independent wholesale distributors, such as Heafner,
who are able to deliver tires to a large number of independent tire dealers with
greater efficiency.
The replacement tire market for passenger cars and light trucks consists of
three primary types of tires: "flag" brands, which are premium tires made by the
major tire manufacturers; associate or "house" brands, which are primarily
economy brand tires made by the major tire manufacturers; and private-label
brands, which are brands made by tire manufacturers generally for independent
tire wholesale distributors and retailers. In 1999, flag brands constituted
approximately 54% of the United States passenger and light truck replacement
tire markets, private-label brands constituted approximately 25% of those
markets and house brands made up approximately 20% of those markets.
OPERATIONS
Wholesale Divisions. The wholesale divisions of Heafner accounted for
approximately 83.9% of Heafner's net sales in 1999. With 65 distribution centers
servicing all or parts of 26 states, Heafner believes that it is the largest
independent distributor of replacement tires in the Southeast and in California.
Through this distribution network, Heafner supplied over 14 million tires in
1999.
Heafner's distribution network provides daily delivery to its tire dealer
customers in most areas and, in major markets, provides delivery two to four
times a day. Heafner has been able to offer reliable, timely and
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frequent deliveries to its customers by utilizing its inventory management
systems that link its distribution facilities to its major customers and
electronic data links directly with Michelin and Goodyear, its two largest
suppliers. This level of just-in-time service is intended to allow Heafner's
customers to reduce investment in inventories while still enabling them to
provide a full range of products to consumers. Heafner believes that software
and on-line programs, such as Heafner's "HeafNet" electronic interlink service,
will play an increasingly important role for its distribution customers. See "--
Information Systems and Technology." Heafner's fleet of approximately 500 trucks
also facilitates frequent deliveries to its distribution customers.
In order to improve efficiency in its Southeastern operations, Heafner
utilizes a large mixing warehouse located in Lincolnton, North Carolina where
products are sorted for shipments to customers located outside the territories
typically served by the distribution network. The mixing warehouse also enables
Heafner to make volume purchases from suppliers when advantageous and ship the
resulting inventory to its distribution centers. Heafner believes that this
mixing and accessibility of inventory enables Heafner's customers to expand
sales opportunities without the burden and expense of large investments in
inventory.
As an additional service to its customers, Heafner may pass through to its
distribution customers all or a portion of credits from tire manufacturers for
advertising or special promotions on tires or other products. These credits
assist Heafner's customers in budgeting for their advertising and similar
operating expenses. Heafner also participates in and sponsors dealer conferences
among its customers in order to keep them informed of industry trends and new
product offerings. In addition, as Heafner's retail expertise grows, Heafner
intends to continue to make this expertise available to its independent tire
retailer customers in order to enhance customer relations.
Retail Division. Heafner's retail division operates over 200 retail tire
and service outlets in California and Arizona, including 203 tire and automotive
service outlets operated by Winston. Winston was the fifth largest independent
tire dealer in the United States in 1999 based on number of company-owned retail
stores. Heafner believes that the strength of the Winston retail franchise in
California may make it suitable for expansion in the West.
The following chart shows the geographical distribution of Heafner's retail
locations as of December 31, 1999:
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REGION WINSTON CPW TOTAL
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Southern California......................................... 104 1 105
Northern California......................................... 85 7 92
Arizona..................................................... 14 0 14
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Totals............................................ 203 8 211
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Winston provides its customers with a guarantee on all products and
services and believes that its emphasis on customer service distinguishes it
from many of its competitors. Winston also conducts an eight-week training
course for its store managers and mechanics and routinely monitors the
performance of its customer service representatives. Through its strong consumer
protection program, which includes sending mystery shoppers to store locations,
Winston seeks to ensure that services and sales tactics comply with California
consumer protection regulations covering the automotive services industry.
Winston's programs have been highlighted by the California Bureau of Automotive
Repair in its publications as examples of how compliance with such regulations
can and should be achieved.
PRODUCTS
Heafner sells a broad selection of tires, custom wheels, automotive service
equipment and related products manufactured by the leading manufacturers of
those products. Heafner's products include flag brand tires manufactured by
Michelin, including the B.F. Goodrich and Uniroyal brands, private-label
products such as Regul tires, Winston tires and Pacer custom wheels, and house
brand products such as Monarch tires, manufactured by Goodyear. Heafner
generally stocks approximately 12,000 SKUs of tires in its distribution centers.
Heafner also distributes alignment service equipment manufactured by Hunter
Engineering Company and tire changers and balancers built by Hennessey
Industries, Inc. (a division of the Danaher Corporation),
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both leading manufacturers in their respective fields. Heafner sells many other
products, including tires for the medium truck, farm and industrial markets,
automotive service equipment, wheel weights and tubes. In addition, through
CPW's operations, Heafner supplies automotive parts and accessories. Through
Winston's retail tire and automotive service outlets, Heafner offers other
automotive products such as Quaker State oil products and Monroe and Raybestos
ride control products. Heafner believes that products sold by ITCO and CPW have
complemented Heafner's previous product line and, in the case of CPW, have
increased Heafner's sales of high-performance tires and automotive parts and
accessories. Heafner intends to continue to provide its customers with a broad
choice of flag and private-label products. In 1999, sales of tires accounted for
approximately 79.6% of Heafner's consolidated sales, while sales of automotive
service and parts accounted for 9.4% of Heafner's consolidated sales, sales of
custom wheels accounted for 6.3%, sales of automotive service equipment
accounted for 4.0%, and sales of other products accounted for 0.7%.
SUPPLIERS
Heafner purchases its products from all major tire manufacturers and other
suppliers. In 1999, Heafner purchased in excess of 14 million tires. Heafner's
purchases of passenger and light truck tires represented approximately 6% of the
total U.S. replacement passenger and light truck tire market. Approximately 88%
of Heafner's total tire purchases, in units, in 1999 were supplied by Michelin,
Goodyear and Bridgestone/Firestone.
Of the total 1999 U.S. new replacement passenger tire market, Michelin flag
brands (including the B.F. Goodrich and Uniroyal brands) accounted for 15%,
Bridgestone/Firestone flag brands accounted for 14% and the leader, Goodyear
brand, accounted for 16%. Of the total 1999 U.S. replacement light truck tire
market, Michelin (including the B.F. Goodrich and Uniroyal brands) accounted for
17%, Bridgestone/Firestone accounted for 14% and Goodyear accounted for 13%. Of
Heafner's principal private-label brands, Winston tires are manufactured
exclusively by Goodyear and Regul tires are manufactured by both Michelin and
Goodyear.
There are a number of worldwide manufacturers of wheels and other
automotive products and equipment. Most of the wheels purchased by Heafner are
private-label custom brands, such as Pacer and ICW, and are produced by a
variety of manufacturers. Heafner purchases equipment and other products from
multiple sources, including industry leaders such as Hunter Engineering Company
and Hennessey Industries, Inc. (a division of the Danaher Corporation).
With the exception of a long-term contract with Kelly-Springfield (the
"Winston Private Brand Supply Agreement"), Heafner's supply arrangements with
its major suppliers generally are oral or written arrangements which are
renegotiated annually. Although there can be no assurance that these
arrangements will be renewed, or renewed on favorable terms, Heafner has
conducted business with its major tire suppliers for many years and believes
that it has strong relationships with all of its major suppliers.
Heafner purchases certain private-label and house brand tires, including
the Winston and Monarch products, from Kelly-Springfield. Purchases under the
Winston Private Brand Supply Agreement are made at prices specified from time to
time in the manufacturer's pricing schedule. Under the terms of the Winston
Private Brand Supply Agreement, Heafner purchases substantially all of its
requirements of Winston brand tires from Kelly-Springfield. The initial term of
the Winston Private Brand Supply Agreement expires on May 7, 2007 and the
agreement is automatically renewable for successive three-year terms thereafter.
The Winston Private Brand Supply Agreement may be terminated by either party
upon twelve months' advance notice. Kelly-Springfield is the sole holder of
Heafner's Series A preferred stock and Series B preferred stock, as discussed
below under "Certain Relationships and Related Transactions -- Preferred Stock."
CUSTOMERS
Wholesale. Through its wholesale divisions, Heafner distributes tires and
related automotive products principally to independent tire dealers. Heafner's
other customers include national retail chains, service stations, general
automotive repair facilities, auto parts stores, automobile dealers and
specialty automotive repair facilities. Heafner generally requires payment from
its customers within 30 days, although it may tailor
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programs for its larger customers. In 1999, Heafner's wholesale divisions served
an average of more than 30,000 customers each month. Heafner's largest customer
accounted for less than 1% of Heafner's net sales in 1999 and Heafner's top 25
customers accounted for less than 5% of Heafner's net sales in 1999.
Retail. Heafner's retail operations attract a variety of individual
consumers in the areas they serve. Through the Winston retail chain, Heafner
also offers accounts to its corporate retail customers. Winston's corporate
accounts represent approximately 20% of its tire business.
COMPETITION
The industry in which Heafner operates is highly competitive, and many of
Heafner's competitors have resources significantly greater than Heafner's. Tire
manufacturers distribute tires to the retail market by direct shipments to
independent tire dealers, national retail chains such as Sears and Wal-Mart and
manufacturer-owned retail stores as well as through shipments to independent
wholesale distributors. A number of independent wholesale tire distributors also
compete in the regions in which Heafner operates. In its retail business,
Heafner also faces competition from national chains and department stores, other
independent tire stores, tire manufacturer-owned stores, discount and warehouse
clubs and other automotive product retailers.
Heafner believes that the principal competitive factors in its business are
reputation, breadth of product offering, delivery frequency, price and service.
Heafner believes that it competes effectively in all aspects of its business due
to its ability to offer a broad selection of flag and private-label branded
products, its competitive prices and its ability to provide quality services in
a timely manner.
TRADEMARKS
The private brand names under which Heafner markets its products are
trademarks of Heafner. Those brand names are considered to be of material
importance to Heafner's business because they both develop brand identification
and foster customer loyalty. All of Heafner's trademarks are of perpetual
duration so long as periodically renewed, and Heafner currently intends to
maintain all of them in force. The private brand names under which Heafner
markets its products are:
- Regul tires,
- Winston tires,
- DynaTrac,
- Pacer custom wheels,
- ICW custom wheels, and
- Magnum automotive lifts.
SEASONALITY AND INVENTORY
Heafner's wholesale distribution and retail service operations typically
experience their highest levels of sales from March through October of each
fiscal year, with the period from November through February generally
experiencing the lowest levels of sales. Heafner's inventories generally
fluctuate with anticipated seasonal sales volumes. Heafner believes it maintains
levels of inventory that are adequate to meet its customers' needs on short
notice. The average of beginning- and end-of-year inventories of Heafner in 1999
was $141.0 million.
Since customers look to Heafner to fulfill their needs on short notice,
backlog of orders is not a meaningful statistic.
WORKING CAPITAL PRACTICES
Heafner must maintain substantial inventories in connection with its
wholesale distribution and retail service operations throughout the year, which
fluctuate with anticipated seasonal sales volume. These
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inventories are generally financed through borrowings under Heafner's credit
facility. The amount of borrowings under the credit facility fluctuates
throughout the year. On December 31, 1999, $74.7 million of borrowing was
outstanding and an additional $16.2 million could have been borrowed under the
credit facility. On March 6, 2000, Heafner amended its credit facility to
provide for borrowings up to $200.0 million.
Both the maintenance of substantial inventories and the practice of
seasonal borrowing are common to the wholesale tire distribution and retail tire
and automotive service industry.
INFORMATION SYSTEMS AND TECHNOLOGY
Heafner believes that software and on-line programs will play an
increasingly important role in linking Heafner to its distribution and retail
customers and improving Heafner's management of inventories of tires, wheels and
related products.
Heafner is able to offer reliable, timely and frequent deliveries to its
customers by utilizing inventory-management systems that link directly to its
major customers and among its distribution facilities and electronic data
interlinks directly with Michelin and Kelly-Springfield, its two largest
suppliers. Heafner supplies a number of customers with its proprietary "HeafNet"
system, which gives customers electronic access to Heafner's warehouses to
locate, price and order inventory. Heafner believes this system allows its
customers to respond more quickly and efficiently to retail customers' requests
for products. Heafner intends to implement a company-wide inventory management
system based on the strongest attributes of its existing systems in order to
improve the operation of its overall distribution network.
Heafner is currently implementing a software product called Wheel Wizard in
its retail stores and independent tire dealers throughout Heafner's coverage
area. Wheel Wizard allows consumers to visually install a variety of wheels,
tires, and performance springs on their vehicle. Wheel Wizard integrates with
HeafNet to allow a dealer to visually select wheels and tires with a consumer
then check inventory, pricing and place an order. Heafner believes that
interactive software programs such as these enhance its ability to market wheels
by providing retail dealers devices that take up little floor space, are
relatively easy to use and are customer oriented.
ENVIRONMENTAL MATTERS
Heafner's operations and properties are subject to federal, state and local
laws, regulations and ordinances relating to the use, storage, handling,
generation, transportation, treatment, emission, release, discharge and disposal
of certain materials, substances and wastes under which Heafner could be held
strictly, jointly and severally liable for costs associated with the
investigation and clean-up of contaminated properties. The nature of Heafner's
existing and historical operations exposes it to the risk of liabilities or
claims with respect to environmental matters, including off-site disposal
matters. For example, in its automotive service operations Heafner handles waste
motor oil and hydraulic brake fluid, the storage and disposal of which is
strictly regulated by federal and state authorities. Heafner contracts with
outside services to handle disposal of these materials.
Heafner believes that it currently complies with all relevant environmental
regulations and it does not incur significant costs maintaining compliance with
those laws. However, Heafner could incur material costs in connection with
environmental liabilities or claims. In addition, future events such as changes
in existing laws and regulations or in their interpretation, could give rise to
additional compliance costs or liabilities that could have a material effect on
Heafner's business or earnings. Expenditures related to environmental matters
have not had, and are not expected to have, a material effect on Heafner's
business or earnings.
EMPLOYEES
Heafner employed approximately 3,686 people as of December 31, 1999, of
whom approximately 1,734 were employed in its wholesale divisions and
approximately 1,952 were employed in its retail division. None of Heafner's
employees are represented by a union. Heafner believes its employee relations
are satisfactory.
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BUSINESS SUBJECT TO GOVERNMENTAL CONTRACTS
No material portion of the business of Heafner is subject to renegotiation
of contracts with, or termination by, any governmental agency.
CAUTIONARY STATEMENTS ON FORWARD-LOOKING INFORMATION
This report contains "forward looking statements," which are statements
other than statements of historical facts. These forward-looking statements are
principally contained under Items 1 and 7 and in statements using phrases such
as "expects" or "anticipates" located throughout this report. The forward-
looking statements include, among other things, Heafner's expectations and
estimates about its business operations, strategy, future cost savings and
integration of ITCO, CPW and California Tire, and its expectations and estimates
about its future financial performance, including its financial position, cash
flows from operations, capital expenditures and ability to refinance
indebtedness.
The forward-looking statements are subject to risks, uncertainties and
assumptions about Heafner and about the future, and could prove not to be
correct. Cautionary statements describing factors that could cause actual
results to differ materially from Heafner's expectations are discussed in this
report, including in conjunction with the forward-looking statements included in
this report. All subsequent written or oral forward-looking statements
attributable to Heafner or to persons acting on behalf of Heafner are expressly
qualified in their entirety by those cautionary statements.
Heafner undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this report may not occur.
ITEM 2. DESCRIPTION OF PROPERTIES.
Heafner's principal properties are geographically situated to meet sales
and operating requirements. All of Heafner's properties are considered to be
both suitable and adequate to meet current operating requirements. During 1999,
Heafner closed seven distribution warehouses in the Southeast and is planning to
close six more in 2000 in order to eliminate redundancies within its
Southeastern Wholesale division. Although there can be no assurance that it will
be successful in doing so, Heafner believes that, particularly with respect to
its distribution centers, it may obtain cost savings and efficiencies as a
result of these closures and consolidations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
8
<PAGE> 11
Distribution Centers. The following table sets forth certain information
regarding Heafner's warehouse and distribution facilities as of December 31,
1999:
<TABLE>
<CAPTION>
OWNED/
LOCATION COMPANY LEASED
-------- ------------ ------
<S> <C> <C>
Alabama:
Birmingham............................................. Heafner-ITCO Leased
Cullman................................................ Heafner-ITCO Leased
Mobile................................................. Heafner-ITCO Leased
Montgomery............................................. Heafner-ITCO Leased
Arizona:
Mesa................................................... CPW Leased
Phoenix................................................ CPW Leased
Arkansas:
Little Rock............................................ Heafner-ITCO Leased
Texarkana.............................................. Heafner-ITCO Owned
California:
Fresno................................................. CPW Owned
Fresno................................................. California Tire Leased
Hayward................................................ California Tire Leased
Moorpark............................................... CPW Leased
Morgan Hill............................................ CPW Leased
Rancho Cucamonga....................................... CPW Leased
Sacramento............................................. CPW Leased
Sacramento............................................. California Tire Leased
San Jose............................................... CPW Leased
Santa Fe Springs....................................... CPW Leased
Florida:
Fort Myers............................................. Heafner-ITCO Leased
Jacksonville........................................... Heafner-ITCO Leased
Medley................................................. Heafner-ITCO Leased
Orlando................................................ Heafner-ITCO Leased
Pensacola.............................................. Heafner-ITCO Owned
Tallahassee............................................ Heafner-ITCO Owned
Tampa.................................................. Heafner-ITCO Leased
West Palm Beach........................................ Heafner-ITCO Leased
Georgia:
Augusta................................................ Heafner-ITCO Leased
Byron.................................................. Heafner-ITCO Leased
Rome................................................... Heafner-ITCO Owned
Savannah............................................... Heafner-ITCO Leased
Tucker................................................. Heafner-ITCO Leased
Kentucky:
Lexington.............................................. Heafner-ITCO Leased
Louisville............................................. Heafner-ITCO Leased
Maryland:
Baltimore.............................................. Heafner-ITCO Leased
Landover............................................... Heafner-ITCO Leased
Salisbury.............................................. Heafner-ITCO Owned
Mississippi:
Jackson................................................ Heafner-ITCO Leased
Missouri:
Springfield............................................ Heafner-ITCO Leased
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
OWNED/
LOCATION COMPANY LEASED
-------- ------------ ------
<S> <C> <C>
North Carolina:
Asheville.............................................. Heafner-ITCO Owned
Burlington............................................. Heafner-ITCO Leased
Charlotte.............................................. Heafner-ITCO Owned
Charlotte.............................................. Heafner-ITCO Owned
Fayetteville........................................... Heafner-ITCO Leased
Greensboro............................................. Heafner-ITCO Leased
Lincolnton............................................. Heafner-ITCO Owned
Lumberton.............................................. Heafner-ITCO Owned
Raleigh................................................ Heafner-ITCO Owned
Wilmington............................................. Heafner-ITCO Leased
Wilson................................................. Heafner-ITCO Leased
Winston-Salem.......................................... Heafner-ITCO Leased
South Carolina:
Charleston............................................. Heafner-ITCO Leased
Columbia............................................... Heafner-ITCO Leased
Columbia............................................... Heafner-ITCO Leased
Florence............................................... Heafner-ITCO Leased
Mauldin................................................ Heafner-ITCO Owned
Mauldin................................................ Heafner-ITCO Owned
Tennessee:
Chattanooga............................................ Heafner-ITCO Leased
Johnson City........................................... Heafner-ITCO Leased
Knoxville.............................................. Heafner-ITCO Owned
Knoxville.............................................. Heafner-ITCO Leased
Memphis................................................ Heafner-ITCO Leased
Nashville.............................................. Heafner-ITCO Leased
Nashville.............................................. Heafner-ITCO Leased
Virginia:
Harrisonburg........................................... Heafner-ITCO Leased
Norfolk................................................ Heafner-ITCO Owned
Norfolk................................................ Heafner-ITCO Leased
Richmond............................................... Heafner-ITCO Owned
Richmond............................................... Heafner-ITCO Leased
Roanoke................................................ Heafner-ITCO Owned
Wytheville............................................. Heafner-ITCO Leased
</TABLE>
Retail Stores. As of December 31, 1999, Heafner operated over 200 retail
tire and service outlets in California and Arizona, including 203 tire and
automotive service outlets operated by Winston. All of these retail outlets are
leased.
10
<PAGE> 13
Corporate and Executive Offices. In addition to its principal executive
offices, Heafner currently has corporate offices in four other locations.
California Tire's corporate offices are expected to be consolidated into CPW's
corporate offices in San Jose, California. All of Heafner's corporate and
executive offices are leased.
<TABLE>
<CAPTION>
LOCATION DIVISION USE
-------- ------------ -----------------
<S> <C> <C>
Charlotte, North Carolina........................ Corporate Executive offices
Lincolnton, North Carolina....................... Heafner-ITCO Corporate offices
Burbank, California.............................. Winston Corporate offices
San Jose, California............................. CPW Corporate offices
Hayward, California.............................. California Corporate offices
Tire
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
In the third quarter 1999, Heafner, without admitting any fault, entered
into a settlement agreement with plaintiffs in a class action lawsuit filed in
1998 on behalf of Winston store managers. The settlement has received tentative
approval by the Court and is expected to be effective on or before May 30, 2000.
The lawsuit alleged that Winston violated certain California wage and business
practice regulations. Winston denied these allegations. As a result of this
agreement, the Company recorded a pre-tax nonrecurring charge of $3.5 million in
the third quarter 1999. The nonrecurring charge includes the payment of $3.0
million to the plaintiff class members and their attorneys, which payment is
expected to be made as follows: (i) $1,128,058 payable into an interest bearing
account after entry of judgment expected to be March 21, and (ii) Balance of
$1,871,942 payable by 70 days after the entry of judgment by the Court which
will be May 30, 2000. The Company has filed a claim of indemnification against
the previous Winston shareholders pursuant to the original purchase agreement
under which the Company acquired Winston. The indemnification provisions of the
purchase agreement provide that recoveries are limited to 72% of such costs and
related fees. The sellers have disputed the Company's right to indemnification.
Approximately $4.6 million is held in escrow to secure all of the sellers'
indemnification obligations to the Company. The Company is not able at this time
to predict the outcome of this claim for indemnification and has not recorded
any recovery in its financial statements.
The agreements related to the acquisition of CPW, including employment
agreements, contained various provisions, which required the Company to make
certain calculations regarding results of operations (as defined therein) and
make payments based on certain formulas. The parties mediated the various issues
involved in these matters on January 20, 2000, and resolved all issues except
for one. The Company does not believe that the amounts involved in this issue
are significant to the financial condition of the Company. The parties have
agreed to binding arbitration before a single accountant arbitrator to resolve
the remaining issue.
In addition to the aforementioned contingencies, Heafner is also involved
in various lawsuits arising out of the ordinary conduct of its business.
Although no assurances can be given, management does not expect that any of
these matters will have a material adverse effect on its business or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
Not applicable.
11
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected historical consolidated financial
data of Heafner for the periods indicated. The selected historical financial
data as of and for the years ended December 31, 1995 through 1999 are derived
from the historical consolidated financial statements of Heafner as of and for
those years, which have been audited by Arthur Andersen LLP, independent
certified public accountants. The consolidated financial statements of Heafner
for each of the years in the three-year period ended December 31, 1999 are
included in Item 8 of this report. The following selected historical
consolidated financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included as Item 7, and the consolidated financial statements of
Heafner and the related notes, included as Item 8, in this report.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997(a) 1998(b) 1999(c)
-------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................................... $169,031 $190,535 $311,839 $716,485 $1,016,589
Costs of goods sold......................................... 140,811 158,880 233,941 550,848 787,480
-------- -------- -------- -------- ----------
Gross profit................................................ 28,220 31,655 77,898 165,637 229,109
Selling, general and administrative expenses................ 26,584 29,660 74,441 153,743 212,739
Special and nonrecurring charges............................ -- -- -- 1,409 3,500
-------- -------- -------- -------- ----------
Income from operations...................................... 1,636 1,995 3,457 10,485 12,870
Interest and other expense, net............................. 946 944 3,711 12,704 19,806
-------- -------- -------- -------- ----------
Income (loss) from operations before provision (benefit) for
income taxes and extraordinary charge..................... 690 1,051 (254) (2,219) (6,936)
Provision (benefit) for income taxes........................ -- -- (240) 289 (348)
-------- -------- -------- -------- ----------
Net income (loss) from operations before extraordinary
charge.................................................... 690 1,051 (14) (2,508) (6,588)
Extraordinary charge........................................ -- -- -- (2,216) --
-------- -------- -------- -------- ----------
Net income (loss)........................................... 690 1,051 (14) (4,724) (6,588)
Pro forma provision for income taxes........................ 325 439 -- -- --
-------- -------- -------- -------- ----------
Pro forma net income (loss)................................. $ 365 $ 612 $ (14) $ (4,724) $ (6,588)
======== ======== ======== ======== ==========
CASH FLOWS DATA:
Net cash provided by (used in) operating activities......... $ (363) $ 4,008 $ 6,703 $ (9,684) $ (23,732)
Net cash used in investing activities....................... (2,200) (7,626) (46,459) (58,070) (20,688)
Net cash provided by financing activities................... 2,630 3,711 41,252 71,900 44,269
Depreciation and amortization............................... 1,062 1,331 5,399 12,316 18,521
Capital expenditures........................................ 2,205 7,865 4,908 8,697 11,218
BALANCE SHEET DATA
Working capital............................................. $ 19,148 $ 16,913 $ 20,582 $ 56,562 $ 89,661
Total assets................................................ 55,458 59,551 146,508 430,821 459,246
Total debt.................................................. 15,632 21,003 64,658 185,336 236,592
Total preferred stock....................................... -- -- 11,500 11,353 11,094
Stockholders' equity........................................ 11,719 11,574 7,659 18,124 10,521
OTHER DATA:
EBITDA(d)................................................... $ 3,060 $ 3,847 $ 9,987 $ 24,233 $ 36,189
Ratio of earnings to fixed charges(e)....................... 1.4x 1.5x -- -- --
</TABLE>
- ---------------
(a) In May 1997, Heafner acquired Winston. The transaction was accounted for
using the purchase method of accounting.
(b) In May 1998, the ITCO merger and the CPW acquisition occurred. Each
transaction was accounted for using the purchase method of accounting.
(c) In January 1999, Heafner acquired California Tire and in October 1999,
Heafner acquired Tri-Valley. Each transaction was accounted for using the
purchase method of accounting.
(d) EBITDA represents net income before extraordinary item plus income taxes,
depreciation and amortization and interest expense. Interest expense for the
years ended December 31, 1999 and 1998 includes $0.9 million and $0.7
million, respectively, related to amortization of deferred financing
charges. EBITDA for the year ended December 31, 1998 excludes the effects of
the extraordinary item related to the extinguishment of debt ($3.7 million)
and the special charge of $1.4 million. EBITDA for the year ended December
31, 1999 excludes the impact of the nonrecurring charge of $3.5 million.
EBITDA is presented because it is a widely accepted financial indicator of a
company's ability to generate cash flow and to service or incur
indebtedness. EBITDA should not be considered an alternative to net income
as a measure of operating results or to cash flows from operations as a
measure of liquidity in accordance with generally accepted accounting
principles. EBITDA as calculated and presented here may not be comparable to
EBITDA as calculated and presented by other companies.
(e) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense (which includes amortization of deferred financing costs
and debt issuance cost) and one-third of rental expense, deemed
representative of that portion of rental expense estimated to be
attributable to interest. For the years ended December 31, 1998 and 1999,
earnings were insufficient to cover fixed charges by $2.2 million and $6.9
million, respectively.
12
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis of the results of operations,
financial condition and liquidity of Heafner should be read in conjunction with
the financial statements and the related notes included in this report.
OVERVIEW
Heafner sells its products to a variety of markets, both in terms of
end-users and geography. Heafner's distribution channels consist of (a)
Southeastern Wholesale, (b) Western Wholesale, and (c) Western Retail tires and
automotive service. In 1999, net sales through such channels accounted for
approximately 65.2%, 18.7% and 16.1%, respectively, of consolidated net sales.
Heafner believes that the diversity of its markets helps stabilize its sales and
earnings.
RESULTS OF OPERATIONS
Heafner acquired Winston on May 7, 1997; CPW on May 20, 1998; California
Tire on January 12, 1999, and Tri-Valley on October 28, 1999. The ITCO merger
occurred on May 20, 1998. Therefore, results for 1999 include the operations of
California Tire after January 12, 1999 and Tri-Valley after October 28, 1999.
The results for 1998 exclude the results of California Tire and Tri-Valley, and
include ITCO and CPW only after May 20, 1998. Results for 1997 exclude results
of California Tire, ITCO, and CPW, and include the operations of Winston after
May 7, 1997.
The following table sets forth each category of statements of operations
data as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DEC. 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of goods sold.......................................... 77.5 76.9 75.0
Gross profit................................................ 22.5 23.1 25.0
Selling, general and administrative expenses................ 21.3 21.7 23.9
Income from operations...................................... 1.3 1.5 1.1
Interest and other expense.................................. 1.9 1.8 1.2
Loss from operations before benefit for income taxes........ (0.7) (0.3) (0.1)
Income taxes................................................ (0.0) (0.0) (0.1)
Net income (loss) before extraordinary charge............... (0.6) (0.4) 0.0
Extraordinary charge........................................ -- (0.3) --
Net income (loss)........................................... (0.6) (0.7) 0.0
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Consolidated net sales increased by $300.1 million, or 41.9% to $1.02
billion in 1999 from $716.5 million in 1998. Approximately $210.4 million of the
$300.1 million increase over 1998 sales can be attributed to 12 months of sales
for CPW and ITCO in 1999 (versus 7 months in 1998), and $38.8 million of the
increase can be attributed to 12 months of sales for California Tire (versus
none in 1998). Other net sales growth was $51.0 million or 7.1%. Sales growth
slowed in 1999 due to management and personnel focusing on the consolidation and
conversion efforts resulting from the merger and acquisitions, and a slower
retail market in the third and fourth quarters of 1999.
Gross profit increased from $165.6 million in 1998 to $229.1 million in
1999, although gross profit as a percentage of sales decreased from 23.1% to
22.5%. The decrease in gross profit margin was anticipated due to a higher
proportion of wholesale distribution sales that have lower gross profit margins
than retail operations. In 1999, wholesale distribution sales were 83.9% of
total sales versus 78.7% in 1998.
Selling, general, and administrative expenses increased by $61.1 million in
1999 representing 21.3% as a percentage of sales compared to 21.7% in 1998. The
decrease in expenses as a percentage of sales is due to cost
13
<PAGE> 16
savings as a result of the consolidation of operations between Heafner and ITCO
completed in 1999. Interest and other expenses increased in 1999 by $7.1 million
to $19.8 million.
Included in the income from operations for 1999 is a charge of $3.5 million
representing the cost of settlement of the class action lawsuit filed in 1998 on
behalf of Winston store managers alleging certain violations of California wage
and business practice regulations by Winston. Heafner settled this matter
without any admission of fault in order to avoid the effects of protracted
litigation. Heafner has filed a claim for indemnification of this cost against
the previous Winston Shareholders pursuant to the Winston purchase agreement.
The previous Winston Shareholders have disputed Heafner's right to
indemnification. The indemnification provisions of the purchase agreement
provide that recoveries are limited to 72% of such costs and related fees.
Approximately $4.6 million is held in escrow to secure all of the sellers'
indemnification obligations to Heafner. Heafner is not able at this time to
predict the outcome of this claim for indemnification and has not recorded any
recovery in its financial statements.
Interest expense increased by $8.6 million due to increased borrowings
utilized in the acquisitions of California Tire and Tri-Valley, capital
expenditures, and increased levels of working capital.
The income tax benefit in 1999 was $0.3 million representing an effective
tax rate of 5.0% compared to (13.0%) tax provision for 1998. The effective tax
rate yielded a lower than expected tax benefit due to non-deductible goodwill
amortization. The net loss for 1999 was $6.6 million or (0.6)% of net sales
compared to $4.7 million or (0.7)% of net sales in 1998.
The following table sets forth certain selected information regarding the
Company's segments (in millions):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DEC. 31,
--------------------------
1999 1998 1997
-------- ------ ------
<S> <C> <C> <C>
Net sales
Southeastern Wholesale.................................... $ 662.5 $478.1 $210.8
Western Wholesale......................................... 190.1 85.5 --
Western Retail............................................ 164.0 152.8 101.1
-------- ------ ------
Consolidated.............................................. $1,016.6 $716.5 $311.8
======== ====== ======
EBITDA
Southeastern Wholesale.................................... $ 29.9 $ 13.7 $ 5.0
Western Wholesale......................................... 11.3 5.7 0.0
Western Retail............................................ -- 4.9 5.0
Corporate................................................. (5.1) -- --
-------- ------ ------
Consolidated.............................................. $ 36.2 $ 24.2 $ 10.0
======== ====== ======
</TABLE>
Southeastern Wholesale Distribution. Net sales in the Southeastern
Wholesale Distribution segment increased $184.3 million, or 38.6% from net sales
of $478.1 million in 1998 to $662.5 million in 1999. Of this sales increase,
$149.1 million is attributable to 12 months sales for ITCO in 1999 compared to 7
months in 1998. Other sales growth totaled $35.2 million, or 7.4%, in 1999.
EBITDA increased from $13.7 million in 1998 to $29.9 million in 1999 as a
result of an improvement in gross profit margin percentage in 1999 and the
inclusion for all of 1999 of the results of operations of ITCO. The increase in
gross margin is the result of improved sales mix, and more effective purchasing
practices in 1999. Selling prices have remained relatively stable in 1999
compared to 1998. Selling, general, and administrative expenses declined in 1999
as a percentage of sales from 14.6% of sales in 1998 to 13.8% of sales in 1999.
The cost reduction can be attributed to the consolidation of the Heafner and
ITCO corporate offices and several distribution centers.
Western Wholesale Distribution. Net sales in the Western Wholesale
Distribution segment grew from $85.5 million net sales in 1998 to $190.1 million
net sales in 1999 or 122.3%. The California Tire acquisition in January 1999
accounted for $38.8 million of the sales growth. The inclusion of 12 months of
sales in 1999
14
<PAGE> 17
versus 7 months in 1998 for CPW accounted for $61.2 million of the increase.
Other sales growth totaled $4.5 million, or 5.3%, in 1999. Although CPW and
California Tire operate in the same areas, little or no loss of the customer
base following the California Tire acquisition was realized due to the
distinctly different product lines offered.
EBITDA increased from $5.7 million in 1998 to $11.3 million in 1999 as a
result of the higher level of net sales in the segment and a decline in selling,
general, and administrative expenses from 24.1% of sales in 1998 to 21.7% of
sales in 1999.
Western Retail. The Western Retail segment experienced an increase in net
sales of $11.1 million or a 7.3% increase from $152.8 million in 1998 to $164.0
million in 1999. Sales growth was aided in 1999 by the acquisition of 17
Tri-Valley store locations in October 1999.
EBITDA fell in 1999 from $4.9 million in 1998 to break-even in 1999. Gross
profit margins remained relatively constant in 1999, however Winston operated,
on average, 15 more stores in 1999 than during 1998. This, combined with the
many changes taking place within the segment's infrastructure, has contributed
to higher operating costs in 1999. The executive and operating management team
has been strengthened through a number of additions and changes. Management has
taken a more aggressive stance regarding store closures, and has closed a number
of underperforming stores in 1999. In addition, Winston began to reposition
itself with a new advertising campaign set to release in 2000, and has moved
away from competing in the marketplace based solely on price. Heafner expects
that the many initiatives put in place during 1999 will have a positive impact
on operating earnings and cash flow in the future.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales were $716.5 million for 1998, an increase of $404.6 million, or
129.8%, from $311.8 million in 1997. The inclusion of sales for Winston (12
months versus 8), ITCO (7 months), and CPW (7 months) accounted for $364.3
million, or 90.0%, of the increase in sales in 1998. Distribution sales were
strong throughout 1998, increasing by almost 13.0% due to continued market share
gains in Heafner's primary service areas, aided somewhat by strong market
conditions.
Gross profit was $165.6 million in 1998, an increase of $87.7 million, or
112.6%, from $77.9 million in 1997. As a percentage of net sales, gross profit
was 23.1% and 25.0%, respectively, for 1998 and 1997. The increase in gross
profit dollars was also due to the inclusion of the acquired operations, which
accounted for $78.4 million, or 89.4%, of the gross dollar increase. The
decrease in overall gross margins in 1998 was due to a higher proportion of
distribution sales, which generally result in lower margins than retail sales.
The percentage of distribution sales was 78.7% and 67.6%, respectively, for 1998
and 1997.
Selling, general and administrative expenses were $155.2 million in 1998,
an increase of $80.7 million, or 108.4%, from $74.4 million in 1997. As a
percentage of net sales, these expenses were 21.7% and 23.9%, respectively, for
1998 and 1997. The inclusion of the acquired operations accounted for $72.2
million, or 89.4%, of the increase in selling, general and administrative
expenses in 1998. The decrease in selling, general and administrative costs as a
percent of sales was due to a higher proportion of distribution sales, which
generally have lower expense percentages than retail operations. Offsetting this
business mix change somewhat was slightly higher selling and administrative
costs in Heafner's distribution operations as a percent of sales.
Interest and other expense increased from $3.7 million in 1997 to $12.7
million in 1998. Interest expense increased by $8.6 million as a result of
increased borrowings incurred in connection with the acquisitions of Winston,
ITCO and CPW.
The results from operations for 1998 include a special charge of $1.4
million in June 1998, which was taken into account in determining income from
operations, in connection with the costs of closing certain duplicative Heafner
distribution centers. These costs relate to lease commitments, asset writedowns,
severance and employee-related costs, and other costs to shut down these
facilities. A non-recurring extraordinary charge of $3.7 million ($2.2 million
net of taxes) was also recorded for the write-off of unamortized financing
expenses and discounts, and the payment of prepayment penalties.
15
<PAGE> 18
Income taxes on pre-tax income before extraordinary charge were $0.3
million in 1998 compared to $(0.2) million in 1997. The effective income tax
rate for 1998 was (13.0)% and was increased from the statutory rate due to
non-deductible goodwill amortization.
The net loss for 1998 was $(4.7) million, or (0.7)%, of net sales compared
to a net loss of $(14,000), or 0.0%, of net sales in 1997, as a result of the
factors discussed above.
Southeastern Wholesale Distribution. Southeastern Wholesale Distribution
experienced a 126.8% increase in net sales from $210.8 million in 1997 to $478.1
million primarily due to the addition of ITCO sales in 1998 (7 months). EBITDA
increased from $5.0 million in 1997 to $13.7 million in 1998 as a result of this
increase in net sales and management's focus on corporate, warehouse, and
systems consolidation. Selling, general, and administrative expenses declined
from 15.5% of sales in 1997 to 14.7% in 1998.
Western Retail. Western Retail operations began in May 1997 with the
acquisition of Winston. The net sales growth of $51.8 million from $101.1
million in 1997 to $152.8 million in 1998 was primarily the result of 12 months
of sales in 1998 versus 7 months in 1997. Winston organic sales growth for 1998
was $3.2 million or 3.2% over 1997. Gross profit margins as a percent of sales
remained constant from 1997 to 1998 and selling, general, and administrative
expenses increased from 41.3% to 42.0% from 1997 to 1998. As a result, EBITDA
decreased $0.1 million from $5.0 million to $4.9 million.
LIQUIDITY AND CAPITAL RESOURCES
In 1999, Heafner required approximately $4.1 million of financing in
connection with the California Tire acquisition, and approximately $3.8 million
of financing in connection with the Tri-Valley acquisition. Additional financing
was required for 1999 payments under provisions of the CPW Acquisition Agreement
dated May 20, 1998. Heafner obtained the necessary funds from, among other
sources, the outstanding borrowings under the credit facility.
At December 31, 1999 the combined net indebtedness (net of cash) of Heafner
was $230.1 million compared to $178.7 million (net of cash) for Heafner at
December 31, 1998. Financing committed by the lenders as of December 31, 1999
under the credit facility was $100.0 million under a revolving line of credit.
As of December 31, 1999, $74.7 million was outstanding and $16.2 million was
available for additional borrowings under the credit facility. On March 6, 2000
the credit facility was amended to provide, among other things, maximum
borrowings thereunder up to $200.0 million or a borrowing base comprised of
specified percentages of accounts receivable and inventory, whichever is less.
Heafner's principal sources of cash during 1999, 1998, and 1997 came from
operations, borrowings under revolving credit facilities, issuance of long-term
subordinated debt and preferred stock in connection with the acquisition of
Winston, and issuance of long-term debt in connection with the acquisition of
CPW and the ITCO merger. Cash generated from (used in) operating activities
totaled $(23.7) million, $(9.7) million, and $6.7 million, respectively, during
each of those periods. Net working capital increased in 1999 by $38.5 million
(other than through acquisition and special charge), primarily due to increases
in inventories and decreases in accounts payable and accrued expenses totaling
$12.7 million and $22.8 million, respectively. Net working capital increased in
1998 by $18.3 million (excluding extraordinary charge, special charges and
deferred taxes), primarily due to increases in accounts receivable and
inventories totaling $13.9 million and $12.2 million, respectively, offset by an
increase in accounts payable and accrued expenses of $7.1 million. Cash
generated in 1997 was primarily due to improved vendor payment programs that
resulted in an increase in accounts payable and accrued expenses of $9.6
million.
Capital expenditures during the years ended 1999, 1998 and 1997 amounted to
$11.2 million, $8.7 million, and $4.9 million, respectively. Capital
expenditures in 1999 included $5.7 million in the Western Retail segment for new
store equipment, remodeling existing stores, new store locations and information
technology. Information system upgrades include Oracle Financials and a new
"Point of Sale" system in 1999. The Southeastern Wholesale Distribution segment
utilized $3.4 million in warehouse expansion and maintenance, information
technology and corporate office facility expansion. Ten distribution warehouses
were expanded during 1999 adding approximately 500,000 square feet of capacity.
Other capital expenditures
16
<PAGE> 19
during 1998 and 1997 were primarily for Winston retail facility maintenance and
equipment, information technology, and Western and Southeastern Wholesale
Distribution locations and facility maintenance.
Loans under the credit facility bear interest at a floating rate based upon
federal funds or Eurodollar rates plus an applicable margin. Loans under the
credit facility are guaranteed by all subsidiaries of Heafner and collateralized
by liens on inventory and accounts receivable.
Heafner has entered into interest rate swap agreements from time to time to
manage exposure to fluctuations in interest rates. As of December 31, 1999,
interest rate swap agreements were in place covering notional amounts of
approximately $20.0 million of indebtedness expiring in October 2002, at an
average interest rate of 7.53%. Heafner does not anticipate entering into
additional swap agreements or hedging arrangements at this time.
Heafner anticipates that its principal use of cash going forward will be to
meet working capital and debt service requirements and to make capital
expenditures. Based upon current and anticipated levels of operations, Heafner
believes that its cash flow from operations, together with amounts available
under the credit facility, will be adequate to meet its anticipated
requirements. There can be no assurance, however, that Heafner's business will
continue to generate sufficient cash flow from operations in the future to meet
these requirements or to service its debt, and Heafner may be required to
refinance all or a portion of its existing debt, or to obtain additional
financing. These increased borrowings may result in higher interest payments. In
addition, there can be no assurance that any such refinancing would be possible
or that any additional financing could be obtained. The inability to obtain
additional financing could have a material adverse effect on Heafner.
Certain minority stockholders of Heafner have been granted redemption
rights commencing in 2004, subject to certain conditions, which if exercised
would obligate Heafner to redeem the shares of capital stock held by such
stockholders at agreed valuations (based upon a multiple of EBITDA formula). See
"Certain Relationships and Related Party Transactions -- Warrants" and "--
Preferred Stock." There can be no assurance that sufficient funds will be
available to redeem the shares of capital stock held by such stockholders if
Heafner is required to do so or whether the terms of its outstanding
indebtedness at such time will permit such redemption.
YEAR 2000 COMPLIANCE
Portions of some of the accounting and operational systems and software
used by Heafner in its business identify years with two digits instead of four.
If not corrected, these information technology systems may recognize the year
2000 as the year 1900, which might cause system failures or inaccurate reporting
of data that disrupts operations. Heafner completed an internal assessment of
all of the business applications and related software used in its information
technology systems in order to identify where "Year 2000" problems exist. As a
result of this review, Heafner identified a limited number of remediation steps
that were completed prior to January 1, 2000.
In addition, Heafner contacted non-information technology vendors to ensure
that any of their products currently used in Heafner's business adequately
address Year 2000 issues. Areas reviewed include warehouse equipment, telephone
and voice mail systems, security systems and other office and site support
systems. Although there can be no assurance, Heafner believes based on its
review that Year 2000 problems in its non-information technology systems will
not cause a material disruption in Heafner's business.
Heafner also may be vulnerable to business interruptions caused by
unremedied Year 2000 problems of its significant suppliers of products or
services. Heafner initiated formal communications with significant suppliers,
including the country's major tire manufacturers, to determine the extent to
which Heafner's operations may be affected by such third parties' Year 2000
non-compliance. Each of the major tire manufacturers informed Heafner that it
anticipates no disruption of tire supply or provision of significant business
information as a result of Year 2000 problems. Heafner's wholesale and retail
customer base is highly fragmented, with no single customer accounting for a
significant portion of Heafner's business. Accordingly,
17
<PAGE> 20
although it has not attempted to survey its customers, Heafner believes that no
significant risk exists in connection with Year 2000 problems on the part of any
of its customers.
Heafner has not incurred nor does it expect to incur material costs
associated with bringing its information technology and non-information
technology systems into Year 2000 compliance, including software modification,
equipment replacement and payments to outside solution providers. However, if
Year 2000 issues in Heafner's information technology and non-information
technology systems have not been remedied, or if Year 2000 problems on the part
of Heafner's customers and suppliers exist and have not been remedied, there can
be no assurance that significant business interruptions or increased costs
having a material adverse effect on the business, financial condition or results
of operations of Heafner will not occur. Risks of Year 2000 non-compliance on
the part of Heafner or any of its significant suppliers could include
interruptions in supply from tire manufacturers, disruption of Heafner's
internal and external distribution network, reduced customer service
capabilities, breakdown of inventory control and fulfillment systems and
impairment of essential information technology systems used by management.
Heafner has not established nor does it plan to establish a contingency plan for
Year 2000 compliance issues.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Heafner does not consider its exposure to market risk to be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HEAFNER TIRE GROUP, INC. -- CONSOLIDATED FINANCIAL
STATEMENTS
Report of Independent Public Accountants.................... 19
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 20
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... 21
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. 22
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 23
Notes to Consolidated Financial Statements.................. 24
</TABLE>
18
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Heafner Tire Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Heafner
Tire Group, Inc. (a Delaware Corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Heafner Tire
Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Charlotte, North Carolina,
March 20, 2000.
19
<PAGE> 22
HEAFNER TIRE GROUP, INC.
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,497 $ 6,648
Accounts receivable, net of allowances of $2,385 and
$2,220 in 1999 and 1998, respectively.................. 114,732 109,471
Inventories, net.......................................... 148,865 133,221
Other current assets...................................... 13,407 13,319
-------- --------
Total current assets.............................. 283,501 262,659
-------- --------
Property and equipment:
Land...................................................... 3,908 3,945
Buildings and leasehold improvements...................... 23,190 22,583
Machinery and equipment................................... 25,102 18,581
Furniture and fixtures.................................... 8,659 7,368
Vehicles and other........................................ 2,669 2,013
Construction in progress.................................. 1,324 1,162
-------- --------
Total property and equipment...................... 64,852 55,652
Less -- Accumulated depreciation.......................... (17,228) (12,850)
-------- --------
Property and equipment, net....................... 47,624 42,802
-------- --------
Goodwill, net............................................... 107,112 104,405
Other intangible assets, net................................ 7,968 8,376
Other assets................................................ 13,041 12,579
-------- --------
$459,246 $430,821
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $160,271 $169,847
Accrued expenses.......................................... 30,027 33,239
Current maturities of long-term debt...................... 3,542 3,011
-------- --------
Total current liabilities......................... 193,840 206,097
-------- --------
Revolving credit facility................................... 74,688 21,925
Long-term debt.............................................. 158,362 160,400
Other liabilities........................................... 9,604 11,785
Preferred stock series A -- 4% cumulative, 7,000 shares
authorized, issued and outstanding........................ 7,000 7,000
Preferred stock series B -- variable rate cumulative, 4,500
shares authorized, issued and outstanding................. 4,094 4,353
Warrants.................................................... 1,137 1,137
Commitments and contingencies
Stockholders' equity:
Class A Common stock, par value $.01 per share; authorized
10,000,000 shares in 1999 and 1998; 5,286,917 and
3,697,000 shares issued and outstanding in 1999 and
1998, respectively..................................... 53 37
Class B Common stock, par value $.01 per share; authorized
20,000,0000 shares and 1,400,667 shares issued and
outstanding in 1998.................................... -- 14
Additional paid-in capital................................ 23,981 22,360
Notes receivable from sale of stock....................... (1,092) (177)
Retained deficit.......................................... (12,421) (4,110)
-------- --------
Total stockholders' equity........................ 10,521 18,124
-------- --------
$459,246 $430,821
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
20
<PAGE> 23
HEAFNER TIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $1,016,589 $716,485 $311,839
Cost of goods sold.......................................... 787,480 550,848 233,941
---------- -------- --------
Gross profit.............................................. 229,109 165,637 77,898
Selling, general and administrative expenses................ 212,739 153,743 74,441
Special and nonrecurring charges............................ 3,500 1,409 --
---------- -------- --------
Income from operations.................................... 12,870 10,485 3,457
---------- -------- --------
Other income (expense):
Interest expense, net..................................... (22,053) (13,460) (4,842)
Other income.............................................. 2,247 756 1,131
---------- -------- --------
Loss from operations before provision (benefit) for income
taxes..................................................... (6,936) (2,219) (254)
Provision (benefit) for income taxes...................... (348) 289 (240)
---------- -------- --------
Net loss from operations before extraordinary charge........ (6,588) (2,508) (14)
Extraordinary charge from early extinguishment of debt, net
of income tax benefits of $1,478.......................... -- (2,216) --
---------- -------- --------
Net loss.................................................... $ (6,588) $ (4,724) $ (14)
========== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
21
<PAGE> 24
HEAFNER TIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK NOTES
---------------------------------------- RECEIVABLE
CLASS A CLASS B ADDITIONAL FROM RETAINED
------------------ ------------------- PAID IN SALE EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL OF STOCK (DEFICIT) TOTAL
--------- ------ ---------- ------ ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996............. 2,080 $ 208 -- $ -- $ -- $ -- $ 11,366 $11,574
Net loss............................. -- -- -- -- -- -- (14) (14)
Dividends............................ -- -- -- -- -- -- (1,193) (1,193)
Repurchase of common shares.......... (1,024) (102) -- -- -- -- (2,606) (2,708)
Stock split.......................... 3,464,944 (71) -- -- 71 -- -- --
Shares issued for notes receivable... 225,000 2 -- -- 245 (247) -- --
Reclassification of S Corporation
retained earnings to additional
paid-in capital.................... -- -- -- -- 6,939 -- (6,939) --
--------- ----- ---------- ---- ------- ------- -------- -------
Balance, December 31, 1997............. 3,691,000 37 -- -- 7,255 (247) 614 7,659
Net loss............................. -- -- -- -- -- -- (4,724) (4,724)
Issuance of Class B Common stock..... -- -- 1,400,667 14 14,945 -- -- 14,959
Issuance of Class A Common stock..... 16,000 -- -- -- 171 -- -- 171
Forgiveness of note receivable....... -- -- -- -- -- 62 -- 62
Repurchase of Class A Common stock... (10,000) -- -- -- (11) 8 -- (3)
--------- ----- ---------- ---- ------- ------- -------- -------
Balance, December 31, 1998............. 3,697,000 37 1,400,667 14 22,360 (177) (4,110) 18,124
Net loss............................. -- -- -- -- -- -- (6,588) (6,588)
Issuance of Class A Common stock..... 175,000 2 -- -- 1,573 (1,000) -- 575
Exchange of Class B for Class A
Common stock....................... 1,400,667 14 (1,400,667) (14) -- -- -- --
Forgiveness of note receivable....... -- -- -- -- -- 59 -- 59
Costs associated with change in
control............................ -- -- -- -- -- -- (1,697) (1,697)
Exercise of stock options............ 24,250 -- -- -- 58 -- -- 58
Payment on Notes Receivable.......... -- -- -- -- -- 21 -- 21
Repurchase of Class A Common stock... (10,000) -- -- -- (10) 5 (26) (31)
--------- ----- ---------- ---- ------- ------- -------- -------
Balance, December 31, 1999............. 5,286,917 $ 53 -- $ -- $23,981 $(1,092) $(12,421) $10,521
========= ===== ========== ==== ======= ======= ======== =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
22
<PAGE> 25
HEAFNER TIRE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (6,588) $ (4,724) $ (14)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities, net of mergers and
acquisitions --
Depreciation and amortization of goodwill and other
intangibles.......................................... 17,572 11,583 5,399
Amortization of other assets.......................... 949 733 --
Extraordinary charge.................................. -- 3,694 --
Special and nonrecurring charges...................... 3,500 1,409 --
Deferred taxes........................................ (348) (4,162) (528)
Other................................................. (348) 117 (114)
Change in assets and liabilities:
Accounts receivable, net.............................. (1,710) (13,923) (5,758)
Inventories, net...................................... (12,682) (12,242) (2,377)
Other current assets.................................. (811) 1,967 200
Accounts payable and accrued expenses................. (22,790) 7,090 9,581
Other................................................. (476) (1,226) 314
-------- -------- --------
Net cash provided by (used in) operating
activities.......................................... (23,732) (9,684) 6,703
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of California Tire, net of cash acquired...... (4,082) -- --
Acquisition of Tri Valley, net of cash acquired........... (3,750) -- --
Acquisition of CPW, net of cash acquired.................. (3,045) (36,074) --
Merger of ITCO, net of cash acquired...................... (1,214) (17,125) --
Acquisition of Winston, net of cash acquired.............. -- -- (42,195)
Purchase of property and equipment........................ (11,218) (8,697) (4,908)
Proceeds from sale of property and equipment.............. 786 3,826 363
Other..................................................... 1,835 -- 281
-------- -------- --------
Net cash used in investing activities............... (20,688) (58,070) (46,459)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................. -- 150,000 28,000
Net proceeds (repayments) from revolving credit
facility................................................ 52,763 (38,071) 18,405
Proceeds from issuance of preferred stock................. -- -- 11,500
Principal payments on long-term debt...................... (5,506) (32,714) (10,558)
Cash paid for stock repurchase............................ (31) (11) (2,708)
Cash paid for financing costs............................. (1,915) (8,030) (2,378)
Cash paid for costs associated with change in control..... (1,697) -- --
Cash dividends paid....................................... -- -- (1,193)
Proceeds from issuance of common stock.................... 575 -- --
Other..................................................... 80 726 184
-------- -------- --------
Net cash provided by financing activities........... 44,269 71,900 41,252
-------- -------- --------
NET INCREASE (DECREASE) IN CASH............................. (151) 4,146 1,496
CASH, BEGINNING OF YEAR..................................... 6,648 2,502 1,006
-------- -------- --------
CASH, END OF YEAR........................................... $ 6,497 $ 6,648 $ 2,502
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION --
Cash payments for interest................................ $ 21,574 $ 10,495 $ 3,585
======== ======== ========
Cash payments for taxes................................... $ 1,334 $ 1,963 $ --
======== ======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
In 1998, in connection with the ITCO Merger (Note 2), the Company issued
1,400,667 shares of Class B Common Stock at a fair value of approximately $15.0
million.
During 1997, the Company received $2.6 million in accounts payable credits
from a vendor in exchange for a note payable.
The accompanying notes to consolidated financial statements
are an integral part of these statements.
23
<PAGE> 26
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Heafner Tire Group, Inc. and subsidiaries (the "Company" or "Heafner")
(formerly The J. H. Heafner Company, Inc.), is a Delaware corporation primarily
engaged in the wholesale distribution of tires and tire accessories and the
operation of retail tire and auto service stores. On May 24, 1999, Charlesbank
Equity Fund IV, Limited Partnership, ("Charlesbank") a Massachusetts limited
partnership, purchased approximately 97.8% of the Company's then issued and
outstanding shares of Class A common stock and approximately 96.8% of its then
issued and outstanding shares of Class B common stock for a purchase price of
approximately $44.7 million. On August 20, 1999, the Company reincorporated in
Delaware (previously incorporated in North Carolina) and simultaneously changed
its name from The J. H. Heafner Company, Inc. to Heafner Tire Group, Inc.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company includes cash, demand deposits and highly liquid investments
with maturities of less than three months in cash and cash equivalents in its
consolidated financial statements.
REVENUE RECOGNITION AND CONCENTRATION OF CREDIT RISK
For its wholesale operations, the Company recognizes revenue upon shipment
from its distribution centers/warehouse to the customer. For its retail
operations, the Company recognizes revenue at the point of sale. In the normal
course of business, the Company extends credit, on open accounts, to its
customers after performing a credit analysis based on a number of financial and
other criteria. The Company performs ongoing credit evaluations of its
customers' financial condition and does not normally require collateral;
however, letters of credit and other security are occasionally required for
certain new and existing customers. Allowances are maintained for potential
credit losses and such losses have been within management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, accounts receivable, other current assets,
accounts payable and accrued expenses are reflected in the financial statements
at fair value because of the short-term maturity of those instruments. The fair
value of the Company's revolving credit facility is disclosed in Note 4 and the
fair values of the Company's debt and interest rate swaps are disclosed in Note
5.
INVENTORIES
Inventories consist primarily of automotive tires, wheels, parts and
accessories and are valued at the lower of cost, determined on the first-in,
first-out (FIFO) method or market. During 1997, the Company changed its method
of determining the cost of inventories from the last-in, first-out (LIFO) method
to FIFO method. This change has been applied by retroactively restating retained
earnings as of December 31, 1996.
24
<PAGE> 27
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
PROPERTY AND EQUIPMENT
Depreciation is determined by using a combination of the straight-line
method and declining-balance method based on the following estimated useful
lives:
<TABLE>
<S> <C>
Buildings................................................... 20-30 years
Machinery and equipment..................................... 3-10 years
Furniture and fixtures...................................... 3-7 years
Vehicles and other.......................................... 3-5 years
</TABLE>
Leasehold improvements are amortized over the lesser of the lease term or
the estimated useful lives of the improvements. Expenditures for repairs and
maintenance are charged to expense as incurred. Renewals or improvements of
significant items are capitalized. When assets are sold or otherwise disposed
of, the cost and related accumulated depreciation or amortization are removed
from the respective accounts and any resulting gain or loss is recognized.
DEFERRED FINANCING COSTS
Costs incurred in connection with financing activities (Notes 4, 5 and 6),
are capitalized and amortized using the effective interest method and charged to
interest expense over the life of the associated debt in the accompanying
consolidated statements of operations. The unamortized balance of these deferred
costs included in the accompanying consolidated balance sheets were $7.8 million
and $7.4 million at December 31, 1999 and 1998, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill, which represents the excess of the purchase price over the fair
value of the net assets of the acquired entities is being amortized on a
straight-line basis over a period of 15 years. Amortization of goodwill was $7.8
million, $5.3 million and $1.5 million in 1999, 1998 and 1997, respectively.
Accumulated amortization at December 31, 1999 and 1998 was $14.7 million and
$6.8 million, respectively. The carrying amount of goodwill will be reviewed
periodically based on the nondiscounted cash flows and pretax income of the
acquired entity over the remaining amortization period. Should this review
indicate that the goodwill balance will not be fully recoverable, the Company's
carrying value of the goodwill will be reduced. At December 31, 1999, the
Company believes net goodwill of $107.1 million is fully recoverable.
Other intangible assets, which represent noncompete agreements, stayput
agreements and other intangibles is being amortized on a straight-line basis
over periods ranging from two to six years. Amortization of other intangibles
was $2.9 million and $1.6 million in 1999 and 1998, respectively. Accumulated
amortization at December 31, 1999 and 1998 was $4.5 million and $1.6 million,
respectively.
INCOME TAXES
In connection with the acquisition of Winston Tire Company (formerly,
Oliver & Winston, Inc.) ("Winston") in May 1997, the Company terminated its S
Corporation status for federal and state income tax purposes. Accordingly, the
Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes." This statement
requires the use of the asset and liability method of accounting for deferred
income taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax reporting purposes, at
the applicable enacted tax rates. The pro forma effect of income taxes for the
period from January 1, 1997 to May 7, 1997 was not significant.
25
<PAGE> 28
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
In connection with the Company's S Corporation termination, the Company
reclassified its undistributed S Corporation earnings of $6.9 million as of May
7, 1997, to additional paid-in capital.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. In June
1999, the FASB issued SFAS No. 137 which defers the effective date of SFAS No.
133 to fiscal years beginning after June 15, 2000. SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement, and
requires that a company must formally document, design and assess the
effectiveness of transactions that receive hedge accounting.
The Company has not yet quantified the impacts of adopting SFAS No. 133 but
does not anticipate a material impact on the financial statements. However, SFAS
No. 133 could increase the volatility in earnings and other comprehensive
income.
INFORMATION CONCERNING BUSINESS SEGMENTS
On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131). SFAS No. 131
established revised standards for reporting information about operating segments
in annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain 1998 and 1997 amounts have been reclassified to conform with the
1999 presentation.
2. ACQUISITIONS:
On October 28, 1999, the Company acquired all the assets and business of
Tri-Valley/Dorman's, Inc. ("Tri-Valley"), a tire retail chain in southern
California. The purchase price totaled $3.8 million in cash and the assumption
of operating leases for 17 retail tires stores in the Los Angeles and San Diego
areas. The transaction has been accounted for under the purchase method.
Accordingly, results of operations for the acquired business have been included
in the consolidated statement of operations from the date of acquisition. The
acquisition was primarily funded through available cash resources. The purchase
price has been allocated
26
<PAGE> 29
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
to the acquired net assets based upon their fair market values. The excess of
the purchase price over the net tangible assets acquired was allocated to an
intangible asset and is being amortized over the terms of the related leases,
including expected renewals, which averages approximately six years.
On January 12, 1999, the Company entered into a Stock Purchase Agreement
with the stockholders of California Tire Company ("California Tire"), a
wholesaler and retailer of tires, parts and accessories located in California.
The total consideration paid to the stockholders was $4.0 million in cash. The
transaction has been accounted for under the purchase method. Accordingly,
results of operations for the acquired business have been included in the
consolidated statement of operations from the date of acquisition. The
acquisition was primarily funded through available cash resources. The purchase
price has been allocated to the acquired net assets based upon their fair market
values. The excess of the purchase price over the net tangible assets acquired
was allocated to goodwill and is being amortized over 15 years.
On May 20, 1998, the Company acquired all of the common stock of ITCO
Logistics Corporation and Subsidiaries ("ITCO") for $18.0 million in cash and
1,400,667 newly issued shares of the Company's Class B Common Stock with an
appraised value of approximately $15.0 million. In addition, the Company assumed
obligations on stock appreciation rights totaling $1.4 million. Following the
merger, ITCO's subsidiaries were merged into ITCO and ITCO was merged into the
Company. The acquisition has been accounted for as a purchase and, accordingly,
the operating results of ITCO have been included in the Company's consolidated
financial statements since the date of acquisition. The acquisition was funded
primarily through proceeds from issuance of Series A Senior Notes ("Series A
Notes"). The purchase price has been allocated to the acquired net assets based
upon their fair market values. The excess of the purchase price over the net
tangible assets acquired was allocated to goodwill and is being amortized over
15 years. In connection with the ITCO merger, the Company recorded a $3.5
million liability for estimated costs related to employee severance, facilities
closing expense and other related exit costs in accordance with EITF 95-3,
"Recognition of Liabilities in Connection with a Purchase Business Combination."
During the year ended December 31, 1999, the Company revised its estimate,
reducing goodwill by $0.7 million, and charged approximately $0.9 million to
this reserve. During the year ended December 31, 1998, the Company charged
approximately $0.4 million to this reserve.
On May 20, 1998, the Company acquired all of the outstanding common stock
of The Speed Merchant, Inc. ("CPW") for $45.0 million in cash, of which $35.0
million was paid on May 20, 1998, with $7.4 million payable in installments over
five years in consideration for noncompete agreements and $2.6 million payable
in the form of contingent payments to CPW stockholders. The purchase agreement
also includes contingent payments based on earnings levels for the 12 month
period ended May 20, 1999. As of December 31, 1999, a total of $2.2 million has
been recorded as additional purchase price relative to the contingent payments.
These contingent payments have been recorded as additional purchase price and
will be amortized over the remaining amortization period for goodwill. The
acquisition has been accounted for as a purchase and, accordingly, the operating
results of CPW have been included in the Company's consolidated financial
statements since the date of acquisition. The acquisition was funded primarily
through proceeds from issuance of Series A Notes. The purchase price has been
allocated to the acquired assets based upon their fair market values. The excess
purchase price over the net tangible assets acquired was allocated to goodwill
which is being amortized over a 15 year period and to other intangible assets
which are being amortized over a two to five year period. In connection with the
CPW acquisition, the Company recorded a $1.7 million liability for estimated
costs related to employee severance, facilities closing expense and other
related exit costs in accordance with EITF 95-3. During the year ended December
31, 1999, the Company revised its estimate, reducing goodwill by $0.6 million,
and charged approximately $0.3 million to this reserve. During the year ended
December 31, 1998, the Company charged approximately $0.2 million to this
reserve.
27
<PAGE> 30
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
On May 7, 1997, the Company acquired all outstanding shares of common stock
of Winston, a California-based operation of retail tire and automotive service
centers, for approximately $43.1 million, consisting of $42.4 million in cash
and $0.7 million in direct acquisition costs. The acquisition has been accounted
for as a purchase and, accordingly, the operating results of Winston have been
included in the Company's consolidated financial statements since the date of
acquisition. The acquisition was funded primarily through proceeds from a
revolving credit facility with a bank ($3.6 million), proceeds from a term loan
with a bank ($12.0 million), issuance of 12% Senior Subordinated Notes ($16.0
million) and issuance of Series A and Series B preferred stock ($11.5 million).
The purchase price has been allocated to the acquired assets based upon their
fair market values. The excess of the purchase price over the net tangible
assets acquired was allocated to goodwill and is being amortized over 15 years.
In connection with the acquisition, the Company recorded a $2.9 million
liability for estimated costs related to employee severance and other exit costs
in accordance with EITF 95-3. During the years ended December 31, 1999, 1998 and
1997, the Company charged approximately $0.6 million, $1.4 million and $0.4
million, respectively to this reserve.
Prior to the acquisitions and merger, Winston and ITCO had a fiscal
year-end of September 30 and CPW had a fiscal year end of October 31. Winston,
ITCO and CPW results have been restated to conform with the Company's year-end.
The following unaudited pro forma summary information, which is not covered by
the report of independent accountants, presents information for the years ended
December 31, 1998 and 1997, as if the Winston acquisition, the ITCO merger and
the CPW acquisition occurred as of January 1, 1997 (in thousands). The impact of
the California Tire and Tri-Valley acquisitions was not material to the
Company's results of operations and consequently, pro forma information is not
presented.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales................................................... $924,000 $831,000
Loss from continuing operations before extraordinary
charge.................................................... (5,075) (5,111)
Net loss.................................................... (7,291) (5,111)
</TABLE>
The unaudited pro forma information is provided for informational purposes
only and is not necessarily indicative of the actual results that would have
occurred had the acquisition taken place on January 1, 1997, nor is it
indicative of future results of the combined companies.
3. INCOME TAXES:
Through May 7, 1997, the Company was an S Corporation for federal and state
income tax purposes. Accordingly, all income and losses of the Company through
May 7, 1997, were recognized by the Company's stockholders in their individual
income tax returns. The Company terminated its S Corporation status upon
completion of the Winston acquisition. In accordance with SFAS No. 109, the
effect of the Company's change in tax status has been recorded in the income tax
provision for the year ended December 31, 1997. The accompanying financial
statements reflect the provision for income taxes for the years ended December
31, 1999, 1998 and 1997. The pro forma effect of income taxes for the period
from January 1, 1997 to May 7, 1997 was not significant.
28
<PAGE> 31
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
The following historical income tax information summarizes the components
of the Company's income tax provision (benefit) on loss from operations for the
years ended December 31, 1999, 1998 and 1997 (000's):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
----- ------- -----
<S> <C> <C> <C>
Federal --
Current provision...................................... $ -- $ 1,765 $ 252
Deferred provision (benefit)........................... (270) (1,519) (473)
----- ------- -----
(270) 246 (221)
State --
Current provision...................................... -- 311 65
Deferred provision (benefit)........................... (78) (268) (84)
----- ------- -----
(78) 43 (19)
----- ------- -----
Total provision (benefit).............................. $(348) $ 289 $(240)
===== ======= =====
</TABLE>
As discussed in Note 8, the Company incurred an extraordinary charge in May
1998 related to the early extinguishment of debt resulting in an income tax
benefit of $1.5 million.
Actual income tax expense differs from the amounts computed by applying the
statutory federal income tax rate of 34% as a result of the following (000's):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------- ------ -----
<S> <C> <C> <C>
Income tax provision computed at the federal statutory
rate...................................................... $(2,358) $ (754) $ (85)
Amortization of nondeductible goodwill...................... 1,755 1,091 109
Adoption of SFAS No. 109 upon termination of S Corporation
status.................................................... -- -- (383)
State income taxes, net of federal income tax benefit....... (51) 277 65
Other....................................................... 306 (325) 54
------- ------ -----
Income tax provision (benefit).............................. $ (348) $ 289 $(240)
======= ====== =====
</TABLE>
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax reporting purposes and
(b) operating loss and tax credit carryforwards. The tax effects of the
significant temporary
29
<PAGE> 32
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
differences which comprise deferred tax assets and liabilities at December 31,
1999 and 1998, are as follows (000's):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets --
Accrued expenses and liabilities.......................... $ 7,966 $ 7,639
Employee benefits, including post retirement benefits..... 2,344 2,848
Uniform capitalization.................................... 1,570 1,223
Net operating loss........................................ 995 --
AMT tax credit............................................ 217 --
Other..................................................... -- 760
------- -------
Gross deferred tax assets.............................. 13,092 12,470
------- -------
Deferred tax liabilities --
Section 481 adjustments................................... (296) (378)
Other..................................................... (717) (361)
------- -------
Gross deferred tax liabilities......................... (1,013) (739)
------- -------
Net deferred tax asset............................... $12,079 $11,731
======= =======
</TABLE>
The above amounts have been classified in the consolidated balance sheet as
follows (000's):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets --
Current, included in other current assets................. $ 9,353 $10,470
Noncurrent, included in other assets...................... 2,726 1,261
------- -------
$12,079 $11,731
======= =======
</TABLE>
Management believes that the realization of the deferred tax assets is more
likely than not, based on the expectations that the Company will generate
sufficient taxable income in future periods.
4. REVOLVING CREDIT FACILITY:
On May 20, 1998, the Company replaced its existing loan and security
agreement with a new credit facility that provides for a senior secured
revolving credit facility (the "Revolver"). The Revolver provides for borrowings
in the aggregate principal amount of up to the lesser of $100.0 million or the
Borrowing Base, as defined in the agreement, based on 85% of eligible accounts
receivable and 65% of eligible tire inventory and 50% of all other eligible
inventory (of which up to $10.0 million may be utilized in the form of letters
of credit). During 1999, average borrowings under the Revolver were
approximately $60.5 million. At December 31, 1999, the maximum loan amount
available was $90.9 million of which $74.7 million was outstanding.
The Revolver has a five-year term expiring in May 2003, extendable by the
Company and the banks for an additional five years. Indebtedness under the new
credit facility bears interest, at the Company's option, (i) at the Base Rate,
as defined, plus the applicable margin or (ii) at the Eurodollar Rate, as
defined, plus the applicable margin. The applicable margin for base rate loans
will be 0.25% and the applicable margin for Eurodollar Rate Loans will be 1.75%,
subject in each case to performance based step-downs. At December 31, borrowings
outstanding under the Revolver were at a weighted average interest rate of 8.2%.
The Revolver requires the Company to meet certain financial requirements,
including minimum net worth and minimum loan availability and contains certain
covenants which, among other things, restrict the ability of the Company to
incur additional indebtedness; enter into guarantees; make loans and
investments;
30
<PAGE> 33
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
make capital expenditures; declare dividends; engage in mergers, consolidations
and asset sales; enter into transactions with affiliates; create liens and
encumbrances; enter into sale/leaseback transactions; modify material
agreements; and change the business it conducts. The Company's obligations under
the Revolver are secured by all inventory and accounts receivable.
In March 2000, the Company revised the Revolver by amending the credit
facility (the "New Revolver"). The New Revolver provides for borrowings in the
aggregate principal amount of up to the lessor of $200.0 million or the
Borrowing Base, as defined. The terms of the New Revolver and the provisions of
the Borrowing Base are identical in all material respects to the form and terms
of the Revolver. The New Revolver requires the Company to meet certain financial
requirements, including minimum net worth and minimum loan availability and
contains certain covenants similar in all material respects to those under the
Revolver. The Company's obligations under the New Revolver will be secured by
all inventories and accounts receivable. The New Revolver expires March 6, 2005.
5. LONG-TERM DEBT:
Long-term debt consists of the following (000's):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Series D Senior Notes, interest due semiannually at 10%,
commencing on November 15, 1999, due May 2008............. $150,000 $ --
Series B Senior Notes, interest due semiannually at 10%,
commencing on November 15, 1998, due May 2008............. -- 100,000
Series C Senior Notes, interest due semiannually at 10%,
commencing on May 15, 1999, due May 2008.................. -- 50,000
Other....................................................... 11,904 13,411
-------- --------
161,904 163,411
Less -- Current maturities.................................. (3,542) (3,011)
-------- --------
$158,362 $160,400
======== ========
</TABLE>
Aggregate maturities required on long-term debt at December 31, 1999, are
as follows (000's):
<TABLE>
<S> <C>
2000........................................................ $ 3,542
2001........................................................ 1,932
2002........................................................ 2,368
2003........................................................ 2,245
2004........................................................ 261
Thereafter.................................................. 151,556
--------
$161,904
========
</TABLE>
SENIOR NOTES
On May 20, 1998, the Company sold $100.0 million of Series A Notes due May
15, 2008, resulting in net proceeds of approximately $97.0 million. The Series A
Notes had an annual coupon of 10% and were redeemable at the Company's option,
in whole or in part, at any time, on or after May 15, 2003, at certain
redemption prices. In addition, the Company could redeem up to 35% of the
original principal amount of the Series A Notes at 110% of par with one or more
public equity offerings. Interest on the Series A Notes was payable semiannually
on May 15 and November 15 of each year commencing November 15, 1998.
31
<PAGE> 34
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
On November 16, 1998, the $100.0 million Series A Notes were exchanged for
Series B Senior Notes ("Series B Notes"). The form and terms of the Series B
Notes were identical in all material respects to the form and terms of the
Series A Senior Notes, except for certain transfer restrictions and registration
and other rights relating to the exchange of the Series A Notes for Series B
Notes. The Series B Notes evidenced the same debt as the Series A Notes and were
issued under the indenture governing the Series A Notes.
On December 8, 1998, the Company sold $50.0 million of Series C Senior
Notes ("Series C Notes") due May 15, 2008, resulting in net proceeds of
approximately $49.0 million. The Series C Notes had an annual coupon of 10% and
were redeemable at the Company's option, in whole or in part, at any time, on or
after May 15, 2003, at certain redemption prices. In addition, the Company could
redeem up to 35% of the original principal amount of the Notes at 110% of par
with one or more public equity offerings. Interest on the Series C Notes was
payable semiannually on May 15 and November 15 of each year, commencing May 15,
1999.
On March 31, 1999, the $100.0 million Series B Notes and the $50.0 million
Series C Notes were exchanged for Series D Senior Notes ("Series D Notes"). The
form and terms of the Series D Notes are identical in all material respects to
the form and terms of the Series B and Series C Notes. Like the Series B Notes,
the Series D Notes will be freely transferable and will not have any covenants
regarding exchange and registration rights. The Series D Notes evidence the same
debt as the Series B and Series C Notes and were issued under the indenture
governing the Series B and Series C Notes. See Note 10 for subsidiary guarantor
information.
The Series D Senior Notes contain certain covenants that, among other
things, limits the ability of the Company to incur indebtedness, make restricted
payments, make certain distributions, sell assets and subsidiary stock, enter
into certain affiliate transactions, sell or issue capital stock of restricted
subsidiaries, incur liens, enter into sale/leaseback transactions, and engage in
mergers and consolidations.
Using a discounted cash flow analysis, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements, the
carrying amount of the Company's debt, excluding the Series D Notes, at December
31, 1999, approximates fair value. The fair value of the Series D Notes
approximated $135.0 million.
INTEREST RATE SWAP AGREEMENTS
The Company periodically enters into interest rate swap agreements
("Swaps") to manage exposure to fluctuations in interest rates. The Swaps
represent contracts to exchange floating rate for fixed interest payments
periodically over the life of the agreements without exchange of the underlying
notional amounts. The notional amounts of Swaps are used to measure interest to
be paid or received and do not represent the amount of exposure to credit loss.
The differential paid or received on the Swaps is recognized as an adjustment to
interest expense. At December 31, 1999, Swaps were in place covering notional
amounts of approximately $20.0 million of indebtedness expiring in October 2002,
at an interest rate of 7.53%. The fair value of the Swaps is the estimated
amount that the Company would pay or receive to terminate the agreement at the
reporting date, taking into account current interest rates. The estimated fair
value of the Swaps at December 31, 1999 is approximately $88,000 which does not
necessarily reflect the potential income that would be realized on an actual
settlement of the agreements.
6. WARRANTS:
In May 1997, the Company issued $16.0 million of 12% Senior Subordinated
Debt ("Subordinated Debt") due on May 7, 2004, with interest payable quarterly.
In connection with the issuance of Subordinated Debt, the Company issued
detachable warrants which permit the holder to acquire up to 1,034,000 shares
(13.1% on a fully diluted basis) of the Company's common stock at $.01 per
share. The warrants became exercisable immediately upon issuance and expire on
May 7, 2007. The warrants may be exercised in whole or
32
<PAGE> 35
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
in part, but in no event later than the date of an initial public offering or a
sale transaction. The Company has recorded the warrants at fair value, which
resulted in a discount on the Subordinated Debt in the same amount, which was
being amortized over the term of the Subordinated Debt. The Subordinated Debt
was paid in full with the proceeds from the Series A Senior Notes Offering. The
unamortized discount at the time of repayment was written off and is included as
an extraordinary charge in the accompanying statement of operations for the year
ended December 31, 1998 (see Note 8).
7. SPECIAL AND NONRECURRING CHARGES:
In the third quarter 1999, Heafner, without admitting any fault, entered
into a settlement agreement with plaintiffs in a class action lawsuit filed in
1998 on behalf of Winston store managers. The settlement has received tentative
approval by the Court and is expected to be effective on or before May 30, 2000.
The lawsuit alleged that Winston violated certain California wage and business
practice regulations. Winston denied these allegations. As a result of this
agreement, the Company recorded a pre-tax nonrecurring charge of $3.5 million in
the third quarter 1999. The nonrecurring charge includes the payment of $3.0
million to the plaintiff class members and their attorneys, which payment is
expected to be made as follows: (i) $1.1 payable into an interest bearing
account after entry of judgment expected to be March 21, 2000 and (ii) Balance
of $1.9 payable by 70 days after the entry of judgment by the Court which will
be May 30, 2000. The Company has filed a claim of indemnification against the
previous Winston shareholders pursuant to the original purchase agreement under
which the Company acquired Winston. The indemnification provisions of the
purchase agreement provide that recoveries are limited to 72% of such costs and
related fees. The sellers have disputed the Company's right to indemnification.
Approximately $4.6 million is held in escrow to secure all of the sellers'
indemnification obligations to the Company. The Company is not able at this time
to predict the outcome of this claim for indemnification and has not recorded
any recovery in its financial statements.
In the second quarter 1998, the Company recorded special charges of $1.4
million related to the restructuring of its eastern wholesale business, which
was established for costs relating to the closing of selected distribution
centers. As of December 31, 1999, seven warehouses have been closed. The charges
include lease commitments for certain distribution centers, asset writedowns,
severance and employee related costs and costs to shut down certain facilities.
For the years ended December 31, 1999 and 1998, the Company charged
approximately $0.7 million and $0.2 million, respectively, against these
reserves.
8. EXTRAORDINARY CHARGE:
The Company recorded an extraordinary charge in the second quarter 1998
related to the early extinguishment of debt resulting in a noncash write-off of
deferred financing fees and unamortized discount of subordinated debt of $1.7
million, net of applicable income tax benefits of $1.2 million. The Company also
had prepayment penalties associated with the extinguishment of debt that
resulted in a charge of $0.5 million net of applicable income tax benefits of
$0.3 million.
9. SEGMENT INFORMATION:
The Company classifies its business interests into three fundamental
segments: southeastern wholesale distribution of tires and products, western
wholesale distribution of tires and products and western retail sales of tires,
products and services. In 1999, the Company segregated its corporate function
from the Southeastern Wholesale segment. Therefore, for 1999, corporate results
are shown in the table below as a separate segment. For 1998 and 1997, corporate
results could not be segregated from the results of the Southeastern Wholesale
segment. The Company evaluates performance based on several factors, of which
the primary financial measure is income (loss) before interest expense, income
taxes, noncash amortization of intangible assets and
33
<PAGE> 36
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
depreciation (EBITDA). The accounting policies of the segments are the same as
those described in the summary of significant accounting policies (Note 1).
The operating results of the Company reflect the acquisitions of Winston
effective as of May 7, 1997, CPW and ITCO effective as of May 20, 1998,
California Tire effective as of January 12, 1999 and Tri Valley effective as of
October 28, 1999 (000's):
<TABLE>
<CAPTION>
SOUTHEASTERN WESTERN WESTERN
WHOLESALE RETAIL WHOLESALE CORPORATE ELIMINATIONS TOTALS
------------ -------- --------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
1999 --
Revenues..................... $662,456 $163,982 $190,065 $ 86 $ -- $1,016,589
EBITDA(1).................... 29,945 21 11,290 (5,067) -- 36,189
Segment assets............... 259,348 84,084 124,549 312,071 (320,806) 459,246
Expenditures for segment
assets.................... 3,434 5,692 1,985 107 -- 11,218
1998 --
Revenues..................... $478,120 $152,848 $ 85,517 $ -- $ -- $ 716,485
EBITDA(1).................... 13,690 4,877 5,666 -- -- 24,233
Segment assets............... 502,081 80,088 120,351 -- (271,699) 430,821
Expenditures for segment
assets.................... 1,810 5,654 1,233 -- -- 8,697
1997 --
Revenues..................... $210,781 $101,058 $ -- $ -- $ -- $ 311,839
EBITDA(1).................... 5,016 4,971 -- -- -- 9,987
Segment assets............... 125,098 71,151 -- -- (49,741) 146,508
Expenditures for segment
assets.................... 2,941 1,967 -- -- -- 4,908
</TABLE>
- ---------------
(1) EBITDA represents income (loss) before interest expense, income taxes,
noncash amortization of intangible assets and depreciation. For the years
ended December 31, 1999 and 1998, interest expense in the consolidated
statement of operations includes $0.9 million and $0.7 million,
respectively, of amortization expense related to deferred transaction fees.
EBITDA for the year ended December 31, 1998 excludes the effects of the
extraordinary item related to the extinguishment of debt of $3.7 million and
the special charge of $1.4 million. For the year ended December 31, 1999,
EBITDA excludes the impact of the nonrecurring charge of $3.5 million.
10. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION:
The Series D Notes are guaranteed on a full, unconditional and joint and
several basis by all of the Company's direct subsidiaries, each of which is
wholly owned. The combined summarized information of these subsidiaries is as
follows (000's):
<TABLE>
<CAPTION>
AS OF AND FOR AS OF AND FOR
THE YEAR THE YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
Current assets............................................. $104,036 $ 82,660
Noncurrent assets.......................................... 104,597 94,127
Current liabilities........................................ 61,140 59,262
Noncurrent liabilities..................................... 5,850 7,999
Net sales.................................................. 354,047 238,365
Gross margin............................................... 115,740 87,474
Net loss................................................... (3,916) (2,784)
</TABLE>
34
<PAGE> 37
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
The above information excludes $53.3 and $24.6 million of net intercompany
payable and $55.9 and $30.3 million of intercompany sales of the Company's
subsidiary guarantors as of and for the years ended December 31, 1999 and 1998,
respectively. In the preparation of the Company's consolidated financial
statements, all intercompany accounts are eliminated.
11. EMPLOYEE BENEFITS:
401(k) PLANS
The Company maintains a qualified profit-sharing and 401(k) plan for
eligible employees. There is a separate benefits formula for employees of the
Southeastern Wholesale and Corporate segments and a separate benefits formula
for employees of the Western Wholesale and Western Retail segments. All accounts
are funded based on employee contributions to the plans, with the limits of such
contributions determined by the Board of Directors. The plan for the
Southeastern Wholesale and Corporate segments matches 50% of the participant's
contributions up to 6% of their compensation. The plan for the Western Wholesale
and Western Retail segments match 50% of the first 2% of participant
contributions and 6% of the remaining contribution up to a total of 6% of their
compensation. Heafner's plan also provides for contributions in such amounts as
the Board of Directors may annually determine for the profit-sharing portion of
the plan. The amount charged to expense during the years ended December 31,
1999, 1998 and 1997, was $0.9 million, $0.5 million and $0.4 million,
respectively.
STOCK OPTION PLANS
In 1997, the Company adopted a Stock Option Plan (the "1997 Plan") in order
to attract and retain key employees of the Company. The 1997 Plan authorized the
issuance of up to 265,000 shares of voting common stock to be issued to officers
and key employees under terms and conditions to be set by the Company's Board of
Directors. During 1997, 256,000 options were granted to various members of
management at a fair value price of $1.10 per share, as determined by an
independent appraisal. In the third quarter of 1998, the 1997 Plan was amended
to authorize the issuance of an additional 262,500 shares, for a total of
527,500 shares, of voting common stock to be issued under the plan. In 1998,
283,400 options were granted to various members of management at a fair value
price of $7.48 per share, as determined by an independent appraisal. In 1999,
300 options were granted to a member of management at a fair value price of
$7.48 per share. All options expire 10 years from the date of grant. In
connection with the Charlesbank purchase (see Note 14), which constituted a
change in control under the 1997 stock option plan, all outstanding options
became fully vested. Through December 31, 1999, 24,250 options had been
exercised under the 1997 Plan.
In the second quarter of 1999, the Company adopted the 1999 Stock Option
Plan (the "1999 Plan") in order to attract and retain employees (including
officers), directors and independent contractors of the Company. The 1999 Plan
authorizes the issuance of up to 1,050,000 shares of voting common stock to be
issued to employees (including officers), directors and independent contractors
of the Company under terms and conditions to be set by the Company's Board of
Directors. In November 1999, the Board approved an additional 53,550 options to
be available for grant, which includes all remaining available options under the
1997 Plan. In May 1999, the Company granted 500,000 options to various members
of management at a fair value price of $9.00 per share, as determined by
independent appraisal. The options are divided into three tiers that vest over
varying periods of time or upon the occurrence of certain events. In November
1999, the Company granted 145,800 options to various members of management at a
fair value price of $9.00 per share. These options generally vest over 4 years
from the date of grant. All options expire 10 years from the date of grant.
Under the 1999 Plan, 22,727 options vested; however, no options were exercised
as of December 31, 1999.
35
<PAGE> 38
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
Stock option activity under the plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at December 31, 1996............................ 0 $ 0
Granted................................................... 256,000 1.10
Exercised................................................. 0 0
Forfeited................................................. 0 0
--------- -----
Outstanding at December 31, 1997............................ 256,000 1.10
Granted................................................... 283,400 7.48
Exercised................................................. 0 0
Forfeited................................................. (45,750) 1.10
--------- -----
Outstanding at December 31, 1998 (24,000 exercisable)....... 493,650 4.76
Granted................................................... 646,100 9.00
Exercised................................................. (24,250) 2.42
Forfeited................................................. (11,500) 1.10
Cancelled................................................. (4,000) 7.48
--------- -----
Outstanding at December 31, 1999 (476,927 exercisable)...... 1,100,000 $7.33
========= =====
</TABLE>
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25") and its related interpretations. Pursuant to APB No. 25,
compensation expense is recognized for financial reporting purposes using the
intrinsic value method when it becomes probable that the options will be
exercisable. The amount of compensation expense to be recognized is determined
by the excess of the fair value of common stock over the exercise price of the
related option at the measurement date and accordingly, no compensation expense
has been recorded in the consolidated statements of operations as a result of
the stock option plans.
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
establishes an alternative method of expense recognition for stock-based
compensation awards to employees based on fair values. The Company has elected
not to adopt SFAS No. 123 for expense recognition purposes, but is required to
provide certain pro forma disclosures. The following information is presented as
if the Company had accounted for its employee stock options under the fair value
method prescribed by SFAS No. 123 (000's):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ----
<S> <C> <C> <C>
Net loss................................................. $(6,588) $(4,724) $(14)
Pro forma................................................ (7,899) (4,873) (42)
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and
1997 estimated on the date of grant using the Black-Scholes option pricing model
was $5.11, $4.68 and $.58, respectively. The fair value of options granted in
1999, 1998 and 1997 were determined using the following assumptions: a risk-free
interest rate of 5.65%, 4.69% and 6.42%, respectively, no dividend yield,
expected life of 10 years which equals the lives of the grants, and no expected
volatility.
36
<PAGE> 39
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
The following is summary information about the Company's stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, REMAINING EXERCISE DECEMBER 31, EXERCISE
PRICE 1999 TERM (YEARS) PRICE 1999 PRICE
---------- -------------- ------------ -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 1.10 179,500 7.42 $1.10 179,500 $1.10
7.48 274,700 8.73 7.48 274,700 7.48
9.00 645,800 9.51 9.00 22,727 9.00
---------- --------- ---- ----- ------- -----
$1.10-9.00 1,100,000 8.97 $7.33 476,927 $5.15
========== ========= ==== ===== ======= =====
</TABLE>
DEFERRED COMPENSATION PLAN
In 1999, the Company established a deferred compensation plan for its top
executives and divisional employees covered by the executive bonus plan to
encourage each participant to promote the long-term interests of Heafner. Each
participant is allowed to defer portions of their annual salary as well as
bonuses received into the plan. In addition to employee deferrals, the Company
makes contributions on behalf of its top executives and certain of the
divisional employees in varying amounts. The plan provides that an employee who
becomes a participant on or before November 23, 1998, shall be fully vested in
all amounts credited to such participant's account. Those who become a
participant after November 23, 1998 shall be at all times fully vested in
elective deferrals into such participant's account and, as to contributions made
by Heafner, shall vest at a rate of twenty percent (20%) per year as long as
such participant is an employee on January 1 of each year. The deferred
compensation plan may be altered and amended by Heafner's Board of Directors.
12. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases land, buildings, equipment and vehicles under various
operating leases which expire between 2000 and 2019. The Company also has
obligations totaling $0.7 million related to properties which have been
subleased.
Future minimum lease commitments at December 31, 1999 (excluding subleased
properties) are as follows (000's):
<TABLE>
<S> <C>
2000........................................................ $ 27,511
2001........................................................ 23,036
2002........................................................ 18,995
2003........................................................ 15,932
2004........................................................ 12,201
Thereafter.................................................. 37,016
--------
$134,691
========
</TABLE>
Rent expense under these operating leases was $26.3 million in 1999, $19.6
million in 1998 and $9.0 million in 1997. Obligations under capital leases are
not significant.
PURCHASE COMMITMENTS
In May 1997, the Company entered into a purchase agreement with a supplier
(the "Tire Supply Agreement" -- see Note 13) which expires May 2007. Under the
terms of the agreement, the Company has
37
<PAGE> 40
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
agreed to purchase all requirements of its "Winston" brand tires at a negotiated
price specified in the agreement.
LEGAL PROCEEDINGS
In the third quarter 1999, the Company, without admitting any fault,
entered into a settlement agreement with plaintiffs in a class action lawsuit
filed in 1998 on behalf of Winston store managers. See Note 7 for further
discussion.
The agreements related to the acquisition of CPW, including employment
agreements, contained various provisions, which required the Company to make
certain calculations regarding results of operations (as defined therein) and
make payments based on certain formulas. The parties mediated the various issues
involved in these matters on January 20, 2000, and resolved all issues except
for one. The Company does not believe that the amounts involved in this issue
are significant to the financial condition of the Company. The parties have
agreed to binding arbitration before a single accountant arbitrator to resolve
the remaining issue.
In addition to the aforementioned contingencies, the Company is also
involved in various other proceedings incidental to the ordinary course of its
business. The Company believes that none of these other proceedings will have a
material adverse effect on its business or financial condition.
13. REDEEMABLE PREFERRED STOCK:
On May 2, 1997, the Company issued 11,500 shares of preferred stock with
par value of $.01 per share to a supplier (the "Supplier"). Of the 11,500
shares, 7,000 shares are designated Series A Cumulative Redeemable Preferred
Stock (the "Series A Preferred Stock") and 4,500 shares are designated Series B
Cumulative Redeemable Preferred Stock (the "Series B Preferred Stock").
The Series A and B Preferred Stock each contain a provision whereby upon
the termination of the Tire Supply Agreement (see Note 12), the Company shall
redeem all shares of Preferred Stock outstanding at a price equal to the sum of
the stated value and the applicable premium, as defined, plus all accrued and
unpaid dividends. If at any time a change of control occurs, as defined, the
Supplier may request redemption of all outstanding shares. The Company may not
make payment in respect of any of the above redemption requirements, so long as
amounts are outstanding under the Loan and Security Agreement, the Senior Notes
and other agreements entered into in connection therewith, including any
replacement agreement which results in a greater principal amount outstanding.
SERIES A PREFERRED STOCK
The stated value of Series A Preferred Stock is $1,000 per share. Holders
of Series A Preferred Stock are entitled to receive, when and if declared by the
Board of Directors, cumulative cash dividends at an annual rate of 4%, subject
to adjustment based on the volume of purchases from the Supplier. Additional
dividends will accrue, when and if declared by the Board of Directors, and are
payable on the last business day of January, beginning in 1999. For the years
ended December 31, 1999, 1998 and 1997, the Company declared a dividend based on
a 4% rate. These amounts are included in interest expense in the accompanying
consolidated statements of operations. The Series A Preferred Stock will be
redeemed by the Company, beginning on the last business day of December 2002 and
on the last business day of each June and December thereafter, through June
2007.
SERIES B PREFERRED STOCK
The stated value of Series B Preferred Stock is initially $1,000 per share,
to be adjusted based on tire purchase credits as determined by the number of
units purchased under the Tire Supply Agreement (see
38
<PAGE> 41
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
Note 12). Dividends on Series B Preferred Stock are payable, when and if
declared by the Board of Directors, at the prime rate if the Company does not
meet certain tire purchase requirements. The remaining value of Series B
Preferred Stock shall be redeemed by the Company on the last business day of
June 2007 at a price equal to the adjusted stated value plus all accrued and
unpaid dividends. During 1999, based on the Company's purchases, the stated
value of the Series B Preferred Stock was reduced by $0.3 million.
14. COMMON STOCK:
CHANGE OF CONTROL
On May 24, 1999, Charlesbank Equity Fund IV, Limited Partnership, a
Massachusetts limited partnership, purchased approximately 97.8% of the
Company's issued and outstanding shares of Class A common stock and
approximately 96.8% of its issued and outstanding shares of Class B common stock
for a purchase price of approximately $44.7 million. Approximately $1.7 million
in fees related to this transaction has been reflected as a charge to retained
earnings in the accompanying financial statements.
CLASS A AND CLASS B COMMON STOCK
On May 12, 1998, the Company's Board of Directors amended their Articles of
Incorporation to create two classes of common stock. At December 31, 1998, the
Company has authorized for issuance 10,000,000 shares that have been designated
Class A Common Stock ("Class A") and 20,000,000 shares that have been designated
Class B Common Stock ("Class B").
Class A and Class B have equal rights related to dividends and
distributions and liquidation, dissolution or winding up. However, Class A is
entitled to 20 votes per share and Class B is entitled to one vote per share.
Class B shall automatically convert into one share of Class A without the
requirement of any further action on the part of the Corporation or it
stockholders upon the earliest of (i) an initial public offering of the Class A
in connection with the registration of the Class A under the Securities Act of
1933, as amended (ii) the occurrence of any condition or event which results in
the acceleration of the maturity of the indebtedness evidenced by the debt
documents, or (iii) an order for relief under Title 11 of the United States Code
is entered against the Company.
In August 1999, the Board of Directors resolved that the Company is
authorized to offer all holders of Class B common stock the opportunity to
exchange their shares for a like number of shares of Class A common stock. As of
December 31, 1999, all Class B shares have been exchanged for Class A shares.
RESTRICTED STOCK
The Company has given designated employees, officers, directors and
independent contractors of Heafner the opportunity to acquire restricted shares
of Class A common stock. Heafner's board of directors administers the restricted
stock arrangements, selects eligible participants, determines the number of
shares to be offered to each participant and sets other applicable terms and
conditions. As of December 31, 1999, directors and executives of Heafner owned a
total of 280,000 restricted shares of Class A common stock.
Shares of restricted stock are issued by the Company at the fair market
value at the date of issuance. Some or all of the purchase price may be paid in
the form of a promissory note given by the purchaser of the shares. In some
cases, the principal of the notes is forgiven over time by the Company depending
upon the attainment of certain earnings targets. All shares of restricted stock
are subject to the terms and conditions of a securities purchase and
stockholders' agreement entered into by each recipient.
39
<PAGE> 42
HEAFNER TIRE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
STOCK REPURCHASE AND STOCK SPLIT
At December 31, 1996, the Company had 5,000 shares of $100 par value common
stock authorized with 2,080 shares issued and outstanding. On May 2, 1997, the
Company amended its Articles of Incorporation to authorize 10,000,000 shares of
common stock, and reduce the par value of common stock from $100 to $.01 per
share. On May 7, 1997, the Board of Directors approved the repurchase and
subsequent cancellation and retirement of 1,024 outstanding shares of common
stock at a price equal to $2,644 per share on a pre-stock split basis. On the
same date, the Board of Directors authorized a 3,281-for-1 stock split on all
outstanding shares of common stock at the close of business on that date.
40
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table contains information regarding the directors and
executive officers of Heafner. Directors hold their positions until the annual
meeting of the stockholders at which their term expires or until their
respective successors are elected and qualified. Executive officers hold their
positions until the annual meeting of the Board of Directors or until their
respective successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William H. Gaither..................... 44 Chairman
Donald C. Roof......................... 48 President, Chief Executive Officer and
Director
David H. Taylor........................ 44 Senior Vice President, Chief Financial
Officer and Treasurer
J. Michael Gaither..................... 47 Executive Vice President, General
Counsel and Secretary
Daniel K. Brown........................ 46 Senior Vice President/Sales and
Marketing
Richard P. Johnson..................... 52 President, Heafner-ITCO Division
P. Douglas Roberts..................... 52 President, Winston Tires
Ray C. Barney.......................... 45 President, CPW
Joseph P. Donlan....................... 53 Director
Kim G. Davis........................... 46 Director
Tim R. Palmer.......................... 42 Director
Mark A. Rosen.......................... 49 Director
Jon M. Biotti.......................... 31 Director
</TABLE>
William H. Gaither -- Chairman. Mr. Gaither joined Heafner in 1978 as a
management trainee, subsequently serving as an Assistant Manager in various
locations. In 1986, Mr. Gaither was named Executive Vice President, a position
he held until 1989. He served as President of Heafner from 1989 to 1999. Mr.
Gaither also served as the Chief Executive Officer of Heafner from 1996 to 1999
and has been a Director of Heafner since 1986. Mr. Gaither became Chairman of
Heafner in 1999. He holds a B.A. from Davidson College.
Donald C. Roof -- President, Chief Executive Officer and Director. Mr. Roof
became President, Chief Executive Officer and a Director of Heafner in May 1999,
and prior to that time had served as Heafner's Senior Vice President, Chief
Financial Officer and Treasurer since April 1997. Prior to that time, from 1987
to November 1996, he served in a variety of positions with Yale
International/Spreckels Industries, a global industrial manufacturing and food
processing company. From 1994 to 1996, Mr. Roof was Senior Vice President and
Chief Financial Officer of Yale International/Spreckels Industries. He received
his B.B.A. from Eastern Michigan University.
David H. Taylor -- Senior Vice President, Chief Financial Officer and
Treasurer. Mr. Taylor joined Heafner in 1999. Prior to that time, from 1988 to
1998, he held various financial positions at JPS Textile Group, Inc., a
diversified textile manufacturer, serving as its Executive Vice President -
Finance and Chief Financial Officer from 1991 to 1998. Mr. Taylor holds a B.A.
from Furman University.
41
<PAGE> 44
J. Michael Gaither -- Executive Vice President, General Counsel and
Secretary. Mr. Gaither became Executive Vice President in May 1999, and prior to
that time served as Heafner's Senior Vice President, General Counsel and
Secretary since joining Heafner in 1991. Prior to that time, he was a lawyer in
private practice for several years. He holds a B.A. from Duke University and
received his J.D. from the University of North Carolina-Chapel Hill. Mr. Gaither
also serves on the board of directors of Ridgeview, Inc.
Daniel K. Brown -- Senior Vice President/Sales and Marketing. Mr. Brown
joined Heafner in 1975 and held various field sales assignments before becoming
Marketing Manager in 1979. He advanced to Director of Marketing and to Vice
President of Marketing during the 1980's and was named Vice President of Sales
and Marketing in 1991 assuming responsibility for distribution center
operations. In 1997 he was named Senior Vice President of Sales and Marketing
with responsibility for vendor relations and program negotiations as well as the
sales and marketing activities for Heafner. Mr. Brown holds a B.A., cum laude,
from Western Carolina University.
Richard P. Johnson -- President, Heafner-ITCO. Mr. Johnson joined ITCO as
President and Chief Operating Officer in February 1997. He served as Senior Vice
President of Albert Fisher Distribution from 1991 to 1994, and as its President
and Chief Operating Officer from 1994 to 1996. Prior to that time, Mr. Johnson
held a variety of management positions with Leprino Foods, Sargento Cheese and
Kraft Foods. He holds an A.A. from Palm Beach College.
P. Douglas Roberts -- President, Winston Tires. Mr. Roberts joined Winston
as President -- Winston Tires in November 1998. He served with Frazee Industries
as Vice President -- Sales, Development, Marketing & Store Operations from 1992
until the time he joined Winston. Prior to that time, Mr. Roberts headed a
variety of management positions with Libbey-Owens-Ford, Tenneco Automotive, and
Taco Bell. Mr. Roberts holds a B.A. from Western Carolina University.
Ray C. Barney -- President, CPW. Mr. Barney joined the Heafner Tire Group
at the time when CPW was acquired by Heafner in May 1998. At that time Mr.
Barney served as Chief Operating Officer for CPW. On November 1, 1999, Mr.
Barney was named as President of the CPW division. Mr. Barney has been with the
CPW organization since 1991. Prior to that Mr. Barney had spent 14 years with
the BFGoodrich Company with various positions in Sales and Sales Management. He
holds a B.A. degree from the Business School at the University of Illinois.
Joseph P. Donlan -- Director. Mr. Donlan has been a Director since May
1997. He is Managing Director of Brown Brothers Harriman & Co. and Co-Manager of
its 1818 Mezzanine Fund, Mr. Donlan joined Brown Brothers Harriman & Co. in 1970
in the firm's Trade Finance Group. Prior to organizing the 1818 Mezzanine Fund,
Mr. Donlan managed Brown Brothers Harriman & Co.'s New York commercial banking
activities. Previously, Mr. Donlan served as the firm's Senior Credit Officer
and became a member of the firm's Credit Committee on which he continues to
serve. He is a graduate of Georgetown University and received an M.B.A. from
Rutgers University. Mr. Donlan also serves on the board of directors of National
Auto Finance Company, Inc., One Call Medical, Inc. and System One Services.
Kim G. Davis -- Director. Mr. Davis has been a Director since May 1999. He
is a Managing Director and co-founder of Charlesbank Capital Partners, LLC and
serves as a director of Bell Sports, Inc. and Westinghouse Air Brake Company.
Prior to July 1998, Mr. Davis was a Managing Director of Charlesbank's
predecessor firm, Harvard Private Capital Group, Inc., the private equity and
real estate investment unit of Harvard Management Company. From 1995 through
1997, Mr. Davis was engaged in personal investing activities. From 1988 through
1994 he was a General Partner at Kohlberg & Co. Mr. Davis holds both B.A. and
M.B.A. degrees from Harvard University.
Tim R. Palmer -- Director. Mr. Palmer has been a Director since May 1999.
He is a Managing Director and co-founder of Charlesbank Capital Partners, LLC.
From 1990 through June 1998, Mr. Palmer was a Managing Director of Harvard
Private Capital Group, Inc. Mr. Palmer serves as a director of Bell Sports, Inc.
and The WMF Group Ltd. Previously, he was Manager, Business Development at The
Field Corporation, a privately held investment company. Mr. Palmer holds a B.A.
from Purdue University, a J.D. from the University of Virginia and an M.B.A.
from the University of Chicago.
42
<PAGE> 45
Mark A. Rosen -- Director. Mr. Rosen has been a Director since May 1999.
He is a Managing Director and co-founder of Charlesbank Capital Partners, LLC.
From 1994 through June 1998, Mr. Rosen was a Managing Director of Harvard
Private Capital Group, Inc. Mr. Rosen serves as a director of CCC Information
Services Group, Inc. Previously, Mr. Rosen was a Principal of The Conifer Group,
a strategy consulting firm, President of Morningside/North America Limited, a
private investment company, and a Senior Partner in the law firm of Hale and
Dorr. Mr. Rosen earned a B.A., magna cum laude, from Amherst College, and holds
a J.D. from Yale University.
Jon M. Biotti -- Director. Mr. Biotti has been a Director since May 1999.
He is a Senior Associate at Charlesbank Capital Partners, LLC. Prior to joining
Charlesbank in July 1998, Mr. Biotti pursued postgraduate research studies in
principal investing and entrepreneurship as an Entrepreneurial Studies Research
Fellow at the Harvard Graduate School of Business Administration. Previously, he
was affiliated with Brown Brothers Harriman & Co., the Walt Disney Company and
Wasserstein Perella & Co. Mr. Biotti holds a B.A. from Harvard University, an
M.P.A. from the Kennedy School & Government, and an M.B.A. with distinction from
Harvard University.
43
<PAGE> 46
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table contains information concerning the compensation for
services in all capacities to Heafner for the years ended December 31, 1999,
1998 and 1997 of the following "Named Executive Officers," who are those persons
who (a) served during the fiscal year ended December 31, 1999 as the Chief
Executive Officer of Heafner, (b) were, at December 31, 1999, the other four
most highly compensated executive officers of Heafner who earned more than
$100,000 in salary and bonus in 1999 and (c) one person for whom disclosure
would have been provided as among the most highly compensated executive officers
but for the fact that he was not serving as an executive officer as December 31,
1999.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
----------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION ENDED ($) ($) ($)(A) (#)(B) ($)
--------------------------- -------- --------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Donald C. Roof............... 12/31/99 334,588 135,372 50,500 200,000 --
President, Chief Executive 12/31/98 231,840 122,688 25,500 15,000 --
Officer 12/31/97 161,253(e) 60,000 25,000 25,000 --
William H. Gaither........... 12/31/99 221,254 -- -- -- --
Chairman 12/31/98 342,684 109,912 26,000 -- 71,436(c)
12/31/97 318,000 49,000 25,000 62,500 41,741(c)
J. Michael Gaither........... 12/31/99 236,885 71,882 41,153 75,000 --
Executive Vice President, 12/31/98 213,924 113,174 15,500 15,000 --
General Counsel and 12/31/97 191,883 60,000 15,000 25,000 --
Secretary
Daniel K. Brown.............. 12/31/99 202,085 61,322 113,909 75,000 --
Senior Vice President/ 12/31/98 182,490 96,571 15,500 15,000 --
Sales and Marketing 12/31/97 164,499 51,000 15,000 25,000 24,935(d)
P. Douglas Roberts........... 12/31/99 229,992 34,897 15,500 75,000 --
President, Winston Tires 12/31/98 31,944(f) -- -- 25,000 --
12/31/97 -- -- -- -- --
Richard P. Johnson........... 12/31/99 280,166 121,780 15,500 75,000 --
President, Heafner-ITCO 12/31/98 125,004(g) 42,512 -- 25,000 37,131(h)
12/31/97 -- -- -- -- --
Arthur C. Soares............. 12/31/99 207,926(i) 640,008 -- -- --
Former President, CPW 12/31/98 129,810(i) 199,399 -- -- --
12/31/97 -- -- -- -- --
</TABLE>
- ---------------
(a) This column includes nothing for perquisites and other personal benefits
because in no case did the aggregate amount of perquisites and other
personal benefits exceed the reporting threshold (the lesser of $50,000 or
10% of total annual salary and bonus), but includes amounts for the annual
contribution for deferred compensation for such Named Executive Officer for
the year.
(b) This column includes stock options granted in 1997, 1998 and 1999 under
Heafner's stock option plans, which is discussed below under "-- Stock
Option Plans." All options granted in 1997 and 1998 are vested and 19,480
of the options granted in 1999 vested as of December 31, 1999. The
remaining options vest as described in "-- Stock Option Plans," below.
(c) Consists of certain board-designated discretionary compensation paid in
1998.
(d) Consists of taxable amounts reported in connection with vendor-sponsored
trips.
(e) Mr. Roof joined Heafner in April 1997. Salary represents payments to Mr.
Roof during the period of his employment in 1997. On an annualized basis,
Mr. Roof's salary for 1997 would have been $215,000.
(f) Mr. Roberts joined Heafner in November 1998. Salary represents payments to
Mr. Roberts during the period of his employment in 1998. On an annualized
basis, Mr. Robert's salary for 1998 would have been $230,000.
44
<PAGE> 47
(g) Mr. Johnson joined Heafner in May 1998 when Heafner acquired ITCO. Salary
represents payments to Mr. Johnson during the period of his employment in
1998. On an annualized basis, Mr. Johnson's salary for 1998 would have been
$250,000.
(h) Consists of taxable amounts reported in connection with reimbursement of
relocation costs.
(i) Mr. Soares was the President and Chief Operating Officer of CPW, which was
acquired by Heafner in May 1998. He resigned in October 1999. Salary for
1999 and 1998 represents payments to Mr. Soares during the period of his
employment. On an annualized basis, Mr. Soares' salary would have been
$268,704 and $259,600 for 1999 and 1998, respectively.
OPTION/SAR GRANTS IN 1999
No stock appreciation rights were granted during 1999. The following table
contains information concerning the grant of stock options to each of the Named
Executive Officers during 1999:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
PERCENT OF
TOTAL
OPTIONS POTENTIAL REALIZABLE VALUE AT
NUMBER OF GRANTED ASSUMED ANNUAL RATES OF
SECURITIES TO EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTION TERM(b)
OPTIONS IN FISCAL PRICE EXPIRATION -----------------------------
NAME GRANTED(a) YEAR ($/SH) DATE 5%($) 10%($)
- ---- ---------- ---------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald C. Roof.............. 200,000 31.0% $9.00 5/24/09 $1,132,010 $2,868,736
William H. Gaither.......... -- -- -- -- -- --
J. Michael Gaither.......... 75,000 11.6 9.00 5/24/09 424,504 1,075,776
Daniel K. Brown............. 75,000 11.6 9.00 5/24/09 424,504 1,075,776
P. Douglas Roberts.......... 75,000 11.6 9.00 5/24/09 424,504 1,075,776
Richard P. Johnson.......... 75,000 11.6 9.00 5/24/09 424,504 1,075,776
Arthur C. Soares............ -- -- -- -- -- --
</TABLE>
- ---------------
(a) The securities underlying the options, which were granted under the stock
option plan, are shares of Class A common stock. Under the stock option
plan, 19,480 of the options granted to each of the Named Executive Officers
vested as of December 31, 1999. The options vest as described in "-- Stock
Option Plan," below.
(b) The potential realizable value columns illustrate the value that might be
realized upon exercise of the options immediately prior to the expiration of
their term, assuming the specified compound rates of appreciation of the
Class A common stock over the term of the options. These amounts represent
certain assumed rates of appreciation only, assuming a fair market value on
the date of grant of $9.00 per share. Because the Class A common stock is
privately held, a per-share fair market value on the date of grant of the
options equal to $9.00 was assumed based on a stock appraisal as of May
1999. Actual gains on the exercise of the options are dependent on the
future performance of the Class A common stock. The potential values
reflected in this table may not be the actual values ultimately realized.
All amounts have been rounded to the nearest whole dollar.
No options to purchase common stock were exercised by the Named Executive
Officers during the 12 months ended December 31, 1999.
STOCK OPTION PLANS
Heafner has adopted two stock option plans, the Amended and Restated 1997
Stock Option Plan and the 1999 Stock Option Plan, both of which are designed to
motivate designated employees, officers, directors and independent contractors
of Heafner by encouraging them to acquire a proprietary interest in Heafner.
Heafner's board of directors, acting through a "plan committee" of at least two
members of the board, administers the stock option plans, selects eligible
participants, determines the number of shares subject to each option granted
under the stock option plans and sets other terms and conditions applicable to
participants
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in the stock option plans. The maximum aggregate number of shares which may be
issued under the stock option plans is 1,557,750 shares of Class A common stock.
The stock option plans provide for the grant to designated employees,
officers, directors and independent contractors of Heafner of options to
purchase shares of Class A common stock. The plan committee has sole authority
to select those individuals to whom options may be granted and to determine the
number of shares of Class A common stock that will be issuable upon exercise of
the options granted. The purchase price for shares of Class A common stock
issuable upon exercise of the options granted is fixed by the plan committee,
but cannot be less than the fair market value of the Class A common stock, as
determined in good faith by Heafner's board of directors, if the corresponding
option is intended to qualify as an incentive stock option under the Internal
Revenue Code. As of December 31, 1999, options to purchase an aggregate of
1,100,000 shares of Class A common stock, at prices ranging from $1.10 to $9.00
per share, were outstanding under the stock option plans.
All options granted under the stock option plans are subject to the terms
and conditions of a stock option agreement entered into by each option
recipient. The stock option agreement generally requires each recipient to be
bound by the terms of a stockholder agreement with Heafner in the event the
recipient elects to exercise options. Options granted under the 1997 stock
option plan generally vest on the first four anniversaries of the date of grant,
in installments of either (a) 10%, 20%, 30% and 40% or (b) 20%, 20%, 20% and
40%, of the total number of underlying shares. Options granted under the 1999
stock option plan generally vest based on time, performance or the occurrence of
specified events, such as an initial public offering or company sale. Time based
options vest on the first four anniversaries of the date of grant in
installments of 25% per year. Performance based options vest at the end of each
year based on the achievement of EBITDA targets for the year. Options that vest
on the basis of events such as an initial public offering or company sale do so
only to the extent that Charlesbank has earned a specified return on its initial
investment in shares of Heafner. All time based and performance based options
vest in any event on the seventh anniversary of the date of grant. Options
granted under the stock option plans are generally not transferable by the
recipient other than by a will or by the laws of descent and distribution and,
during the recipient's lifetime, may only be exercised by the recipient. Under
the terms of the stock option plans, options expire no later than the tenth
anniversary of the date of grant. Options are also subject to adjustment to
avoid dilution in the event of stock splits, stock dividends, reclassifications
or other similar changes in the capital structure of Heafner.
Upon the termination of an option holder's employment the stock option
agreement typically provides that all or a portion of the option lapses unless
exercised by the option holder or his or her personal representative within a
specified period of time after the termination.
In connection with the Charlesbank purchase, which constituted a "change of
control" under the 1997 stock option plan, all outstanding options under the
1997 option plan became fully vested and are currently exercisable by the option
holders.
Under the 1999 stock option plan, each of the following events would
constitute a "change of control":
- at any time after an initial public offering, a person or entity not
controlled by Heafner's existing stockholders acquires more than 30% of
the combined voting power of the then outstanding shares of Heafner's
common stock,
- all or substantially all of the assets of Heafner are sold,
- the majority of Heafner's board of directors no longer comprises persons
currently serving on the board or persons designated by the current board
majority,
- at any time prior to an initial public offering, Charlesbank and its
affiliates collectively own less than 50% of the combined voting power of
the then outstanding shares of common stock of Heafner,
- the adoption of a plan relating to the liquidation or dissolution of
Heafner in connection with an equity investment or sale or a business
combination transaction, or
- any other event or transaction that the Board of Heafner deems to be a
Change of Control.
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Options outstanding under the stock option plans will become fully vested
and immediately exercisable upon any change of control to the extent provided in
the relevant stock option agreements.
RESTRICTED STOCK
Heafner has given designated employees, officers, directors and independent
contractors of Heafner the opportunity to acquire restricted shares of Class A
common stock. Heafner's board of directors administers the restricted stock
arrangements, selects eligible participants, determines the number of shares to
be offered to each participant and sets other applicable terms and conditions.
As of December 31, 1999, directors and executives of Heafner owned a total of
280,000 restricted shares of Class A common stock.
Shares of restricted stock are issued by Heafner at the fair market value
at the date of issuance. Some or all of the purchase price may be paid in the
form of a promissory note given by the purchaser of the shares. In some cases,
the principal of the notes is forgiven over time by Heafner depending upon the
attainment of certain earnings targets.
All shares of restricted stock are subject to the terms and conditions of a
securities purchase and stockholders' agreement (the "restricted stock
agreement") entered into by each option recipient. The restricted stock
agreement prohibits the transfer of restricted shares except for transfers:
- to Heafner upon the termination of employment of a participating
stockholder,
- to other management employees who have executed and delivered agreements
substantially similar to the restricted stock agreement,
- by will or by the laws of descent or distribution, or
- if and to the extent repurchase rights in favor of Heafner on termination
of employment have not been exercised, to third parties, subject to
rights of first refusal in favor of Heafner and the other holders of
restricted stock.
Heafner has the right to repurchase all of a participating stockholder's
shares upon the termination of that stockholder's employment by Heafner due to
cause or by the stockholder other than for good reason (each as defined in the
restricted stock agreement) or the death of the participating stockholder. A
participating stockholder may require Heafner to repurchase all of such
stockholder's shares if that stockholder is terminated by Heafner without cause
or terminates his or her employment for good reason (as defined in the
restricted stock agreement). The repurchase price for shares of stock subject to
the restricted stock agreement is generally their original purchase price or a
price derived from Heafner's "Net Equity Value" (as defined in the restricted
stock agreement) at the time of repurchase, whichever is lower, in the case
where a stockholder is terminated for certain specified cause events or violates
his or her confidentiality or non-compete obligations, or whichever is higher,
in all other cases, except that the repurchase price is the original purchase
price where a stockholder leaves without good reason within 24 months after the
date the shares were acquired or is terminated for other cause events. Under the
restricted stock agreements entered into in May 1999, the repurchase rights
described in this paragraph are exercisable by Charlesbank and other principal
stockholders to the extent not exercised by Heafner. The restricted stock
agreements terminate on the earlier to occur of a public offering that meets
specified conditions and the tenth anniversary of the date of the agreement.
COMPENSATION OF DIRECTORS
During the year ended December 31, 1999, directors who were not members of
the Gaither family, nominees of The 1818 Mezzanine Fund, L.P. or Wingate
Partners II, L.P. or Charlesbank Capital were paid a fee of $2,500 for each
board meeting attended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, William H. Gaither, Donald C. Roof, and J. Michael Gaither
served on an executive committee of Heafner which reviewed and recommended
executive compensation for the Named Executive
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Officers and other executives of Heafner. All compensation recommendations of
the executive committee were reviewed by and subject to the approval of the full
board of directors of Heafner.
BOARD REPORT ON EXECUTIVE COMPENSATION
The executive committee, at the direction of the board of directors of
Heafner, recommends the compensation of the Named Executive Officers and other
executives of Heafner. In addition, the executive committee administers
Heafner's compensation and stock option plans.
The key components of the compensation packages of Heafner's executive
officers are annual salary, bonuses dependent upon Heafner's performance, and
long-term, stock-based incentives. In addition, Heafner's executive officers
receive health, accident, and life insurance, retirement, and other personal
benefits typically offered to executives by other corporations equivalent in
size.
Historically, Heafner has entered into executive severance agreements with
its senior executive officers which fix their minimum annual salaries and
bonuses. The compensation philosophy of Heafner's board of directors is that the
compensation of Heafner's executives and key managers should be designed to
promote achievement of Heafner's business and financial objectives; to provide
pay that is externally competitive and internally equitable, which will allow
Heafner to attract, retain, and motivate the executives and key managers
necessary to accomplish its business objectives; and to reward exceptional
performance. The executive committee reviews the salaries provided for in the
employment agreements with its senior executive officers, as well as the
salaries of Heafner's other officers, once a year, and recommends changes to the
board of directors.
Bonuses are payable based upon performance measures recommended by the
executive committee for each participant. The executive committee recommends a
threshold, target, and maximum performance objective for each performance
measure. Each of the executive committee's recommendations must be approved by
the board of directors. No payment with respect to a performance measure is made
if performance is below the threshold performance objective established for that
performance measure. If the target performance objective is reached, the
participant is entitled to receive 100% of the bonus attributable to that
performance measure. If the maximum performance objective is reached, the
participant receives 200% of the bonus attributable to that performance measure.
As a result, if the maximum performance objectives for all performance measures
are reached, a participant will receive a bonus equal to 200% of his or her
targeted bonus.
No participant may receive more than 200% of his or her targeted bonus.
Bonuses are subject to reduction or cancellation on the basis of a participant's
individual performance or in the event of conduct by a participant detrimental
to Heafner. Bonuses are payable in cash.
THE BOARD OF DIRECTORS
William H. Gaither
Donald C. Roof
Joseph P. Donlan
Kim G. Davis
Tim R. Palmer
Mark A. Rosen
Jon M. Biotti
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Heafner's articles of incorporation provide for the release of any person
serving as a director of Heafner from liability to Heafner or its stockholders
for damages for breach of fiduciary duty and for the indemnification by Heafner
of any person serving as a director, officer, employee or agent or other
authorized person to the fullest extent permissible under the North Carolina
Business Corporation Act. In addition, Heafner has purchased a directors' and
officers' insurance policy covering officers and directors of Heafner for
liabilities that they may incur as a result of any action, or failure to act, by
such officers and directors in their capacity as officers and directors.
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EMPLOYMENT AND SEVERANCE AGREEMENTS
Heafner has entered into executive severance agreements with each of
Messrs. Roof, Taylor, J. Michael Gaither, Brown, Johnson, Barney and Roberts,
providing for annual base salaries of approximately $400,000, $234,000,
$246,000, $230,000, $275,000, $230,000 and $250,000, respectively, for the
current year. Heafner also pays William H. Gaither an annual fee of $125,000 for
serving as Chairman of the Board under a consulting agreement that terminates in
May 2002.
The agreements with Messrs. J. Michael Gaither, Brown, Johnson and Roberts
provide for additional compensation in the form of a minimum annual bonus
through 2001, participation in Heafner's executive bonus plan and participation
in Heafner's deferred compensation program. The agreements with Messrs. Roof and
Taylor provide for participation in Heafner's executive bonus plan and deferred
compensation program but no minimum annual bonus.
The severance agreements may be terminated at any time by Heafner or the
employee. Upon termination of employment for any reason, the employee is
entitled to receive a basic termination payment equal to (a) his base salary
earned through the date of termination, (b) the previous year's bonus if the
termination is after December 31 and before bonus has been awarded and (c) the
fixed bonus, if any, payable under the agreement prorated through the date of
termination. If the employee is terminated by Heafner without cause or if the
employee leaves for good reason (each as defined in his severance agreement), he
is entitled to an additional severance payment based on a multiple of his base
salary and plan bonus. The multiple used for determining the additional
severance payment is increased if termination occurs in connection with a change
of control of Heafner (as defined in his severance agreement).
The severance agreements each contain confidentiality and non-compete
provisions.
In conjunction with the CPW acquisition, Heafner entered into employment
agreements with each of Arthur C. Soares, the former President of CPW, and Ray
C. Barney, the current President of CPW.
Mr. Soares' employment agreement provided for a two year term and an annual
base salary of $250,000, a stay-put bonus of $2,000,000, payable in installments
of $1,250,000 at the end of the first year and $750,000 at the end of the second
year after the closing of the CPW acquisition. It also provided for a "synergy"
bonus payable at the end of the first year based on the attainment of specified
performance targets for CPW and an annual incentive and performance bonus to be
determined in good faith by Heafner's board of directors. Mr. Barney's
employment agreement provided for a three-year term and an annual base salary of
$140,000, a stay-put bonus of $600,000, payable in installments of $200,000 at
the end of each of the first three years after the closing of the CPW
acquisition. Mr. Barney's employment agreement (with Speed Merchant) also
provided for a "synergy" bonus payable at the end of the first year based on the
attainment of specified performance targets for CPW and an annual incentive and
performance bonus to be determined in good faith by Heafner's board of
directors. Both employment agreements contained non-compete, non-solicitation
and confidentiality provisions.
Heafner settled all issues outstanding regarding the employment contract
and all issues outstanding under the CPW acquisition documents involving Mr.
Barney pursuant to the terms of that certain Settlement Agreement and Release
dated the 16th day of September 1999. Mr. Barney entered a new executive
severance agreement in November 1999, reference above. Mr. Soares resigned
effective October 1999. Pursuant to a Settlement Agreement dated January 20,
2000, Heafner and Mr. Soares resolved all outstanding issues save one component
of the "synergy" bonus which was a part of the employment agreement referenced
above. That issue is to be submitted by the parties to binding arbitration
before an accountant arbitrator for resolution.
EXECUTIVE BONUS PLAN
Heafner awards annual cash bonuses to its top executives and divisional
employees. Bonuses are payable only if Heafner attains specified annual
performance targets. Bonuses can range from up to 20% of salary for executives
in the lowest bonus bracket to up to 80% of salary for those in the highest.
Within each bonus bracket, the percentage bonus also varies depending on the
particular performance targets met by Heafner or
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the corporate division in which the executive works. The executive bonus plan
may be altered in the discretion of Heafner's board of directors.
DEFERRED COMPENSATION PLAN
In 1999, Heafner established a deferred compensation plan for its top
executives and divisional employees covered by the executive bonus plan to
encourage each participant to promote the long-term interests of Heafner. Each
participant is allowed to defer portions of their annual salary as well as
bonuses received into the plan. In addition to employee deferrals, Heafner makes
contributions on behalf of its top executives and certain of the divisional
employees in varying amounts. The plan provides that an employee who becomes a
participant on or before November 23, 1998, shall be fully vested in all amounts
credited to such participant's account. Those who become a participant after
November 23, 1998 shall be at all times fully vested in elective deferrals into
such participant's account and as to contributions made by Heafner shall vest at
a rate of twenty percent (20%) per year as long as such participant is an
employee on January 1 of each year. The deferred compensation plan may be
altered and amended by Heafner's board of directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of Heafner's common stock as of December 31, 1999 of:
- each person known by Heafner to own beneficially more than 5% of the
Class A common stock,
- each director,
- the Named Executive Officers, and
- all directors and executive officers of Heafner as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
BENEFICIALLY CLASS A COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER(a) OWNED STOCK(b)
- --------------------------------------- ---------------- --------------
<S> <C> <C>
Charlesbank Equity Fund IV, Limited Partnership............. 4,961,734(c) 93.8%
The 1818 Mezzanine Fund, L.P................................ 1,034,000(d) 16.4
Jon M. Biotti............................................... --(e)
Kim G. Davis................................................ 4,961,734(c) 93.8
Joseph P. Donlan............................................ 1,034,000(d) 16.4
William H. Gaither.......................................... 62,500(f) 1.2
Tim R. Palmer............................................... 4,961,734(c) 93.8
Mark A. Rosen............................................... 4,961,734(c) 93.8
Daniel K. Brown............................................. 93,247(g) 1.7
J. Michael Gaither.......................................... 93,247(g) 1.7
Richard P. Johnson.......................................... 80,357(h) 1.5
P. Douglas Roberts.......................................... 53,247(h) 1.0
Donald C. Roof.............................................. 121,493(i) 2.3
Arthur C. Soares............................................ --
All directors and executive officers of Heafner as a group
(13 persons).............................................. 6,524,824 99.3
</TABLE>
- ---------------
(a) Unless otherwise indicated, the address for each person listed in the table
is in care of Heafner Tire Group, Inc., 2105 Water Ridge Parkway, Suite
500, Charlotte, North Carolina 28217.
(b) Shares beneficially owned, as recorded in this table, are expressed as a
percentage of the shares of Class A common stock. For purposes of computing
the percentage of outstanding shares held by each person or group of
persons named in this table, any securities which that person or group of
persons has the right to acquire within 60 days of March 31, 2000 are
deemed to be outstanding for purposes of computing the percentage ownership
of such person or persons, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person. As of
December 31, 1999, 5,286,917 shares of Class A common were issued and
outstanding.
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(c) Represents (i) 4,846,179 shares of Class A common stock owned by
Charlesbank Equity Fund IV, Limited Partnership, (ii) 4,444 shares of Class
A common stock owned by its affiliate, Charlesbank Coinvestment Partners,
LLC, and (iii) 111,111 shares of Class A common stock owned by an affiliate
of Bain Capital and voted by Charlesbank pursuant to an irrevocable proxy.
Messrs. Davis, Palmer and Rosen are Managing Directors of Charlesbank
Capital Partners, LLC, which has the indirect authority to vote and
exercise investment power over shares of Class A common stock beneficially
owned by Charlesbank. Since none of Messrs. Davis, Palmer and Rosen
individually have the power to vote and exercise investment power over the
shares, each of them disclaims beneficial ownership of the shares.
(d) Represents shares issuable upon the exercise of Warrants, as discussed
below. Mr. Donlan is the co-manager of The 1818 Mezzanine Fund, L.P. and in
that capacity will have authority to vote and exercise investment power
over the shares. See "Certain Relationships and Related Transactions --
Warrants."
(e) Mr. Biotti is a Senior Associate of Charlesbank capital Partners, LLC and
has no authority to vote or exercise investment power over shares of Class
A common stock beneficially owned by Charlesbank.
(f) Consists of 62,500 shares of Class A common stock issuable upon the
exercise of options which are exercisable within 60 days.
(g) Includes 43,247 shares of Class A common stock issuable upon the exercise
of options which are exercisable within 60 days.
(h) Includes 28,247 shares of Class A common stock issuable upon the exercise
of options which are exercisable within 60 days.
(i) Includes 46,493 shares of Class A common stock issuable upon the exercise
of options which are exercisable within 60 days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
WARRANTS
In connection with the incurrence of subordinated debt to finance the
acquisition of Winston in May 1997, Heafner issued to The 1818 Mezzanine Fund,
L. P. (the "1818 Fund") warrants (the "Warrants") to purchase shares of
Heafner's common stock. Joseph P. Donlan, a member of Heafner's board of
directors, is a Senior Manager of Brown Brothers Harriman & Co., the 1818 Fund's
general partner. Mr. Donlan and Robert R. Gould, a Partner of Brown Brothers
Harriman & Co., are co-managers of the 1818 Fund, and in that capacity they
exercise voting and investment power over the 1818 Fund's shares. The Warrants
are exercisable for 1,034,000 shares of Class A common stock. The Warrants may
be exercised, in whole or in part, at any time prior to the earliest of:
- May 7, 2007,
- the date of an initial public offering of Class A common stock yielding
gross proceeds of at least $25.0 million or representing at least 20% of
the Class A common stock on a fully-diluted basis, or
- Heafner's merger or consolidation with or into another entity or the sale
of all or substantially all of Heafner's assets.
The number of shares issuable upon the exercise of the Warrants is subject
to adjustment from time to time to reflect stock dividends, splits, combinations
and reclassifications. In addition, the Warrants provide for upward adjustment
of the number of issuable shares if Heafner issues Class A common stock at a
price per share that is less than its current fair market value. Fair market
value is determined by reference to closing prices of the Class A common stock
on a national exchange or, if the Class A common stock is not publicly traded,
in good faith by Heafner's board of directors or a nationally recognized
investment banking firm, if requested by the holders of 33% of the Class A
common stock on a fully-diluted basis. Heafner has no right to call for the
redemption of the Warrants.
Heafner and the 1818 Fund are also parties to a note and warrant purchase
agreement and a registration rights agreement, each dated as of May 7, 1997,
which contain provisions restricting the transferability of the Warrants,
including a right of first offer in favor of Heafner, and grant registration
rights with respect to shares of Class A common stock issuable upon exercise of
the Warrants.
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PREFERRED STOCK
In connection with entering into the Kelly-Springfield Supply Agreement,
Kelly-Springfield purchased from Heafner 7,000 newly issued shares of Heafner's
Series A Cumulative Redeemable Preferred Stock, par value $.01 (the "Series A
preferred stock"), and 4,500 newly issued shares of Heafner's Series B
Cumulative Redeemable Preferred Stock, par value $.01 (the "Series B preferred
stock"), for an aggregate purchase price of $11.5 million. Kelly-Springfield is
the sole holder of each series of preferred stock. Each series of the preferred
stock has a stated value and liquidation preference equal to $1,000 per share,
except the liquidation preference of the Series B preferred stock is reduced
from time to time based upon purchases by Heafner of certain types of tires from
Kelly-Springfield.
Kelly-Springfield is entitled to receive monthly dividends on the
liquidation preference of the Series A preferred stock at a rate of 4% per year,
which may be increased if Heafner's annual tire purchases from Kelly-
Springfield fall below certain levels. Heafner is not required to pay dividends
on the Series B preferred stock unless its annual tire purchases from
Kelly-Springfield fall below certain levels.
Subject to the limitations summarized below, beginning in December 2002 and
ending in June 2007, Heafner is required to redeem 700 shares of Series A
preferred stock each year on a semi-annual basis at 100% of the liquidation
preference of such shares plus all accrued and unpaid dividends. Subject to the
same limitations, Heafner is required to redeem all of the outstanding shares of
Series B preferred stock in June 2007 at the same redemption price. Unless
restricted by the limitations summarized below, Heafner is also required to
redeem all the preferred stock if the Kelly-Springfield Supply Agreement is
terminated or, at the request of Kelly-Springfield, if a change of control of
Heafner occurs and Kelly-Springfield requests a termination of the Supply
Agreement. Each series of preferred stock also is redeemable at any time at
Heafner's option.
So long as any amounts are outstanding under Heafner's existing credit
facility or subordinated notes, or any amending or replacing agreement for that
debt, or any commitments to lend exist under such debt, Heafner is prohibited
from:
- making any payment in respect of any mandatory or optional redemption of
either series of preferred stock, or
- declaring, making or paying any dividend or distribution in respect of
either series of preferred stock, if any default or event of default
under any such debt, or any event which upon notice or lapse of time, or
both, would constitute an event of default, has occurred or is continuing
or would result from that event and has not been cured or waived in
accordance with such debt.
SHARE REPURCHASES
In February 1997, Heafner offered to repurchase shares of common stock from
members of the Gaither family not actively involved in the operation of Heafner
at a price equal to $.8058 per share, or $2,644 per share without giving effect
to a 3,281-for-1 stock split that occurred on May 7, 1997. Pursuant to the
offer, Heafner repurchased, and subsequently canceled and retired, 3,359,744
shares, 1,024 shares without giving effect to the stock split, of common stock
from the Gaither family members for an aggregate purchase price of $2.7 million.
In 1986, Heafner repurchased from Carolyn H. Williams, and subsequently canceled
and retired, all of her shares of Heafner's common stock in exchange for a
promissory note in the original principal amount of $1.4 million. Carolyn H.
Williams is the sister of Ann H. Gaither, the former Chairperson of Heafner. The
note is payable through January 2006 in annual installments of $124,600,
including interest at a rate per year of 7.5%. The outstanding principal amount
of the note at December 31, 1999 was approximately $660,000.
CHARLESBANK PURCHASE
On May 24, 1999, Charlesbank purchased all of the shares of Class A common
stock of Heafner held by the members of the Gaither family and substantially all
of the shares of Class B common stock of Heafner held by the former stockholders
of ITCO for an aggregate purchase price of approximately $44.7 million.
Following the Charlesbank purchase, Charlesbank became beneficial owner of a
majority of the combined
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voting power of Heafner on a fully-diluted basis. Heafner agreed to pay certain
fees and expenses of the selling stockholders and Charlesbank in connection with
the Charlesbank purchase which totaled approximately $0.9 million. In addition,
Heafner incurred additional fees and expenses in connection with the Charlesbank
purchase and related transactions, including payments in connection with the
consent solicitation, which, together with the stockholder and Charlesbank
expenses, totaled approximately $1.7 million. Effective upon the closing of the
Charlesbank purchase, the following designees of Charlesbank were appointed to
Heafner's board of directors: Kim G. Davis, Tim R. Palmer, Mark A. Rosen and Jon
M. Biotti. In addition, Ann H. Gaither, V. Edward Easterling, Jr., Victoria B.
Jackson and William M. Wilcox, Jr. resigned from Heafner's board of directors.
Simultaneously, William H. Gaither resigned as President and Chief Executive
Officer of Heafner and became its Chairman, and Donald C. Roof, formerly Senior
Vice President, Chief Financial Officer and Treasurer, became President and
Chief Executive Officer and was appointed to Heafner's board of directors. In
connection with the Charlesbank purchase, Heafner also revised its existing
employee stock option and bonus plans, and issued and sold 150,000 newly-issued
restricted shares of Class A common stock to certain of its executives.
MONITORING FEE
Heafner expects to pay an advisory and monitoring fee not to exceed
$200,000 annually to Charlesbank Capital Partners, LLC. None has been paid
through December 31, 1999.
RELATED PARTY LEASES AND LOANS
Heafner leases corporate office space in Lincolnton, North Carolina from
Ann H. Gaither, the former Chairperson of Heafner, and her sister, Carolyn H.
Williams, for an annual rent equal to approximately $87,000. Heafner leases its
Winston-Salem, North Carolina distribution center from Ann H. Gaither for an
annual rent equal to approximately $55,000. In connection with this property in
Winston-Salem, Ann H. Gaither has a note owing to Heafner with a principal
balance of approximately $135,000 payable in monthly installments of principal
and interest of $3,500 accruing interest at 9% per year with the final due date
of October 1, 2003. Heafner leases the data processing and human resources
buildings adjacent to its corporate headquarters in Lincolnton, North Carolina
from Evangeline Heafner, Ann H. Gaither's mother, for an annual rent equal to
approximately $37,000. The expiration dates of these leases are September 30,
2003, August 1, 2003 and December 30, 2002, respectively. Heafner believes that
these leases are on terms no less favorable to it than could have been obtained
from an independent third party.
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<PAGE> 56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this Report:
1. The following items, including consolidated financial statements of
the Company, are set forth at Item 8 of this report:
- Report of Independent Public Accountants
- Consolidated Balance Sheets as of December 31, 1999 and 1998
- Consolidated Statement of Operations for the years ended December
31, 1999, 1998, and 1997
- Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1999, 1998, and 1997
- Consolidated Statement of Cash Flows for the years ended December
31, 1999, 1998, and 1997
- Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Report of Independent Public Accountants (set forth on following page)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
CHARGED CHARGED
BALANCE TO COSTS TO OTHER BALANCE
JANUARY 1, AND EXPENSES ACCOUNTS DEDUCTIONS DECEMBER 31,
---------- ------------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
1999
Allowance for doubtful accounts...... 2,220 3,184 280(1) (3,299)(4) 2,385
Restructuring reserve................ 1,187 -- -- (687) 500
1998
Allowance for doubtful accounts...... 400 1,627 1,701(2) (1,508)(4) 2,220
Restructuring reserve................ -- 1,409 -- (222) 1,187
1997
Allowance for doubtful accounts...... 200 479 175(3) (454)(4) 400
Restructuring reserve................ -- -- -- -- --
</TABLE>
- ---------------
(1) Includes amounts for California Tire as of the January 12, 1999 acquisition
date.
(2) Includes amounts for ITCO and CPW as of the May 20, 1998 acquisition date.
(3) Includes amounts for Winston as of the May 7, 1997 acquisition date.
(4) Accounts written off during the year, net of recoveries.
Schedules not included herein are omitted because they are not applicable
or the required information appears in the financial statements or notes
thereto.
54
<PAGE> 57
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Heafner Tire Group, Inc.
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Heafner Tire Group, Inc. included in
this Form 10-K, and have issued our report thereon dated March 20, 2000. Our
audits were made for the purpose of forming an opinion on those financial
statements taken as whole. The schedule listed on Item 14 of this Form 10-K is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Charlotte, North Carolina
March 20, 2000.
55
<PAGE> 58
3. Exhibits:
(a) Exhibits:
<TABLE>
<CAPTION>
<C> <S>
3.1 Certificate of Incorporation of Heafner Tire Group, Inc.
(the "Company")P
3.2 By-laws of the Company*
3.3 Articles of Incorporation of Oliver & Winston, Inc.* (see
amendment)
3.4 By-laws of Oliver & Winston, Inc.*
3.5 Articles of Incorporation of The Speed Merchant, Inc.*
3.6 By-laws of The Speed Merchant, Inc.*
3.7 Articles of Incorporation of Phoenix Racing, Inc.*
3.8 By-laws of Phoenix Racing, Inc.*
3.9 Articles of Incorporation of California Tire Company++
3.10 By-laws of California Tire Company++
3.11 Certificate of Amendment of Articles of Incorporation of
Winston Tire CompanyP
4.1 Indenture, dated as of December 1, 1998, among the Company,
First Union National Bank, as Trustee (the "Trustee"), and
Oliver & Winston, Inc., ITCO Logistics Corporation, ITCO
Holding Company, Inc., ITCO Tire Company, ITCO Tire Company
of Georgia, The Speed Merchant, Inc., and Phoenix Racing,
Inc. (the "Series D Indenture)+
4.2 Form of Series C and Series D Note (attached as Exhibit A to
the Series D Indenture)+
4.3 Supplemental Indenture to the Series D Indenture, dated as
of February 22, 1999, among the Company, the Trustee, Oliver
& Winston, Inc., The Speed Merchant, Inc., Phoenix Racing,
Inc. and California Tire Company++
4.4 Indenture, dated as of May 15, 1998, among the Company, the
Trustee, and Oliver & Winston, Inc., ITCO Logistics
Corporation, ITCO Holding Company, Inc., ITCO Tire Company,
ITCO Tire Company of Georgia, The Speed Merchant, Inc., and
Phoenix Racing, Inc. (the "Series B Indenture")*
4.5 Form of Series B Global Note (attached as Exhibit A to the
Series B Indenture)*
4.6 Supplemental Indenture to the Series B Indenture, dated as
of February 22, 1999, among the Company, the Trustee, Oliver
& Winston, Inc., The Speed Merchant, Inc., Phoenix Racing,
Inc. and California Tire Company++
4.7 Registration Rights Agreement, dated as of December 1, 1998,
among the Company, its subsidiaries and BancBoston Robertson
Stephens Inc. and Credit Suisse First Boston Corporation++
4.8 Second Supplemental Indenture to the Series B Indenture,
dated as of May 14, 1999, among the Company, the subsidiary
guarantors party thereto and First Union National Bank, as
Trustee#
4.9 Second Supplemental Indenture to the Series C Indenture,
dated as of May 14, 1999, among the Company, the subsidiary
guarantors party thereto and First Union National Bank, as
Trustee#
5.1 Opinion of Howard, Smith & Levin LLP as to the Legality of
the New Notes++
10.1 Second Amended and Restated Loan and Security Agreement,
dated as of March 6, 2000, among the Company, Winston Tire
Company, The Speed Merchant, Inc. and California Tire
Company as Borrowers, and Fleet Capital Corporation, as
Administrative Agent (the "Administrative Agent"), Bank of
America, N.A., as Syndication Agent (the "Syndication
Agent"), FleetBoston Robertson Stephens Inc., as Arranger
(the "Arranger") and the financial institutions party from
time to time party thereto, as LendersP
10.2 Letter, dated March 6, 2000, from the Company to the
Administrative AgentP
10.3 Amended and Restated Registration Rights Agreement, dated as
of May 21, 1999, between and among the Company, The 1818
Mezzanine Fund, L.P., and Charlesbank Equity Fund IV,
Limited Partnership#
</TABLE>
56
<PAGE> 59
<TABLE>
<C> <S>
10.4 Warrantholder Agreement, dated as of May 21, 1999, between the Company, The 1818
Mezzanine Fund, L.P. and Charlesbank Equity Fund IV, Limited Partnership#
10.5 Amended and Restated Warrant No. 2 exercisable for 1,034,000 shares of Class A
Common Stock in the name of The 1818 Mezzanine Fund, L.P.#
10.6 Securities Purchase Agreement, dated as of May 7, 1997, between The J. H.
Heafner Company, Inc. and The Kelly-Springfield Tire and Rubber Company*
10.7 Amendment to Securities Purchase Agreement, dated as of May 21, 1999, between
and among the Company and The Kelly-Springfield Tire Company, a division of The
Goodyear Tire and Rubber Company#
10.8 Termination and Release Agreement, dated as of May 22, 1999, among the Company
and the Class B Stockholders party thereto#
10.9 Stock Purchase Agreement, dated as of March 11, 1998, among the Company, Arthur
C. Soares and Ray C. Barney*
10.10 Escrow Agreement, dated as of May 20, 1998, among the Company, Arthur C. Barney,
Ray C. Barney and First Union National Bank, as escrow agent (the "CPW Escrow
Agreement")*
10.11 Letter of Credit, dated as of May 20, 1998, issued to Frist Union National Bank,
as CPW Escrow Agent*
10.12 Stock Purchase Agreement, dated as of April 9, 1997, among the Company and the
shareholders of Oliver & Winston, Inc.*
10.13 1998 Michelin North America, Inc. Distributor Agreement, dated January 1, 1998,
by and between Michelin North America, Inc. and the Company**
10.14 Letter Agreements, dated as of November 24 and 25, 1998, respectively, by and
between Michelin North America and the Company ++
10.15 The J.H. Heafner Company Amended and Restated 1997 Stock Option Plan #
10.16 Heafner Tire Group 1999 Stock Option PlanP
10.17 Stock Option Agreement, dated as of May 24, 1999, between the Company and each
of Donald C. Roof, J. Michael Gaither, Daniel K. Brown, Richard P. Johnson and
P. Douglas Roberts#
10.18 Stock Option Agreement, dated as of August 16, 1999, between the Company and
David H. TaylorP
10.19 Stock Option Agreement, dated as of December 10, 1999, between the Company and
Ray C. BarneyP
10.20 The J.H. Heafner Company 1997 Restricted Stock Plan*
10.21 Securities Purchase and Stockholders Agreement, dated as of May 28, 1997, among
the Company and various management stockholders*
10.22 Securities Purchase and Stockholders' Agreement, dated as of May 24, 1999,
between the Company and each of Donald C. Roof, J. Michael Gaither, Daniel K.
Brown, Richard P. Johnson, and P. Douglas Roberts#
10.23 Securities Purchase and Stockholders' Agreement, dated as of August 16, 1999,
between the Company and David H. TaylorP
10.24 Employment and Severance Agreements between the Company and Thomas J. Bonburg**
10.25 Employment Agreement, dated as of May 20, 1998, between the Company and Arthur
C. Soares*
10.26 Employment Agreement, dated as of May 20, 1998, between The Speed Merchant, Inc.
and Ray C. Barney*
10.27 Letter Agreement, dated as of May 20, 1999, by and between the Company and
William H. Gaither#
10.28 Executive Severance Agreements, dated as of May 24, 1999, between the Company
and each of Donald C. Roof, J. Michael Gaither, Daniel K. Brown, Richard P.
Johnson, P. Douglas Roberts and J. Lewis McKnight, Jr.#
</TABLE>
57
<PAGE> 60
<TABLE>
<C> <S>
10.29 Executive Severance Agreement, dated August 16, 1999, between the Company and
DAVID H. TAYLORP
10.30 Executive Severance Agreement, dated November 1, 1999, between the Company
and Ray C. BarneyP
10.31 Stock Purchase Agreement, dated as of April 21, 1999, among the Company,
Charlesbank Equity Fund IV, Limited Partnership and the stockholders party
thereto#
11.1 Statement re: Computation of Per Share EarningsP
12.1 Statement re: Computation of RatiosP
21.1 Chart of Subsidiaries of the CompanyP
25.1 Statement of Eligibility of Trustee on Form T-1 related to the Notes#
27.1 Financial Data SchedulesP
27.2 Financial Data SchedulesP
99.1 Form of Letter of Transmittal++
99.2 Form of Notice of Guaranteed Delivery++
99.3 Form of Exchange Agent Agreement#
</TABLE>
- ---------------
* Incorporated by reference to Heafner's Registration Statement on
Form S-4 filed with the SEC on August 18, 1998.
** Incorporated by reference to Amendment No. 1 to Heafner's
Registration Statement on Form S-4 filed with the SEC on October 2,
1998.
*** Incorporated by reference to Amendment No. 2 to Heafner's
Registration Statement on Form S-4 filed with the SEC on October 14,
1998. herewith. All other exhibits were filed with the Registration
Statement dated August 18, 1998 or Amendment No. 1 to the
Registration Statement dated October 2, 1998.
+ Incorporated by reference to Heafner's Form 8-K filed on December
15, 1998.
++ Incorporated by reference to Heafner's Form 8-K filed on December
15, 1998
+++ Incorporated by reference to Heafner's Form 10-Q filed on March 31,
1999.
# Incorporated by reference to Heafner's Registration Statement Form
S-4 filed with the SEC on June 9, 1999
P Filed herewith
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended December 31, 1999.
58
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
30, 2000.
HEAFNER TIRE GROUP, INC.
By: /s/ DONALD C. ROOF
------------------------------------
Name: Donald C. Roof
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Registrant and in the capacities indicated on March 30, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD C. ROOF Director, President and Chief March 30, 2000
- --------------------------------------------- Executive Officer
Donald C. Roof
/s/ DAVID H. TAYLOR Senior Vice President, Chief March 30, 2000
- --------------------------------------------- Financial Officer and Treasurer
David H. Taylor
/s/ J. LEWIS MCKNIGHT, JR. Chief Accounting Officer March 30, 2000
- ---------------------------------------------
J. Lewis McKnight, Jr.
/s/ WILLIAM H. GAITHER Chairman of the Board March 30, 2000
- ---------------------------------------------
William H. Gaither
/s/ JOSEPH P. DONLAN Director March 30, 2000
- ---------------------------------------------
Joseph P. Donlan
/s/ JON M. BIOTTI Director March 30, 2000
- ---------------------------------------------
Jon M. Biotti
/s/ KIM G. DAVIS Director March 30, 2000
- ---------------------------------------------
Kim G. Davis
/s/ TIM R. PALMER Director March 30, 2000
- ---------------------------------------------
Tim R. Palmer
/s/ MARK A. ROSEN Director March 30, 2000
- ---------------------------------------------
Mark A. Rosen
</TABLE>
59
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
HEAFNER TIRE GROUP, INC.
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware (as the
same may be amended, supplemented or repealed from time to time, the "Act"), do
hereby certify as follows:
ARTICLE 1
CORPORATE NAME.
The name of the Corporation is Heafner Tire Group, Inc.
ARTICLE 2
REGISTERED AGENT.
The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road in the City of Wilmington, County of New Castle, and the name of the
registered agent of the Corporation in the State of Wilmington at such address
is Corporation Service Company.
ARTICLE 3
PURPOSE.
The purpose of the Corporation is to conduct any lawful business, to
promote any lawful purpose, and to engage in any lawful act or activity for
which a corporation may be organized under the Act.
ARTICLE 4
CAPITAL STOCK.
Section 4.1. Shares Authorized. The total number of shares of capital
stock which the Corporation shall have authority to issue is (i) 30,000,000
shares of Common Stock, par value of $.01 per share (the "Common Stock"), and
(ii) 11,500 shares of Preferred Stock with a par value of $.01 per share (the
"Preferred Stock").
Section 4.2. Common Stock. The Common Stock shall have such rights,
powers and privileges as provided in these Articles, in any amendment to these
Articles and under applicable law. Of the 30,000,000 shares of Common Stock
authorized for issuance by the Corporation, 10,000,000 shall initially be
designated Class A Common Stock (the "Class A Common Stock")
<PAGE> 2
and 20,000,000 shall initially be designated Class B Common Stock (the "Class B
Common Stock").
Section 4.3. Preferred Stock. The Preferred Stock shall have such
voting powers, designations, preferences, such other relative, participating,
optional and other special rights, and such qualifications, limitations and
restrictions as provided in these Articles and in any amendment to these
Articles. Of the 11,500 shares of Preferred Stock authorized for issuance by the
Corporation, 7,000 shares shall initially be designated Series A Cumulative
Redeemable Preferred Stock (the "Series A Preferred Stock") and 4,500 shares
shall initially be designated Series B Cumulative Redeemable Preferred Stock
(the "Series B Preferred Stock" and, together with the Series A Preferred Stock,
the "Kelly Preferred Stock"). The stated value of the Series A Preferred Stock
(the "Series A Liquidation Preference") shall be $1,000.00 per share. The stated
value of the Series B Preferred Stock (the "Series B Liquidation Preference")
shall initially be $1,000.00 per share and shall be adjusted from time to time
as provided in Section 6.3.
Section 4.4. Rank of Capital Stock. With respect to dividend rights and
other rights upon liquidation, dissolution or winding up of the Corporation, (i)
the Series A Preferred Stock and the Series B Preferred Stock shall rank on a
parity with each other and senior to the Common Stock and (ii) the Class A
Common Stock and the Class B Common Stock shall rank on a parity with each
other. Other classes or series of capital stock may, subject to the provisions
of these Articles and applicable law, be authorized by the Board of Directors
that rank (as to payment of dividends or distribution of assets upon
liquidation, dissolution or winding up) senior to ("Senior Stock"), on a parity
with ("Parity Stock") or junior to ("Junior Stock") other classes or series of
capital stock.
Section 4.5. No Preemptive Rights. No holder of shares of capital stock
of the Corporation shall have preemptive rights to acquire unissued shares of
capital stock of the Corporation under these Articles.
ARTICLE 5
COMMON STOCK.
Section 5.1. Voting Rights. (a) Each outstanding share of Class A
Common Stock shall be entitled to vote on each matter on which the stockholders
of the Corporation shall be entitled to vote, and each holder of Class A Common
Stock shall be entitled to twenty votes for each share of such stock held by
such holder.
(b) Each outstanding share of Class B Common Stock shall be entitled to
vote on each matter on which the stockholders of the Corporation shall be
entitled to vote, and each holder of Class B Common Stock shall be entitled to
one vote for each share of such stock held by such holder.
c) Except as otherwise provided by the Act, the holders of Class A
Common Stock and the holders of Class B Common Stock shall vote together as a
single class on all matters on which the stockholders of the Corporation shall
be entitled to vote.
2
<PAGE> 3
Section 5.2. Dividends and Distributions. The holders of shares of
Class A Common Stock and the holders of Class B Common Stock shall be entitled
to receive dividends or other distributions, which must be identical for each of
the Class A Common Stock and the Class B Common Stock, out of the assets of the
Corporation legally available therefor when, as and if declared by the Board of
Directors.
Section 5.3. Liquidation, Dissolution or Winding Up. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, holders of Common Stock shall be entitled to share ratably in the
net assets of the Corporation remaining after payment or provision for payment
of the debts and liabilities of the Corporation and all amounts payable to
holders of Senior Stock.
Section 5.4. Automatic Conversion of Class B Stock. Each share of Class
B Common Stock shall automatically convert into one share of Class A Common
Stock without the requirement of any further action on the part of the
Corporation or its stockholders upon the earliest to occur of (i) an initial
public offering of the Class A Common Stock in connection with a registration of
the Class A Common Stock under the Securities Act of 1933, as amended, (ii) the
occurrence of any condition or event which results in the acceleration of the
maturity of the indebtedness evidenced by the Debt Documents (as defined below
in Section 6.6), and (iii) an order for relief under Title 11 of the United
States Code is entered against the Company.
Section 5.6. Other Rights. Except as otherwise required by the Act or
as otherwise provided in these Articles, each share of Class A Common Stock and
each share of Class B Common Stock shall have identical powers, rights and
privileges.
ARTICLE 6
KELLY PREFERRED STOCK.
The Kelly Preferred Stock shall have the following voting powers, preferences
and other rights, qualifications, limitations and restrictions:
Section 6.1. Series A Dividends and Distributions. (a) Holders of
shares of Series A Preferred Stock, in preference to the holders of shares of
Common Stock and any shares of other capital stock of the Corporation other than
shares of Parity Stock or Senior Stock with respect to the Series A Preferred
Stock, shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation legally available therefor,
cumulative cash dividends (the "4% Series A Dividends") on the Series A
Liquidation Preference of such shares at an annual rate of 4.0%; provided that,
if as of December 31, 1997 (i) the Corporation and its subsidiaries are not
ordering all of their respective requirements of "Winston" brand tires from The
Kelly-Springfield Tire Company, a division of The Goodyear Tire and Rubber
Company (together with its affiliates, "Kelly-Springfield"), and (ii)
Kelly-Springfield is otherwise ready, willing and able to supply the Corporation
and its subsidiaries with such "Winston" brand tires in accordance with the
terms set forth in the Supply Agreement (as defined below in Section 6.5(c)),
then, beginning immediately thereafter and continuing until such time as the
earlier of (1) the Corporation and its
3
<PAGE> 4
affiliates are ordering all of such "Winston" brand tires from Kelly-Springfield
and (2) the Kelly Preferred Stock has been redeemed in full, the annual rate of
the 4% Series A Dividends shall be at the greater of (x) 4% and (y) 120% of the
Prime Rate (as defined below in Section 6.1(b)) (the "Adjusted Series A Dividend
Rate"). The 4% Series A Dividends shall be calculated on the basis of a 360-day
year consisting of twelve 30-day months, and shall accrue and be payable, in
immediately available funds, due on the last Business Day of each calendar month
(each a "4% Dividend Monthly Payment Date"). Payment of 4% Series A Dividends on
shares of Series A Preferred Stock shall commence on the first 4% Dividend
Monthly Payment Date following the date of original issue of such shares (the
"Series A Issue Date"). The first payment of 4% Series A Dividends on such
shares shall be in an amount equal to the product of (i) the quotient obtained
by dividing (1) the product of the Series A Liquidation Preference of such
shares and 4.0% by (2) 12 and (ii) the quotient obtained by dividing (x) the
number of days from and including the Series A Issue Date up to and excluding
the initial 4% Dividend Monthly Payment Date by (y) 30. If holders of shares of
Series A Preferred Stock are entitled to receive 4% Series A Dividends on a date
other than a 4% Dividend Monthly Payment Date (a "4% Dividend Special Payment
Date"), such payment shall be in an amount equal to the product of (i) the
quotient obtained by dividing (1) the product of the Series A Liquidation
Preference of such shares and 4.0% or the Adjusted Series A Dividend Rate, as
applicable, by (2) 12 and (ii) the quotient obtained by dividing (x) the number
of days from and including the date of such immediately preceding 4% Dividend
Monthly Payment Date up to and excluding the 4% Dividend Special Payment Date by
(y) 30. All other payments of 4% Series A Dividends shall accrue from and
including the immediately preceding 4% Dividend Monthly Payment Date or 4%
Dividend Special Payment Date, as applicable, to but excluding the following 4%
Dividend Monthly Payment Date or 4% Dividend Special Payment Date, as
applicable. "Business Day" means any day other than a Saturday, Sunday or other
day on which banks in Atlanta, Georgia are authorized to close.
(b) In addition to the 4% Series A Dividends, holders of Series A
Preferred Stock, in preference to the holders of shares of Common Stock and any
shares of other capital stock of the Corporation other than shares of Parity
Stock or Senior Stock with respect to the Series A Preferred Stock, shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
the assets of the Corporation legally available therefor, cumulative cash
dividends (the "Series A Additional Dividends" and, together with the 4% Series
A Dividends, the "Series A Dividends") in an amount equal to the product of the
Series A Liquidation Preference of such shares and the Applicable Rate (as
defined below). The Series A Additional Dividends shall accrue and be payable in
immediately available funds on the last Business Day of January of each year
(each an "Additional Dividend Payment Date"), with the first such Series A
Additional Dividend to accrue and be payable on the last Business Day of January
1999; provided that, if in any calendar year immediately preceding an Additional
Dividend Payment Date a 4% Series A Dividend accrues and becomes payable at the
Adjusted Series A Dividend Rate, the amount of the Series A Additional Dividend
that accrues and becomes payable on such Additional Dividend Payment Date shall
be reduced by an amount equal to the excess, if any, of (x) the aggregate amount
of the 4% Series A Dividends that accrued and became payable in such calendar
year over (y) the aggregate amount of such Series A Dividends that would have
accrued and become payable in such calendar year if the Adjusted Series A
Dividend Rate had not applied in such calendar year. The "Applicable Rate" for
determining the amount of the Series A Additional Dividend for each Additional
Dividend
4
<PAGE> 5
Payment Date shall be the percentage rate set forth opposite such date
(and corresponding to the applicable number of Units Purchased (as defined
below)) set forth below:
- --------------------------------------------------------------------------------
Additional Dividend
Payment Date Units Purchased Applicable Rate
- --------------------------------------------------------------------------------
January 1999 Less than 1,000,000 Standard Rate
1,000,000-1,099,999 4.0
1,100,000-1,199,999 3.0
1,200,000-1,299,999 2.0
1,300,000-1,399,999 1.0
1,400,000 or more 0.0
- --------------------------------------------------------------------------------
January 2000 Less than 1,100,000 Standard Rate
1,100,000-1,199,999 4.0
1,200,000-1,299,999 3.0
1,300,000-1,399,999 2.0
1,400,000-1,499,999 1.0
1,500,000 or more 0.0
- --------------------------------------------------------------------------------
January 2001 Less than 1,144,000 Standard Rate
1,144,001-1,247,999 4.0
1,248,000-1,351,999 3.0
1,352,000-1,455,999 2.0
1,456,000-1,559,999 1.0
1,560,000 or more 0.0
- --------------------------------------------------------------------------------
January 2002 Less than 1,189,760 Standard Rate
1,189,761-1,297,919 4.0
1,297,920-1,406,079 3.0
1,406,080-1,514,239 2.0
1,514,240-1,622,399 1.0
1,622,400 or more 0.0
5
<PAGE> 6
- --------------------------------------------------------------------------------
Additional Dividend
Payment Date Units Purchased Applicable Rate
- --------------------------------------------------------------------------------
January 2003 Less than 1,237,350 Standard Rate
1,237,351-1,349,836 4.0
1,349,837-1,462,322 3.0
1,462,323-1,574,809 2.0
1,574,810-1,687,295 1.0
1,687,296 or more 0.0
- --------------------------------------------------------------------------------
January 2004 Less than 1,286,844 Standard Rate
1,286,845-1,403,829 4.0
1,403,830-1,520,815 3.0
1,520,816-1,637,801 2.0
1,637,802-1,754,787 1.0
1,754,788 or more 0.0
- --------------------------------------------------------------------------------
January 2005 Less than 1,338,318 Standard Rate
1,338,319-1,459,982 4.0
1,459,983-1,581,648 3.0
1,581,649-1,703,313 2.0
1,703,314-1,824,978 1.0
1,824,979 or more 0.0
- --------------------------------------------------------------------------------
January 2006 Less than 1,391,851 Standard Rate
1,391,852-1,518,381 4.0
1,518,382-1,644,914 3.0
1,644,915-1,771,446 2.0
1,771,447-1,897,977 1.0
1,897,978 or more 0.0
- --------------------------------------------------------------------------------
January 2007 Less than 1,447,525 Standard Rate
1,447,526-1,579,116 4.0
1,579,117-1,710,711 3.0
1,710,712-1,842,304 2.0
1,842,305-1,973,896 1.0
1,973,897 or more 0.0
- --------------------------------------------------------------------------------
6
<PAGE> 7
Additional Dividend
Payment Date Units Purchased Applicable Rate
- --------------------------------------------------------------------------------
January 2008 Less than 1,505,426 Standard Rate
1,505,427-1,642,281 4.0
1,642,282-1,779,139 3.0
1,779,140-1,915,996 2.0
1,915,997-2,052,852 1.0
2,052,853 or more 0.0
- --------------------------------------------------------------------------------
provided that, in no event shall the Applicable Rate be higher than the Standard
Rate. "Standard Rate" means the excess, if any, of (x) the Prime Rate over (y)
4%. "Prime Rate" means the rate of interest publicly announced from time to time
by BankBoston, N.A., at its head office at 100 Federal Street, Boston,
Massachusetts as its "base" rate as in effect on the Business Day immediately
preceding the applicable dividend payment date. "Units Purchased" means, for any
Additional Dividend Payment Date, the net number of tires (other than "Monarch"
brand tires) purchased by the Corporation and its subsidiaries from
Kelly-Springfield during the calendar year immediately preceding such Additional
Dividend Payment Date, which number of tires shall not include an amount equal
to the sum of (x) 250,000 and (y) an amount equal to the number of premium tires
purchased by the Corporation and its affiliates from Kelly-Springfield in 1996.
(c) If, as of the close of business on any 4% Dividend Monthly Payment
Date, there is a 4% Series A Dividend Arrearage (as hereinafter defined), an
additional dividend (the "4% Series A Makewhole Dividend") shall accrue on each
share of the Series A Preferred Stock for the period from and including such 4%
Dividend Monthly Payment Date to the earlier of (x) the date on which such 4%
Series A Dividend Arrearage is paid in full and (y) the next succeeding 4%
Dividend Monthly Payment Date, in an amount equal to the product of (i) the
Prime Rate (calculated for such period in accordance with Section 6.1(a)) and
(ii) the amount of such 4% Series A Dividend Arrearage as of such 4% Dividend
Monthly Payment Date. "4% Series A Dividend Arrearage" means, with respect to
each share of Series A Preferred Stock, as of any 4% Dividend Monthly Payment
Date, the excess, if any, of (i) all 4% Series A Dividends accrued to (but
excluding) such 4% Dividend Monthly Payment Date on such share over (ii) all 4%
Series A Dividends actually paid with respect to such share on or before the
close of business on such 4% Dividend Monthly Payment Date.
(d) If, as of the close of business on any Additional Dividend Payment
Date, there is a Series A Additional Dividend Arrearage (as hereinafter
defined), an additional dividend (the "Additional Series A Makewhole Dividend")
shall accrue on each share of the Series A Preferred Stock for the period from
and including such Additional Dividend Payment Date to the earlier of (x) the
date on which such Additional Series A Dividend Arrearage is paid in full and
(y) the next succeeding Additional Dividend Payment Date, in an amount equal to
the product of (i) the
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<PAGE> 8
Prime Rate and (ii) the amount of such Additional Series A Dividend Arrearage as
of such Additional Dividend Payment Date. "Additional Series A Dividend
Arrearage" means, with respect to each share of Series A Preferred Stock, as of
any Additional Dividend Payment Date, the excess, if any, of (i) all Series A
Additional Dividends accrued to (but excluding) such Additional Dividend Payment
Date on such share over (ii) all Series A Additional Dividends actually paid
with respect to such share on or before the close of business on such Additional
Dividend Payment Date.
(e) The 4% Series A Dividends shall accrue, and shall be cumulative
from the Series A Issue Date of the underlying shares, whether or not declared
by the Board of Directors. The Series A Additional Dividends shall accrue, and
shall be cumulative from the first day on which such dividends are due, whether
or not declared by the Board of Directors. The 4% Series A Makewhole Dividend
and the Additional Series A Makewhole Dividend, if any, shall accrue, and shall
be cumulative from the date on which a 4% Series A Dividend Arrearage or Series
A Additional Dividend Arrearage arises, whether or not declared by the Board of
Directors. If the Corporation makes a dividend payment on shares of Series A
Preferred Stock in an amount less than the total amount of accrued and payable
dividends on the underlying shares at such time, then the dividends paid shall
be allocated ratably on a share-by-share basis among all shares of Series A
Preferred Stock then outstanding. The Board of Directors may fix a record date
that is no more than sixty days and no less than ten days prior to any date
fixed for payment of a dividend declared on shares of Series A Preferred Stock
to determine the holders of shares of Series A Preferred Stock entitled to
receive such payment. Accumulated but unpaid dividends for any past dividend
periods or payment dates may be declared and paid at any time (without reference
to any regular payment date) to holders of record on a record date fixed by the
Board of Directors that is no more than sixty days and no less than ten days
preceding the date fixed for payment of such dividends.
(f) The holders of shares of Series A Preferred Stock shall not be
entitled to receive, and the Corporation shall not declare or pay thereon, any
dividends or other distributions except as provided herein. No interest or sum
of money in lieu of interest shall be payable in respect of any dividend payment
or payments on the shares of Series A Preferred Stock which may be in arrears.
Section 6.2. Series B Dividends and Distributions. (a) If during any
calendar year beginning with 1998 the Corporation and its affiliates do not
purchase from Kelly-Springfield tires with an aggregate purchase price in an
amount equal to or greater than (i) for 1998, $60,000,000, (ii) for 1999,
$80,000,000, and (iii) for each calendar year thereafter, an amount averaging at
least 104% of the aggregate purchase price for tires purchased from
Kelly-Springfield in the prior calendar year, holders of shares of Series B
Preferred Stock, in preference to the holders of shares of Common Stock and any
shares of other capital stock of the Corporation other than shares of Parity
Stock or Senior Stock with respect to the Series B Preferred Stock, shall be
entitled to receive, when, as and if declared by the Board of Directors, out the
assets of the Corporation legally available therefor, cumulative cash dividends
(the "Series B Dividends") on the Series B Liquidation Preference of such shares
at the Prime Rate. The Series B Dividends shall accrue and be payable in
immediately available funds on the last
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<PAGE> 9
Business Day of the month of January following each such calendar year during
which the applicable aggregate purchase price threshold is not equaled or
exceeded (each a "Series B Dividend Payment Date").
(b) If, as of the close of business on any Series B Dividend Payment
Date, there is a Series B Dividend Arrearage (as hereinafter defined), an
additional dividend (the "Series B Makewhole Dividend") shall accrue on each
share of the Series B Preferred Stock for the period from and including such
Series B Dividend Payment Date to the earlier of (x) the date on which such
Series B Dividend Arrearage is paid in full and (y) the next succeeding Series B
Dividend Payment Date, in an amount equal to the product of (i) the Prime Rate
and (ii) the amount of such Series B Dividend Arrearage as of such Series B
Dividend Payment Date. "Series B Dividend Arrearage" means, with respect to each
share of Series B Preferred Stock, as of any Series B Dividend Payment Date, the
excess, if any, of (i) all Series B Dividends accrued to (but excluding) such
Series B Dividend Payment Date on such share over (ii) all Series B Dividends
actually paid with respect to such share on or before the close of business on
such Series B Dividend Payment Date.
(c) Series B Dividends shall accrue, and shall be cumulative from the
first day on which such dividends are due, whether or not declared by the Board
of Directors. Series B Makewhole Dividends, if any, shall accrue, and shall be
cumulative from the date on which a Series B Dividend Arrearage arises. If the
Corporation makes a dividend payment on the shares of Series B Preferred Stock
in an amount less than the total amount of accrued and payable dividends on the
underlying shares at such time, then the dividends paid shall be allocated
ratably on a share-by-share basis among all shares of Series B Preferred Stock
then outstanding. The Board of Directors may fix a record date that is no more
than sixty days and no less than ten days prior to any date fixed for payment of
a dividend declared on shares of Series B Preferred Stock to determine the
holders of shares of Series B Preferred Stock entitled to receive such payment.
Accumulated but unpaid dividends for any past dividend periods or payment dates
may be declared and paid at any time (without reference to any regular payment
date) to holders of record on a record date fixed by the Board of Directors that
is no more than sixty days and no less than ten days preceding the date fixed
for payment of such dividends.
(d) The holders of shares of Series B Preferred Stock shall not be
entitled to receive, and the Corporation shall not declare or pay, any dividends
or other distributions except as provided herein. No interest or sum of money in
lieu of interest shall be payable in respect of any dividend payment or payments
on the shares of Series B Preferred Stock which may be in arrears.
Section 6.3. Adjustment of Series B Liquidation Preference. After the
date of original issue of the shares of Series B Preferred Stock (the "Series B
Issue Date"), the Series B Liquidation Preference for the outstanding shares of
Series B Preferred Stock on any date (a "Series B Valuation Date") shall be an
amount per share equal to the excess, if any, of (i) $1,000 over (ii) the
quotient obtained by dividing (x) the aggregate Tire Purchase Credit (as defined
below) as of such Series B Valuation Date by (y) the total number of shares of
Series B Preferred Stock outstanding as of such Series B Valuation Date. The
"Tire Purchase Credit" as of any Series B Valuation Date shall be an amount
equal to (x) $1.00 per unit of "Broad Line" tires and
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<PAGE> 10
(y) $2.00 per unit of "HV&Z Performance" tires, in each case purchased by the
Corporation and its affiliates from and including the Series B Issue Date
through such Series B Valuation Date; provided that, for purposes of calculating
the amount of the Tire Purchase Credit, purchases of "Value Line" and "OPP"
tires shall not be counted.
Section 6.4. Voting Rights.
(a) Ownership of shares of Kelly Preferred Stock shall entitle the
holders to no voting rights except as provided in this Section 6.4 and under
applicable law.
(b) So long as any shares of either Series A Preferred Stock or Series
B Preferred Stock shall be outstanding, the Corporation shall not, without the
affirmative vote or written consent of the holders of a majority of the
aggregate number of shares of Series A Preferred Stock or Series B Preferred
Stock then outstanding, as applicable, each considered as a separate series, (i)
alter or change the powers, preferences or rights given to the Series A
Preferred Stock or Series B Preferred Stock, as applicable, by these Articles or
(ii) amend these Articles to increase the authorized amount of Series A
Preferred Stock or Series B Preferred Stock or to authorize or create any Senior
Stock or Parity Stock with respect to the Series A Preferred Stock or Series B
Preferred Stock. The amendment of these Articles to authorize or create, or to
increase the authorized amount of, any Junior Stock shall not be deemed to alter
or change the powers, preferences or rights given to the Series A Preferred
Stock or the Series B Preferred Stock by these Articles. Notwithstanding the
foregoing provisions, the affirmative vote or consent of the holders of the
Series A Preferred Stock or the Series B Preferred Stock, as applicable, shall
not be required for any alteration or change on which the holders would
otherwise be entitled to vote if, at or prior to the time that any such
alteration or change takes effect, due provision is made for the redemption of
all such shares of Series A Preferred Stock or Series B Preferred Stock at the
time outstanding.
(c) So long as Kelly-Springfield holds (of record and beneficially) all
of the outstanding shares of Kelly Preferred Stock, if on any date (1) any
condition or event shall occur which results in the acceleration of the maturity
of the indebtedness evidenced by the Debt Documents or (2) without the requisite
vote or consent of the holders of Series A Preferred Stock or Series B Preferred
Stock, as applicable, the Corporation adversely alters or changes the powers,
preferences or rights given to such series by these Articles, then the number of
directors constituting the Board of Directors shall, without further action, be
increased by the Specified Number (as defined below) and the holders of shares
of Kelly Preferred Stock shall have, in addition to the other voting rights set
forth in these Articles, the exclusive right, voting separately as a single
class, to elect such Specified Number of directors of the Corporation to fill
such newly created directorships, by written consent as provided herein, or at a
special meeting of such holders called as provided herein. Any such additional
directors shall continue as directors (subject to reelection or removal as
provided in Section 6.4(d)(ii)) and the holders of Kelly Preferred Stock shall
have such additional voting rights until such time as (A) Kelly-Springfield no
longer holds (of record and beneficially) all of the outstanding shares of Kelly
Preferred Stock, (B) in the case of any event described in clause (1) above,
such acceleration of the indebtedness evidenced by the Debt Documents shall have
been rescinded or such indebtedness
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<PAGE> 11
shall have been repaid in full, (C) in the case of clause (2) above, such
adverse alteration or change of the powers, preferences or rights given to the
Series A Preferred Stock or the Series B Preferred Stock, as applicable, shall
have been rescinded or (D) all of the outstanding shares of Kelly Preferred
Stock shall have been redeemed pursuant to Section 6.5, whichever is earlier, at
which time such additional directors shall cease to be directors and such
additional voting rights of the holders of Kelly Preferred Stock shall terminate
subject to revesting in the event of each and every subsequent event of the
character indicated above. "Specified Number" means a number of directors equal
to the number required so that the holders of Kelly Preferred Stock will have
the right to elect, voting separately as a single class, a majority of the Board
of Directors at any time.
(d) (i) The right of holders of shares of Kelly Preferred Stock to take
any action as provided in Section 6.4(c) may be exercised at any annual meeting
of stockholders or at a special meeting of holders of shares of Kelly Preferred
Stock held for such purpose as hereinafter provided or at any adjournment
thereof, or by the written consent, delivered to the Secretary of the
Corporation, of the holders of the minimum number of shares required to take
such action, which shall be a majority of the outstanding shares of Kelly
Preferred Stock unless otherwise required by law.
So long as such right to vote continues (and unless such right has been
exercised by written consent of the minimum number of shares required to take
such action), the President of the Company may call, and upon the written
request of holders of record of at least 10% of the outstanding shares of Kelly
Preferred Stock, addressed to the Secretary of the Company at the principal
office of the Company, shall call, a special meeting of the holders of shares
entitled to vote as provided herein. Such meeting shall be held within 30 days
after delivery of such request to the Secretary, at the place and upon the
notice provided by law and in the by-laws of the Company for the holding of
meetings of stockholders.
(ii) At each meeting of stockholders at which the holders of shares of
Kelly Preferred Stock shall have the right, voting separately as a single class,
to elect the directors of the Corporation as provided in Section 6.4(c), the
presence in person or by proxy of the holders of record of a majority of the
total number of shares of Kelly Preferred Stock then outstanding and entitled to
vote on the matter shall be necessary and sufficient to constitute a quorum. At
any such meeting or at any adjournment thereof:
(A) the absence of a quorum of the holders of shares of Kelly
Preferred Stock shall not prevent the election of directors other than
those to be elected by the holders of shares of Kelly Preferred Stock,
and the absence of a quorum of the holders of shares of any other class
or series of capital stock shall not prevent the election of directors
to be elected by the holders of shares of Kelly Preferred Stock; and
(B) in the absence of a quorum of the holders of shares of
Kelly Preferred Stock, a majority of the holders of such shares present
in person or by proxy shall have the power to adjourn the meeting as to
the actions to be taken by the holders
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of shares of Kelly Preferred Stock from time to time and place to place
without notice other than announcement at the meeting until a quorum
shall be present.
For taking of any action as provided in Section 6.4(c) by the holders
of shares of Kelly Preferred Stock, each such holder shall have one vote for
each share of such stock standing in his name on the transfer books of the
Corporation as of any record date fixed for such purpose or, if no such date be
fixed, at the close of business on the Business Day next preceding the day on
which notice is given, or if notice is waived, at the close of business on the
Business Day next preceding the day on which the meeting is held or, if action
is taken by written consent, at the close of business on the Business Day next
preceding the day on which such consent is entered into; provided that shares of
Kelly Preferred Stock owned by the Corporation or any Affiliate of the
Corporation shall not be deemed to be outstanding for purposes of taking any
action as provided in Section 6.4(c).
Each director elected by the holders of shares of Kelly Preferred Stock
as provided in Section 6.4(c) shall, unless his or her term shall expire earlier
in accordance with the provisions hereof, hold office until the annual meeting
of stockholders next succeeding his or her election or until his or her
successor, if any, is elected and qualified.
If any director so elected by the holders of Kelly Preferred Stock
shall cease to serve as a director before his or her term shall expire (except
by reason of the termination of the voting rights accorded to the holders of
Kelly Preferred Stock with respect to the Specified Number of directors in
accordance with Section 6.4(c)), the holders of the Kelly Preferred Stock then
outstanding and entitled to vote for such director may, by written consent as
provided herein, or at a special meeting of such holders called as provided
herein, elect a successor to hold office for the unexpired term of the director
whose place shall be vacant.
Any director elected by the holders of shares of Kelly Preferred Stock
voting separately as a single class may be removed from office with or without
cause by the vote or written consent of the holders of at least a majority of
the then outstanding shares of Kelly Preferred Stock, at the time of removal.
Section 6.5. Redemption.
(a) Subject to the restrictions contained in Section 6.6, beginning on
the last Business Day of December 2002, and on the last Business Day of each
June and December thereafter ending on the last Business Day of June 2007 (each
a "Series A Fixed Redemption Date"), the Corporation shall redeem, out of the
assets of the Corporation legally available therefor, a number of outstanding
shares of Series A Preferred Stock equal to the lesser of (x) 700 and (y) the
total number of shares of Series A Preferred Stock outstanding on such Series A
Fixed Redemption Date at a price per share equal to the sum of (1) 100% of the
Series A Liquidation Preference and (2) an amount per share equal to all accrued
and unpaid Series A Dividends, 4% Series A Makewhole Dividends and Additional
Series A Makewhole Dividends on such shares, whether or not declared or payable,
to such Series A Fixed Redemption Date, in immediately available funds. If less
than all of the outstanding shares of Series A Preferred Stock are to be
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redeemed pursuant to this Section 6.5(a), shares shall be redeemed from all
holders of outstanding Series A Preferred Stock on the date the redemption
notice specified in Section 6.5(g) is mailed, pro rata in proportion (to the
extent practicable) to the number of shares of Series A Preferred Stock held by
each such holder. No fractions of shares shall be redeemed pursuant to this
Section 6.5(a).
(b) Subject to the restrictions contained in Section 6.6, on the last
business day of June 2007 (the "Series B Fixed Redemption Date"), the
Corporation shall redeem, out of the assets of the Corporation legally available
therefor, all of the outstanding shares of Series B Preferred Stock at a price
per share equal to the sum of (1) 100% of the Series B Liquidation Preference
and (2) an amount per share equal to all accrued and unpaid Series B Dividends
and Series B Makewhole Dividends on such shares, whether or not declared or
payable, to the Series B Fixed Redemption Date, in immediately available funds.
(c) Subject to the restrictions contained in Section 6.6, no later than
30 Business Days after the termination of the Supply Agreement (the "Supply
Agreement") to be entered into by and between the Corporation and
Kelly-Springfield in connection with Kelly-Springfield's purchase of the Kelly
Preferred Stock (the "Kelly Mandatory Redemption Date"), the Corporation shall
redeem, out of the assets of the Corporation legally available therefor, all of
the shares of Kelly Preferred Stock outstanding on the Kelly Mandatory
Redemption Date at a price per share equal to the sum of (1) the product of (x)
100% of the Series A Liquidation Preference or the Series B Liquidation
Preference, as applicable, and (y) the Applicable Premium then in effect as
provided in paragraph (f) below and (2) an amount per share equal to all accrued
and unpaid Series A Dividends, 4% Series A Makewhole Dividends and Additional
Series A Makewhole Dividends or Series B Dividends and Series B Makewhole
Dividends, as applicable, whether or not declared or payable, to the Kelly
Mandatory Redemption Date, in immediately available funds.
(d) Subject to the restrictions contained in Section 6.6, if, at any
time after the Series A Issue Date a Change of Control (as defined below)
occurs, the Corporation shall, within 10 Business Days after such occurrence,
send notice of such occurrence to the holders of Kelly Preferred Stock. If,
within 10 Business Days of such notice, (i) the holders of all (but not less
than all) of the outstanding shares of Kelly Preferred Stock send notice to the
Corporation specifying that such holders thereby request that the Corporation
redeem all of the outstanding shares of Kelly Preferred Stock held by each such
holder and (ii) Kelly-Springfield agrees in writing to the termination of the
Supply Agreement, the Corporation shall redeem, out of the assets of the
Corporation legally available therefor, all such shares within 30 Business Days
of the Corporation's receipt of all such requests (the "Change of Control
Redemption Date") at a price per share equal to the sum of (1) the product of
(x) 100% of the Series A Liquidation Preference or the Series B Liquidation
Preference, as applicable, and (y) the Applicable Premium then in effect as
provided in paragraph (f) below and (2) an amount per share equal to all accrued
and unpaid Series A Dividends, 4% Series A Makewhole Dividends and Additional
Series A Makewhole Dividends or Series B Dividends and Series B Makewhole
Dividends, as applicable, whether or not declared or payable, to the Change of
Control Redemption Date, in immediately available funds.
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"Change of Control" means such time as (i) any person or "group"
(within the meaning of Section 13(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") other than the Principal Shareholders (as defined below), Family
Members (as defined below) or Kelly-Springfield is or becomes the beneficial
owner, directly or indirectly, of outstanding shares of capital stock of the
Corporation, entitling such person or persons to exercise 50% or more of the
total votes entitled to be cast at a regular or special meeting, or by action by
written consent, of stockholders of he Corporation (the term "beneficial owner"
shall be determined in accordance with Rule 13d-3, promulgated by the Securities
and Exchange Commission under the Exchange Act), (ii) a majority of the Board of
Directors shall consist of persons other than Continuing Directors (the term
"Continuing Director" shall mean any member of the Board of Directors on the
Series A Issue Date, any member of the Board of Directors elected by
Kelly-Springfield pursuant to Section 6.4(c) of these Articles and any other
member of the Board of Directors who shall be recommended or elected to succeed
or become a Continuing Director by a majority of Continuing Directors who are
then members of the Board of Directors), (iii) the stockholders of the
Corporation shall have approved a recapitalization, reorganization, merger,
consolidation or similar transaction, in each case, with respect to which all or
substantially all the persons who were the respective beneficial owners of the
outstanding shares of capital stock of the Corporation immediately prior to such
recapitalization, reorganization, merger, consolidation or similar transaction
will beneficially own, directly or indirectly, less than 50% of the combined
voting power of the then outstanding shares of capital stock of the Corporation
resulting from such recapitalization, reorganization, merger consolidation or
similar transaction; or (iv) the stockholders of the Corporation shall have
approved the sale or other disposition of all or substantially all the assets of
the Corporation in one transaction or in a series of related transactions to a
person not owning or controlling, or any entity not owned or controlled by the
holders of, directly or indirectly, 50% or more of the combined voting power of
the outstanding shares of capital stock of the Corporation immediately prior to
such disposition. "Family Member" means (i) a member of a Principal
Shareholder's family, which shall include her or his ancestors, spouse,
siblings, descendants or spouses (or surviving spouse) of descendants, or (ii) a
trust, corporation, partnership or other entity, all of the beneficial interests
in which shall be held by a Principal Shareholder or one or more persons
described in clause (I); provided, that during the period any such trust,
corporation, partnership or other entity holds any right, title or interest in
any Common Stock, no Person other than such Principal Shareholder or one or more
Family Members of such Principal Shareholder of the type listed in clause (i)
may be or become beneficiaries, stockholders or limited or general partners or
owners thereof. "Principal Shareholders" means Ann Heafner Gaither, William H.
Gaither, Susan Gaither Jones and Thomas R. Jones.
(e) Subject to the restrictions contained in Section 6.6, at any time
after the Series A Issue Date, the Corporation may, in its sole discretion,
redeem all (but not less than all) of the outstanding shares of Kelly Preferred
Stock, out of the assets of the Corporation legally available therefor, at a
price per share equal to the sum of (1) the product of (x) 100% of the Series A
Liquidation Preference or the Series B Liquidation Preference, as applicable,
and (y) the Applicable Premium then in effect as provided in paragraph (f) below
and (2) an amount per share equal to all accrued and unpaid Series A Dividends,
4% Series A Makewhole Dividends
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and Additional Series A Makewhole Dividends or Series B Dividends and Series B
Makewhole Dividends, as applicable, whether or not declared or payable, to the
Optional Redemption Date (as defined below), in immediately available funds.
"Optional Redemption Date" means, with respect to a redemption pursuant to this
Section 6.5(e), the date specified for such redemption in the notice to the
holders of the Kelly Preferred Stock required under Section 6.5(g).
(f) The "Applicable Premium" for each of the following periods shall be
the number set forth opposite such period below:
- ------------------------------------------------------------------------------
Period Applicable Premium
- ------------------------------------------------------------------------------
Series A Issue Date through first anniversary 1.22
- ------------------------------------------------------------------------------
After first anniversary through second anniversary 1.20
- ------------------------------------------------------------------------------
After second anniversary through third anniversary 1.18
- ------------------------------------------------------------------------------
After third anniversary through fourth anniversary 1.15
- ------------------------------------------------------------------------------
After fourth anniversary through fifth anniversary 1.10
- ------------------------------------------------------------------------------
After fifth anniversary 1.00
- ------------------------------------------------------------------------------
(g) Notice of any redemption of shares of Kelly Preferred Stock
pursuant to this Section 6.5 shall be mailed at least 10, but not more than 30,
days prior to the date fixed for redemption to each holder of shares of Kelly
Preferred Stock to be redeemed, at such holder's address as it appears on the
transfer books of the Corporation. Such notice shall include instructions for
the surrender of the Kelly Preferred Stock to be redeemed and the receipt of
payment therefor. In order to facilitate the redemption of shares of Kelly
Preferred Stock pursuant to this Section 6.5, the Board of Directors may fix a
record date for the determination of shares of Kelly Preferred Stock to be
redeemed, or may cause the transfer books of the Corporation for the Kelly
Preferred Stock to be closed, not more than 30 days or less than 10 days prior
to the date fixed for such redemption.
(h) Notice of redemption having been given as aforesaid, upon the date
fixed for redemption in respect of shares of Kelly Preferred Stock to be
redeemed pursuant to this Section 6.5, notwithstanding that any certificates for
such shares shall not have been surrendered for cancellation, from and after the
date of redemption designated in the notice of redemption, (i) the shares of
Kelly Preferred Stock represented thereby shall no longer be deemed outstanding,
(ii) the rights to receive dividends thereon shall cease to accrue, and (iii)
all rights of the holders of shares of Kelly Preferred Stock to be redeemed
shall cease and terminate, excepting only the right to receive the applicable
redemption price.
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Section 6.6. Limitations on Mandatory Redemption and Dividends.
Notwithstanding anything to the contrary in these Articles, so long as any
amounts are outstanding under any Debt Documents (as defined below) or any
commitments to lend under the Debt Documents have not been terminated, the
Corporation shall not make payment in respect of any redemption permitted or
otherwise required by Section 6.5, or declare, make or pay any dividend or
distribution in respect of any shares of Kelly Preferred Stock if any Event of
Default (as defined in the Debt Documents) or default under any of the Debt
Documents or any event which, upon notice or lapse of time, or both, would
constitute an Event of Default has occurred and is continuing or would result
therefrom and has not been cured or waived in writing by the requisite vote of
the holders of the indebtedness represented by the Debt Documents. "Debt
Documents" means the Loan and Security Agreement, dated as of the Series A Issue
Date between the Corporation, Oliver & Winston, Inc., the financial institutions
party thereto and BankBoston, N.A., as agent, and the Senior Subordinated Note
and Warrant Purchase Agreement, dated the Series A Issue Date, by and among the
Corporation and The 1818 Mezzanine Fund, L.P., and the notes, mortgages,
security documents, guaranties and other agreements entered into in connection
therewith (each as amended, modified, supplemented and/or restated from time to
time in accordance with its terms, including any replacement agreement therefor
and any refinancing of the debt incurred thereunder, which refinancing may
result in a greater principal amount outstanding in connection therewith).
Section 6.7. Reacquired Shares. Any shares of Kelly Preferred Stock
exchanged, redeemed, purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares of Kelly Preferred Stock shall upon their cancellation
become authorized but unissued shares of preferred stock, par value $.01 per
share, of the Corporation and, upon the filing of an appropriate charter
amendment with the Secretary of State of the State of Delaware, may be reissued
as part of another series of preferred stock, par value $.01 per share, of the
Corporation subject to the conditions or restrictions on issuance set forth
herein, but in any event may not be reissued as shares of Kelly Preferred Stock
or other Parity Stock unless all of the shares of Kelly Preferred Stock shall
have already been redeemed.
Section 6.8. Liquidation, Dissolution or Winding Up. (a) If the
Corporation shall commence a voluntary case under the United States bankruptcy
laws or any applicable bankruptcy, insolvency or similar law of any other
country, or consent to the entry of an order for relief in an involuntary case
under any such law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and on account of any
such event the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up, no distribution
shall be made (i) to the holders of shares
16
<PAGE> 17
of Junior Stock with respect to the Kelly Preferred Stock unless, prior thereto,
the holders of shares of Kelly Preferred Stock shall have received an amount
equal to the Series A Liquidation Preference or the Series B Liquidation
Preference, as applicable, plus all accrued and unpaid dividends, whether or not
declared or currently payable, to the date of distribution, with respect to each
outstanding share, or (ii) to the holders of shares of Parity Stock with respect
to the Kelly Preferred Stock, except distributions made ratably on the Kelly
Preferred Stock and all other Parity Stock in proportion to the total amounts to
which the holders of all shares of Kelly Preferred Stock and other Parity Stock
are entitled upon such liquidation, dissolution or winding up.
(b) Neither the consolidation or merger of the Corporation with or into
any other person or entity nor the sale, lease, exchange (for cash, shares of
stock, securities or other consideration) or other distribution to another
person or entity of all or substantially all the assets, property or business of
the Corporation shall be deemed to be a liquidation, dissolution or winding up
of the Corporation for purposes of this Section 6.8.
Section 6.9. Exercise of Rights. (a) The rights of holders of shares of
Kelly Preferred Stock to take any action as provided in Article 6 hereof may be
exercised at any annual meeting of stockholders or by the written consent,
delivered to the Secretary of the Corporation, of the holders of the minimum
number of shares required to take such action, which shall be a majority of the
outstanding shares of Series A Preferred Stock or Series B Preferred Stock, as
applicable, unless otherwise required by law.
(b) For taking of any action as provided in this Article 6 by the
holders of shares of Kelly Preferred Stock, each such holder shall have one vote
for each share of such stock standing in its name on the transfer books of the
Corporation as of any record date fixed for such purpose or, if no such date be
fixed, at the close of business on the Business Day next preceding the day on
which notice is given, or if notice is waived, at the close of business on the
Business Day next preceding the day on which the meeting is held.
ARTICLE 7
CORPORATE EXISTENCE.
The Corporation is to have perpetual existence.
ARTICLE 8
CORPORATE GOVERNANCE.
For the management of the business and for the conduct of the affairs of the
Corporation, and in further definition, limitation, and regulation of the powers
of the Corporation and of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided:
Section 8.1. Management. The management of the business and the conduct
of the affairs of the Corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the By-
17
<PAGE> 18
laws. The election of directors need not be by written ballot except and to the
extent provided in the By-laws of the Corporation.
Section 8.2. Amendment of Articles. From time to time any of the
provisions of these Articles may be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the stockholders of the Corporation by
these Articles are granted subject to the provisions of this Section 8.2.
Section 8.3. Amendment of By-laws. The Board of Directors shall,
subject to Section 109 of the Act, have the power to adopt, amend, or repeal the
By-laws of the Corporation.
Section 8.4. Indemnification of Directors. To the fullest extent
permitted by the Act, no director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. No amendment, modification or repeal of this Section 8.4
shall adversely affect any right or protection of a director that exists at the
time of such amendment, modification or repeal.
Section 8.5. Indemnification of Authorized Persons. The Corporation
shall, to the fullest extent permitted by the Act, indemnify any and all persons
whom it shall have power to indemnify thereunder from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by the Act
and may advance funds to such persons in respect of such expenses, liabilities
or other matters. The indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent, and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
The name and the mailing address of the incorporator are:
Edgar B. Fisher, III
NationsBank Corporate Center
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State Delaware, do make this certificate, hereby declaring and certifying that
this is my act and deed and the facts herein stated are true, and accordingly
have hereunto set my hand this 28th day of December, 1998.
/s/ Edgar B. Fisher, III
-----------------------------------
Edgar B. Fisher, III, Incorporator
18
<PAGE> 1
EXHIBIT 3.11
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
The undersigned hereby execute and certify this Certificate of Amendment for the
purpose of amending its Articles of Incorporation under the California
Corporations Code:
1. They are the president and the secretary, respectively of Oliver &
Winston, Inc., a California corporation.
2. Article I of the Articles of Incorporation of this corporation is
amended to read as follows:
The name of this corporation is Winston Tire Company
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the board of directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with
Section 902, California Corporations Code. The total number of
outstanding shares of the corporation is 181,942. The number of shares
voting in favor of the amendment equaled or exceeded the vote required.
The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATE: 10/7/99
/s/ Donald C. Roof
------------------------
Donald C. Roof, President
/s/ J. Michael Gaither
------------------------
J. Michael Gaither, Secretary
<PAGE> 1
EXHIBIT 10.1
[EXECUTION COPY]
================================================================================
$200,000,000
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of March 6, 2000
Between
HEAFNER TIRE GROUP, INC.
WINSTON TIRE COMPANY
THE SPEED MERCHANT, INC.
CALIFORNIA TIRE COMPANY
(the Borrowers)
and
THE FINANCIAL INSTITUTIONS PARTY
HERETO FROM TIME TO TIME
(the Lenders)
and
FLEET CAPITAL CORPORATION
(the Administrative Agent)
and
BANK OF AMERICA, N.A.
(the Syndication Agent)
and
FIRST UNION NATIONAL BANK
(the Documentation Agent)
FLEETBOSTON ROBERTSON STEPHENS INC.
(the Arranger)
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS...........................................................1
SECTION 1.1 Definitions.....................................................1
SECTION 1.2 General Interpretive Rules.....................................30
SECTION 1.3 Exhibits and Schedules.........................................32
ARTICLE 2 COMMITMENTS..........................................................33
SECTION 2.1 Loans..........................................................33
SECTION 2.2 Manner of Borrowing............................................33
SECTION 2.3 Repayment......................................................35
SECTION 2.4 Notes..........................................................36
SECTION 2.5 Extension of Commitments.......................................36
ARTICLE 2A SWINGLINE FACILITY...................................................37
SECTION 2A.1 Swingline Loans................................................37
SECTION 2A.2 Making Swingline Loans.........................................37
SECTION 2A.3 Repayment of Swingline Loans...................................37
SECTION 2A.4 Prepayment.....................................................37
SECTION 2A.5 Swingline Note.................................................38
SECTION 2A.6 Extension of Commitments.......................................38
ARTICLE 3 LETTER OF CREDIT FACILITY............................................39
SECTION 3.1 Agreement to Issue.............................................39
SECTION 3.2 Amounts........................................................39
SECTION 3.3 Conditions.....................................................39
SECTION 3.4 Issuance of Letter of Credit Guarantees........................40
SECTION 3.5 Duties of FCC..................................................40
SECTION 3.6 Payment of Reimbursement Obligations...........................41
SECTION 3.7 Participations.................................................41
SECTION 3.8 Indemnification, Exoneration...................................43
SECTION 3.9 Supporting Letter of Credit; Cash Collateral Account...........44
ARTICLE 4 GENERAL LOAN PROVISIONS..............................................46
SECTION 4.1 Interest.......................................................46
SECTION 4.2 Certain Fees...................................................47
SECTION 4.3 Manner of Payment..............................................49
SECTION 4.4 General........................................................49
SECTION 4.5 Loan Accounts; Statements of Account...........................49
SECTION 4.6 Reduction of Commitments; Termination of Agreement.............50
SECTION 4.7 Making of Loans................................................51
SECTION 4.8 Settlement Among Lenders.......................................52
SECTION 4.9 Mandatory Prepayments..........................................55
SECTION 4.10 Payments Not at End of Interest Period; Failure to Borrow......55
SECTION 4.11 Notice of Conversion or Continuation...........................56
SECTION 4.12 Conversion or Continuation.....................................56
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 4.13 Duration of Interest Periods; Maximum Number of Eurodollar
Rate Loans; Minimum Increments................................56
SECTION 4.14 Changed Circumstances..........................................57
SECTION 4.15 Cash Collateral Account; Investment Accounts...................58
SECTION 4.16 Allocation of Payments from Borrowers..........................59
SECTION 4.17 Borrowers' Representative......................................60
SECTION 4.18 Joint and Several Liability....................................60
SECTION 4.19 Obligations Absolute...........................................61
SECTION 4.20 Waiver of Suretyship Defenses..................................61
ARTICLE 5 CONDITIONS PRECEDENT.................................................63
SECTION 5.1 Conditions Precedent to Effectiveness of Agreement.............63
SECTION 5.2 All Loans; Letters of Credit...................................65
SECTION 5.3 Conditions as Covenants........................................66
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BORROWERS..........................67
SECTION 6.1 Representations and Warranties.................................67
SECTION 6.2 Survival of Representations and Warranties, Etc................74
ARTICLE 7 SECURITY INTEREST....................................................75
SECTION 7.1 Security Interest..............................................75
SECTION 7.2 Continued Priority of Security Interest........................76
ARTICLE 8 COLLATERAL COVENANTS.................................................78
SECTION 8.1 Collection of Receivables......................................78
SECTION 8.2 Verification and Notification..................................79
SECTION 8.3 Disputes, Returns and Adjustments..............................79
SECTION 8.4 Invoices.......................................................80
SECTION 8.5 Delivery of Instruments........................................80
SECTION 8.6 Sales of Inventory.............................................81
SECTION 8.7 Ownership and Defense of Title.................................81
SECTION 8.8 Insurance......................................................81
SECTION 8.9 Location of Offices and Collateral.............................82
SECTION 8.10 Records Relating to Collateral.................................82
SECTION 8.11 Inspection.....................................................83
SECTION 8.12 Information and Reports........................................83
SECTION 8.13 Power of Attorney..............................................84
SECTION 8.14 Assignment of Claims Act.......................................84
ARTICLE 9 AFFIRMATIVE COVENANTS................................................85
SECTION 9.1 Preservation of Corporate Existence and Similar Matters........85
SECTION 9.2 Compliance with Applicable Law.................................85
SECTION 9.3 Maintenance of Property........................................85
SECTION 9.4 Conduct of Business............................................85
SECTION 9.5 Insurance......................................................86
SECTION 9.6 Payment of Taxes and Claims....................................86
SECTION 9.7 Accounting Methods and Financial Records.......................86
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 9.8 Use of Proceeds................................................86
SECTION 9.9 Hazardous Waste and Substances; Environmental Requirements.....87
SECTION 9.10 Additional Subsidiaries........................................87
SECTION 9.11 Compliance with Senior Note Indenture..........................87
SECTION 9.12 Agency Account Agreements......................................87
ARTICLE 10 INFORMATION..........................................................88
SECTION 10.1 Financial Statements...........................................88
SECTION 10.2 Accountants' Certificate.......................................89
SECTION 10.3 Officer's Certificate..........................................89
SECTION 10.4 Copies of Other Reports........................................89
SECTION 10.5 Notice of Litigation and Other Matters.........................90
SECTION 10.6 ERISA..........................................................90
ARTICLE 11 NEGATIVE COVENANTS...................................................92
SECTION 11.1 Financial Covenant.............................................92
SECTION 11.2 Debt...........................................................92
SECTION 11.3 Guarantees.....................................................93
SECTION 11.4 Acquisitions...................................................93
SECTION 11.5 Capital Expenditures...........................................95
SECTION 11.6 Restricted Distributions and Payments, Etc.....................95
SECTION 11.7 Merger, Consolidation and Sale of Assets.......................95
SECTION 11.8 Transactions with Affiliates...................................95
SECTION 11.9 Liens..........................................................95
SECTION 11.10 Sales and Leasebacks...........................................95
SECTION 11.11 Amendments of Other Agreements.................................95
SECTION 11.12 Commingling....................................................96
ARTICLE 12 DEFAULT..............................................................97
SECTION 12.1 Events of Default..............................................97
SECTION 12.2 Remedies......................................................100
SECTION 12.3 Application of Proceeds.......................................102
SECTION 12.4 Power of Attorney.............................................102
SECTION 12.5 Miscellaneous Provisions Concerning Remedies..................103
SECTION 12.6 Trademark License.............................................104
ARTICLE 13 ASSIGNMENTS.........................................................105
SECTION 13.1 Successors and Assigns; Participations........................105
SECTION 13.2 Representation of Lenders.....................................107
ARTICLE 14 AGENT...............................................................108
SECTION 14.1 Appointment of Agent..........................................108
SECTION 14.2 Delegation of Duties..........................................108
SECTION 14.3 Exculpatory Provisions........................................108
SECTION 14.4 Reliance by Agent.............................................109
SECTION 14.5 Notice of Default.............................................109
SECTION 14.6 Non-Reliance on Agent and Other Lenders.......................109
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 14.7 Indemnification...............................................110
SECTION 14.8 Agent in Its Individual Capacity..............................111
SECTION 14.9 Successor Collateral Agent....................................112
SECTION 14.10 Notices from Agent to Lenders.................................113
SECTION 14.11 Declaring Events of Default...................................113
SECTION 14.12 Syndication Agent and Documentation Agent.....................113
ARTICLE 15 MISCELLANEOUS.......................................................114
SECTION 15.1 Notices.......................................................114
SECTION 15.2 Expenses......................................................115
SECTION 15.3 Stamp and Other Taxes.........................................116
SECTION 15.4 Setoff........................................................116
SECTION 15.5 Consent to Advertising and Publicity..........................117
SECTION 15.6 Reversal of Payments..........................................117
SECTION 15.7 Injunctive Relief.............................................117
SECTION 15.8 Accounting Matters............................................117
SECTION 15.9 Amendments....................................................118
SECTION 15.10 Assignment....................................................119
SECTION 15.11 Performance of Borrowers' Duties..............................119
SECTION 15.12 Indemnification...............................................120
SECTION 15.13 All Powers Coupled with Interest..............................120
SECTION 15.14 Survival......................................................120
SECTION 15.15 Titles and Captions...........................................121
SECTION 15.16 Severability of Provisions....................................121
SECTION 15.17 Governing Law.................................................121
SECTION 15.18 Counterparts..................................................122
SECTION 15.19 Reproduction of Documents.....................................122
SECTION 15.20 Term of Agreement.............................................122
SECTION 15.21 Increased Capital.............................................122
SECTION 15.22 Pro-Rata Participation........................................123
SECTION 15.23 Net Payments..................................................124
SECTION 15.24 Effect on Effectiveness of this Agreement.....................126
</TABLE>
5
<PAGE> 6
ANNEX A COMMITMENTS
ANNEX B PRICING MATRIX
EXHIBIT A-1 FORM OF SECOND AMENDED AND RESTATED PROMISSORY NOTE
EXHIBIT A-2 FORM OF SWINGLINE NOTE
EXHIBIT B FORM OF BORROWING BASE CERTIFICATE
EXHIBIT C FORM OF ASSIGNMENT AND ACCEPTANCE
EXHIBIT D FORM OF COMPLIANCE CERTIFICATE
EXHIBIT E FORM OF SUBSIDIARY GUARANTY
EXHIBIT F FORM OF SUBSIDIARY SECURITY AGREEMENT
Schedule 1.1A Permitted Investments
Schedule 1.1B Permitted Liens
Schedule 1.1C Clearing Banks
Schedule 6.1(a) Jurisdictions in Which Borrowers are Qualified as
Foreign Corporations
Schedule 6.1(b) Capitalization
Schedule 6.1(c) Subsidiaries; Ownership of Stock
Schedule 6.1(e) Compliance with Laws
Schedule 6.1(f) Business of Borrowers
Schedule 6.1(g) Governmental Approvals
Schedule 6.1(h) Title to Properties
Schedule 6.1(i) Liens
Schedule 6.1(j) Indebtedness and Guarantees
Schedule 6.1(k) Litigation
Schedule 6.1(l) Tax Matters
Schedule 6.1(m) Burdensome Provisions
Schedule 6.1(n) Undisclosed Material Obligations
Schedule 6.1(p) ERISA
Schedule 6.1(t) Location of Offices and Receivables
Schedule 6.1(u) Location of Inventory and Equipment
Schedule 6.1(v) Corporate and Fictitious Names
Schedule 6.1(y) Employee Relations
Schedule 6.1(aa) Trade Names
Schedule 6.1(bb) Bank Accounts
Schedule 6.1(dd) Real Property
Schedule 11.8 Affiliate Transactions
6
<PAGE> 7
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
is made as of March 6, 2000 by and between HEAFNER TIRE GROUP, INC., WINSTON
TIRE COMPANY, THE SPEED MERCHANT, INC., CALIFORNIA TIRE COMPANY, the financial
institutions party to this Agreement from time to time as the Lenders, FIRST
UNION NATIONAL BANK, as documentation agent, BANK OF AMERICA, N.A., as
syndication agent, and FLEET CAPITAL CORPORATION, as administrative agent for
the Lenders.
PRELIMINARY STATEMENT
Heafner Tire Group, Inc., Winston Tire Company, The Speed
Merchant, Inc., and Fleet Capital Corporation and First Union National Bank and,
by assignment from Fleet Capital Corporation and First Union National Bank (the
"Existing Lenders"), Bank of America, N.A., Mellon Bank, N.A. and PNC Bank,
National Association (the "New Lenders"), are parties to an Amended and Restated
Loan and Security Agreement dated as of May 20, 1998 (as amended to date, the
"Existing Loan Agreement").
At the request of Heafner Tire Group, Inc., the parties to the
Existing Loan Agreement have agreed to increase the amount available to be
borrowed on a revolving credit basis, add California Tire Company as a Borrower,
modify certain covenants and make other changes to the Existing Loan Agreement,
and for the convenience of the parties, to effect such increase, additions,
modifications and other changes by amending and restating the Existing Loan
Agreement in its entirety as hereinafter set forth, upon and subject to all of
the terms, conditions and provisions hereof. This amendment and restatement is
not intended to be, and shall not be deemed or construed as, a repayment or
novation of the Debt outstanding under the Existing Loan Agreement.
Accordingly, in consideration of the Existing Loan Agreement,
the financial accommodations outstanding thereunder, the mutual promises
hereinafter set forth and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. For the purposes of this Agreement:
"ACH Transfer" means and refers to the transfer of funds
within or between financial institutions using electronic credits and debits in
accordance with banking procedures promulgated by the National Automated
Clearing House Association or any related regional association.
"Account Debtor" means a Person who is obligated on a
Receivable.
<PAGE> 8
"Acquire" or "Acquisition", as applied to any Business Unit or
Investment, means the acquisition of such Business Unit or Investment by
purchase, exchange, issuance of stock or other securities, or by merger,
reorganization or any other method.
"Acquired Debt" means Debt of a Person that becomes a
Consolidated Subsidiary after the Effective Date or is otherwise Acquired by a
Loan Party after the Effective Date and Debt secured by property included in a
Business Unit Acquired by a Loan Party after the Effective Date, which Debt was
outstanding immediately prior to such Acquisition but was not incurred or
created in contemplation of such Acquisition.
"Additional Reserves" means reserves other than the Letter of
Credit Reserve, the Rent Reserve or the Dilution Reserve against the Borrowing
Base established by the Administrative Agent from time to time in the exercise
of its reasonable credit judgment.
"Administrative Agent" means FCC and any successor agent
appointed pursuant to SECTION 14.9 hereof.
"Administrative Agent's Office" means the office of the
Administrative Agent specified in or determined in accordance with the
provisions of SECTION 15.1.
"Affiliate" (and with corollary meaning, "Affiliated") means,
with respect to a Person, (a) any partner, officer, shareholder (if holding more
than ten percent (10%) of the outstanding shares of capital stock of such
Person), member, director, manager or managing agent of such Person, (b) any
spouse, parents, siblings, children or grandchildren of such Person, and (c) any
other Person (other than a Subsidiary) that, (i) directly or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, such given Person, (ii) directly or indirectly beneficially owns
or holds ten percent (10%) or more of any class of voting stock or partnership
or other voting interest of such Person or any Subsidiary of such Person, or
(iii) ten percent (10%) or more of the voting stock or partnership or other
voting interest of which is directly or indirectly beneficially owned or held by
such Person or a Subsidiary of such Person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities or partnership or other voting interest, by contract or
otherwise. So long as it is not a holder, beneficially or of record, of issued
and outstanding shares of common stock of Heafner or otherwise in control of
Heafner, The 1818 Mezzanine Fund, L.P. will not be deemed to be an Affiliate of
Heafner by reason of its holding the Warrant.
"Agency Account" means an account of a Loan Party maintained
by it with a Clearing Bank pursuant to an Agency Account Agreement.
"Agency Account Agreement" means an agreement among a Loan
Party, the Administrative Agent and a Clearing Bank, in form and substance
satisfactory to the Administrative Agent, concerning the collection and transfer
of payments which represent the proceeds of Receivables or of any other
Collateral.
"Agreement" means and includes this Second Amended and
Restated Loan and Security Agreement, including all Schedules, Exhibits and
other attachments hereto, and all
2
<PAGE> 9
amendments, modifications and supplements hereto and thereto and restatements
hereof and thereof.
"Agreement Date" means the date as of which this Agreement is
dated.
"Applicable Law" means all applicable provisions of
constitutions, statutes, rules, regulations and orders of all governmental
bodies and of all orders and decrees of all courts and arbitrators, including,
without limitation, Environmental Laws.
"Applicable Margin" means (a) as to Base Rate Revolving Credit
Loans, 0.25%, and (b) as to Eurodollar Rate Revolving Credit Loans, 1.75%,
subject to quarterly adjustment as follows: From and after the delivery of the
consolidated quarterly financial statements of Heafner and its Consolidated
Subsidiaries for the Fiscal Quarter ending on or about June 30, 2000 and each
Fiscal Quarter ending thereafter and the related officer's certificate in
accordance with the respective provisions of SECTIONS 10.1(B) and 10.3, the
foregoing percentages will be adjusted, PROVIDED that no Default or Event of
Default has occurred and is continuing, effective the first day of the calendar
month that begins at least 10 days after delivery of such financial statements
for such Fiscal Quarter or any succeeding Fiscal Quarter, to the percentages set
forth in ANNEX B that correspond to the Interest Coverage Ratio reflected in
such financial statements and the related certificate.
"Assignment and Acceptance" means an assignment and acceptance
in the form attached hereto as EXHIBIT C assigning all or a portion of a
Lender's interests, rights and obligations under this Agreement pursuant to
SECTION 13.1.
"Attributable Debt" in respect of a sale leaseback transaction
means, as at the date of determination, the present value (discounted at the
interest rate borne by the Senior Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such sale leaseback transaction (including any period for
which such lease has been extended).
"Bank" means Fleet National Bank, a national banking
association.
"BankBoston" means BankBoston, N.A., a national banking
association.
"Bank of America" means Bank of America, N.A., a national
banking association.
"Base Rate" means at any time a fluctuating interest rate per
annum equal to the greater of (i) the rate of interest announced or quoted from
time to time by Bank as its prime rate for commercial loans, which rate might
not be the lowest rate charged by Bank, and, if such prime rate for commercial
loans is discontinued by Bank as a standard, a comparable reference rate
designated by Bank as a substitute therefor shall be the Base Rate, and (ii) the
Federal Funds Rate plus 1/2 of 1% per annum.
"Base Rate Loan" means each Borrowing of Loans bearing
interest determined with reference to the Base Rate on the same day and a
specified principal amount of such Loans outstanding and any Non-Ratable Loan.
3
<PAGE> 10
"Base Rate Revolving Credit Loan" means each Base Rate Loan
outstanding under the Revolving Credit Facility.
"Benefit Plan" means an "employee pension benefit plan" as
defined in Section 3(3) of ERISA (other than a Multiemployer Plan) in respect of
which a Borrower or any Related Company is, or within the immediately preceding
six years was, an "employer" as defined in Section 3(5) of ERISA, including such
plans as may be established after the Agreement Date.
"Borrower" means each of Heafner, Winston, CPW and Cal Tire.
"Borrowing" means Loans of the same Type hereunder made (or
continued or converted) by the Lenders Ratably on the same date, and, in the
case of Eurodollar Rate Loans, for the same Interest Period.
"Borrowing Base" means at any time an amount equal to the
lesser of:
(a) the aggregate Commitments, MINUS the sum of
(i) the Letter of Credit Reserve, PLUS
(ii) the Rent Reserve, PLUS
(iii) any Additional Reserves, and
(b) an amount equal to
(i) 85% (or such lesser percentage as the
Administrative Agent may in its reasonable credit judgment
determine from time to time) of the face value of Eligible
Receivables due and owing at such time, PLUS
(ii) 65% as to Inventory consisting of tires and 50%
as to all other Inventory (or in either case, such lesser
percentage as the Administrative Agent may in its reasonable
credit judgment determine from time to time) of the lesser of
cost determined on a FIFO (or first-in-first-out) accounting
basis and fair market value of applicable Eligible Inventory,
at such time, MINUS
(iii) the sum of
(A) the Letter of Credit Reserve, PLUS
(B) the Rent Reserve, PLUS
(C) the Dilution Reserve, PLUS
(D) any Additional Reserves.
"Borrowing Base Certificate" means a certificate in the form
attached hereto as EXHIBIT B or in such other form as the Borrowers and the
Administrative Agent may agree.
4
<PAGE> 11
"Business Day" means any day other than a Saturday, Sunday or
other day on which banks in Atlanta, Georgia, Boston, Massachusetts or Hartford,
Connecticut are authorized to close and, when used with respect to Eurodollar
Rate Loans, means any such day on which dealings in Dollar deposits are carried
on in the London interbank market.
"Business Unit" means assets constituting a business, whether
all of the assets of any Person or the assets of a division or operating unit of
any Person.
"CPW" means The Speed Merchant, Inc., a California
corporation, doing business as "The Speed Merchant" and as "Competition Parts
Warehouse" and a Wholly Owned Subsidiary of Heafner.
"Cal Tire" means California Tire Company, a California
corporation and a Wholly Owned Subsidiary of Heafner.
"Capital Expenditures" means, with respect to any Person, all
expenditures made and liabilities incurred for the acquisition of assets (other
than Inventory or assets that constitute a Business Unit) which are not, in
accordance with GAAP, treated as expense items for such Person in the year made
or incurred or as a prepaid expense applicable to a future year or years.
"Capitalized Lease" means a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means Indebtedness represented
by obligations under a Capitalized Lease, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Cash Collateral" means collateral consisting of cash or Cash
Equivalents on which the Administrative Agent, for the benefit of itself as
Administrative Agent and the Lenders, has a first priority Lien.
"Cash Collateral Account" means a special interest-bearing
deposit account consisting of cash maintained by the Administrative Agent in the
name of Heafner but under the sole dominion and control of the Administrative
Agent, for its benefit and for the benefit of the Lenders, established pursuant
to the provisions of SECTION 4.15(A) for purposes set forth therein.
"Cash Equivalents" means
(a) marketable direct obligations issued or unconditionally
guaranteed by the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States, in each case maturing
within one year from the date of acquisition thereof;
(b) commercial paper maturing no more than one year from the
date issued and, at the time of acquisition thereof, rated at least A-1 by S&P
or at least P-1 by Moody's;
(c) certificates of deposit or bankers' acceptances issued in
Dollar denominations and maturing within one year from the date of issuance
thereof issued by any commercial bank organized under the laws of the United
States of America or any state thereof
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<PAGE> 12
or the District of Columbia having combined capital and surplus of not less than
$100,000,000 and, unless issued by a Lender, not subject to set-off or offset
rights in favor of such bank arising from any banking relationship with such
bank;
(d) units or other interests in funds invested solely in
instruments described in CLAUSES (A), (B) and (C); and
(e) repurchase agreements in form and substance and for
amounts satisfactory to the Administrative Agent.
"Clearing Bank" means each bank listed on SCHEDULE 1.1C -
CLEARING BANKS and any other banking institution with which an Agency Account
has been established pursuant to an Agency Account Agreement.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Collateral" means and includes all of each Loan Party's
right, title and interest in and to each of the following, wherever located and
whether now or hereafter existing or now owned or hereafter acquired or arising:
(a) (i) all rights to the payment of money or other forms of
consideration of any kind (whether classified under the UCC as accounts,
contract rights, chattel paper, general intangibles or otherwise) including, but
not limited to, accounts receivable, insurance proceeds, letters of credit and
the right to receive payment thereunder, chattel paper, any rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper, notes, drafts, instruments, documents, acceptances and all other
debts, obligations and liabilities in whatever form from any Person, but
excluding tax refunds and insurance proceeds not arising out of the Collateral,
(ii) all guarantees, security and Liens securing payment thereof, (iii) all
goods, whether now owned or hereafter acquired, and whether sold, delivered,
undelivered, in transit or returned, which may be represented by, or the sale or
lease of which may have given rise to, any such right to payment or other debt,
obligation or liability, and (iv) all proceeds of any of the foregoing (the
foregoing, collectively, "Receivables"),
(b) (i) all inventory, (ii) all goods intended for sale or
lease or for display or demonstration, (iii) all work in process, (iv) all raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, packing, shipping,
advertising, selling, leasing or furnishing of goods or services or otherwise
used or consumed in the conduct of business, and (v) all documents of title,
including bills of lading and warehouse receipts, and other documents evidencing
and general intangibles relating to any of the foregoing (the foregoing,
collectively, "Inventory"),
(c) any demand, time, savings, passbook, money market or like
depository account, and all certificates of deposit, maintained with a bank,
savings and loan association, credit union or like organization (other than an
account evidenced by a certificate of deposit that is an instrument under the
UCC) to which proceeds of Collateral are deposited (the foregoing, collectively,
"Deposit Accounts"),
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<PAGE> 13
(d) all certificated and uncertificated securities, all
security entitlements, all securities accounts, all commodity contracts and all
commodity accounts (EXCLUDING, HOWEVER, the equity securities of any
Subsidiary), to the extent acquired directly with proceeds of Collateral (the
foregoing, collectively, "Investment Property"),
(e) (i) any investment account maintained by or on behalf of a
Loan Party with the Administrative Agent or any Lender or any Affiliate of the
Administrative Agent or any Lender, (ii) any agreement governing such account,
(iii) all cash proceeds and Investment Property now or hereafter held by the
Administrative Agent or any Lender or any Affiliate of the Administrative Agent
or any Lender on behalf of a Loan Party in connection with such investment
account and (iv) all documents evidencing and general intangibles related to the
foregoing (the foregoing, collectively, "Investment Accounts"),
(f) all cash or other property deposited with the
Administrative Agent or any Lender or any Affiliate of the Administrative Agent
or any Lender or which the Administrative Agent, for its benefit and for the
benefit of the Lenders, or any Lender or such Affiliate is entitled to retain or
otherwise possess as collateral pursuant to the provisions of this Agreement or
any of the Loan Documents or any agreement relating to any Letter of Credit,
including, without limitation, amounts on deposit in the Cash Collateral
Account,
(g) all goods and other property, whether or not delivered,
(i) the sale or lease of which gives or purports to give rise to any Receivable,
including, but not limited to, all merchandise returned or rejected by or
repossessed from customers, or (ii) securing any Receivable, including, without
limitation, all rights as an unpaid vendor or lienor (including, without
limitation, stoppage in transit, replevin and reclamation) with respect to such
goods and other properties,
(h) all mortgages, deeds to secure debt and deeds of trust on
real or personal property, guarantees, leases, security agreements and other
agreements and property which secure or relate to any Receivable or other
Collateral or are acquired for the purpose of securing and enforcing any item
thereof,
(i) all files, correspondence, computer programs, tapes, disks
and related data processing software which contain information identifying or
pertaining to any of the Collateral or any Account Debtor or showing the amounts
thereof or payments thereon or otherwise necessary or helpful in the realization
thereon or the collection thereof, and
(j) any and all products and cash and non-cash proceeds of the
foregoing (including, but not limited to, any claims to any items referred to in
this definition and any claims against third parties for loss of, damage to or
destruction of any or all of the Collateral or for proceeds payable under or
unearned premiums with respect to policies of insurance) in whatever form,
including, but not limited to, cash, negotiable instruments and other
instruments for the payment of money, chattel paper, security agreements and
other documents.
"Collateral Availability" means at any time the excess, if
any, of the amount determined pursuant to CLAUSE (B) of the definition
"Borrowing Base" over the aggregate principal amount of Revolving Credit Loans
and Swingline Loans outstanding at such time.
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<PAGE> 14
"Commitment" means, as to each Lender, the amount set forth
opposite such Lender's name on ANNEX A hereto or, from and after the date
hereof, as set forth in the Register, representing such Lender's obligation,
upon and subject to the terms and conditions of this Agreement (including the
applicable provisions of SECTION 13.1), to make its Proportionate Share of Loans
(including to repay Swingline Loans) and to purchase participations in Letter of
Credit Guarantees.
"Commitment Percentage" means, as to any Lender at the time of
determination, the percentage obtained by dividing such Lender's Commitment at
such time by the aggregate amount of the Commitments at such time.
"Consolidated Subsidiary" means each Subsidiary of Heafner the
financial results of which, at the time in question, are consolidated with those
of Heafner in accordance with GAAP.
"Contaminant" means any waste, pollutant, hazardous substance,
toxic substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, or any constituent of any such substance or waste.
"Controlled Disbursement Account" means one or more accounts
maintained by and in the name of the Borrowers (or any of them) with a
Disbursing Bank for the purposes of disbursing Loan proceeds and amounts
deposited thereto.
"Current Assets" means, with respect to any Person, the
aggregate amount of assets of such Person which should properly be classified as
current assets in accordance with GAAP, after deducting adequate reserves in
each case where a reserve is appropriate in accordance with GAAP.
"Current Liabilities" means, with respect to any Person, the
aggregate amount of all Liabilities of such Person which should properly be
classified as current liabilities in accordance with GAAP.
"Debt" means
(a) Indebtedness for money borrowed,
(b) Indebtedness, whether or not in any such case the same was
for money borrowed,
(i) represented by notes payable, drafts accepted and
reimbursement obligations under letters of credit, including
Reimbursement Obligations, and similar instruments that
represent extensions of credit,
(ii) constituting obligations evidenced by bonds,
debentures, notes or similar instruments,
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<PAGE> 15
(iii) any amounts required to be included in the
Purchase Price of any Acquisition pursuant to SECTION 11.4 and
not paid in cash at the closing of such Acquisition,
(iv) upon which interest charges are customarily paid
or that was issued or assumed as full or partial payment for
property (other than trade credit that is incurred in the
ordinary course of business),
(c) Capitalized Lease Obligations, and
(d) Indebtedness that is such by virtue of CLAUSE (C) of the
definition thereof, but only to the extent that the obligations Guaranteed are
Debt.
The KS Preferred is not Debt for purposes of this Agreement or the other Loan
Documents.
"Default" means any of the events specified in SECTION 12.1
which with the passage of time or giving of notice or both would constitute an
Event of Default.
"Default Margin" means 2.0%.
"Deposit Account" has the meaning set forth in the definition
"Collateral."
"Dilution Reserve" means an amount equal to the EXCESS of (i)
non-cash reductions to the Loan Parties' Receivables (on a combined basis)
during a 12-month period prior to the date of determination as established by
the Loan Parties' records or by a field examination conducted by the
Administrative Agent's, the Syndication Agent's or the Documentation Agent's
employees or representatives, expressed as a percentage of the Loan Parties'
Receivables (on a combined basis) outstanding during the same period OVER (ii)
5%, MULTIPLIED by an amount equal to Eligible Receivables as of the date of
determination.
"Disbursing Bank" means any commercial bank with which a
Controlled Disbursement Account is maintained after the Effective Date.
"Dollar" and "$" means freely transferable United States
dollars.
"Documentation Agent" means FUNB.
"EBIT" for any specified accounting period means Net Income of
Heafner and its Consolidated Subsidiaries on a consolidated basis for such
period before provision for net interest expense and income taxes PLUS up to
$3,500,000 in non-recurring charges related to what is commonly referred to by
the Borrowers as the "Riggs Settlement" deducted in computing Net Income for
such specified period.
"EBITDA" for any specified accounting period means EBIT for
such period PLUS depreciation and amortization expense deducted in computing
EBIT.
"ERISA" means the Employee Retirement Income Security Act of
1974, as in effect from time to time.
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<PAGE> 16
"ERISA Event" means (a) a "Reportable Event" as defined in
Section 4043(c) of ERISA, but excluding any such event as to which the provision
for 30 days' notice to the PBGC is waived under applicable regulations, (b) the
filing of a notice of intent to terminate a Benefit Plan subject to Title IV of
ERISA under a distress termination under Section 4041(c) of ERISA or the
treatment of an amendment to such a Benefit Plan as a termination under Section
4041(c) of ERISA, (c) the institution of proceedings by the PBGC to terminate a
Benefit Plan subject to Title IV of ERISA or the appointment of a trustee to
administer any such Benefit Plan or an event or condition that might reasonably
be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Benefit Plan
subject to Section 4042, (d) the imposition of any liability under Title IV of
ERISA other than for PBGC premiums due but not yet payable, (e) the filing of an
application for a minimum funding waiver under Section 412 of the Code, (f) a
withdrawal by a Borrower or any Related Company from a Benefit Plan subject to
Section 4063 of ERISA during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA), (g) a Benefit Plan
intending to qualify under Section 401(a) of the Code losing such qualified
status (other than because of a Remediable Defect), (h) the failure to make a
material required contribution to a Benefit Plan, (i) a Borrower or any Related
Company being in "default" (as defined in Section 4219(c)(5) of ERISA) with
respect to payments to a Multiemployer Plan because of its complete or partial
withdrawal (as described in Section 4203 or 4205 of ERISA) from such
Multiemployer or Plan, or (j) the occurrence of a material non-exempt prohibited
transaction within the meaning of Section 4975 of the Code or Section 406 of
ERISA with respect to any Benefit Plan that is not cured within 60 days after a
Borrower has knowledge thereof.
"Effective Date" means the later of:
(a) the Agreement Date, and
(b) the first date on which all of the conditions set forth in
ARTICLE 5 shall have been fulfilled.
"Effective Interest Rate" means each rate of interest per
annum on Revolving Credit Loans and Swingline Loans in effect from time to time
pursuant to the provisions of SECTIONS 4.1(A) and (C).
"Eligible Assignee" means (i) a commercial bank organized
under the laws of the United States, or any State thereof, having total assets
in excess of $10,000,000,000; (ii) any commercial finance or asset based lending
company organized under the laws of the United States, or any State thereof,
that is an Affiliate of a commercial bank having total assets in excess of
$10,000,000,000; and (iii) any Lender listed on the signature page of this
Agreement; PROVIDED that the representation contained in SECTION 13.2 hereof
shall be applicable with respect to any such Person.
"Eligible Inventory" means items of Inventory of a Loan Party
held for sale in the ordinary course of the business of such Loan Party (but not
including packaging or shipping materials or maintenance supplies) that meet all
of the following requirements: (a) such Inventory is owned by a Loan Party, is
subject to the Security Interest, which is perfected as to such Inventory, and
is not subject to a Vendor Lien or any other Lien whatsoever other than a
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<PAGE> 17
Permitted Lien (that is not a Vendor Lien); (b) such Inventory consists of raw
materials or finished goods and does not consist of work-in-process, supplies or
consigned goods; (c) such Inventory is in good condition and meets all standards
applicable to such goods, their use or sale imposed by any governmental agency,
or department or division thereof, having regulatory authority over such
matters; (d) such Inventory is currently either usable or saleable, at prices
approximating at least the cost thereof, in the normal course of the applicable
Loan Party's business; (e) such Inventory is not obsolete or returned or
repossessed or used goods taken in trade; (f) such Inventory is located within
the United States at one of the Permitted Inventory Locations; (g) such
Inventory is in the possession and control of a Loan Party and not any third
party and if located in a warehouse or other facility leased by a Loan Party,
the lessor has delivered to the Administrative Agent a waiver and consent in
form and substance satisfactory to the Administrative Agent or such facility is
reflected in the Rent Reserve; and (h) such Inventory is not determined by the
Administrative Agent, in the exercise of its reasonable credit judgment, to be
ineligible for any reason.
"Eligible Receivable" means the unpaid portion of a Receivable
payable in Dollars to a Loan Party net of any returns, discounts, credits, or
other allowances or deductions agreed to by a Loan Party and net of any amounts
owed by a Loan Party to the Account Debtor on such Receivable, which Receivable
meets all of the following requirements: (a) such Receivable is owned by a Loan
Party and represents a complete bona fide transaction which requires no further
act under any circumstances on the part of any Loan Party to make such
Receivable payable by the Account Debtor; (b) such Receivable is not past due
more than 60 days after its due date, which due date shall not be later than 90
days after the invoice date; (c) such Receivable does not arise out of any
transaction with any Subsidiary, Affiliate, creditor, lessor or supplier of a
Loan Party; (d) such Receivable is not owing by an Account Debtor more than 15%
of whose then-existing accounts owing to the Loan Parties do not meet the
requirements set forth in CLAUSE (B) above; (e) if the Account Debtor with
respect thereto is located outside of the United States of America, Canada or
Puerto Rico, the goods which gave rise to such Receivable were shipped after
receipt by the applicable Loan Party from the Account Debtor of an irrevocable
letter of credit that has been confirmed by a financial institution acceptable
to the Administrative Agent and is in form and substance acceptable to the
Administrative Agent, payable in the full face amount of the face value of the
Receivable in Dollars at a place of payment located within the United States and
has been duly assigned to the Administrative Agent, except that up to $1,000,000
of such Receivables outstanding at any time that are otherwise Eligible
Receivables, may be included in Eligible Receivables without such letter of
credit support; (f) the Account Debtor with respect to such Receivable is not
located in a state which imposes conditions on the enforceability of Receivables
with which the applicable Loan Party has not complied; (g) such Receivable is
not subject to the Assignment of Claims Act of 1940, as amended from time to
time, or any applicable law now or hereafter existing similar in effect thereto,
as determined in the sole discretion of the Administrative Agent, or to any
provision prohibiting its assignment or requiring notice of or consent to such
assignment; (h) the Loan Party that is the obligee thereof is not in breach of
any express or implied representation or warranty with respect to the goods the
sale of which gave rise to such Receivable; (i) the Account Debtor with respect
to such Receivable is not insolvent or the subject of any bankruptcy or
insolvency proceedings of any kind or of any other proceeding or action,
threatened or pending, which might, in the Administrative Agent's judgment, have
a materially adverse effect on such Account Debtor; (j) the goods the sale of
which gave rise to such Receivable were shipped or
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<PAGE> 18
delivered to the Account Debtor on an absolute sale basis and not on a bill and
hold sale basis, a consignment sale basis, a guaranteed sale basis, a sale or
return basis or on the basis of any other similar understanding, and such goods
have not been returned or rejected; (k) such Receivable is not owing by an
Account Debtor or a group of affiliated Account Debtors whose then-existing
accounts owing to the Loan Parties exceed in face amount 20% of the Loan
Parties' total Eligible Receivables; (l) such Receivable is evidenced by an
invoice or other documentation in form acceptable to the Administrative Agent
containing only terms normally offered by the applicable Loan Party, and dated
no later than the date of shipment; (m) such Receivable is a valid, legally
enforceable obligation of the Account Debtor with respect thereto and is not
subject to any present, or contingent (and no facts exist which are the basis
for any future), offset, deduction or counterclaim, dispute or other defense on
the part of such Account Debtor; (n) such Receivable is not evidenced by chattel
paper or an instrument of any kind; (o) other than mechanical services performed
by Winston or CPW, such Receivable does not arise from the performance of
services, including services under or related to any warranty obligation of a
Loan Party or out of service charges by a Loan Party or other fees for the time
value of money; (p) such Receivable is subject to the Security Interest, which
is perfected as to such Receivable, and is subject to no other Lien whatsoever
other than a Permitted Lien and the goods giving rise to such Receivable were
not, at the time of the sale thereof, subject to any Lien other than a Permitted
Lien (that is not a Vendor Lien); and (q) such Receivable is not determined by
the Administrative Agent, in the exercise of its reasonable credit judgment, to
be ineligible for any reason.
"Environmental Laws" means all federal, state, local and
foreign laws now or hereafter in effect relating to pollution or protection of
the environment, including laws relating to emissions, discharges, Releases or
threatened Releases of pollutants, Contaminants, chemicals, or industrial, toxic
or hazardous substances or wastes into the environment (including, without
limitation, ambient air, surface water, ground water, or land), or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, removal, transport, or handling of pollutants, Contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes, and any and
all regulations, notices or demand letters issued, entered, promulgated or
approved thereunder; such laws and regulations include but are not limited to
the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., as
amended; the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss. 9601 et seq., as amended; the Toxic Substances Control Act,
15 U.S.C. ss. 2601 et seq., as amended; the Clean Air Act, 46 U.S.C. ss. 7401 et
seq., as amended; and state and federal lien and environmental cleanup programs.
"Environmental Lien" means a Lien in favor of any governmental
entity for (a) any liability under Environmental Laws or (b) damages arising
from, or costs incurred by such governmental entity in response to, a Release or
threatened Release of Contaminant into the environment.
"Eurodollar Rate" means, with respect to any Eurodollar Rate
Loan for the Interest Period applicable thereto, a simple per annum interest
rate determined pursuant to the following formula:
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<PAGE> 19
Eurodollar Rate = Interbank Offered Rate
---------------------------------
1 - Eurodollar Reserve Percentage
The Eurodollar Rate shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Eurodollar Rate Loan" means any Loan (or Loans made (or
converted or continued) by the Lenders Ratably on the same date for the same
Interest Period), bearing interest determined with reference to the Eurodollar
Rate.
"Eurodollar Rate Revolving Credit Loan" means each Eurodollar
Rate Loan outstanding under the Revolving Credit Facility.
"Eurodollar Reserve Percentage" means that percentage
(expressed as a decimal) which is in effect from time to time under Regulation D
of the Board of Governors of the Federal Reserve System, as such regulation may
be amended from time to time, or any successor regulation, as the maximum
reserve requirement (including, without limitation, any basic, supplemental,
emergency, special, or marginal reserves) applicable with respect to
Eurocurrency liabilities as that term is defined in Regulation D (or against any
other category of liabilities that includes deposits by reference to which the
interest rate of Eurodollar Rate Loans is determined), whether or not any Lender
has any Eurocurrency liabilities subject to such reserve requirement at that
time. Eurodollar Rate Loans shall be deemed to constitute Eurocurrency
liabilities and as such shall be deemed subject to reserve requirements without
benefits of credits for proration, exceptions or offsets that may be available
from time to time to any Lender.
"Event of Default" means any of the events specified in
SECTION 12.1, PROVIDED that any requirement for notice or lapse of time or any
other condition has been satisfied.
"Existing Loan Agreement" has the meaning specified in the
Preliminary Statement.
"Existing Lender" has the meaning specified in the Preliminary
Statement.
"FCC" means Fleet Capital Corporation, a Rhode Island
corporation.
"FUNB" means First Union National Bank, a national banking
association.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve system arranged by federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by Bank from three federal funds brokers of
recognized standing selected by Bank.
"Financed Capex" means Capital Expenditures funded with the
proceeds of Debt (excluding Loans) or represented by Capitalized Lease
Obligations.
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"Financial Officer" means the chief financial officer,
Treasurer or Controller of Heafner.
"Financing Statements" means any and all Uniform Commercial
Code financing statements, in form and substance satisfactory to the
Administrative Agent, executed and delivered by a Loan Party to the
Administrative Agent or assigned to the Administrative Agent by BankBoston,
naming the Administrative Agent, for the benefit of the Lenders, as secured
party or assignee and the applicable Loan Party as debtor, in connection with
this Agreement.
"Fiscal Month" means each of the 12 consecutive four- or
five-week periods beginning on the first day of the Fiscal Year, in the pattern
4,4,5 within a Fiscal Quarter (or 4,5,5 in the fourth Fiscal Quarter of any
53-week Fiscal Year).
"Fiscal Quarter" means each of the four consecutive periods of
13 weeks (or 14 weeks in the fourth Fiscal Quarter of any 53-week Fiscal Year),
beginning on the first day of the Fiscal Year.
"Fiscal Year" means the period of 52 or 53 consecutive weeks
beginning on the Sunday after the Saturday nearest December 31 in one calendar
year and ending on the Saturday nearest December 31 of the following calendar
year and when followed or preceded by the designation of a calendar year, means
such period ending on the Saturday nearest December 31 of such designated
calendar year.
"Foreign Lender" means any Lender organized under the laws of
a jurisdiction outside of the United States.
"GAAP" means generally accepted accounting principles
consistently applied and maintained throughout the period indicated and, when
used with reference to a Borrower or any Subsidiary, consistent with the prior
financial practice of Heafner, as reflected on the financial statements referred
to in SECTION 6.1(N); PROVIDED, HOWEVER, that, in the event that changes shall
be mandated by the Financial Accounting Standards Board or any similar
accounting authority of comparable standing, or shall be recommended by
Heafner's independent public accountants, such changes shall be included in GAAP
as applicable to Heafner and its Consolidated Subsidiaries only from and after
such date as the Borrowers, the Required Lenders and the Administrative Agent
shall have amended this Agreement to the extent necessary to reflect any such
changes in the financial covenants set forth in ARTICLE 11.
"Governmental Approvals" means all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all governmental bodies, whether federal, state, local or foreign
national or provincial and all agencies thereof.
"Guaranty", "Guaranteed" or to "Guarantee" as applied to any
obligation of another Person shall mean and include
(a) a guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), directly or
indirectly, in any manner, of any part or all of such obligation of such other
Person, and
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<PAGE> 21
(b) an agreement, direct or indirect, contingent or otherwise,
and whether or not constituting a guaranty, the practical effect of which is to
assure the payment or performance (or payment of damages in the event of
nonperformance) of any part or all of such obligation of such other Person
whether by
(i) the purchase of securities or obligations,
(ii) the purchase, sale or lease (as lessee or
lessor) of property or the purchase or sale of services
primarily for the purpose of enabling the obligor with respect
to such obligation to make any payment or performance (or
payment of damages in the event of nonperformance) of or on
account of any part or all of such obligation, or to assure
the owner of such obligation against loss,
(iii) the supplying of funds to or in any other
manner investing in the obligor with respect to such
obligation,
(iv) repayment of amounts drawn down by beneficiaries
of letters of credit, or
(v) the supplying of funds to or investing in a
Person on account of all or any part of such Person's
obligation under a Guaranty of any obligation or indemnifying
or holding harmless, in any way, such Person against any part
or all of such obligation.
"Heafner" means Heafner Tire Group, Inc., a Delaware
corporation, successor by merger to The J.H. Heafner Company, Inc., a North
Carolina corporation.
"Indebtedness" of any Person means, without duplication, all
Liabilities of such Person, and to the extent not otherwise included in
Liabilities, the following:
(a) all obligations for money borrowed or for the deferred
purchase price of property or services or in respect of drafts accepted or
similar instruments or reimbursement obligations under letters of credit,
(b) all obligations (including, during the noncancellable term
of any lease in the nature of a title retention agreement, all future payment
obligations under such lease discounted to their present value in accordance
with GAAP) secured by any Lien to which any property or asset owned or held by
such Person is subject, whether or not the obligation secured thereby shall have
been assumed by such Person,
(c) all obligations of other Persons which such Person has
Guaranteed, including, but not limited to, all obligations of such Person
consisting of recourse liability with respect to accounts receivable sold or
otherwise disposed of by such Person,
(d) all obligations of such Person in respect of Interest Rate
Protection Agreements, and
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(e) in the case of the Borrowers (without duplication) all
obligations under the Loans and the Reimbursement Obligations.
"Initial Notice of Borrowing" means the Notice of Borrowing
given by the Borrowers with respect to the Loans to be made on the Effective
Date which shall also specify the method of disbursement.
"Interbank Offered Rate" for an Interest Period means the rate
per annum (rounded upwards, if necessary to the nearest 1/100 of 1%) appearing
on Telerate Page 3750 (or any successor page) as the London interbank offered
rate for deposits in Dollars at approximately 11:00 a.m. (London time) two
Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period. If for any reason such rate is not
available, the term "Interbank Offered Rate" shall mean, for any Eurodollar Rate
Loan for any Interest Period therefor, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on the Reuters Screen LIBO Page
as the London interbank offered rate for deposits in Dollars at approximately
11:00 a.m. (London time) two Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period; PROVIDED,
HOWEVER, that if more than one rate is specified on the Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates.
"Interest Coverage Ratio" means for any specified measurement
period, the ratio of (i) EBITDA for such period to (ii) consolidated interest
expense of Heafner and its Consolidated Subsidiaries for such period.
"Interest Payment Date" means the first day of each calendar
month commencing April 1, 2000.
"Interest Period" means with respect to each Eurodollar Rate
Loan, the period commencing on the date of the making or continuation of or
conversion to such Eurodollar Rate Loan and ending one, two, three, six or, if
available in the Administrative Agent's reasonable judgment to all Lenders,
twelve months thereafter, as the Borrowers may elect in the applicable Notice of
Borrowing or Notice of Conversion or Continuation; PROVIDED, that:
(i) any Interest Period that would otherwise end on a
day that is not a Business Day shall, subject to the
provisions of CLAUSE (III) below, be extended to the next
succeeding Business Day unless such Business Day falls in the
next calendar month, in which case such Interest Period shall
end on the immediately preceding Business Day;
(ii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall, subject to CLAUSE
(III) below, end on the last Business Day of a calendar month;
(iii) any Interest Period that would otherwise end
after the Termination Date shall end on the Termination Date;
and
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(iv) notwithstanding CLAUSE (III) above, no Interest
Period shall have a duration of less than one month and if any
applicable Interest Period would be for a shorter period, such
Interest Period shall not be available hereunder.
"Interest Rate Protection Agreement" shall mean an interest
rate swap, cap or collar agreement or similar arrangement between any Person and
a financial institution providing for the transfer or mitigation of interest
risks either generally or under specific contingencies.
"Inventory" has the meaning set forth in the definition
"Collateral."
"Investment" means, with respect to any Person:
(a) the acquisition or ownership by such Person of any share
of capital stock, evidence of Indebtedness or other security issued by any other
Person,
(b) any loan, advance or extension of credit to, or
contribution to the capital of, any other Person, excluding advances to
employees in the ordinary course of business for business expenses,
(c) any Guaranty of the obligations of any other Person,
(d) any other investment (other than the Acquisition of a
Business Unit) in any other Person, and
(e) any commitment or option to make any of the investments
listed in CLAUSES (A) through (D) above if, in the case of an option, the
consideration therefor exceeds $100.
"Investment Account" has the meaning set forth in the
definition "Collateral."
"Investment Property" has the meaning set forth in the
definition "Collateral."
"IRS" means the Internal Revenue Service.
"Issuing Bank" means BankBoston as to Letters of Credit
outstanding on the Effective Date and Bank as to Letters of Credit issued on and
after the Effective Date.
"KS Preferred" means up to 7,000 shares of Series A Cumulative
Redeemable Preferred Stock and up to 4,500 shares of Series B Cumulative
Redeemable Preferred Stock of Heafner issued by Heafner and sold to The
Kelly-Springfield Tire Company, a division of The Goodyear Tire and Rubber
Company, pursuant to the KS Preferred Stock Purchase Agreement.
"KS Preferred Stock Purchase Agreement" means the Securities
Purchase Agreement dated May 7, 1997 between Heafner and The Kelly-Springfield
Tire Company, a division of The Goodyear Tire and Rubber Company, as amended and
in effect on the Effective Date and modified after the Effective Date in
accordance with the terms of this Agreement.
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"Lender" means at any time any financial institution party to
this agreement at such time, including any such Person becoming a party hereto
pursuant to the provisions of ARTICLE 13.
"Letter of Credit" means each documentary or standby letter of
credit (i) issued by BankBoston for the account of a Borrower under the Existing
Loan Agreement and outstanding on the Effective Date or (ii) issued by the
Issuing Bank for the account of a Borrower or any Subsidiary and Guaranteed by
FCC pursuant to ARTICLE 3.
"Letter of Credit Amount" means, at any time with respect to
any Letter of Credit Guarantee, the aggregate maximum amount at any time
available for drawing under the Guaranteed Letter of Credit at such time
(assuming all conditions to drawing are satisfied).
"Letter of Credit Availability" means, as of the date of
determination, the aggregate face amount of Letter of Credit Obligations
available to be incurred hereunder at the time of determination in accordance
with SECTION 3.2, which shall be an amount equal to the lesser of (i) the Letter
of Credit Guarantee Facility MINUS the Letter of Credit Obligations and (ii) the
Loan Availability, on such date.
"Letter of Credit Guarantee" means any Guarantee pursuant to
which FCC or any of its Affiliates Guarantees to an Issuing Bank, the payment or
performance by a Loan Party of its Reimbursement Obligations under any Letter of
Credit, including by FCC's (or such Affiliate's) joining in the Reimbursement
Agreement for such Letter of Credit as a co-applicant or otherwise as acceptable
to the Issuing Bank.
"Letter of Credit Guarantee Facility" means a subfacility of
the Revolving Credit Facility providing for the issuance of Letters of Credit
and Letter of Credit Guarantees as described in Article 3 in an aggregate amount
of Letter of Credit Obligations at any one time outstanding not to exceed
$10,000,000.
"Letter of Credit Obligations" means, at any time, the sum of
(a) the Reimbursement Obligations at such time, PLUS (b) the aggregate Letter of
Credit Amount of Letter of Credit Guarantees outstanding at such time, PLUS (c)
the aggregate Letter of Credit Amount of Letter of Credit Guarantees the
issuance of which has at such time been authorized by the Administrative Agent
and FCC pursuant to SECTION 3.4(B) but that have not yet been issued, in each
case as determined by the Administrative Agent.
"Letter of Credit Reserve" means, at any time, the aggregate
Letter of Credit Obligations at such time, other than Letter of Credit
Obligations that are fully secured by Cash Collateral.
"Liabilities" of any Person means all items (except for items
of capital stock, including specifically as to Heafner the KS Preferred,
additional paid-in capital or retained earnings, or of general contingency or
deferred tax reserves) which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
of such Person as at the date as of which Liabilities are to be determined.
"Lien" as applied to the property of any Person means:
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(a) any mortgage, deed to secure debt, deed of trust, lien,
pledge, charge, lease constituting a Capitalized Lease Obligation, conditional
sale or other title retention agreement, or other security interest, security
title or encumbrance of any kind in respect of any property of such Person, or
upon the income or profits therefrom,
(b) any arrangement, express or implied, under which any
property of such Person is transferred, sequestered or otherwise identified for
the purpose of subjecting the same to the payment of Indebtedness or performance
of any other obligation in priority to the payment of the general, unsecured
creditors of such Person,
(c) any Indebtedness which is unpaid more than 30 days after
the same shall have become due and payable and which if unpaid might by law
(including, but not limited to, bankruptcy and insolvency laws), or otherwise,
be given any priority whatsoever over the claims of general unsecured creditors
of such Person, except to the extent being disputed or contested by such Person
by appropriate proceedings and in respect of which any reserve required by GAAP
has been appropriately established and maintained,
(d) the filing of, or any agreement to give, any financing
statement under the UCC or its equivalent in any jurisdiction (excluding
informational financing statements relating to property leased by a Borrower or
any Subsidiary), and
(e) in the case of Real Estate, reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances.
"Loan" means any Revolving Credit Loan or Swingline Loan, as
well as all such loans collectively, as the context requires.
"Loan Account" and "Loan Accounts" have the meanings specified
in SECTION 4.5.
"Loan Availability" means, as of the date of determination,
the aggregate principal amount of Revolving Credit Loans available to be
borrowed by the Borrowers hereunder at the time in accordance with SECTION 2.1,
which shall be an amount equal to the remainder derived by subtracting the
aggregate principal amount of Revolving Credit Loans and Swingline Loans
outstanding on such date from the Borrowing Base on such date.
"Loan Documents" means collectively this Agreement, the Notes,
the Security Documents and each other instrument, agreement or document executed
by a Loan Party or any Affiliate or Subsidiary of a Loan Party in connection
with this Agreement whether prior to, on or after the Effective Date and each
other instrument, agreement or document referred to herein or contemplated
hereby.
"Loan Party" means any Borrower or Subsidiary Guarantor.
"Lockbox" means each U. S. Post Office Box specified in a
Lockbox Agreement.
"Lockbox Agreement" means each agreement between a Borrower
and a Clearing Bank concerning the establishment of a Lockbox for the collection
of Receivables.
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"Margin Stock" means margin stock as defined in Section
221.1(h) of Regulation U.
"Materially Adverse Effect" means any act, omission,
situation, circumstance, event or undertaking which would, singly or in any
combination with one or more other acts, omissions, situations, circumstances,
events or undertakings, have, or reasonably be expected to have, a materially
adverse effect upon (a) the business, assets, properties, liabilities, condition
(financial or otherwise), results of operations or business prospects of Heafner
and its Consolidated Subsidiaries taken as a whole, (b) the value of the whole
or any material part of the Collateral, (c) the Security Interest or the
priority of the Security Interest, (d) the ability of Heafner and its
Consolidated Subsidiaries taken as a whole to perform any material obligation
under this Agreement or any other Loan Document, or (e) other than solely and
directly by reason of any release given or other action taken by the
Administrative Agent or any Lender, the legality, validity, binding effect,
enforceability or admissibility into evidence of any Loan Document or the
ability of the Administrative Agent or the Lenders to enforce in any material
respect any rights or remedies under or in connection with any Loan Document.
"Minimum Commitment" means $10,000,000.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which a Borrower or a Related Company is
required to contribute or has contributed within the immediately preceding six
years.
"Net Amount" means, with respect to any Investments made by
any Person, the gross amount of all such Investments MINUS the aggregate amount
of all cash received and the fair value, at the time of receipt by such Person,
of all property received as payments of principal or premiums, returns of
capital, liquidating dividends or distributions, proceeds of sale or other
dispositions with respect to such Investments.
"Net Income" or "Net Loss" means, as applied to any Person for
any accounting period, the net income or net loss, as the case may be, of such
Person for the period in question after giving effect to deduction of or
provision for all operating expenses, all taxes and reserves (including reserves
for deferred taxes) and all other proper deductions, all determined in
accordance with GAAP, PROVIDED that there shall be excluded:
(a) the net income or net loss of any Person accrued prior to
the date it becomes a Subsidiary of, or is merged into or consolidated with, the
Person whose Net Income is being determined or a Subsidiary of such Person,
(b) the net income or net loss of any Person in which the
Person whose Net Income is being determined or any Subsidiary of such Person has
an ownership interest, except, in the case of net income, to the extent that any
such income has actually been received by such Person or such Subsidiary in the
form of cash dividends or similar distributions,
(c) any restoration of any contingency reserve, except to the
extent that provision for such reserve was made out of income during such
period,
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(d) any net gains or losses on the sale or other disposition,
not in the ordinary course of business, of Investments, Business Units and other
capital assets, provided that there shall also be excluded any related charges
for taxes thereon,
(e) any net gain arising from the collection of the proceeds
of any insurance policy,
(f) any write-up of any asset, and
(g) any other extraordinary item.
"Net Outstandings" of any Lender means, at any time, the sum
of (a) all amounts paid by such Lender (other than pursuant to SECTION 14.7) to
the Administrative Agent in respect of Revolving Credit Loans made by such
Lender, MINUS (b) all amounts received by the Administrative Agent and paid by
the Administrative Agent to such Lender for application, pursuant to this
Agreement, to reduction of the outstanding principal balance of the outstanding
Revolving Credit Loans of such Lender.
"Net Worth" means, with respect to any Person, such Person's
total shareholder's equity (including specifically as to Heafner the KS
Preferred, the Warrant and including any other capital stock, warrants,
additional paid-in capital and retained earnings, after deducting treasury
stock) which would appear as such on a balance sheet of such Person prepared in
accordance with GAAP.
"New Lender" has the meaning specified in the Preliminary
Statement.
"Non-Ratable Loan" means a Base Rate Loan made by FCC in
accordance with the provisions of SECTION 4.8(B).
"Note" means any of the Revolving Credit Notes and the
Swingline Note and "Notes" means more than one such Note.
"Notice of Borrowing" means a written notice (including by
electronic mail), or telephonic notice followed by a confirming same-day written
notice, requesting a Borrowing of, respectively, (i) Base Rate Revolving Credit
Loans or Eurodollar Rate Revolving Credit Loans or (ii) a Swingline Loan which
is given by telex or facsimile transmission in accordance with the applicable
provisions of SECTION 2.2 or SECTION 2A.2, as the case may be, and which
specifies (i) the amount of the requested Borrowing, (ii) the date of the
requested Borrowing, and (iii) if the requested Borrowing is of Eurodollar Rate
Loans, the duration of the applicable Interest Period.
"Notice of Conversion or Continuation" has the meaning
specified in SECTION 4.13.
"Overadvance" means at any time the amount by which the
aggregate outstanding principal amount of Loans exceeds the Borrowing Base.
"Overadvance Condition" means and is deemed to exist any time
the aggregate outstanding principal amount of Loans exceeds the Borrowing Base.
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"Overadvance Loan" means a Base Rate Loan made at a time an
Overadvance Condition exists or which results in an Overadvance Condition.
"PBGC" means the Pension Benefit Guaranty Corporation and any
successor agency.
"Permitted Inventory Locations" means each location listed on
SCHEDULE 6.1(U) and from time to time each other location within the continental
United States which Heafner has notified the Administrative Agent is a location
at which Inventory of a Loan Party is maintained together with such evidence as
the Administrative Agent may reasonably require that the Inventory at such
location is subject to the Security Interest and to no other Lien other than
Permitted Liens.
"Permitted Investments" means
(a) Investments of Heafner and its Consolidated Subsidiaries
in:
(i) cash and Cash Equivalents in an aggregate amount not
greater than $5,000,000,
(ii) sales of inventory on credit in the ordinary course of
business,
(iii) shares of capital stock, evidence of Debt or other
security acquired in consideration for or as evidence of past-due or
restructured Receivables in an aggregate face amount of such
Receivables as to Heafner and its Subsidiaries at any time not to
exceed $2,500,000,
(iv) any Loan Party, and
(v) those items described on SCHEDULE 1.1A - PERMITTED
INVESTMENTS; and
(b) Investments of any Loan Party in any Subsidiary that is
not a Loan Party to the extent in existence on the Effective Date, as such
Investments may increase by reason of the profitable operations of such
Subsidiary.
"Permitted Liens" means:
(a) Liens securing taxes, assessments and other governmental
charges or levies (excluding any Lien imposed pursuant to any of the provisions
of ERISA) or the claims of materialmen, mechanics, carriers, warehousemen or
landlords for labor, materials, supplies or rentals incurred in the ordinary
course of business, but (i) in all cases only if payment shall not at the time
be required to be made in accordance with SECTION 9.6, and (ii) in the case of
warehousemen or landlords, only if such liens are junior to the Security
Interest in any of the Collateral or the relevant premises are reflected in the
Rent Reserve,
(b) Liens consisting of deposits or pledges made in the
ordinary course of business in connection with, or to secure payment of,
obligations under workers' compensation, unemployment insurance or similar
legislation or under payment or performance bonds,
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(c) Liens constituting encumbrances in the nature of zoning
restrictions, easements, and rights or restrictions of record on the use of real
property, which do not materially detract from the value of such property or
impair the use thereof in the business of the applicable Borrower,
(d) Liens shown on SCHEDULE 1.1B - PERMITTED LIENS,
(e) Vendor Liens,
(f) Liens of the Administrative Agent, for the benefit of the
Lenders, arising under this Agreement and the other Loan Documents,
(g) Liens on Margin Stock,
(h) Liens in existence immediately prior to the Effective Date
that are satisfied in full and released on the Effective Date or promptly
thereafter by application of the proceeds of the Loans or cash on hand,
(i) the Lien of FUNB as Trustee under the Senior Note
Indenture pursuant to Section 7.07 thereof on certain property in its possession
as security for payment of fees and other amounts owing to it in its capacity as
such Trustee, and
(j) additional Liens in accordance with the provisions of
SECTION 11.9.
"Person" means an individual, corporation, limited liability
company, partnership, association, trust or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Projections" means the forecasted (a) balance sheets, (b)
income statements and (c) cash flow statements of the Borrowers for each Fiscal
Year, prepared annually by the Borrowers on a consolidated monthly basis,
together with appropriate supporting details (including stand-alone forecasts
for each Borrower) and a statement of underlying assumptions.
"Proportionate Share" or "Ratable Share" or "Ratable" (and
with corollary meaning, "Ratably") means, as to a Lender, such Lender's share of
an amount in Dollars or of other property at the time of determination equal to
(i) the Commitment Percentage of such Lender, or (ii) if the Commitments are
terminated, the percentage obtained by dividing the principal amount of the
Loans then owing to such Lender by the total principal amount of all Loans then
owing to all Lenders, or (iii) if no Loans are outstanding, the percentage
obtained by dividing such Lender's participation in the total Letter of Credit
Obligations then outstanding by the total Letter of Credit Obligations then
outstanding.
"Proprietary Rights" means as to any Person, such Person's
rights, title and interest in and to intellectual property and all other rights
(including rights as a licensee thereof) under any patents, trademarks, trade
names, tradestyles, copyrights and all extensions, renewals, reissues,
divisions, continuations, and continuations-in-part of any of the foregoing, and
all rights to sue for past, present and future infringement of any of the
foregoing.
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"Purchase Money Lien" means any Lien securing Debt created to
finance the payment of all or any part of the purchase price (not in excess of
the fair market value thereof) of any tangible personal property (other than
Inventory) and incurred at the time of or within 10 days prior to or after the
acquisition of such tangible asset, but only if such Lien shall at all times be
confined solely to the property (other than Inventory) the purchase price of
which was financed through the incurrence of such Debt.
"Purchase Price" has the meaning specified in SECTION 11.4.
"Real Estate" means all real property now or hereafter owned
or leased by Heafner or any Subsidiary, including, without limitation, all fees,
leaseholds and future interests.
"Receivables" has the meaning set forth in the definition
"Collateral."
"Register" has the meaning specified in SECTION 13.1(D).
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System (or any successor).
"Reimbursement Agreement" means, with respect to a Letter of
Credit, such form of application therefor and form of reimbursement agreement
therefor (whether in a single document or several documents) as the Issuing Bank
may employ in the ordinary course of business for its own account, in such form
as may be acceptable to FCC in its reasonable judgment and with such
modifications thereto as may be agreed upon by the Issuing Bank, FCC and the
Borrowers, PROVIDED that such application and agreement and any modifications
thereto are not inconsistent with the terms of this Agreement.
"Reimbursement Obligations" means the unsatisfied
reimbursement or repayment obligations of the Borrowers to FCC pursuant to
SECTION 3.6 or (but without duplication) to an Issuing Bank pursuant to a
Reimbursement Agreement with respect to amounts that have been drawn under
Letters of Credit Guaranteed by FCC.
"Related Company" means any (i) corporation which is a member
of the same controlled group of corporations (within the meaning of Section
414(b) of the Code) as Heafner; (ii) partnership or other trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the Code) with Heafner; or (iii) member of the same affiliated
service group (within the meaning of Section 414(m) of the Code) as Heafner, any
corporation described in CLAUSE (I) above or any partnership, trade or business
described in CLAUSE (II) above.
"Release" means release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment or into or out of any property, including the
movement of Contaminants through or in the air, soil, surface water or
groundwater.
"Remediable Defect" means an operational defect or violation
that could disqualify a Benefit Plan intended to qualify under Section 401(a)
(and, if applicable, Section 401(k)) of the Code and that can be remedied under
the IRS's Closing Agreement Program,
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Voluntary Compliance Resolution Program, or Administrative Policy Regarding
Self-Correction, without in any case a payment to any governmental authority
with respect to such Benefit Plan and any other Benefit Plan of more than
$100,000 in any calendar year.
"Remedial Action" means actions required to (i) clean up,
remove, treat or in any other way address Contaminants in the indoor or outdoor
environment; (ii) prevent the Release or threat of Release or minimize the
further Release of Contaminants so they do not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment; or
(iii) perform pre-remedial studies and investigations and post-remedial
monitoring and care.
"Rent Reserve" means an amount approximately equal to the
aggregate monthly rental payable by the Borrowers on all leased Real Estate in
respect of which landlord's or warehouseman's waivers, in form and substance
acceptable to the Administrative Agent, are not in effect or such greater amount
as the Administrative Agent may, in its reasonable credit judgment, determine to
be appropriate after notice to the Borrowers.
"Required Lenders" means, at any time, any combination of two
or more Lenders whose Commitment Percentages at such time aggregate in excess of
50%.
"Restricted Distribution" by any Person means (a) its
retirement, redemption, purchase, or other acquisition or retirement for value
of any capital stock or other equity securities (except equity securities
acquired on the conversion or exercise thereof into other equity securities of
such Person) or partnership interests issued by such Person, (b) the declaration
or payment of any dividend or distribution in cash or property on or with
respect to any such securities (other than dividends payable solely in shares of
its capital stock) or partnership interests, EXCLUDING, HOWEVER, any such
dividend, distribution or payment to a Loan Party by any of its Subsidiaries,
(c) any Investment (other than a Permitted Investment) by such Person in, the
holder of any of such securities or partnership interests, and (d) any other
payment by such Person in respect of such securities or partnership interests.
"Restricted Payment" means (a) any redemption or prepayment or
other retirement, prior to the stated maturity thereof or prior to the due date
of any regularly scheduled installment or amortization payment with respect
thereto, of any Debt (other than the Loans) or of any Indebtedness that is
junior and subordinate to the Secured Obligations, (b) any payment on or with
respect to any Subordinated Debt other than in accordance with the subordination
provisions thereof, (c) the payment by any Person of the principal amount of or
interest on any Indebtedness (other than trade accounts payable and employee
compensation in the ordinary course of business, consistent with past practices)
owing to an Affiliate of such Person or to any Affiliate of any such Affiliate
and (d) the payment of any management, consulting or similar fee by any Person
to any Affiliate of such Person.
"Revolving Credit Facility" means the credit facility
providing for Revolving Credit Loans based upon the Borrowing Base and described
in SECTION 2.1 up to an aggregate principal amount at any one time outstanding
not to exceed $200,000,000 or such lesser or greater amount as shall be agreed
upon from time to time in writing by the Administrative Agent, the Syndication
Agent, the Documentation Agent, the Lenders and the Borrowers.
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"Revolving Credit Loans" means (i) the Loans under and as
defined in the Existing Loan Agreement outstanding on the Effective Date and
(ii) the Loans made to the Borrowers pursuant to SECTION 2.1., including any
Non-Ratable Loan.
"Revolving Credit Note" means each Second Amended and Restated
Promissory Note made by the Borrowers payable to the order of a Lender
evidencing the joint and several obligation of the Borrowers to pay the
aggregate unpaid principal amount of the Loans made to them by such Lender under
the Revolving Credit Facility (and any promissory note or notes that may be
issued from time to time in substitution, renewal, extension, replacement or
exchange therefor whether payable to such Lender or to a different Lender in
connection with a Person becoming a Lender after the Effective Date or
otherwise) substantially in the form of EXHIBIT A-1 hereto, with all blanks
properly completed, either as originally executed or as the same may from time
to time be supplemented, modified, amended, renewed, extended or refinanced.
"S&P" means Standard & Poor's Ratings Service, a division of
The McGraw-Hill Companies.
"Schedule of Inventory" means a schedule delivered by the
Borrowers to the Administrative Agent pursuant to the provisions of SECTION
8.12(B).
"Schedule of Receivables" means a schedule delivered by the
Borrowers to the Administrative Agent pursuant to the provisions of SECTION
8.12(A).
"Secured Obligations" means, in each case whether now in
existence or hereafter arising,
(a) the principal of and interest on the Loans,
(b) the Reimbursement Obligations and all other obligations of
the Borrowers to FCC, any Lender or any Affiliate of a Lender arising in
connection with the issuance of Letter of Credit Guarantees,
(c) all obligations of the Borrowers to any Lender or any
Affiliate of a Lender (i) under any Interest Rate Protection Agreement, and (ii)
under, arising out of or related to any ACH Transfer arrangement, and
(d) all indebtedness, liabilities, obligations, covenants and
duties of the Borrowers or any Subsidiary to the Administrative Agent or to the
Lenders or to any Affiliate of the Administrative Agent or any Lender of every
kind, nature and description arising under or in respect of this Agreement, the
Notes or any of the other Loan Documents, whether direct or indirect, absolute
or contingent, due or not due, contractual or tortious, liquidated or
unliquidated, and whether or not evidenced by any note, and whether or not for
the payment of money, including without limitation, fees required to be paid
pursuant to ARTICLE 4 and expenses required to be paid or reimbursed pursuant to
SECTION 15.2.
"Security Documents" means the Financing Statements, any
Subsidiary Security Agreements and each other writing executed and delivered by
a Loan Party or any other Person
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securing the Secured Obligations or assuring rights of the Administrative Agent
or the Lenders in respect of the Collateral.
"Security Interest" means the Liens of the Administrative
Agent, for the benefit of itself as the Administrative Agent and the Lenders and
Affiliates of the Lenders, on and in the Collateral effected hereby or by any of
the Security Documents or pursuant to the terms hereof or thereof.
"Senior Note Indenture" means collectively (i) the Indenture,
dated as of May 15, 1998, as amended and supplemented by the Supplemental
Indenture, dated as of February 22, 1999, and the Second Supplemental Indenture,
dated as of May 14, 1999, each between Heafner and First Union National Bank,
Trustee, and (ii) the Indenture, dated as of December 1, 1998, as amended and
supplemented by the Supplemental Indenture, dated as of February 22, 1999, and
the Second Supplemental Indenture, dated as of May 14, 1999, each between
Heafner and First Union National Bank, Trustee.
"Senior Notes" means Heafner's 10% Senior Notes due 2008 in
the original principal amount of $150,000,000, issued pursuant to the Senior
Note Indenture, including any "Exchange Securities" and "Private Exchange
Securities" issued (and as defined) thereunder.
"Settlement Date" means each Business Day after the Effective
Date selected by the Administrative Agent in its sole discretion subject to and
in accordance with the provisions of SECTION 4.8(B)(I) as of which a Settlement
Report is delivered by the Administrative Agent and on which settlement is to be
made among the Lenders in accordance with the provisions of SECTION 4.8.
"Settlement Report" means each report substantially in the
form employed by the Administrative Agent from time to time or as the
Administrative Agent and the Lenders may otherwise agree, prepared by the
Administrative Agent and delivered to each Lender and setting forth, among other
things, as of the Settlement Date indicated thereon and as of the next preceding
Settlement Date, the aggregate principal balance of all Revolving Credit Loans
outstanding, each Lender's Proportionate Share thereof, each Lender's Net
Outstandings and all payments of principal and interest in respect of Revolving
Credit Loans and of fees received by the Administrative Agent from the Borrowers
during the period beginning on such next preceding Settlement Date and ending on
such Settlement Date.
"Subordinated Debt" means any Debt of Heafner or any
Subsidiary that is subordinated to the Secured Obligations on terms and
conditions acceptable to the Required Lenders in their sole discretion.
"Subsidiary" (a) when used to determine the relationship of a
Person to another Person, means a Person of which an aggregate of 50% or more of
the stock of any class or classes or 50% or more of other ownership interests is
owned of record or beneficially by such other Person, or by one or more
Subsidiaries of such other Person, or by such other Person and one or more
Subsidiaries of such Person,
(i) if the holders of such stock, or other ownership
interests, (A) are ordinarily, in the absence of
contingencies, entitled to vote for the election of a
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majority of the directors (or other individuals performing
similar functions) of such Person, even though the right so to
vote has been suspended by the happening of such a
contingency, or (B) are entitled, as such holders, to vote for
the election of a majority of the directors (or individuals
performing similar functions) of such Person, whether or not
the right so to vote exists by reason of the happening of a
contingency, or
(ii) in the case of such other ownership interests,
if such ownership interests constitute a majority voting
interest and
(b) when used without other designation of ownership, means a
Subsidiary of Heafner.
"Subsidiary Guarantor" means any Subsidiary of Heafner that is
not a Borrower and that has, at the Administrative Agent's request or with its
consent, executed and delivered a Subsidiary Guaranty and a Subsidiary Security
Agreement.
"Subsidiary Guaranty" means a Guaranty of the Secured
Obligations substantially in the form of EXHIBIT F attached hereto or as
otherwise acceptable to the Administrative Agent and Heafner.
"Subsidiary Security Agreement" means one or more agreements
substantially in the form of EXHIBIT F attached hereto or otherwise in form and
substance satisfactory to the Administrative Agent in its reasonable judgment,
sufficient to create in favor of the Administrative Agent a security interest in
all of the Receivables, Inventory and proceeds thereof of any Subsidiary
Guarantor.
"Swingline Facility" means an amount equal to $5,000,000.
"Swingline Lender" means FCC.
"Swingline Loan" means each advance by the Swingline Lender to
the Borrowers pursuant to SECTION 2A.1.
"Swingline Loan Request" has the meaning set forth in SECTION
2A.2.
"Swingline Note" means the Swingline Note made by the
Borrowers payable to the order of the Swingline Lender evidencing the joint and
several obligation of the Borrowers to pay the aggregate unpaid principal amount
of the Swingline Loans made to them by the Swingline Lender under the Swingline
Facility (and any promissory note that may be issued from time to time in
substitution, renewal, extension, replacement or exchange therefor)
substantially in the form of EXHIBIT A-2 hereto, with all blanks properly
completed, either as originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or refinanced.
"Syndication Agent" means Bank of America.
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"Termination Date" means March 6, 2005, such earlier date as
all Secured Obligations shall have been irrevocably paid in full and the
Commitments shall have been terminated, or such later date to which the same may
be extended pursuant to the provisions of SECTION 2.5.
"Type" when used in respect of any Loan or Borrowing, shall
refer to the rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the applicable jurisdiction.
"Unfunded Vested Accrued Benefits" means at any time, with
respect to any Benefit Plan that is a pension plan within the meaning of Section
3(2) of ERISA, the amount (if any) by which (a) the present value of all vested
nonforfeitable benefits under such Benefit Plan exceeds (b) the fair market
value of all such Benefit Plan assets allocable to such benefits, as determined
using the valuation date and such reasonable actuarial assumptions and methods
as are specified in the Schedule B (Actuarial Information) to the most recent
Annual Report (Form 5500) filed with respect to such Benefit Plan.
"Unused Commitments" has the meaning specified in SECTION
4.2(B).
"Vendor Lien" means any Lien affecting tire Inventory of a
Loan Party for the benefit of the vendor of such Inventory, as security for the
payment or repayment of amounts (including trade accounts and vendor loans
permitted pursuant to SECTION 11.2(F)) owing by such Loan Party to such vendor;
provided, that if and to the extent that any such Lien purports to affect any
property of a Loan Party other than such tire Inventory (including, without
being limited to, proceeds including accounts), such Lien as it affects such
other property is subordinated to the Security Interest in a manner satisfactory
to the Administrative Agent.
"Warrant" means the Amended and Restated Warrant No. 2 to
purchase common stock of Heafner issued to The 1818 Mezzanine Fund II, L.P., as
amended and in effect on the Effective Date and as thereafter amended in
accordance with the provisions of this Agreement.
"Wholly Owned Subsidiary" when used to determine the
relationship of a Subsidiary to a Person means a Subsidiary all of the issued
and outstanding shares (other than directors' qualifying shares) of the capital
stock of which shall at the time be owned by such Person or one or more of such
Person's Wholly Owned Subsidiaries or by such Person and one or more of such
Person's Wholly Owned Subsidiaries.
"Winston" means Winston Tire Company, a California corporation
and a Wholly Owned Subsidiary of Heafner.
"Year 2000 Compliant" as to any Person means that all
software, embedded microchips and other processing capabilities utilized by, and
material to the business operations or financial condition of, such Person are
able to interpret and manipulate data on and involving all calendar dates
correctly and without causing any abnormal ending scenario, including in
relation to dates in and after the calendar year 2000.
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SECTION 1.2 General Interpretive Rules.
(a) All terms of an accounting nature not specifically defined
herein shall have the meanings ascribed thereto by GAAP.
(b) The terms accounts, chattel paper, contract rights,
documents, equipment, instruments, general intangibles, inventory and proceeds,
as and when used in this Agreement or the Security Documents (without being
capitalized), shall have the meanings given those terms in the UCC.
(c) Unless otherwise specified, the words "hereof," "herein,"
"hereunder" and words of similar import, when used in this Agreement, refer to
this Agreement as a whole and not to any particular provision, section or
subsection of this Agreement.
(d) Wherever from the context it appears appropriate, each
term stated in either the singular or plural shall include the singular and
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter. Words denoting individuals
include corporations and vice versa.
(e) References to any legislation or statute or code, or to
any provisions of any legislation or statute or code, shall include any
modification or reenactment of, or any legislative, statutory or code provision
substituted for, such legislation, statute or code or provision thereof.
(f) References to any document or agreement (including this
Agreement) shall include references to such document or agreement as amended,
novated, supplemented, modified or replaced from time to time, so long as and to
the extent that such amendment, novation, supplement, modification or
replacement is not prohibited by the terms of this Agreement or is consented to,
if such consent is required, in accordance with the applicable provisions of
this Agreement.
(g) Except where specifically restricted in a Loan Document,
references to any Person include its successors and substitutes and assigns
permitted or not prohibited under such Loan Document.
(h) References to the time of day are to the time of day in
the city in which the Administrative Agent's Office is located.
(i) The terms "payment", "prepayment", "distribution" and
similar terms used in the definitions of "Restricted Distribution" and
"Restricted Payment" and in SECTION 11.6, shall include payment by means of the
transfer of funds or of property and, in the event of a transfer of property,
the payment shall be deemed to be in an amount equal to the greater of the fair
market value and the book value of the property at the time of the transfer.
(j) Titles of Articles and Sections in this Agreement are for
convenience only, do not constitute part of this Agreement and neither limit nor
amplify the provisions of this Agreement, and all references in this Agreement
to Articles, Sections, subsections, paragraphs, clauses, subclauses, Schedules
or Exhibits shall refer to the corresponding Article, Section, subsection,
paragraph, clause or subclause of, or Schedule or Exhibit attached to, this
Agreement,
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unless specific reference is made to the articles, sections or other
subdivisions or divisions of, or to schedules or exhibits to, another document
or instrument.
(k) Whenever from the context it appears appropriate, the term
"Loan", including such terms as used as part of a defined term including the
term "Loan", shall mean and include a Loan made by all Lenders to the Borrowers
as well as a Lender's Proportionate Share of any Loan.
(l) Whenever the phrase "to the knowledge of the Borrower" or
words of similar import relating to the knowledge of the Borrowers (or any of
them) are used herein, such phrase shall mean and refer to the actual knowledge
of the President or chief financial officer of such Borrower.
(m) Unless otherwise specified herein, any Lien created or
purported to be created hereby or by or pursuant to any Loan Documents in favor
of the Administrative Agent and each payment made to the Administrative Agent,
is and shall be deemed to have been created in favor of the Administrative
Agent, for its benefit as the Administrative Agent and for the Ratable benefit
of the Lenders, or made to and received by the Administrative Agent for the
Ratable benefit of the Lenders, as the case may be.
(n) Whenever in this Agreement or any other Loan Document the
word "stock" or "capital stock" or other similar word or phrase is used in
connection with a Loan Party or any Subsidiary of a Loan Party referring to
equity ownership interests in such Loan Party or such Subsidiary, such word or
phrase shall also be deemed to include a reference to member interests, each
reference to "corporation" with reference to a Loan Party or any Subsidiary of a
Loan Party shall also be deemed to include a reference to limited liability
companies and each reference to "certificate of incorporation" or "articles of
incorporation" or "bylaws" with reference to a Loan Party or any Subsidiary of a
Loan Party shall also be deemed to include a reference to "certificate of
formation" and "operating agreement" or other constituent documents of a limited
liability company.
SECTION 1.3 Exhibits and Schedules. All Exhibits and Schedules
attached hereto are by reference made a part hereof.
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ARTICLE 2
REVOLVING CREDIT FACILITY
SECTION 2.1 Revolving Credit Loans. Upon the terms and subject
to the conditions of, and in reliance upon the representations and warranties
made under, this Agreement, each Lender agrees, severally, but not jointly, to
make Revolving Credit Loans to the Borrowers from time to time from the
Effective Date to but not including the Termination Date, as requested or deemed
requested by the Borrowers in accordance with the terms of SECTION 2.2, in
amounts equal to such Lender's Proportionate Share of each Revolving Credit Loan
requested or deemed requested hereunder up to an aggregate amount at any one
time outstanding equal to such Lender's Proportionate Share of the Borrowing
Base; PROVIDED, HOWEVER, that no Borrowing shall exceed the Loan Availability at
the time and the aggregate principal amount of all outstanding Loans (after
giving effect to the Revolving Credit Loans requested or deemed requested) shall
not exceed the Borrowing Base. It is expressly understood and agreed that the
Lenders may and at present intend to use the Borrowing Base as a maximum ceiling
on Loans made to the Borrowers; PROVIDED, HOWEVER, that it is agreed that should
the aggregate outstanding amount of such Loans exceed the ceiling so determined
or any other limitation set forth in this Agreement, such Loans shall
nevertheless constitute Secured Obligations and, as such, shall be entitled to
all benefits thereof and security therefor. The principal amount of any
Revolving Credit Loan which is repaid may be reborrowed by the Borrowers,
subject to the terms and conditions of this Agreement, in accordance with the
terms of this Section 2.1. The Administrative Agent's and each Lender's books
and records reflecting the date and the amount of each Revolving Credit Loan and
each repayment of principal thereof shall constitute prima facie evidence of the
accuracy of the information contained therein, subject to the provisions of
SECTION 4.5.
SECTION 2.2 Manner of Borrowing. Borrowings shall be made as
follows:
(a) Requests for Borrowing.
(i) Base Rate Revolving Credit Loans. A request for
the Borrowing of Base Rate Revolving Credit Loans shall be
made, or shall be deemed to be made, in the following manner:
(A) with respect to any Loans to be made on
the Effective Date, which shall be Base Rate Loans,
the Borrowers' representative shall give the
Administrative Agent the Initial Notice of Borrowing
at least two Business Days prior to the proposed date
of the Borrowing, and, with respect to each
subsequent Borrowing, the Borrowers may request a
Base Rate Revolving Credit Loan by giving the
Administrative Agent a Notice of Borrowing, before
noon on the proposed date of the Borrowing, PROVIDED
that if such notice is received after noon on the
proposed date of Borrowing, the proposed Borrowing
may be postponed by the Administrative Agent to the
next Business Day;
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(B) whenever a check or other item is
presented to a Disbursing Bank for payment against a
Controlled Disbursement Account in an amount greater
than the then available balance in such account, such
Disbursing Bank shall, and is hereby irrevocably
authorized by the Borrowers to, give the
Administrative Agent notice thereof, which notice
shall be deemed to be a request for a Base Rate
Revolving Credit Loan on the date of such notice in
an amount equal to the excess of such check or other
item over such available balance, and such request
shall be irrevocable;
(C) unless payment is otherwise made by the
Borrowers, the becoming due of any amount required to
be paid under this Agreement or any of the Notes as
interest shall be deemed to be a request for a Base
Rate Revolving Credit Loan on the due date in the
amount required to pay such interest, and such
request shall be irrevocable;
(D) unless payment is otherwise made by the
Borrowers, a becoming due of any other Secured
Obligation shall be deemed to be a request for a Base
Rate Revolving Credit Loan on the due date in the
amount then so due, and such request shall be
irrevocable; and
(E) the receipt by the Administrative Agent
of notification from FCC to the effect that a payment
has been made under a Letter of Credit or Letter of
Credit Guarantee and that the Borrowers have failed
to reimburse FCC therefor in accordance with the
terms of ARTICLE 3, shall be deemed to be a request
for a Base Rate Revolving Credit Loan on the date
such notification is received in the amount of such
payment which is so unreimbursed.
(ii) Eurodollar Rate Revolving Credit Loans. At any
time after the Effective Date, and so long as no Default or
Event of Default has occurred and is continuing, the Borrowers
may request a Eurodollar Rate Revolving Credit Loan by giving
the Administrative Agent a Notice of Borrowing (which notice
shall be irrevocable) not later than 11:30 a.m. on the date
three Business Days before the day on which the requested
Eurodollar Rate Revolving Credit Loan is to be made. The
Borrowers may direct the Administrative Agent to apply the
proceeds of a Eurodollar Rate Revolving Credit Loan to Secured
Obligations as described in SECTIONS 2.2(A)(I)(B), (C), (D)
and (E) and the Administrative Agent shall comply with such
direction to the extent that proceeds of a Borrowing of
Eurodollar Rate Revolving Credit Loans are available to be so
applied and in such case, no duplicative Borrowing of Base
Rate Revolving Credit Loans will be deemed to have been
requested.
(iii) Notification of Lenders. In the case of each
Eurodollar Rate Revolving Credit Loan and, unless the
Administrative Agent has elected to make a Swingline Loan to
the Borrowers pursuant to SECTION 2A.2, in the case of each
Base Rate Loan, the Administrative Agent shall promptly notify
the Lenders of any Notice of Borrowing given or deemed given
pursuant to this SECTION 2.2(A) by
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12:00 noon on the proposed Borrowing date (in the case of Base
Rate Loans) or by 3:00 p.m. three Business Days before the
proposed Borrowing date (in the case of Eurodollar Rate
Loans). If the Administrative Agent does so notify the
Lenders, then not later than 1:30 p.m. on the proposed
Borrowing date, each Lender will make available to the
Administrative Agent, for the account of the Borrowers, at the
Administrative Agent's Office in funds immediately available
to the Administrative Agent, such Lender's Proportionate Share
of the Base Rate Loan or Eurodollar Rate Loan, as the case may
be.
(b) Disbursement of Loans. The Borrowers hereby irrevocably
authorize the Administrative Agent to disburse the proceeds of each Borrowing
requested, or deemed to be requested, pursuant to SECTION 2.2(A) as follows:
(i) the proceeds of each Borrowing requested under
SECTIONS 2.2(A)(I)(A) (other than the Borrowing of any Loans
made on the Effective Date) or (B) or 2.2(A)(II) shall be
disbursed by the Administrative Agent in Dollars in
immediately available funds by wire transfer to a Controlled
Disbursement Account or, in the absence of a Controlled
Disbursement Account, by wire transfer to such other account
as may be agreed upon by the Borrowers and the Administrative
Agent from time to time, and the proceeds of the Loans to be
made on the Effective Date under SECTION 2.2(A)(I)(A) shall be
disbursed in accordance with the Initial Notice of Borrowing,
(ii) the proceeds of each Borrowing deemed requested
under SECTION 2.2(A)(I)(C) or (D) shall be disbursed by the
Administrative Agent by way of direct payment of the relevant
Secured Obligation, and
(iii) the proceeds of each Borrowing deemed requested
under SECTION 2.2(A)(I)(E) shall be disbursed by the
Administrative Agent directly to FCC on behalf of the
Borrowers for application to the Reimbursement Obligations.
SECTION 2.3 Repayment. The Revolving Credit Loans will be
repaid as follows:
(a) The outstanding principal amount of all Revolving Credit
Loans is due and payable, and shall be repaid by the Borrowers, as their joint
and several obligation, in full, not later than the Termination Date and the
outstanding principal amount of any Revolving Credit Loan may be repaid by the
Borrowers at any time and from time to time prior to the Termination Date;
(b) If at any time the aggregate outstanding unpaid principal
amount of the Revolving Credit Loans exceeds the Borrowing Base in effect at
such time, but subject to the provisions of SECTION 4.7(D), the Borrowers shall
repay the Revolving Credit Loans in an amount sufficient to reduce the aggregate
unpaid principal amount of the Revolving Credit Loans by an amount equal to such
excess, together with accrued and unpaid interest on the amount so repaid to the
date of repayment; and
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(c) The Borrowers hereby instruct the Administrative Agent to
repay the Revolving Credit Loans outstanding on any day in an amount equal to
the amount received by the Administrative Agent on such day pursuant to SECTION
8.1(C); PROVIDED that payments received in excess of outstanding Revolving
Credit Loans or payments received (when no Default or Event of Default exists)
on account of Eurodollar Rate Revolving Credit Loans which would otherwise
result in prepayment of such Eurodollar Rate Revolving Credit Loans prior to the
end of the Interest Period applicable thereto may, upon the instruction of the
Borrowers to the Administrative Agent not later than 1:00 p.m. on any Business
Day, be applied to the Cash Collateral Account or any Investment Account.
Repayments pursuant to SECTION 2.3(B) or (C) shall be applied first to the Base
Rate Revolving Credit Loans and then to Eurodollar Rate Revolving Credit Loans.
SECTION 2.4 Notes. Each Lender's Revolving Credit Loans and
the joint and several obligation of the Borrowers to repay such Revolving Credit
Loans shall also be evidenced by a Revolving Credit Note payable to the order of
such Lender. Each such Note shall be dated the Effective Date (or later
"effective date" under any Assignment and Acceptance) and be duly and validly
executed and delivered by the Borrowers.
SECTION 2.5 Extension of Commitments. Upon the request of the
Borrowers, all, but not less than all, of the Lenders may, in their sole
discretion, effective as of any anniversary of the Effective Date, agree to
extend the Commitments for a period such that the Termination Date would fall on
a date that is up to but not in excess of five years after such anniversary
date. Any such extension may be effected solely by the delivery to the Borrowers
of a written notice to that effect by the Lenders, not less than 30 days prior
to such anniversary date.
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ARTICLE 2A
SWINGLINE FACILITY
SECTION 2A.1 Swingline Loans. Upon the terms and subject to the
conditions of, and in reliance upon the representations and warranties made
under, this Agreement, the Swingline Lender shall make Swingline Loans to the
Borrowers from time to time, from and after the Effective Date until the
Termination Date, as requested or deemed requested by the Borrowers in
accordance with the terms of SECTION 2A.2, up to an aggregate principal amount
of Swingline Loans at any time outstanding not to exceed the lesser of (i) the
Swingline Facility and (ii) the Borrowing Base MINUS the aggregate principal
amount of outstanding Revolving Credit Loans. The Swingline Loans will be deemed
to be usage of the Revolving Credit Facility for the purpose of calculating
availability pursuant to SECTION 2.1, but will not reduce the Swingline Lender's
obligation to lend its Proportionate Share of the remaining unused Revolving
Credit Facility. The principal amount of any Swingline Loan which is repaid may
be reborrowed by the Borrowers, subject to the terms and conditions of this
Agreement, in accordance with the terms of this SECTION 2A.1.
SECTION 2A.2 Making Swingline Loans. Requests for Swingline Loans,
which shall be Base Rate Loans and shall not be entitled to be converted into
Eurodollar Loans, shall be made not later than 1:00 p.m. on the Business Day of
the proposed Swingline Loan by delivery by telex, telegraph, telecopy or
telephone of a request therefor by Heafner to the Administrative Agent and the
Swingline Lender and shall be deemed to be made on each Settlement Date. Each
such notice (a "Swingline Loan Request") shall specify (i) the proposed
borrowing date and (ii) the amount of Swingline Loan requested (which, in the
case of deemed Settlement Date requests shall be, respectively, the Settlement
Date and the excess, if any, of the Swingline Facility over the outstanding
principal amount of Swingline Loans on the Settlement Date). Not later than 3:00
p.m. on the date specified for any Swingline Loan, the Swingline Lender shall
make available such Swingline Loan in immediately available funds to the
Administrative Agent. After the Administrative Agent's receipt of such funds and
upon fulfillment of the applicable conditions set forth in ARTICLE 5, the
Administrative Agent will, and the Borrowers hereby irrevocably authorize the
Administrative Agent to, disburse the proceeds of each Swingline Loan by making
such funds available to the Borrowers by wire transfer to such account of a
Borrower as Heafner and the Administrative Agent may agree from time to time.
SECTION 2A.3 Repayment of Swingline Loans. The outstanding principal
amount of all Swingline Loans is due and payable, and shall be repaid by the
Borrowers, as their joint and several obligation, in full, not later than the
Termination Date, together with accrued and unpaid interest thereon to such
date.
SECTION 2A.4 Prepayment. If at any time the aggregate unpaid principal
amount of Swingline Loans outstanding to the Borrowers from the Swingline Lender
exceeds the amount set forth in the first sentence of SECTION 2A.1, the
Borrowers shall pay to the Administrative Agent for the account of the Swingline
Lender on demand by the Administrative Agent, an amount equal to such excess,
together with accrued and unpaid interest on the principal amount prepaid to the
date of prepayment. For the avoidance of doubt, notwithstanding the foregoing,
no
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such prepayment shall be required if the Borrowers shall have made an
appropriate prepayment in accordance with the provisions of SECTION 2.3(B).
SECTION 2A.5 Swingline Note. The Swingline Loans made by the Swingline
Lender and the obligation of the Borrowers to repay such Loans shall be
evidenced by, and be repayable in accordance with the terms of, a single
Swingline Note, made by the Borrowers payable to the order of the Swingline
Lender. The Swingline Note shall be dated the Effective Date and be duly and
validly executed and delivered by the Borrowers.
SECTION 2A.6 Settlement with Other Lenders. All payments of principal,
interest and any other amount with respect to such Swingline Loan shall be
payable to and received by the Administrative Agent for the account of the
Swingline Lender. Upon demand by the Swingline Lender, with notice thereof to
the Administrative Agent, and notwithstanding the occurrence and continuation at
the time of such demand of any Default or Event of Default, each Lender shall
make a Base Rate Revolving Credit Loan in the amount of its Commitment
Percentage of the outstanding Swingline Loans for the account of the Borrowers
or purchase a participation of such amount in each outstanding Swingline Loan,
the proceeds of which shall be paid over to the Swingline Lender and applied to
the repayment of such Swingline Loans. Any payments received by the
Administrative Agent prior to such repayment by the Lenders which in accordance
with the terms of this Agreement are to be applied to the reduction of the
outstanding principal balance of Swingline Loans shall be paid over to the
Swingline Lender and so applied.
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ARTICLE 3
LETTER OF CREDIT GUARANTEES
SECTION 3.1 Agreement to Issue. Upon the terms and subject to
the conditions of, and in reliance upon the representations and warranties made
under, this Agreement, FCC agrees to issue or cause the issuance of, including
by issuance of Letter of Credit Guarantees, for the account of any Borrower or
Subsidiary one or more Letters of Credit in accordance with this ARTICLE 3, from
time to time during the period commencing on the Effective Date and ending on
the Termination Date.
SECTION 3.2 Amounts. FCC shall not have any obligation to
issue or cause the issuance of any Letter of Credit at any time:
(a) if, after giving effect to the issuance of the requested
Letter of Credit, (i) the aggregate Letter of Credit Obligations of the
Borrowers would exceed the Letter of Credit Guarantee Facility then in effect or
(ii) the aggregate principal amount of Loans outstanding would exceed the
Borrowing Base (after reduction for the Letter of Credit Reserve in respect of
such Letter of Credit) or (iii) if no Loans are outstanding, the aggregate
Letter of Credit Obligations would exceed the Borrowing Base; or
(b) which has a term longer than one calendar year or an
expiration date after the last Business Day that is more than 30 days prior to
the Termination Date.
SECTION 3.3 Conditions. The obligation of FCC to issue any
Letter of Credit Guarantee is subject to the satisfaction of (a) the applicable
conditions precedent contained in ARTICLE 5 and (b) the following additional
conditions precedent in a manner satisfactory to the Administrative Agent and
FCC:
(i) the Borrowers shall have delivered to FCC and the
Administrative Agent at such times and in such manner as FCC
or the Administrative Agent may prescribe, a Reimbursement
Agreement and such other documents as may be required pursuant
to the terms thereof, and the form of the proposed Letter of
Credit, all of which shall be satisfactory in form and
substance, as completed, to the Issuing Bank, FCC and the
Administrative Agent; and
(ii) as of the date of issuance, no law, rule or
regulation, or order of any court, arbitrator or governmental
authority having jurisdiction or authority over FCC shall
purport by its terms to enjoin or restrain FCC or commercial
financing entities, generally, from issuing guarantees,
including guarantees of letter of credit obligations, of the
type and in the amount of the proposed Letter of Credit
Guarantee or the proposed Letter of Credit Guarantee
specifically.
SECTION 3.4 Issuance of Letter of Credit Guarantees.
(a) Request for Issuance. A Borrower shall give the Issuing
Bank, FCC and the Administrative Agent written notice of such Borrower's request
for the issuance of a Letter of Credit no later than six Business Days prior to
the proposed date of issuance. Such notice shall
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be irrevocable and shall be accompanied by a completed form of letter of credit
application in a form acceptable to the Issuing Bank specifying at least the
name of the Subsidiary (if other than such Borrower) which will appear as the
account party on the face of such Letter of Credit, the original face amount of
the Letter of Credit requested, the effective date (which date shall be a
Business Day) of issuance of such requested Letter of Credit, whether the Letter
of Credit may be drawn in a single or in multiple draws, the date on which such
requested Letter of Credit is to expire (which date shall be a Business Day
earlier than the 30th day prior to the Termination Date), the purpose for which
the Letter of Credit is to be issued and the beneficiary of the Letter of
Credit. The Borrower shall attach to such notice the form of the Letter of
Credit that the Borrower requests be issued.
(b) Responsibilities of the Administrative Agent; Issuance.
The Administrative Agent shall determine, as of the Business Day immediately
preceding the requested effective date of issuance of a Letter of Credit set
forth in the notice from the Borrowers pursuant to SECTION 3.4(A), the amount of
Letter of Credit Availability. If (i) the form of requested Letter of Credit
delivered by the Borrowers to the Administrative Agent is acceptable to FCC and
the Administrative Agent in their sole, reasonable discretion, (ii) the amount
of the Letter of Credit Guarantee necessary to procure the issuance by the
Issuing Bank of such Letter of Credit is less than or equal to the Letter of
Credit Availability and (iii) the Administrative Agent has received a
certificate from the Borrowers stating that the applicable conditions set forth
in ARTICLE 5 have been satisfied, then FCC will join in the application for such
Letter of Credit or otherwise cause the Issuing Bank to issue the requested
Letter of Credit.
(c) Notice of Issuance. Promptly after the issuance of any
Letter of Credit supported by a Letter of Credit Guarantee, FCC or the Issuing
Bank shall give the Administrative Agent written or facsimile notice, or
telephonic notice confirmed promptly thereafter in writing, of the issuance of
such Letter of Credit, and the Administrative Agent shall give each Lender a
periodic written report, not less frequently than monthly, of each such Letter
of Credit outstanding as of the date thereof, the amount available to be drawn
thereunder and the expiration date thereof.
(d) No Extension or Amendment. FCC shall not cause any Letter
of Credit to be extended or amended unless the requirements of this SECTION 3.4
are met as though a new Letter of Credit were being requested and issued.
SECTION 3.5 Duties of FCC. The rights and obligations of the
Issuing Bank in connection with any Letter of Credit shall be governed by the
Reimbursement Agreement for such Letter of Credit and in no event shall the
Administrative Agent or any Lender have any liability or obligation to any Loan
Party or its Subsidiaries for any failure or refusal or delay by the Issuing
Bank to issue, or error in issuing, any Letter of Credit. Any action taken or
omitted to be taken by FCC under or in connection with any Letter of Credit
Guarantee, if taken or omitted in the absence of gross negligence or willful
misconduct, shall not result in any liability of FCC to any Lender or relieve
any Lender of its obligations hereunder to FCC. In determining whether to pay
under any Letter of Credit Guarantee, FCC shall have no obligation to confirm
that the Issuing Bank acted properly in honoring any drawing under the related
Letter of Credit and shall be entitled to rely on the Issuing Bank's demand for
payment as sufficient evidence of the Issuing Bank's entitlement thereto.
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SECTION 3.6 Payment of Reimbursement Obligations.
(a) Payment to Issuing Bank, FCC. Notwithstanding any
provisions to the contrary in any Reimbursement Agreement, the Borrowers agree,
jointly and severally, for the benefit of FCC and the other Lenders, to
reimburse the Issuing Bank for any drawings (whether partial or full) under each
Letter of Credit on demand and agree to pay to the Issuing Bank the amount of
all other Reimbursement Obligations and other amounts payable to the Issuing
Bank under or in connection with such Letter of Credit in accordance with the
Reimbursement Agreement. If FCC shall pay any amount under any Letter of Credit
Guarantee, the Borrowers shall, jointly and severally, unless the Borrowers
shall have already paid the amount in respect of which payment was made under
such Letter of Credit Guarantee to the Issuing Bank in accordance with a
Reimbursement Agreement, pay to FCC on the first Business Day following such
payment, an amount equal to the amount of the payment made by FCC under such
Letter of Credit Guarantee, together with interest on such amount for the period
from FCC's payment under the applicable Letter of Credit Guarantee, until
repayment in full of such amount, at the interest rate then applicable to Base
Rate Revolving Credit Loans. So long as FCC remains unpaid, it shall be
subrogated to all rights and remedies of (i) the Issuing Bank under the related
Reimbursement Agreement and (ii) any beneficiary of such Letter of Credit whose
claims against the account party on such Letter of Credit have been satisfied
with proceeds of drawing under such Letter of Credit.
(b) Recovery or Avoidance of Payments. In the event any
payment by or on behalf of the Borrowers with respect to any Letter of Credit
(or any Reimbursement Obligation relating thereto) or any Letter of Credit
Guarantee received by FCC, the Issuing Bank or by the Administrative Agent and
distributed by the Administrative Agent to the Lenders on account of their
respective participations therein, is thereafter set aside, avoided or recovered
from FCC, the Issuing Bank or the Administrative Agent in connection with any
receivership, liquidation or bankruptcy proceeding, the Lenders shall, upon
demand by the Administrative Agent, pay to the Administrative Agent, for the
account of the Administrative Agent, FCC or the Issuing Bank, as the case may
be, their respective Proportionate Shares of such amount set aside, avoided or
recovered together with interest at the rate required to be paid by the
Administrative Agent, FCC or the Issuing Bank upon the amount required to be
repaid by it.
SECTION 3.7 Participations.
(a) Purchase of Participations. Immediately upon the Effective
Date as to Letters of Credit outstanding on the Effective Date and immediately
upon issuance by the Issuing Bank of any other Letter of Credit, each Lender
shall be deemed to have irrevocably and unconditionally purchased and received
without recourse or warranty, an undivided interest and participation in the
Letter of Credit Obligations thereunder, equal to such Lender's Proportionate
Share thereof (including, without limitation, all obligations of the Borrowers
with respect thereto, other than amounts owing to FCC or for the account of the
Issuing Bank under SECTION 4.2(E), and any security therefor or guaranty
pertaining thereto).
(b) Sharing of Letter of Credit Payments. In the event that
FCC makes a payment under any Letter of Credit Guarantee and shall not have been
repaid such amount pursuant to SECTION 3.6, then the Borrowers shall be deemed
to have requested a Base Rate
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Revolving Credit Loan in the amount of such payment and, notwithstanding the
occurrence or continuance of a Default or Event of Default at the time of such
payment, each Lender shall be absolutely obligated to make its Proportionate
Share of such Loan available to the Administrative Agent for disbursement as
provided by SECTION 2.2(B) or to purchase a participation in the payment made by
FCC under any such Letter of Credit Guarantee.
(c) Sharing of Reimbursement Obligation Payments. Whenever FCC
receives a payment from or on behalf of the Borrowers or the Issuing Bank on
account of a Reimbursement Obligation as to which the Administrative Agent has
previously received for the account of FCC payment from a Lender pursuant to
this SECTION 3.7, FCC shall promptly pay to the Administrative Agent, for the
benefit of such Lender, such Lender's Proportionate Share of the amount of such
payment from the Borrowers or the Issuing Bank in Dollars. Each such payment
shall be made by FCC on the Business Day on which FCC receives immediately
available funds from the Borrowers or the Issuing Bank pursuant to the
immediately preceding sentence, if received prior to 11:00 a.m. on such Business
Day, and otherwise on the next succeeding Business Day.
(d) Documentation. Upon the request of any Lender, the
Administrative Agent shall furnish to such Lender copies of any Letter of
Credit, Reimbursement Agreement, Letter of Credit Guarantee or application for
any Letter of Credit and such other documentation as to Letters of Credit as may
reasonably be requested by such Lender.
(e) Obligations Irrevocable. The obligations of each Lender to
make payments to the Administrative Agent with respect to any Letter of Credit
or Letter of Credit Guarantee in respect thereof and its participation therein
pursuant to the provisions of this SECTION 3.7 or otherwise and the obligations
of the Borrowers to make payments to FCC, the Issuing Bank or to the
Administrative Agent, for the account of Lenders, shall be irrevocable, shall
not be subject to any qualification or exception whatsoever and shall be made in
accordance with the terms and conditions of this Agreement (assuming, in the
case of the obligations of the Lenders to make such payments, that the Letter of
Credit has been issued in accordance with SECTION 3.4), including, without
limitation, any of the following circumstances:
(i) Any lack of validity or enforceability of this
Agreement or any of the other Loan Documents;
(ii) The existence of any claim, set-off, defense or
other right which the Borrowers (or any of them) may have at
any time against a beneficiary named in a Letter of Credit or
any transferee of any Letter of Credit (or any Person for whom
any such transferee may be acting), any Lender, FCC, the
Issuing Bank or any other Person, whether in connection with
this Agreement, any Letter of Credit, the transactions
contemplated herein or any unrelated transactions (including
any underlying transactions between the Borrowers or any other
Person and the beneficiary named in any Letter of Credit);
(iii) Any draft, certificate or any other document
presented under the Letter of Credit upon which payment has
been made in good faith and according to
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its terms proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;
(iv) The surrender or impairment of any Collateral or
any other security for the Secured Obligations or the
performance or observance of any of the terms of any of the
Loan Documents;
(v) The occurrence of any Default or Event of
Default; or
(vi) FCC's, the Issuing Bank's or the Administrative
Agent's failure to deliver the notice provided for in SECTION
3.4(C).
SECTION 3.8 Indemnification, Exoneration.
(a) Indemnification. In addition to amounts payable as
elsewhere provided in this ARTICLE 3, the Borrowers, jointly and severally,
agree to protect, indemnify, pay and save harmless the Lenders, FCC, the Issuing
Bank and the Administrative Agent from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
attorneys' fees) which any Lender, FCC, the Issuing Bank or the Administrative
Agent may incur or be subject to as a consequence, directly or indirectly, of
(i) the issuance of any Letter of Credit, other than
as a result of its gross negligence or willful misconduct, as
determined by a court of competent jurisdiction, or
(ii) the failure of the Issuing Bank to honor a
drawing under any Letter of Credit as a result of any act or
omission, whether rightful or wrongful, of any present or
future de jure or de facto governmental authority (all such
acts or omissions being hereinafter referred to collectively
as "Government Acts").
(b) Assumption of Risk by the Borrowers. As among the
Borrowers, the Lenders, FCC, the Issuing Bank and the Administrative Agent, the
Borrowers assume all risks of the acts and omissions of, or misuse of any of the
Letters of Credit by, the respective beneficiaries of such Letters of Credit. In
furtherance and not in limitation of the foregoing, subject to the provisions of
the applications for the issuance of Letters of Credit, the Lenders, FCC, the
Issuing Bank and the Administrative Agent shall not be responsible for:
(i) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any
Person in connection with the application for and issuance of
and presentation of drafts with respect to any of the Letters
of Credit, even if it should prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or
forged;
(ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign
any Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason;
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(iii) the failure of the beneficiary of any Letter of
Credit to comply duly with conditions required in order to
draw upon such Letter of Credit;
(iv) errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in
cipher;
(v) errors in interpretation of technical terms;
(vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof;
(vii) the misapplication by the beneficiary of any
Letter of Credit of the proceeds of any drawing under such
Letter of Credit; or
(viii) any consequences arising from causes beyond
the control of the Lenders, FCC, the Issuing Bank or the
Administrative Agent, including, without limitation, any
Government Acts.
None of the foregoing shall affect, impair or prevent the vesting of any of the
Administrative Agent's rights or powers under this SECTION 3.8.
(c) Exoneration. In furtherance and extension, and not in
limitation, of the specific provisions set forth above, any action taken or
omitted by the Administrative Agent, FCC, the Issuing Bank or any Lender under
or in connection with any of the Letters of Credit or any related certificates,
if taken or omitted in good faith, shall not result in any liability of any
Lender, FCC, the Issuing Bank or the Administrative Agent to the Borrowers or
relieve any Borrower of any of its obligations hereunder to any such Person.
SECTION 3.9 Supporting Letter of Credit; Cash Collateral
Account. Upon the occurrence of an Event of Default or, if, notwithstanding the
provisions of SECTION 3.2(B), any Letter of Credit is outstanding on the
Termination Date, then on or prior to the Termination Date, the Borrowers shall,
as their joint and several obligation, promptly on demand by the Administrative
Agent, deposit with the Administrative Agent, for the ratable benefit of the
Lenders, with respect to each Letter of Credit then outstanding, as the
Administrative Agent shall specify, either (a) a standby letter of credit (a
"Supporting Letter of Credit") in form and substance satisfactory to the
Administrative Agent, issued by an issuer satisfactory to the Administrative
Agent in its sole and absolute judgment in an amount equal to 105% of the
greatest amount for which such Letter of Credit may be drawn, under which
Supporting Letter of Credit the Administrative Agent shall be entitled to draw
amounts necessary to reimburse the Lenders for payments made by the Lenders
under the related Letter of Credit Guarantee or under any reimbursement or
guaranty agreement with respect thereto, or (b) Cash Collateral in an amount
necessary to reimburse the Administrative Agent and the Lenders for payments
made by the Administrative Agent and the Lenders under the related Letter of
Credit Guarantee or under any reimbursement or guaranty agreement with respect
thereto. Such Supporting Letter of Credit or Cash Collateral shall be held by
the Administrative Agent for the benefit of the Lenders, as security for, and to
provide for the payment of, the Reimbursement Obligations. In addition, the
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Administrative Agent may at any time after such Event of Default or the
Termination Date apply any or all of such Cash Collateral to the payment of any
or all of the Secured Obligations then due and payable. The Cash Collateral
shall be deposited in the Cash Collateral Account or an Investment Account and
shall be administered in accordance with the provisions of SECTION 4.15.
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ARTICLE 4
GENERAL LOAN PROVISIONS
SECTION 4.1 Interest.
(a)(i) Base Rate Revolving Credit Loans. Subject to the
provisions of SECTION 4.1(C), the Borrowers will pay interest on the unpaid
principal amount of each Base Rate Revolving Credit Loan, for each day from the
day such Loan is made (or is converted to a Base Rate Loan) until such Loan is
paid (whether at maturity, by reason of acceleration, or otherwise) or is
converted to a Loan of a different Type, at a rate per annum equal to the sum of
(i) the Applicable Margin and (ii) the Base Rate, payable monthly in arrears as
it accrues on each Interest Payment Date.
(ii) Eurodollar Rate Revolving Credit Loans. Subject to the
provisions of SECTION 4.1(C), the Borrowers will pay interest on the unpaid
principal amount of each Eurodollar Rate Revolving Credit Loan for the
applicable Interest Period at a rate per annum equal to the sum of (i) the
Applicable Margin and (ii) the Eurodollar Rate, payable on the last day of such
Interest Period and, if such Interest Period is longer than three months, at
three-month intervals during such Interest Period.
(iii) Swingline Loans. Subject to the provisions of SECTION
4.1(C), the Borrowers will pay interest on the unpaid principal amount of each
Swingline Loan for each day from the day such Loan is made until such Loan is
paid (whether at maturity, by reason of acceleration or otherwise) at a rate per
annum equal to the sum of (i) the Applicable Margin and (ii) the Base Rate,
payable monthly in arrears as it accrues on each Interest Payment Date.
(b) Other Secured Obligations. The Borrowers will, to the
extent permitted by Applicable Law, pay interest on the unpaid principal amount
of any Secured Obligation that is due and payable other than the Loans in
accordance with SECTIONS 4.1(A) or (C), as applicable, as if such Secured
Obligation were a Base Rate Loan.
(c) Default Rate. If a payment default pursuant to SECTION
12.1(A) shall occur and be continuing or there shall occur and be continuing,
uncured and unwaived for 30 days, any other Event of Default, at the election of
the Required Lenders, the unpaid principal amount of the Loans and other Secured
Obligations shall no longer bear interest in accordance with the terms of
SUBSECTION 4.1(A) OR (B), as applicable, but shall bear interest for each day
from the date of such payment default or the 30th day after such other Event of
Default until such payment default or other Event of Default shall have been
cured or waived at a rate per annum equal to the sum of (i) the Default Margin
and (ii) the rate otherwise applicable to such Loan, payable on demand. The
interest rate provided for in the preceding sentence shall, to the extent
permitted by Applicable Law, apply to and accrue on the amount of any judgment
entered with respect to any Secured Obligation and shall continue to accrue at
such rate during any proceeding described in SECTION 12.1(G) or (H).
(d) Calculation of Interest. The interest rates provided for
in SECTIONS 4.1(A), (B) and (C) shall be computed on the basis of a year of 360
days and the actual number of days
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elapsed. Each interest rate determined with reference to the Base Rate shall be
adjusted automatically as of the opening of business on the effective date of
each change in the Base Rate.
(e) Maximum Rate. It is not intended by the Lenders, and
nothing contained in this Agreement or the Notes shall be deemed, to establish
or require the payment of a rate of interest in excess of the maximum rate
permitted by Applicable Law (the "Maximum Rate"). If, in any month, the
Effective Interest Rate, absent such limitation, would have exceeded the Maximum
Rate, then the Effective Interest Rate for that month shall be the Maximum Rate,
and, if in future months, the Effective Interest Rate would otherwise be less
than the Maximum Rate, then the Effective Interest Rate shall remain at the
Maximum Rate until such time as the amount of interest paid hereunder equals the
amount of interest which would have been paid if the same had not been limited
by the Maximum Rate. In the event that, upon payment in full of the Secured
Obligations, the total amount of interest paid or accrued under the terms of
this Agreement is less than the total amount of interest which would have been
paid or accrued if the Effective Interest Rate (without regard to any limitation
hereunder) had at all times been in effect, then the Borrowers shall, to the
extent permitted by Applicable Law, pay to the Lenders an amount equal to the
excess, if any, of (i) the lesser of (A) the amount of interest which would have
been charged if the Maximum Rate had, at all times, been in effect and (B) the
amount of interest which would have accrued had the Effective Interest Rate
(without reference to any limitation hereunder), at all times, been in effect
and (ii) the amount of interest actually paid or accrued under this Agreement.
In the event the Lenders receive, collect or apply as interest any sum in excess
of the Maximum Rate, such excess amount shall be applied to the reduction of the
principal balance of the Secured Obligations, and if no such principal is then
outstanding, such excess or part thereof remaining, shall be paid to the
Borrowers. For the purposes of computing the Maximum Rate, to the extent
permitted by applicable law, all interest and charges, discounts, amounts,
premiums or fees deemed to constitute interest under applicable law, shall be
amortized, prorated, allocated and spread in substantially equal parts
throughout the full term of this Agreement. The provisions of this SECTION
4.1(E) shall be deemed to be incorporated into every Loan Document (whether or
not any provision of this SECTION 4.1(E) is specifically referred to therein).
SECTION 4.2 Certain Fees.
(a) Administrative Agent Fee. For administration and other
services performed by the Administrative Agent in connection with its continuing
administration of this Agreement, the Borrowers, jointly and severally, shall
pay to the Administrative Agent, for its own account, and not for the account of
the Lenders, an annual fee in accordance with the provisions of a separate
letter agreement between the Borrowers and the Administrative Agent.
(b) Unused Commitment Fee. In connection with and as
consideration for the holding available for the use of the Borrowers hereunder
the full amount of the Commitments, the Borrowers, jointly and severally, will
pay a fee to the Administrative Agent, for the Ratable benefit of the Lenders,
for each day from the Effective Date until the Termination Date, in an amount
equal to 0.375% per annum of the Unused Commitments for such day, SUBJECT,
HOWEVER to quarterly adjustment in accordance with the pricing matrix attached
hereto as ANNEX B, on the dates specified for adjustments to the Applicable
Margin. "Unused Commitments" means an amount equal to the aggregate Commitments,
LESS the aggregate
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outstanding principal amount of Loans, other than any Swingline Loan, LESS the
total amount of Letter of Credit Obligations, in each case on the date of
determination. Such fee shall be payable monthly in arrears on each Interest
Payment Date and on the date of any permanent reduction in the aggregate
Commitments.
(c) Arrangement Fee. As compensation for structuring and
arranging the credit facilities available hereunder, on the Effective Date the
Borrowers, jointly and severally, shall pay to FleetBoston Robertson Stephens
Inc. ("FRSI"), for its own account, an arrangement fee in accordance with the
provisions of a separate letter agreement between the Borrowers and FRSI.
(d) Closing Fee. As compensation for structuring and approving
the credit facilities available hereunder, on the Effective Date the Borrowers,
jointly and severally, shall pay to the Administrative Agent for the Ratable
benefit of the Lenders a closing fee at the rate of 0.25% of each such Lender's
Commitment.
(e) Letter of Credit Fees. The Borrowers, jointly and
severally, agree to pay to the Administrative Agent through its Treasury and
International Services Group:
(i) for the Ratable benefit of the Lenders, Letter of
Credit fees on each Letter of Credit or Letter of Credit
Guarantee equal to the Applicable Margin per annum (or, in the
case of commercial or documentary Letters of Credit or related
Letter of Credit Guarantees, such Applicable Margin minus
0.50%) applicable to Eurodollar Rate Loans on the date of
issuance of such Letter of Credit, payable quarterly in
arrears on the first day of each January, April, July and
October on the average daily Letter of Credit Amount of such
Letters of Credit outstanding during the preceding Fiscal
Quarter;
(ii) for the account of the Issuing Bank, the
standard fees and charges of the Issuing Bank for issuing,
administering, amending, renewing, paying and canceling and
otherwise administering letters of credit, as and when
assessed as to any Letters of Credit; and
(iii) for the account of FCC, an additional fronting
fee at a rate of 0.125% per annum of the Letter of Credit
Amount of each Letter of Credit, payable quarterly in arrears
on the first day of each January, April, July and October, on
the average daily Letter of Credit Amounts of all Letters of
Credit from time to time outstanding from the Issuing Bank
during the preceding Fiscal Quarter.
(f) General. All fees provided for in this SECTION 4.2 and
otherwise in this Agreement or any other Loan Document, shall be fully earned
when due and payable and, except as otherwise set forth herein or required by
applicable law, shall not be subject to refund or rebate. All such fees are for
compensation for services and are not, and shall not be deemed to be, interest
or a charge for the use of money. Fees payable pursuant to the foregoing
subsections (b) and (e) shall be calculated based on a year of 360 days and the
actual number of days elapsed.
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SECTION 4.3 Manner of Payment.
(a) Except as otherwise expressly provided in SECTION 8.1(C),
each payment (including prepayments) by the Borrowers on account of the
principal of or interest on the Loans or of any other amounts payable to the
Administrative Agent or the Lenders under this Agreement or any Note or other
Loan Document shall be made not later than 12:00 noon on the date specified for
payment under this Agreement to the Administrative Agent, at the Administrative
Agent's Office, in Dollars, in immediately available funds and shall be made
without any setoff, counterclaim or deduction whatsoever. Any payment received
after such time but before 2:00 p.m. on such day shall be deemed a payment on
such date for the purposes of SECTION 12.1, but for all other purposes shall be
deemed to have been made on the next succeeding Business Day.
(b) The Borrowers hereby irrevocably authorize each Lender and
each Affiliate of such Lender and each participant herein to charge any account
of a Borrower maintained with such Lender or such Affiliate or participant with
such amounts as may be necessary from time to time to pay any Secured
Obligations (whether or not owed to such Lender, Affiliate or participant) which
are not paid when due.
SECTION 4.4 General. If any payment under this Agreement or
any Note shall be specified to be made on a day which is not a Business Day, it
shall be made on the next succeeding day which is a Business Day and such
extension of time shall in such case be included in computing interest, if any,
in connection with such payment.
SECTION 4.5 Loan Accounts; Statements of Account.
(a) Each Lender shall open and maintain on its books a loan
account in Heafner's name (each, a "Loan Account" and collectively, the "Loan
Accounts"). Each such Loan Account shall show as debits thereto each Loan made
under this Agreement by such Lender to the Borrowers and as credits thereto all
payments received by such Lender and applied to principal of such Loans, so that
the balance of the Loan Account at all times reflects the principal amount due
such Lender from the Borrowers.
(b) The Administrative Agent shall maintain on its books a
control account for the Borrowers in which shall be recorded (i) the amount of
each disbursement made hereunder, (ii) the amount of any principal or interest
due or to become due from the Borrowers hereunder, and (iii) the amount of any
sum received by the Administrative Agent hereunder from or on behalf of the
Borrowers and each Lender's share therein.
(c) The entries made in the accounts pursuant to SUBSECTIONS
(A) and (B) shall be prima facie evidence, in the absence of manifest error, of
the existence and amounts of the obligations of the Borrowers therein recorded
and in case of discrepancy between such accounts, in the absence of manifest
error, the accounts maintained pursuant to SUBSECTION (B) shall be controlling.
(d) The Administrative Agent will account separately to the
Borrowers monthly with a statement of Loans, charges and payments made to and by
the Borrowers pursuant to this Agreement, and such accounts rendered by the
Administrative Agent shall be
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deemed final, binding and conclusive, save for manifest error, unless the
Administrative Agent is notified by the Borrowers in writing to the contrary
within 30 days of the date the account to the Borrowers was so rendered. Such
notice by the Borrowers shall be deemed an objection to only those items
specifically objected to therein. Failure of the Administrative Agent to render
such account shall in no way affect the rights of the Administrative Agent or of
the Lenders hereunder.
SECTION 4.6 Reduction of Commitments; Termination of
Agreement.
(a) Reduction of Commitments.
(i) The Borrowers shall have the right, at any time
and from time to time, upon at least seven days' prior
irrevocable, written notice to the Administrative Agent, to
reduce permanently and Ratably in part the Commitments;
PROVIDED, HOWEVER, that any such partial reduction shall be in
an amount equal to $5,000,000 or any larger integral, multiple
of $1,000,000 and shall not reduce the aggregate Commitments
below an amount equal to the sum of the Letter of Credit
Reserve PLUS the Rent Reserve PLUS any Additional Reserves. As
of the date of reduction set forth in such notice, the
Commitments shall be permanently reduced to the amount stated
in the Borrowers' notice (and each Lender's Commitment shall
be reduced Ratably) for all purposes herein, and the Borrowers
shall pay the amount necessary to reduce the amount of the
outstanding Loans to any amount that does not exceed the
Borrowing Base (as reduced), together with accrued interest on
any amounts so prepaid and an early termination fee in an
amount equal to (A) 1% of the amount of such reduction if
effected prior to the first anniversary of the Effective Date
or (B) 1/2 of 1% of the amount of such reduction if effected
on or after the first anniversary of the Effective Date but
prior to the second anniversary of the Effective Date.
(ii) The aggregate Commitments shall be automatically
reduced to zero on the Termination Date.
(iii) The aggregate Commitments shall be reduced as
provided in SECTION 4.9.
(iv) The Commitments or any portion thereof
terminated or reduced pursuant to this SECTION 4.6 may not be
reinstated.
(b) Termination of Agreement. The Borrowers shall have the
right, at any time, to terminate this Agreement upon not less than 10 Business
Days' prior written notice, which notice shall specify the effective date of
such termination. Upon receipt of such notice, the Administrative Agent shall
promptly notify each Lender thereof. On the date specified in such notice, such
termination shall be effected, PROVIDED, that the Borrowers shall, on or prior
to such date, pay to the Administrative Agent, for its account and the account
of the Lenders, in same day funds, an amount equal to all Secured Obligations
(other than with respect to Letter of Credit Obligations) outstanding on such
date, including, without limitation, all (i) accrued interest thereon, (ii) all
accrued fees provided for hereunder, (iii) any amounts payable to the
Administrative Agent or the Lenders pursuant to SECTIONS 4.10, 4.15, 15.2, 15.3,
15.14 and 15.23, and, in addition thereto, shall deliver to the Administrative
Agent, in respect of each
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outstanding Letter of Credit, either a Supporting Letter of Credit or Cash
Collateral as provided in SECTION 3.9, and (iv) if such termination occurs prior
to the first anniversary of the Effective Date, an early termination fee in an
amount equal to 1% of the amount of the Commitments so terminated or if such
termination occurs on or after the first anniversary of the Effective Date but
prior to the second anniversary of the Effective Date, an early termination fee
in an amount equal to 1/2 of 1% of the amount of the Commitments so terminated,
PROVIDED, that such fee shall be payable only if contemporaneously with such
termination and repayment, the Borrowers (or any of them) issue additional Debt
in a private placement, a public offering, or to one or more institutional
lenders, PROVIDED FURTHER, that if Loan Availability has been reduced by 10% or
more during the six-month period preceding such termination as a result of the
Administrative Agent's having, without the agreement of Heafner, reduced any
advance rate specified in the definition "Borrowing Base" or declared in the
exercise of its reasonable credit judgment any otherwise Eligible Inventory or
Eligible Receivables to be ineligible, then such early termination fee will not
be payable notwithstanding that any such other Debt is incurred. Additionally,
the Borrowers shall provide the Administrative Agent and the Lenders with
indemnification in form and substance satisfactory to the Administrative Agent
in its reasonable judgment with respect to such customary matters as the
Administrative Agent and the Lenders shall reasonably require. Following a
notice of termination as provided for in this SECTION 4.6(B) and upon payment in
full of the amounts specified in this SECTION 4.6(B), and execution and delivery
of any required indemnification, this Agreement shall be terminated and the
Administrative Agent, the Lenders and the Borrowers shall have no further
obligations to any other party hereto, except for the obligations to the
Administrative Agent and the Lenders pursuant to SECTION 15.12 hereof, which
shall survive any termination of this Agreement.
SECTION 4.7 Making of Loans.
(a) Nature of Obligations of Lenders to Make Loans. The
obligations of the Lenders under this Agreement to make the Loans are several
and are not joint or joint and several.
(b) Assumption by Administrative Agent. Subject to the
provisions of SECTION 4.8 and notwithstanding the occurrence or continuance of a
Default or Event of Default or other failure of any condition to the making of
Loans hereunder subsequent to the Loans to be made on the Effective Date, unless
the Administrative Agent shall have received notice from a Lender prior to a
proposed Borrowing date that such Lender will not make available to the
Administrative Agent such Lender's Proportionate Share of the Loan to be
borrowed on such date, the Administrative Agent may assume that such Lender will
make such Proportionate Share available to the Administrative Agent in
accordance with SECTION 2.2(A), and the Administrative Agent may, in reliance
upon such assumption, make available to the Borrowers on such date a
corresponding amount. If and to the extent a Lender shall not make its
Proportionate Share of any Loan available to the Administrative Agent, and the
Administrative Agent has made a corresponding amount available to the Borrowers,
such Lender, on the one hand, and the Borrowers, jointly and severally on the
other hand, severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount (the "Make-Whole Amount"), together with
interest thereon for each day from the date such amount is made available to the
Borrowers until the date such amount is repaid to the Administrative Agent at
(i) the Federal Funds Rate if repaid by the Lender or (ii) the Effective
Interest Rate or, if lower, subject to SECTION 4.1(F), the
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Maximum Rate, if repaid by the Borrowers. If such Lender shall repay to the
Administrative Agent such corresponding amount, the amount so repaid shall
constitute such Lender's Proportionate Share of the Loan made on such Borrowing
date for purposes of this Agreement. The Administrative Agent shall not be
required to make any Loan as to which it shall have received notice by a Lender
of such Lender's intention not to make its Ratable Share of such Loan available
to the Administrative Agent. The failure of any Lender to make its Proportionate
Share of any Loan available shall not (without regard to whether the Borrowers
shall have returned the amount thereof to the Administrative Agent in accordance
with this SECTION 4.7) relieve it or any other Lender of its obligation, if any,
hereunder to make its Proportionate Share of the Loan available on such
Borrowing date, but no Lender shall be responsible for the failure of any other
Lender to make its Proportionate Share of a Loan available on the Borrowing
date.
(c) Delegation of Authority to Administrative Agent. Without
limiting the generality of SECTION 14.1, each Lender expressly authorizes the
Administrative Agent to determine on behalf of such Lender (i) any reduction or
increase of advance rates applicable to the Borrowing Base, so long as such
advance rates do not at any time exceed the rates set forth in the Borrowing
Base definition as in effect on the Agreement Date, (ii) the creation or
elimination of Additional Reserves and (iii) whether or not Inventory or
Receivables shall be deemed to constitute Eligible Inventory or Eligible
Receivables. Any withdrawal of authorization under this SECTION 4.7(C) shall not
affect the validity of any Loans made prior to the effectiveness thereof.
(d) Overadvances. Notwithstanding anything to the contrary
contained elsewhere in this SECTION 4.7 or this Agreement or the other Loan
Documents and whether or not a Default or Event of Default exists at the time,
the Administrative Agent may in its discretion require all Lenders to honor
requests or deemed requests by the Borrowers for Loans at a time that an
Overadvance Condition exists or which would result in an Overadvance Condition
and each Lender shall be obligated to continue to make its Proportionate Share
of any such Overadvance Loan up to a maximum amount outstanding equal to its
Commitment, so long as such Overadvance is not known by the Administrative Agent
to exceed $3,000,000 or to exist for more than five consecutive Business Days or
more than 10 days in any Fiscal Year.
SECTION 4.8 Settlement Among Lenders.
(a) Revolving Credit Loans. It is agreed that each Lender's
Net Outstandings are intended by the Lenders to be equal at all times to such
Lender's Ratable Share of the aggregate principal amount of all Revolving Credit
Loans outstanding. Notwithstanding such agreement, the several and not joint
obligation of each Lender to make its Ratable Share of Loans in accordance with
the terms of this Agreement and each Lender's right to receive its Ratable Share
of principal payments on Revolving Credit Loans, the Lenders agree that, in
order to facilitate the administration of this Agreement and the Loan Documents,
settlement among them may take place on a periodic basis in accordance with the
provisions of this SECTION 4.8.
(b) Settlement Procedures. To the extent and in the manner
hereinafter provided in this SECTION 4.8, settlement among the Lenders as to
Base Rate Revolving Credit Loans may occur periodically on Settlement Dates
determined from time to time by the Administrative Agent, which may occur before
or after the occurrence or during the continuance
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of a Default or Event of Default and whether or not all of the conditions set
forth in SECTION 5.2 have been met. On each Settlement Date payments shall be
made by or to FCC and the other Lenders in the manner provided in this SECTION
4.8 in accordance with the Settlement Report delivered by the Administrative
Agent pursuant to the provisions of this SECTION 4.8 in respect of such
Settlement Date, so that as of each Settlement Date, and after giving effect to
the transactions to take place on such Settlement Date, each Lender's Net
Outstandings shall equal such Lender's Ratable Share of the Revolving Credit
Loans.
(i) Selection of Settlement Dates. If the
Administrative Agent elects, in its discretion, but subject to
the consent of FCC, to settle accounts among the Lenders with
respect to principal amounts of Base Rate Revolving Credit
Loans less frequently than each Business Day, then the
Administrative Agent shall designate periodic Settlement Dates
which may occur on any Business Day after the Effective Date;
PROVIDED, that (A) the Administrative Agent shall designate as
a Settlement Date any Business Day which is an Interest
Payment Date, (B) a Settlement Date shall occur not less often
than every five Business Days, and (C) settlements with
respect to each Eurodollar Rate Revolving Credit Loan shall
take place on the Borrowing date for such Loan, on the last
day of the Interest Period applicable thereto and on any other
date during such Interest Period on which interest is payable
thereon. The Administrative Agent shall designate a Settlement
Date by delivering to each Lender a Settlement Report not
later than 12:00 noon on the proposed Settlement Date, which
Settlement Report shall be with respect to the period
beginning on the next preceding Settlement Date and ending on
such designated Settlement Date.
(ii) Non-Ratable Loans and Payments. Between
Settlement Dates, the Administrative Agent shall request and
FCC may (but shall not be obligated to) advance to the
Borrowers out of FCC's own funds, the entire principal amount
of any Base Rate Loan requested or deemed requested pursuant
to SECTION 2.2(A) (any such Base Rate Loan being referred to
as a "Non-Ratable Loan"). The making of each Non-Ratable Loan
by FCC shall be deemed to be a purchase by FCC of a 100%
participation in each other Lender's Proportionate Share of
such Non-Ratable Loan. All payments of principal, interest and
any other amount with respect to such Non-Ratable Loan shall
be payable to and received by the Administrative Agent for the
account of FCC. Upon demand by FCC, with notice thereof to the
Administrative Agent, each other Lender shall pay to FCC, as
the repurchase of such participation, an amount equal to 100%
of such Lender's Proportionate Share of the principal amount
of such Non-Ratable Loan. Notwithstanding the provisions of
SECTION 4.16, any payments received by the Administrative
Agent between Settlement Dates which in accordance with the
terms of this Agreement are to be applied to the reduction of
the outstanding principal balance of the Revolving Credit
Loans, shall be paid over to and retained by FCC for such
application, and such payment to and retention by FCC shall be
deemed, to the extent of each other Lender's Proportionate
Share of such payment, to be a purchase by each such other
Lender of a participation in the Revolving Credit Loans
(including the repurchase of participations in Non-Ratable
Loans) held by FCC. Upon demand by another Lender, with notice
thereof to the Administrative Agent, FCC shall pay to the
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Administrative Agent, for the account of such other Lender, as
a repurchase of such participation, an amount equal to such
other Lender's Proportionate Share of any such amounts (after
application thereof to the repurchase of any participations of
FCC in such other Lender's Proportionate Share of any
Non-Ratable Loans) paid only to FCC by the Administrative
Agent.
(iii) Settlement. On each Settlement Date each Lender
shall transfer to the Agent and the Agent shall transfer to
each Lender such amounts as are necessary to insure that,
after giving effect to all such transfers, each Lender's Net
Outstandings are equal to such Lender's Proportionate Share of
the aggregate principal amount of all Revolving Credit Loans
then outstanding.
(iv) Return of Payments. If any amounts received by
FCC in respect of the Secured Obligations are later required
to be returned or repaid by FCC to the Borrowers or any other
obligor or their respective representatives or successors in
interest, whether by court order, settlement or otherwise, in
excess of the FCC's Proportionate Share of all such amounts
required to be returned by all Lenders, each other Lender
shall, upon demand by FCC with notice to the Administrative
Agent, pay to the Administrative Agent for the account of FCC,
an amount equal to the excess of such Lender's Proportionate
Share of all such amounts required to be returned by all
Lenders over the amount, if any, returned directly by such
Lender.
(v) Payments to Administrative Agent, Lenders.
(A) Payment by any Lender to the
Administrative Agent pursuant to this SECTION 4.8
shall be made not later than 1:00 p.m. on the
Business Day such payment is due, PROVIDED that if
such payment is due on demand by another Lender, such
demand is made on the paying Lender not later than
10:00 a.m. on such Business Day. Payment by the
Administrative Agent to any Lender shall be made by
wire transfer, promptly following the Administrative
Agent's receipt of funds for the account of such
Lender and in the type of funds received by the
Administrative Agent, PROVIDED that if the
Administrative Agent receives such funds (A) at or
prior to 1:00 p.m., the Administrative Agent shall
pay such funds to such Lender by 2:00 p.m. on such
Business Day or (B) after 1:00 p.m., the
Administrative Agent shall pay such funds to such
Lender prior to 2:00 p.m. on the following Business
Day. If a demand for payment is made after the
applicable time set forth above, the payment due
shall be made by 2:00 p.m. on the first Business Day
following the date of such demand.
(B) If a Lender shall, at any time, fail to
make any payment to the Administrative Agent required
hereunder, the Administrative Agent may, but shall
not be required to, retain payments that would
otherwise be made to such Lender hereunder and apply
such payments to such Lender's defaulted obligations
hereunder, at such time, and in such order, as the
Administrative Agent may elect in its sole
discretion.
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(C) With respect to the payment of any funds
under this SECTION 4.8(B), whether from the
Administrative Agent to a Lender or from a Lender to
the Administrative Agent, the party failing to make
full payment when due pursuant to the terms hereof
shall, upon demand by the other party, pay such
amount together with interest on such amount at the
Federal Funds Rate.
(c) Settlement of Other Secured Obligations. All other amounts
received by the Administrative Agent on account of, or applied by the
Administrative Agent to the payment of, any Secured Obligation owed to the
Lenders (including, without limitation, fees payable to the Lenders pursuant to
SECTIONS 4.2(B) and (E) and proceeds from the sale of, or other realization
upon, all or any part of the Collateral following an Event of Default) that are
received by the Administrative Agent at or prior to 1:00 p.m. on a Business Day
will be paid by the Administrative Agent to each Lender on the same Business
Day, and any such amounts that are received by the Administrative Agent after
1:00 p.m. will be paid by the Administrative Agent to each Lender on the
following Business Day. Unless otherwise stated herein, the Administrative Agent
shall distribute to each Lender such Lender's Proportionate Share of fees
payable to the Lenders pursuant to SECTIONS 4.2(B) and (E) and shall distribute
to each Lender such Lender's Proportionate Share (or if different, such Lender's
share based upon the amount of the Secured Obligations then owing to each
Lender) of the proceeds from the sale of, or other realization upon, all or any
part of the Collateral following an Event of Default.
SECTION 4.9 Mandatory Prepayments. The Borrowers shall
permanently reduce the Commitments (Ratably) by an amount equal to any amount
that would otherwise constitute "Net Available Cash" as defined in the Senior
Note Indenture and be required by the terms thereof to be applied to the
prepayment of the Senior Notes. To the extent necessary to comply with the
provisions of SECTION 2.3(B) after giving effect to such reduction, the
Borrowers shall also prepay the Loans. Any such prepayment pursuant to this
SECTION 4.9 shall be applied first to Base Rate Loans to the extent thereof and
then to Eurodollar Rate Loans. If any payments are received which result in
prepayment of Eurodollar Rate Loans prior to the end of the applicable Interest
Period, the Borrowers shall also pay any amounts due pursuant to SECTION 4.10.
SECTION 4.10 Payments Not at End of Interest Period; Failure
to Borrow. If for any reason any payment of principal with respect to any
Eurodollar Rate Loan is made on any day prior to the last day of the Interest
Period applicable to such Eurodollar Rate Loan or, after having given a Notice
of Borrowing with respect to any Eurodollar Rate Loan or a Notice of Conversion
or Continuation with respect to any Loan to be continued as or converted into a
Eurodollar Rate Loan, such Loan is not made or is not continued as or converted
into a Eurodollar Rate Loan due to the Borrowers' failure to borrow or to
fulfill the applicable conditions set forth in ARTICLE 5, the Borrowers shall
pay to each Lender, an amount equal to such Lender's costs and expenses incurred
as a result of such failure, including in connection with obtaining deposits to
fund its Ratable Share of such new (or continued or converted) Loan and
redeploying such deposits. The Borrowers shall pay such amount upon presentation
by the Administrative Agent of a statement setting forth the amount and the
applicable Lender's calculation thereof in reasonable detail, which statement
shall be deemed true and correct absent manifest error.
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SECTION 4.11 Notice of Conversion or Continuation. Whenever
the Borrowers desire, subject to the provisions of SECTIONS 4.12 and 4.13, to
convert an outstanding Loan into a Loan or Loans of a different Type or to
continue all or a portion of an outstanding Eurodollar Rate Loan for a
subsequent Interest Period, the Borrowers shall notify the Administrative Agent
in writing (which notice shall be irrevocable) by telecopy or electronic mail
not later than 11:30 a.m. on the date two Business Days before the day on which
such proposed conversion or continuation is to be effective (and such effective
date of any continuation shall be the last day of the Interest Period for the
Eurodollar Rate Loan). Each such notice (a "Notice of Conversion or
Continuation") shall (i) identify the Loan to be converted or continued, the
aggregate outstanding principal balance thereof and, if a Eurodollar Rate Loan,
the last day of the Interest Period applicable to such Loan, (ii) specify the
effective date of such conversion or continuation, (iii) specify the principal
amount of such Loan to be converted or continued and, if converted, the Type or
Types into which the same is to be converted, and (iv) the Interest Period to be
applicable to the Eurodollar Rate Loan as converted or continued, and shall be
immediately followed by a written confirmation thereof by the Borrowers in a
form acceptable to the Administrative Agent, PROVIDED that if such written
confirmation differs in any respect from the action taken by the Lenders, the
records of the Administrative Agent shall control absent manifest error.
SECTION 4.12 Conversion or Continuation. Provided that no
Event of Default shall have occurred and be continuing (but subject to the
provisions of SECTIONS 4.11 and 4.13), the Borrowers may request that all or any
part of any outstanding Loan be converted into a Loan or Loans of a different
Type or be continued as a Loan or Loans of the same Type, in the same aggregate
principal amount, on any Business Day (which, in the case of continuation of a
Eurodollar Rate Loan, shall be the last day of the Interest Period applicable to
such Loan), upon notice (which notice shall be irrevocable) given in accordance
with SECTION 4.11.
SECTION 4.13 Duration of Interest Periods; Maximum Number of
Eurodollar Rate Loans; Minimum Increments.
(a) Subject to the provisions of the definition "Interest
Period," the duration of each Interest Period applicable to a Eurodollar Rate
Loan shall be as specified in the applicable Notice of Borrowing or Notice of
Conversion or Continuation. The Borrowers may elect a subsequent Interest Period
to be applicable to any Eurodollar Rate Loan by giving a Notice of Conversion or
Continuation with respect to such Loan in accordance with SECTION 4.11.
(b) If the Administrative Agent does not receive a notice of
election in accordance with SECTION 4.11 with respect to the continuation of
Eurodollar Rate Loan within the applicable time limits specified in said SECTION
4.11, or if, when such notice must be given, an Event of Default exists or such
Type of Loan is not available, the Borrowers shall be deemed to have elected to
convert such Eurodollar Rate Loan in whole into a Base Rate Loan on the last day
of the Interest Period therefor.
(c) Notwithstanding the foregoing, the Borrowers may not
select an Interest Period that would end, but for the provisions of the
definition "Interest Period," after the Termination Date.
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(d) In no event shall there be more than six Eurodollar Rate
Loans outstanding hereunder at any time. For the purpose of this SUBSECTION (D),
each Loan having a distinct Interest Period shall be deemed to be a separate
Loan hereunder.
(e) Each Eurodollar Rate Loan shall be in a minimum amount of
$1,000,000 or an integral multiple of $250,000 in excess thereof.
SECTION 4.14 Changed Circumstances.
(a) If the introduction of or any change in or in the
interpretation of (in each case, after the date hereof) any law or regulation
makes it unlawful, or any Governmental Authority asserts, after the date hereof,
that it is unlawful, for any Lender to perform its obligations hereunder to make
Eurodollar Rate Loans or to fund or maintain Eurodollar Rate Loans hereunder,
such Lender shall notify the Administrative Agent of such event and the
Administrative Agent shall notify the Borrowers of such event, and the right of
the Borrowers to select Eurodollar Rate Loans for any subsequent Interest Period
or in connection with any subsequent conversion of any Loan shall be suspended
until the Administrative Agent shall notify the Borrowers that the circumstances
causing such suspension no longer exist, and the Borrowers shall forthwith
prepay in full all Eurodollar Rate Loans then outstanding and shall pay all
interest accrued thereon through the date of such prepayment or conversion,
unless the Borrowers, within three Business Days after such notice from the
Administrative Agent, request the conversion of all Eurodollar Rate Loans then
outstanding into Base Rate Loans; PROVIDED, that if the date of such repayment
or proposed conversion is not the last day of the Interest Period applicable to
such Eurodollar Rate Loans, the Borrowers shall also pay any amount due pursuant
to SECTION 4.10.
(b) If the Administrative Agent shall, at least one Business
Day before the date of any requested Borrowing or the effective date of any
conversion or continuation of an existing Loan to be made or continued as or
converted into a Eurodollar Rate Loan (each such requested Borrowing made and
Loan to be converted or continued, a "Pending Loan"), notify the Borrowers that
the Eurodollar Rate will not adequately reflect the cost to the Lenders of
making or funding such Pending Loan as a Eurodollar Rate Loan or that the
Interbank Offered Rate is not determinable from any interest rate reporting
service of recognized standing, then the right of the Borrowers to select
Eurodollar Rate Loan for such Pending Loan, any subsequent Loan or in connection
with any subsequent conversion or continuation of any Loan shall be suspended
until the Administrative Agent shall notify the Borrowers that the circumstances
causing such suspension no longer exist, and each Pending Loan and each such
subsequent Loan requested to be made, continued or converted shall be made or
continued as or converted into a Base Rate Loan.
SECTION 4.15 Cash Collateral Account; Investment Accounts.
(a) Cash Collateral Account. The Borrowers shall establish a
Cash Collateral Account in which to deposit Collateral consisting of cash or
Cash Equivalents from time to time
(i) representing payments received pursuant to
SECTION 2.3(C) in excess of then outstanding Loans or on
account of Eurodollar Rate Loans which would
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otherwise result in repayment of such Loans prior to the end
of the Interest Period applicable thereto,
(ii) with respect to Letter of Credit Obligations (x)
at the request of the Administrative Agent upon the occurrence
of an Event of Default, or (y) for the purposes set forth in
SECTION 4.6 in the event of termination of this Agreement, or
(iii) for any other purpose as may be agreed between
the Administrative Agent and the Borrowers to provide security
for the Secured Obligations.
On the last day of the applicable Interest Period as to any amounts deposited to
the Cash Collateral Account pursuant to CLAUSE (I) above or if a drawing under a
Letter of Credit occurs with respect to any amounts deposited to the Cash
Collateral Account pursuant to CLAUSE (II) above, the Borrowers hereby authorize
the Administrative Agent to use the monies deposited in the Cash Collateral
Account to make payment to the payee with respect to such Loan or drawing. The
Cash Collateral Account shall be in the name of the Administrative Agent and the
Administrative Agent shall have sole dominion and control over, and sole access
to, the Cash Collateral Account. Neither any Borrower nor any Person claiming on
behalf of or through any Borrower shall have any right to withdraw any of the
funds held in the Cash Collateral Account. The Borrowers agree that they will
not at any time (x) sell or otherwise dispose of any interest in the Cash
Collateral Account or any funds held therein or (y) create or permit to exist
any Lien upon or with respect to the Cash Collateral Account or any funds held
therein, except as provided in or contemplated by this Agreement. The
Administrative Agent shall exercise reasonable care in the custody and
preservation of any funds held in the Cash Collateral Account and shall be
deemed to have exercised such care if such funds are accorded treatment
substantially equivalent to that which the Administrative Agent accords other
funds deposited with the Administrative Agent, it being understood that the
Administrative Agent shall not have any responsibility for taking any necessary
steps to preserve rights against any parties with respect to any funds held in
the Cash Collateral Account. Subject to the right of the Administrative Agent to
withdraw funds from the Cash Collateral Account as provided herein, the
Administrative Agent will, so long as no Default or Event of Default shall have
occurred and be continuing, from time to time invest funds on deposit in the
Cash Collateral Account, reinvest proceeds of any such investments which may
mature or be sold, and invest interest or other income received from any such
investments, in each case, in Cash Equivalents, as the Borrowers may direct
prior to the occurrence of a Default or Event of Default and as the
Administrative Agent may select after the occurrence and during the continuance
of a Default or Event of Default. Such proceeds, interest and income which are
not so invested or reinvested in Cash Equivalents shall be deposited and held by
the Administrative Agent in the Cash Collateral Account. The Administrative
Agent makes no representation or warranty as to, and shall not be responsible
for, the rate of return, if any, earned in any Cash Collateral. Any earnings on
Cash Collateral shall be held as additional Cash Collateral on the terms set
forth in this SECTION 4.15.
(b) Investment Accounts. The Borrowers may from time to time
establish one or more Investment Accounts with the Administrative Agent, any
Lender or any Affiliate of a Lender, for the purpose of investing in Cash
Equivalents any Cash Collateral representing payments received pursuant to
SECTION 2.3(C) in excess of then outstanding Loans or on account of Eurodollar
Rate Loans which would otherwise result in repayment of such Loans prior to the
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end of the Interest Period applicable thereto. The Borrowers hereby acknowledge
and agree that each such Investment Account shall constitute Collateral
hereunder and shall be maintained with the Administrative Agent, a Lender or
Affiliate of a Lender as security for the Secured Obligations. Notwithstanding
the foregoing, until such time as the Administrative Agent shall otherwise
instruct the Lender or the Affiliate of a Lender maintaining such account, the
Borrowers shall be entitled to direct the investment of the funds deposited
therein. The Borrowers agree that they will not at any time (x) sell or
otherwise dispose of any interest in any Investment Account or any funds held
therein other than by application thereof to any Secured Obligation, or (y)
create or permit to exist any Lien upon or with respect to any Investment
Account or any funds held therein, except as provided in or contemplated by this
Agreement. The Borrowers agree that at any time, and from time to time, at the
expense of the Borrowers, the Borrowers will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Administrative Agent or any Lender may
request, in order to perfect and protect any security interest in any Investment
Account granted or purported to be granted hereby or to enable the Borrowers,
for their respective benefit and the benefit of the Lenders, to exercise and
enforce its rights and remedies hereunder with respect to such Investment
Account.
SECTION 4.16 Allocation of Payments from Borrowers. All monies
to be applied to the Secured Obligations, whether such monies represent
voluntary payments by the Borrowers or are received pursuant to demand for
payment or realized from any disposition of Collateral, shall be allocated among
the Administrative Agent and such of the Lenders and other holders of the
Secured Obligations as are entitled thereto (and, with respect to monies
allocated to the Lenders, on a Ratable basis unless otherwise provided in this
SECTION 4.16): (i) first, to the Swingline Lender (or to any Lender to the
extent such Lender has previously repaid such Loan) to pay principal and accrued
interest on any portion of any Swingline Loan; (ii) second, to the
Administrative Agent to pay the amount of expenses that have not been reimbursed
to the Administrative Agent by the Borrowers or the Lenders, together with
interest accrued thereon; (iii) third, to the Administrative Agent to pay any
indemnified amount that has not been paid to the Administrative Agent by the
Borrowers or the Lenders, together with interest accrued thereon; (iv) fourth,
to the Administrative Agent to pay any fees due and payable to the
Administrative Agent under this Agreement; (v) fifth, to the Lenders for any
indemnified amount that they have paid to the Administrative Agent and for any
expenses that they have reimbursed to the Administrative Agent; (vi) sixth, to
the Lenders to pay any fees due and payable to the Lenders under this Agreement;
(vii) seventh, in payment of the unpaid principal and accrued interest in
respect of the Loans and any other Secured Obligations then outstanding and held
by any Lender to be shared among the Lenders on a Ratable basis, or on such
other basis as may be agreed upon in writing by all of the Lenders (which
agreement or agreements may be entered into without notice to or the consent or
approval of the Borrowers); and (vii) eight, to the holders of the other Secured
Obligations who are not Lenders on a pro rata basis. The allocations set forth
in this SECTION 4.16 are solely to determine the rights and priorities of the
Administrative Agent and the Lenders as among themselves and may be changed by
the Administrative Agent and the Lenders without notice to or the consent or
approval of the Borrowers or any other Person. Whenever allocation is made
pursuant to this SECTION 4.16 to the holder of Secured Obligations in which
another Lender acquires a participation, the monies received by such holder
shall be shared as between such holder and such participants on a Ratable basis.
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SECTION 4.17 Borrowers' Representative. Heafner shall act
under this Agreement as the representative of all Borrowers, and each other
Borrower hereby appoints Heafner as its representative, hereunder, for all
purposes, including, without being limited to, requesting borrowings and
receiving account statements and other notices and communications to the
Borrowers (or any of them) from the Administrative Agent or any Lender. The
Administrative Agent and the Lenders may rely, and shall be fully protected in
relying, on any request for borrowing, disbursement instruction, report,
information or any other notice or communication made or given by Heafner,
whether in its own name, on behalf of any other Borrower or on behalf of "the
Borrowers," and neither the Administrative Agent nor any Lender shall have any
obligation to make any inquiry or request any confirmation from or on behalf of
any other Borrower as to the binding effect on it of any such request,
instruction, report, information, notice or communication, nor shall the joint
and several character of the Borrowers' liability for the Secured Obligations be
affected. The Administrative Agent and each Lender intend to maintain a single
Loan Account in the name of "Heafner Tire Group, Inc." hereunder and each
Borrower expressly agrees to such arrangement and confirms that such arrangement
shall have no effect on the joint and several character of its liability for the
Secured Obligations.
SECTION 4.18 Joint and Several Liability.
(a) Joint and Several Liability. The Secured Obligations shall
constitute one joint and several direct and general obligation of all of the
Borrowers. Notwithstanding anything to the contrary contained herein, each of
the Borrowers shall be jointly and severally, with each other Borrower, directly
and unconditionally liable to the Administrative Agent and the Lenders for all
Secured Obligations and shall have the obligations of co-maker with respect to
the Loans, the Notes, and the Secured Obligations, it being agreed that the
advances to each Borrower inure to the benefit of all Borrowers, and that the
Administrative Agent and the Lenders are relying on the joint and several
liability of the Borrowers as co-makers in extending the Loans hereunder. Each
Borrower hereby unconditionally and irrevocably agrees that upon default in the
payment when due (whether at stated maturity, by acceleration or otherwise) of
any principal of, or interest on, any Loan or other Secured Obligation payable
to the Administrative Agent or any Lender, it will forthwith pay the same,
without notice or demand.
(b) No Modification or Release of Obligations. No payment or
payments made by any of the Borrowers or any other Person or received or
collected by the Administrative Agent or any Lender from any of the Borrowers or
any other Person by virtue of any action or proceeding or any set-off or
appropriation or application at any time or from time to time in reduction of or
in payment of the Secured Obligations shall be deemed (except to the extent
Secured Obligations are satisfied) to modify, release or otherwise affect the
liability of each Borrower under this Agreement, which shall remain liable for
the Secured Obligations until the Secured Obligations are paid in full and the
Commitments are terminated.
SECTION 4.19 Obligations Absolute. Each Borrower agrees that
the Secured Obligations will be paid strictly in accordance with the terms of
the Loan Documents, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting any of such terms or the rights of the
Administrative Agent or any Lender with respect thereto. All Secured Obligations
shall be conclusively presumed to have been created in reliance hereon. The
liabilities under this Agreement shall be absolute and unconditional
irrespective of:
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(a) any lack of validity or enforceability of any Loan
Documents or any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payments of, or
in any other term of, all or any part of the Secured Obligations, or any other
amendment or waiver thereof or any consent to departure therefrom, including,
but not limited to, any increase in the Secured Obligations resulting from the
extension of additional credit to any Borrower or otherwise;
(c) any taking, exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty for all or any of the Secured Obligations;
(d) any change, restructuring or termination of the corporate
structure or existence of any Borrower; or
(e) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, any Borrower or a guarantor.
This Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Secured Obligations is rescinded or
must otherwise be returned by the Administrative Agent or any Lender upon the
insolvency, bankruptcy or reorganization of any Borrower or otherwise, all as
though such payment had not been made.
SECTION 4.20 Waiver of Suretyship Defenses. Each Borrower
agrees that the joint and several liability of the Borrowers provided for in
SECTION 4.18 shall not be impaired or affected by any modification, supplement,
extension or amendment or any contract or agreement to which the other Borrowers
may hereafter agree (other than an agreement signed by the Administrative Agent
and the Lenders specifically releasing such liability), nor by any delay,
extension of time, renewal, compromise or other indulgence granted by the
Administrative Agent or any Lender with respect to any of the Secured
Obligations, nor by any other agreements or arrangements whatever with the other
Borrowers or with anyone else, each Borrower hereby waiving all notice of such
delay, extension, release, substitution, renewal, compromise or other
indulgence, and hereby consenting to be bound thereby as fully and effectually
as if it had expressly agreed thereto in advance. The liability of each Borrower
is direct and unconditional as to all of the Secured Obligations, and may be
enforced without requiring the Administrative Agent or any Lender first to
resort to any other right, remedy or security. Each Borrower hereby expressly
waives promptness, diligence, notice of acceptance and any other notice with
respect to any of the Secured Obligations, the Notes, this Agreement or any
other Loan Document (other than notices expressly required in this Agreement or
by any of the Loan Documents) and any requirement that the Administrative Agent
or any Lender protect, secure, perfect or insure any Lien or any property
subject thereto or exhaust any right or take any action against any Borrower or
any other Person or any collateral, including any rights any Borrower may
otherwise have under the New York General Obligations Law.
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ARTICLE 5
CONDITIONS PRECEDENT
SECTION 5.1 Conditions Precedent to Effectiveness of
Agreement. Notwithstanding any other provision of this Agreement, this Agreement
shall not become effective nor shall the Lenders have any obligation to make any
Loans on the Effective Date unless and until the following conditions precedent
are satisfied:
(a) Documents. The Administrative Agent shall have received on
or before the Effective Date the following, each in form and substance
satisfactory to the Administrative Agent, its special counsel and the Lenders
and (except for the Notes) in sufficient copies for each Lender:
(1) Agreement. This Agreement, duly executed and
delivered by the Borrowers and the other Lenders;
(2) Notes. The Notes, each dated the Effective Date
and duly executed and delivered by the Borrowers;
(3) Articles, Bylaws and Resolutions. A certificate,
dated the Effective Date, of the Secretary or an Assistant
Secretary of each Loan Party, as to and having attached
thereto copies of the articles of incorporation and by-laws
and shareholder agreements of such Loan Party as in effect on
the Effective Date and all corporate action, including
shareholder approval, if necessary, taken by such Loan Party
and/or its shareholders to authorize the execution, delivery
and performance of this Agreement and the other Loan Documents
to which such Loan Party is a party and, in the case of each
Borrower, the Borrowings under this Agreement;
(4) Incumbency Certificates. A certificate, dated the
Effective Date, of the Secretary or an Assistant Secretary of
each Loan Party, as to the incumbency and specimen signatures
of each of the officers of such Loan Party who is authorized
to execute and deliver this Agreement or any other Loan
Document on behalf of such Loan Party or any document,
certificate or instrument to be delivered in connection with
this Agreement or the other Loan Documents to which such Loan
Party is a party and, in the case of each Borrower, to request
Borrowings under this Agreement;
(5) Good Standing Certificates. A certificate as of a
recent date evidencing the good standing of each Loan Party in
the jurisdiction of its incorporation and in each other
jurisdiction in which it is qualified as a foreign corporation
to transact business;
(6) Financing Statements. The Financing Statements to
be delivered by the Loan Parties duly executed and delivered
by the Loan Parties, and evidence satisfactory to the
Administrative Agent that the Financing Statements have been
filed in each jurisdiction where such filing may be necessary
or appropriate to
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perfect the Security Interest or, at the Administrative
Agent's discretion, in appropriate form for such filing;
(7) Landlord's Waiver. Landlord's waiver and consent
agreements duly executed on behalf of each landlord of real
property on which any Collateral is located, except to the
extent that the Rent Reserve appropriately reflects the
absence of such a waiver;
(8) Schedules of Inventory and Receivables. A
Schedule of Inventory and a Schedule of Receivables, each
prepared as of a recent date;
(9) Insurance Coverage. Certificates or binders of
insurance relating to each of the policies of insurance
covering any of the Collateral together with loss payable
clauses which comply with the terms of SECTION 8.8(B);
(10) Borrowing Base Certificate. A Borrowing Base
Certificate prepared as of January 29, 2000 duly executed and
delivered by the Financial Officer demonstrating Loan
Availability of not less than $35,000,000, after giving effect
to the Loans to be made on the Effective Date and any
transactions contemplated by this Agreement to occur on or
before the Effective Date;
(11) Notice of Borrowing. The Initial Notice of
Borrowing dated the Effective Date from the Borrowers to the
Administrative Agent requesting the Loans to be made on the
Effective Date and specifying the method of disbursement;
(12) Financial Statements. Copies of all the
financial statements referred to in SECTION 6.1(N) and meeting
the requirements thereof;
(13) Officer's Certificate. A certificate of the
President or a Vice President of Heafner stating that, to the
best of his knowledge and based on an examination sufficient
to enable him to make an informed statement, (a) all of the
representations and warranties made or deemed to be made under
this Agreement are true and correct as of the Effective Date,
both with and without giving effect to the Loans to be made on
the Effective Date and the application of the proceeds
thereof, and (b) as of the Effective Date, no Default or Event
of Default exists;
(14) Factual Certificate. A certification from an
appropriate officer of each Borrower as to such factual
matters as shall be required by the Administrative Agent;
(15) Other Loan Documents. Copies of each of the
other Loan Documents dated the Effective Date, duly executed
by the parties thereto with evidence satisfactory to the
Administrative Agent and its counsel of the due authorization,
binding effect and enforceability of each such Loan Document
on each such party and such other documents and instruments as
the Administrative Agent may reasonably request;
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(16) Legal Opinions. An opinion dated the Effective
Date of each of Covington & Burling, counsel for the
Borrowers, and of such local counsel as the Administrative
Agent shall deem necessary or desirable, opining as to such
matters in connection with this Agreement as the
Administrative Agent or its counsel may reasonably request;
(17) Fees. The Administrative Agent shall have
received from the Borrowers all of the fees payable on the
Effective Date referred to herein; and
(18) Priority. The Administrative Agent shall have
received satisfactory evidence that the Administrative Agent
(for the benefit of Lenders) has a valid and perfected first
priority security interest as of such date in all of the
Collateral, subject only to Permitted Liens.
(b) Litigation. The Administrative Agent shall have received
evidence satisfactory to it that no action, proceeding, investigation,
regulation or legislation, shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain substantial damages in respect of, or which is related to
or arises out of, this Agreement, or the consummation of the transactions
contemplated hereby, or which may otherwise have a Materially Adverse Effect.
(c) No Material Adverse Change. There shall not have occurred
any event or series of events or circumstances or group of circumstances which
individually or in the aggregate, in the sole judgment of the Administrative
Agent, would have a Materially Adverse Effect.
(d) Receipt of Funds. The Administrative Agent shall have
received and disbursed such amounts from and to each Existing Lender and New
Lender (and each such Lender shall be deemed to have purchased from or sold to
each other such Lender such interest in such Lender's Revolving Credit Loans
outstanding immediately prior to the Effective Date) as would result in each
such Lender's having Revolving Credit Loans outstanding on the Effective Date
equal to its Proportionate Share (based upon the Commitments set forth on ANNEX
A hereto) of the outstanding principal amount of such Revolving Credit Loans.
SECTION 5.2 All Loans; Letters of Credit. The obligation of
the Lenders to make (but not to continue or convert any outstanding Loan, which
shall be subject to the provisions of SECTION 4.12) any Loan hereunder,
including any Loans to be made on the Effective Date and all subsequent Loans,
and of FCC to cause the issuance of any Letter of Credit are further subject to
the following:
(a) at such time, both with and without giving effect to the
Loans to be made at such time and the application of the proceeds thereof or the
Letter of Credit Guarantee to be issued, (1) no Default or Event of Default
shall exist nor (2) shall any event have occurred or condition exist that could
reasonably be expected to have a Materially Adverse Effect, and
(b) the corporate actions of the Loan Parties referred to in
SECTION 5.1(A)(3) shall remain in full force and effect and the incumbency of
officers shall be as stated in the
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certificates of incumbency delivered pursuant to SECTION 5.1(A)(4) or as
subsequently modified and reflected in a certificate of incumbency delivered to
the Administrative Agent.
Each request or deemed request for any Borrowing or other advance or submission
of any request for any Letter of Credit hereunder shall be deemed to be a
certification by the Borrowers to the Administrative Agent and the Lenders as to
the matters set forth in SECTION 5.2(A) and (B) and the Administrative Agent and
the Lenders may, without waiving either condition, consider the conditions
specified in SECTIONS 5.2(A) and (B) fulfilled and a representation by the
Borrowers to such effect made, if no written notice to the contrary is received
by the Administrative Agent prior to the making of the Loan then to be made or
the issuance of the Letter of Credit so requested.
SECTION 5.3 Conditions as Covenants. In the event that the
Lenders permit this Agreement to become effective and make any Loans on the
Effective Date or permit FCC to issue a Letter of Credit Guarantee prior to the
satisfaction of all conditions precedent set forth in SECTION 5.1, and such
conditions are not waived in writing by the Administrative Agent, the Borrowers
shall nevertheless cause such condition or conditions to be satisfied within 30
days after the making of such Loans or the issuance of such Letter of Credit
Guarantee.
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BORROWERS
SECTION 6.1 Representations and Warranties. The Borrowers
represent and warrant to the Administrative Agent and to the Lenders as follows:
(a) Organization; Power; Qualification. Each Borrower and each
of its Subsidiaries is a corporation, duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, having the
power and authority to own its properties and to carry on its business as now
being and hereafter proposed to be conducted and is duly qualified and
authorized to do business in each jurisdiction in which the character of its
properties or the nature of its business requires such qualification or
authorization. The jurisdictions in which each of the Borrowers and each of
their respective Subsidiaries is qualified to do business as a foreign
corporation are listed on SCHEDULE 6.1(A).
(b) Capitalization; Shareholder Agreements. The outstanding
capital stock of the Borrowers has been duly and validly issued and is fully
paid and nonassessable, and the number and owners of such shares of capital
stock of the Borrowers are set forth on SCHEDULE 6.1(B). Except as set forth on
SCHEDULE 6.1(B), the issuance and sale of the Borrowers' capital stock have been
registered or qualified under applicable federal and state securities laws or
are exempt therefrom and there are no shareholders agreements, options,
subscription agreements or other agreements or understandings to which any
Borrower is a party in effect with respect to the capital stock of a Borrower,
including, without limitation, agreements providing for special voting
requirements or arrangements for approval of corporate actions or other matters
relating to corporate governance or restrictions on share transfer or providing
for the issuance of any securities convertible into shares of the capital stock
of any Borrower, any warrants or other rights to acquire any shares or
securities convertible into such shares, or any agreement that obligates a
Borrower, either by its terms or at the election of any other Person, to
repurchase such shares under any circumstances.
(c) Subsidiaries. SCHEDULE 6.1(C) correctly sets forth the
name of each Subsidiary of any Borrower, its jurisdiction of incorporation, the
name of its immediate parent or parents, and the percentage of its issued and
outstanding securities owned by the Borrowers or any other Subsidiary of any
Borrower. Except as set forth on SCHEDULE 6.1(C),
(i) no Subsidiary has issued any securities
convertible into shares of such Subsidiary's capital stock or
any options, warrants or other rights to acquire any shares or
securities convertible into such shares,
(ii) the outstanding stock and securities of each
Subsidiary are owned by a Borrower or a Wholly Owned
Subsidiary of a Borrower, or by a Borrower and one or more of
its Wholly Owned Subsidiaries, free and clear of all Liens,
warrants, options and rights of others of any kind whatsoever,
and
(iii) no Borrower has any Subsidiaries.
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The outstanding capital stock of each Subsidiary has been duly and validly
issued and is fully paid and nonassessable by the issuer, and the number and
owners of the shares of such capital stock are set forth on SCHEDULE 6.1(C).
(d) Authorization of Agreement, Notes, Loan Documents and
Borrowing. Each Loan Party has the right and power, and has taken all necessary
action to authorize it, to execute, deliver and perform this Agreement and each
of the Loan Documents to which it is a party in accordance with their respective
terms. This Agreement and each of the Loan Documents have been duly executed and
delivered by the duly authorized officers of each Loan Party and each is, or
when executed and delivered in accordance with this Agreement will be, a legal,
valid and binding obligation of each such Loan Party, enforceable in accordance
with its terms.
(e) Compliance of Agreement, Notes, Loan Documents and
Borrowing with Laws, Etc. Except as set forth on SCHEDULE 6.1(E), the execution,
delivery and performance of this Agreement and each of the Loan Documents in
accordance with their respective terms and the borrowings hereunder do not and
will not, by the passage of time, the giving of notice or otherwise,
(i) require any Governmental Approval or violate any
Applicable Law relating to a Borrower or any of its
Subsidiaries,
(ii) conflict with, result in a breach of or
constitute a default under the articles or certificate of
incorporation, by-laws or any shareholders' agreement of a
Borrower or any of its Subsidiaries,
(iii) conflict with, result in a breach of or
constitute a default under any material provisions of any
indenture, agreement or other instrument to which a Borrower
or any of its Subsidiaries is a party or by which a Borrower,
any of its Subsidiaries or any of any Borrower's or such
Subsidiaries' property may be bound or any Governmental
Approval relating to a Borrower or any of its Subsidiaries, or
(iv) result in or require the creation or imposition
of any Lien upon or with respect to any property now owned or
hereafter acquired by any Loan Party other than the Security
Interest.
(f) Business. Each Borrower and each Subsidiary is engaged in
the business described on SCHEDULE 6.1(F).
(g) Compliance with Law; Governmental Approvals. Except as set
forth in SCHEDULE 6.1(G), each Borrower and each of its Subsidiaries
(i) has all Governmental Approvals, including permits
relating to federal, state and local Environmental Laws,
ordinances and regulations, required by any Applicable Law for
it to conduct its business, each of which is in full force and
effect, is final and not subject to review on appeal and is
not the subject of any pending or, to the knowledge of any
Borrower, threatened attack by direct or collateral
proceeding, and
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(ii) is in compliance with each Governmental Approval
applicable to it and in compliance with all other Applicable
Laws relating to it, including, without being limited to, all
Environmental Laws and all occupational health and safety laws
applicable to any Borrower, any of its Subsidiaries or their
respective properties,
except for instances of noncompliance which would not, singly or in the
aggregate, cause a Default or Event of Default or have a Materially Adverse
Effect and in respect of which appropriate reserves have been established.
(h) Title to Properties. Except as set forth in SCHEDULE
6.1(H), each Borrower and each of the Subsidiaries has valid and legal title to
or leasehold interest in all personal property, Real Estate and other assets
used in its business, including, but not limited to, those reflected on the most
recent balance sheet of the Borrowers delivered pursuant to SECTION 6.1(N).
(i) Liens. Except as set forth in SCHEDULE 6.1(I), none of the
properties and assets of any Borrower or any Subsidiary is subject to any Lien,
except Permitted Liens. Other than the Financing Statements, no financing
statement under the UCC of any State or other instrument evidencing a Lien which
names a Borrower or any Subsidiary as debtor has been filed (and has not been
terminated) in any State or other jurisdiction, and neither any Borrower nor any
Subsidiary has signed any such financing statement or other instrument (which
financing statement or other instrument has not been terminated) or any security
agreement (which security agreement has not been terminated) authorizing any
secured party thereunder to file any such financing statement or instrument,
except to perfect those Liens listed on SCHEDULE 6.1(I).
(j) Indebtedness and Guarantees. SCHEDULE 6.1(J) is a complete
and correct listing of all (i) Debt and (ii) Guarantees of each Borrower and
each of its Subsidiaries. Each Borrower and each of its Subsidiaries has
performed and is in compliance in all material respects with all of the terms of
such Debt and Guarantees and all instruments and agreements relating thereto,
and no default or event of default, or event or condition which with notice or
lapse of time, or both, would constitute such a default or event of default,
exists with respect to any such Debt or Guaranty.
(k) Litigation. Except as set forth on SCHEDULE 6.1(K), as of
the Effective Date there are no actions, suits or proceedings pending (nor, to
the knowledge of any Borrower, are there any actions, suits or proceedings
threatened, or any reasonable basis therefor) against or in any other way
relating to or affecting a Borrower or its Subsidiaries or any of their
respective properties in any court or before any arbitrator of any kind or
before or by any governmental body, EXCEPT actions, suits or proceedings of the
character normally incident to the kind of business conducted by the Borrowers
and their Subsidiaries which, if adversely determined, would not singly or in
the aggregate have a Materially Adverse Effect, and there are no strikes or
walkouts in progress, pending or contemplated relating to any labor contracts to
which a Borrower or any of its Subsidiaries is a party, relating to any labor
contracts being negotiated, or otherwise.
(l) Tax Returns and Payments. Except as set forth on SCHEDULE
6.1(L), all United States federal, state and local as well as foreign national,
provincial and local and other tax returns of each Borrower and each of its
Subsidiaries required by Applicable Law to be filed
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have been duly filed, and all United States federal, state and local and foreign
national, provincial and local and other taxes, assessments and other
governmental charges or levies upon a Borrower or any of its Subsidiaries or
their respective property, income, profits and assets which are due and payable
have been paid, except any such nonpayment which is at the time permitted under
SECTION 9.6. The charges, accruals and reserves on the books of the Borrowers
and each Subsidiary as of the Effective Date in respect of United States
federal, state and local and foreign national, provincial and local taxes for
all fiscal years and portions thereof since January 1, 1994 are in the judgment
of the Borrowers adequate, and the Borrowers know of no reason to anticipate any
additional assessments for any of such years which, singly or in the aggregate,
might have a Materially Adverse Effect.
(m) Burdensome Provisions. Except as set forth on SCHEDULE
6.1(M), neither Borrower nor any Subsidiary is a party to any indenture,
agreement, lease or other instrument, or subject to any charter or corporate
restriction, Governmental Approval or Applicable Law compliance with the terms
of which is reasonably likely to have a Materially Adverse Effect.
(n) Financial Statements.
(i) The Borrowers have furnished to the
Administrative Agent and the Lenders copies of Heafner's (A)
consolidating and audited consolidated balance sheets as at
December 31, 1998 and the related consolidating and audited
consolidated statements of income, cash flow and shareholders
equity for the Fiscal Year then ended and (B) unaudited
consolidating and consolidated balance sheets as at November
30, 1999 and the related consolidating and consolidated
statements of income, cash flow and shareholders equity for
the eleven-month period then ended, which financial statements
present fairly and in all material respects in accordance with
GAAP the financial positions of Heafner and its Consolidated
Subsidiaries as at their respective dates, and the results of
operations of Heafner and its Consolidated Subsidiaries for
the periods then ended (except, in the case of the interim
statements, for the omission of notes and subject to normal
year-end audit adjustments).
(ii) Except as set forth on SCHEDULE 6.1(N) or as
disclosed or reflected in the financial statements described
in CLAUSE (I) above, Heafner and its Subsidiaries, taken as a
whole, have no material liabilities, contingent or otherwise.
(o) Adverse Change. Since the date of the latest financial
statements referred to in SECTION 6.1(N)(I),
(i) no material adverse change has occurred in the
business, assets, liabilities, financial condition, results of
operations or business prospects of Heafner, the other
Borrowers and their respective Subsidiaries taken as a whole,
and
(ii) no event has occurred or failed to occur which
has had, or may have, singly or in the aggregate, a Materially
Adverse Effect.
(p) ERISA. Neither any Borrower nor any Related Company
maintains or contributes to any Benefit Plan other than those listed on SCHEDULE
6.1(P). Except as set forth on
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SCHEDULE 6.1(P), and subject to correction of possible Remediable Defects, each
Benefit Plan is in substantial compliance with ERISA and the Code, including but
not limited to those provisions thereof relating to reporting and disclosure,
and neither any Borrower nor any Related Company has received any notice
asserting that a Benefit Plan is not in compliance with ERISA. No material
liability to the PBGC or to a Multiemployer Plan has been, or is expected to be,
incurred by any Borrower or any Related Company. Except as set forth on SCHEDULE
6.1(P), and subject to correction of possible Remediable Defects, each Benefit
Plan intended to qualify under Section 401(a) of the Code so qualifies and any
related trust is exempt from federal income tax under Section 501(a) of the
Code. A favorable determination letter from the IRS has been issued or applied
for with respect to each such plan and trust and nothing that is not a
Remediable Defect has occurred since the date of such determination letter that
would adversely affect such qualification or tax-exempt status. No Benefit Plan
subject to the minimum funding standards of the Code has failed to meet such
standards. Neither the Borrower or any Related Company has transferred any
pension plan liability in a transaction that could be subject to Sections 4069
or 4212(c) of ERISA. Except as set forth on SCHEDULE 6.1(P), neither any
Borrower nor any Related Company has any liability, actual or contingent, with
respect to any Benefit Plan other than to make payments to the Benefit Plan in
accordance with its terms, and there are no pending or threatened claims against
a Benefit Plan. No non-exempt prohibited transaction with the meaning of Section
4975 of the Code or Section 406 of ERISA has occurred with respect to a Benefit
Plan. Except under plans listed on SCHEDULE 6.1(P), no employee or former
employee of any Borrower or any Related Company is or may become entitled to any
benefit under a Benefit Plan that is a "welfare plan" within the meaning of
Section 3(1) of ERISA following such employee's termination of employment.
Except as set forth on SCHEDULE 6.1(P), each such welfare plan that is a group
health plan has been operated in compliance with the provision of Section 4980B
of the Code and Sections 601-609 of ERISA and any applicable provisions of state
law that are similar.
(q) Absence of Defaults. No Borrower nor any Subsidiary is in
default under its articles or certificate of incorporation or by-laws and no
event has occurred, which has not been remedied, cured or waived,
(i) which constitutes a Default or an Event of
Default, or
(ii) which constitutes, or which with the passage of
time or giving of notice, or both, would constitute, a default
or event of default by a Borrower or any of its Subsidiaries
under any material agreement (other than this Agreement) or
judgment, decree or order to which such Borrower or any of its
Subsidiaries is a party or by which such Borrower, any of its
Subsidiaries or any of such Borrower's or any of its
Subsidiaries' properties may be bound or which would require a
Borrower or any Subsidiary to make any payment under any
thereof prior to the scheduled maturity date therefor, except,
in the case only of any such agreement, for alleged defaults
which are being contested in good faith by appropriate
proceedings and with respect to which reserves in respect of a
Borrower's or such Subsidiary's reasonably anticipated
liability have been established on the appropriate books.
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(r) Accuracy and Completeness of Information.
(i) As of the Effective Date, no fact is known to the
Borrowers which has had, or is reasonably likely in the future
to have (so far as the Borrowers can reasonably foresee), a
Materially Adverse Effect which has not been set forth in the
financial statements or disclosure delivered to the
Administrative Agent and the Lenders prior to the Effective
Date. No document furnished or written statement made to the
Administrative Agent or any Lender by the Borrowers (or any of
them) prior to the Agreement Date, in connection with the
negotiation, preparation or execution of this Agreement or any
of the Loan Documents contained, except to the extent
corrected or superseded prior to the Agreement Date, any
untrue statement of a fact material to the creditworthiness of
a Borrower or omitted to state a material fact necessary in
order to make the statements contained therein not misleading.
(ii) The Borrowers have no reason to believe that any
document furnished or written statement made to the
Administrative Agent or any Lender prior to the Agreement Date
by any Person other than the Borrowers in connection with the
negotiation, preparation or execution of this Agreement or any
of the Loan Documents contained any incorrect statement of a
material fact or omitted to state a material fact necessary in
order to make the statements made, in light of the
circumstances under which they were made, not misleading, that
has not been corrected or superseded prior to the Effective
Date.
(s) Solvency. In each case after giving effect to the Debt
represented by the Loans outstanding and to be incurred and the transactions
contemplated by this Agreement, each Borrower and each of its Subsidiaries is
solvent, having assets of a fair salable value which exceeds the amount required
to pay its debts as they become absolute and matured (including contingent,
subordinated, unmatured and unliquidated liabilities), and each Borrower and
each of its Subsidiaries is able to and anticipates that it will be able to meet
its debts as they mature and has adequate capital to conduct the business in
which it is or proposes to be engaged.
(t) Receivables.
(i) Status.
(1) Each Receivable reflected in the
computations included in any Borrowing Base
Certificate meets the criteria enumerated in CLAUSES
(A) through (P) of the definition "Eligible
Receivables," except as disclosed in such Borrowing
Base Certificate or as disclosed in a timely manner
in a subsequent Borrowing Base Certificate or
otherwise in writing to the Administrative Agent.
(2) No Borrower has any knowledge of any
fact or circumstance not disclosed to the
Administrative Agent in a Borrowing Base Certificate
or otherwise in writing which would impair the
validity or collectibility of any Receivable
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of $250,000 or more or of Receivables which
(regardless of the individual amount thereof)
aggregate $500,000 or more.
(ii) Chief Executive Office. The chief executive
office of each Borrower and the books and records relating to
the Receivables are located on the Effective Date at the
address or addresses set forth on SCHEDULE 6.1(T).
(u) Inventory.
(i) Schedule of Inventory. All Inventory included in
any Schedule of Inventory or Borrowing Base Certificate
delivered to the Administrative Agent on or prior to the
Effective Date meets the criteria enumerated in CLAUSES (A)
through (G) of the definition "Eligible Inventory," except as
disclosed in such Schedule of Inventory or Borrowing Base
Certificate.
(ii) Condition. All Inventory is in good condition,
meets all standards imposed by any governmental agency, or
department or division thereof, having regulatory authority
over such goods, their use or sale, and is currently either
usable or salable in the normal course of the applicable
Borrower's business, except to the extent reserved against in
the financial statements referred to in SECTION 6.1(N) or a
Borrowing Base Certificate delivered pursuant to SECTION 5.1.
(iii) Location. All Inventory is located at a
Permitted Inventory Location or is in transit to a Permitted
Inventory Location.
(v) Corporate and Fictitious Names. Except as otherwise
disclosed on SCHEDULE 6.1(V), during the five-year period preceding the
Agreement Date, neither any Borrower nor any predecessor thereof has been known
as or used any corporate or fictitious name other than the corporate name of
such Borrower on the Effective Date.
(w) Federal Reserve Regulations. Neither any Borrower nor any
of its Subsidiaries is engaged, principally or as one of its important
activities, in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" (as each of the quoted terms is defined or used
in Regulation U of the Board of Governors of the Federal Reserve System).
(x) Investment Company Act. No Borrower is an "investment
company" or a company "controlled" by an "investment company" (as each of the
quoted terms is defined or used in the Investment Company Act of 1940, as
amended).
(y) Employee Relations. The Borrowers and each Subsidiary have
stable work forces in place and none of them is, except as set forth on SCHEDULE
6.1(Y), party to any collective bargaining agreement nor has any labor union
been recognized as the representative of a Borrower's or any of its
Subsidiaries' employees, and the Borrowers know of no pending, threatened or
contemplated strikes, work stoppage or other labor disputes involving a
Borrower's or any Subsidiary's employees.
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(z) Proprietary Rights. Each Borrower owns or has the right to
use all Proprietary Rights necessary or desirable in the conduct of its business
as conducted on the Agreement Date and as expected on the Agreement Date to be
conducted in the future. To the best of the Borrowers' knowledge, none of such
Proprietary Rights infringes on or conflicts with any other Person's property,
and no other Person's property infringes on or conflicts with the Proprietary
Rights.
(aa) Trade Names. All trade names or styles under which any
Loan Party sells Inventory or creates Receivables, or to which instruments in
payment of Receivables are made payable, all as of the Effective Date, are
listed on SCHEDULE 6.1(AA).
(bb) Bank Accounts. Attached hereto as SCHEDULE 6.1(BB) is a
complete and correct list of all checking accounts, depository accounts, special
deposit accounts and other accounts maintained by any Borrower or Subsidiary
with any commercial bank or savings bank as of the Effective Date and each such
account (except any account indicated by an asterisk (*)) is either (i) subject
to an Agency Account Agreement or (ii) subject to directions from the account
holder to the institution maintaining such account, in form and substance
approved by the Administrative Agent, to transfer all collected funds therein
daily to the Administrative Agent.
(cc) Equipment. All machinery, equipment, fixtures and other
tangible property (other than Inventory) of each Borrower and their respective
Subsidiaries, other than obsolete equipment no longer used or useful in the
business of the Borrowers and their Subsidiaries, is in good order and repair,
ordinary wear and tear excepted.
(dd) Real Property. No Borrower nor any Subsidiary owns any
Real Estate nor leases any Real Estate other than that described on SCHEDULE
6.1(DD) and other than Real Estate acquired or leased after the Effective Date.
(ee) Year 2000 Compliant. Each Borrower and each Subsidiary is
Year 2000 Compliant.
SECTION 6.2 Survival of Representations and Warranties, Etc.
All representations and warranties set forth in this ARTICLE 6 and all
statements contained in any certificate, financial statement, or other
instrument, delivered by or on behalf of the Borrowers pursuant to or in
connection with this Agreement or any of the Loan Documents (including, but not
limited to, any such representation, warranty or statement made in or in
connection with any amendment thereto) shall constitute representations and
warranties made under this Agreement. All representations and warranties made
under this Agreement shall be made or deemed to be made at and as of the
Agreement Date and at and as of the Effective Date, except that representations
and warranties which, by their terms are applicable only to one such date shall
be deemed to be made only at and as of such date. All representations and
warranties made or deemed to be made under this Agreement shall survive and not
be waived by the execution and delivery of this Agreement, any investigation
made by or on behalf of the Administrative Agent or any Lender or any borrowing
hereunder.
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ARTICLE 7
SECURITY INTEREST
SECTION 7.1 Security Interest.
(a) Heafner, Winston and CPW hereby confirm the mortgage,
pledge and assignment to the Administrative Agent under the Existing Loan
Agreement of the Collateral and the creation in favor of the Administrative
Agent of a continuing security interest in the Collateral, all as security for
the Secured Obligations, and each Borrower hereby mortgages, pledges and assigns
all of the Collateral to the Administrative Agent, for the benefit of itself as
Administrative Agent, the Lenders and Affiliates of the Lenders, and grants to
the Administrative Agent, for the benefit of itself as Administrative Agent, the
Lenders and Affiliates of the Lenders, a continuing security interest in, and a
continuing Lien upon, all of the Collateral as security for the payment,
observance and performance of the Secured Obligations.
(b) As additional security for all of the Secured Obligations,
the Borrowers grant to the Administrative Agent, for the benefit of itself as
Administrative Agent, the Lenders and Affiliates of the Lenders, a security
interest in, and assigns to the Administrative Agent, for the benefit of itself
as Administrative Agent and the Lenders and Affiliates of the Lenders, all of
the Borrowers' right, title and interest in and to, any deposits or other sums
at any time credited by or due from each Lender and each Affiliate of a Lender
to a Borrower, or credited by or due from any participant of any Lender to a
Borrower, with the same rights therein as if the deposits or other sums were
credited by or due from such Lender. Each Borrower hereby authorizes each Lender
and each Affiliate of such Lender and each participant to pay or deliver to the
Administrative Agent, for the account of the Lenders, without any necessity on
the Administrative Agent's or any Lender's part to resort to other security or
sources of reimbursement for the Secured Obligations, at any time during the
continuation of any Event of Default or in the event that the Administrative
Agent, on behalf of the Lenders, should make demand for payment hereunder in
accordance with the terms hereof, then and without further notice to any
Borrower (such notice being expressly waived), any of the aforesaid deposits
(general or special, time or demand, provisional or final) or other sums for
application to any Secured Obligation, irrespective of whether any demand has
been made or whether such Secured Obligation is mature, and the rights given the
Administrative Agent, the Lenders, their Affiliates and participants hereunder
are cumulative with such Person's other rights and remedies, including other
rights of set-off. The Administrative Agent will promptly notify the Borrowers
of its receipt of any such funds for application to the Secured Obligations, but
failure to do so will not affect the validity or enforceability thereof. The
Administrative Agent may give notice of the above grant of a security interest
in and assignment of the aforesaid deposits and other sums, and authorization,
to, and make any suitable arrangements with, any Lender, any such Affiliate of
any Lender or participant for effectuation thereof, and each Borrower hereby
irrevocably appoints the Administrative Agent as its attorney to collect any and
all such deposits or other sums to the extent any such payment is not made to
the Administrative Agent or any Lender by such Lender, Affiliate or participant.
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SECTION 7.2 Continued Priority of Security Interest.
(a) The Security Interest granted by the Borrowers shall at
all times be valid, perfected and enforceable against each Borrower and all
third parties in accordance with the terms of this Agreement, as security for
the Secured Obligations, and the Collateral shall not at any time be subject to
any Liens that are prior to, on a parity with or junior to the Security
Interest, other than Permitted Liens.
(b) The Borrowers shall, at their sole cost and expense, take
all action that may be necessary or desirable, or that the Administrative Agent
may reasonably request, so as at all times to maintain the validity, perfection,
enforceability and rank of the Security Interest in the Collateral in conformity
with the requirements of SECTION 7.2(A), or to enable the Administrative Agent
and the Lenders to exercise or enforce their rights hereunder, including, but
not limited to:
(i) paying all taxes, assessments and other claims
lawfully levied or assessed on any of the Collateral, except
to the extent that such taxes, assessments and other claims
constitute Permitted Liens,
(ii) obtaining, after the Agreement Date, landlords',
mortgagees', bailees', warehousemen's or processors' releases,
subordinations or waivers (except as to premises reflected in
the Rent Reserve), and using all reasonable efforts to obtain
mechanics' releases, subordinations or waivers,
(iii) delivering to the Administrative Agent, for the
benefit of the Lenders, endorsed or accompanied by such
instruments of assignment as the Administrative Agent may
specify, and stamping or marking, in such manner as the
Administrative Agent may specify, any and all chattel paper,
instruments, letters and advices of guaranty and documents
evidencing or forming a part of the Collateral, and
(iv) executing and delivering financing statements,
pledges, designations, hypothecations, notices and assignments
in each case in form and substance satisfactory to the
Administrative Agent relating to the creation, validity,
perfection, maintenance or continuation of the Security
Interest under the UCC or other Applicable Law.
(c) The Administrative Agent is hereby authorized to file one
or more financing or continuation statements or amendments thereto without the
signature of or in the name of a Borrower for any purpose described in SECTION
7.2(B). The Administrative Agent will give the Borrowers notice of the filing of
any such statements or amendments, which notice shall specify the locations
where such statements or amendments were filed. A carbon, photographic,
xerographic or other reproduction of this Agreement or of any of the Security
Documents or of any financing statement filed in connection with this Agreement
is sufficient as a financing statement.
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(d) Each Borrower shall mark its books and records as directed
by the Administrative Agent and as may be necessary or appropriate to evidence,
protect and perfect the Security Interest and shall cause its financial
statements to reflect the Security Interest.
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ARTICLE 8
COLLATERAL COVENANTS
Each Borrower covenants and agrees that until the Commitments
have been terminated and all the Secured Obligations have been paid in full,
unless the Lenders shall otherwise consent in the manner provided in SECTION
15.9:
SECTION 8.1 Collection of Receivables.
(a) The Borrowers will and will cause each other Loan Party to
cause all monies, checks, notes, drafts and other payments relating to or
constituting proceeds of trade accounts receivable, other Receivables and other
Collateral to be deposited in (i) an Agency Account in accordance with the
procedures set out in the corresponding Agency Account Agreement or (ii) an
account subject to instructions from the account holder, in form and substance
satisfactory to the Administrative Agent, requiring the transfer of collected
balances in such account to the Administrative Agent not less often than each
Business Day. In particular, each Borrower will and will cause each other Loan
Party to advise each Account Debtor that makes payment to such Borrower or other
Loan Party by wire transfer, ACH Transfer or similar means to make payment
directly to an Agency Account or, if the applicable Borrower or other Loan Party
is not party to an Agency Account Agreement, then to an account subject to such
instructions.
(b) If average Loan Availability is less than $20,000,000 for
any period of 10 Business Days or is at any time less than $15,000,000, without
limiting the ability of the Administrative Agent and the Lenders to exercise
other rights and remedies hereunder, the Required Lenders may require that any
or all of the Loan Parties establish Lockboxes to which monies, checks, notes,
drafts and other payments relating to or constituting proceeds of Collateral
shall be sent and if such requirement is imposed, each Borrower will and will
cause each other Loan Party to:
(i) advise each Account Debtor on trade accounts
receivable that does not make payments directly to an Agency
Account to address all remittances with respect to amounts
payable on account thereof to a specified Lockbox, and
(ii) stamp all invoices relating to trade accounts
receivable with a legend satisfactory to the Administrative
Agent indicating that payment is to be made to such Borrower
or other Loan Party via a specified Lockbox.
(c) The Borrowers and the Administrative Agent shall cause all
collected balances in each Agency Account and the Borrowers shall, and shall
cause each other Loan Party to, cause all collected balances in each other bank
account subject to transfer instructions approved by the Administrative Agent,
to be transmitted daily by wire transfer, ACH Transfer, depository transfer
check or other means in accordance with the procedures set forth in the
corresponding Agency Account Agreement or such instructions, to the
Administrative Agent at the Administrative Agent's Office:
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(i) for application, on account of the Secured
Obligations, as provided in SECTIONS 2.3(C), 4.16, 12.2, and
12.3, such credits to be entered as of the Business Day they
are received if they are received prior to 1:30 p.m. and to be
conditioned upon final payment in cash or solvent credits of
the items giving rise to them (PROVIDED that a collection fee
shall be payable by the Borrowers with respect to any such
credit received in other than immediately available funds,
equal to one day's interest, at the rate applicable to Base
Rate Loans, on such amount), and
(ii) with respect to the balance, so long as no
Default or Event of Default has occurred and is continuing,
for transfer by wire transfer, ACH Transfer or depository
transfer check to a Controlled Disbursement Account.
(d) Any monies, checks, notes, drafts or other payments
referred to in SUBSECTION (A) or (B) of this SECTION 8.1 which, notwithstanding
the terms of such subsection, are received by or on behalf of the applicable
Borrower will be held in trust for the Administrative Agent and will be
delivered to the Administrative Agent or a Clearing Bank or a bank with which an
account subject to satisfactory transfer instructions is maintained, as promptly
as possible, in the exact form received, together with any necessary
endorsements for application by the Administrative Agent directly to the Secured
Obligations or, as applicable, for deposit in the Agency Account maintained with
such Clearing Bank and processing in accordance with the terms of the
corresponding Agency Account Agreement or for deposit in such account and
processing and transfer in accordance with such instructions.
SECTION 8.2 Verification and Notification. The Administrative
Agent shall have the right at any time and from time to time,
(a) in the name of the Administrative Agent, the Lenders or in
the name of a Borrower, to verify the validity, amount or any other matter
relating to any Receivables by mail, telephone, telegraph or otherwise,
(b) to review, audit and make extracts from all records and
files related to any of the Receivables, and
(c) if a Default or Event of Default has occurred and is
continuing, to notify the Account Debtors or obligors under any Receivables of
the assignment of such Receivables to the Administrative Agent, for the benefit
of the Lenders, and to direct such Account Debtor or obligors to make payment of
all amounts due or to become due thereunder directly to the Administrative
Agent, for the account of the Lenders, and, upon such notification and at the
expense of the Borrowers, to enforce collection of any such Receivables and to
adjust, settle or compromise the amount or payment thereof, in the same manner
and to the same extent as the applicable Borrower might have done.
SECTION 8.3 Disputes, Returns and Adjustments.
(a) In the event any amounts due and owing under any
Receivable for an amount in excess of $250,000 are in dispute between the
Account Debtor and the applicable Borrower, the Borrowers shall provide the
Administrative Agent with prompt written notice thereof.
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(b) The Borrowers shall notify the Administrative Agent
promptly of all returns and credits in excess of $250,000 in respect of any
Receivable, which notice shall specify the Receivable affected.
(c) The Borrowers may, in the ordinary course of business
unless a Default or an Event of Default has occurred and is continuing, grant
any extension of time for payment of any Receivable or compromise, compound or
settle the same for less than the full amount thereof, or release wholly or
partly any Person liable for the payment thereof, or allow any credit or
discount whatsoever therein; PROVIDED that (i) no such action results in the
reduction of more than $250,000 in the amount payable with respect to any
Receivable or of more than $1,000,000 with respect to all Receivables in any
Fiscal Year (in each case, excluding the allowance of credits or discounts
generally available to Account Debtors in the ordinary course of the applicable
Borrower's business), and (ii) the Administrative Agent is promptly notified of
the amount of such adjustments and the Receivable(s) affected thereby (by
reflecting such reduction in an appropriate Borrowing Base Certificate or
Schedule of Receivables).
SECTION 8.4 Invoices.
(a) No Borrower will issue invoices other than in its own name
or in a trade name of which the Administrative Agent has received prior written
notice, accompanied by such evidence as the Administrative Agent may reasonably
require that all actions required pursuant to ARTICLE 7 with respect to
Receivables or other Collateral created or held in such name have been taken.
(b) The Borrowers will not use any invoices other than
invoices in the forms delivered to the Administrative Agent prior to the
Agreement Date without giving the Administrative Agent prior notice of the
intended use of a different form of invoice together with a copy of such
different form and such evidence as the Administrative Agent may reasonably
require that any actions required pursuant to ARTICLE 7 with respect to any (i)
name, (ii) address or (iii) remittance instructions appearing on such invoice
have been taken.
(c) Upon the request of the Administrative Agent, the
Borrowers shall deliver to the Administrative Agent, at the Borrowers' expense,
copies of customers' invoices or the equivalent, original shipping and delivery
receipts or other proof of delivery, customers' statements, customer address
lists, the original copy of all documents, including, without limitation,
repayment histories and present status reports, relating to Receivables and such
other documents and information relating to the Receivables as the
Administrative Agent shall specify.
SECTION 8.5 Delivery of Instruments. In the event any
Receivable is at any time evidenced by a promissory note, trade acceptance or
any other instrument for the payment of money, the Borrowers will, promptly upon
request by the Administrative Agent, deliver such instrument to the
Administrative Agent, appropriately endorsed to the Administrative Agent, for
the benefit of the Lenders.
SECTION 8.6 Sales of Inventory. All sales of Inventory will be
made in compliance in all material respects with all requirements of Applicable
Law.
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SECTION 8.7 Ownership and Defense of Title.
(a) Except for Permitted Liens, the Borrowers shall be or
shall cause another Loan Party to be at all times the sole owners or lessees of
each and every item of Collateral and shall not create nor permit any other Loan
Party to create any lien on, or sell, lease, exchange, assign, transfer, pledge,
hypothecate, grant a security interest or security title in or otherwise dispose
of, any of the Collateral or any interest therein, except for sales of Inventory
in the ordinary course of business, for cash or on open account or on terms of
payment ordinarily extended to its customers, and except for dispositions that
are otherwise expressly permitted under this Agreement or any Subsidiary
Security Agreement.
(b) Each Borrower shall defend and cause each other Loan Party
to defend its title or leasehold interest in and to, and the Security Interest
in, the Collateral against the claims and demands of all Persons.
SECTION 8.8 Insurance.
(a) The Borrowers shall at all times maintain and cause the
other Loan Parties to maintain insurance on the Collateral and their other
property against loss or damage by fire, theft (excluding theft by employees),
burglary, pilferage, loss in transit and such other hazards as the
Administrative Agent shall reasonably specify, in amounts not to exceed those
obtainable at commercially reasonable rates and under policies issued by
insurers acceptable to the Administrative Agent in the exercise of its
reasonable judgment. All premiums on such insurance shall be paid by the
Borrowers and copies of the policies delivered to the Administrative Agent. The
Borrowers will not use or permit the Inventory or its other property to be used
in violation in any material respect of Applicable Law or in any manner which
might render inapplicable any insurance coverage.
(b) All insurance policies required under SECTION 8.8(A)
relating to Collateral shall name the Administrative Agent as an additional
insured and shall contain loss payable clauses in the form submitted to the
Borrowers by the Administrative Agent, or otherwise in form and substance
satisfactory to the Required Lenders, naming the Administrative Agent, as loss
payee, as its interests may appear, and providing that
(i) all proceeds thereunder shall be payable to the
Administrative Agent,
(ii) no such insurance shall be affected by any act
or neglect of the insurer or owner of the property described
in such policy, and
(iii) such policy and loss payable clauses may be
canceled, amended or terminated only upon at least 10 days'
prior written notice given to the Administrative Agent.
(c) Any proceeds of insurance referred to in this SECTION 8.8
which are paid to the Administrative Agent shall be, at the option of the
Required Lenders in their sole discretion, either (i) applied to replace the
damaged or destroyed property, or (ii) applied to the payment or prepayment of
the Secured Obligations, PROVIDED that in the event that the proceeds from any
single casualty do not exceed $250,000, then, upon the Borrowers' written
request to the
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Administrative Agent, provided that no Default or Event of Default shall have
occurred and be continuing, such proceeds shall be disbursed by the
Administrative Agent to the Borrowers pursuant to such procedures as the
Administrative Agent shall reasonably establish for application to the
replacement of the damaged or destroyed property.
SECTION 8.9 Location of Offices and Collateral.
(a) No Borrower will change the location of its chief
executive office or the place where it keeps its books and records relating to
the Collateral from the address set forth for it on SCHEDULE 6.1(T) or change
its name, its identity or corporate structure from that in effect on the
Effective Date, or use any trade name not listed on SCHEDULE 6.1(AA), without
giving the Administrative Agent 30 days' prior written notice thereof
accompanied by such evidence as the Administrative Agent may reasonably require
that all actions required to be taken pursuant to ARTICLE 7 have been taken.
(b) All Inventory, other than Inventory in transit to any such
location, will at all times be kept by the applicable Borrower at one or more
Permitted Inventory Locations and shall not, without the prior written consent
of the Administrative Agent, be kept elsewhere (except as a result of sales of
Inventory permitted under SECTION 8.7(A)).
(c) If any Inventory is in the possession or control of any of
a Borrower's agents or processors, the Borrowers shall notify such agents or
processors of the Security Interest (and shall promptly provide copies of any
such notice to the Administrative Agent and the Lenders) and, upon the
occurrence of an Event of Default, shall instruct them (and cause them to
acknowledge such instruction) to hold all such Inventory for the account of the
account of the Lenders, subject to the instructions of the Administrative Agent.
SECTION 8.10 Records Relating to Collateral.
(a) The Borrowers will and will cause their Subsidiaries to at
all times
(i) keep complete and accurate records of Inventory
on a basis consistent with past practices of Heafner so as to
permit comparison of Inventory records relating to different
time periods, itemizing and describing the kind, type and
quantity of Inventory and the applicable Borrower's or
Subsidiary's cost thereof and a current price list for such
Inventory, and
(ii) keep complete and accurate records of all other
Collateral.
(b) The Borrowers will prepare a physical listing of all
Inventory, wherever located, at least annually.
SECTION 8.11 Inspection. The Administrative Agent and each
Lender (by any of their officers, employees or agents) shall have the right, to
the extent that the exercise of such right shall be within the control of a
Borrower, at any time or times to
(a) visit the properties of the Borrowers and the
Subsidiaries, inspect the Collateral and the other assets of the Borrowers and
the Subsidiaries and inspect and make
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extracts from the books and records of the Borrowers and the Subsidiaries,
including but not limited to management letters prepared by independent
accountants, all during customary business hours at such premises;
(b) discuss the Borrowers' and the Subsidiaries' business,
assets, liabilities, financial condition, results of operations and business
prospects, insofar as the same are reasonably related to the rights of the
Administrative Agent or the Lenders hereunder or under any of the Loan
Documents, with the Borrowers' and the Subsidiaries' (i) principal officers,
(ii) independent accountants, and (iii) any other Person (except that any such
discussion with any third parties shall be conducted only in accordance with the
Administrative Agent's or such Lender's standard operating procedures relating
to the maintenance of the confidentiality of confidential information of
borrowers); and
(c) verify the amount, quantity, value and condition of, or
any other matter relating to, any of the Collateral and in this connection to
review, audit and make extracts from all records and files related to any of the
Collateral.
The Borrowers will deliver to the Administrative Agent, upon the Administrative
Agent's request, any instrument necessary for it to obtain records from any
service bureau maintaining records on behalf of the Borrowers or any Subsidiary.
SECTION 8.12 Information and Reports.
(a) Schedule of Receivables. The Borrowers shall deliver to
the Administrative Agent on or before the Effective Date and not later than the
20th day of each calendar month thereafter a Schedule of Receivables which
(i) shall be as of the last Business Day of the
immediately preceding Fiscal Month,
(ii) shall be reconciled to the Borrowing Base
Certificate as of such last Business Day, and
(iii) shall set forth a detailed aged trial balance
of all of the Borrowers' then existing Receivables, specifying
the names, addresses and balance due for each Account Debtor
obligated on a Receivable so listed.
(b) Schedule of Inventory. The Borrowers shall deliver to the
Administrative Agent on or before the Effective Date and not later than the 20th
day of each calendar month thereafter a Schedule of Inventory as of the last
Business Day of the immediately preceding Fiscal Month of the Borrowers,
itemizing and describing the kind, type and quantity of Inventory, the
applicable Borrower's cost thereof and the location thereof.
(c) Borrowing Base Certificate. The Borrowers shall deliver to
the Administrative Agent on the 20th day of each calendar month, subject to the
provisions of SECTION 8.12(E), a Borrowing Base Certificate prepared as of the
last Business Day of the preceding Fiscal Month.
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(d) Notice of Diminution of Value. The Borrowers shall give
prompt notice to the Administrative Agent of any matter or event which has
resulted in, or may result in, the diminution in excess of $500,000 in the value
of any of its Collateral, except for any such diminution in the value of any
Receivables or Inventory in the ordinary course of business which has been
appropriately reserved against, as reflected in financial statements previously
delivered to the Administrative Agent and the Lenders pursuant to ARTICLE 10.
(e) Additional Information. The Administrative Agent may in
its reasonable discretion from time to time request that the Borrowers deliver
the schedules and certificates described in SECTIONS 8.12(A), (B), (C) and (D)
more or less often and on different schedules than specified in such Sections
and the Borrowers will comply with such requests. The Borrowers will also
furnish to the Administrative Agent and each Lender such other information with
respect to the Collateral as the Administrative Agent or any Lender may from
time to time reasonably request.
SECTION 8.13 Power of Attorney. Each Borrower hereby appoints
the Administrative Agent as its attorney, with power
(a) to endorse the name of such Borrower on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into the Administrative Agent's or any Lender's possession, and
(b) if a Default or Event of Default exists, to sign the name
of such Borrower on any invoice or bill of lading relating to any Receivable,
Inventory or other Collateral, on any drafts against customers related to
letters of credit, on schedules and assignments of Receivables furnished to the
Administrative Agent or any Lender by such Borrower, on notices of assignment,
financing statements and other public records relating to the perfection or
priority of the Security Interest, verifications of account and notices to or
from customers.
SECTION 8.14 Assignment of Claims Act. Upon the request of the
Administrative Agent, the Borrowers shall execute any documents or instruments
and shall take such steps or actions reasonably required by the Administrative
Agent so that all monies due or to become due under any contract with the United
States of America, the District of Columbia or any state, county, municipality
or other domestic or foreign governmental entity, or any department, agency or
instrumentality thereof, will be assigned to the Administrative Agent, for the
benefit of itself and the Lenders, and notice given thereof in accordance with
the requirements of the Assignment of Claims Act of 1940, as amended, or any
other laws, rules or regulations relating to the assignment of any such contract
and monies due to or to become due.
ARTICLE 9
AFFIRMATIVE COVENANTS
The Borrowers covenant and agree that the Borrowers will, as
their joint and several obligation, duly and punctually pay the principal of,
and interest on, and all other amounts payable with respect to, the Loans and
all other Secured Obligations in accordance with the terms of the Loan Documents
and that until the Commitments have been terminated and all the Secured
Obligations have been paid in full, unless the Lenders shall otherwise consent
in the
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manner provided for in SECTION 15.9, each of the Borrowers will, and will cause
each of the Subsidiaries to:
SECTION 9.1 Preservation of Corporate Existence and Similar
Matters. Preserve and maintain its corporate existence, rights, franchises,
licenses and privileges in the jurisdiction of its incorporation and qualify and
remain qualified as a foreign corporation and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization (except where any failure
so to qualify could not reasonably be expected to have a Materially Adverse
Effect).
SECTION 9.2 Compliance with Applicable Law. Comply in all
material respects with all Applicable Law relating to the Borrowers or such
Subsidiary except to the extent being contested in good faith by appropriate
proceedings and for which reserves in respect of a Borrower's or such
Subsidiary's reasonably anticipated liability have been established in
accordance with GAAP.
SECTION 9.3 Maintenance of Property. In addition to, and not
in derogation of, the requirements of SECTION 8.7 and of the Security Documents,
(a) protect and preserve all properties material to its
business, including copyrights, patents, trade names and trademarks, and
maintain in good repair, working order and condition in all material respects,
with reasonable allowance for wear and tear, all tangible properties, and
(b) from time to time make or cause to be made all needed and
appropriate repairs, renewals, replacements and additions to such properties
necessary for the conduct of its business, so that the business carried on in
connection therewith in the ordinary course and in a manner consistent with past
practices of Heafner.
SECTION 9.4 Conduct of Business. At all times conduct its
business in accordance with sound business practices and engage only in the
business(es) described in SCHEDULE 6.1(F).
SECTION 9.5 Insurance. Maintain, in addition to the coverage
required by SECTION 8.8 and the Security Documents, insurance with responsible
insurance companies against such risks and in such amounts as is customarily
maintained by similar businesses or as may be required by Applicable Law, and
from time to time deliver to the Administrative Agent or any Lender upon its
request a detailed list of the insurance then in effect, stating the names of
the insurance companies, the amounts and rates of the insurance, the dates of
the expiration thereof and the properties and risks covered thereby.
SECTION 9.6 Payment of Taxes and Claims. Pay or discharge when
due
(a) all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or upon any properties belonging
to it, except that real property ad valorem taxes shall be deemed to have been
so paid or discharged if the same are paid before they become delinquent, and
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(b) all lawful claims of materialmen, mechanics, carriers,
warehousemen and landlords for labor, materials, supplies and rentals which, if
unpaid, might become a Lien on any properties of any Borrower;
except that this SECTION 9.6 shall not require the payment or discharge of any
such tax, assessment, charge, levy or claim which is being contested in good
faith by appropriate proceedings and for which reserves in respect of reasonably
anticipated liability have been established in accordance with GAAP.
SECTION 9.7 Accounting Methods and Financial Records. Maintain
a system of accounting, and keep such books, records and accounts (which shall
be true and complete), as may be required or as may be necessary to permit the
preparation of financial statements in accordance with GAAP and notify the
Administrative Agent promptly, and in any event within five days after any such
account is opened, of the existence, location, number and title of any bank
account of a Loan Party not listed on SCHEDULE 6.1(BB).
SECTION 9.8 Use of Proceeds.
(a) Use the proceeds of the Loans only for working capital and
general business purposes, including, without being limited to, payment of
interest on the Senior Notes and dividends on the KS Preferred in accordance
with the provisions of this Agreement, and
(b) not use any part of such proceeds to purchase or, to carry
or reduce or retire or refinance any credit incurred to purchase or carry, any
Margin Stock or, in any event, for any purpose which would involve a violation
of Regulation U or of Regulation T or X of the Board of Governors of the Federal
Reserve System, or for any purpose prohibited by law or by the terms and
conditions of this Agreement.
SECTION 9.9 Hazardous Waste and Substances; Environmental
Requirements. In addition to, and not in derogation of, the requirements of
SECTION 9.2 and of the Security Documents, comply in all material respects with
all Environmental Laws and all Applicable Laws relating to occupational health
and safety (except for instances of noncompliance that are being contested in
good faith by appropriate proceedings if reserves in respect of any Borrower's
or such Subsidiary's reasonably anticipated liability therefor have been
appropriately established), promptly notify the Administrative Agent of its
receipt of any notice of a violation of any such Environmental Laws or other
such Applicable Laws and indemnify and hold harmless the Administrative Agent
and the Lenders from all loss, cost, damage, liability, claim and expense
incurred by or imposed upon the Administrative Agent or any Lender on account of
a Borrower's failure to perform its obligations under this SECTION 9.9.
SECTION 9.10 Additional Subsidiaries. Cause each Person that
becomes a domestic Subsidiary of Heafner after the Effective Date, promptly upon
request by the Administrative Agent, to execute and deliver a Subsidiary
Guaranty and a Subsidiary Security Agreement or, if requested by the
Administrative Agent, enter into and cause any such new Subsidiary or any
existing Subsidiary Guarantor to enter into an amendment to this Agreement or
such other documents as may reasonably be determined by the Administrative Agent
to be necessary or desirable to add such Subsidiary as an additional "Borrower"
hereunder, in each
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case together with such allonges to the Notes, restated promissory notes,
Financing Statements, legal opinions and other certificates, instruments and
documents as the Administrative Agent may reasonably request.
SECTION 9.11 Compliance with Senior Note Indenture. Comply
with the terms and provisions of the Senior Note Indenture and the Senior Notes
and cause each Guarantor of Heafner's obligations under the Senior Notes to
comply with the terms of the Guaranty applicable to it.
SECTION 9.12 Agency Account Agreements. To the extent not
received by the Administrative Agent on or prior to the Effective Date, deliver
to the Administrative Agent as soon as possible, but in any event not later than
April 15, 2000, such Agency Account Agreements duly executed by the applicable
Clearing Bank and Loan Party and confirmations of effective directions to pay
the Administrative Agent affecting each account of a Loan Party to which
Collateral proceeds are deposited, each in form and substance satisfactory to
the Administrative Agent, as may be required by the Administrative Agent
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ARTICLE 10
INFORMATION
Until the Commitments have been terminated and all the Secured
Obligations have been paid in full, unless the Lenders shall otherwise consent
in the manner set forth in SECTION 15.9, the Borrowers will furnish to the
Administrative Agent and to each Lender at its offices then designated for
notices pursuant to SECTION 15.1, the statements, reports, certificates, and
other information provided for in this ARTICLE 10. All written information,
reports, statements and other papers and data furnished to the Administrative
Agent or any Lender by or at the request of the Borrowers, whether pursuant to
this ARTICLE 10 or any other provision of this Agreement or of any other Loan
Document, shall be, at the time the same is so furnished, complete and correct
in all material respects to the extent necessary to give the Administrative
Agent and the Lenders true and accurate knowledge of the subject matter.
Specifically, the Borrowers will so furnish:
SECTION 10.1 Financial Statements.
(a) Audited Year-End Statements. As soon as available, but in
any event within 90 days after the end of each Fiscal Year, copies of the
consolidated and consolidating balance sheets of Heafner and its Consolidated
Subsidiaries as at the end of such Fiscal Year and the related consolidated and
consolidating statements of income, shareholders' equity and cash flows of
Heafner and its Consolidated Subsidiaries for such Fiscal Year, in each case
setting forth in comparative form the figures for the previous Fiscal Year, and,
as to such consolidated financial statements, reported on, without
qualification, by Arthur Andersen LLP or other independent certified public
accountants of nationally recognized standing;
(b) Monthly Financial Statements. As soon as available after
the end of each Fiscal Month, but in any event within 30 days after the end of
each Fiscal Month (or 45 days after the end of any such Fiscal Month that is the
last Fiscal Month of a Fiscal Quarter), copies of the unaudited consolidated and
consolidating balance sheets of Heafner and its Consolidated Subsidiaries as at
the end of such Fiscal Month and the related unaudited consolidated and
consolidating statements of income and cash flows for Heafner and its
Consolidated Subsidiaries for such Fiscal Month and for the portion of the
Fiscal Year through such Fiscal Month, certified by a Financial Officer as
presenting fairly the financial condition and results of operations of the
Borrowers (subject to normal year-end audit adjustments) for the applicable
period(s);
all such financial statements to be complete and correct in all material
respects and prepared in accordance with GAAP (except, with respect to interim
financial statements, for the omission of notes and for the effect of normal
year-end audit adjustments) applied consistently throughout the periods
reflected therein; and
(c) Projections. As soon as available, but in any event not
later than 30 days after the first day of each Fiscal Year beginning after the
Effective Date, Projections for such Fiscal Year in such format and detail as
the Administrative Agent may reasonably specify.
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SECTION 10.2 Accountants' Certificate. Together with the
financial statements referred to in SECTION 10.1(A), a certificate of such
accountants addressed to the Administrative Agent
(a) stating that in making the examination necessary for the
certification of such financial statements, nothing has come to their attention
to lead them to believe that any Default or Event of Default exists and, in
particular, they have no knowledge of any Default or Event of Default or, if
such is not the case, specifying such Default or Event of Default and its
nature, and
(b) having attached the calculations, prepared by the
Borrowers and reviewed by such accountants, required to establish whether or not
the Borrowers are in compliance with the covenants contained in SECTIONS 11.1,
11.2, 11.4 and 11.5 as at the date of such financial statements.
SECTION 10.3 Officer's Certificate. At the time that the
Borrowers furnish the financial statements pursuant to SECTION 10.1(B) for the
last Fiscal Month in a Fiscal Quarter, a certificate of the President of Heafner
or of a Financial Officer in substantially the form attached hereto as EXHIBIT
D,
(a) setting forth as at the end of such Fiscal Quarter or
Fiscal Year, as the case may be, the calculations required to establish whether
or not the Borrowers were in compliance with the requirements of SECTIONS 11.1,
11.2, 11.4 and 11.5 as at the end of each respective period, and
(b) stating that, based on a reasonably diligent examination,
no Default or Event of Default exists, or, if such is not the case, specifying
such Default or Event of Default and its nature, when it occurred, whether it is
continuing and the steps being taken by the Borrowers with respect to such
Default or Event of Default.
SECTION 10.4 Copies of Other Reports.
(a) Promptly upon receipt thereof, copies of all reports, if
any, submitted to the Borrowers or the Board of Directors of Heafner by the
Borrowers' independent public accountants, including, without limitation, any
management report.
(b) As soon as practicable, copies of all financial statements
and reports that Heafner sends to its shareholders generally in their capacity
as such and of all registration statements and all regular or periodic reports
which any Borrower shall file with the Securities and Exchange Commission or any
successor commission.
(c) From time to time and as soon as reasonably practicable
following each request, such data, certificates, reports, statements, opinions
of counsel, documents or further information regarding the business, assets,
liabilities, financial condition, results of operations or business prospects of
a Borrower or any Subsidiary as the Administrative Agent or any Lender may
reasonably request and that a Borrower has or (except in the case of legal
opinions relating to the perfection or priority of the Security Interest)
without unreasonable expense can obtain; PROVIDED, HOWEVER, that the Lenders
shall, to the extent reasonably practicable, coordinate
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examinations of the Borrowers' records by their respective internal examiners.
The rights of the Administrative Agent and the Lenders under this SECTION 10.4
are in addition to and not in derogation of their rights under any other
provision of this Agreement or of any other Loan Document.
(d) If requested by the Administrative Agent or any Lender,
statements in conformity with the requirements of Federal Reserve Form G-3 or
U-1 referred to in Regulation U.
SECTION 10.5 Notice of Litigation and Other Matters. Prompt
notice of:
(a) the commencement, to the extent a Borrower is aware of the
same, of all proceedings and investigations by or before any governmental or
nongovernmental body and all actions and proceedings in any court or before any
arbitrator against or in any other way relating to or affecting any Borrower,
any of its Subsidiaries or any of a Borrower's or any of its Subsidiaries'
properties, assets or businesses, which is reasonably likely to, singly or
together with other pending proceedings or investigations, result in the
occurrence of a Default or an Event of Default, or have a Materially Adverse
Effect,
(b) any amendment of the articles of incorporation or by-laws
of a Borrower or any of its Subsidiaries,
(c) any change in the business, assets, liabilities, financial
condition, results of operations or business prospects of a Borrower or any of
its Subsidiaries which has had or is reasonably likely to have, singly or in the
aggregate, a Materially Adverse Effect and any change in the executive officers
of a Borrower,
(d) the discovery or determination by any Loan Party that any
computer application (including any computer application of any key supplier,
vendor or customer) that is material to the business or operations of any
Borrower is not Year 2000 Compliant, except to the extent that such failure
could not reasonably be expected to have a Materially Adverse Effect,
(e) the receipt of any notice from or giving of any notice to
the trustee under the Senior Note Indenture, together with a copy of such
notice, and
(f) any Default or Event of Default or any event which
constitutes or which with the passage of time or giving of notice or both would
constitute a default or event of default by a Borrower or any of its
Subsidiaries under any material agreement (other than this Agreement) to which
such Borrower or any of its Subsidiaries is a party or by which any Borrower,
any of its Subsidiaries or any Borrower's or any Subsidiary's properties may be
bound.
SECTION 10.6 ERISA. As soon as possible and in any event
within 30 days after a Borrower knows, or has reason to know, that:
(a) any ERISA Event with respect to a Benefit Plan has
occurred or will occur, or
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(b) the aggregate present value of the Unfunded Vested Accrued
Benefits under all Benefit Plans is equal to an amount in excess of $0, or
(c) a Borrower or any Subsidiary is in "default" (as defined
in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer
Benefit Plan required by reason of a Borrower's or such Subsidiary's complete or
partial withdrawal (as described in Section 4203 or 4205 of ERISA) from such
Multiemployer Plan,
to the Administrative Agent a certificate of the President of Heafner or a
Financial Officer setting forth the details of such event and the action which
is proposed to be taken with respect thereto, together with any notice or filing
which may be required by the PBGC or other agency of the United States
government with respect to such event.
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ARTICLE 11
NEGATIVE COVENANTS
Until the Commitments have been terminated and all the Secured
Obligations have been paid in full, unless the Lenders shall otherwise consent
in the manner set forth in SECTION 15.9, the Borrowers will not directly or
indirectly and, in the case of SECTIONS 11.2 through 11.12, will not permit any
Subsidiaries to:
SECTION 11.1 Financial Covenants.
(a) Permit Net Worth of Heafner and its Consolidated
Subsidiaries on a consolidated basis at any time on or after the Effective Date
to be less than $21,000,000; provided, that for purposes of this SECTION
11.1(A), the Net Worth of Heafner and its Consolidated Subsidiaries shall
exclude any and all amounts recorded as an expense from time to time after
December 31, 1999 to reflect amortization of goodwill.
(b) Permit Collateral Availability at any time after the
Effective Date to be less than $15,000,000.
(c) Permit the Interest Coverage Ratio as of the last day of
any Fiscal Quarter ending on or after the Effective Date, calculated for the
period of four consecutive Fiscal Quarters then ended, to be less than 1.25 to
1.
SECTION 11.2 Debt. Create, assume, or otherwise become or
remain obligated in respect of, or permit or suffer to exist or to be created,
assumed or incurred or to be outstanding any Debt, except that this SECTION 11.2
shall not apply to:
(a) Debt of the Loan Parties represented by the Loan
Documents,
(b) Subordinated Debt,
(c) Debt of the Loan Parties represented by the Senior Notes,
(d) Debt reflected on SCHEDULE 6.1(J) and refinancings thereof
that do not result in an increase in the principal amount of any such Debt
outstanding on the date of refinancing or in any other Person becoming obligated
thereon, but excluding any such scheduled Debt that is to be paid in full on the
Effective Date,
(e) Acquired Debt permitted in accordance with SECTION 11.4
and Attributable Debt permitted in accordance with SECTION 11.10,
(f) vendor loans, advances and similar financings in an
aggregate principal amount outstanding at any time not to exceed $20,000,000,
and
(g) other Debt in an aggregate principal amount outstanding at
any time not to exceed $15,000,000.
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SECTION 11.3 Guarantees. Become or remain liable with respect
to any Guaranty of any obligation of any other Persons, except as listed on
SCHEDULE 6.1(J) or pursuant to a Guaranty by a Borrower or any Subsidiary of the
obligations of a Loan Party (including specifically the Subsidiaries' Guarantees
of Heafner's obligations in respect of the Senior Notes).
SECTION 11.4 Acquisitions. (a) Acquire, after the Agreement
Date, any Business Unit or Investment or, after the Agreement Date, maintain any
Investment other than Permitted Investments, EXCEPT that this SECTION 11.4 shall
not apply to Acquisitions by Heafner or another Loan Party after the Effective
Date of (A) Investments in the capital stock of any other Person organized under
the laws of the United States of America or any state thereof which thereupon
becomes a Wholly Owned Subsidiary or (B) Business Units located in the United
States, provided, that:
(i) the aggregate Purchase Price of all such Acquisitions does
not exceed $75,000,000 during the term of this Agreement,
(ii) Heafner or the applicable Loan Party has made available
to the Administrative Agent, not later than 10 Business Days prior to
the proposed date of such Acquisition, the results of any investigation
of the target performed by or on behalf of such Loan Party and copies
of the Acquisition documents and historical financial statements of the
target for at least the three previous years,
(iii) the Administrative Agent shall have received evidence
satisfactory to it of the Loan Parties' continued compliance with the
provisions of this Agreement and the other Loan Documents, including,
without being limited to, the provisions of SECTIONS 9.4, 9.11 and
11.1, on a pro forma basis after giving effect to such Acquisition,
(iv) to the extent financed with Debt other than Acquired Debt
or Loans, such Debt shall be payable to the seller and shall be
subordinated to the prior payment of the Secured Obligations on terms
and conditions satisfactory to the Administrative Agent and the
Required Lenders,
(v) the Administrative Agent shall have received evidence
satisfactory to it demonstrating on a pro forma basis that Net Income
of the target, before provision for interest expense, taxes,
depreciation and amortization for the period of 12 consecutive calendar
months ended nearest the date of determination, is at least equal to
the sum of interest expense and scheduled principal payments on any
Debt incurred in connection with payment of the Purchase Price
(including Loans and Acquired Debt), and
(vi) as requested by the Administrative Agent, any new
Subsidiary shall have executed and delivered the Subsidiary Guaranty
and a Subsidiary Security Agreement, or all Loan Parties, as
appropriate, and such new Subsidiary shall have executed and delivered
an amendment to this Agreement sufficient to cause such new Subsidiary
to become a "Borrower" hereunder, and in either case shall have
delivered or caused to be delivered as to such Subsidiary the items
referred to in SECTIONS 5.1(A)(3), (4), (5), (6), and (8) and an
opinion of counsel for such Subsidiary as to such matters in connection
with the transactions contemplated by the Subsidiary Guaranty and
Subsidiary Security
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Agreement or such amendment to this Agreement as the Administrative
Agent may reasonably request;
PROVIDED, HOWEVER, that Heafner or the applicable Loan Party shall not be
required to furnish the information described in SECTION 11.4(A)(II) or (A)(V)
except with respect to any Acquisition the aggregate Purchase Price of which,
when added to the aggregate Purchase Price of all Acquisitions made on or after
the Effective Date and prior to the date of determination as to which such
information has not been provided, exceeds $10,000,000.
"Purchase Price" means an amount equal to the total consideration paid for such
Acquisition, including all cash payments (whether classified as purchase price,
noncompete payments, consulting payments, "earn out" or otherwise and without
regard to whether such amount is paid in whole or in part at the closing of the
Acquisition or over time thereafter, but excluding any finance charges
attributable to deferred payments and excluding any salary or other employment
compensation paid to a seller for the purpose of retaining such seller's
services as an active employee of a Borrower or a Subsidiary), the principal
amount of all Acquired Debt and of any Subordinated Debt owing to the seller,
and the value (as determined by the board of directors of Heafner, including
pursuant to the applicable purchase agreement between the relevant Borrower and
the seller, in the case of any property, the fair value of which is not readily
ascertainable) of all other property, other than capital stock of Heafner,
transferred by Heafner to the seller.
(b) Notwithstanding any provision of this Agreement to the
contrary, in connection with any merger (or other distribution of the assets) of
a Subsidiary that is not a Loan Party with and into (or to) a Loan Party, or any
Acquisition of a Business Unit, whether by purchase of stock, merger, or
purchase of assets and whether in a single transaction or series of related
transactions, by a Borrower, where the value of the assets of such Subsidiary or
the Purchase Price of such Acquisition, as the case may be:
(i) is less than $10,000,000, Heafner shall have the
right to determine whether the Inventory and Receivables so
acquired are included in the Borrowing Base, subject to the
provision of the definitions "Borrowing Base," "Eligible
Inventory" and Eligible Receivables" and any other provisions
of this Agreement and the other Loan Documents applicable to
the computation and reporting of the Borrowing Base, and if
Heafner elects so to include such acquired Inventory and
Receivables, then any Subsidiary that owns any such acquired
Inventory or Receivables shall execute and deliver to the
Administrative Agent the agreements, certificates, instruments
and other documents referred to in SECTION 11.4(A)(VI) or
(ii) is $10,000,000 or more, the Required Lenders
shall have the right to determine whether any Inventory or
Receivables so acquired are included in the Borrowing Base
(subject to the other applicable provisions of this
Agreement).
SECTION 11.5 Capital Expenditures. Make or incur any Capital
Expenditures (excluding Financed Capex and expenditures pursuant to SECTION
11.4) in the aggregate in excess of $12,000,000 for any Fiscal Year, PROVIDED
that any amount of such allowance not used in a Fiscal Year may be carried
forward, but only to the succeeding Fiscal Year.
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SECTION 11.6 Restricted Distributions and Payments, Etc.
Declare or make any Restricted Distribution or Restricted Payment in any Fiscal
Year which, when added to all other Restricted Distributions and Restricted
Payments made in the same Fiscal Year of Heafner, would exceed $2,000,000;
PROVIDED, that Restricted Payments shall not include any non-compete, bonus or
"earn-out" payments payable (i) to the former stockholders of CPW pursuant to
agreements in effect on the Effective Date or (ii) in connection with an
Acquisition by Heafner or any other Loan Party after the Effective Date that is
permitted under SECTION 11.4(A).
SECTION 11.7 Merger, Consolidation and Sale of Assets. Merge
or consolidate with any other Person or sell, lease or transfer or otherwise
dispose of all or a substantial portion of its assets to any Person other than
sales of Inventory in the ordinary course of business, EXCEPT that any Loan
Party may merge with and into another Loan Party (provided that Heafner shall be
the surviving corporation of any merger to which it is a party) and, subject to
the provisions of SECTION 11.4(B), any Subsidiary may merge into a Loan Party
with such Loan Party as the surviving corporation.
SECTION 11.8 Transactions with Affiliates. Except as described
on SCHEDULE 11.8, effect any transaction with any Affiliate on a basis less
favorable to a Loan Party than would be the case if such transaction had been
effected with a Person not an Affiliate.
SECTION 11.9 Liens. Create, assume or permit or suffer to
exist or to be created or assumed any Lien on any of the Collateral or its other
assets, other than Liens listed in CLAUSES (A) through (I) of the definition
"Permitted Liens" and (a) Liens securing Acquired Debt, which Liens affect
solely capital or fixed assets (and not Receivables or Inventory or proceeds
thereof) of the Business Unit Acquired, existing on the date of the related
Acquisition and not created in contemplation thereof, and (b) Purchase Money
Liens (including Capitalized Lease Obligations) securing Debt otherwise
permitted pursuant to SECTION 11.2.
SECTION 11.10 Sales and Leasebacks. Enter into any arrangement
with any Person providing for a Loan Party's leasing from such Person any real
or personal property which has been or is to be sold or transferred, directly or
indirectly, by a Loan Party to such Person, if the associated Attributable Debt,
when added to all other outstanding Attributable Debt, would exceed $15,000,000.
SECTION 11.11 Amendments of Other Agreements. Amend the
interest rate or principal amount or schedule of payments of principal and
interest with respect to any Debt (other than the Secured Obligations) or any
dividend rate or redemption schedule, applicable to any preferred stock of a
Borrower, other than to reduce the interest or dividend rate or to extend any
such schedule of payments or redemption schedule, or amend or cause or permit to
be amended in any material respect or in any respect that may be adverse to the
interests of the Administrative Agent or the Lenders, (i) the KS Preferred Stock
Purchase Agreement, (ii) the Senior Note Indenture, or (iii) the articles or
certificate of incorporation of any Loan Party.
SECTION 11.12 Commingling. Commingle or permit the commingling
of Collateral or proceeds of Collateral with other property of or under the
control of any of Heafner or any of its Subsidiaries that is not Collateral or
proceeds thereof.
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ARTICLE 12
DEFAULT
SECTION 12.1 Events of Default. Each of the following shall
constitute an Event of Default, whatever the reason for such event and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment or order of any court or any order, rule or regulation
of any governmental or nongovernmental body:
(a) Default in Payment. The Borrowers shall default in any
payment of principal of or interest on any Loan or any Note when and as due
(whether at maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. The Borrowers shall default in the
payment, as and when due, of principal of or interest on, any other Secured
Obligation, and such default shall continue for a period of 10 days after
written notice thereof has been given to the Borrowers by the Administrative
Agent.
(c) Misrepresentation. Any representation or warranty made or
deemed to be made by the Borrowers under this Agreement or any Loan Document, or
any amendment hereto or thereto, shall at any time prove to have been incorrect
or misleading in any material respect when made.
(d) Default in Performance. The Borrowers shall default in the
performance or observance of any term, covenant, condition or agreement to be
performed by the Borrowers, contained in
(i) ARTICLES 8 (other than SECTIONS 8.3 and 8.4(A))
or 11, or SECTIONS 9.1 (insofar as it requires the
preservation of the corporate existence of the Borrowers),
9.8, 10.1, 10.2 OR 10.3, and the Administrative Agent shall
have delivered to the Borrowers written notice of such
default, or
(ii) this Agreement (other than as specifically
provided for otherwise in this SECTION 12.1) and such default
shall continue for a period of 30 days after written notice
thereof has been given to the Borrowers by the Administrative
Agent.
(e) Debt Cross-Default.
(i) A Borrower or any Subsidiary shall fail to pay
when due and payable (and within any applicable cure or grace
period) the principal of or interest on any Debt (other than
the Loans) in an amount in excess of $5,000,000, or
(ii) the maturity of any such Debt outstanding in a
principal amount greater than $5,000,000 shall have (A) been
accelerated in accordance with the provisions of any
indenture, contract or instrument providing for the creation
of or concerning such Indebtedness, or (B) been required to be
prepaid prior to the stated maturity thereof, including,
without being limited to, upon a "Change of Control" as
defined in the Senior Note Indenture, or
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(iii) any event shall have occurred and be continuing
which would permit any holder or holders of such Debt
outstanding in an amount in excess of $5,000,000, any trustee
or agent acting on behalf of such holder or holders or any
other Person so to accelerate such maturity, and the Borrowers
shall have failed to cure such default prior to the expiration
of any applicable cure or grace period.
(f) Other Cross-Defaults; Mandatory Redemption. A Borrower or
any Subsidiary shall default in the payment when due, or in the performance or
observance, of any obligation or condition of any agreement, contract or lease
(other than this Agreement, the Security Documents or any such agreement,
contract or lease relating to Debt), if the existence of any such defaults,
singly or in the aggregate, could reasonably be expected to have a Materially
Adverse Effect, PROVIDED, that for the purposes of this provision, where such a
default could result only in a monetary loss, a Materially Adverse Effect shall
not be deemed to have occurred unless the aggregate of such losses would exceed
$5,000,000, or any event shall occur or circumstances exist that would result in
or permit the holder thereof to require the redemption of the KS Preferred.
(g) Voluntary Bankruptcy Proceeding. A Borrower or any
Subsidiary shall
(i) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect),
(ii) file a petition seeking to take advantage of any
other laws, domestic or foreign, relating to bankruptcy,
insolvency, reorganization, winding up or composition for
adjustment of debts,
(iii) consent to or fail to contest in a timely and
appropriate manner any petition filed against it in an
involuntary case under such bankruptcy laws or other laws,
(iv) apply for or consent to, or fail to contest in a
timely and appropriate manner, the appointment of, or the
taking of possession by, a receiver, custodian, trustee, or
liquidator of itself or of a substantial part of its property,
domestic or foreign,
(v) admit in writing its inability to pay its debts
as they become due,
(vi) make a general assignment for the benefit of
creditors, or
(vii) take any corporate action for the purpose of
authorizing any of the foregoing.
(h) Involuntary Bankruptcy Proceeding. A case or other
proceeding shall be commenced against a Borrower or any Subsidiary in any court
of competent jurisdiction seeking
(i) relief under the federal bankruptcy laws (as now
or hereafter in effect) or under any other laws, domestic or
foreign, relating to bankruptcy, insolvency, reorganization,
winding up or adjustment of debts,
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(ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of a Borrower, any
Subsidiary or of all or any substantial part of the assets,
domestic or foreign, of a Borrower or any Subsidiary,
and such case or proceeding shall continue undismissed or unstayed for a period
of 60 consecutive calendar days, or an order granting the relief requested in
such case or proceeding against such Borrower or Subsidiary (including, but not
limited to, an order for relief under such federal bankruptcy laws) shall be
entered.
(i) Loan Documents. Any "Event of Default" under any Loan
Document (other than this Agreement) shall occur or a Borrower shall default in
the performance or observance of any material term, covenant, condition or
agreement contained in, or the payment of any other sum covenanted to be paid by
the Borrowers under, any Loan Document (other than this Agreement) that does not
expressly provide for "Events of Default," or any provision thereof (in each
case, after giving effect to any applicable grace or cure period), other than
any nonmaterial provision rendered unenforceable by operation of law, shall
cease to be valid and binding.
(j) Failure of Agreements. A Loan Party shall challenge the
validity and binding effect of any provision of any Loan Document after delivery
thereof hereunder or shall state in writing its intention to make such a
challenge, or any Security Document, after delivery thereof hereunder, shall for
any reason (except to the extent permitted by the terms thereof) cease to create
a valid and perfected first priority Lien (except for Permitted Liens) on, or
security interest in, any of the Collateral purported to be covered thereby.
(k) Judgment. A final, unappealable judgment or order for the
payment of money in an amount that exceeds the uncontested insurance available
therefor by $2,500,000 or more shall be entered against a Borrower by any court
and such judgment or order shall continue undischarged or unstayed for 30 days.
(l) Attachment. A warrant or writ of attachment or execution
or similar process which exceeds $2,500,000 in value shall be issued against any
property of a Borrower and such warrant or process shall continue undischarged
or unstayed for 30 days.
(m) ERISA. In addition to the breach of any other
representation and warranty, any ERISA Event with respect to a Benefit Plan
shall occur.
(n) Qualified Audits. The independent certified public
accountants retained by Heafner shall refuse to deliver an opinion in accordance
with SECTION 10.1(A) with respect to the annual consolidated financial
statements of Heafner and its Consolidated Subsidiaries.
(o) Change of Control. Heafner shall cease to own, directly or
indirectly, 100% of the issued and outstanding stock of each other Loan Party or
a "Change of Control" for purposes of the Senior Note Indenture, the Class B
Stock or the Warrant shall occur.
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SECTION 12.2 Remedies.
(a) Automatic Acceleration and Termination of Facilities. Upon
the occurrence of an Event of Default specified in SECTION 12.1(G) or (H), (i)
the principal of and the interest on the Loans and any Note at the time
outstanding, and all other amounts owed to the Administrative Agent or the
Lenders under this Agreement or any of the other Loan Documents and all other
Secured Obligations, shall thereupon become due and payable without presentment,
demand, protest, or other notice of any kind, all of which are expressly waived,
anything in this Agreement or any of the Loan Documents to the contrary
notwithstanding, and (ii) the Commitments and the right of the Borrowers to
request Borrowings under this Agreement shall immediately terminate.
(b) Other Remedies. If any Event of Default shall have
occurred, and during the continuance of any Event of Default, the Administrative
Agent may, and at the direction of the Required Lenders in their sole and
absolute discretion shall, do any of the following:
(i) declare the principal of and interest on the
Loans and any Note at the time outstanding, and all other
amounts owed to the Administrative Agent or the Lenders under
this Agreement or any of the other Loan Documents and all
other Secured Obligations, to be forthwith due and payable,
whereupon the same shall immediately become due and payable
without presentment, demand, protest or other notice of any
kind, all of which are expressly waived, anything in this
Agreement or the Loan Documents to the contrary
notwithstanding;
(ii) terminate the Commitments and any other right of
the Borrowers to request borrowings hereunder;
(iii) notify, or request the Borrowers to notify, in
writing or otherwise, any Account Debtor or obligor with
respect to any one or more of the Receivables to make payment
to the Administrative Agent, for the benefit of the Lenders,
or any agent or designee of the Administrative Agent, at such
address as may be specified by the Administrative Agent and
if, notwithstanding the giving of any notice, any Account
Debtor or other such obligor shall make payments to the
Borrowers, the Borrowers shall hold all such payments received
in trust for the Administrative Agent, for the account of the
Lenders, without commingling the same with other funds or
property of, or held by, the Borrowers, and shall deliver the
same to the Administrative Agent or any such agent or designee
of the Administrative Agent immediately upon receipt by the
Borrowers in the identical form received, together with any
necessary endorsements;
(iv) settle or adjust disputes and claims directly
with Account Debtors and other obligors on Receivables for
amounts and on terms which the Administrative Agent considers
advisable and in all such cases only the net amounts received
by the Administrative Agent, for the account of the Lenders,
in payment of such amounts, after deductions of costs and
attorneys' fees, shall constitute Collateral and the Borrowers
shall have no further right to make any such settlements or
adjustments or to accept any returns of merchandise;
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(v) enter upon any premises in which Inventory may be
located and, without resistance or interference by the
Borrowers, take physical possession of any or all thereof and
maintain such possession on such premises or move the same or
any part thereof to such other place or places as the
Administrative Agent shall choose, without being liable to the
Borrowers on account of any loss, damage or depreciation that
may occur as a result thereof, so long as the Administrative
Agent shall act reasonably and in good faith;
(vi) require the Borrowers to and the Borrowers
shall, without charge to the Administrative Agent or any
Lender, assemble the Inventory and maintain or deliver it into
the possession of the Administrative Agent or any agent or
representative of the Administrative Agent at such place or
places as the Administrative Agent may designate and as are
reasonably convenient to both the Administrative Agent and the
applicable Borrower;
(vii) at the expense of the Borrowers, cause any of
the Inventory to be placed in a public or field warehouse, and
the Administrative Agent shall not be liable to the Borrowers
on account of any loss, damage or depreciation that may occur
as a result thereof, so long as the Administrative Agent shall
act reasonably and in good faith;
(viii) without notice, demand or other process, and
without payment of any rent or any other charge, enter any of
the Borrowers' premises and, without breach of the peace,
until the Administrative Agent, on behalf of the Lenders,
completes the enforcement of its rights in the Collateral,
take possession of such premises or place custodians in
exclusive control thereof, remain on such premises and use the
same and any of the Borrowers' equipment, for the purpose of
(A) completing any work in process, preparing any Inventory
for disposition and disposing thereof, and (B) collecting any
Receivable, and the Administrative Agent for the benefit of
the Lenders is hereby granted a license or sublicense and all
other rights as may be necessary, appropriate or desirable to
use the Proprietary Rights in connection with the foregoing,
and the rights of the Borrowers under all licenses,
sublicenses and franchise agreements shall inure to the
Administrative Agent for the benefit of the Lenders (PROVIDED,
HOWEVER, that any use of any federally registered trademarks
as to any goods shall be subject to the control as to the
quality of such goods of the owner of such trademarks and the
goodwill of the business symbolized thereby);
(ix) exercise any and all of its rights under any and
all of the Security Documents;
(x) apply any Collateral consisting of cash to the
payment of the Secured Obligations in any order in which the
Administrative Agent, on behalf of the Lenders, may elect or
use such cash in connection with the exercise of any of its
other rights hereunder or under any of the Security Documents;
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(xi) establish or cause to be established one or more
Lockboxes or other arrangement for the deposit of proceeds of
Receivables, and, in such case, the Borrowers shall cause to
be forwarded to the Administrative Agent at the Administrative
Agent's Office, on a daily basis, copies of all checks and
other items of payment and deposit slips related thereto
deposited in such Lockboxes, together with collection reports
in form and substance satisfactory to the Administrative
Agent; and
(xii) exercise all of the rights and remedies of a
secured party under the UCC and under any other Applicable
Law, including, without limitation, the right, without notice
except as specified below and with or without taking
possession thereof, to sell the Collateral or any part thereof
in one or more parcels at public or private sale, at any
location chosen by the Administrative Agent, for cash, on
credit or for future delivery, and at such price or prices and
upon such other terms as the Administrative Agent may deem
commercially reasonable. Each Borrower agrees that, to the
extent notice of sale shall be required by law, at least 10
days' notice to the Borrowers of the time and place of any
public sale or the time after which any private sale is to be
made shall constitute reasonable notification, but notice
given in any other reasonable manner or at any other
reasonable time shall constitute reasonable notification. The
Administrative Agent shall not be obligated to make any sale
of Collateral regardless of notice of sale having been given.
The Administrative Agent may adjourn any public or private
sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
SECTION 12.3 Application of Proceeds. All proceeds from each
sale of, or other realization upon, all or any part of the Collateral following
an Event of Default shall be applied or paid over in accordance with the
provisions of SECTION 4.16.
THE BORROWERS SHALL REMAIN LIABLE AND WILL PAY, ON DEMAND, ANY DEFICIENCY
REMAINING IN RESPECT OF THE SECURED OBLIGATIONS, TOGETHER WITH INTEREST THEREON
AT A RATE PER ANNUM EQUAL TO THE HIGHEST RATE THEN PAYABLE HEREUNDER ON SUCH
SECURED OBLIGATIONS, WHICH INTEREST SHALL CONSTITUTE PART OF THE SECURED
OBLIGATIONS.
SECTION 12.4 Power of Attorney. In addition to the
authorizations granted to the Administrative Agent under SECTION 9.13 or under
any other provision of this Agreement or of any other Loan Document, during the
continuance of an Event of Default, each Borrower hereby irrevocably designates,
makes, constitutes and appoints the Administrative Agent (and all Persons
designated by the Administrative Agent from time to time) as the Borrower's true
and lawful attorney, and agent in fact, and the Administrative Agent, or any
agent of the Administrative Agent, may, without notice to the Borrowers, and at
such time or times as the Administrative Agent or any such agent in its sole
discretion may determine, in the name of a Borrower, the Administrative Agent or
the Lenders,
(a) demand payment of the Receivables,
(b) enforce payment of the Receivables by legal proceedings or
otherwise,
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(c) exercise all of any Borrower's rights and remedies with
respect to the collection of Receivables,
(d) settle, adjust, compromise, extend or renew any or all of
the Receivables,
(e) settle, adjust or compromise any legal proceedings brought
to collect the Receivables,
(f) discharge and release the Receivables or any of them,
(g) prepare, file and sign the name of a Borrower on any proof
of claim in bankruptcy or any similar document against any Account Debtor,
(h) prepare, file and sign the name of a Borrower on any
notice of Lien, assignment or satisfaction of Lien, or similar document in
connection with any of the Collateral,
(i) endorse the name of a Borrower upon any chattel paper,
document, instrument, notice, freight bill, bill of lading or similar document
or agreement relating to the Receivables, the Inventory or any other Collateral,
(j) use the stationery of the Borrowers and sign the names of
the Borrowers to verifications of the Receivables and on any notice to the
Account Debtors,
(k) open the Borrowers' mail,
(l) notify the post office authorities to change the address
for delivery of the Borrowers' mail to an address designated by the
Administrative Agent, and
(m) use the information recorded on or contained in any data
processing equipment and computer hardware and software relating to the
Receivables, Inventory or other Collateral to which any Borrower has access.
SECTION 12.5 Miscellaneous Provisions Concerning Remedies.
(a) Rights Cumulative. The rights and remedies of the
Administrative Agent and the Lenders under this Agreement, the Notes and each of
the Loan Documents shall be cumulative and not exclusive of any rights or
remedies which it or they would otherwise have. In exercising such rights and
remedies the Administrative Agent and the Lenders may be selective and no
failure or delay by the Administrative Agent or any Lender in exercising any
right shall operate as a waiver of it, nor shall any single or partial exercise
of any power or right preclude its other or further exercise or the exercise of
any other power or right.
(b) Waiver of Marshalling. Each Borrower hereby waives any
right to require any marshalling of assets and any similar right.
(c) Limitation of Liability. Nothing contained in this ARTICLE
12 or elsewhere in this Agreement or in any of the Loan Documents shall be
construed as requiring or obligating the Administrative Agent, any Lender or any
agent or designee of the Administrative Agent or
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any Lender to make any demand, or to make any inquiry as to the nature or
sufficiency of any payment received by it, or to present or file any claim or
notice or take any action, with respect to any Receivable or any other
Collateral or the monies due or to become due thereunder or in connection
therewith, or to take any steps necessary to preserve any rights against prior
parties, and the Administrative Agent, the Lenders and their agents or designees
shall have no liability to the Borrowers for actions taken pursuant to this
ARTICLE 12, any other provision of this Agreement or any of the Loan Documents
so long as the Administrative Agent or such Lender shall act in good faith and
in a commercially reasonable manner.
(d) Appointment of Receiver. In any action under this ARTICLE
12, the Administrative Agent shall be entitled during the continuance of an
Event of Default, to the fullest extent permitted by Applicable Law, to the
appointment of a receiver, without notice of any kind whatsoever, to take
possession of all or any portion of the Collateral and to exercise such power as
the court shall confer upon such receiver.
SECTION 12.6 Trademark License. Each Borrower hereby grants to
the Administrative Agent for its benefit as Administrative Agent and for the
benefit of the Lenders, the nonexclusive right and license to use its trademarks
for the purposes set forth in SECTION 12.2(B)(VIII) and for the purpose of
enabling the Administrative Agent to realize on the Collateral and to permit any
purchaser of any portion of the Collateral through a foreclosure sale or any
other exercise of the Administrative Agent's rights and remedies under this
Agreement and the other Security Documents to use, sell or otherwise dispose of
the Collateral bearing any such trademark. Such right and license is granted
free of charge, without the requirement that any monetary payment whatsoever be
made to the Borrowers or any other Person by the Lenders or the Administrative
Agent or any purchaser or purchasers of the Collateral. The Borrowers hereby
represent, warrant, covenant and agree that they presently have, and shall
continue to have, the right, without the approval or consent of others, to grant
the license set forth in this SECTION 12.6.
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ARTICLE 13
ASSIGNMENTS
SECTION 13.1 Successors and Assigns; Participations.
(a) This Agreement shall be binding upon and inure to the
benefit of the Borrowers, the Lenders, the Administrative Agent, all future
holders of the Notes, and their respective successors and assigns, except that
the Borrowers may not assign or transfer any of their rights or obligations
under this Agreement without the prior written consent of each Lender.
(b) Each Lender may with the consent of the Administrative
Agent and, so long as no Default or Event of Default has occurred and is
continuing, Heafner (which consent shall not be unreasonably withheld) assign to
one or more Eligible Assignees all or a portion of its interests, rights and
obligations under this Agreement (including, without limitation, all or a
portion of the Loans at the time owing to it and the Notes held by it) (PROVIDED
that no consent shall be required with respect to any assignment to an Eligible
Assignee as part of the assigning Lender's transfer of all or substantially all
of its assets of a similar type in connection with any acquisition or
divestiture or otherwise); PROVIDED, HOWEVER, that (i) each such assignment
shall be of a constant, and not a varying, percentage of all the assigning
Lender's rights and obligations under this Agreement, (ii) the amount of the
Commitment of the assigning Lender that is 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 in no event be less
than the Minimum Commitment (or the assigning Lender's entire remaining
Commitment, if less) (except that a Lender may assign less than the Minimum
Commitment to its Affiliate), (iii) in the case of a partial assignment, the
amount of the Commitment that is retained by the assigning Lender (determined as
of the date the Assignment and Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall in no event be less than the
Minimum Commitment, (iv) the parties to each such assignment shall execute and
deliver to the Administrative Agent, for its acceptance and recording in the
Register an Assignment and Acceptance, together with any Note or Notes subject
to such assignment and an assignment fee in the amount of $2,500, (v) such
assignment shall not, without the consent of the Borrowers, require the
Borrowers to file a registration statement with the Securities and Exchange
Commission or apply to or qualify the Loans or the Notes under the blue sky laws
of any state, and (vi) the representation contained in SECTION 13.2 hereof shall
be true with respect to any such proposed assignee. Upon such execution,
delivery, acceptance and recording, from and after the effective date specified
in each Assignment and Acceptance, which effective date shall be at least five
Business Days after the execution thereof, (A) the assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder, and (B) the Lender
assignor thereunder shall, to the extent provided in such assignment, be
released from its obligations under this Agreement.
(c) By executing and delivering an Assignment and Acceptance,
the Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than the
representation and warranty that it is the legal and beneficial owner of the
interest being assigned thereby free and clear of any adverse claim, such Lender
assignor makes no representation or warranty and assumes no responsibility with
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respect to any statements, warranties or representations made in or in
connection with this Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any other
instrument or document furnished pursuant hereto; (ii) such Lender assignor
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of the Borrowers or the performance or observance by
the Borrowers of any of their obligations under this Agreement or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of the
financial statements referred to in SECTION 6.1(N) and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Administrative Agent, such Lender
assignor or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Administrative Agent by the terms hereof and thereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees that
it will perform in accordance with their terms all of the obligations which by
the terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain 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 and Proportionate
Share of, and principal amount of the Loans and owing to, each Lender from time
to time (the "Register"). The entries in the Register shall be conclusive, in
the absence of manifest error, and the Borrowers, the Administrative Agent and
the Lenders may treat each person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrowers or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender and an Eligible Assignee together with any Note or Notes
and evidence satisfactory to the Administrative Agent of the Borrowers' consent
thereto (if applicable), subject to such assignment, the Administrative Agent
shall, if such Assignment and Acceptance has been completed and is in the form
of EXHIBIT C, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register, (iii) give prompt notice thereof
to the Lenders and the Borrowers, and (vi) promptly deliver a copy of such
Acceptance and Assignment to the Borrowers. Within five Business Days after
receipt of notice, the Borrowers shall execute and deliver to the Administrative
Agent in exchange for the surrendered Note or Notes a new Note or Notes to the
order of such Eligible Assignee in amounts equal to the Commitment assumed by
such Eligible Assignee pursuant to such Assignment and Acceptance and a new Note
or Notes to the order of the assigning Lender in an amount equal to the
Commitment retained by it hereunder. Such new Note or Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered Note or Notes, shall be dated the effective date of such Assignment
and Acceptance and shall otherwise be in
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substantially the form of the assigned Notes. Each surrendered Note or Notes
shall be canceled and returned to the Borrowers.
(f) Each Lender may sell participations to one or more banks
or other entities in all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment
hereunder and the Loans owing to it and the Notes held by it); PROVIDED,
HOWEVER, that (i) each such participation (other than to a Lender's own
Affiliate) shall be in an amount not less than the Minimum Commitment, (ii) such
Lender's obligations under this Agreement (including, without limitation, its
Commitment hereunder) shall remain unchanged, (iii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iv) such Lender shall remain the holder of the Notes held by it
for all purposes of this Agreement, (v) the Borrowers, the Administrative Agent
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; PROVIDED, that such Lender may agree with any participant that such
Lender will not, without such participant's consent, agree to or approve any
waivers or amendments which would reduce the principal of or the interest rate
on any Loans, extend the term or increase the amount of the commitments of such
participant, reduce the amount of any fees to which such participant is
entitled, extend any scheduled payment date for principal or release Collateral
securing the Loans (other than Collateral disposed of pursuant to SECTION 8.7
hereof or otherwise in accordance with the terms of this Agreement or the
Security Documents), and (vi) any such disposition shall not, without the
consent of the Borrowers, require any Borrower to file a registration statement
with the Securities and Exchange Commission to apply to qualify the Loans or the
Notes under the blue sky law of any state. The Lender selling a participation to
any bank or other entity that is not an Affiliate of such Lender shall give
prompt notice thereof to the Administrative Agent, the other Lenders and the
Borrowers.
(g) Any Lender may, in connection with any assignment,
proposed assignment, participation or proposed participation pursuant to this
SECTION 13.1, disclose to the assignee, participant, proposed assignee or
proposed participant, any information relating to the Borrowers furnished to
such Lender by or on behalf of the Borrowers, PROVIDED that, prior to any such
disclosure, each such assignee, proposed assignee, participant or proposed
participant shall agree with the Borrowers or such Lender (which in the case of
an agreement with only such Lender, the Borrowers shall be recognized as third
party beneficiaries thereof) to preserve the confidentiality of any confidential
information relating to the Borrowers received from such Lender.
SECTION 13.2 Representation of Lenders. Each Lender hereby
represents that it will make each Loan hereunder as a commercial loan for its
own account in the ordinary course of its business; PROVIDED, HOWEVER, that
subject to SECTION 13.1 hereof, the disposition of the Notes or other evidence
of the Secured Obligations held by any Lender shall at all times be within its
exclusive control.
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ARTICLE 14
AGENT
SECTION 14.1 Appointment of Administrative Agent. Each Lender
hereby irrevocably designates and appoints (1) FCC as the Administrative Agent
of such Lender and (2) Bank of America as the Syndication Agent and FUNB as the
Documentation Agent under this Agreement and the other Loan Documents, and each
Lender irrevocably authorizes the Administrative Agent, as the Administrative
Agent for such Lender, to take such action on its behalf under the provisions of
this Agreement and the other Loan Documents and to exercise such powers and
perform such duties as are expressly delegated to the Administrative Agent by
the terms of this Agreement and such other Loan Documents, including, without
limitation, to make determinations as to the eligibility of Inventory and
Receivables, to establish Additional Reserves and to adjust the advance ratios
contained in the definition of "Borrowing Base" (so long as such advance ratios,
as adjusted, do not exceed those set forth in the definition of "Borrowing Base"
as of the Agreement Date), together with such other powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary elsewhere in
this Agreement or the other Loan Documents, the Administrative Agent shall not
have any duties or responsibilities except those expressly set forth herein and
therein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or the other Loan Documents or otherwise exist
against the Administrative Agent.
SECTION 14.2 Delegation of Duties. The Administrative Agent
may execute any of its duties under this Agreement and the other Loan Documents
by or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care. The Administrative Agent
hereby appoints, authorizes and directs each Lender to act as collateral
sub-agent for the Administrative Agent for the purposes of perfecting security
interests and Liens in Collateral held by such Lender.
SECTION 14.3 Exculpatory Provisions. Neither the
Administrative Agent nor any of its trustees, officers, directors, employees,
agents, attorneys-in-fact or Affiliates shall be (i) liable to any Lender (or
any Lender's participants) for any action lawfully taken or omitted to be taken
by it or such Person under or in connection with this Agreement or the other
Loan Documents (except for its or such Person's, as the case may be, own gross
negligence or willful misconduct), or (ii) responsible in any manner to any
Lender (or any Lender's participants) for any recitals, statements,
representations or warranties made by the Borrowers or any of its Subsidiaries,
any Affiliate thereof or any other Person or any officer thereof contained in
this Agreement or the other Loan Documents or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Administrative Agent under or in connection with, this Agreement or the other
Loan Documents or for the existence, value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or the other Loan
Documents or any Collateral or the Security Interest or other Lien or other
interest therein or for any failure of the Borrowers, or any Subsidiary of the
Borrower or any Affiliate of the Borrowers to perform its obligations hereunder
or thereunder. The Administrative Agent shall
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not be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement, or to inspect the properties, books or records of the
Borrowers.
SECTION 14.4 Reliance by Administrative Agent. The
Administrative Agent shall be entitled to rely, and shall be fully protected in
relying, upon any Note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrowers), independent accountants and other experts
selected by the Administrative Agent. The Administrative Agent may deem and
treat the payee of any Note as the owner thereof for all purposes unless such
Note shall have been transferred in accordance with SECTION 13.1. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement and the other Loan Documents unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate and shall be indemnified to its satisfaction by the Lenders against
any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action. The Administrative Agent shall in
all cases be fully protected in acting, or in refraining from acting, under this
Agreement and the Notes in accordance with a request of the Required Lenders (or
all Lenders if such action or inaction would have the effect of amending or
waiving a breach of any provision of this Agreement that only all the Lenders
may amend or waive in accordance with the provisions of SECTION 15.9(B)), and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders and all future holders of the Notes.
SECTION 14.5 Notice of Default. The Administrative Agent shall
not be deemed to have knowledge or notice of the occurrence of any Default or
Event of Default hereunder unless the Administrative Agent has received notice
from a Lender or the Borrowers referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice, the
Administrative Agent shall promptly give notice thereof to the Lenders. The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be directed by the Required Lenders; PROVIDED that
unless and until the Administrative Agent shall have received such directions,
the Administrative Agent may (but shall not be obligated to) continue making
Loans to the Borrowers on behalf of the Lenders in reliance on the provisions of
SECTION 4.7 and take such other action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable and in
the best interests of the Lenders.
SECTION 14.6 Non-Reliance on Administrative Agent and Other
Lenders. Each Lender expressly acknowledges that none of the Administrative
Agent, the Syndication Agent nor the Documentation Agent nor any of their
respective officers, directors, counsel, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it and that no act by
the Administrative Agent, the Syndication Agent or the Documentation Agent
hereafter taken, including any review of the affairs of the Borrowers, any
Subsidiary or any Affiliate of the Borrowers, shall be deemed to constitute any
representation or warranty by the Administrative Agent, the Syndication Agent or
the Documentation Agent to any Lender. Each Lender represents to the
Administrative Agent, the Syndication Agent and the Documentation
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Agent that it has, independently and without reliance upon the Administrative
Agent, the Syndication Agent or the Documentation Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property,
financial (and other) condition and creditworthiness of the Borrowers and the
Subsidiaries, and made its own decision to make its Loans hereunder and enter
into this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Administrative Agent or any Co-Agent or any other
Lender, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit analysis, appraisals and decisions
in taking or not taking action under this Agreement and the other Loan
Documents, and to make such investigation as it deems necessary to inform itself
as to the business, operations, property, financial (and other) condition and
creditworthiness of the Borrowers and the Subsidiaries. Except for notices,
reports and other documents expressly required to be furnished to the Lenders by
the Administrative Agent hereunder or under the other Loan Documents none of the
Administrative Agent, the Syndication Agent nor the Documentation Agent shall
have any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, financial (and other)
condition or creditworthiness of the Borrowers or the Subsidiaries or the
Affiliates of the Borrowers which may come into the possession of the
Administrative Agent, the Syndication Agent or the Documentation Agent or any of
their respective officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
SECTION 14.7 Indemnification.
(a) The Lenders agree to indemnify the Administrative Agent in
its capacity as such (to the extent not reimbursed by the Borrowers and without
limiting the obligation of the Borrowers or any other Person to do so), Ratably
according to their respective Commitment Percentages, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, attorneys' fees, costs, expenses or disbursements of any kind whatsoever
which may at any time (including, without limitation, at any time following the
payment of the Notes) be imposed on, incurred by or asserted against the
Administrative Agent in any way relating to or arising out of this Agreement or
the other Loan Documents, or any documents contemplated by or referred to herein
or therein or the transactions contemplated hereby or thereby or any action
taken or omitted by the Administrative Agent under or in connection with any of
the foregoing; PROVIDED that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, attorneys' fees, costs, expenses or disbursements resulting
from the Administrative Agent's gross negligence or willful misconduct or
resulting solely from transactions or occurrences that occur at a time after
such Lender has assigned all of its interests, rights and obligations under this
Agreement pursuant to SECTION 13.1 or, in the case of a Lender to which an
assignment is made hereunder pursuant to SECTION 13.1, at a time before such
assignment. The agreements in this SECTION 14.7 shall survive the payment of the
Notes, the Secured Obligations and all other amounts payable hereunder and the
termination of this Agreement.
(b) Without limiting the generality of the foregoing
provisions of this SECTION 14.7, if the Administrative Agent should be sued by
any receiver, trustee in bankruptcy, debtor-in-possession or other Person on
account of any alleged preference or fraudulent transfer received or alleged to
have been received from the Borrowers, any Subsidiary or any other
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Person as the result of any transaction under the Loan Documents, then any
monies paid by the Administrative Agent in settlement or satisfaction of such
suit, together with all costs and expenses (including attorneys' fees and
expenses) incurred by Administrative Agent in the defense of same, shall be
promptly reimbursed to the Administrative Agent by the Lenders to the extent of
each Lender's Proportionate Share.
(c) Further, without limiting the generality of the foregoing
provisions of this SECTION 14.7, if at any time (whether prior to or after the
Termination Date) any action or proceeding shall be brought against the
Administrative Agent by the Borrowers, any Subsidiary, or by any other Person
claiming by, through or under the Borrowers or any Subsidiary, to recover
damages for any action taken or omitted by the Administrative Agent under any of
the Loan Documents or in the performance of any rights, powers or remedies of
the Administrative Agent against the Borrowers, any Account Debtor, any
Subsidiary, the Collateral or with respect to any Loans, or to obtain any other
relief of any kind on account of any transaction between the Administrative
Agent and the Borrowers, any Subsidiary or any other Person under or in relation
to any of the Loan Documents, the Lenders agree to indemnify and hold the
Administrative Agent harmless with respect thereto and to pay to Administrative
Agent their respective Proportionate Shares of such amount as the Administrative
Agent shall be required to pay by reason of a judgment, decree or other order
entered in such action or proceeding or by reason of any compromise or
settlement agreed to by the Administrative Agent, including all interest and
costs assessed against the Administrative Agent in defending or compromising
such action, together with attorneys' fees and other legal expenses paid or
incurred by the Administrative Agent in connection therewith; PROVIDED, HOWEVER,
that no Lender shall be liable to the Administrative Agent for any of the
foregoing to the extent that they arise from the willful misconduct or gross
negligence of the Administrative Agent. In the Administrative Agent's
discretion, the Administrative Agent may also reserve for or satisfy any such
judgment, decree or order from proceeds of Collateral prior to any distributions
therefrom to or for the account of Lenders.
SECTION 14.8 Administrative Agent in Its Individual Capacity.
The institution at the time acting as the Administrative Agent and its
Affiliates may make loans to, issue or cause to be issued letters of credit to
or for the account of, accept deposits from and generally engage in any kind of
business with the Borrowers, any Subsidiary or any Affiliate of the Borrowers as
if it were not the Administrative Agent hereunder. With respect to its
Commitment, the Loans made or renewed by it and any Note issued to it and any
Letter of Credit or Letter of Credit Guarantee issued by it, such institution
shall have and may exercise the same rights and powers under this Agreement and
the other Loan Documents and shall be subject to the same obligations and
liabilities as and to the extent set forth herein and in the other Loan
Documents for any other Lender. The terms "Lenders" and "Required Lenders" or
any other term shall, unless the context clearly otherwise indicates, include
such institution in its individual capacity as a Lender or one of the Required
Lenders.
SECTION 14.9 Successor Collateral Administrative Agent.
(a) The Administrative Agent may resign as Administrative
Agent upon 30 days' notice to the Lenders and the Borrowers or may be removed by
the Lenders (other than the Lender who is also the Administrative Agent), or, if
there are more than two other Lenders by the
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Lenders whose Commitment Percentages equal at least 51% of the total Commitment
Percentage of all other Lenders; PROVIDED, HOWEVER that such resignation shall
not take effect until a successor agent has been appointed. If the
Administrative Agent shall resign as Administrative Agent under this Agreement
or be removed, then the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders and, so long as no Event of Default has occurred
and is continuing, subject to approval by Heafner (which approval shall not be
unreasonably withheld), whereupon such successor agent shall succeed to the
rights, powers and duties of the Administrative Agent, and the term
"Administrative Agent" shall mean such successor agent effective upon its
appointment, and the former Administrative Agent's rights, powers and duties as
Administrative Agent shall be terminated, without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement or any holders of the Notes. If the Required Lenders have failed
to appoint a successor Administrative Agent within 30 days of the resignation
notice given by the Administrative Agent as provided above, then the
Administrative Agent shall be entitled to appoint a successor agent from among
the Lenders, subject, so long as no Event of Default has occurred and is
continuing, to approval by Heafner (which approval shall not be unreasonably
withheld). After any retiring Administrative Agent's resignation hereunder as
Administrative Agent or the removal of any Administrative Agent, the provisions
of SECTION 14.7 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent under this Agreement.
(b) It is intended that there shall be no violation of any
Applicable Law denying or restricting the right of financial institutions to
transact business as agent in any jurisdiction. It is recognized that, in case
of litigation under any of the Loan Documents, or in case the Administrative
Agent deems that by reason of present or future laws of any jurisdiction the
Administrative Agent might be prohibited from or restricted in exercising any of
the powers, rights or remedies granted to the Administrative Agent or the
Lenders hereunder or under any of the Loan Documents or from holding title to or
a Lien upon any Collateral or from taking any other action which may be
necessary or desirable hereunder or under any of the Loan Documents, the
Administrative Agent may appoint an additional individual or institution as a
separate collateral agent or co-collateral agent which is not so prohibited from
or restricted in taking any of such actions or exercising any of such powers,
rights or remedies. If the Administrative Agent shall appoint an additional
individual or institution as a separate collateral agent or co-collateral agent
as provided above, each and every remedy, power, right, claim, demand or cause
of action intended by any of the Loan Documents to be exercised by or vested in
or conveyed to the Administrative Agent with respect thereto shall be
exercisable by and vested in such separate collateral agent or co-collateral
agent, but only to the extent necessary to enable such separate collateral agent
or co-collateral agent to exercise such powers, rights and remedies, and every
covenant and obligation necessary to the exercise thereof by such separate
collateral agent or co-collateral agent shall run to and be enforceable by
either of them. Should any instrument from the Lenders be required by the
separate collateral agent or co-collateral agent so appointed by Administrative
Agent in order more fully and certainly to vest in and confirm to him or it such
rights, powers, duties and obligations, including without limitation
indemnification of such collateral agent or co-collateral agent, any and all of
such instruments shall, on request, be executed, acknowledged and delivered by
the Lenders. In case any separate collateral agent or co-collateral agent, or a
successor to either, shall die, become incapable of acting, resign or be
removed, all the estates, properties, rights, powers, duties and obligations of
such separate collateral agent or co-collateral agent, so far as permitted by
Applicable Law, shall
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vest in and be exercised by the Administrative Agent until the appointment of a
new collateral agent or successor to such separate collateral agent or
co-collateral agent.
SECTION 14.10 Notices from Administrative Agent to Lenders.
The Administrative Agent shall promptly, upon receipt thereof, forward to each
Lender copies of any updated Schedules and of any written notices, reports or
other information supplied to it by the Borrowers or any Subsidiary (but which
such Person is not required to supply directly to the Lenders). Except to the
extent expressly provided in this Agreement or in the other Loan Documents, the
Administrative Agent shall not be obligated to deliver or disclose to any Lender
any of the Administrative Agent's internal reports, analysis or investigation or
any records or other information in its possession relating to the Borrowers or
any of the Subsidiaries or the Affiliates of the Borrowers.
SECTION 14.11 Declaring Events of Default. Upon the occurrence
of a Default, the Administrative Agent may, and at the direction of the Required
Lenders shall, give such notice or take such other action as may be required
hereunder to declare an Event of Default.
SECTION 14.12 Syndication Agent and Documentation Agent. For
avoidance of doubt, it is expressly acknowledged and agreed by the
Administrative Agent and each Lender for the benefit of each of the Syndication
Agent and the Documentation Agent that, other than any rights or obligations
explicitly reserved to or imposed upon the Syndication Agent and the
Documentation Agent under this Agreement, neither the Syndication Agent nor the
Documentation Agent, in such capacity, has any rights or obligations hereunder
nor shall the Syndication Agent or the Documentation Agent, in such capacity, be
responsible or accountable to any other party hereto for any action or failure
to act hereunder, other than in connection with such explicitly reserved rights
or such obligations and then only for claims, damages, losses (other than
consequential losses) and other liabilities arising out of such Person's own
gross negligence or willful misconduct.
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ARTICLE 15
MISCELLANEOUS
SECTION 15.1 Notices.
(a) Method of Communication. Except as specifically provided
in this Agreement or in any of the Loan Documents, all notices and the
communications hereunder and thereunder shall be in writing or by telephone
subsequently confirmed in writing. Notices in writing shall be delivered
personally or sent by certified or registered mail, postage pre-paid, or by
overnight courier, telex or facsimile transmission and shall be deemed received
in the case of personal delivery, when delivered, in the case of mailing, when
receipted for, in the case of overnight delivery, on the next Business Day after
delivery to the courier, and in the case of telex and facsimile transmission,
upon transmittal, provided that in the case of notices to the Administrative
Agent, notice shall be deemed to have been given only when such notice is
actually received by the Administrative Agent. A telephonic notice to the
Administrative Agent, as understood by the Administrative Agent, will be deemed
to be the controlling and proper notice in the event of a discrepancy with or
failure to receive a confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent
to it at the following addresses, or any other address of which all the other
parties are notified in writing by such first party:
If to the Borrowers: Heafner Tire Group, Inc.
2105 Water Ridge Parkway
Suite 500
Charlotte, North Carolina 28217
Attn: David H. Taylor
Facsimile No.: (704) 423-8987
with a copy to: J. Michael Gaither, Esq.
Heafner Tire Group, Inc.
2105 Water Ridge Parkway
Suite 500
Charlotte, North Carolina 28217
Facsimile No.: (704) 423-8987
If to the
Administrative Agent: Fleet Capital Corporation
300 Galleria Parkway
Suite 800
Atlanta, Georgia 30339
Attn: Stephen Y. McGehee
Facsimile No.: (770) 859-2483
If to a Lender: At the address of such Lender set
forth on the signature pages hereof.
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(c) Administrative Agent's Office. The Administrative Agent
hereby designates its office located at 300 Galleria Parkway, Suite 800,
Atlanta, Georgia 30339, or any subsequent office which shall have been specified
for such purpose by written notice to the Borrowers, as the office to which
payments due are to be made.
SECTION 15.2 Expenses. The Borrowers agree, jointly and
severally, to pay or reimburse on demand all costs and expenses reasonably
(other than pursuant to subsection (b) below as to which such requirement shall
not apply) incurred
(a) by or on behalf of the Administrative Agent, including,
without limitation, the reasonable fees and disbursements of counsel, in
connection with
(i) the negotiation, preparation, execution,
delivery, administration, enforcement and termination of this
Agreement and each of the other Loan Documents, whenever the
same shall be executed and delivered, including, without
limitation
(A) reasonable out-of-pocket costs and
expenses incurred in connection with the
administration and interpretation of this Agreement
and the other Loan Documents;
(B) reasonable costs and expenses of
appraisals of the Collateral;
(C) the costs and expenses of lien searches;
and
(D) taxes, fees and other charges for filing
the Financing Statements and continuations and the
costs and expenses of taking other actions to
perfect, protect, and continue the Security
Interests;
(ii) the preparation, execution and delivery of any
waiver, amendment, supplement or consent by the Administrative
Agent and the Lenders relating to this Agreement or any of the
Loan Documents;
(iii) sums paid or incurred to pay any amount or take
any action required of the Borrowers under the Loan Documents
that the Borrowers fail to pay or take;
(iv) costs of inspections and verifications of the
Collateral, including, without limitation, standard per diem
fees charged by the Administrative Agent or the Lenders,
travel, lodging, and meals for inspections of the Collateral
and the Borrowers' operations and books and records by the
Administrative Agent's and/or the Lenders' agents up to two
times per year and whenever an Event of Default exists;
(v) costs and expenses of forwarding loan proceeds,
collecting checks and other items of payment, and establishing
and maintaining each Controlled Disbursement Account, Agency
Account and Lockbox; and
(vi) costs and expenses of preserving and protecting
the Collateral; and
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(b) by or on behalf of the Administrative Agent or any Lender
in connection with
(i) consulting, after the occurrence of a Default,
with one or more Persons, including appraisers, accountants
and lawyers, concerning the value of any Collateral for the
Secured Obligations or related to the nature, scope or value
of any right or remedy of the Administrative Agent or any
Lender hereunder or under any of the Loan Documents, including
any review of factual matters in connection therewith, which
expenses shall include the fees and disbursements of such
Persons; and
(ii) costs and expenses paid or incurred to obtain
payment of the Secured Obligations, enforce the Security
Interests, sell or otherwise realize upon the Collateral, and
otherwise enforce the provisions of the Loan Documents, or to
prosecute or defend any claim in any way arising out of,
related to or connected with, this Agreement or any of the
Loan Documents, which expenses shall include the reasonable
fees and disbursements of counsel and of experts and other
consultants retained by the Administrative Agent or any
Lender.
The foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by the Borrowers. The
Borrowers hereby authorize the Administrative Agent and the Lenders to debit the
Borrowers' Loan Accounts (by increasing the principal amount of the Loans) in
the amount of any such costs and expenses owed by the Borrowers when due.
SECTION 15.3 Stamp and Other Taxes. The Borrowers will pay any
and all stamp, registration, recordation and similar taxes, fees or charges and
shall indemnify the Administrative Agent and the Lenders against any and all
liabilities with respect to or resulting from any delay in the payment or
omission to pay any such taxes, fees or charges, which may be payable or
determined to be payable in connection with the execution, delivery, performance
or enforcement of this Agreement and any of the Loan Documents or the perfection
of any rights or security interest thereunder, including, without limitation,
the Security Interest.
SECTION 15.4 Setoff. In addition to any rights now or
hereafter granted under Applicable Law and not by way of limitation of any such
rights, during the continuance of any Event of Default, each Lender, any
participant with such Lender in the Loans and each Affiliate of each Lender are
hereby authorized by the Borrowers at any time or from time to time, without
notice to the Borrowers or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness at any time held or owing by any Lender or any Affiliate of
any Lender or any participant to or for the credit or the account of the
Borrowers against and on account of the Secured Obligations irrespective or
whether or not
(a) the Administrative Agent or such Lender shall have made
any demand under this Agreement or any of the Loan Documents, or
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(b) the Administrative Agent or such Lender shall have
declared any or all of the Secured Obligations to be due and payable as
permitted by SECTION 12.2 and although such Secured Obligations shall be
contingent or unmatured.
SECTION 15.5 Consent to Advertising and Publicity. With the
prior written consent of the Borrowers, which consent shall not be unreasonably
withheld, the Administrative Agent, on behalf of the Lenders, may issue and
disseminate to the public information describing the credit accommodation
entered into pursuant to this Agreement, including the name and address of the
Borrowers, the amount, interest rate, maturity, collateral for and a general
description of the credit facilities provided hereunder and of the Borrowers'
business.
SECTION 15.6 Reversal of Payments. The Administrative Agent
and each Lender shall have the continuing and exclusive right to apply, reverse
and re-apply any and all payments to any portion of the Secured Obligations in a
manner consistent with the terms of this Agreement. To the extent the Borrowers
make a payment or payments to the Administrative Agent, for the account of the
Lenders, or any Lender receives any payment or proceeds of the Collateral for
the Borrowers' benefit, which payment(s) or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the Secured Obligations or part
thereof intended to be satisfied shall be revived and continued in full force
and effect, as if such payment or proceeds had not been received by the
Administrative Agent or such Lender.
SECTION 15.7 Injunctive Relief. The Borrowers recognize that,
in the event the Borrowers fail to perform, observe or discharge any of their
obligations or liabilities under this Agreement, any remedy at law may prove to
be inadequate relief to the Administrative Agent and the Lenders; therefore, the
Borrowers agree that if any Event of Default shall have occurred and be
continuing, the Administrative Agent and the Lenders, if the Administrative
Agent or any Lender so requests, shall be entitled to temporary and permanent
injunctive relief without the necessity of proving actual damages.
SECTION 15.8 Accounting Matters. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by the
Borrowers to determine whether they are in compliance with any covenant
contained herein, shall, unless this Agreement otherwise provides or unless
Required Lenders shall otherwise consent in writing, be performed in accordance
with GAAP.
SECTION 15.9 Amendments.
(a) Except as set forth in SUBSECTION (B) below, any term,
covenant, agreement or condition of this Agreement or any of the other Loan
Documents may be amended or waived, and any departure therefrom may be consented
to by the Required Lenders, if, but only if, such amendment, waiver or consent
is in writing signed by the Required Lenders and, in the case of an amendment
(other than an amendment described in SECTION 15.9(D)), by the
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Borrowers, PROVIDED that no such amendment, unless consented to by the
Administrative Agent, shall alter or affect the rights or responsibilities of
the Administrative Agent, and in any such event, the failure to observe, perform
or discharge any such term, covenant, agreement or condition (whether such
amendment is executed or such waiver or consent is given before or after such
failure) shall not be construed as a breach of such term, covenant, agreement or
condition or as a Default or an Event of Default. Unless otherwise specified in
such waiver or consent, a waiver or consent given hereunder shall be effective
only in the specific instance and for the specific purpose for which given. In
the event that any such waiver or amendment is requested by the Borrowers, the
Administrative Agent and the Lenders may require and charge a fee in connection
therewith and consideration thereof in such amount as shall be determined by the
Administrative Agent and the Required Lenders in their discretion.
(b) Without the prior unanimous written consent of the
Lenders,
(i) no amendment, consent or waiver shall (A) affect
the amount or extend the time of any Lender's obligation to
make Loans or (B) extend the originally scheduled time or
times of payment of the principal of any Loan or (C) alter the
time or times of payment of interest on any Loan or of any
fees payable for the account of the Lenders or (D) alter the
amount of the principal of any Loan or the rate of interest
thereon (except with respect to application of the Default
Margin under SECTION 5.1(D)) or (E) alter the amount of any
commitment fee or other fee payable hereunder for the account
of the Lenders or (F) permit any subordination of the
principal of or interest on any Loan or (G) permit the
subordination of the Security Interests in any Collateral,
(ii) no Collateral having an aggregate value greater
than $250,000 shall be released by the Administrative Agent in
any 12-month period other than as specifically permitted in
this Agreement or the Security Documents nor shall any
Collateral be released at a time when the Administrative Agent
is entitled to exercise remedies hereunder upon default, nor
shall any Borrower or material Guarantor be released from its
liability for the Secured Obligations,
(iii) except to the extent expressly provided in
SECTIONS 4.7 and 14.1, no amendment shall be made to the
definition of any of the following terms, "Applicable Margin",
"Borrowing Base" (except as otherwise expressly contemplated
hereunder) and the defined terms used in such definition,
"Eligible Assignee", "Proportionate Share", "Ratable",
"Ratable Share", "Commitment
Percentage", "Secured Obligations", or "Commitment",
(iv) none of the provisions of this SECTION 15.9, the
definitions "Lenders" or "Required Lenders", or the provisions
of ARTICLE 12 shall be amended,
(v) neither the Administrative Agent nor any Lender
shall consent to any amendment to or waiver of the
amortization, deferral or subordination provisions of any
instrument or agreement evidencing or relating to obligations
(whether or not Debt) of the Borrowers that are expressly
subordinate to any of the Secured
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Obligations if such amendment or waiver would be adverse to
the Lenders in their capacities as Lenders hereunder;
(vi) no amendment shall be made to any provision in
ARTICLE 14, and
(vii) no extension of the Termination Date shall be
effected;
PROVIDED, HOWEVER, that anything herein to the contrary notwithstanding, the
Required Lenders shall have the right to waive any Default or Event of Default
and the consequences hereunder of such Default or Event of Default provided only
that such Default or Event of Default does not arise under SECTION 12.1(G) OR
(H) or out of a breach of or failure to perform or observe any term, covenant or
condition of this Agreement or any other Loan Document (other than the
provisions of ARTICLE 12 of this Agreement) the amendment of which requires the
unanimous consent of the Lenders. The Required Lenders shall have the right,
with respect to any Default or Event of Default that may be waived by them, to
enter into an agreement with the Borrowers providing for the forbearance from
the exercise of any remedies provided hereunder or under the other Loan
Documents without thereby waiving any such Default or Event of Default.
(c) The making of Loans hereunder by the Lenders during the
existence of a Default or Event of Default shall not be deemed to constitute a
waiver of such Default or Event of Default.
(d) Notwithstanding any provision of this Agreement or the
other Loan Documents to the contrary, no consent, written or otherwise, of the
Borrowers shall be necessary or required in connection with any amendment to
ARTICLE 14 or SECTION 4.8, and any amendment to such provisions may be effected
solely by and among the Administrative Agent and the Lenders, PROVIDED that no
such amendment shall impose any obligation on the Borrowers or limit or reduce
any right granted hereunder or thereunder to the Borrowers.
SECTION 15.10 Assignment. All the provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Borrowers may not assign or
transfer any of their rights under this Agreement.
SECTION 15.11 Performance of Borrowers' Duties.
(a) The Borrowers' obligations under this Agreement and each
of the Loan Documents shall be performed by the Borrowers at their sole cost and
expense.
(b) If the Borrowers shall fail to do any act or thing which
they have covenanted to do under this Agreement or any of the Loan Documents,
the Administrative Agent, on behalf of the Lenders, may (but shall not be
obligated to) do the same or cause it to be done either in the name of the
Administrative Agent or the Lenders or in the name and on behalf of the
Borrowers, and each Borrower hereby irrevocably authorizes the Administrative
Agent so to act.
SECTION 15.12 Indemnification. The Borrowers agree to
reimburse the Administrative Agent and the Lenders for all costs and expenses,
including reasonable counsel
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fees and disbursements, incurred, and to indemnify and hold harmless the
Administrative Agent and the Lenders from and against all losses suffered by,
the Administrative Agent or any Lender in connection with
(a) the exercise by the Administrative Agent or any Lender of
any right or remedy granted to it under this Agreement or any of the Loan
Documents,
(b) any claim, and the prosecution or defense thereof, arising
out of or in any way connected with this Agreement or any of the Loan Documents,
and
(c) the collection or enforcement of the Secured Obligations
or any of them,
other than such costs, expenses and liabilities arising out of the
Administrative Agent's or any Lender's gross negligence or willful misconduct.
SECTION 15.13 All Powers Coupled with Interest. All powers of
attorney and other authorizations granted to the Administrative Agent and the
Lenders and any Persons designated by the Administrative Agent or the Lenders
pursuant to any provisions of this Agreement or any of the Loan Documents shall
be deemed coupled with an interest and shall be irrevocable so long as any of
the Secured Obligations remain unpaid or unsatisfied.
SECTION 15.14 Survival. Notwithstanding any termination of
this Agreement,
(a) until all Secured Obligations have been irrevocably paid
in full or otherwise satisfied, the Administrative Agent, for the benefit of the
Lenders, shall retain its Security Interest and shall retain all rights under
this Agreement and each of the Security Documents with respect to such
Collateral as fully as though this Agreement had not been terminated,
(b) the indemnities to which the Administrative Agent and the
Lenders are entitled under the provisions of this ARTICLE 15 and any other
provision of this Agreement and the Loan Documents shall continue in full force
and effect and shall protect the Administrative Agent and the Lenders against
events arising after such termination as well as before, and
(c) in connection with the termination of this Agreement and
the release and termination of the Security Interests, the Administrative Agent,
on behalf of itself as agent and the Lenders, may require such assurances and
indemnities as it shall reasonably deem necessary or appropriate to protect the
Administrative Agent and the Lenders against loss on account of such release and
termination, including, without limitation, with respect to credits previously
applied to the Secured Obligations that may subsequently be reversed or revoked.
SECTION 15.15 Titles and Captions. Titles and captions of
Articles, Sections and subsections in this Agreement are for convenience only,
and neither limit nor amplify the provisions of this Agreement.
SECTION 15.16 Severability of Provisions. Any provision of
this Agreement or any Loan Document which is prohibited or unenforceable in any
jurisdiction shall,
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as to such jurisdiction, be ineffective only to the extent of such prohibition
or unenforceability without invalidating the remainder of such provision or the
remaining provisions hereof or thereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 15.17 Governing Law; Waiver of Jury Trial.
(a) This Agreement and the Notes shall be governed by and
construed in accordance with the laws of the State of New York.
(b) Each 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 for the Southern District of New York, 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 court 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 Administrative Agent, any Issuing Bank, FCC as issuer of any
Letter of Credit Guarantee or any Lender may otherwise have to bring any action
or proceeding relating to this Agreement or the other Loan Documents against any
Borrower or its properties in the courts of any jurisdiction.
(c) Each Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or the other
Loan Documents 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 15.1. Nothing
in this Agreement will affect the right of any party to this Agreement to
service of process in any other manner permitted by law.
(e) Each Borrower, the Administrative Agent and each Lender
hereby knowingly, intentionally and voluntarily waive trial by jury in any
action or proceeding of any kind or nature in any court in which an action may
be commenced by or against a Borrower, the Administrative Agent or such Lender
arising out of this Agreement, the Collateral or any assignment thereof or by
reason of any other cause or dispute whatsoever between the Borrowers and the
Administrative Agent or any Lender of any kind or nature.
SECTION 15.18 Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and shall be binding upon all parties, their
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<PAGE> 125
successors and assigns, and all of which taken together shall constitute one and
the same agreement.
SECTION 15.19 Reproduction of Documents. This Agreement, each
of the Loan Documents and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by the Administrative Agent or any Lender, and
(c) financial statements, certificates and other information previously or
hereafter furnished to the Administrative Agent or any Lender, may be reproduced
by the Administrative Agent or such Lender by any photographic, photostatic,
microfilm, microcard, miniature photographic or other similar process and such
Person may destroy any original document so produced. Each party hereto
stipulates that, to the extent permitted by Applicable Law, any such
reproduction shall be as admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original shall be in
existence and whether or not such reproduction was made by the Administrative
Agent or such Lender in the regular course of business), and any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.
SECTION 15.20 Term of Agreement. This Agreement shall remain
in effect from the Agreement Date through the Termination Date and thereafter
until all Secured Obligations shall have been irrevocably paid and satisfied in
full. No termination of this Agreement shall affect the rights and obligations
of the parties hereto arising prior to such termination.
SECTION 15.21 Increased Capital. If any Lender shall have
determined that the adoption of any applicable law, rule, regulation, guideline,
directive or request (whether or not having force of law) regarding capital
requirements for banks or bank holding companies, or any change therein or in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, in each case after the Agreement Date, or compliance by
such Lender with any of the foregoing, imposes or increases a requirement by
such Lender to allocate capital resources to such Lender's Commitment to make
Loans hereunder which has or would have the effect of reducing the return on
such Lender's capital to a level below that which such Lender could have
achieved (taking into consideration such Lender's then existing policies with
respect to capital adequacy and assuming full utilization of such Lender's
capital) but for such adoption, change or compliance by any amount deemed by
such Lender to be material: (i) such Lender shall promptly after its
determination of such occurrence give notice thereof to the Borrower; and (ii)
the Borrowers shall pay to such Lender as an additional fee from time to time on
demand such amount as such Lender certifies to be the amount that will
compensate it for such reduction. A certificate of such Lender claiming
compensation under this SECTION 15.21 shall be conclusive in the absence of
manifest error. Such certificate shall set forth the nature of the occurrence
giving rise to such compensation, the additional amount or amounts to be paid to
it hereunder and the method by which such amounts were determined. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods.
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SECTION 15.22 Pro-Rata Participation.
(a) Each Lender agrees that if, as a result of the exercise of
a right of setoff, banker's lien or counterclaim or other similar right or the
receipt of a secured claim it receives any payment in respect of the Secured
Obligations, it shall promptly notify the Administrative Agent thereof (and the
Administrative Agent shall promptly notify the other Lenders). If, as a result
of such payment, such Lender receives a greater percentage of the Secured
Obligations owed to it under this Agreement than the percentage received by any
other Lender, such Lender shall purchase a participation (which it shall be
deemed to have purchased simultaneously upon the receipt of such payment) in the
Secured Obligations then held by such other Lenders so that all such recoveries
of principal and interest with respect to all Secured Obligations owed to each
Lender shall be pro rata on the basis of its respective amount of the Secured
Obligations owed to all Lenders, PROVIDED that if all or part of such
proportionately greater payment received by such purchasing Lender is thereafter
recovered by or on behalf of the Borrower from such Lender, such purchase shall
be rescinded and the purchase price paid for such participation shall be
returned to such Lender to the extent of such recovery, together with interest
thereon at the rate, if any, required to be paid on the amount recovered from
such purchasing Lender.
(b) Each Lender which receives such a secured claim shall, to
the extent practicable, exercise its rights in respect of such secured claim in
a manner consistent with the rights of the Lenders entitled under this SECTION
15.22 to share in the benefits of any recovery on such secured claim.
(c) Each Lender shall include in any arrangement or agreement
it enters into with any participant in such Lender's interests hereunder, an
undertaking by such participant substantially similar to the foregoing
SUBSECTIONS (A) and (B).
(d) The Borrowers expressly consent to the foregoing
arrangements and agree that any holder of a participation in any Secured
Obligation so purchased or otherwise acquired of which such Borrower has
received notice may exercise any and all rights of banker's lien, set-off or
counterclaim with respect to any and all monies owing by such Borrower to such
holder as fully as if such holder were a holder of such Secured Obligation in
the amount of the participation held by such holder.
SECTION 15.23 Net Payments.
(a) No Reduction for Taxes. All payments by the Borrowers
hereunder to or for the benefit of any Lender or the Administrative Agent shall
be made without setoff, counterclaim or other defense. Except as required by law
or as provided in SECTION 15.23(B), all such payments will be made free and
clear of, and without deduction or withholding for, any present or future taxes,
levies, imposts, duties, fees, assessments, or other charges of whatever nature
now or hereafter imposed by any jurisdiction or by any political subdivision or
taxing authority thereof or therein with respect to such payments (excluding any
tax imposed on or measured by the net income or profits of such Lender or the
Administrative Agent, as the case may be, pursuant to the laws of the
jurisdiction in which it is organized or in which its principal offices or the
office from which the Loans are administered may be located or to which payments
on the Loans are otherwise deemed connected for tax purposes) together with all
interest,
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penalties or similar liabilities with respect thereto (collectively, "Covered
Taxes"). Except as provided in SECTION 15.23(B), if the Borrowers shall be
required by law to deduct or withhold any Covered Taxes from any sum payable
hereunder to any Lender or the Administrative Agent, (A) the sum payable shall
be increased as may be necessary so that after making all required deductions or
withholdings of Covered Taxes (including deductions or withholdings of Covered
Taxes applicable to additional sums payable under this SECTION 15.23(A)) such
Lender or the Administrative Agent, as the case may be, receives an amount equal
to the sum it would have received had such deductions or withholdings not been
made, (B) the Borrowers shall make such deductions or withholdings, and (C) the
Borrowers shall pay the full amount so deducted or withheld to the relevant
taxing authority or other authority in accordance with Applicable Law. The
Borrowers shall furnish to the Administrative Agent within 45 days after the
date on which the payment of any Covered Taxes is due certified copies of tax
receipts evidencing such payment by the Borrowers. Except as provided in SECTION
15.23(B), the Borrowers agree to indemnify and hold harmless the Lenders and the
Administrative Agent and reimburse each of them, as the case may be, for the
amount of any Covered Taxes that are levied against or imposed on the Lenders or
the Administrative Agent and that are paid by the Lenders or the Administrative
Agent, as the case may be.
(b) Foreign Lenders. (i) Each Foreign Lender shall deliver to
the Administrative Agent and the Borrowers (A) two valid, duly completed copies
of IRS Form 1001 or 4224 or applicable successor form, as the case may be, and
any other required form, certifying in each case that such Foreign Lender is
entitled to receive payments under this Agreement or the Note(s) payable to it
without deduction or withholding of any United States federal income taxes and
(B) a valid, duly completed IRS Form W-8 or W-9 or applicable successor form, as
the case may be, to establish an exemption from United States backup withholding
tax. Each such Foreign Lender shall also deliver to the Administrative Agent and
the Borrowers two further copies of said Form 1001 or 4224 and W-8 or W-9, or
applicable successor forms, or other manner of required certification, as the
case may be, on or before the date that any such form expires or becomes
obsolete or otherwise is required to be resubmitted as a condition to obtaining
an exemption from a required withholding of United States federal income tax or
after the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrowers and the Administrative Agent, and
such extensions or renewals thereof as may reasonably be requested by the
Borrowers and the Administrative Agent.
(ii) If the forms provided by a Foreign Lender under SECTION
15.23(B)(I) at the time such Foreign Lender first becomes a party to this
Agreement indicate that such Foreign Lender is subject to a rate of United
States withholding tax in excess of zero, then withholding tax at such rate
shall be considered excluded from Covered Taxes unless and until such Foreign
Lender provides the appropriate forms certifying that a lesser rate of
withholding applies, whereupon withholding tax at such lesser rate only shall be
excluded from Covered Taxes for period governed by such forms.
(iii) For any period with respect to which a Foreign Lender
has failed to provide the Borrowers with the appropriate forms described in
Section 15.23(B)(I), such Foreign Lender shall not be entitled to
indemnification under SECTION 15.23(A) with respect to Covered Taxes imposed by
the United States by reason of such failure.
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(c) Affected Lenders. If the Borrowers are obligated to pay to
any Lender any amount under this SECTION 15.23, the Borrowers may, if no Default
or Event of Default then exists, replace such Lender with another lender
acceptable to the Administrative Agent, and such Lender hereby agrees to be so
replaced subject to the following:
(i) The obligations of the Borrowers hereunder to the
Lender to be replaced (including such increased or additional costs
incurred from the date of notice to the Borrowers of such increase or
additional costs through the date such Lender is replaced hereunder)
shall be paid in full to such Lender concurrently with such
replacement;
(ii) The replacement Lender shall be a bank or other
financial institution that is not subject to such increased costs which
caused the Borrowers' election to replace any Lender hereunder, and
each such replacement Lender shall execute and deliver to the
Administrative Agent such documentation satisfactory to the
Administrative Agent pursuant to which such replacement Lender is to
become a party hereto, conforming to the provisions of SECTION 13.1
hereof, with a Commitment equal to that of the Lender being replaced
and shall make Revolving Credit Loans in the aggregate principal amount
equal to the aggregate outstanding principal amount of the Revolving
Credit Loans of the Lender being replaced;
(iii) Upon such execution of such documents referred
to in CLAUSE (II) and repayment of the amounts referred to in CLAUSE
(I), the replacement Lender shall be a "Lender" with a Commitment as
specified hereinabove and the Lender being replaced shall cease to be a
"Lender" hereunder, except with respect to indemnification provisions
under this Agreement, which shall survive as to such replaced Lender;
(iv) The Administrative Agent shall reasonably
cooperate in effectuating the replacement of any Lender under this
SECTION 15.23, but at no time shall the Administrative Agent be
obligated to initiate any such replacement;
(v) Any Lender replaced under this SECTION 15.23
shall be replaced at the Borrowers' sole cost and expense and at no
cost or expense to the Administrative Agent or any of the Lenders; and
(vi) If the Borrowers propose to replace any Lender
pursuant to this SECTION 15.23 because the Lender seeks reimbursement
hereunder, then the Borrowers must also replace any other Lender who
seeks similar levels of reimbursement (as a percentage of such Lender's
Commitment) under such Sections.
SECTION 15.24 Effect on Effectiveness of this Agreement. From
and after the Effective Date, all references in this Agreement or in any other
Loan Document (whether delivered pursuant to this Agreement or pursuant to the
Existing Loan Agreement) to this Agreement or the "Loan Agreement," and the
words "herein," "hereof" and words of like import referring to the Existing Loan
Agreement, shall mean and be references to the Existing Loan Agreement as
amended and restated in its entirety by this Agreement and all references in
this Agreement, in any other Loan Documents (whether delivered pursuant to this
Agreement or
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pursuant to the Existing Loan Agreement) or in any Note to a "Revolving Credit
Note" and the words "hereof," "herein" and words of like import referring to any
such Note, shall mean and be references to the Second Amended and Restated
Promissory Notes in the form attached to this Agreement as EXHIBIT A-1,
appropriately completed and duly executed and delivered by the Borrowers.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers in several
counterparts all as of the day and year first written above.
BORROWERS:
HEAFNER TIRE GROUP, INC.
[CORPORATE SEAL]
Attest: By:
--------------------------------------
Donald C. Roof
President and Chief Executive Officer
- ------------------------------
J. Michael Gaither
Secretary
WINSTON TIRE COMPANY
[CORPORATE SEAL]
Attest: By:
--------------------------------------
Donald C. Roof
President and Chief Executive Officer
- ------------------------------
J. Michael Gaither
Secretary By:
--------------------------------------
David H. Taylor
Chief Financial Officer
CALIFORNIA TIRE COMPANY
[CORPORATE SEAL]
Attest: By:
--------------------------------------
Donald C. Roof
President and Chief Executive Officer
- ------------------------------
J. Michael Gaither
Secretary By:
--------------------------------------
David H. Taylor
Chief Financial Officer
<PAGE> 131
THE SPEED MERCHANT, INC.
[CORPORATE SEAL]
Attest: By:
--------------------------------------
Donald C. Roof
President and Chief Executive Officer
- ------------------------------
[Assistant] Secretary
By:
--------------------------------------
David H. Taylor
Chief Financial Officer
<PAGE> 132
FLEET CAPITAL CORPORATION, as
Administrative Agent and as
a Lender
By:_______________________________________
Name:________________________________
Title:_______________________________
Address:
Fleet Capital Corporation
300 Galleria Parkway
Suite 800
Atlanta, Georgia 30339
Attn: Stephen Y. McGehee
Facsimile No.: (770) 859-2483
BANK OF AMERICA, N.A., as Syndication
Agent and as a Lender
By:_______________________________________
Name:________________________________
Title:_______________________________
Address:
------------------------------
------------------------------
------------------------------
Attn:_________________________
Facsimile No.:________________
FIRST UNION NATIONAL BANK, as
Documentation Agent and as a
Lender
By:
---------------------------------------
John T. Trainor
Director
Address:
First Union National Bank
301 South College Street, DC-5
Charlotte, North Carolina 28288
Attn:
Facsimile No.: (704) 374-2703
<PAGE> 133
MELLON BANK, N.A., as a Lender
By:_______________________________________
Roger Attix
Vice President
Address:
------------------------------
------------------------------
------------------------------
Attn:_________________________
______________________________
Facsimile No.:________________
PNC BANK, NATIONAL ASSOCIATION, as a Lender
By:_______________________________________
Kurt Putkonen
Vice President
Address:
------------------------------
------------------------------
------------------------------
Attn:_________________________
Facsimile No.:________________
<PAGE> 134
ANNEX A
COMMITMENTS
- -----------------------------------------------------------------------------
LENDER COMMITMENT (IN $)
- -----------------------------------------------------------------------------
Fleet Capital Corporation 65,000,000
- -----------------------------------------------------------------------------
First Union National Bank 45,000,000
- -----------------------------------------------------------------------------
Bank of America, N.A. 45,000,000
- -----------------------------------------------------------------------------
Mellon Bank, N.A. 22,500,000
- -----------------------------------------------------------------------------
PNC Bank, National Association 22,500,000
- -----------------------------------------------------------------------------
TOTAL 200,000,000
- -----------------------------------------------------------------------------
<PAGE> 135
ANNEX B
PRICING MATRIX
- --------------------------------------------------------------------------------
LEVEL INTEREST COVERAGE EURODOLLAR RATE BASE RATE UNUSED COMMITMENT
RATIO LOANS LOANS FEE
- --------------------------------------------------------------------------------
Level I < 1.50:1 2.00% 0.50% 0.50%
-
- --------------------------------------------------------------------------------
> 1.50:1 and
Level II < 2.00:1 1.75% 0.25% 0.375%
-
- --------------------------------------------------------------------------------
> 2.00:1 and
Level III < 2.50:1 1.50% 0.00% 0.375%
-
- --------------------------------------------------------------------------------
Level IV > 2.50:1 1.25% 0.00% 0.25%
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.2
FLEET CAPITAL CORPORATION
Atlanta, Georgia
March 6, 2000
Heafner Tire Group, Inc.,
for itself and as the
representative of the Borrowers
under the Loan Agreement
referred to below
Charlotte, North Carolina
Second Amended and Restated
Loan and Security Agreement
dated as of March 6, 2000
Ladies and Gentlemen:
We refer to the captioned agreement (the "Loan Agreement"; terms
defined therein and not otherwise defined herein being used herein as therein
defined) to which Heafner Tire Group, Inc., certain of its Subsidiaries and the
undersigned, as Administrative Agent, are parties. This letter will memorialize
our agreement as to certain unsatisfied conditions to the effectiveness of the
Loan Agreement.
Section 5.1(a)(18) of the Loan Agreement provides that as a condition
to the effectiveness of the Loan Agreement, the Administrative Agent shall have
received evidence satisfactory to it of a valid and perfected first priority
lien (subject only to Permitted Liens) in all Collateral. As to each of Heafner,
Winston, CPW, and Cal Tire there remain of record certain financing statements
and, in the case of CPW and Winston, agreements are or may be in effect,
creating or evidencing a perfected security interest in favor of third parties
that do not constitute "Permitted Liens." The Administrative Agent and the
Lenders have nevertheless permitted the Loan Agreement to become effective as of
the date hereof, in consideration of the Borrowers' promise to cause the
releases (or, as specified, lien subordinations) detailed on Exhibit A hereto to
become effective within the time periods (if any) specified thereon.
Kindly evidence your agreement with the foregoing, your undertaking to
cause the actions detailed on Exhibit A to be completed within any time periods
specified therein and your further agreement that the Borrowers' failure to
complete said actions shall constitute an Event of Default, immediately and
without any requirement of notice or further opportunity to cure, by signing the
attached duplicate of this letter and returning it to the undersigned. Very
truly yours,
FLEET CAPITAL CORPORATION, as Administrative Agent
By ___________________________
Acknowledged and agreed this 6th day of March 2000.
HEAFNER TIRE GROUP, INC.,
for itself and as the representative of
the Borrowers under the Loan Agreement
By _____________________________
<PAGE> 2
EXHIBIT A
As to Heafner:
Record amendments related to UCC financing statements naming
Bridgestone/Firestone as secured party that correctly reflect the contractual
limitation of the Liens of such party on property of Heafner to Liens on tire
Inventory bearing its brand (no deadline).
As to Winston:
(1) Record UCC termination statements evidencing release of all Pacific Crest
Liens (no deadline), (2) within 30 days after the date of this letter, record
amendments or partial releases related to UCC financing statements naming
Pirelli Armstrong Tire Company and Yokohama Tire Corporation as secured party
that correctly reflect the contractual limitation of the Liens of these
companies on property of Winston to Liens on tire Inventory bearing their
respective brands and (3) within 45 days after the date of this letter, cause
FFCA Acquisition Corporation to release or to subordinate to the prior Liens of
the Administrative Agent thereon, its Lien on Winston Inventory (which is
located at Winston premises the acquisition of which was financed in whole or in
part by FFCA) and record the related UCC financing statement amendment or
partial release.
As to CPW:
Within 30 days (as to Pirelli) and 14 days (as to Michelin), respectively, after
the date of this letter; as to Pirelli, record amendments or partial releases
related to UCC financing statements naming Pirelli Armstrong Tire Company as
secured party that correctly reflect the contractual limitation of the Liens of
these companies on property of CPW to Liens on tire Inventory bearing its brand
and, as to Michelin, record termination statements evidencing the release of all
Michelin Liens.
As to Cal Tire:
Record amendments related to UCC financing statements naming
Bridgestone/Firestone as secured party that correctly reflect the contractual
limitation of the Liens of such party on property of Cal Tire to Liens on tire
Inventory bearing its brand (no deadline).
<PAGE> 1
EXHIBIT 10.16
HEAFNER TIRE GROUP, INC.
1999 STOCK OPTION PLAN
1. Purpose.
The purpose of the 1999 Stock Option Plan (the "Plan") of Heafner Tire
Group, Inc., a Delaware corporation (the "Company"), is to attract and retain
employees (including officers), directors and independent contractors of the
Company, or any Subsidiary or Affiliate which now exists or hereafter is
organized or acquired, and to furnish additional incentives to such persons to
enhance the value of the Company over the long term by encouraging them to
acquire a proprietary interest in the Company.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity if, at the time of granting
of an Option, (i) the Company, directly, owns at least 20% of the combined
voting power of all classes of stock of such entity or at least 20% of the
ownership interests in such entity or (ii) such entity, directly or indirectly,
owns at least 20% of the combined voting power of all classes of stock of the
Company.
(b) "Beneficiary" means the person, persons, trust or trusts
which have been designated by an Optionee in his or her most recent written
beneficiary designation filed with the Company to receive the Optionee's rights
under the Plan upon the Optionee's death, or, if there is no such designation or
no such designated person survives the Optionee, then the person, persons, trust
or trusts entitled by will or applicable law to receive such rights or, if no
such person has such right then the Optionee's executor or administrator.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" means the first to occur of any of the
following: (i) the sale (including by merger, consolidation or sale of stock of
subsidiaries or any other method) of all or substantially all of the assets of
the Company and its consolidated subsidiaries (taken as a whole) to any person
or entity not directly or indirectly controlled by the holders of at least 50%
of the Combined Voting Power of the then outstanding shares of capital stock of
the Company (excluding shares owned by employees of the Company as of the date
of determination), (ii) at any time prior to the consummation of an initial
public offering of Stock of the Company or other common stock of the Company
having the voting power to elect directors, a transaction (except pursuant to
such initial public offering) resulting in the Principal Shareholders owning,
collectively, less than 50% of the Combined Voting Power of the then outstanding
shares of capital stock of the Company (excluding shares owned by employees of
the Company as of the date of determination), (iii) at any time after the
consummation of an initial public offering of Stock of the Company or other
common stock of the Company having the voting power to elect directors, the
acquisition (except pursuant to such initial public offering) by any person or
entity (other than the Principal Shareholders) not directly or indirectly
controlled by the Company's stockholders of more than 30% of the Combined Voting
Power of the then outstanding shares of capital stock of the Company (excluding
shares owned by employees of the Company as of the date of
<PAGE> 2
determination), (iv) individuals serving as directors of the Company on the
Effective Date and who were nominated or selected to serve as directors by one
or more Principal Shareholders (together with any new directors whose election
was approved by a vote of (A) such individuals or directors whose election was
previously so approved or (B) Principal Shareholders holding a majority of the
aggregate voting power of the capital stock of the Company held by all Principal
Shareholders) cease for any reason to constitute a majority of the Board of the
Company, (v) the adoption of a plan relating to the liquidation or dissolution
of the Company in connection with an equity investment or sale or a business
combination transaction or (vi) any other event or transaction that the Board of
the Company deems to be a Change in Control.
(e) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Combined Voting Power" with respect to capital stock of
the Company means the number of votes such stock is normally entitled (without
regard to the occurrence of any contingency) to vote in an election of directors
of the Company.
(g) "Committee" means the committee, consisting of at least
two members of the Board, established by the Board to administer the Plan.
(h) "Company" means Heafner Tire Group, Inc., a corporation
organized under the laws of the State of Delaware, or any successor corporation.
(i) "Effective Date" is defined in Section 8(i).
(j) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
Board acting in its sole discretion and in good faith.
(k) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(l) "NQSO" means any Option not designated as an ISO.
(m) "Option" means a right, granted to an Optionee under
Section 6(b) of the Plan, to purchase shares of Stock, subject to the terms and
conditions of this Plan. An Option may be either an ISO or an NQSO, provided
that ISOs may be granted only to employees of the Company or a Subsidiary.
(n) "Optionee" means a person who, as an employee, director or
independent contractor of the Company, a Subsidiary or an Affiliate, has been
granted an Option.
(o) "Plan" means Heafner Tire Group, Inc. 1999 Stock Option
Plan, as amended from time to time.
(p) "Principal Shareholders" means (i) Charlesbank Equity Fund
IV, Limited Partnership and the investors in such fund, (ii) Charlesbank Equity
Fund IV G.P. Limited Partnership, (iii) Charlesbank Capital Partners, LLC (and
any other fund managed by Charlesbank
2
<PAGE> 3
Capital Partners, LLC), (iv) any investor (other than The 1818 Mezzanine Fund,
L.P.) whose investment in the Company is approved by the representative of
management on the board of the Company, (v) any new investors in the Company
designated as Principal Shareholders by Charlesbank Capital Partners, LLC within
one year of the initial investment by Charlesbank Equity Fund IV, Limited
Partnership, and (vi) any corporation, partnership, limited liability company or
other entity a majority of the capital stock or other ownership interests of
which are directly or indirectly owned by any of the foregoing.
(q) "Stock" means the Class A Common Stock, par value $.01 per
share, of the Company.
(r) "Stock Option Agreement" means any written agreement,
contract, or other instrument or document evidencing an Option.
(s) "Subsidiary" means any corporation in which the Company,
directly or indirectly, owns stock possessing 50% or more of the total combined
voting power of all classes of stock of such corporation.
(t) "Ten Percent Shareholder" means a person or persons who
own, directly or indirectly, more than 10% of the total combined voting power of
all classes of stock of the Company or any of its Subsidiaries.
3. Administration.
The Plan shall be administered by the Committee which shall consist of
a committee of not less than two persons appointed by the Board. The Committee
shall have full power to construe and interpret the Plan, to establish rules for
its administration and to grant Options. The Committee may establish rules
setting forth terms and conditions for a specified group of Options. The
Committee may act by a majority of a quorum (a quorum being a majority of the
members of such Committee) present at a called meeting or by unanimous written
consent of all of its members. All actions taken and decisions made by the Board
or the Committee pursuant to the Plan shall be binding and conclusive on all
persons interested in the Plan.
4. Eligibility.
Options may be granted in the discretion of the Committee to employees
(including officers), directors and independent contractors of the Company and
its present or future Subsidiaries and Affiliates. In determining the persons to
whom Options shall be granted and the type of Options granted (including the
number of shares to be covered by such Options), the Committee shall take into
account such factors as the Committee shall deem relevant in connection with
accomplishing the purposes of the Plan.
5. Stock Subject to the Plan.
The maximum number of shares of Stock reserved for the grant of Options
under the Plan shall be 1,103,550 shares of Stock, subject to adjustment as
provided herein. Such shares may, in whole or in part, be authorized but
unissued shares or shares that shall have been or may be reacquired by the
Company in private transactions or otherwise. The number of shares of Stock
3
<PAGE> 4
available for issuance under the Plan shall be reduced by the number of shares
of Stock subject to outstanding Options. If any shares subject to an Option are
forfeited, canceled, exchanged or surrendered or if an Option otherwise
terminates or expires without a distribution of shares to the Optionee, the
shares of Stock with respect to such Option shall, to the extent of any such
forfeiture, cancellation, exchange, surrender, termination or expiration, again
be available for Options under the Plan. In no event shall any Optionee acquire,
pursuant to any awards of Options under this Plan, more than 80% of the
aggregate number of shares of Stock reserved for awards under the Plan.
In the event of any change in corporate capitalization (including, but
not limited to, a change in the number of shares of Stock outstanding), such as
a stock split or a corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or property of
the Company, any reorganization (whether or not such reorganization comes within
the definition of such term in Section 368 of the Code) or any partial or
complete liquidation of the Company, the Committee or Board may make such
substitution or adjustments in the aggregate number and kind of shares reserved
for issuance under the Plan and the maximum limitation upon Options to be
granted to any Optionee, in the number, kind and option price of shares subject
to outstanding Options and/or such other equitable substitution or adjustments
as it may determine to be appropriate in its sole discretion; provided, however,
that the number of shares subject to any Option shall always be a whole number.
In the event of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the Board shall be authorized
to cause the Company to issue or assume stock options, whether or not in
transaction to which Section 424(a) of the Code applies, by means of
substitution of new stock options for previously issued stock options or an
assumption of previously issued stock options. In such event, the aggregate
number of shares of the Stock available for issuance under this Section 5 will
be increased to reflect such substitution or assumption.
6. Specific Terms of Options.
(a) General. Options may be granted at the discretion of the
Committee. The term of each Option shall be for such period as may be determined
by the Committee. The Committee may make rules relating to Options, and may
impose on any Option or the exercise thereof, at the date of grant or
thereafter, such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine.
(b) Options. The Committee is authorized to grant Options to
Optionees on the following terms and conditions:
(i) Type of Option. The Stock Option Agreement
evidencing the grant of an Option under the Plan shall
designate the Option as an ISO (in the event its terms, and
the individual to whom it is granted, satisfy the requirements
for ISOs under the Code), or an NQSO.
(ii) Exercise Price. The exercise price per share of
Stock purchasable under an Option shall be determined by the
Committee; provided that, in the case of an ISO, (i) such
exercise price shall be not less than the Fair Market Value of
a share of Stock on the date of grant of such Option or such
other exercise price as may be required by the Code, and (ii)
if the Optionee is a Ten Percent Shareholder,
4
<PAGE> 5
such exercise price shall not be less than 110% of the Fair
Market Value of a share of Stock on the date of grant of such
Option, in no event shall the exercise price for the purchase
of shares of Stock be less than par value and the term of the
Option shall be no more than five years. Options shall be
exercised by (i) giving written notice thereof to the Company,
and (ii) paying the exercise price. In addition to any other
method of payment which may be acceptable to the Committee, if
permitted by the Committee in its sole discretion at the time
of exercise, payment may be effected, either in whole or in
part, by the surrender to the Company of outstanding Stock.
Any Stock so surrendered shall be valued at the Fair Market
Value on the date on which such shares are surrendered.
(iii) Term and Exercisability of Options. The date on
which the Committee adopts a resolution expressly granting an
Option shall be considered the day on which such Option is
granted. Options shall be exercisable over the exercise period
(which shall not exceed ten years from the date of grant), at
such times and upon such conditions as the Committee may
determine, as reflected in the Stock Option Agreement. As a
condition to exercising any Option, the Optionee shall
exercise and deliver to the Company an agreement in
substantially the form of Exhibit A hereto or in such other
form as the Company may reasonably require.
(iv) Termination of Employment, etc. An Option may
not be exercised unless the Optionee is then in the employ or
a director of, or then maintains an independent contractor
relationship with, the Company or any Subsidiary or Affiliate
(or a company or a parent or subsidiary company of such
company issuing or assuming the Option in a transaction to
which Section 424(a) of the Code applies), and unless the
Optionee has continuously maintained any of such relationships
since the date of grant of the Option; provided that, the
Stock Option Agreement may contain provisions extending the
exercisability of Options, in the event of specified
terminations, to a date not later than the expiration date of
such Option. The Committee may establish a period during which
the Beneficiaries of an Optionee who died while an employee,
director or independent contractor of the Company or any
Subsidiary or Affiliate or during any extended period referred
to in the immediately preceding proviso may exercise those
Options which were exercisable on the date of the Optionee's
death; provided that no Option shall be exercisable after its
expiration date.
(v) Transferability. Except as otherwise provided in
this Section 6(b)(v), Options are not transferable other than
as designated by the Optionee, in his or her most recently
filed Beneficiary designation filed with the Company, or if
there is no such designation or no such designated person
survives the Optionee, as designated by the Optionee by will
or by the laws of descent and distribution, and during the
Optionee's life, may be exercised only by the Optionee.
However, an Optionee, with the approval of the Committee, may
transfer Options for no consideration to or for the benefit of
the Optionee's Immediate Family or to a partnership or limited
liability company for one or more members of the Optionee's
Immediate Family, subject to such limits as the Committee may
establish, and the transferee shall remain subject to all the
terms and conditions applicable to Options prior to such
transfer. The foregoing right to transfer Options shall apply
to the right to consent
5
<PAGE> 6
to amendments to the Stock Option Agreement and, in the
discretion of the Committee, shall also apply to the right to
transfer ancillary rights associated with Options. The term
"Immediate Family" shall mean the Optionee's spouse, parents,
children, stepchildren, adoptive relationships, sisters,
brothers, nieces, nephews and grandchildren (and, for this
purpose, shall also include the Optionee).
(vi) Other Provisions. Options may be subject to such other
conditions as the Committee may prescribe in its discretion.
7. Change in Control Provisions.
Upon a Change in Control, the treatment of each Option issued under the
Plan shall be as set forth in the applicable Stock Option Agreement. Nothing
contained herein shall prevent the substitution of a new option by the Company
after a Change in Control.
8. General Provisions.
(a) Fair Market Value of Common Stock. In determining the Fair
Market Value of the Stock for purposes of the Plan, the Board may rely on a
valuation report by an investment banking or valuation firm selected by the
Board. In the event the Stock becomes listed on any national stock exchange or
quoted on the national market quotations system, the Fair Market Value of the
Stock shall, as of any day, be the closing price for the immediately preceding
trading day.
(b) Compliance with Legal and Exchange Requirements. The Plan,
the granting and exercising of Options thereunder, and the other obligations of
the Company under the Plan and any Stock Option Agreement, shall be subject to
all applicable federal and state laws, rules and regulations, and to such
approvals by any regulatory or governmental agency as may be required. The
Company, in its discretion, may postpone the issuance or delivery of Stock under
any Option until completion of such stock exchange listing or registration or
qualification of such Stock or other required action under any state, federal or
foreign law, rule or regulation as the Company may consider appropriate, and may
require any Optionee to make such representations and furnish such information
as it may consider appropriate in connection with the issuance or delivery of
Stock in compliance with applicable laws, rules and regulations.
(c) No Right to Continued Employment, etc. Nothing in the Plan
or in any Option granted or Stock Option Agreement entered into pursuant to the
Plan shall confer upon any Optionee the right to continue in the employ of, or
to continue as a director of or an independent contractor to, the Company, any
Subsidiary or any Affiliate, as the case may be, or to be entitled to any
remuneration or benefits not set forth in the Plan or such Stock Option
Agreement or to interfere with or limit in any way the right of the Company or
any such Subsidiary or Affiliate to terminate such Optionee's employment,
directorship or independent contractor relationship.
(d) Taxes. The Company or any Subsidiary or Affiliate is
authorized to withhold from any Option granted, any payment relating to an
Option under the Plan (including from a distribution of Stock), or any other
payment to an Optionee, amounts of withholding and other taxes due in connection
with any transaction involving an Option, and to take such other action as the
Committee may deem advisable to enable the Company and an Optionee to satisfy
6
<PAGE> 7
obligations for the payment of withholding taxes and other tax obligations
relating to any Option. This authority shall include authority to withhold or
receive Stock or other property and to make cash payments in respect thereof in
satisfaction of an Optionee's tax obligations.
(e) Amendment and Termination of the Plan. The Board may at
any time and from time to time alter, amend, suspend, or terminate the Plan in
whole or in part. Notwithstanding the foregoing, no amendment shall affect
adversely any of the rights of any Optionee, without such Optionee's consent,
under any Option theretofore granted under the Plan.
(f) No Rights to Options; No Stockholder Rights. No person
shall have any claim to be granted any Option under the Plan, and there is no
obligation for uniformity of treatment of Optionees. Except as provided
specifically herein, an Optionee or a transferee of an Option shall have no
rights as a stockholder with respect to any shares covered by the Option until
the date of the issuance of a stock certificate to such Optionee for such
shares.
(g) Unfunded Status of Options. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. Nothing
contained in the Plan or any Option shall give any such Optionee any rights that
are greater than those of a general creditor of the Company.
(h) Governing Law. The Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of
North Carolina without giving effect to the conflict of laws principles thereof.
(i) Effective Date; Plan Termination. (i) The Plan shall take
effect upon its adoption by the Board (the "Effective Date"), but the Plan (and
any grants of Options made prior to the stockholder approval mentioned herein),
shall be subject to the approval of the holder(s) of a majority of the issued
and outstanding shares of voting securities of the Company entitled to vote,
which approval must occur within twelve months of the date the Plan is adopted
by the Board. In the absence of such approval, such Options shall be null and
void.
(ii) The Board may terminate the Plan at any time with respect
to any shares of Stock that are not subject to Options. Unless terminated
earlier by the Board, the Plan shall terminate ten years after the Effective
Date and no Options shall be granted under the Plan after such date. Termination
of the Plan under this Section 8(h) will not affect the rights and obligations
of any Optionee with respect to Options granted prior to termination.
7
<PAGE> 1
EXHIBIT 10.18
HEAFNER TIRE GROUP, INC.
STOCK OPTION AGREEMENT
Number of shares subject to option: [75,000]
This Agreement (the "Agreement") made this 16TH day of August, 1999,
between Heafner Tire Group, Inc., a Delaware corporation (the "Company"), and
David H. Taylor (the "Optionee").
W I T N E S S E T H:
1. Grant of Option.
Pursuant to the provisions of Heafner Tire Group, Inc. 1999 Stock
Option Plan (the "Plan"), the Company hereby grants to the Optionee, subject to
the terms and conditions of the Plan and subject further to the terms and
conditions herein set forth, the right and option (the "Option") to purchase
from the Company all or any part of an aggregate of [75,000] shares of the Class
A Common Stock, par value $0.01 per share, of the Company (the "Common Stock" or
the "Shares") at a purchase price of $9.00 per Share (the "Exercise Price"),
such Option to be exercised as hereinafter provided.
2. Terms and Conditions.
It is understood and agreed that the Option evidenced hereby is subject
to the following terms and conditions:
(a) Expiration Date. The Option shall expire on the tenth
anniversary of the date hereof (the "Expiration Date").
(b) Type of Option. This Option is eligible to be an incentive
stock option (an "Incentive Stock Option") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"); provided that to the
extent this Option does not qualify as an Incentive Stock Option under the Code,
it shall constitute a nonqualified stock option.
(c) Exercise of Option. (i) The shares subject to this Option
shall be divided into three separate pools, "Tier 1 Options," "Tier 2 Options"
and "Tier 3 Options," and the Options in each pool shall vest and be exercisable
according to the terms and conditions applicable to such pool as set forth
below. For purposes of this Agreement, "Option" shall mean, collectively, the
Tier 1 Options, the Tier 2 Options and the Tier 3 Options granted pursuant to
this Agreement.
(A) Tier 1 Options. The Company hereby grants to the Optionee
[25,000] Tier 1 Options. Subject to the other terms of this Agreement regarding
the exercisability of this
<PAGE> 2
Option, the Tier 1 Options will vest and be exercisable in accordance with the
following schedule:
Options Exercisable with respect to
On or After Cumulative Number of Shares
----------- -----------------------------------
May 24, 2000 25,000 x 25%
May 24, 2001 25,000 x 50%
May 24, 2002 25,000 x 75%
May 24, 2003 25,000 x 100%
Notwithstanding the foregoing, all of the Tier 1 Options shall
become fully vested and exercisable immediately upon the earlier to occur of the
following: (x) any or all of the Tier 3 Options becoming fully vested and
exercisable, provided that if only 50% of the Tier 3 Options have vested and
become exercisable, then only 50% of the then unvested Tier 1 Options shall vest
and become exercisable, and the remaining 50% of the unvested Tier 1 Options
shall vest and become exercisable immediately upon the vesting and
exercisability of the remaining 50% of the Tier 3 Options, and (y) the
termination of Optionee's employment (1) by the Company without Cause (as
defined below) or by the Optionee for Good Reason (as defined below) at any time
after a Change in Control or (2) by the Company or the Optionee for any reason
other than a Specified Cause Event (as defined below) more than six months after
a Change in Control.
"Change in Control" means the first to occur of any
of the following: (i) the sale (including by merger, consolidation or
sale of stock of subsidiaries or any other method) of all or
substantially all of the assets of the Company and its consolidated
subsidiaries (taken as a whole) to any person or entity not directly or
indirectly controlled by the holders of at least 50% of the Combined
Voting Power (as defined in the Plan) of the then outstanding shares of
capital stock of the Company (excluding shares owned by employees of
the Company as of the date of determination), (ii) at any time prior to
the consummation of an initial public offering of Common Stock of the
Company or other common stock of the Company having the voting power to
elect directors, a transaction (except pursuant to such initial public
offering) resulting in the Principal Shareholders (as defined in the
Plan) owning, collectively, less than 50% of the Combined Voting Power
of the then outstanding shares of capital stock of the Company
(excluding shares owned by employees of the Company as of the date of
determination), (iii) at any time after the consummation of an initial
public offering of Common Stock of the Company or other common stock of
the Company having the voting power to elect directors, the acquisition
(except pursuant to such initial public offering) by any person or
entity (other than the Principal Shareholders) not directly or
indirectly controlled by the Company's stockholders of more than 30% of
the Combined Voting Power of the then outstanding shares of capital
stock of the Company (excluding shares owned by employees of the
Company as of the date of determination), (iv) individuals serving as
directors of the Company on the Effective Date (as defined in the Plan)
and who were nominated or
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<PAGE> 3
selected to serve as directors by one or more Principal Shareholders
(together with any new directors whose election was approved by a vote
of (A) such individuals or directors whose election was previously so
approved or (B) Principal Shareholders holding a majority of the
aggregate voting power of the capital stock of the Company held by all
Principal Shareholders) cease for any reason to constitute a majority
of the Board of Directors of the Company (the "Board"), (v) the
adoption of a plan relating to the liquidation or dissolution of the
Company in connection with an equity investment or sale or a business
combination transaction or (vi) any other event or transaction that the
Board deems to be a Change in Control.
"Specified Cause Event" means (1) a proven or
admitted act of fraud, misappropriation or embezzlement by the Optionee
that is detrimental to the Company or (2) the Optionee's conviction of
or plea of guilty or nolo contendere to a felony that is related to the
Company or the performance of the Optionee's services for the Company.
(B) Tier 2 Options. The Company hereby grants to the Optionee
[ ] Tier 2 Options. Subject to the other terms of this Agreement regarding the
exercisability of this Option, the Tier 2 Options will vest and be exercisable
annually as of December 31 of each fiscal year of the Company with respect to a
cumulative number of shares in an amount equal to the product of (i) a fraction,
the denominator of which is 278,658,000 (the "Aggregate EBITDA Target") and the
numerator of which is the aggregate EBITDA of the Company for all fiscal years
following the date hereof, beginning with the 1999 fiscal year, multiplied by
(ii) the total number of shares subject to Tier 2 Options, provided that the
maximum cumulative number of shares subject to Tier 2 Options that shall be
vested in any fiscal year shall not exceed the product of (1) the Applicable
Percentage for such fiscal year multiplied by (2) the total number of shares
subject to Tier 2 Options. This calculation shall be made with respect to each
fiscal year, beginning with the 1999 fiscal year, based on the Company's audited
financial statements for such year. Notwithstanding the foregoing, (x) if the
Optionee's employment with the Company shall terminate because of death,
disability, termination by the Company without Cause (as defined below) or
termination by the Optionee for Good Reason (as defined below), the aggregate
cumulative number of shares subject to Tier 2 Options that shall be vested as of
the termination date shall not be subject to any limitations imposed by the
Applicable Percentage and shall be equal to the product of (1) a fraction, the
denominator of which is the Aggregate EBITDA Target and the numerator of which
is the aggregate EBITDA of the Company for all fiscal years following the date
hereof, beginning with the 1999 fiscal year, multiplied by (2) the total number
of shares subject to Tier 2 Options, and (y) all of the Tier 2 Options shall
become fully vested and exercisable immediately upon the earlier to occur of the
following: (1) any or all of the Tier 3 Options becoming fully vested and
exercisable, provided that if only 50% of the Tier 3 Options have vested and
become exercisable, then only 50% of the then unvested Tier 2 Options shall vest
and become exercisable, and the remaining 50% of the unvested Tier 2 Options
shall vest and become exercisable immediately upon the vesting and
exercisability of the remaining 50% of the Tier 3 Options, and (2) the seventh
anniversary of the date hereof.
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<PAGE> 4
"Applicable Percentage" means with respect to (i) fiscal
year 1999, 20%, (2) fiscal year 2000, 40%, (3) fiscal year 2001, 60%,
(4) fiscal year 2002, 80%, and (5) fiscal year 2003, 100%, provided,
however, that the Applicable Percentage shall be 100% if following any
fiscal year prior to the fifth anniversary hereof, the aggregate EBITDA
of the Company for the fiscal years following the date hereof equals or
exceeds the Aggregate EBITDA Target.
"EBITDA" means earnings before interest, taxes,
depreciation, and amortization as reflected in the Company's audited
financial statements. Adjustments for unusual items will be made in the
reasonable discretion of the Board, after consultation with the Chief
Executive Officer of the Company.
(C) Tier 3 Options. The Company hereby grants to the Optionee
[ ] Tier 3 Options. Subject to the other terms of this Agreement regarding the
exercisability of this Option, the Tier 3 Options will vest and be exercisable
(except as provided below) only upon the first to occur of (x) a Change in
Control that satisfies the CIC Return Hurdle and (y) an Actual Sale or Deemed
Sale following a Qualified Public Offering that satisfies the QPO Return Hurdle
as hereinafter described. If on any date beginning six months after a Qualified
Public Offering the QPO Return Hurdle has been satisfied based on a Deemed Sale
at Fair Market Value as of such date, 50% of the Tier 3 Options will vest and be
immediately exercisable, and if on any date beginning 24 months after a
Qualified Public Offering the QPO Return Hurdle has been satisfied based on a
Deemed Sale at Fair Market Value as of such date, the additional 50% of the Tier
3 Options will vest and be immediately exercisable, except that, if at any time
after a Qualified Public Offering the QPO Return Hurdle is satisfied based on an
Actual Sale, 100% of the Tier 3 Options will vest and be immediately
exercisable. Notwithstanding the foregoing, the Tier 3 Options shall become
fully vested and exercisable upon the seventh anniversary of the date hereof.
"Actual Sale" means a sale following a Qualified Public
Offering by Charlesbank Equity Fund IV, Limited Partnership of its
shares in the Company in consideration for cash or freely tradable
securities or a combination thereof.
"Charlesbank Investment" means the total amount of capital
expended to acquire Common Stock or warrants to acquire Common Stock of
the Company or capital contributed to the Company (including capital
provided in the form of an extension of credit or an advance of funds)
by Charlesbank Equity Fund IV, Limited Partnership, commencing on the
date of the original investment by Charlesbank Equity Fund IV, Limited
Partnership.
"CIC Return Hurdle" means (i) if the Change in Control
occurs within 18 months of the original investment by Charlesbank
Equity Fund IV, Limited Partnership, a Return on Investment of 2.0x,
and (ii) if the Change in Control occurs more than 18 months after the
original investment by Charlesbank Equity Fund IV, Limited Partnership
a Return on Investment of 3.0x and a 30% IRR.
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<PAGE> 5
"Deemed Sale", as of any date, means the deemed sale
following a Qualified Public Offering by Charlesbank Equity Fund IV,
Limited Partnership of its shares in the Company at the Fair Market
Value in effect on such date.
"Fair Market Value", as of any date, means (i) with
respect to any freely tradeable security, the closing market price for
such security on the day immediately preceding such date as determined
from the principal trading market for such security on such date, (ii)
with respect to any publicly traded security of the Company, the
average of the closing market prices of such security for the 30
consecutive trading days immediately prior to such date to be
determined from the principal trading market for such security during
such period, and (iii) with respect to any other property, such value
determined as of such date by such methods or procedures as established
in the good faith discretion of the Board.
"IRR" means an internal rate of return to Charlesbank
Equity Fund IV, Limited Partnership on the Charlesbank Investment as
calculated by the use of an HP12c financial calculator, taking into
account the timing and amount (based on the Fair Market Value thereof)
of all contributions to capital and investments in the Company and the
timing and amount (based on the Fair Market Value thereof) of all
dividends, interest payments or other distributions or payments
(whether in cash or other property), from the Company or any other
person or entity in respect of the Charlesbank Investment, through the
date of determination, and subject to adjustment in the good faith
discretion of the Board in the event of any merger, acquisition,
consolidation, sale of assets, recapitalization, contribution of
capital to, or redemption of stock of, the Company, or any other event
that the Board deems relevant to the calculation of such return.
"QPO Return Hurdle" means (i) if the Actual Sale or Deemed
Sale occurs within 18 months of the original investment by Charlesbank
Equity Fund IV, Limited Partnership, a Return on Investment of 2.0x and
(ii) if the Actual Sale or Deemed Sale occurs more than 18 months after
the original investment by Charlesbank Equity Fund IV, Limited
Partnership, a Return on Investment of 3.0x and a 30% IRR.
"Qualified Public Offering" means a public offering of the
Company's Class A Common Stock or other common stock of the Company
with a minimum offering size of $50,000,000.
"Return on Investment" means (i) in the case of a Change
in Control, the quotient of (A) the total amount of cash and freely
tradable securities and based on the Fair Market Value thereof received
by Charlesbank Equity Fund IV, Limited Partnership upon such Change in
Control, together with all dividends, interest payments and other
distributions or payments (whether in cash or other property and based
on the Fair Market Value thereof) received from the Company or any
other person or entity in respect of the Charlesbank Investment prior
to such Change in Control, divided by (B) the Charlesbank
5
<PAGE> 6
Investment, and (ii) in the case of an Actual Sale or Deemed Sale
following a Qualified Public Offering, the quotient of (A) the total
amount of cash and freely tradeable securities (based on the Fair
Market Value thereof) received in such Actual Sale, or the aggregate
Fair Market Value of all shares in the Company owned at the time of
such Deemed Sale, by Charlesbank Equity Fund IV, Limited Partnership,
together with all dividends, interest payments and other distributions
or payments (whether in cash or other property and based on the Fair
Market Value thereof) received from the Company or any other person or
entity in respect of the Charlesbank Investment prior to such Actual
Sale or Deemed Sale, as the case may be, divided by (B) the Charlesbank
Investment.
(ii) Options exercised in any one year shall be deducted from
the number of Options exercisable in any future year. Once vested, this Option
shall be exercisable at the following times prior to the expiration date: (A) if
the Optionee is employed by the Company at the time of exercise, at any time by
giving the Company 45 days' advance written notice or (B) if the Optionee is not
employed by the Company at the time of exercise but has the right to exercise
after termination in accordance with Section 2(d) of this Agreement, by giving
the Company written notice at any time during the period specified in Section
2(d) of this Agreement, in which case the Option shall be deemed exercised as of
the end of the calendar month in which the Company received notice of exercise
of the Option. In either case, the notice of exercise shall specify the number
of Shares as to which the Option is being exercised.
(iii) Upon receipt of written notice of exercise by the
Company, the Company shall, upon full payment in cash to the Company of the
Exercise Price of the Shares as to which the Option shall be exercised and upon
receipt of a duly executed shareholders agreement (in the form attached hereto
as Exhibit A or in such other form as the Company may reasonably require), issue
to the Optionee the Shares subject to the Option. Any issuance of Shares to an
Optionee pursuant to the preceding sentence shall be made by the Company within
90 days after the date of exercise. For purposes of this Agreement, the fair
market value of Shares shall be determined by such methods or procedures as
shall be established from time to time by the Board acting in its sole
discretion and in good faith. In making such determinations, the Board may rely
on a valuation report by an investment banking or valuation firm selected by the
Board. The Committee established by the Board to administer the Plan (the
"Committee") may, in its sole discretion, permit the Optionee to pay the
Exercise Price in previously acquired Shares rather than in cash.
(d) Exercise Upon Death or Termination of Employment.
(i) If the Optionee dies while an employee of the
Company, the Optionee's Designee may exercise the Option, to the extent it was
vested on the date of termination, by giving the Company written notice of such
exercise within 12 months after the date of Optionee's death, but in no event
later than the Expiration Date. An Optionee's "Designee" means the person
designated by the Optionee in his or her most recently filed beneficiary
designation filed with the Company to receive the Optionee's rights under the
Plan upon the
6
<PAGE> 7
Optionee's death, or if there is no such designation or no such designated
person survives the Optionee, by the person or persons to whom the Optionee's
rights pass by will or applicable law, or if no such person has such right, by
his executors or administrators.
(ii) If the Company shall terminate Optionee's
employment with the Company because of disability, the Optionee may exercise the
Option to the extent it was vested on the date of termination, by giving the
Company written notice of such exercise within 12 months after the date of
termination of employment, but in no event later than the Expiration Date.
(iii) If the Optionee terminates his employment with
the Company other than for Good Reason, the Optionee may exercise the Option to
the extent it was vested on the date of termination, by giving the Company
written notice of such exercise within 90 days after the date of termination of
employment, but in no event later then the Expiration Date. For purposes of this
Agreement, "Good Reason" has the meaning set forth in the executive severance or
employment agreement, if any, then in effect between the Company and the
Optionee or, in the absence of such agreement shall mean, if the basis for such
Good Reason is not cured within a reasonable period of time (determined in light
of the cure appropriate to the basis of such Good Reason, but in no event less
than 15 days), the failure of the Company to pay any undisputed amount due to
the Optionee in connection with his employment by the Company.
(iv) If the Optionee's employment shall terminate for
any reason other than death, disability or Cause (as hereinafter defined), or if
the Optionee shall terminate his employment with the Company for Good Reason,
the Optionee may exercise the Option to the extent it was vested on the date of
termination or, otherwise would have vested in the 12 months thereafter, in
either event according to the applicable vesting schedule in Section 2(c)(i), by
giving the Company written notice of such exercise within 18 months after the
date of termination of employment, but in no event later than the Expiration
Date. Notwithstanding the foregoing, the Optionee shall forfeit his right to
exercise any Options that would have vested within the 12 months after
termination, if the Optionee violates the terms regarding non-competition set
forth in the Optionee's executive severance or employment agreement.
(v) If the Optionee's employment shall terminate for
Cause, all right to exercise the Option shall terminate at the date of such
termination of employment. For purposes of this Agreement, "Cause" has the
meaning set forth in the executive severance or employment agreement, if any,
then in effect between the Company and the Optionee or, in the absence of such
agreement, shall mean (i) the Optionee's conviction of, or plea of guilty or
nolo contendere to, a felony, (ii) the Optionee's gross negligence in the
performance of his duties and obligations to the Company, which is not corrected
within 15 business days after written notice, (iii) the Optionee's knowingly
dishonest act, or knowing bad faith or willful misconduct in the performance of
his duties and obligations to the Company to the material detriment of the
Company, which is not corrected within 15 business days after written notice, or
(iv) the Optionee's other material breach of his obligations under this
Agreement, which is not corrected
7
<PAGE> 8
within a reasonable period of time (determined in light of the cure appropriate
to such material breach, but in no event less than 15 business days) after
written notice.
(vi) In the event of termination of employment, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purpose of Section 422 of the Code, such stock option shall
thereafter be treated as a nonqualified stock option.
(e) Transferability. Except as otherwise provided in this
Section, the Option is not transferable other than as designated by the Optionee
in his or her most recently filed Beneficiary designation filed with the
Company, or if there is no such designation or no such designated person
survives the Optionee, as designated by the Optionee, by will or by the laws of
descent and distribution, and during the Optionee's life, may be exercised only
by the Optionee. However, an Optionee, with the approval of the Committee, may
transfer the Option for no consideration to or for the benefit of the Optionee's
Immediate Family or to a partnership or limited liability company for one or
more members of the Optionee's Immediate Family, subject to such limits as the
Committee may establish, and the transferee shall remain subject to all the
terms and conditions applicable to Options prior to such transfer. The foregoing
right to transfer the Option shall apply to the right to consent to amendments
to this Agreement and, in the discretion of the Committee, shall also apply to
the right to transfer ancillary rights associated with the Option. The term
"Immediate Family" shall mean the Optionee's spouse, parents, children,
stepchildren, adoptive relationships, sisters, brothers, nieces, nephews and
grandchildren (and, for this purpose, shall also include the Optionee).
(f) Adjustments. In the event of any change in corporate
capitalization (including, but not limited to, a change in the number of shares
of Common Stock outstanding), such as a stock split or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Section 368
of the Code) or any partial or complete liquidation of the Company, the
Committee or Board may make such substitution or adjustments in the number, kind
and option price of shares subject to the Option and/or such other equitable
substitution or adjustments as it may determine to be appropriate in its sole
discretion; provided, however, that the number of shares subject to the Option
shall always be a whole number. In the event of a corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, the Board shall be authorized to cause the Company to issue or
assume stock options, whether or not in transaction to which Section 424(a) of
the Code applies, by means of substitution of new stock options for previously
issued stock options or an assumption of previously issued stock options.
(g) No Rights as Stockholder. The Optionee shall have no
rights as a stockholder with respect to any Shares subject to the Option prior
to the date of issuance to the Optionee of a certificate or certificates for
such Shares.
(h) Optionee Acknowledgement. The Optionee acknowledges that:
8
<PAGE> 9
(i) the future value of the Company is highly
speculative;
(ii) the Optionee is not relying on the value of this
Option as current compensation;
(iii) the Company has no obligation to the Optionee
to sell the Company or to sell Shares publicly (which may have the effect of
reducing the value of the Company);
(iv) upon exercise of this Option, unless the Shares
issuable upon exercise of the Options have been registered under applicable
securities laws, there will be substantial restrictions on the transferability
of the Shares; and
(v) the past performance or experience of the
Company, the Company's officers, directors, agents, or employees, will not in
any way indicate or predict the results of the ownership of Shares or of the
Company's activities.
(i) No Right to Continued Employment. The Option shall not
confer upon the Optionee any right with respect to continuance of employment by
the Company, nor shall it interfere in any way with the right of the Optionee's
employer to terminate the Optionee's employment at any time.
(j) Compliance With Law and Regulations. The Option herein
granted and the obligation of the Company to sell and deliver shares hereunder,
shall be subject to all applicable Federal and State laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Company shall not be required to issue or deliver any certificates for
Shares prior to (i) the listing of such Shares on any stock exchange or national
market quotations system on which the Shares may then be listed and (ii) the
completion of any registration or qualification of such Shares under any Federal
or State law, or any rule or regulation of any government body which the Company
shall, in its sole discretion, determine to be necessary or advisable. Moreover,
the Option herein granted may not be exercised if its exercise, or the receipt
of Shares pursuant hereto, would be contrary to applicable law.
9
<PAGE> 10
3. Optionee Bound by Plan.
The Optionee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof.
4. Notices.
All notices or any other communications hereunder shall be in writing
and delivered personally or by registered or certified mail or overnight
courier, addressed, if to the Company, to Heafner Tire Group, Inc., 2105 Water
Ridge Parkway, Suite 500, Charlotte, North Carolina 28217; Attention: Chairman,
and if to the Optionee, at the address set forth below, subject to the right of
either party to designate at any time hereafter in writing some other address.
5. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina without regard to conflicts of laws
principles.
6. No Assignment.
Except as provided in Section 2(e), neither this Agreement nor any of
the rights or obligations of the Optionee hereunder may be transferred or
assigned by the Optionee.
7. Benefits.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto. This Agreement is for the sole benefit of the parties hereto and
not for the benefit of any other party.
8. Severability.
If any provision of this Agreement shall be determined to be illegal
and unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms.
9. Amendments.
No modification, amendment or waiver of any provision of this
Agreement, other than as required under Section 2(f), shall be effective unless
it is in writing and signed by the parties hereto.
10. Counterparts.
This Agreement has been executed in two counterparts each of which
shall constitute one and the same instrument.
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<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its Chairman, Chief Executive Officer, Chief Operating Officer,
President or a Vice President and Optionee has executed this Agreement, both as
of the day and year first above written.
11
<PAGE> 12
HEAFNER TIRE GROUP, INC.
By:/s/ ???????????????????
--------------------------
Name:
Title:
/s/ David H. Taylor
- -------------------------------
David H. Taylor
Address: 5500 Hardison Road
Charlotte NC
12
<PAGE> 1
EXHIBIT 10.19
HEAFNER TIRE GROUP, INC.
STOCK OPTION AGREEMENT
Number of shares subject to option: 10,000
This Agreement (the "Agreement") made this 10th day of December, 1999,
between Heafner Tire Group, Inc., a Delaware corporation (the "Company"), and
Ray C. Barney (the "Optionee").
W I T N E S S E T H:
1. Grant of Option.
Pursuant to the provisions of the Heafner Tire Group, Inc. 1999 Stock
Option Plan (the "Plan"), the Company hereby grants to the Optionee, subject to
the terms and conditions of the Plan and subject further to the terms and
conditions herein set forth, the right and option (the "Option") to purchase
from the Company all or any part of an aggregate of 10,000 shares of the common
stock, par value $0.01 per share, of the Company (the "Common Stock" or the
"Shares") at a purchase price of $9.00 per Share (the "Exercise Price"), such
Option to be exercised as hereinafter provided.
2. Terms and Conditions.
It is understood and agreed that the Option evidenced hereby is subject
to the following terms and conditions:
(a) Expiration Date. The Option shall expire on the tenth
anniversary of the date hereof (the "Expiration Date").
(b) Type of Option. This option is eligible to be an incentive
stock option within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
(c) Exercise of Option. (i) Subject to the other terms of this
Agreement regarding the exercisability of this Option, this Option may be
exercised in accordance with the following vesting schedule:
Options Exercisable with respect to
On or After Cumulative Number of Shares
----------- -----------------------------------
November 25, 2000 10,000 x 25%
November 25, 2001 10,000 x 25%
November 25, 2002 10,000 x 25%
November 25, 2003 10,000 x 25%
<PAGE> 2
Options exercised in any one year shall be deducted from the number of Options
exercisable in any future year. Once vested, this Option shall be exercisable at
the following times prior to the expiration date: (A) if the Optionee is
employed by the Company at the time of exercise, at any time by giving the
Company 45 days' advance written notice or (B) if the Optionee is not employed
by the Company at the time of exercise but has the right to exercise after
termination in accordance with paragraph 2(d) of this Agreement, by giving the
Company written notice at any time during the period specified in paragraph 2(d)
of this Agreement, in which case the Option shall be deemed exercised as of the
end of the calendar month in which the Company received notice of exercise of
the Option. In either case, the notice of exercise shall specify the number of
Shares as to which the Option is being exercised.
(ii) Upon receipt of written notice of exercise by
the Company, the Company shall, upon full payment in cash to the Company of the
Exercise Price of the Shares as to which the Option shall be exercised, issue to
the Optionee the Shares subject to the Option. Any issuance of Shares to an
Optionee pursuant to the preceding sentence shall be made by the Company within
90 days after the date of exercise. For purposes of this Agreement, the fair
market value of Shares shall be determined by such methods or procedures as
shall be established from time to time by the Board of Directors of the Company
(the "Board") acting in its sole discretion and in good faith. In making such
determinations, the Board may rely on a valuation report by an investment
banking or valuation firm selected by the Board. The Committee established by
the Board to administer the Plan (the "Committee") may, in its sole discretion,
permit the Optionee to pay the Exercise Price in previously acquired Shares
rather than in cash.
(d) Exercise Upon Death or Termination of Employment.
(i) If the Optionee dies while an employee of the
Company, the Optionee's Designee may exercise the Option, to the extent it was
vested on the date of termination or otherwise would have vested in the 12
months thereafter in accordance with the vesting schedule in Section 2(c)
hereof, by giving the Company written notice of such exercise within 180 days
after the date of Optionee's death, but in no event later than the Expiration
Date. An Optionee's "Designee" means the person designated by the Optionee in
his or her most recently filed beneficiary designation filed with the Company to
receive the Optionee's rights under the Plan upon the Optionee's death, or if
there is no such designation or no such designated person survives the Optionee,
by the person or persons to whom the Optionee's rights pass by will or
applicable law, or if no such person has such right, by his executors or
administrators.
(ii) If the Optionee's employment with the Company
shall terminate because of permanent disability, the Optionee may exercise the
Option to the extent it was vested on the date of termination or otherwise would
have vested in the 12 months thereafter, in either event according to the
vesting schedule in Section 2(c), by giving the Company written notice of such
exercise within 180 days after the date of termination of employment, but in no
event later than the Expiration Date.
(iii) If the Optionee's employment shall terminate
for any reason other than death or permanent disability as aforesaid or for
Cause (as hereinafter defined), the Optionee may exercise the Option to the
extent it was vested on the date of termination or otherwise would have vested
in the 12 months thereafter, in either event according to the vesting schedule
in Section 2(c),
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<PAGE> 3
by giving the Company written notice of such exercise within 180 days after the
date of termination of employment, but in no event later than the Expiration
Date.
(iv) If the Optionee's employment shall terminate for
Cause, all right to exercise the Option shall terminate at the date of such
termination of employment except that the Optionee may exercise the Option to
the extent vested as of the date of such termination by giving the Company
written notice thereof within 30 days after such termination. For purposes of
this Agreement, "Cause" shall mean (i) the Employee's conviction of, or plea of
guilty or nolo contendere to, a felony, (ii) the Employee's gross negligence in
the performance of his duties and obligations to the Company, which is not
corrected within 15 business days after written notice, (iii) the Employee's
knowingly dishonest act, or knowing bad faith or willful misconduct in the
performance of his duties and obligations to the Company to the material
detriment of the Company, which is not corrected within 15 business days after
written notice, or (iv) the Employee's other material breach of his obligations
under this Agreement, which is not corrected within a reasonable period of time
(determined in light of the cure appropriate to such material breach, but in no
event less than 15 business days) after written notice.
(e) Nontransferability. This Option shall not be transferable
other than by will or by the laws of descent and distribution. During the
lifetime of the Optionee, this Option shall be exercisable only by such
Optionee.
(f) Forfeiture of Option Gain. If at any time within 12 months
after the later of (i) termination of employment or (ii) the date on which the
Optionee exercises any portion of this Option, the Optionee violates the terms
of the covenants regarding confidential information, soliciting customer
accounts, non-competition or hiring of employees, currently set forth in
Sections 2 and 3 of the Employment Agreement between the Company and the
Optionee dated the date hereof (the "Employment Agreement"), (A) then any income
realized by the Optionee upon the exercise of this Option or upon the sale of
Shares acquired by exercise of this Option at any time, whether before or after
the date of termination of employment, shall promptly be paid by the Optionee to
the Company and (B) any unexercised Options shall be canceled. The Company shall
have the right to set off against any amount payable by the Company to the
Optionee, including, without limitation, salary, benefits or other amounts, any
amounts owed by the Optionee to the Company under this subparagraph (f). The
Committee may waive the requirements of this subparagraph (f) if it determines
in its sole discretion that such action is in the best interests of the Company.
(g) Adjustments. In the event that the Committee shall
determine, in its sole discretion, that any dividend or other distribution
(whether in the form of cash, Common Stock, or other property),
recapitalization, stock split, reverse split, any reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, license
arrangement, strategic alliance or other corporate transaction or event, affects
the Shares such that an adjustment is appropriate in order to prevent dilution
or enlargement of the rights of the Optionee under the Plan, then the Committee
shall make such equitable changes or adjustments as it deems necessary or
appropriate to any or all of (i) the number and kind of Shares which may
thereafter be issued in connection with Options, (ii) the number and kind of
Shares issued or issuable in respect of outstanding Options, and (iii) the
Exercise Price relating to any Option; provided that, with respect
3
<PAGE> 4
to incentive stock options, such adjustment shall be made in accordance with
Section 424(h) of the Code.
(h) No Rights as Stockholder. The Optionee shall have no
rights as a stockholder with respect to any Shares subject to the Option prior
to the date of issuance to the Optionee of a certificate or certificates for
such Shares.
(i) Optionee Acknowledgement. The Optionee acknowledges that:
(i) the future value of the Company is highly
speculative;
(ii) the Optionee is not relying on the value of this
Option as current compensation;
(iii) the Company has no obligation to the Optionee
to sell the Company or to sell Shares publicly (which may have the effect of
reducing the value of the Company);
(iv) upon exercise of this Option, unless the Shares
issuable upon exercise of the Options have been registered under applicable
securities laws, there will be substantial restrictions on the transferability
of the Shares; and
(v) the past performance or experience of the
Company, the Company's officers, directors, agents, or employees, will not in
any way indicate or predict the results of the ownership of Shares or of the
Company's activities.
(j) No Right to Continued Employment. The Option shall not
confer upon the Optionee any right with respect to continuance of employment by
the Company, nor shall it interfere in any way with the right of the Optionee's
employer to terminate the Optionee's employment at any time.
(k) Compliance With Law and Regulations. The Option herein
granted and the obligation of the Company to sell and deliver shares hereunder,
shall be subject to all applicable Federal and State laws, rules and regulations
and to such approvals by any government or regulatory agency as may be required.
The Company shall not be required to issue or deliver any certificates for
Shares prior to (i) the listing of such Shares on any stock exchange or national
market quotations system on which the Shares may then be listed and (ii) the
completion of any registration or qualification of such Shares under any Federal
or State law, or any rule or regulation of any government body which the Company
shall, in its sole discretion, determine to be necessary or advisable. Moreover,
the Option herein granted may not be exercised if its exercise, or the receipt
of Shares pursuant hereto, would be contrary to applicable law.
(l) Condition Precedent. In consideration for and as a
condition precedent to being eligible to participate in the Plan, the Optionee
shall have executed and delivered to the Company the Employment Agreement.
4
<PAGE> 5
3. Optionee Bound by Plan.
The Optionee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof.
4. Notices.
All notices or any other communications hereunder shall be in writing
and delivered personally or by registered or certified mail or overnight
courier, addressed, if to the Company, to Heafner Tire Group, Inc., 2105 Water
Ridge Parkway, Suite 500, Charlotte, NC 28217; Attention: Chairman, and if to
the Optionee, at the address set forth below, subject to the right of either
party to designate at any time hereafter in writing some other address.
5. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of North Carolina without regard to conflicts of laws
principles.
6. No Assignment.
Neither this Agreement nor any of the rights or obligations of the
Optionee hereunder may be transferred or assigned by the Optionee.
7. Benefits.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto. This Agreement is for the sole benefit of the parties hereto and
not for the benefit of any other party.
8. Severability.
If any provision of this Agreement shall be determined to be illegal
and unenforceable by any court of law, the remaining provisions shall be
severable and enforceable in accordance with their terms.
9. Amendments.
No modification, amendment or waiver of any provision of this
Agreement, other than as required under Section 2(g), shall be effective unless
it is in writing and signed by the parties hereto.
10. Counterparts.
This Agreement has been executed in two counterparts each of which
shall constitute one and the same instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its Chairman, Chief Executive Officer, Chief Operating Officer,
President or a Vice President and Optionee has executed this Agreement, both as
of the day and year first above written.
HEAFNER TIRE GROUP, INC.
By: /s/ Donald C. Roof
--------------------------------------------
Name: Donald C. Roof
Title: President and Chief Executive Officer
/s/ Ray C. Barney
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Ray C. Barney
Address: 216 Fieldcrest Court
Danville, CA 94506
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EXHIBIT 10.23
SECURITIES PURCHASE AND STOCKHOLDERS' AGREEMENT, dated as of
August 16, 1999, among HEAFNER TIRE GROUP, INC., a Delaware corporation (the
"Company"), and David H. Taylor (the "Purchaser").
Introduction
The Company desires to issue and sell to the Purchaser, and
the Purchaser desires to purchase from the Company, that number of shares (the
"Purchased Shares") of the Company's Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"), set forth in Exhibit A attached hereto.
In addition to the terms of the issuance, sale and purchase of
the Purchased Shares, the Company and the Purchaser desire to set forth herein
certain matters regarding the ownership of shares of Class A Common Stock by the
Purchaser (the shares of Class A Common Stock now or hereafter acquired by the
Purchaser are referred to herein as the "Shares").
For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
Purchase and Sale
SECTION 1.1. Purchase and Sale of Common Stock. The Company
hereby issues and sells to the Purchaser, and the Purchaser hereby acquires from
the Company, on the date hereof, that number of Purchased Shares set forth on
Exhibit A hereto for a purchase price of $9.00 per Share (the "Purchase Price"),
in cash, payable by wire transfer of immediately available funds to an account
heretofore designated to the Purchaser by the Company, by certified bank check
or money order payable to the Company. The Purchased Shares shall have the
respective rights and preferences of other shares of Class A Common Stock as set
forth in the Company's Certificate of Incorporation in Delaware, a copy of which
is attached to this Agreement as Exhibit B.
SECTION 1.2. Delivery of Certificates. The Company is hereby
issuing and selling to the Purchaser the Purchaser's Purchased Shares by
delivering to the Purchaser a duly executed certificate or certificates
representing the Purchased Shares registered in the name of the Purchaser, with
appropriate issue stamps, if any, affixed at the expense of the Company, free
and clear of all security interests, liens, pledges, charges, options, rights of
first refusal, mortgages, indentures, security agreements or other claims,
encumbrances, agreements, arrangements or commitments of any kind or character,
whether written or oral and whether or not relating in any way to credit or the
borrowing of money ("Claims"), and the Purchaser is hereby purchasing the Shares
for the Purchase Price applicable thereto.
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ARTICLE II
Representations and Warranties of the Company
The Company represents and warrants to the Purchaser as
follows:
SECTION 2.1. Organization Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
SECTION 2.2. Authority; Binding Agreements. The Company has
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
SECTION 2.3. Conflicts; Consents. The execution and delivery
by the Company of this Agreement and the consummation of the transactions
contemplated hereby and compliance by the Company with any of the provisions
hereof do not and will not (i) conflict with or result in a breach of the
articles of incorporation, by-laws or other constitutive documents of the
Company, (ii) conflict with or result in a default (or give rise to any right of
termination, cancellation or acceleration) under any of the provisions of any
note, bond, lease, mortgage, indenture, or any license, franchise, permit,
agreement or other instrument or obligation to which the Company is a party, or
by which the Company or any of the Company's properties or assets may be bound
or affected, except for such conflicts, breaches or defaults as to which
requisite waivers or consents have been obtained, (iii) violate any law,
statute, rule or regulation or order, writ, injunction or decree applicable to
the Company or any of the Company's properties or assets or (iv) result in the
creation or imposition of any Claim upon any of the Company's properties or
assets. No consent or approval by, or notification of or filing with, any person
is required in connection with the execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions contemplated
hereby.
ARTICLE III
Representations and Warranties of the Purchaser
The Purchaser represents and warrants to the Company as
follows:
SECTION 3.1. Capacity; Binding Agreements. The Purchaser has
all requisite capacity to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser, and constitutes the valid
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and binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms.
SECTION 3.2. Conflicts; Consents. The execution and delivery
by the Purchaser of this Agreement, the consummation of the transactions
contemplated hereby and compliance by the Purchaser with any of the provisions
hereof do not and will not (i) conflict with or result in a default (or give
rise to any right of termination, cancellation or acceleration) under any of the
provisions of any note, bond, lease, mortgage, indenture, or any license,
franchise, permit, agreement or other instrument or obligation to which the
Purchaser is a party, or by which the Purchaser or any of the Purchaser's
properties or assets may be bound or affected, except for such conflicts,
breaches or defaults as to which requisite waivers or consents have been
obtained, (ii) violate any law, statute, rule or regulation or order, writ,
injunction or decree applicable to the Purchaser or any of the Purchaser's
properties or assets or (iii) result in the creation or imposition of any Claim
upon any of the Purchaser's properties or assets.
SECTION 3.3. Purchase for Own Account. (a) The Purchased
Shares to be acquired by the Purchaser pursuant to this Agreement are being
acquired for his own account and the Purchaser has no intention of distributing
or reselling such securities or any part thereof in any transaction that would
be in violation of the securities laws of the United States of America, or any
state thereof. If the Purchaser should in the future decide to dispose of any of
the Purchased Shares, the Purchaser understands and agrees that he may do so
only in compliance with this Agreement and with the Securities Act of 1933, as
amended (the "Securities Act"), and applicable state securities laws, as then in
effect, and that stop-transfer instructions to that effect, where applicable,
will be in effect with respect to such securities. If the Purchaser should
decide to dispose of any Shares, the Purchaser, if requested by the Company,
will have the obligation in connection with such disposition, at the Purchaser's
expense, of delivering an opinion of counsel of recognized standing in
securities law in connection with such disposition to the effect that the
proposed disposition of the Shares will not be in violation of the Securities
Act or any applicable state securities laws and, assuming such opinion is
required and is otherwise appropriate in form and substance under the
circumstances, the Company will accept, and will recommend to any applicable
transfer agent or trustee for such securities that it accept, such opinion.
(b) The Purchaser agrees to the imprinting of a legend on
certificates representing all of the Shares to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION
TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS AND NEITHER THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE
REGULATORY AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
THE TRANSFER OF ANY
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SECURITIES REPRESENTED BY THIS CERTIFICATE IS FURTHER LIMITED BY THE PROVISIONS
OF THE SECURITIES PURCHASE AND STOCKHOLDERS' AGREEMENT AMONG HEAFNER TIRE GROUP,
INC. AND THE MANAGEMENT STOCKHOLDERS IDENTIFIED THEREIN, A COPY OF WHICH IS ON
FILE AT THE EXECUTIVE OFFICE OF THE COMPANY."
SECTION 3.4. Nature of Purchaser. The Purchaser acknowledges
that the offer and sale of the Purchased Shares is intended to be exempt from
registration under the Securities Act. The Purchaser is (i) a director,
president, vice president in charge of a principal business unit, division or
function or other officer of the Company who performs a policy making function
for the Company, (ii) an individual with a net worth, or joint net worth with
the Purchaser's spouse, at the date hereof in excess of $1,000,000, (iii) an
individual with an income in excess of $200,000 in each of the two most recent
years or joint income with the Purchaser's spouse in excess of $300,000 in each
of those years and has a reasonable expectation of reaching the same income
level in the current year or (iv) an individual who has appointed a "purchaser
representative" as described in Section 5.6 to act as the Purchaser's
representative to assist the Purchaser in evaluating the purchase of the
Purchased Shares. The Purchaser has such knowledge and experience in financial
and business matters so that he is capable of evaluating the relative merits and
risks of purchasing the Purchased Shares. The Purchaser has adequate means of
providing for his current economic needs and possible personal contingencies,
has no need for liquidity in his investment in the Company and is able
financially to bear the risks of such investment.
SECTION 3.5. Information. All documents, records and books
pertaining to the investment in the Purchased Shares and requested by the
Purchaser or his purchaser representative, if any, have been made available or
delivered to the Purchaser. The Purchaser has been given full access to all
material information concerning the condition, business, operations, proposed
operations and prospects of Purchaser, including (i) the Annual Report on Form
10-K most recently filed with the SEC by the Company, (ii) all Quarterly Reports
on Form 10-Q filed with the SEC by the Company since the date of such Annual
Report and (iii) all Reports on Form 8-K filed with the SEC by the Company since
the date of such Annual Report (receipt of copies of each of which is hereby
acknowledged by the Purchaser). The Purchaser has had an opportunity to discuss
the Company's business, management and financial affairs with the Company's
management and to ask questions of and receive answers from the Company
concerning such matters. All such questions, if any, have been answered to the
full satisfaction of the Purchaser and his purchaser representative, if any, and
the Purchaser has received all information about the Company which the Purchaser
or his purchaser representative, if any, desires, including information which
the Purchaser or purchaser representative deems necessary to verify the accuracy
of information the Company has furnished to the Purchaser.
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ARTICLE IV
Transferability of Shares
SECTION 4.1. Stock Transfer Restrictions. The Purchaser shall
not sell, assign, pledge, give away or otherwise transfer (a "Transfer") any
Shares except in accordance with the procedures set forth in this Agreement. Any
attempted Transfer of Shares not permitted by this Agreement shall be null and
void, and the Company shall not in any way give effect to any such Transfer. Any
proposed Transfer of Shares shall be null and void, and the Company shall not in
any way give effect to any such Transfer, unless the transferee of such Shares
who is not, immediately prior to such Transfer, the Purchaser shall agree in
writing to be bound by and comply with the provisions of this Agreement
SECTION 4.2. Termination of Employment. (a) Termination by
Company for Cause or by Purchaser without Good Reason. If the Company shall
terminate the Purchaser's employment for "Cause" or the Purchaser shall
terminate his employment with the Company other than for "Good Reason" (as such
terms are defined below), the Company shall have the right, commencing on the
date of such termination and continuing until the first anniversary thereof, to
purchase all of the Purchaser's Shares at the Repurchase Price (as defined
below) applicable thereto; provided that if and to the extent that, prior to
such first anniversary, the Company is prohibited under the terms of any loan
agreement, indenture, note or other agreement from making such repurchase, in
whole or in part, the Company shall have the right to purchase such Shares until
the expiration of 45 days after such first anniversary. In the event the Company
does not exercise its right to purchase such Shares, or is unable to purchase
such Shares, and so long as the Principal Shareholders then own more than 50% of
the Combined Voting Power of the then outstanding shares of capital stock of the
Company, then the Company shall so notify the Principal Shareholders in writing
no later than the first anniversary of the date of the termination triggering
the right to purchase, and for a period of 60 days following the first
anniversary of such termination the Principal Shareholders (through their agent
Charlesbank Capital Partners, LLC) shall have all the rights conferred on the
Company pursuant to this Section 4.2(a). For purposes of this Section 4.2,
"Company" shall include any subsidiary of the Company with respect to the
Purchaser employed directly by such subsidiary.
For purposes of this Agreement,
"Cause", with respect to the Purchaser, has the meaning set
forth in the executive severance or employment agreement, if any, then in effect
between the Company and the Purchaser or, in the absence of such an agreement,
shall mean (i) the Purchaser's conviction of, or plea of guilty or nolo
contendere to a felony, (ii) the Purchaser's gross negligence in the performance
of his employment services to the Company, which is not corrected within 15
business days after written notice, (iii) the Purchaser's knowingly dishonest
act, or knowing bad faith or willful misconduct in the performance of such
services to the material detriment of the Company, which is not corrected within
15 business days after written notice, or (iv) the Purchaser's other material
breach of his obligations as an employee or officer of the Company which is not
corrected within a reasonable period of time (determined in light of the cure
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appropriate to such material breach, but in no event less than 15 business days)
after written notice.
"Combined Voting Power" with respect to capital stock of the
Company means the number of votes such stock is normally entitled (without
regard to the occurrence of any contingency) to vote in an election of the
directors of the Company.
"EBITDA" means earnings before interest, taxes, depreciation,
and amortization as reflected in the Company's financial statements for the four
full fiscal quarters immediately preceding the date on which such termination
shall have occurred. Adjustments for unusual items will be made in the
reasonable discretion of the Board of Directors of the Company, after
consultation with the Chief Executive Officer of the Company.
"Good Reason", with respect to the Purchaser, has the meaning
set forth in the executive severance or employment agreement, if any, then in
effect between the Company and the Purchaser or, in the absence of such an
agreement, shall mean any of the following, unless the basis for such Good
Reason is cured within a reasonable period of time (determined in light of the
cure appropriate to the basis of such Good Reason, but in no event less than 15
business days) after the Company receives written notice specifying the basis of
such Good Reason: (i) the failure of the Company to pay any undisputed amount
due to the Purchaser in connection with his employment by the Company or a
substantial diminution in benefits provided pursuant to such employment other
than a reduction in benefits or salary applicable to all of the Company's bonus
eligible employees, (ii) a substantial diminution in the status, position and
responsibilities of the Purchaser that is not instituted to all employees of the
Company or (iii) the Company requiring the Purchaser to be based at any office
or location that requires a relocation or commute greater than 50 miles from the
office or location to which the Purchaser is currently assigned; provided,
however, that Good Reason shall not be deemed to exist due to the travel
requirements consistent with the performance of the Purchaser's employment
services.
"Principal Shareholders" means (i) Charlesbank Equity Fund IV,
Limited Partnership and the investors in such fund, (ii) Charlesbank Equity Fund
IV G.P. Limited Partnership, (iii) Charlesbank Capital Partners, LLC (and any
other fund managed by Charlesbank Capital Partners, LLC), (iv) any investor
(other than The 1818 Mezzanine Fund, L.P.) whose investment in the Company is
approved by the representative of management on the board of the Company, (v)
any new investors in the Company designated as Principal Shareholders by
Charlesbank Capital Partners, LLC within one year of the initial investment by
Charlesbank Equity Fund IV, Limited Partnership, and (vi) any corporation,
partnership, limited liability company or other entity a majority of the capital
stock or other ownership interests of which are directly or indirectly owned by
any of the foregoing.
"Repurchase Price" means, with respect to each Share owned by
the Purchaser, (a) in the event of any termination, excluding a termination
described in clause (b) below, the greater of (i) the Purchase Price applicable
thereto, and (ii) the quotient obtained by dividing the Net Equity Value by the
total number of shares of Common Stock outstanding on the date of termination of
the Purchaser's employment (on a fully diluted basis, after assuming the
issuance
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of shares of Common Stock pursuant to the exercise of in-the-money options
granted under the Option Plans and in-the-money Warrants), (b) in the event of a
termination (i) by the Company for Cause or (ii) within 24 months of the date
hereof, by the Purchaser other than for Good Reason, the Purchase Price
applicable thereto, and (c) notwithstanding the terms of clauses (a) and (b)
above, in the event of a termination by the Company for a Specified Cause Event
or in the event that following termination for any reason the Purchaser violates
the confidentiality or non-compete provisions of any executive severance,
employment or non-competition agreement with the Company, the lesser of (i) the
Purchase Price applicable thereto and (ii) the quotient obtained by dividing the
Net Equity Value by the total number of shares of Common Stock outstanding on
the date of termination of the Purchaser's employment (on a fully diluted basis,
after assuming the issuance of shares of Common Stock pursuant to the exercise
of in-the-money options granted under the Option Plans and in-the-money
Warrants). "Net Equity Value" means the sum of (x) 6 times the Company's EBITDA
plus (y) the aggregate exercise price of all in-the-money options granted under
the Option Plans and all in-the-money Warrants, less (z) the aggregate amount of
principal of and interest on (in the case of debt) and liquidation value of (in
the case of capital stock) all debt for borrowed money and Preferred Stock (or
any replacements therefor) owed or outstanding as of the date of such
termination.
"Specified Cause Event" means (1) a proven or admitted act of
fraud, misappropriation or embezzlement by the Purchaser that is detrimental to
the Company or (2) the Purchaser's conviction of or plea of guilty or nolo
contendere to a felony that is related to the Company or the performance of the
Purchaser's services for the Company.
(b) Termination by Company other than for Cause or by
Purchaser with Good Reason. If the Company shall terminate the Purchaser's
employment other than for Cause or the Purchaser shall terminate his employment
with the Company for Good Reason, the Purchaser shall have the right, commencing
on the date of such termination and continuing until the first anniversary
thereof, to require the Company to purchase all of the Purchaser's Shares at the
Repurchase Price applicable thereto; provided that if and to the extent that,
prior to such first anniversary, the Company is prohibited under the terms of
any loan agreement, indenture, note or other agreement from purchasing such
Shares to the extent so required by the Purchaser, the Company shall not be
obligated to make such purchase until it is no longer prohibited from doing so,
in which case payment shall be made promptly after the removal of such
prohibition. In the event the option is not exercised, the Company shall have
the right, commencing on the first anniversary and continuing until the second
anniversary thereof, to purchase all of the Purchaser's Shares at the Repurchase
Price applicable thereto. In the event the Company does not exercise its right
to purchase such Shares, or is unable to purchase such Shares, and so long as
the Principal Shareholders then own more than 50% of the Combined Voting Power
of the then outstanding shares of capital stock of the Company, then the Company
shall so notify the Principal Shareholders in writing no later than the second
anniversary of the date of termination triggering the right to purchase, and for
a period of 60 days following the second anniversary of such termination the
Principal Shareholders (through their agent Charlesbank Capital Partners, LLC)
shall have all the rights conferred on the Company pursuant to this Section
4.2(b).
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(c) Termination or Repurchase upon Death. If the Purchaser's
employment with the Company shall terminate due to the Purchaser's death, or, if
within one year after any other termination of employment with the Company, the
Purchaser shall die, the Company shall have the right to purchase, and the
Purchaser's descendants shall have the right to require the Company to purchase,
all of the Purchaser's Shares at the Repurchase Price applicable thereto,
commencing on the date of death of the Purchaser and continuing until the first
anniversary thereof; provided that if and to the extent that, prior to such
first anniversary, the Company is prohibited under the terms of any loan
agreement, indenture, note, or other agreement from purchasing such Shares to
the extent so required by the Purchaser's descendants, the Company shall not be
obligated to make such purchase until it is no longer prohibited from doing so,
in which case payment shall be made promptly after the removal of such
prohibition. In the event the Company does not exercise its right to purchase
such Shares, or is unable to purchase such Shares, and so long as the Principal
Shareholders then own more than 50% of the Combined Voting Power of the then
outstanding shares of capital stock of the Company, then the Company shall so
notify the Principal Shareholders in writing no later than the first anniversary
of the date of the death triggering the right to purchase, and for a period of
60 days following the first anniversary of the date of death the Principal
Shareholders (through their agent Charlesbank Capital Partners, LLC) shall have
all the rights conferred on the Company pursuant to this Section 4.2(c).
(d) Delivery of Payment. The Company or the Principal
Shareholders or the Purchaser, as the case may be, shall notify the other of
such party's exercise of its rights under this Section 4.2 by giving written
notice of such exercise at least 10 and not more than 30 days before the date
established by such electing party for such purchase or sale, as the case may
be. On the date so designated, the Company or the Principal Shareholders shall
deliver the appropriate Repurchase Price to the Purchaser by certified check or
money order and the Purchaser shall deliver the certificates evidencing the
Shares being purchased, duly endorsed for transfer as the Company or the
Principal Shareholders may direct, and free and clear of any Claim. If any
Shares evidenced by a certificate so surrendered are not being purchased
pursuant to the terms hereof, the Company shall promptly issue to the Purchaser
a replacement certificate evidencing the Shares not so purchased.
SECTION 4.3. Transfers Among Management or to Descendants. The
Purchaser may, so long as any right has not been exercised with respect to such
Shares pursuant to Section 4.2, Transfer any Shares to another management
employee of the Company or one of its subsidiaries who has acquired or does
acquire shares of Common Stock pursuant to a purchase agreement containing
transfer and other restrictions substantially similar to, and no less favorable
to the Company than, those contained herein or pursuant to an exercise of any
option under the Option Plans (a "Management Employee"). The Purchaser may
Transfer all or any portion of the Purchaser's Shares to the Purchaser's spouse
or descendants or a trust for the benefit of the Purchaser or his or her spouse
or descendants or to a partnership or corporation controlled by the Purchaser or
his or her spouse or descendants. Such Transfers shall be effective only if the
transferee agrees to be bound by the terms of this Agreement.
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SECTION 4.4. Right of First Offer. With respect to any Shares
that the Purchaser wishes to Transfer, other than pursuant to Section 4.3
hereof, the following provisions shall apply.
(a) If the Purchaser desires to Transfer any such Shares, the
Purchaser shall deliver to the Company, the Principal Shareholders, and the
Management Employees a written notice, which shall be irrevocable for a period
of 60 days after delivery, offering all of such Shares to the Company, and so
long as the Principal Shareholders then own more than 50% of the Combined Voting
Power of the then outstanding shares of capital stock of the Company, the
Principal Shareholders, and the Management Employees at the purchase price and
on the terms specified in the written notice. The Company shall have the first
right and option, for a period of 30 days after delivery of such written notice,
to purchase all (but not part) of such Shares at the purchase price and on the
terms specified in the notice. Such acceptance shall be made by delivering a
written notice to the Purchaser within such 30-day period.
(b) If the Company fails to accept such offer, then upon the
earlier of the expiration of such 30-day period or upon the receipt of a written
rejection of such offer from the Company, the Principal Shareholders shall have
the second right and option, until 15 days after the expiration of the 30-day
period, to purchase all (but not part) of such Shares offered at the purchase
price and on the terms specified in the notice. Such acceptance shall be made by
delivering a written notice to the Purchaser within the 15-day period.
(c) If the Principal Shareholders fail to accept such offer,
then upon the earlier of the expiration of such 15-day period or upon the
receipt of a written rejection of such offer from the Principal Shareholders,
the Management Employees (as a group) shall have the third right and option,
until 15 days after the expiration of the 15-day period, to purchase on a pro
rata basis with all Management Employees so electing all (but not part) of such
Shares offered at the purchase price and on the terms specified in the notice.
Such acceptance shall be made by delivering a written notice to the Purchaser
within the second 15-day period.
(d) If the Company, Principal Shareholders, and the Management
Employees do not elect to purchase the Shares so offered, then the Purchaser may
Transfer all (but not part) of such Shares at a price not less than the price,
and on terms not more favorable to the transferee of such Shares than the terms,
stated in the original written notice of intention to sell, at any time within
15 days after the expiration of the period in which the Management Employees
could elect to purchase such Shares. If such Shares are not sold by the
Purchaser during such 15-day period, the right of the Purchaser to sell such
Shares shall expire and the rights and obligations set forth in this Section 4.4
shall be reinstated with respect to such Shares.
(e) The rights of the Principal Shareholders under this
Section 4.4 shall terminate if at the time of the proposed Transfer the
Principal Shareholders do not own more than 50% of the Combined Voting Power of
the then outstanding shares of capital stock of the Company.
SECTION 4.5. Lock-up Agreements. If the Company proposes to
register under the Securities Act any of its Common Stock for sale to the
public, the Purchaser shall enter into such agreement (a "Lock-up Agreement") as
may be requested by the underwriters of such
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registered offering, pursuant to which Lock-up Agreement the Purchaser shall
refrain from selling any Shares during the period of distribution of Common
Stock by such underwriters and for a period of up to 180 days following the
effective date of such registration.
SECTION 4.6. Take-Along. If Charlesbank Capital Partners, LLC
agrees to transfer all of the shares of Common Stock which it owns and which are
owned by funds that it manages to any person or entity other than an affiliate
of the Principal Shareholders, and so long as the Principal Shareholders then
own more than 50% of the Combined Voting Power of the then outstanding shares of
capital stock of the Company, then Charlesbank Capital Partners, LLC shall have
the right to require the Purchaser to sell his Shares to such person or entity
upon the same terms and subject to the same conditions as the Principal
Shareholders have agreed to sell their shares. The Principal Shareholders shall
provide a written notice of such sale not less than 30 days prior to the closing
of such sale.
ARTICLE V
Miscellaneous
SECTION 5.1. Option Shares; Dividends; Reclassifications. If,
subsequent to the date hereof, any shares of Common Stock are issued to the
Purchaser pursuant to the exercise of any option (including options granted
under the Option Plans), warrant or other security convertible into or
exercisable for shares of Common Stock, or any shares or other securities are
issued with respect to, or in exchange for, any of the Shares by reason of any
reincorporation, stock dividend, stock split, consolidation of shares,
reclassification or consolidation involving the Company, such shares of Common
Stock and such other shares or securities shall be deemed to be Shares for all
purposes of this Agreement.
SECTION 5.2. Survival of Provisions; Termination. (a) All of
the representations, warranties and covenants made herein and each of the
provisions of this Agreement shall, except as otherwise expressly set forth
herein, survive the execution and delivery of this Agreement, any investigation
by or on behalf of the Purchaser, the acceptance of the Purchased Shares and
payment therefor or the termination of this Agreement.
(b) This Agreement shall terminate upon the earliest to occur
of the (i) issuance by the Company or sale by the shareholders of the Company to
the public on a Form S-1 under the Securities Act of shares of Common Stock
representing at least 40% of the Common Stock outstanding after such issuance or
sale, (ii) tenth anniversary of the date of this Agreement and (iii) written
consent of the Purchaser, the Management Employees and the Company. Upon such a
termination, all rights and obligations under this Agreement shall terminate,
except the Purchaser's obligations under Section 4.5 with respect to a Lock-up
Agreement entered into in connection with a public offering referred to in the
foregoing clause (i), if applicable.
SECTION 5.3. Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier services or personal delivery
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to the following addresses, or to such other addresses as shall be designated
from time to time by a party in accordance with this Section 5.3:
(a) if to the Company:
Heafner Tire Group, Inc.
2105 Water Ridge Parkway
Suite 500
Charlotte, North Carolina 28217
Attention: J. Michael Gaither
Telecopier No.: (704) 423-9469
with a copy to:
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, New York 10019
Attention: Scott F. Smith, Esq.
Telecopier No.: (212) 841-1010
(b) if to the Purchaser:
David H. Taylor
5500 hardison Road
Charlotte, NC 28226
(c) if to the Principal Shareholders:
Charlesbank Capital Partners, LLC
600 Atlantic Avenue
Boston, Massachusetts 02210-2203
Attention: Mark A. Rosen and Tami E. Nason
Telecopier: (617) 619-5402
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Facsimile: (212) 735-2000
Attention: David J. Friedman
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; one business day after delivery
to a courier, if delivered by
11
<PAGE> 12
commercial overnight courier service; five business days after being deposited
in the mail, postage prepaid, if mailed; and when receipt is acknowledged, if
telecopied.
SECTION 5.4. Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and permitted assigns
of the parties hereto. The provisions of Article IV also shall inure to the
benefit of and be enforceable by the Management Employees and the Principal
Shareholders. The Purchaser may assign its rights hereunder only in conjunction
with, and to a transferee of, a Transfer permitted pursuant to the terms of
Article IV, and any such assignee shall be deemed to be the "Purchaser" for
purposes of this Agreement. The Company may not assign any of its rights or
obligations hereunder without the consent of Purchaser; provided that any
successor by merger or consolidation of the Company or similar transaction shall
be bound by and benefit from the terms hereof as if named as the Company
hereunder.
SECTION 5.5. Amendment and Waiver. No failure or delay on the
part of the Company or the Purchaser 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 preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. No waiver
of or consent to any departure by the Company or the Purchaser from any
provision of this Agreement shall be effective unless signed in writing by the
party entitled to the benefit thereof; provided that notice of any such waiver
shall be given to each party hereto as set forth herein. Except as otherwise
provided herein, no amendment, modification or termination of any provision of
this Agreement shall be effective unless signed in writing by or on behalf of
the Company and the Purchaser and with respect to any amendment, modification or
termination of the rights or obligations of the Principal Shareholders under
Article IV, the Principal Shareholders (through their agent Charlesbank Capital
Partners, LLC); provided that the provisions of Section 5.2(b) and of this
sentence shall not be amended or waived without the written consent of the
Purchaser and the Company.
Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by the Company or the Purchaser from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement, no notice to or demand on the
Company or the Purchaser in any case shall entitle the Company or the Purchaser
to any other or further notice or demand in similar or other circumstances.
SECTION 5.6. Purchaser Representative. If the Purchaser has
been represented by a purchaser representative in connection with his investment
in the Shares, in evaluating the Purchaser's investment in the Shares the
Purchaser has been advised by the Purchaser representative as to the merits and
risks of the investment in general and the suitability of the investment for the
Purchaser in particular, and the purchaser representative has disclosed in
writing any material relationship, actual or contemplated, between the purchaser
representative and any entity connected to the transactions contemplated hereby,
or affiliate of any such entity, and any compensation received or to be received
as a result of such relationship.
12
<PAGE> 13
SECTION 5.7. Counterparts. This Agreement may be executed in
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
SECTION 5.8. Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
SECTION 5.9. Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 5.10. Severability. If any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
SECTION 5.11. Entire Agreement. This Agreement, together with
the exhibits hereto and the terms of the Common Stock, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits
hereto and the Common Stock, supersede all prior agreements and understandings
among the parties with respect to such subject matter hereof.
SECTION 5.12. Expenses. Each party to this Agreement shall
each bear its or his own costs incurred in connection with the negotiation,
execution and delivery and enforcement of this Agreement, including the fees and
expenses of lawyers, financial advisors and accountants.
SECTION 5.13. Certain Definitions and Rules of Interpretation.
Except as otherwise expressly provided in this Agreement, the following rules of
interpretation apply to this Agreement: (i) the singular includes the plural and
the plural includes the singular; (ii) "or" and "any" are not exclusive and
"include" and "including" are not limiting; (iii) a reference to any agreement
or other contract includes permitted supplements and amendments; (iv) a
reference to a law includes any amendment or modification to such law and any
rules or regulations issued thereunder; (v) a reference to a person includes its
permitted successors and assigns; (vi) a reference to GAAP or generally accepted
accounting principles refers to United States generally accepted accounting
principles; and (vii) a reference in this Agreement to an Article, Section or
Exhibit is to the Article, Section or Exhibit of this Agreement.
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this
Securities Purchase and Stockholders' Agreement to be executed and delivered as
of the date first above written.
HEAFNER TIRE GROUP, INC.
By:/s/ J. Michael Gaither
--------------------------------------------
J. Michael Gaither
Executive Vice President and General Counsel
/s/ David H. Taylor
--------------------------------------------
David H. Taylor
<PAGE> 15
Exhibit A
to Securities Purchase and Stockholders' Agreement
Shareholder Number of Purchased Shares Cash
- ----------- -------------------------- ----
David H. Taylor 25,000 $225,000
<PAGE> 1
EXHIBIT 10.29
Execution Copy
EXECUTIVE SEVERANCE AGREEMENT, dated as of August 16, 1999
(the "Agreement"), between Heafner Tire Group, Inc., a
Delaware corporation (the "Employer"), and David H. Taylor
(the "Employee").
The Employer desires to retain the Employee to supply services
to the Employer, and the Employee desires to provide such services to the
Employer, on the terms and subject to the conditions set forth in this
Agreement.
In consideration of (i) the Employee's agreement to supply
services under this Agreement and (ii) the mutual agreements set forth below,
the sufficiency of which is hereby acknowledged, the Employer and the Employee
agree as follows:
SECTION 1. Employment Relationship.
(a) Employment by Employer. The Employer hereby employs the
Employee, and the Employee hereby agrees to be employed by the Employer, as
Senior Vice-President and Chief Financial Officer of the Employer, and the
Employee will devote all of his business time, attention, knowledge and skills
and use his best efforts during the Employment Period to perform services and
duties consistent with his title and position (the "Services") for the Employer
in accordance with directions given to the Employee from time to time by the
Board of Directors of the Employer.
(b) Employment Period. The period commencing on the date of
this Agreement and ending on the date on which this Agreement is terminated is
referred to herein as the "Employment Period." During the Employment Period, the
Employee will be an at-will employee of the Employer. The Employment Period
shall be freely terminable for any reason by either party at any time.
SECTION 2. Compensation and Benefits. During the Employment
Period:
(a) Base Compensation. The Employer shall pay to the Employee
a base salary of $225,000 per annum (the "Base Salary"), payable in accordance
with the Employer's payroll practices. The Base Salary shall be increased (but
not decreased) subject to additional discretionary increases (but not decreases)
as determined periodically by the Board of Directors.
(b) Additional Compensation. As additional compensation for
the Services, the Employer shall pay to the Employee the following amount: (x)
with respect to calendar year 1999, an annual bonus payment at the "Minimum,"
"Plan" or "Maximum" percentage payment levels, as the case may be, in accordance
with the terms of the Employer's 1999 Executive Bonus Plan and (y) with respect
to subsequent calendar years, other annual incentive compensation as the Board
of Directors of the Employer determines in its sole discretion to pay the
Employee, payable in all cases on or around March 1 of the following year. The
Employee will be entitled
<PAGE> 2
to participate in the 1999 Executive Bonus Plan as a Level I Employee. The
Employee acknowledges that the Employer may terminate or modify its Executive
Bonus Plan or other incentive plans (excluding the 1999 Executive Bonus Plan as
in effect and applied to the Employee on the date hereof) at any time, although
no termination or amendment affecting the Employee will be made effective unless
it is consistently applied to other employees participating in such plans. In
the event of any conflict or inconsistency between the terms of the 1999
Executive Bonus Plan and the terms of Section 2(b) or 3 of this Agreement, the
terms of Sections 2(b) and 3 of this Agreement shall control.
(c) Restricted Stock and Stock Options. The Employee has
purchased shares of Class A Common Stock of the Employer pursuant to the
Securities Purchase and Stockholders Agreement, dated as of the date hereof,
between the Employer and the Employee (the "1999 Purchase Agreement"), and has
been granted options to acquire shares of Class A Common Stock of the Employer,
pursuant to the Stock Option Agreement, dated as of the date hereof, between the
Employer and the Employee (the "1999 Stock Option Agreement"). The stock options
granted to the Employee under the 1999 Stock Option Agreement were granted
pursuant to the Employer's 1999 Stock Option Plan and are subject to vesting in
accordance with the terms of the 1999 Stock Option Agreement. The Purchase
Agreements and the Stock Option Agreements are referred to in this Agreement as
the "Other Agreements." The Employee shall be entitled to participate in current
or future equity incentive plans adopted by the Employer on terms substantially
similar to those offered to members of the Employer's Executive Committee or
other division Presidents of the Employer. Such grants may be awarded from time
to time in the sole discretion of the Employer's Board of Directors. Except as
otherwise provided in the 1999 Stock Option Agreement and in this Agreement with
respect to payments under the Executive Bonus Plan and except as hereafter
mutually agreed by the Employer and the Employee, in the event of a Change in
Control (as defined below), to the extent not fully vested at such time, the
Employee shall become fully vested in all awards heretofore or hereafter granted
to him under all incentive compensation, deferred compensation, stock option,
stock appreciation rights, restricted stock, phantom stock or other similar
plans maintained by the Employer.
(d) Benefit Plans. During the Employment Period, the Employee
shall be entitled to receive benefits from the Employer consistent with those
currently in effect for the Employer's senior executives (including deferred
compensation plans, and company automobile and financial planning perquisites),
as those benefits are revised from time to time by the Board of Directors of the
Employer. Nothing contained herein is intended to require the Employer to
maintain any existing benefits or create any new benefits. The Employee will be
entitled to participate in the Employer's deferred compensation program as a
Level 2 Employee and to receive benefits thereunder in accordance with the terms
and conditions of such program. If the Employment Period is terminated by the
Employer or the Employee as set forth in Section 3(e)(ii) below, the Employee
and relevant family members shall be entitled to continue to participate in the
Employer's welfare benefit plans at the Employer's expense for a period of two
years after the termination date. If the Employment Period is terminated by the
Employer or the Employee as set forth in Section 3(e)(iii) below, the Employee
and relevant family members shall be entitled to continue to participate in the
Employer's welfare benefit plans at the
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<PAGE> 3
Employer's expense for a period of three years after the termination date. For
purposes of this Section 2(d), the Employees' relevant family members shall be
those members of the Employee's immediate family covered by the applicable
welfare benefit plan immediately prior to the termination date.
(e) Vacation and Holidays. The Employee shall be entitled to a
minimum of four weeks' vacation each year and paid holidays in accordance with
the Employer's policy.
(f) No Mitigation. The Employee shall not be required to
mitigate the amount of any payments under this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that the Employee may receive from any other source.
SECTION 3. Termination.
(a) Death or Disability. If the Employee dies during the
Employment Period, the Employment Period shall terminate as of the date of the
Employee's death. If the Employee becomes unable to perform the Services for 90
consecutive days due to a physical or mental disability, (i) the Employer may
elect to terminate the Employment Period at any time thereafter, and (ii) the
Employment Period shall terminate as of the date of such election. All
disabilities shall be certified by a physician acceptable to both the Employer
and the Employee, or, if the Employer and the Employee cannot agree upon a
physician within 15 days, by a physician selected by physicians designated by
each of the Employer and the Employee. The Employee's failure to submit to any
physical examination by such physician after such physician has given reasonable
notice of the time and place of such examination shall be conclusive evidence of
the Employee's inability to perform his duties hereunder.
(b) Cause. The Employer, at its option, may terminate the
Employment Period and all of the obligations of the Employer under this
Agreement for Cause. The Employer shall have "Cause" to terminate the Employee's
employment hereunder in the event of (i) the Employee's conviction of or plea of
guilty or nolo contendere to a felony, (ii) the Employee's gross negligence in
the performance of the Services, which is not corrected within 15 business days
after written notice, (iii) the Employee's knowingly dishonest act, or knowing
bad faith or willful misconduct in the performance of the Services, which is not
corrected within 15 business days after written notice, or (iv) the Employee's
material breach of any of his obligations under Sections 5 and 6, which is not
corrected within a reasonable period of time (determined in light of the cure,
if any, appropriate to such material breach, but in no event less than 15
business days) after written notice. If the Employee is charged with a felony,
then during the period while such charge or related indictment remains
outstanding and until finally determined, the Employer shall have the right to
suspend the Employee without compensation.
(c) Without Cause. The Employer, at its option, may terminate
the Employment Period without Cause at any time.
(d) Termination by Employee for Good Reason. The Employee may
terminate this Agreement upon 60 days' prior written notice to the Employer for
Good Reason (as defined
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<PAGE> 4
below) if the basis for such Good Reason is not cured within a reasonable period
of time (determined in light of the cure appropriate to the basis of such Good
Reason, but in no event less than 15 business days) after the Employer receives
written notice specifying the basis of such Good Reason. "Good Reason" shall
mean (i) the failure of the Employer to pay any undisputed amount due under this
Agreement or a reduction in Base Salary or benefits provided under this
Agreement (other than immaterial reductions in benefits or a reduction in
benefits or salary applicable to all of the Employer's bonus eligible employees)
or a termination of, or reduction in the percentage level of, the "plan" or
"target" bonus opportunity applicable to the Employee from the "Plan" percentage
level under the 1999 Executive Bonus Plan in effect on the date hereof (the
"Effective Date Plan Percentage"), (ii) a substantial diminution in the status,
position and responsibilities of the Employee or (iii) the Employer requiring
the Employee to be based at any office or location that requires a relocation or
commute greater than 50 miles from the office or location to which the Employee
is currently assigned, provided, however, that Good Reason shall not be deemed
to exist due to the travel requirements consistent with the performance of the
Employee's services hereunder.
(e) Payments in the Event of Termination. (i) Basic
Termination Payment. Upon the termination of the Employment Period at any time
for any reason, the Employer shall pay to the Employee or his estate the Base
Salary earned to the date of termination, and if such termination occurs after
December 31st of any year for which a bonus is payable pursuant to Section 2(b)
but before such bonus has been paid, the Employer shall pay to the Employee or
his estate the bonus due for the preceding year.
(ii) Additional Involuntary Termination Payment. Upon the
termination of the Employment Period at any time by the Employer without Cause
or by the Employee for Good Reason, the Employer shall pay to the Employee
within five business days of such termination a lump-sum amount (in addition to
the amount payable under the first sentence of Section 3(e)(i)) equal to (x) the
sum of the Employee's annual Base Salary at the annual rate in effect on the
date of termination and the Severance Bonus Amount, multiplied by (y) two.
Notwithstanding the foregoing, the Employee shall be entitled to no payment
under this Section 3(e)(ii) if he is entitled to receive a payment under Section
3(e)(iii). "Severance Bonus Amount" means an amount equal to the Employee's Base
Salary at the annual rate in effect on the date of termination multiplied by a
percentage, which is the greater of (1) the Effective Date Plan Percentage and
(2) the "plan" or "target" bonus percentage then applicable under any executive
bonus plan or other incentive compensation program for purposes of determining
the Employee's annual bonus for the year of termination.
(iii) Additional Change in Control Payment. Upon the
termination of the Employment Period (x) by the Employer without Cause upon or
prior to a Change in Control, provided that the Employee reasonably demonstrates
that such termination occurred at the request of a third party participating in,
or otherwise in anticipation of or in connection with, such Change in Control,
or (y) by the Employee with Good Reason or by the Employer for any reason other
than for Cause within one year after a Change in Control, then the Employer
shall pay to the Employee within five business days of such termination a
lump-sum amount (in addition to the amount payable under the first sentence of
Section 3(e)(i)) equal to the sum of (A)
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<PAGE> 5
the higher of (1) the Employee's annual Base Salary at the date of such
termination or (2) the Employee's annual Base Salary at the time of the Change
in Control, in each case multiplied by three and (B) the Severance Bonus Amount
multiplied by three. If the Employment Period is terminated by the Employee for
any reason other than with Good Reason on or after the first anniversary of a
Change in Control but no later than the 30th day after such first anniversary,
the Employee shall be entitled to 50% of the payments specified in this Section
3(e)(iii). If the Employment Period is terminated by the Employee with Good
Reason at any time on or after the first anniversary of a Change in Control, the
Employee shall be entitled to the payment specified in Section 3(e)(ii).
(iv) Change in Control Defined. "Change in Control"
means the first to occur of any of the following: (A) the sale (including by
merger, consolidation or sale of stock of subsidiaries or any other method) of
all or substantially all of the assets of the Employer and its consolidated
subsidiaries (taken as a whole) to any person or entity not directly or
indirectly controlled by the holders of at least 50% of the Combined Voting
Power of the then outstanding shares of capital stock of the Employer (excluding
shares owned by employees of the Employer as of the date of determination) (B)
at any time prior to the consummation of an initial public offering of Class A
Common Stock of the Employer or other common stock of the Employer having the
voting power to elect directors, a transaction (except pursuant to such initial
public offering) resulting in the Principal Shareholders owning, collectively,
less than 50% of the Combined Voting Power of the then outstanding shares of
capital stock of the Employer (excluding shares owned by employees of the
Employer as of the date of determination), (C) at any time after the
consummation of an initial public offering of Class A Common Stock of the
Employer or other common stock of the Employer having the voting power to elect
directors, the acquisition (except pursuant to such initial public offering) by
any person or entity (other than the Principal Shareholders) not directly or
indirectly controlled by the Employer's stockholders of more than 30% of the
Combined Voting Power of the then outstanding shares of capital stock of the
Employer (excluding shares owned by employees of the Employer as of the date of
determination), (D) individuals serving as directors of the Employer on the date
hereof and who were nominated or selected to serve as directors by one or more
Principal Shareholders (together with any new directors whose election was
approved by a vote of (x) such individuals or directors whose election was
previously so approved or (y) Principal Shareholders holding a majority of the
aggregate voting power of the capital stock of the Employer held by all
Principal Shareholders) cease for any reason to constitute a majority of the
Board of Directors of the Employer, (E) the adoption of a plan relating to the
liquidation or dissolution of the Employer in connection with an equity
investment or sale or a business combination transaction or (F) any other event
or transaction that the Board of Directors of the Employer deems to be a Change
in Control. "Combined Voting Power" with respect to capital stock of the
Employer means the number of votes such stock is normally entitled (without
regard to the occurrence of any contingency) to vote in an election of directors
of the Employer. "Principal Shareholders" means (i) Charlesbank Equity Fund IV,
Limited Partnership and the investors in such fund, (ii) Charlesbank Equity Fund
IV G.P. Limited Partnership, (iii) Charlesbank Capital Partners, LLC (and any
other fund managed by Charlesbank Capital Partners, LLC), (iv) any investor
(other than The 1818 Mezzanine Fund, L.P.) whose investment in the Employer is
approved by the representative of management on the board of the Employer, (v)
any new investors in the
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<PAGE> 6
Company designated as Principal Shareholders by Charlesbank Capital Partners,
LLC within one year of the initial investment by Charlesbank Equity Fund IV,
Limited Partnership, and (vi) any corporation, partnership, limited liability
company or other entity a majority of the capital stock or other ownership
interests of which are directly or indirectly owned by any of the foregoing.
(v) Other Provisions Applicable to Payments. Any
amounts due under this Section 3 and not paid when due shall bear interest
(compounded annually) for the period from and including the date payable to but
excluding the date paid at a rate per annum equal to the sum of (x) four percent
and (y) the rate publicly announced by BankBoston, N.A. as its "prime rate."
(f) Termination of Obligations. In the event of termination of
the Employment Period in accordance with this Section 3, all obligations of the
Employer and the Employee under this Agreement shall terminate, except for any
amounts payable by the Employer as specifically set forth in Section 3(e);
provided, however, that notwithstanding anything to the contrary contained in
this Agreement, the provisions of Section 5 and Section 6 shall survive such
termination in accordance with their respective terms and the relevant
provisions of Section 7 shall survive such termination indefinitely. In the
event of termination of the Employment Period in accordance with this Section 3,
the Employee agrees to cooperate with the Employer in order to ensure an orderly
transfer of the Employee's duties and responsibilities.
SECTION 4. Parachute Excise Tax Gross-Up
(a) If, as a result of any payment or benefit provided under
this Agreement or under any other plan, arrangement or other agreement with the
Employer or any entity affiliated with the Employer, either alone or together
with such other payments and benefits which the Employee receives or is then
entitled to received from the Employer, the Employee becomes subject to the
excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), (together with any interest and penalties thereon an
"Excise Tax"), the Employer shall pay the Employee an amount (the "Gross-Up
Payment") sufficient to place the Employee in the same after-tax financial
position that he would have been in if he had not incurred any tax liability
under Section 4999 of the Code. For purposes of determining whether the Employee
is subject to an Excise Tax and the amount of any Gross-Up Payment, (i) any
payments or benefits received by the Employee (whether pursuant to the terms
hereof or pursuant to any plan, arrangement or other agreement with the Employer
or any entity affiliated with the Employer) which payments ("Contingent
Payments") are deemed to be contingent on a change described in Section
280G(b)(2)(A)(i) of the Code shall be taken into account and (ii) the Employee
shall be deemed to pay federal, state and local taxes at the highest marginal
applicable rates of such taxes for the calendar year in which the Gross-Up
Payment is to be made, net of the maximum deduction from federal income taxes
which could be obtained from deduction of any state and local taxes deemed paid
by the Employee.
(b) The determination of whether the Employee is subject to
Excise Tax and the amounts of such Excise Tax and Gross-Up Payment, as well as
other calculations hereunder, shall be made at the expense of the Employer by
Arthur Andersen, which shall provide the
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<PAGE> 7
Employee with prompt written notice (the "Employer Notice") setting forth their
determinations and calculations. Within 30 days following the receipt by the
Employee of the Employer Notice, the Employee may notify the Employer in writing
(the "Employee Notice") if the Employee disagrees with such determinations or
calculations, setting forth the reasons for any such disagreement. If the
Employer and the Employee do not resolve such disagreement within 10 business
days following receipt by the Employer of the Employee Notice, such dispute will
be resolved in accordance with Section 7(f). The Employer shall pay all
reasonable expense incurred by either party in connection with the
determinations, calculations, disagreements or resolutions pursuant to this
paragraph, including, but not limited to, reasonable legal, consulting or other
similar fees.
(c) The Employee shall notify the Employer in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Employer of a Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than 10 business days after the Employee is
informed in writing of such claim and shall apprise the Employer of the nature
of such claim and the date of which such claim is requested to be paid. The
Employee shall not pay such claim prior to the expiration of the 30 day period
following the date on which the Employee gives such notice to the Employer (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Employer notifies the Employee in writing prior to
the expiration of such period that it desires to contest such claim, the
Employee shall:
(i) give the Employer any information reasonably
requested by the Employer relating to such claim;
(ii) take such action in connection with contesting
such claim as the Employer shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Employer and reasonably
satisfactory to the Employee;
(iii) cooperate with the Employer in good faith in
order to effectively contest such claim; and
(iv) permit the Employer to participate in any
proceedings relating to such claim;
provided, however, that the Employer shall bear and pay
directly all costs and expenses (including, but not limited to, additional
interest and penalties and related legal, consulting or other similar fees)
incurred in connection with such contest and shall indemnify and hold the
Employee harmless, on an after-tax basis, for any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses.
(d) The Employer shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and
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<PAGE> 8
may, at its sole option, either direct the Employee to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Employee agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Employer shall determine; provided, however, that if
the Employer directs the Employee to pay such claim and sue for a refund, the
Employer shall advance the amount of such payment to the Employee on an
interest-free basis, and shall indemnify and hold the Employee harmless, on an
after-tax basis, from any Excise Tax or other tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and provided,
further, that if the Employee is required to extend the statute of limitations
to enable the Employer to contest such claim, the Employee may limit this
extension solely to such contested amount. The Employer's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Employee shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority. In addition, no position may be taken nor any final
resolution be agreed to by the Employer without the Employee's consent if such
position or resolution could reasonably be expected to adversely affect the
Employee (including any other tax position of the Employee unrelated to the
matters covered hereby).
(e) As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Employer hereunder, it is possible that Gross-Up Payments which will not have
been made by the Employer should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Employer exhausts its remedies and the Employee thereafter is required to pay to
the Internal Revenue Service an additional amount in respect of any Excise Tax,
the Employer (in the same fashion as set forth in Section 4(b) shall determine
the amount of the Underpayment that has occurred and any such Underpayment shall
promptly be paid by the Employer to or for the benefit of the Employee.
(f) If, after the receipt by Employee of an amount advanced by
the Employer in connection with the contest of an Excise Tax claim, the Employee
becomes entitled to receive any refund with respect to such claim, the Employee
shall promptly pay to the Employer the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Employee of an amount advanced by the Employer in connection with
an Excise Tax claim, a determination is made that Employee shall not be entitled
to any refund with respect to such claim and the Employer does not notify the
Employee in writing of its intent to contest the denial of such refund prior to
the expiration of 30 days after receiving notice of such determination, such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall be offset, to the extent thereof, by the amount of the
Gross-Up Payment.
SECTION 5. Confidentiality; Non-Disclosure.
(a) (i) Non-Disclosure Obligation. Except as provided in this
Section 5(a), the Employee shall not disclose any Confidential Information of
the Employer or any of its
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<PAGE> 9
affiliates or subsidiaries to any person, firm, corporation, association or
other entity (other than the Employer, its subsidiaries, officers or employees,
attorneys, accountants, bank lenders, agents, advisors or representatives
thereof) for any reason or purpose whatsoever (other than in the normal course
of business on a need-to-know basis after the Employer has received assurances
that the confidential or proprietary information shall be kept confidential),
nor shall the Employee make use of any such confidential or proprietary
information for his own purposes or for the benefit of any person, firm,
corporation or other entity, except the Employer. As used in this Section, the
term "Confidential Information" means all information which is or becomes known
to the Employee and relates to matters such as trade secrets, research and
development activities, new or prospective lines of business (including analysis
and market research relating to potential expansion of the Business), books and
records, financial data, customer lists, marketing techniques, financing, credit
policies, vendor lists, suppliers, purchasers, potential business combinations,
distribution channels, services, procedures, pricing information and private
processes as they may exist from time to time; provided that the term
Confidential Information shall not include information that is or becomes
generally available to the public (other than as a result of a disclosure in
violation of this Agreement by the Employee or by a person who received such
information from the Employee in violation of this Agreement).
(ii) Compulsory Disclosures. If the Employee is
requested or (in the opinion of his counsel) required by law or judicial order
to disclose any Confidential Information, the Employee shall provide the
Employer with prompt notice of any such request or requirement so that the
Employer may seek an appropriate protective order or waiver of the Employee's
compliance with the provisions of this Section 5(a). The Employee will not
oppose any reasonable action by, and will cooperate with, the Employer to obtain
an appropriate protective order or other reliable assurance that confidential
treatment will be accorded the Confidential Information. If, failing the entry
of a protective order or the receipt of a waiver hereunder, the Employee is, in
the opinion of his counsel, compelled by law to disclose a portion of the
Confidential Information, the Employee may disclose to the relevant tribunal
without liability hereunder only that portion of the Confidential Information
which counsel advises the Employee he is legally required to disclose, and each
of the parties hereto agrees to exercise such party's best efforts to obtain
assurance that confidential treatment will be accorded such Confidential
Information. During the Employment Period, and for matters arising from events
or circumstances occurring during the Employment Period, the Employer will
provide for the defense of matters arising under this provision.
(b) Assignment of Inventions. The Employee agrees that he will
promptly and fully disclose to the Employer all inventions, ideas, software,
trade secrets or know-how (whether patentable or copyrightable or not) made or
conceived by the Employee (either solely or jointly with others) during the
Employment Period and for a period of six months thereafter, all tangible work
product derived therefrom (collectively, the "Ideas"). The Employee agrees that
all such Ideas shall be and remain the sole and exclusive property of the
Employer. On the request of the Employer, the Employee shall, during and after
the term of this Agreement, without charge to the Employer but at the expense of
the Employer, assist the Employer in any reasonable way to vest in the Employer,
title to all such Ideas, and to obtain any related patents,
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<PAGE> 10
trademarks or copyrights in all countries throughout the world. In this regard,
the parties shall execute and deliver any and all documents that the Employer
may reasonably request.
SECTION 6. Non-Competition; Non-Solicitation. The Employee
acknowledges and recognizes his possession of Confidential Information and
acknowledges the highly competitive nature of the business of the Employer and
its affiliates and subsidiaries and accordingly agrees that, in consideration of
the premises contained herein, he will not, during the Employment Period and for
one year after the date of termination of the Employment Period, for any reason
whatsoever, either individually or as an officer, director, stockholder, member,
partner, agent, consultant or principal of another business firm, (x) directly
or indirectly engage in North America, or any country in which the Employer or
any of its affiliates or subsidiaries actively engages in business during the
Employment Period, in any competitive business, (y) assist others in engaging in
any competitive business in the manner described in clause (x), or (z) induce
any employee of the Employer or any of its affiliates or subsidiaries to
terminate such person's employment with the Employer or such affiliate or
subsidiary or hire any employee of the Employer or any of its affiliates or
subsidiaries to work with any businesses affiliated with the Employee. The
Employee's ownership of not more than 1% of the outstanding capital stock of any
public corporation shall not in itself be deemed to be engaging in any
competitive business for purposes of this Section 6.
SECTION 7. General Provisions.
(a) Enforceability. It is the desire and intent of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, although the Employee
and the Employer consider the restrictions contained in this Agreement to be
reasonable for the purpose of preserving the Employer's goodwill and proprietary
rights, if any particular provision of this Agreement shall be adjudicated to be
invalid or unenforceable, such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
deletion to apply only with respect to the operation of such provision in the
particular jurisdiction in which such adjudication is made. It is expressly
understood and agreed that although the Employer and the Employee consider the
restrictions contained in Section 6 to be reasonable, if a final determination
is made by a court of competent jurisdiction that the time or territory or any
other restriction contained in this Agreement is unenforceable against the
Employee, the provisions of this Agreement shall be deemed amended to apply as
to such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable.
(b) Remedies. The parties acknowledge that the Employer's
damages at law would be an inadequate remedy for the breach by the Employee of
any provision of Section 5 or Section 6, and agree in the event of such breach
that the Employer may obtain temporary and permanent injunctive relief
restraining the Employee from such breach, and, to the extent permissible under
the applicable statutes and rules of procedure, a temporary injunction may be
granted immediately upon the commencement of any such suit. Nothing contained
herein shall be construed as prohibiting the Employer from pursuing any other
remedies available at law or
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<PAGE> 11
equity for such breach or threatened breach of Section 5 or Section 6 or for any
breach or threatened breach of any other provision of this Agreement.
(c) Withholding. The Employer shall withhold such amounts from
any compensation or other benefits payable to the Employee under this Agreement
on account of payroll and other taxes as may be required by applicable law or
regulation of any governmental authority.
(d) Employer's Successors. The Employer shall require any
successor or successors (whether direct or indirect and whether by purchase,
lease, merger, consolidation, liquidation or otherwise) to all or substantially
all of the Employer's business and/or assets, by an agreement in substance and
form satisfactory to the Employee, to assume this Agreement and to agree
expressly to perform this Agreement in the same manner and to the same extent as
the Employer would be required to perform it in the absence of a succession. The
Employer's failure to obtain such agreement prior to the effectiveness of a
succession shall be a breach of this Agreement and shall entitle the Employee to
all of the compensation and benefits to which he would have been entitled
hereunder if the Employer had involuntarily terminated his employment without
Cause immediately after such succession become effective. For all purposes under
this Agreement, the term "Employer" shall include any successor or successors to
the Employer's business and/or assets which executes and delivers the assumption
agreement described in the subsection or which becomes bound by this Agreement
by operation of law.
(e) Employee's Successors. This Agreement and all rights of
the Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributee, devisees and legatees.
(f) Indemnity. The Employer hereby agrees to indemnify and
hold the Employee harmless consistent with the Employer's policy against any and
all liabilities, expenses (including attorneys' fees and costs), claims,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any proceeding arising out of the Employee's
employment with the Employer (whether civil, criminal, administrative or
investigative, other than proceedings by or in the right of the Employer), if
with respect to the actions at issue in the proceeding the Employee acted in
good faith and in a manner Employee reasonably believed to be in, or not opposed
to, the best interests of the Employer, and (with respect to any criminal
action) Employee had no reason to believe Employee's conduct was unlawful. Said
indemnification arrangement shall (i) survive the termination of this Agreement,
(ii) apply to any and all qualifying acts of the Employee which have taken place
during any period in which he was employed by the Employer, irrespective of the
date of this Agreement or the term hereof, including, but not limited to, any
and all qualifying acts as an officer and/or director of any affiliate while the
Employee is employed by the Employer and (iii) be subject to any limitations
imposed from time to time under applicable law.
(g) Dispute Resolution; Attorney's Fees. The Employer and the
Employee agree that any dispute arising as to the parties' rights and
obligations hereunder shall be resolved by binding arbitration before an
arbitrator to be determined by mutually agreeable means. In
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<PAGE> 12
such event, each of the Employer and the Employee shall have the right to full
discovery. The Employer shall bear all costs of the arbitrator in any such
proceeding, and if the arbitration is definitively decided in the Employee's
favor, the Employee shall have the right, in addition to any other relief
granted by such arbitrator, to recover reasonable attorneys' fees; provided,
however, that the Employer shall have the right, in any dispute other than a
dispute relating to the occurrence of a Change in Control or the payment of an
amount under Section 3(e)(iii), in addition to any other relief granted by such
arbitrator, to recover reasonable attorneys' fees in the event that a claim
brought by the Employee is definitively decided in the Employer's favor (with
the amount of such fees being limited to those expended defending the claim or
claims decided in favor of the Employer). Any judgment by such arbitrator may be
entered into any court with jurisdiction over the dispute.
(h) Acknowledgment. The Employee acknowledges that he has been
advised by the Employer to seek the advice of independent counsel prior to
reaching agreement with the Employer on any of the terms of this Agreement. The
parties agree that no rule of construction shall apply to this Agreement which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting the Agreement.
(i) Amendments and Waivers. No modification, amendment or
waiver, of any provision of, or consent required by, this Agreement, nor any
consent to any departure herefrom, shall be effective unless it is in writing
and signed by the parties hereto. Such modification, amendment, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
(i) Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, sent by overnight courier, or sent by facsimile (with
confirmation of receipt), addressed as follows:
If to the Employer:
Heafner Tire Group, Inc.
2105 Water Ridge Parkway, Suite 500
Charlotte, North Carolina 28217
Attention: President
Facsimile: (704) 423-8987
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<PAGE> 13
with a copy to:
Howard, Smith & Levin LLP
1330 Avenue of the Americas
New York, New York 10019
Attention: Scott F. Smith
Facsimile: (212) 841-1010
and:
Charlesbank Capital Partners, LLC
600 Atlantic Avenue
Boston, Massachusetts 02210-2203
Attention: Mark A. Rosen and Tami E. Nason
Facsimile: (617) 619-5402
with a copy to:
Skadden, Arps, Slate Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Facsimile: (212) 735-2000
Attention: David J. Friedman
If to the Employee:
David H. Taylor
5500 Hardison Road
Charlotte, NC 28226
or at such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. If such notice
or communication is mailed, such communication shall be deemed to have been
given on the fifth business day following the date on which such communication
is posted.
(j) Descriptive Headings; Certain Interpretations. Descriptive
headings are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement. Except as otherwise expressly
provided in this Agreement: (i) any reference in this Agreement to any
agreement, document or instrument includes all permitted supplements and
amendments; (ii) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (iii) the words
"include," "included" and "including" are not limiting; and (iv) a reference to
a person or entity includes its permitted successors and assigns.
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<PAGE> 14
(k) Counterparts; Entire Agreement. This Agreement may be
executed in any number of counterparts, and each such counterpart hereof shall
be deemed to be an original instrument, but all such counterparts together shall
constitute one agreement. This Agreement and the Other Agreements contain the
entire agreement among the parties with respect to the transactions contemplated
by this Agreement and the Other Agreements and supersede all other or prior
written or oral agreements or understandings among the parties with respect to
the Employee's employment by the Employer. The Existing Employment Agreement is
expressly superseded and hereby amended and restated in its entirety by this
Agreement.
(L) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NORTH CAROLINA.
(M) CONSENT TO JURISDICTION. EACH OF THE EMPLOYER AND THE
EMPLOYEE HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF
NORTH CAROLINA SITTING IN MECKLENBURG COUNTY AND ALL STATE COURTS OF THE STATE
OF NORTH CAROLINA SITTING IN MECKLENBURG COUNTY FOR PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY, AND THE EMPLOYEE AGREES NOT TO COMMENCE ANY LEGAL
PROCEEDING RELATING THERETO EXCEPT IN SUCH COURTS. EACH OF THE EMPLOYER AND THE
EMPLOYEE IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH HE MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH COURTS AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE
PARTIES HERETO HEREBY CONSENTS TO SERVICE OF PROCESS BY NOTICE IN THE MANNER
SPECIFIED IN SECTION 7(I) AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO SERVICE OF
PROCESS IN SUCH MANNER.
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
HEAFNER TIRE GOURP, INC.
By: /s/ J. Michael Gaither
-----------------------------------------
J. Michael Gaither
Executive Vice President, General Counsel
and Secretary
/s/ David H. Taylor
----------------------------------
David H. Taylor
<PAGE> 1
EXHIBIT 10.30
EXECUTIVE SEVERANCE AGREEMENT, dated as of November 1, 1999
(the "Agreement"), between Heafner Tire Group, Inc., a
Delaware corporation (the "Employer"), and Ray C. Barney (the
"Employee").
The Speed Merchant, Inc., a California corporation d/b/a the
Speed Merchant and Competition Parts Warehouse and a subsidiary of the Employer
(the "Speed Merchant"), and the Employee desire to have this Agreement supersede
any prior or existing agreements or understandings between them including,
without limitation, the Amended and Restated Employment Agreement dated May 20,
1998 between the Speed Merchant and Employee; the Executive Severance Agreement
dated September 16, 1999 between the Employer and Employee; the Stock Option
Agreement between Employer and Employee dated September 16, 1999; and the
Securities Purchase and Stockholders Agreement between Employer and Employee
dated September 16, 1999, provided , however, this Agreement does not supersede
the Settlement Agreement and Release dated September 16, 1999 between Employer
and Employee
In consideration of (i) the Employee's agreement to supply
services under this Agreement and (ii) the mutual agreements set forth below,
the sufficiency of which is hereby acknowledged, the Employer and the Employee
agree as follows:
SECTION 1. Employment Relationship.
(a) Employment by Employer. The Employer hereby employs the
Employee, and the Employee hereby agrees to be employed by the Employer, as
President of the CPW Division of the Employer, and the Employee will devote all
of his business time, attention, knowledge and skills and use his best efforts
during the Employment Period to perform services and duties consistent with his
title and position (the "Services") for the Employer in accordance with
directions given to the Employee from time to time by the Board of Directors of
the Employer.
(b) Employment Period. The period commencing on the date of
this Agreement and ending on the date on which this Agreement is terminated is
referred to herein as the "Employment Period." During the Employment Period, the
Employee will be an at-will employee of the Employer. The Employment Period
shall be freely terminable for any reason by either party at any time.
SECTION 2. Compensation and Benefits. During the Employment
Period:
(a) Base Compensation. The Employer shall pay to the Employee
a base salary of $230,000 per annum (the "Base Salary"), payable in accordance
with the Employer's payroll practices. The Base Salary shall be increased (but
not decreased) subject to additional discretionary increases (but not decreases)
as determined periodically by the Board of Directors.
<PAGE> 2
(b) Additional Compensation. As additional compensation for
the Services, the Employer shall pay to the Employee an amount equal to (A) with
respect to calendar year 1999 , the amount owed to Employee under that certain
bonus plan in effect for CPW which is 1.5% of net income for CPW payable within
45 days after the end of each fiscal quarter for the period, (B) with respect to
the period from January 1, 2000 through December 31, 2001, the greater of (x) an
annual fixed bonus payment (the "Fixed Bonus") equal to 30% of the Employee's
Base Salary for such year, and (y) an annual bonus payment at the "Minimum",
"Plan" or "Maximum" percentage payment levels, as the case may be, in accordance
with the terms and conditions of the Employer's then existing Executive Bonus
Plan or such other annual incentive compensation as the Board of Directors of
the Employer determines in its sole discretion to pay the Employee and (C) with
respect to calendar year 2002 and thereafter, an annual bonus payment at the
"Minimum", "Plan" or "Maximum" percentage payment levels, as the case may be, in
accordance with the terms and conditions of the Employer's then existing
Executive Bonus Plan or such other annual incentive compensation as the Board of
Directors of the Employer determines in its sole discretion to pay the Employee,
payable in all cases on or around March 1 of the following year. The Employee
will be entitled to participate in any Executive Bonus Plan as a Level 1
Employee. The Employee acknowledges that the Employer may terminate or modify
its Executive Bonus Plan and other incentive plans (excluding the Fixed Bonus
payable hereunder) at any time, although no termination or amendment affecting
the Employee will be made effective unless it is consistently applied to other
employees participating in such plans. In the event of any conflict or
inconsistency between the terms of the any Executive Bonus Plan and the terms of
Section 2(b) or 3 of this Agreement, the terms of Sections 2(b) and 3 of this
Agreement shall control.
(c) Stock Options. The Employee has been granted options to
acquire shares of Class A Common Stock of the Employer, pursuant to the Stock
Option Agreement, dated as of the date hereof, between the Employer and the
Employee (the "1999 Stock Option Agreement"). The stock options granted to the
Employee under the 1999 Stock Option Agreement are granted pursuant to the
Employer's 1999 Stock Option Plan and are subject to vesting in accordance with
the terms of the 1999 Stock Option Agreement Except as otherwise provided in the
1999 Stock Option Agreement and in this Agreement with respect to payments under
the Executive Bonus Plan and except as hereafter mutually agreed by the Employer
and the Employee, in the event of a Change in Control (as defined below), to the
extent not fully vested at such time, the Employee shall become fully vested in
all awards heretofore or hereafter granted to him under all incentive
compensation, deferred compensation, stock option, stock appreciation rights,
restricted stock, phantom stock or other similar plans maintained by the
Employer.
(d) Benefit Plans. During the Employment Period, the Employee
shall be entitled to receive benefits from the Employer consistent with those
currently in effect for the Employer's senior executives (including deferred
compensation plans, and company automobile and financial planning perquisites),
as those benefits are revised from time to time by the Board of Directors of the
Employer. Nothing contained herein is intended to require the Employer to
maintain any existing benefits or create any new benefits. The Employee will be
entitled to participate in the Employer's deferred compensation program at the
level of $5500 contribution per year and to receive benefits thereunder in
accordance with the terms and conditions of such program. If the Employment
Period is terminated by the Employer or the Employee as set forth
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<PAGE> 3
in Section 3(e)(ii) below, the Employee and relevant family members shall be
entitled to continue to participate in the Employer's welfare benefit plans at
the Employer's expense for a period of 18 months after the termination date. If
the Employment Period is terminated by the Employer or the Employee as set forth
in Section 3(e)(iii) below, the Employee and relevant family members shall be
entitled to continue to participate in the Employer's welfare benefit plans at
the Employer's expense for a period of three years after the termination date.
For purposes of this Section 2(d), the Employees' relevant family members shall
be those members of the Employee's immediate family covered by the applicable
welfare benefit plan immediately prior to the termination date.
(e) Vacation and Holidays. The Employee shall be entitled to a
minimum of four weeks' vacation each year and paid holidays in accordance with
the Employer's policy.
(f) No Mitigation. The Employee shall not be required to
mitigate the amount of any payments under this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that the Employee may receive from any other source.
SECTION 3. Termination.
(a) Death or Disability. If the Employee dies during the
Employment Period, the Employment Period shall terminate as of the date of the
Employee's death. If the Employee becomes unable to perform the Services for 90
consecutive days due to a physical or mental disability, (i) the Employer may
elect to terminate the Employment Period at any time thereafter, and (ii) the
Employment Period shall terminate as of the date of such election. All
disabilities shall be certified by a physician acceptable to both the Employer
and the Employee, or, if the Employer and the Employee cannot agree upon a
physician within 15 days, by a physician selected by physicians designated by
each of the Employer and the Employee. The Employee's failure to submit to any
physical examination by such physician after such physician has given reasonable
notice of the time and place of such examination shall be conclusive evidence of
the Employee's inability to perform his duties hereunder.
(b) Cause. The Employer, at its option, may terminate the
Employment Period and all of the obligations of the Employer under this
Agreement for Cause. The Employer shall have "Cause" to terminate the Employee's
employment hereunder after May 20, 2001in the event of (i) the Employee's
conviction of or plea of guilty or nolo contendere to a felony, (ii) the
Employee's gross negligence in the performance of the Services, which is not
corrected within 15 business days after written notice, (iii) the Employee's
knowingly dishonest act, or knowing bad faith or willful misconduct in the
performance of the Services, which is not corrected within 15 business days
after written notice, or (iv) the Employee's material breach of any of his
obligations under Section 5, which is not corrected within a reasonable period
of time (determined in light of the cure, if any, appropriate to such material
breach, but in no event less than 15 business days) after written notice. If the
Employee is charged with a felony, then during the period while such charge or
related indictment remains outstanding and until finally determined, the
Employer shall have the right to suspend the Employee without compensation. The
employer shall have "Cause" to terminate the Employee's employment hereunder on
or before May 20. 2001, in the event of (i) a proven or admitted act of fraud,
misappropriation or embezzlement by the Executive that is
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<PAGE> 4
detrimental to the Employer or (ii) the Employee's conviction of or plea of
guilty or nolo contendere to a felony. If the Employee is charged with a felony,
then during the period while such charge or related indictment remains
outstanding and until finally determined, the Employer shall have the right to
suspend the Employee without compensation.
(c) Without Cause. The Employer, at its option, may terminate
the Employment Period without Cause at any time.
(d) Termination by Employee for Good Reason. The Employee may
terminate this Agreement upon 60 days' prior written notice to the Employer for
Good Reason (as defined below) if the basis for such Good Reason is not cured
within a reasonable period of time (determined in light of the cure appropriate
to the basis of such Good Reason, but in no event less than 15 business days)
after the Employer receives written notice specifying the basis of such Good
Reason. "Good Reason" shall mean (i) the failure of the Employer to pay any
undisputed amount due under this Agreement or a reduction in Base Salary, Fixed
Bonus or benefits provided under this Agreement (other than immaterial
reductions in benefits or a reduction in benefits or salary applicable to all of
the Employer's bonus eligible employees) or a termination of, or reduction in
the percentage level of, the "plan" or "target" bonus opportunity applicable to
Employee from the "Plan" percentage level applicable to a Level 1 Employee under
the 1999 Executive Bonus Plan in effect on the date hereof (the "Effective Date
Plan Percentage"), (ii) a substantial diminution in the status, position and
responsibilities of the Employee or (iii) the Employer requiring the Employee to
be based at any office or location that requires a relocation or commute greater
than 50 miles from the office or location to which the Employee is currently
assigned, provided, however, that Good Reason shall not be deemed to exist due
to the travel requirements consistent with the performance of the Employee's
services hereunder.
(e) Payments in the Event of Termination. (i) Basic
Termination Payment. Upon the termination of the Employment Period at any time
for any reason, the Employer shall pay to the Employee or his estate the Base
Salary earned to the date of termination, and if such termination occurs after
December 31st of any year for which a bonus is payable pursuant to Section 2(b)
but before such bonus has been paid, the Employer shall pay to the Employee or
his estate the bonus due for the preceding year. Upon the termination of the
Employment Period after May 31, 2000 and during calendar year 2000, or during
calendar year 2001 for any reason other than the reasons set forth in Section
3(e)(ii) or 3(e)(iii) below, the Employer shall pay to the Employee within five
business days after such termination, a lump-sum amount equal to the Fixed Bonus
earned to the date of termination. Any Fixed Bonus payable under this Section
3(e)(i) shall be prorated if payable for periods of less than one year and shall
be payable regardless of whether the Employee is still in the employ of the
Employer on the date such bonuses are otherwise declared or payable.
(ii) Additional Involuntary Termination Payment. Upon
the termination of the Employment Period at any time by the Employer without
Cause or by the Employee for Good Reason, the Employer shall pay to the Employee
within five business days of such termination a lump-sum amount (in addition to
the amount payable under the first sentence of Section 3(e)(i)) equal to (x) the
sum of the Employee's annual Base Salary at the annual rate in effect on the
date of termination and the Severance Bonus Amount, multiplied by (y) 1.5.
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<PAGE> 5
Notwithstanding the foregoing, the Employee shall be entitled to no payment
under this Section 3(e)(ii) if he is entitled to receive a payment under Section
3(e)(iii). "Severance Bonus Amount" means an amount equal to the Employee's Base
Salary at the annual rate in effect on the date of termination multiplied by a
percentage, which is the greater of (1) the Effective Date Plan Percentage and
(2) the "plan" or "target" bonus percentage then applicable under any executive
bonus plan or other incentive compensation program and (3) the "fixed" bonus, if
still in effect for purposes of determining the Employee's annual bonus for the
year of termination.
(iii) Additional Change in Control Payment. Upon the
termination of the Employment Period (x) by the Employer without Cause upon or
prior to a Change in Control, provided that the Employee reasonably demonstrates
that such termination occurred at the request of a third party participating in,
or otherwise in anticipation of or in connection with, such Change in Control,
or (y) by the Employee with Good Reason or by the Employer for any reason other
than for Cause within one year after a Change in Control, then the Employer
shall pay to the Employee within five business days of such termination a
lump-sum amount (in addition to the amount payable under the first sentence of
Section 3(e)(i)) equal to the sum of (A) the higher of (1) the Employee's annual
Base Salary at the date of such termination or (2) the Employee's annual Base
Salary at the time of the Change in Control, in each case multiplied by three,
and (B) the Severance Bonus Amount multiplied by three. If the Employment Period
is terminated by the Employee for any reason other than with Good Reason on or
after the first anniversary of a Change in Control but no later than the 30th
day after such first anniversary, the Employee shall be entitled to the greater
of (x) 50% of the payments specified in this Section 3(e)(iii), or (y) the
payments of Base Salary and bonus under the CPW bonus plan that Employee would
have received if he had remained employed through May 31, 2001. If the
Employment Period is terminated by the Employee with Good Reason at any time on
or after the first anniversary of a Change in Control, the Employee shall be
entitled to the payment specified in Section 3(e)(ii).
(iv) Change in Control Defined. "Change in Control"
means the first to occur of any of the following: (A) the sale (including by
merger, consolidation or sale of stock of subsidiaries or any other method) of
all or substantially all of the assets of the Employer and its consolidated
subsidiaries (taken as a whole) to any person or entity not directly or
indirectly controlled by the holders of at least 50% of the Combined Voting
Power of the then outstanding shares of capital stock of the Employer (excluding
shares owned by employees of the Employer as of the date of determination) (B)
at any time prior to the consummation of an initial public offering of Class A
Common Stock of the Employer or other common stock of the Employer having the
voting power to elect directors, a transaction (except pursuant to such initial
public offering) resulting in the Principal Shareholders owning, collectively,
less than 50% of the Combined Voting Power of the then outstanding shares of
capital stock of the Employer (excluding shares owned by employees of the
Employer as of the date of determination), (C) at any time after the
consummation of an initial public offering of Class A Common Stock of the
Employer or other common stock of the Employer having the voting power to elect
directors, the acquisition (except pursuant to such initial public offering) by
any person or entity (other than the Principal Shareholders) not directly or
indirectly controlled by the Employer's stockholders of more than 30% of the
Combined Voting Power of the then outstanding shares of capital stock of the
Employer (excluding shares owned by employees of the Employer as of the date of
determination), (D) individuals serving as directors of the Employer on the date
hereof and who
-5-
<PAGE> 6
were nominated or selected to serve as directors by one or more Principal
Shareholders (together with any new directors whose election was approved by a
vote of (x) such individuals or directors whose election was previously so
approved or (y) Principal Shareholders holding a majority of the aggregate
voting power of the capital stock of the Employer held by all Principal
Shareholders) cease for any reason to constitute a majority of the Board of
Directors of the Employer, (E) the adoption of a plan relating to the
liquidation or dissolution of the Employer in connection with an equity
investment or sale or a business combination transaction or (F) any other event
or transaction that the Board of Directors of the Employer deems to be a Change
in Control. "Combined Voting Power" with respect to capital stock of the
Employer means the number of votes such stock is normally entitled (without
regard to the occurrence of any contingency) to vote in an election of directors
of the Employer. "Principal Shareholders" means (i) Charlesbank Equity Fund IV,
Limited Partnership and the investors in such fund, (ii) Charlesbank Equity Fund
IV G.P. Limited Partnership, (iii) Charlesbank Capital Partners, LLC (and any
other fund managed by Charlesbank Capital Partners, LLC), (iv) any investor
(other than The 1818 Mezzanine Fund, L.P.) whose investment in the Employer is
approved by the representative of management on the board of the Employer, (v)
any new investors in the Company designated as Principal Shareholders by
Charlesbank Capital Partners, LLC within one year of the initial investment by
Charlesbank Equity Fund IV, Limited Partnership, and (vi) any corporation,
partnership, limited liability company or other entity a majority of the capital
stock or other ownership interests of which are directly or indirectly owned by
any of the foregoing.
(v) Other Provisions Applicable to Payments. Any
amounts due under this Section 3 and not paid when due shall bear interest
(compounded annually) for the period from and including the date payable to but
excluding the date paid at a rate per annum equal to the sum of (x) four percent
and (y) the rate publicly announced by BankBoston, N.A. as its "prime rate."
(f) Termination of Obligations. In the event of termination of
the Employment Period in accordance with this Section 3, all obligations of the
Employer and the Employee under this Agreement shall terminate, except for any
amounts payable by the Employer as specifically set forth in Section 3(e);
provided, however, that notwithstanding anything to the contrary contained in
this Agreement, the provisions of Section 5 shall survive such termination in
accordance with their respective terms and the relevant provisions of Section 6
shall survive such termination indefinitely. In the event of termination of the
Employment Period in accordance with this Section 3, the Employee agrees to
cooperate with the Employer in order to ensure an orderly transfer of the
Employee's duties and responsibilities.
SECTION 4. Parachute Excise Tax Gross-Up
(a) If, as a result of any payment or benefit provided under
this Agreement or under any other plan, arrangement or other agreement with the
Employer or any entity affiliated with the Employer, either alone or together
with such other payments and benefits which the Employee receives or is then
entitled to received from the Employer, the Employee becomes subject to the
excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), (together with any interest and penalties thereon an
"Excise Tax"), the Employer shall pay the Employee an amount (the "Gross-Up
Payment") sufficient to place the
-6-
<PAGE> 7
Employee in the same after-tax financial position that he would have been in if
he had not incurred any tax liability under Section 4999 of the Code. For
purposes of determining whether the Employee is subject to an Excise Tax and the
amount of any Gross-Up Payment, (i) any payments or benefits received by the
Employee (whether pursuant to the terms hereof or pursuant to any plan,
arrangement or other agreement with the Employer or any entity affiliated with
the Employer) which payments ("Contingent Payments") are deemed to be contingent
on a change described in Section 280G(b)(2)(A)(i) of the Code shall be taken
into account and (ii) the Employee shall be deemed to pay federal, state and
local taxes at the highest marginal applicable rates of such taxes for the
calendar year in which the Gross-Up Payment is to be made, net of the maximum
deduction from federal income taxes which could be obtained from deduction of
any state and local taxes deemed paid by the Employee.
(b) The determination of whether the Employee is subject to
Excise Tax and the amounts of such Excise Tax and Gross-Up Payment, as well as
other calculations hereunder, shall be made at the expense of the Employer by
Arthur Andersen, which shall provide the Employee with prompt written notice
(the "Employer Notice") setting forth their determinations and calculations.
Within 30 days following the receipt by the Employee of the Employer Notice, the
Employee may notify the Employer in writing (the "Employee Notice") if the
Employee disagrees with such determinations or calculations, setting forth the
reasons for any such disagreement. If the Employer and the Employee do not
resolve such disagreement within 10 business days following receipt by the
Employer of the Employee Notice, such dispute will be resolved in accordance
with Section 6(f). The Employer shall pay all reasonable expense incurred by
either party in connection with the determinations, calculations, disagreements
or resolutions pursuant to this paragraph, including, but not limited to,
reasonable legal, consulting or other similar fees.
(c) The Employee shall notify the Employer in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Employer of a Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than 10 business days after the Employee is
informed in writing of such claim and shall apprise the Employer of the nature
of such claim and the date of which such claim is requested to be paid. The
Employee shall not pay such claim prior to the expiration of the 30 day period
following the date on which the Employee gives such notice to the Employer (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Employer notifies the Employee in writing prior to
the expiration of such period that it desires to contest such claim, the
Employee shall:
(i) give the Employer any information reasonably
requested by the Employer relating to such claim;
(ii) take such action in connection with contesting
such claim as the Employer shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Employer and reasonably
satisfactory to the Employee;
-7-
<PAGE> 8
(iii) cooperate with the Employer in good faith in
order to effectively contest such claim; and
(iv) permit the Employer to participate in any
proceedings relating to such claim;
provided, however, that the Employer shall bear and pay
directly all costs and expenses (including, but not limited to, additional
interest and penalties and related legal, consulting or other similar fees)
incurred in connection with such contest and shall indemnify and hold the
Employee harmless, on an after-tax basis, for any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses.
(d) The Employer shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Employer shall
determine; provided, however, that if the Employer directs the Employee to pay
such claim and sue for a refund, the Employer shall advance the amount of such
payment to the Employee on an interest-free basis, and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or other tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and provided, further, that if the Employee is required to extend the statute of
limitations to enable the Employer to contest such claim, the Employee may limit
this extension solely to such contested amount. The Employer's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Employee shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority. In addition, no position may be taken nor
any final resolution be agreed to by the Employer without the Employee's consent
if such position or resolution could reasonably be expected to adversely affect
the Employee (including any other tax position of the Employee unrelated to the
matters covered hereby).
(e) As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Employer hereunder, it is possible that Gross-Up Payments which will not have
been made by the Employer should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Employer exhausts its remedies and the Employee thereafter is required to pay to
the Internal Revenue Service an additional amount in respect of any Excise Tax,
the Employer (in the same fashion as set forth in Section 4(b) shall determine
the amount of the Underpayment that has occurred and any such Underpayment shall
promptly be paid by the Employer to or for the benefit of the Employee.
-8-
<PAGE> 9
(f) If, after the receipt by Employee of an amount advanced by
the Employer in connection with the contest of an Excise Tax claim, the Employee
becomes entitled to receive any refund with respect to such claim, the Employee
shall promptly pay to the Employer the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Employee of an amount advanced by the Employer in connection with
an Excise Tax claim, a determination is made that Employee shall not be entitled
to any refund with respect to such claim and the Employer does not notify the
Employee in writing of its intent to contest the denial of such refund prior to
the expiration of 30 days after receiving notice of such determination, such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall be offset, to the extent thereof, by the amount of the
Gross-Up Payment.
SECTION 5. Confidential Information; Non-Competition.
(a) Stock Purchase Agreement. The Employee acknowledges and
agrees that pursuant to Section 3.6 of that certain Stock Purchase Agreement
(herein "Stock Purchase Agreement"), dated March 11, 1998, among Employee and
others, Employee agreed to certain Confidentiality and Non-Competition
provisions which are hereby ratified and affirmed by Employee and Employer, and
nothing in this Agreement shall affect the validity of such provisions.
(b) Incorporation by Reference. Without in any way limiting
the terms and conditions of the Stock Purchase Agreement referred to in
subsection (a) above, the Employer and the Employee hereby agree that the terms
and conditions of Section 6 of the Existing Employment Agreement shall be
incorporated by reference herein in their entirety, except that references to
the "Company" in such Section (other than Section 6(f)) shall be deemed to be
references to the Employer hereunder.
SECTION 6. General Provisions.
(a) Enforceability. It is the desire and intent of the parties
hereto that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, although the Employee
and the Employer consider the restrictions contained in this Agreement to be
reasonable for the purpose of preserving the Employer's goodwill and proprietary
rights, if any particular provision of this Agreement shall be adjudicated to be
invalid or unenforceable, such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
deletion to apply only with respect to the operation of such provision in the
particular jurisdiction in which such adjudication is made. It is expressly
understood and agreed that although the Employer and the Employee consider the
restrictions contained in Section 5 to be reasonable, if a final determination
is made by a court of competent jurisdiction that the time or territory or any
other restriction contained in this Agreement is unenforceable against the
Employee, the provisions of this Agreement shall be deemed amended to apply as
to such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable.
-9-
<PAGE> 10
(b) Remedies. The parties acknowledge that the Employer's
damages at law would be an inadequate remedy for the breach by the Employee of
any provision of Section 5, and agree in the event of such breach that the
Employer may obtain temporary and permanent injunctive relief restraining the
Employee from such breach, and, to the extent permissible under the applicable
statutes and rules of procedure, a temporary injunction may be granted
immediately upon the commencement of any such suit. Nothing contained herein
shall be construed as prohibiting the Employer from pursuing any other remedies
available at law or equity for such breach or threatened breach of Section 5 or
for any breach or threatened breach of any other provision of this Agreement.
(c) Withholding. The Employer shall withhold such amounts from
any compensation or other benefits payable to the Employee under this Agreement
on account of payroll and other taxes as may be required by applicable law or
regulation of any governmental authority.
(d) Employer's Successors. The Employer shall require any
successor or successors (whether direct or indirect and whether by purchase,
lease, merger, consolidation, liquidation or otherwise) to all or substantially
all of the Employer's business and/or assets, by an agreement in substance and
form satisfactory to the Employee, to assume this Agreement and to agree
expressly to perform this Agreement in the same manner and to the same extent as
the Employer would be required to perform it in the absence of a succession. The
Employer's failure to obtain such agreement prior to the effectiveness of a
succession shall be a breach of this Agreement and shall entitle the Employee to
all of the compensation and benefits to which he would have been entitled
hereunder if the Employer had involuntarily terminated his employment without
Cause immediately after such succession become effective. For all purposes under
this Agreement, the term "Employer" shall include any successor or successors to
the Employer's business and/or assets which executes and delivers the assumption
agreement described in the subsection or which becomes bound by this Agreement
by operation of law.
(e) Employee's Successors. This Agreement and all rights of
the Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributee, devisees and legatees.
(f) Indemnity. The Employer hereby agrees to indemnify and
hold the Employee harmless consistent with the Employer's policy against any and
all liabilities, expenses (including attorneys' fees and costs), claims,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any proceeding arising out of the Employee's
employment with the Employer (whether civil, criminal, administrative or
investigative, other than proceedings by or in the right of the Employer), if
with respect to the actions at issue in the proceeding the Employee acted in
good faith and in a manner Employee reasonably believed to be in, or not opposed
to, the best interests of the Employer, and (with respect to any criminal
action) Employee had no reason to believe Employee's conduct was unlawful. Said
indemnification arrangement shall (i) survive the termination of this Agreement,
(ii) apply to any and all qualifying acts of the Employee which have taken place
during any period in which he was employed by the Employer, irrespective of the
date of this Agreement or the term hereof, including, but not limited to, any
and all qualifying acts as an officer and/or director of any affiliate while the
Employee is
-10-
<PAGE> 11
employed by the Employer and (iii) be subject to any limitations imposed from
time to time under applicable law.
(g) Dispute Resolution; Attorney's Fees. The Employer and the
Employee agree that any dispute arising as to the parties' rights and
obligations hereunder shall be resolved by binding arbitration before an
arbitrator to be determined by mutually agreeable means. In such event, each of
the Employer and the Employee shall have the right to full discovery. The
Employer shall bear all costs of the arbitrator in any such proceeding, and if
the arbitration is definitively decided in the Employee's favor, the Employee
shall have the right, in addition to any other relief granted by such
arbitrator, to recover reasonable attorneys' fees; provided, however, that the
Employer shall have the right, in any dispute other than a dispute relating to
the occurrence of a Change in Control or the payment of an amount under Section
3(e)(iii), in addition to any other relief granted by such arbitrator, to
recover reasonable attorneys' fees in the event that a claim brought by the
Employee is definitively decided in the Employer's favor (with the amount of
such fees being limited to those expended defending the claim or claims decided
in favor of the Employer). Any judgment by such arbitrator may be entered into
any court with jurisdiction over the dispute.
(h) Acknowledgment. The Employee acknowledges that he has been
advised by the Employer to seek the advice of independent counsel prior to
reaching agreement with the Employer on any of the terms of this Agreement. The
parties agree that no rule of construction shall apply to this Agreement which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting the Agreement.
(i) Amendments and Waivers. No modification, amendment or
waiver, of any provision of, or consent required by, this Agreement, nor any
consent to any departure herefrom, shall be effective unless it is in writing
and signed by the parties hereto. Such modification, amendment, waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
(i) Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by registered or certified mail, postage prepaid, return
receipt requested, sent by overnight courier, or sent by facsimile (with
confirmation of receipt), addressed as follows:
If to the Employer:
Heafner Tire Group, Inc.
2105 Water Ridge Parkway, Suite 500
Charlotte, North Carolina 28217
Attention: President
Facsimile: (704) 423-8987
-11-
<PAGE> 12
with a copy to:
Covington & Burling
1330 Avenue of the Americas
New York, New York 10019
Attention: Scott F. Smith
Facsimile: (212) 841-1010
and:
Charlesbank Capital Partners, LLC
600 Atlantic Avenue
Boston, Massachusetts 02210-2203
Attention: Mark A. Rosen and Tami E. Nason
Facsimile: (617) 619-5402
with a copy to:
Skadden, Arps, Slate Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Facsimile: (212) 735-2000
Attention: David J. Friedman
If to the Employee:
Ray C. Barney
216 Fieldcrest Court
Danville, CA 94506
or at such other address as the party to whom notice
is to be given may have furnished to the other party in writing in accordance
herewith. If such notice or communication is mailed, such communication shall be
deemed to have been given on the fifth business day following the date on which
such communication is posted.
(j) Descriptive Headings; Certain Interpretations. Descriptive
headings are for convenience only and shall not control or affect the meaning or
construction of any provision of this Agreement. Except as otherwise expressly
provided in this Agreement: (i) any reference in this Agreement to any
agreement, document or instrument includes all permitted supplements and
amendments; (ii) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (iii) the words
"include," "included" and "including" are not limiting; and (iv) a reference to
a person or entity includes its permitted successors and assigns.
-12-
<PAGE> 13
(k) Counterparts; Entire Agreement. This Agreement may be
executed in any number of counterparts, and each such counterpart hereof shall
be deemed to be an original instrument, but all such counterparts together shall
constitute one agreement. This Agreement and the 1999 Stock Option Agreement
contain the entire agreement among the parties with respect to the transactions
contemplated by this Agreement and the 1999 Stock Option Agreement and supersede
all other or prior written or oral agreements or understandings among the
parties with respect to the Employee's employment by the Employer. Speed
Merchant, the Employer and the Employee hereby agree that the Existing
Employment Agreement is expressly terminated and superseded in its entirety by
this Agreement (excluding Section 6 thereof which is incorporated herein by
reference as set forth in Section 5 hereof).
(L) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OFCALIFORNIA.
(M) CONSENT TO JURISDICTION. EACH OF THE PARTIES TO THIS
AGREEMENT AGREES TO BE BOUND BY THE PROVISIONS SET FORTH IN EXHIBIT A TO THIS
AGREEMENT. EACH OF EMPLOYEE AND EMPLOYER HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT IN SAN
JOSE OR THE SUPERIOR COURT OF THE STATE OF CALIFORNIA, COUNTY OF SANTA CLARA FOR
THE PURPOSES OF ALL LEGAL PROCEEDINGS WHICH ARSIE OUR OF OR RELATE TO THIS
AGREMENT, AND EACH OF EMPLOYEE AND EMPLOYER AGREES NOT TO COMMENCE AND LEGAL
PROVEEDING RELATED THERETO EXCEPT IN SUCH COURT. EACH OF EMPLOYEE AND EMPLOYER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, AND OBJECTION WHICH
IT MAY NOW OF HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY SUCH COURT HAS BENN
BROUGHT IN AN INCONVENIENT FORUM.
(Signature page follows)
-13-
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
HEAFNER TIRE GROUP, INC.
By: /s/ Donald C. Roof
-------------------------------------
Donald C. Roof
President and Chief Executive Officer
/s/ Ray C. Barney
-----------------------------------------
Ray C. Barney
For purposes of Section 6(k) only:
THE SPEED MERCHANT, INC.
By: /s/ Donald C. Roof
--------------------------------------
Name: Donald C. Roof
Title: Chairman
<PAGE> 1
Heafner Tire Group, Inc. Exhibit 11.1
Computation of Earnings Per Share
(Unaudited)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Average shares outstanding during the period 5,203,896 6,062,322 4,736,501
Incremental shares under stock options and warrants computed
under the treasury stock method using the average market
price of issuer's stock during the period -- -- --
----------- ----------- ---------
Total shares for diluted EPS 5,203,896 6,062,322 4,736,501
=========== =========== =========
Income applicable to common shareholders:
Loss from operations before extraordinary charge -- (2,508,000) --
===========
Net income (loss) $(6,588,000) $(4,724,000) $ (14,000)
=========== =========== =========
(Loss) income per basic common share:
Loss from operations before extraordinary charge -- (0.41) --
Net income (loss) $ (1.27) $ (0.78) $ (0.00)
=========== =========== =========
Income (loss) per diluted share:
Loss from operations before extraordinary charge -- (0.41) --
Net income (loss) $ (1.27) $ (0.78) $ (0.00)
=========== =========== =========
</TABLE>
<PAGE> 1
Page 1 Exhibit 12.1
HEAFNER TIRE GROUP, INC.
Statement Regarding: Computation of Ratio of Earnings to Fixed Charges
and Preferred Stock Dividends
(AMOUNTS IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
Twelve months Twelve months Twelve months
Ended Ended Ended
December 31, December 31, December 31,
1999 1998 1997
(unaudited) (unaudited) (unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Consolidated pretax income (loss) from
continuing operations (6,936) (2,219) (254)
Interest 22,053 13,460 4,842
Interest portion of rent expense 9,545 6,474 2,985
------ ------ ------
EARNINGS 24,662 17,715 7,573
====== ====== ======
Interest 22,053 13,460 4,842
Interest portion of rent expense 9,545 6,474 2,985
------ ------ ------
FIXED CHARGES 31,598 19,934 7,827
====== ====== ======
RATIO OF EARNINGS TO FIXED CHARGES -- -- --
====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
HEAFNER TIRE GROUP, INC.
Corporate Structure Chart
Heafner Tire Group, Inc.
|
|
___________________________________________________________
| | |
Winston Tire Company The Speed Merchant, Inc. California Tire Company
|
|
Phoenix Racing, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HEAFNER
TIRE GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,497
<SECURITIES> 0
<RECEIVABLES> 117,117
<ALLOWANCES> 2,385
<INVENTORY> 148,865
<CURRENT-ASSETS> 283,501
<PP&E> 64,852
<DEPRECIATION> 17,228
<TOTAL-ASSETS> 459,246
<CURRENT-LIABILITIES> 193,840
<BONDS> 158,362
11,094
0
<COMMON> 53
<OTHER-SE> 10,468
<TOTAL-LIABILITY-AND-EQUITY> 459,246
<SALES> 1,016,589
<TOTAL-REVENUES> 1,016,589
<CGS> 764,386
<TOTAL-COSTS> 1,003,719
<OTHER-EXPENSES> (2,247)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,053
<INCOME-PRETAX> (6,936)
<INCOME-TAX> (348)
<INCOME-CONTINUING> (6,588)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,588)
<EPS-BASIC> (1.27)
<EPS-DILUTED> (1.27)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HEAFNER
TIRE GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. CERTAIN 1998 AMOUNTS HAVE
BEEN RECLASSIFIED TO CONFORM WITH THE 1999 PRESENTATION.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,648
<SECURITIES> 0
<RECEIVABLES> 111,691
<ALLOWANCES> 2,220
<INVENTORY> 133,221
<CURRENT-ASSETS> 262,659
<PP&E> 55,652
<DEPRECIATION> 12,850
<TOTAL-ASSETS> 430,821
<CURRENT-LIABILITIES> 206,097
<BONDS> 160,400
11,353
0
<COMMON> 51
<OTHER-SE> 18,073
<TOTAL-LIABILITY-AND-EQUITY> 430,821
<SALES> 716,485
<TOTAL-REVENUES> 716,485
<CGS> 530,618
<TOTAL-COSTS> 706,000
<OTHER-EXPENSES> (756)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,460
<INCOME-PRETAX> (2,219)
<INCOME-TAX> 289
<INCOME-CONTINUING> (2,508)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,216)
<CHANGES> 0
<NET-INCOME> (4,724)
<EPS-BASIC> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
