<PAGE>
As Filed with the Securities and Exchange Commission on November 9, 1999
Registration No. 333-75887
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Pre-Effective Amendment No. 2
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HDA PARTS SYSTEM, INC.
(exact name of registrant as specified in its charter)
----------------
See Table of Additional Registrants
----------------
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<S> <C> <C>
Alabama 5013 63-068-1070
(State or other jurisdiction
of (Primary standard industrial (IRS Employer
incorporation or organization) classification code number) Identification Number)
</TABLE>
520 Lake Cook Road
Deerfield, Illinois 60015
(847) 444-1095
(Address, including zip code, and telephone number, including
area code of Registrant's principal executive office)
JOHN P. MILLER
Chief Financial Officer
HDA Parts System, Inc.
520 Lake Cook Road Deerfield, Illinois 60015
(847) 444-1095
(Name, address, including zip code, and telephone
number, including area code, of Agent for service)
With Copies To:
RANDALL C. BASSETT, ESQ.
ELIZABETH A. BLENDELL, ESQ.
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
(213) 485-1234
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
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State
Exact Name of Registrant as Specified in its or Other Jurisdiction of
Charter Incorporation or Organization
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<S> <C>
City Truck Holdings, Inc. Delaware
City Truck and Trailer Parts of Alabama, Inc. Alabama
City Truck and Trailer Parts of Alabama, L.L.C. Alabama
City Truck and Trailer Parts of Tennessee, Inc. Tennessee
City Friction, Inc. Alabama
Truck & Trailer Parts, Inc. Georgia
Truckparts, Inc. Connecticut
Associated Brake Supply, Inc. California
Associated Truck Center, Inc. California
Onyx Distribution, Inc. California
Associated Truck Parts of Nevada, Inc. Nevada
Freeway Truck Parts of Washington, Inc. Washington
Tisco, Inc. California
Tisco of Redding, Inc. California
Active Gear, L.L.C. Washington
Superior Truck & Auto Supply, Inc. Massachusetts
QDSP Holdings, Inc. Delaware
Quality Distribution Service Partners, Inc. Delaware
Automotive Sales Company, Inc. Delaware
City Spring Works, Inc. Delaware
Fleetpride, Inc. Delaware
Holt Incorporated Delaware
SLM Power Group, Inc. Delaware
Truck City Parts, Inc. Delaware
Universal Joint Sales Company, Inc. Delaware
Wheatley Truck Parts, Inc. Delaware
CB Acquisition Sub, Inc. Delaware
New England Truck & Auto Service, Inc. Massachusetts
TBS, Incorporated Arizona
Four-T Sales & Service, Inc. Nebraska
Stats Remanufacturing Center, Inc. Nebraska
Power Export Distributing Company Texas
Power Equipment International, Inc. Texas
Parts Management Company Texas
Parts Holding Company Nevada
Specialized Sales & Service, Inc. Oregon
Parts Distributing Company, Ltd. Texas
Wheels and Brakes, Inc. Georgia
Specrite Brake Company Georgia
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell or offer these securities until the time the registration statement +
+filed with the Securities and Exchange Commission becomes effective. This +
+prospectus is not an offer to sell these securities and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted or would be unlawful prior to registration or qualification under +
+the securities laws of any such state. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 9, 1999
PROSPECTUS
HDA PARTS SYSTEM, INC.
OFFER TO EXCHANGE
$100,000,000 principal amount of its
12% senior subordinated notes due 2005,
which have been registered under the Securities Act,
for any and all of its outstanding 12% senior subordinated notes due 2005
Material Terms of the Exchange Offer
. The exchange offer expires at 5:00 p.m., New York City time, on ,
1999, unless extended.
. We will exchange all outstanding notes that are validly tendered and not
validly withdrawn for an equal principal amount of a new series of notes
which are registered under the Securities Act.
. The exchange offer is not subject to any conditions other than that it not
violate applicable law or any applicable interpretation of the staff of the
SEC.
. You may withdraw tenders of outstanding notes at any time before the exchange
offer expires.
. The exchange of notes will not be a taxable event for U.S. federal income tax
purposes.
. We will not receive any proceeds from the exchange offer.
. The terms of the new series of notes are substantially identical to the
outstanding notes, except for transfer restrictions and registration rights
relating to the outstanding notes.
. You may tender outstanding notes only in denominations of $1,000 and
multiples of $1,000.
. Our affiliates may not participate in the exchange offer.
Please refer to "Risk Factors" beginning on page 9 of this document for
a description of the risks you should consider when evaluating this investment.
We are not making this exchange offer in any state where it is not permitted.
Neither the Securities and Exchange Commission nor any state securities
commission has approved of the notes or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 1999.
<PAGE>
We have not authorized any dealer, salesperson or other person to give any
information or to make any representation other than those contained in this
prospectus. You must not rely upon any information or representation not
contained in this prospectus as if we had authorized it. This prospectus does
not constitute an offer to sell or the solicitation of an offer to buy any
securities other than the registered securities to which it relates, nor does
this prospectus constitute an offer to sell or the solicitation of an offer to
buy securities in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.
The information in this prospectus is current only as of the date on its
cover, and may change after that date. For any time after the cover date of
this prospectus, we do not represent that our affairs are the same as described
or that the information in this prospectus is correct, nor do we imply those
things by delivering this prospectus to you.
----------------
TABLE OF CONTENTS
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Page
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Summary.................................................................. 1
Summary Pro Forma Financial Data......................................... 8
Risk Factors............................................................. 9
Forward-Looking Statements............................................... 16
Market Data.............................................................. 16
The Exchange Offer....................................................... 17
Company History.......................................................... 28
Use of Proceeds.......................................................... 30
Capitalization........................................................... 30
Unaudited Pro Forma Financial Data....................................... 31
Selected Historical Financial and Operating Data......................... 47
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 48
Business................................................................. 56
Management............................................................... 65
Principal Stockholders................................................... 68
Material Relationships and Transactions.................................. 69
Description of Credit Facility........................................... 74
Description of Notes..................................................... 76
Material U.S. Federal Income Tax Consequences of the Exchange............ 124
Plan of Distribution..................................................... 125
Legal Matters............................................................ 125
Experts.................................................................. 126
Available Information.................................................... 127
Index to Financial Statements............................................ F-1
</TABLE>
<PAGE>
SUMMARY
The following summary contains basic information about this offering. It does
not contain all the information that may be important to you. For a more
complete understanding of this offering, we encourage you to read this entire
prospectus and the documents we have referred you to.
The Exchange Offer
The Exchange Offer.......... We are offering to exchange our exchange notes
for our outstanding private notes properly
tendered and accepted. You may tender outstanding
notes only in denominations of $1,000 and
multiples of $1,000. We will issue the exchange
notes on or promptly after the exchange offer
expires. As of the date of this prospectus,
$100,000,000 principal amount of private notes is
outstanding.
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on , 1999, unless
extended, in which case the expiration date will
mean the latest date and time to which we extend
the exchange offer.
Conditions to the Exchange
Offer....................... The exchange offer is not subject to any
conditions other than that it not violate
applicable law or any applicable interpretation
of the staff of the SEC. The exchange offer is
not conditioned upon any minimum principal amount
of private notes being tendered for exchange.
Procedures for Tendering
Private Notes..............
If you wish to tender your private notes for
exchange notes pursuant to the exchange offer you
must transmit to the U.S. Trust Company, National
Association, as exchange agent, on or before the
expiration date, either:
. a computer generated message transmitted
through The Depository Trust Company's
Automated Tender Offer Program system and
received by the exchange agent and forming
a part of a confirmation of book-entry
transfer in which you acknowledge and agree
to be bound by the terms of the letter of
transmittal; or
. a properly completed and duly executed
letter of transmittal, which accompanies
this prospectus, or a facsimile of the
letter of transmittal, together with your
private notes and any other required
documentation, to the exchange agent at its
address listed in this prospectus and on
the front cover of the letter of
transmittal.
If you cannot satisfy either of these procedures
on a timely basis, then you should comply with
the guaranteed delivery procedures described
below. By executing the
1
<PAGE>
letter of transmittal, you will make the
representations to us described under "The
Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners..........
If you are a beneficial owner whose private notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender your private notes in the
exchange offer, you should contact the registered
holder promptly and instruct the registered
holder to tender on your behalf. If you wish to
tender on your own behalf, you must either (1)
make appropriate arrangements to register
ownership of the private notes in your name or
(2) obtain a properly completed bond power from
the registered holder, before completing and
executing the letter of transmittal and
delivering your private notes.
Guaranteed Delivery If you wish to tender your private notes and time
Procedures.................. will not permit the documents required by the
letter of transmittal to reach the exchange agent
before the expiration date, or the procedure for
book-entry transfer cannot be completed on a
timely basis, you must tender your private notes
according to the guaranteed delivery procedures
described in this prospectus under the heading
"The Exchange Offer--Guaranteed Delivery
Procedures."
Acceptance of Private Notes
and Delivery of Exchange Subject to the satisfaction or waiver of the
Notes...................... conditions to the exchange offer, we will accept
for exchange any and all private notes which are
validly tendered in the exchange offer and not
withdrawn before 5:00 p.m., New York City time,
on the expiration date.
Withdrawal Rights........... You may withdraw the tender of your private notes
at any time before 5:00 p.m., New York City time,
on the expiration date, by complying with the
procedures for withdrawal described in this
prospectus under the heading "The Exchange
Offer--Withdrawal of Tenders."
Liquidated Damages.......... We issued the private notes on July 31, 1998 to
the initial purchasers pursuant to a purchase
agreement. At the same time, we entered into a
registration rights agreement with the initial
purchasers requiring us to make the exchange
offer. The registration rights agreement also
required us to:
. cause the registration statement filed with
respect to the exchange offer to be declared
effective by December 28, 1998; and
.consummate the exchange offer by March 13, 1999.
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We failed to comply with the above requirements
and are paying you liquidated damages in the form
of additional interest pursuant to the
registration rights agreement. The rate is
currently $20,000 per week in the aggregate.
Material U.S. Federal
Income Tax Consequences....
The exchange of notes will not be a taxable event
for United States federal income tax purposes.
For a discussion of the material federal income
tax consequences relating to the exchange of
notes, see "Material U.S. Federal Income Tax
Consequences of the Exchange."
Exchange Agent..............
U.S. Trust Company, National Association, the
trustee under the indenture governing the private
notes, is serving as the exchange agent.
Consequences of Failure to
Exchange Notes............. If you do not exchange your private notes for
exchange notes, you will continue to be subject
to the restrictions on transfer provided in the
private notes and in the indenture governing the
private notes. In general, the private notes may
not be offered or sold, unless registered under
the Securities Act, except pursuant to an
exemption from, or in a transaction not subject
to, the Securities Act and applicable state
securities laws. We do not currently plan to
register the private notes under the Securities
Act.
Registration Rights
Agreement................... You are entitled to exchange your private notes
for exchange notes with substantially identical
terms. The exchange offer satisfies this right.
After the exchange offer is completed, you will
no longer be entitled to any exchange or
registration rights with respect to your private
notes. Under the circumstances described in the
registration rights agreement, you may require us
to file a shelf registration statement under the
Securities Act.
We explain the exchange offer in greater detail beginning on page 17.
3
<PAGE>
The Exchange Notes
The form and terms of the exchange notes are the same as the form and terms
of the private notes, except that the exchange notes will be registered under
the Securities Act and, therefore, the exchange notes will not be subject to
the transfer restrictions, registration rights and provisions providing for an
increase in the interest rate applicable to the private notes. The exchange
notes will evidence the same debt as the private notes and both the private
notes and the exchange notes, collectively, the "notes", are governed by the
same indenture.
Securities Offered.......... $100.0 million principal amount of 12% senior
subordinated notes due 2005.
Issuer...................... HDA Parts System, Inc.
Maturity Date............... August 1, 2005.
Interest.................... The exchange notes will bear interest at the rate
of 12% per year, payable every six months on
February 1 and August 1, beginning August 1,
1999.
Optional Redemption......... We may redeem the exchange notes, in whole or in
part, on or after August 1, 2002 at the
redemption prices set forth in this prospectus,
plus accrued and unpaid interest and liquidated
damages.
In addition, at any time before August 1, 2001,
we may redeem up to $35.0 million of notes
originally issued at 112% of their principal
amount, plus accrued and unpaid interest, with
the net cash proceeds of one or more public
offerings of equity of our company; provided
however, that at least $65.0 million of notes
remain outstanding after the redemption. For a
more detailed description of the optional
redemption procedures and prices, see
"Description of Notes--Optional Redemption."
Guarantees.................. If we cannot make payments on the notes when due,
our guarantors must make them instead. The
guarantors will consist of our parent company and
all of our current and future domestic
subsidiaries. Our guarantors will fully and
unconditionally guarantee the notes on a joint
and several basis.
Ranking..................... The exchange notes will rank behind all of our
existing and future senior debt, including
borrowings under the credit facility. The
guarantees will rank behind all of the
guarantors' existing and future senior debt,
including guarantees under the credit facility.
The indenture permits us to incur additional
debt, including senior debt.
As of June 30, 1999 on a pro forma basis, we had
approximately $103.1 million of senior debt
outstanding,
4
<PAGE>
excluding unused commitments of $96.9 million
under the revolving credit facilities. The
guarantors had approximately $103.1 million of
guarantor senior debt outstanding, consisting
solely of guarantees under the revolving credit
facilities and term loan but excluding guarantees
of unused commitments under the revolving credit
facilities.
Change of Control........... Upon a change in our control, we must offer to
repurchase your exchange notes at 101% of their
principal amount, plus accrued and unpaid
interest. If a change of control occurs, we may
not have sufficient funds to repurchase all
exchange notes tendered.
Covenants.................... The indenture contains covenants that, among
other things, limit our ability and the ability
of the guarantors to:
.incur more debt;
.prepay other debt or amend debt instruments;
.create liens on assets;
.make investments, loan or advances;
.pay dividends or redeem stock;
.engage in mergers or consolidations;
.change the business we conduct; and
.engage in transactions with affiliates.
In addition, we may be required to offer to
purchase exchange notes at 100% of their
principal amount, plus accrued and unpaid
interest, with the proceeds of asset sales.
Form of Exchange Notes...... The exchange notes will be represented by one or
more permanent global certificates, in fully
registered form, deposited with a custodian for,
and registered in the name of a nominee of, The
Depository Trust Company, as depositary. You will
not receive exchange notes in certificated form
unless one of the events described under the
heading "Book-Entry; Delivery; Form and
Transfer--Transfers of Interests in Global Notes
for Certificated Notes" occurs. Instead,
beneficial interests in the exchange notes will
be shown on, and transfers of these notes will be
effected only through, records maintained in
book-entry form by The Depository Trust Company
and its participants.
Use of Proceeds............. We will not receive any cash proceeds in the
exchange offer.
We explain the exchange notes in greater detail beginning on page 76.
5
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HDA Parts System, Inc.
We believe that we are one of the largest and fastest growing independent
distributors in the highly fragmented $17 billion heavy duty vehicle parts and
repair industry. We distribute parts to over 25,000 customers through 173
branch locations across 31 states. Based on both sales and number of branch
locations, we believe that we are the largest independent distributor in the
nation. Heavy duty vehicles include Class VI through Class VIII commercial
vehicles such as tractor-trailers, waste disposal trucks and large off-road
vehicles used in the mining, construction and agricultural industries. We have
a broad base of customers including national and regional fleets operated by
companies such as Waste Management, Inc., Browning-Ferris Industries, Inc.,
Dole Food, Inc. and Tyson Foods, Inc., and common carrier and rental fleets,
including United Parcel Service of America, Inc., Consolidated Freightways
Corporation, Con-Way Transportation Services, Ryder System, Inc., Roadway
Package System, Inc. and Penske Leasing, Inc. A substantial part of our
business consists of sales of heavy duty vehicle parts to local fleets,
independent repair shops, heavy duty vehicle dealerships and government
entities.
Since our formation in June 1998, we have successfully pursued a strategy to
become the largest national distributor of heavy duty vehicle parts, with a
focus on building a nationwide system of branch locations, primarily through
acquisitions. Since then, we have purchased 14 distributors. As a result of
these acquisitions, we have leading market positions and highly experienced
operating management and have achieved significant economies of scale and
scope. We believe we are well positioned for additional growth both through
acquisitions and new store openings. See "Company History" for additional
details regarding our acquisitions.
Our principal executive offices are located at 520 Lake Cook Road, Deerfield,
Illinois 60015, and our telephone number is (847) 444 -1095.
Industry Overview
Industry sources estimate that the heavy duty vehicle parts and repair
industry generated $17.0 billion in revenues in 1997. An industry source
expects the market for replacement parts, which accounted for the majority of
revenues in the overall heavy duty vehicle parts and repair industry, to grow
17.7% from 1997 to 2002. We believe growth in the heavy duty vehicle parts and
repair industry and growth in market share for full-service independent
distributors like us has been and will continue to be driven by the following
primary factors:
.Expanding fleet of heavy duty vehicles;
.Increased life expectancy of fleet vehicles;
.Increased total truck miles driven annually; and
.Increased outsourcing of parts inventory management by fleet operators.
6
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Competitive Strengths
We benefit from the following competitive strengths:
.Ability to successfully execute our acquisition strategy;
.Proven ability to grow revenue and profits;
.Purchasing leverage;
.Established customer relationships;
.Superior inventory availability;
.Outstanding customer service; and
.Experienced management team.
Business Strategy
Our strategic objective is to further grow our sales and profits by
capitalizing on the continued growth opportunities in the heavy duty vehicle
parts and repair industry. Our business strategy is to:
.Become the largest national distributor of heavy duty vehicle parts;
.Further reduce cost of products sold;
.Develop distribution and operating efficiencies;
.Achieve benefits from combining complementary operations; and
.Expand relationships with national and regional fleet operators.
7
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SUMMARY PRO FORMA FINANCIAL DATA
The following summary pro forma financial data were derived from, and should
be read in conjunction with, the more detailed consolidated financial
statements of Holdings and its subsidiaries and the Unaudited Pro Forma
Condensed Financial Data, including in each case, the related notes, included
elsewhere in this prospectus. The summary pro forma financial data gives effect
to the merger, the other acquisitions, equity contributions, the new $150
million revolving credit facility, the term loan and the notes, as if each
transaction had occurred as of January 1, 1998 with respect to income statement
data and as of June 30, 1999 with respect to balance sheet data. The selected
pro forma condensed financial and operating data may not be indicative of our
operating results or financial position that would have been achieved had the
events described above been consummated and should not be construed as
representative of future operating results or financial position.
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Pro Forma Pro Forma
Twelve Months Six Months
Ended Ended
December 31, 1998 June 30, 1999
----------------- --------------
(In thousands)
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Income Statement Data:
Sales..................................... $543,315 $284,068
Gross profit.............................. 176,449 93,024
Selling, general and administrative
expenses................................. 143,903 73,854
Operating income.......................... 32,546 19,170
Net interest expense...................... 20,692 10,345
Net income................................ 7,404 5,286
<CAPTION>
Pro Forma
as of
June 30, 1999
--------------
(In thousands)
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Balance Sheet Data:
Cash and cash equivalents................................... $ 5,074
Net working capital (1)..................................... 129,263
Total assets................................................ 459,789
Total debt (including current maturities)................... 203,250
Stockholders' equity........................................ 188,394
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Pro Forma Pro Forma
Twelve Months Six Months
Ended Ended
December 31, 1998 June 30, 1999
----------------- -------------
(In thousands)
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Other Data:
Depreciation and amortization................ $14,936 $6,703
Ratio of earnings to fixed charges........... 1.6x 1.8x
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(1) Net working capital equals current assets less current liabilities.
8
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RISK FACTORS
Before you invest in these exchange notes, you should consider carefully the
following risk factors, as well as other information contained in this
prospectus.
Our substantial debt could adversely affect our financial health and prevent us
from fulfilling our obligations under the notes.
We have a substantial amount of debt outstanding. As of June 30, 1999, our
pro forma indebtedness, consisting principally of obligations under the
revolving credit facilities, term loan and the private notes, was $203.2
million, and our pro forma capitalization was $391.6 million. The following
chart shows other important pro forma credit statistics:
<TABLE>
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Pro Forma
At June 30, 1999
----------------
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Total indebtedness...................................... $203.2
Stockholders' equity.................................... 188.4
</TABLE>
Our substantial amount of debt could:
. make it more difficult for us to satisfy our obligations under the notes;
. limit our ability to obtain financing for acquisitions, working capital,
capital expenditures and general corporate purposes, or limit our ability
to obtain financing on terms favorable to us;
. require us to dedicate a substantial portion of our cash flow from
operations to pay our interest expense, and under certain conditions, to
repay debt, thereby reducing the availability of our cash flow to fund
operations and future business opportunities; and
. limit our flexibility in reacting to changes in our operating environment
or economic conditions, increasing our vulnerability to a downturn in our
business or the economy generally.
If we are unable to generate a sufficient amount of cash to service our debt,
we may not be able to satisfy our obligations under the notes.
Our ability to repay or refinance our debt will depend on our ability to
generate cash in the future, which will be affected by general economic
conditions and financial, business and other factors, some of which are beyond
our control. Based on currently applicable interest rates, we expect to use
$21.7 million of our annual cash flow to pay the interest and principal on our
debt. Our future cash flow and borrowings under the revolving credit facility
may not be sufficient to meet our obligations. We may need to refinance some or
all of our debt, including these notes, on or before maturity, sell material
assets or operations or raise additional debt or equity capital. These
alternatives may not be available to us on favorable terms or at all.
Your right to receive payments on the notes is subordinated to all of our
existing and future senior debt. After we fulfill our obligations under our
senior debt, we may not have sufficient assets to pay you.
If we or our guarantors' file bankruptcy, liquidate or reorganize or undergo
a similar proceeding, we must use our assets to pay our senior debt in full
before paying you. Because of this obligation to pay the senior debt first, we
may not have sufficient assets to pay any of the amounts due on the notes.
9
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If we breach the terms of our debt, it could prevent us from fulfilling our
obligations under the notes.
The covenants in the indenture limit our ability to:
.incur more debt;
.prepay other debt or amend debt instruments;
.create liens on assets;
.make investments, loan or advances;
.pay dividends or redeem stock;
.engage in mergers or consolidations;
.change the business we conduct; and
.engage in transactions with affiliates.
Our credit facility also contains restrictive covenants. In addition to
covenants similar to those contained in the indenture, the facility restricts
acquisitions, sale/leaseback transactions and capital expenditures. This
facility also requires us to maintain specified financial ratios and satisfy
specified financial tests. Our ability to meet these financial ratios and
financial tests will depend upon our financial performance and may be affected
by events beyond our control, including prevailing economic, financial and
industry conditions. Our breach of any of these covenants could result in a
default under the indenture or the credit facility, which would permit the
senior lenders or you to declare all amounts borrowed under the credit facility
to be due and payable, and the senior lenders could terminate their commitments
to make further loans under the credit facility. If this occurs, we may not
have sufficient assets to satisfy our obligations to you under the notes. In
addition, if we were unable to repay our debt to our senior lenders, the senior
lenders could proceed against the collateral securing that debt.
Our acquisition growth strategy makes us vulnerable to financing risks and the
challenges of integrating new operations into our own. If we fail to
successfully implement our strategy it could adversely affect our ability to
compete.
Our growth depends principally on our ability to acquire and successfully
integrate heavy duty vehicle parts businesses. We may not be able to identify
additional businesses for acquisition in the future, or these businesses may
not be available at reasonable prices. If we fail to integrate the acquired
businesses successfully or to acquire additional heavy duty vehicle parts
businesses or if we pay increased prices for these businesses, our growth
prospects, financial condition and results of operations could be materially
adversely impacted.
In addition, our acquisition strategy subjects us to the following risks:
. we may require additional personnel, assets and capital, and we may not
be able to expand successfully and operate the acquired companies
profitably;
. we may not anticipate or respond effectively to all of the changing
demands that our expanding operations will have on our management
information and operating systems, and we may experience delays,
disruptions and unanticipated expenses in connection with our acquisition
strategy. If we fail to meet the challenges of our expansion, it could
have a material adverse effect on our results of operations and financial
condition;
10
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. if we do not have sufficient cash resources to finance the implementation
of our acquisition strategy, our growth could be limited unless we are
able to obtain additional capital through debt or equity financings. We
may not be able to obtain the additional financing we may need for our
acquisition program on favorable terms, or at all; and
. our growth strategy also includes expanding relationships with national
and regional fleet operators, further reducing cost of products sold,
developing distribution and operating efficiencies and achieving benefits
from combining complementary operations. We may not be able to achieve
any of these results.
If we fail to attain any or all of these strategies, it could adversely
affect our sales and our ability to compete.
The growth of our operations will place significant demands on our management.
We will encounter various risks pursuing an acquisition growth strategy,
including:
. our future growth will require our management team to manage our
expanding operations while evaluating, completing and integrating new
businesses; and
. our acquisition strategy will continue to place significant demands on
our management to improve our operational, financial and management
information systems, to develop further the management skills of our
managers and supervisors, and to continue to retain, train, motivate and
effectively manage our employees.
If our management does not respond adequately to the demands, it could
adversely affect our acquisition and growth strategy.
We may be unable to repay the notes if we do not compete successfully within
our industry.
We operate in a highly competitive environment. We compete against local,
regional and national companies in the heavy duty parts and repair industry,
including other independent distributors, original equipment manufacturers and
their authorized dealerships, and independent repair shops. Our competition
risks include the following:
. current and potential competitors may have financial, personnel and other
resources substantially greater than ours to finance acquisition and
development opportunities;
. our competitors may have lower overhead cost structures and may be able
to provide their parts and services at lower rates than us;
. original equipment manufacturers are in a position to offer incentives to
heavy duty vehicle owners to return to their authorized dealerships for
heavy duty vehicle parts and repair services, which could adversely
affect our ability to compete; and
. some owners of leased fleets may have sufficient leverage to purchase
replacement parts directly from component manufacturers or to negotiate
higher volume discounts from us.
If we do not compete successfully within our industry, we may not be able to
satisfy our obligations to you under the notes.
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We depend on our executive officers, key employees and a well trained sales
force and the loss of any of these individuals could adversely affect our
business.
Our performance depends upon the efforts of our key employees, especially our
executive officers and operating management. The loss of any of our executive
officers, operating management or other key employees could have a material
adverse effect on our business. In addition, the successful implementation and
management of our growth and expansion strategies will depend on our ability to
continue to attract and retain qualified personnel. We may not be able to
continue to attract that personnel or to retain key personnel in companies we
acquire.
Heavy duty vehicle parts are specialized, and we depend on a knowledgeable
and experienced sales force to select and sell the proper parts to our
customers. Our ability to grow our business will partially depend upon hiring,
training, motivating and retaining a skilled work force.
The trucking industry is sensitive to economic factors outside of our control
which may affect our sales.
We sell many of our products to customers in industries that experience
fluctuations in demand based on economic conditions, energy prices, consumer
demand and other factors. The trucking industry has historically been highly
cyclical as a result of various economic factors such as:
. excess capacity in the industry;
. competition from other forms of transportation;
. the availability of qualified drivers;
. changes in fuel prices and the supply of fuel;
. increases in fuel or energy taxes;
. interest rate fluctuations;
. insurance costs;
. fluctuations in the resale value of equipment;
. economic recession; and
. downturns in customers' business cycles and shipping requirements.
We have little or no control over these economic or industry specific factors.
We may not be able to increase or maintain our level of sales in periods of
economic stagnation or downturn.
The improvement in parts quality may reduce demand for our products which could
adversely affect our sales.
Improvement in the quality of parts manufactured for heavy duty vehicles and
equipment may extend the useful lives and warranties of those parts and may
reduce demand for our products and services by decreasing the frequency of
replacement or refurbishment of those parts. A reduction in demand for our
products and services could have a material adverse effect on our sales.
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If we are not able to obtain an adequate supply of heavy duty vehicle parts, it
could adversely affect our sales.
We purchase heavy duty vehicle parts from a number of component
manufacturers. We have not entered into any franchise agreements or supply
contracts that would assure us a continued supply of parts to sell in the
future. A key component of our business strategy is to maintain a wide
selection of parts. Therefore, our inability to obtain access to parts in
sufficient volumes for our branch locations could impair our strategy. Even
though there are many component manufacturers in the marketplace, we may not be
able to obtain an adequate supply of heavy duty vehicle replacement parts. If
we fail to obtain an adequate supply of heavy duty vehicle replacement parts,
it could have a material adverse effect on our sales. We also remanufacture
used parts for resale to our customers. The used parts we need for
remanufacturing may not be available to us in sufficient quantities in the
future. If we cannot obtain an adequate supply of used parts, the resulting
loss of sales could have a material adverse effect on our profitability. See
"Business--Suppliers" for a more detailed discussion of our supplier
relationships.
We may incur environmental clean-up costs or penalties in the future which
could adversely affect our financial condition and profitability.
Our operations are subject to various federal, state and local environmental
laws, regulations and ordinances. If we fail to comply, or our predecessors
failed to comply, with these environmental laws, we may be subject to civil or
criminal liability. In particular, stringent environmental laws govern the
handling and disposal of chemicals and substances, such as solvents and
lubricants, we commonly use in some of our service and remanufacturing
operations. In addition, some of our facilities operate, or have operated,
above-ground and underground storage tanks for fuels and other substances which
are subject to a variety of environmental laws. If the substances described
above are released into the environment at our facilities or at facilities
where we have arranged for disposal of these substances, we may be subject to
liability for cleaning up contamination which results from those releases.
We may not remain in compliance with applicable environmental laws, and it is
possible that:
. we may incur clean-up costs in the future;
. environmental laws may be revised or amended to our detriment; or
. changes to current environmental laws or enactment of new environmental
laws affecting our business and operations may require further capital
investments or make certain of our operations unprofitable.
We conduct environmental diligence in connection with acquisitions and obtain
indemnities from prior owners, which in some cases are limited by time and
dollar amounts. As a result, we may inherit environmental liabilities not fully
covered by indemnification.
The Year 2000 problem may adversely affect our sales and profitability if we or
our suppliers fail to adequately address our Year 2000 concerns.
We are currently addressing potential Year 2000 issues associated with our
systems and our suppliers' systems. The ability of third parties with whom we
transact business to address adequately their Year 2000 issues is outside of
our control. Failure by us or our suppliers to address adequately our
respective Year 2000 issues may result in lower sales for us and may require us
to bear
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Year 2000 costs and expenses. For a more detailed discussion of our Year 2000
issues, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Issue."
Brentwood and Aurora control our operations and their interests may not be
aligned with yours.
Brentwood and Aurora beneficially own 81.8% of Holdings' equity. As a result,
Brentwood and Aurora are able to exercise significant voting control over us
through their ability to determine the outcome of stockholders' votes
regarding, among other things, the election of all of our directors and the
approval of significant transactions. Holdings' stockholders also are party to
a stockholders' agreement which, among other things, provides for the election
of two of the eight directors. Each of Aurora and Brentwood are entitled to
elect three of the remaining six directors pursuant to the certificates of
designation for Holdings' series C special voting preferred stock and series D
special voting preferred stock, respectively, which constitutes a majority of
the board of directors. There may be conflicts between the interests of equity
holders and note holders. You may expect Brentwood and Aurora to act in the
best interests of equity holders.
State and federal statutes may allow courts, under specific circumstances, to
void the exchange notes and the guarantees and require you to return payments
received from us or the guarantors.
Our obligations under the notes may be subject to review under state or
federal fraudulent transfer laws if we go bankrupt or face other financial
difficulty. Under those laws, a court could void the notes or subordinate the
notes to the obligations due other creditors if the court were to find that
when we issued the notes, we:
. received less than fair consideration or reasonably equivalent value
therefor and were or were rendered insolvent; or
. were engaged in a business or transaction for which our remaining
unencumbered assets constituted unreasonably small capital; or
. intended to incur or believed or reasonably should have believed that we
would incur debts beyond our ability to pay as those debts matured.
In addition, the court could direct the return of any amounts paid under the
notes to us or to a fund for the benefit of our creditors. Moreover, regardless
of the factors identified above, the court could avoid the notes and direct
repayment or subordination if it found that we issued the notes with actual
intent to hinder, delay or defraud our creditors.
A court will likely find that we did not receive fair consideration or
reasonably equivalent value for issuing the notes to the extent that we used
the proceeds to repay obligations incurred when Brentwood acquired its interest
in City Truck, including debt under the revolving credit facility and the
interim securities purchased by Brentwood described on page 53, or otherwise
did not directly benefit from the notes' proceeds. We incurred approximately
$42.0 million in obligations under the revolving credit facility and to
Brentwood when we acquired City Truck.
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In addition, a guarantor's obligations under its guarantee of the notes may
be subject to review under the same laws if a guarantor files bankruptcy or
faces other financial difficulty. In that event, the analysis above would
generally apply. The court could avoid the guarantee and direct the repayment
of amounts paid under the guarantee or subordinate the guarantee to the
obligations due other creditors of the guarantor.
A court will likely find that a guarantor did not receive fair consideration
or reasonably equivalent value to the extent that it did not directly benefit
from the notes' proceeds.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction being applied. Generally, however, an entity
would be considered insolvent if:
. the sum of its debts, including contingent or unliquidated debts, is
greater than all of its property at a fair valuation, or
. if the present fair salable value of its assets is less than the amount
that will be required to pay its probable liability on its existing debts
as they become absolute and matured.
However, a court may disagree with our conclusions in this regard.
We may not have sufficient assets to repurchase the notes upon a change of
control.
If a change of control occurs, the indenture requires us to offer to
repurchase all exchange notes. The events involving a change of control may
also constitute a default under the revolving credit facility. If we default
under the revolving credit facility, the lenders could require us to repay the
debt under the revolving credit facility in full before we repurchase the
exchange notes. We may not have sufficient funds to repurchase the exchange
notes if the lenders accelerate the debt under the revolving credit facility if
a change of control occurs. Our inability to repurchase all of the tendered
exchange notes would constitute an event of default under the indenture and you
would be entitled to accelerate the notes. However, a default under the
indenture would in turn, constitute a default under our senior debt. Since we
are obligated to pay our senior debt in full before making any payments under
the notes, we may not have sufficient assets remaining after we pay our senior
debt to satisfy our obligations to you under the notes. Moreover, the terms of
future debt may contain cross-default provisions based upon change of control
or other defaults under the debt instruments.
If we sell a substantial amount of our assets, we may not be required to
repurchase your notes.
The definition of change of control in the indenture includes the sale,
lease, transfer, conveyance or other disposition of all or "substantially all"
of our assets. Although there is a limited body of case law interpreting the
phrase "substantially all," there is no clearly established definition of the
phrase in the context of an indenture. Accordingly, your ability to require us
to repurchase your notes if we dispose of a substantial amount of our assets
may be uncertain.
No public market exists for the notes and you may not be able to resell your
notes.
Before this exchange offer, there was no public market for the exchange
notes. We do not intend to apply for listing of the exchange notes on any
securities exchange, although we expect the exchange notes to be eligible for
trading in PORTAL. Donaldson, Lufkin & Jenrette Securities Corporation and
BancAmerica Securities, the initial purchasers of the private notes, have
advised us that they intend to make a market in the exchange notes. However,
they are not obligated to do so
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and may discontinue any market-making activity at any time without notice.
Liquid markets may not develop for the exchange notes and you may not be able
to resell your notes at all or at prices you consider reasonable. Future
trading prices of the exchange notes also will depend on many factors,
including prevailing interest rates, our operating results and the market for
similar securities.
----------------
FORWARD-LOOKING STATEMENTS
This prospectus, including the "Summary," "Unaudited Pro Forma Condensed
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" sections, contains "forward-looking
statements" which are identifiable by the use of forward-looking terms, such as
"may," "intend," "will," "expect," "anticipate," "estimate," "continue" or
similar phrases. In particular, any statement concerning future opportunities,
future operating results or the ability to generate revenues, income or cash
flow are forward-looking statements. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, our expectations
may not prove to be correct.
----------------
MARKET DATA
We based the market data included in this prospectus, including information
relating to our relative position in the industry, on independent industry
publications, other publicly available information or the good faith belief of
our management. Although we believe these sources are reliable, we have not
independently verified the information and cannot guarantee its accuracy and
completeness.
----------------
Throughout this prospectus we use the words "HDA," "we," "our," "ours," and
"us" to refer to HDA Parts System, Inc. and its subsidiaries. References to
"Holdings" refer to City Truck Holdings, Inc., our parent company. Unless the
context otherwise requires, all references to the following entities are before
or after giving effect to the acquisitions, as appropriate: (1) "City Truck"
means City Truck and Trailer Parts, Inc., (2) "Stone" means the assets and
business of Stone Heavy Duty, Inc., (3) "Truck & Trailer Parts" means Truck &
Trailer Parts, Inc., including DHP Leasing, Inc., (4) "Truckparts" means
Truckparts, Inc., (5) "Tampa Brake" means the assets and business of Tampa
Brake & Supply Co., Inc., (6) "Connecticut Driveshaft" means the assets and
business of Connecticut Driveshaft, Inc., (7) "Associated" means Associated
Brake Supply, Inc. and its subsidiaries, (8) "Tisco" means Tisco, Inc.,
including Tisco of Redding, Inc., (9) "Vantage Parts" means the assets and
business of the Vantage Parts division of CNF Transportation Inc. and one of
its subsidiaries, (10) "Active Gear" means Active Gear, L.L.C., (11) "Superior
Truck" means Superior Truck & Auto Supply, Inc., (12) "Certified Powertrain"
means some of the assets of the Certified Powertrain Specialist business of
Certified Power, Inc., (13) "California Equipment" means the assets and
business of California Equipment Company and California Equipment Company of
Sacramento, (14) "Wheels and Brakes" means Wheels and Brakes, Inc., including
Specrite Brake Company, and (15) "QDSP" means QDSP Holdings, Inc. and its
subsidiaries.
References to "HDA" mean City Truck and the companies or assets acquired
since June 1998; Stone, Truck & Trailer Parts, Truckparts, Tampa Brake,
Connecticut Driveshaft, Associated, Tisco, Vantage Parts, Active Gear, Superior
Truck, Certified Powertrain, California Equipment, Wheels and Brakes and QDSP,
and also refers to the historical performance or operations of those entities,
taken as a whole. References to "Brentwood" mean Brentwood Associates Buyout
Fund II, L.P., together with its affiliates, and references to "Aurora" mean
Aurora Capital Partners L.P., together with its affiliates.
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THE EXCHANGE OFFER
Purpose of the Exchange Offer
We issued the private notes on July 31, 1998 to Donaldson, Lufkin & Jenrette
Securities Corporation and BancAmerica Securities, the initial purchasers,
pursuant to a purchase agreement. The initial purchasers subsequently sold the
private notes to "qualified institutional buyers," as defined in Rule 144A
under the Securities Act, in reliance on Rule 144A, and outside the United
States under Regulation S of the Securities Act. As a condition to the sale of
the private notes, we entered into a registration rights agreement with the
initial purchasers on July 31, 1998. Pursuant to the registration rights
agreement, we agreed that we would:
(1) file a registration statement with the SEC with respect to the exchange
notes on or before December 28, 1998;
(2) use our best efforts to cause the registration statement to be declared
effective by the SEC on or before March 13, 1999;
(3) use our best efforts to keep the registration statement effective until
the closing of the exchange offer;
(4) use our best efforts to keep the exchange offer open for a period of
not less than 20 business days; and
(5) use our best efforts to cause the exchange offer to be completed no
later than the 30th business day after it is declared effective by the
SEC.
Upon the effectiveness of the registration statement, we will offer the
exchange notes in exchange for the private notes. We filed a copy of the
registration rights agreement as an exhibit to the registration statement. The
registration statement satisfies some of our obligations under the registration
rights agreement; however, we did not comply with our obligations to file and
have the registration statement declared effective as described in items (1)
and (2) above and are paying you liquidated damages in the form of additional
interest pursuant to the registration rights agreement. The rate is currently
$20,000 per week in the aggregate. The amount of the liquidated damages
accelerates by an additional $5,000 per week at the beginning of and for each
90-day period following our failure to comply with our registration obligations
until we satisfy those obligations. The maximum amount of liquidated damages we
are required to pay is $50,000 per week in the aggregate. See "--Liquidated
Damages" for more detail regarding the calculation of liquidated damages.
Resale of the Exchange Notes
Based upon an interpretation by the staff of the SEC contained in no-action
letters issued to third parties, we believe that you may exchange private notes
for exchange notes in the ordinary course of business. For further information
on the SEC's position, see Exxon Capital Holdings Corporation, available May
13, 1988, Morgan Stanley & Co. Incorporated, available June 5, 1991 and
Shearman & Sterling, available July 2, 1993, and other interpretive letters to
similar effect. You will be allowed to resell exchange notes to the public
without further registration under the Securities Act and without delivering to
purchasers of the exchange notes a prospectus that satisfies the requirements
of Section 10 of the Securities Act so long as you do not participate, do not
intend to participate, and have no arrangement with any person to participate,
in a distribution of the exchange notes. However, the foregoing does not apply
to you if you are:
. a broker-dealer who purchases the exchange notes directly from us to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act; or
. you are an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act.
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In addition, if:
. you are a broker-dealer; or
. you acquire exchange notes in the exchange offer for the purpose of
distributing or participating in the distribution of the exchange notes,
you cannot rely on the position of the staff of the SEC contained in the
no-action letters mentioned above and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, unless an exemption from registration is otherwise
available.
Each broker-dealer that receives exchange notes for its own account in
exchange for private notes, which the broker-dealer acquired as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the exchange notes.
The letter of transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. A broker-dealer may use
this prospectus, as it may be amended or supplemented from time to time, in
connection with resales of exchange notes received in exchange for private
notes which the broker-dealer acquired as a result of market-making or other
trading activities.
Terms of the Exchange Offer
Upon the terms and subject to the conditions described in this prospectus and
in the letter of transmittal, we will accept any and all private notes validly
tendered and not withdrawn before the expiration date. We will issue $1,000
principal amount of exchange notes in exchange for each $1,000 principal amount
of outstanding private notes surrendered pursuant to the exchange offer. You
may tender private notes only in integral multiples of $1,000.
The form and terms of the exchange notes are the same as the form and terms
of the private notes except that:
. we will register the exchange notes under the Securities Act and,
therefore, the exchange notes will not bear legends restricting their
transfer; and
. holders of the exchange notes will not be entitled to any of the rights
of holders of private notes under the registration rights agreement,
which rights will terminate upon the completion of the exchange offer.
The exchange notes will evidence the same debt as the private notes and will be
issued under the same indenture, so the exchange notes and the private notes
will be treated as a single class of debt securities under the indenture.
As of the date of this prospectus, $100,000,000 in aggregate principal amount
of the private notes are outstanding and registered in the name of Cede & Co.,
as nominee for The Depository Trust Company. Only registered holders of the
private notes, or their legal representative or attorney-in-fact, as reflected
on the records of the trustee under the indenture may participate in the
exchange offer. We will not set a fixed record date for determining registered
holders of the private notes entitled to participate in the exchange offer.
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You do not have any appraisal or dissenters' rights under the indenture in
connection with the exchange offer. We intend to conduct the exchange offer in
accordance with the provisions of the registration rights agreement and the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations of the SEC.
We will be deemed to have accepted validly tendered private notes when, as
and if we had given oral or written notice of acceptance to the exchange agent.
The exchange agent will act as your agent for the purposes of receiving the
exchange notes from us.
If you tender private notes in the exchange offer you will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of private notes
pursuant to the exchange offer. We will pay all charges and expenses, other
than the applicable taxes described below, in connection with the exchange
offer.
Expiration Date; Extensions; Amendments
The term expiration date will mean 5:00 p.m., New York City time on ,
1999, unless we, in our sole discretion, extend the exchange offer, in which
case the term expiration date will mean the latest date and time to which we
extend the exchange offer.
To extend the exchange offer, we will:
. notify the exchange agent of any extension orally or in writing; and
. mail to each registered holder an announcement that will include
disclosure of the approximate number of private notes deposited to date,
each before 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
We reserve the right, in our reasonable discretion:
. to delay accepting any private notes:
. to extend the exchange offer; or
. if any conditions listed below under "--Conditions" are not satisfied, to
terminate the exchange offer by giving oral or written notice of the
delay, extension or termination to the exchange agent.
We will follow any delay in acceptance, extension or termination as promptly
as practicable by oral or written notice to the registered holders. If we amend
the exchange offer in a manner we determine constitutes a material change, we
will promptly disclose the amendment in a prospectus supplement that we will
distribute to the registered holders. We will also extend the exchange offer
for a period of five to ten business days, depending upon the significance of
the amendment and the manner of disclosure, if the exchange offer would
otherwise expire during the five to ten business day period.
Interest on the Exchange Notes
The exchange notes will bear interest at the same rate and on the same terms
as the private notes. Consequently, the exchange notes will bear interest at a
rate equal to 12% per annum. Interest will be payable semi-annually in arrears
on February 1 and August 1, commencing August 1, 1999.
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You will receive interest on February 1, 2000 from August 1, 1999. We will deem
the right to receive any interest accrued on the private notes waived by you if
we accept your private notes for exchange.
Procedures for Tendering
You may tender private notes in the exchange offer only if you are a
registered holder of private notes. To tender in the exchange offer, you must:
. complete, sign and date the letter of transmittal or a facsimile of the
letter of transmittal;
. have the signatures guaranteed if required by the letter of transmittal;
and
. mail or otherwise deliver the letter of transmittal or the facsimile to
the exchange agent at the address listed below under "--Exchange Agent"
for receipt before the expiration date.
In addition, either:
. the exchange agent must receive certificates for the private notes along
with the letter of transmittal into its account at the depositary
pursuant to the procedure for book-entry transfer described below before
the expiration date;
. the exchange agent must receive a timely confirmation of a book-entry
transfer of the private notes, if the procedure is available, into its
account at the depositary pursuant to the procedure for book-entry
transfer described below before the expiration date; or
. you must comply with the guaranteed delivery procedures described below.
Your tender, if not withdrawn before the expiration date, will constitute an
agreement between you and us in accordance with the terms and subject to the
conditions described in this prospectus and in the letter of transmittal.
The method of delivery of private notes and the letter of transmittal and all
other required documents to the exchange agent is at your election and risk. We
recommend that instead of delivery by mail, you use an overnight or hand
delivery service, properly insured. In all cases, you should allow sufficient
time to assure delivery to the exchange agent before the expiration date. You
should not send letters of transmittal or private notes to us. You may request
your respective brokers, dealers, commercial banks, trust companies or nominees
to effect the transactions described above for you.
If you are a beneficial owner of private notes whose private notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender your notes, you should contact the
registered holder promptly and instruct the registered holder to tender on your
behalf. If you wish to tender on your own behalf, before completing and
executing the letter of transmittal and delivering the private notes you must
either:
. make appropriate arrangements to register ownership of the private notes
in your name; or
. obtain a properly completed bond power from the registered holder.
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The transfer of registered ownership may take considerable time. Unless the
private notes are tendered:
(1) by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or the box entitled "Special Delivery
Instructions" on the letter of transmittal; or
(2) for the account of:
. a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
. a commercial bank or trust company having an office or correspondent
in the United States; or
. an "eligible guarantor institution" within the meaning of Rule 17Ad-
15 under the Exchange Act that is a member of one of the recognized
signature guarantee programs identified in the letter of transmittal,
an eligible guarantor institution must guarantee the signatures on a letter of
transmittal or a notice of withdrawal described below under "--Withdrawal of
Tenders."
If the letter of transmittal is signed by a person other than the registered
holder, the private notes must be endorsed or accompanied by a properly
completed bond power, signed by the registered holder as the registered
holder's name appears on the private notes.
If the letter of transmittal or any private notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
they should so indicate when signing, and unless waived by us, they must submit
evidence satisfactory to us of their authority to so act with the letter of
transmittal.
The exchange agent and the depositary have confirmed that any financial
institution that is a participant in the depositary's system may utilize the
depositary's Automated Tender Offer Program to tender notes.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of
tendered private notes, which determination will be final and binding. We
reserve the absolute right to reject any and all private notes not properly
tendered or any private notes our acceptance of which would, in the opinion of
our counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular private notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, you must cure any defects or irregularities in
connection with tenders of private notes within the time we determine. Although
we intend to notify you of defects or irregularities with respect to tenders of
private notes, neither we, the exchange agent nor any other person will incur
any liability for failure to give you that notification. Unless waived, we will
not deem tenders of private notes to have been made until you cure the defects
or irregularities.
While we have no present plan to acquire any private notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any private notes that are not tendered in the exchange offer, we
reserve the right in our sole discretion to purchase or make offers for any
private notes that remain outstanding after the expiration date. We also
reserve the right to
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terminate the exchange offer, as described below under "--Conditions," and, to
the extent permitted by applicable law, purchase private notes in the open
market, in privately negotiated transactions or otherwise. The terms of any of
those purchases or offers could differ from the terms of the exchange offer.
If you wish to tender private notes in exchange for exchange notes in the
exchange offer, we will require you to represent that:
.you are not an affiliate of ours;
.you will acquire any exchange notes in the ordinary course of your
business; and
. at the time of completion of the exchange offer, you have no arrangement
with any person to participate in the distribution of the exchange notes.
In addition, in connection with the resale of exchange notes, any
participating broker-dealer who acquired the private notes for its own account
as a result of market-making or other trading activities must deliver a
prospectus meeting the requirements of the Securities Act. The SEC has taken
the position that participating broker-dealers may fulfill their prospectus
delivery requirements with respect to the exchange notes, other than a resale
of an unsold allotment from the original sale of the notes, with the prospectus
contained in the registration statement.
Return of Notes
If we do not accept any tendered private notes for any reason described in
the terms and conditions of the exchange offer or if you withdraw or submit
private notes for a greater principal amount than you desire to exchange, we
will return the unaccepted, withdrawn or non-exchanged notes without expense to
you as promptly as practicable. In the case of private notes tendered by book-
entry transfer into the exchange agent's account at the depositary pursuant to
the book-entry transfer procedures described below, we will credit the private
notes to an account maintained with the depositary as promptly as practicable.
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect
to the private notes at the depositary for purposes of the exchange offer
within two business days after the date of this prospectus, and any financial
institution that is a participant in the depositary's systems may make book-
entry delivery of private notes by causing the depositary to transfer the
private notes into the exchange agent's account at the depositary in accordance
with the depositary's procedures for transfer. However, although delivery of
private notes may be effected through book-entry transfer at the depositary,
you must transmit and the exchange agent must receive, the letter of
transmittal or a facsimile of the letter of transmittal, with any required
signature guarantees and any other required documents, at the address below
under "--Exchange Agent" on or before the expiration date or pursuant to the
guaranteed delivery procedures described below.
Guaranteed Delivery Procedures
If you wish to tender your private notes and (1) the notes are not
immediately available or (2) you cannot deliver the private notes, the letter
of transmittal or any other required documents to the exchange agent before the
expiration date, may effect a tender if:
(a) the tender is made through an eligible guarantor institution;
22
<PAGE>
(b) before the expiration date, the exchange agent receives from the
eligible guarantor institution a properly completed and duly executed
notice of guaranteed delivery, substantially in the form provided by us,
that:
. states your name and address, the certificate number(s) of the
private notes and the principal amount of private notes tendered,
. states that the tender is being made by that notice of guaranteed
delivery, and
. guarantees that, within three New York Stock Exchange trading days
after the expiration date, the eligible guarantor institution will
deposit with the exchange agent the letter of transmittal, together
with the certificate(s) representing the private notes in proper form
for transfer or a confirmation of a book-entry transfer, as the case
may be, and any other documents required by the letter of
transmittal; and
(c) within five New York Stock Exchange trading days after the expiration
date, the exchange agent receives a properly executed letter of
transmittal, as well as the certificate(s) representing all tendered
private notes in proper form for transfer and all other documents required
by the letter of transmittal.
Upon request, the exchange agent will send to you a notice of guaranteed
delivery if you wish to tender your notes according to the guaranteed delivery
procedures described above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw tenders of
private notes at any time before 5:00 p.m. on the expiration date.
To withdraw a tender of private notes in the exchange offer, the exchange
agent must receive a written or facsimile transmission notice of withdrawal at
its address listed in this prospectus before the expiration date. Any notice of
withdrawal must:
. specify the name of the person who deposited the private notes to be
withdrawn;
. identify the private notes to be withdrawn, including the certificate
number(s) and principal amount of the private notes; and
. be signed in the same manner as the original signature on the letter of
transmittal by which the private notes were tendered, including any
required signature guarantees.
We will determine in our sole discretion all questions as to the validity,
form and eligibility of the notices, and our determination will be final and
binding on all parties. We will not deem any properly withdrawn private notes
to have been validly tendered for purposes of the exchange offer, and we will
not issue exchange notes with respect to those private notes, unless you
validly retender the withdrawn private notes. You may retender properly
withdrawn private notes by following one of the procedures described above
under "The Exchange Offer -- Procedures for Tendering" at any time before the
expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we will not be required
to accept for exchange, or exchange the exchange notes for, any private notes,
and may terminate the exchange
23
<PAGE>
offer as provided in this prospectus before the acceptance of the private
notes, if, in our reasonable judgment, the exchange offer violates applicable
law, rules or regulations or an applicable interpretation of the staff of the
SEC.
If we determine in our reasonable discretion that any of these conditions are
not satisfied, we may:
. refuse to accept any private notes and return all tendered private notes
to you;
. extend the exchange offer and retain all private notes tendered before
the exchange offer expires, subject, however, to your rights to withdraw
the private notes; or
. waive the unsatisfied conditions with respect to the exchange offer and
accept all properly tendered private notes that have not been withdrawn.
If the waiver constitutes a material change to the exchange offer, we will
promptly disclose the waiver by means of a prospectus supplement that we will
distribute to the registered holders of the private notes, and we will extend
the exchange offer for a period of five to ten business days, depending upon
the significance of the waiver and the manner of disclosure to the registered
holders, if the exchange offer would otherwise expire during the five to ten
business day period.
Termination of Rights
All of your rights under the registration rights agreement will terminate
upon consummation of the exchange offer except with respect to our continuing
obligations:
. to indemnify you and parties related to you against liabilities,
including liabilities under the Securities Act; and
. to provide, upon your request, the information required by Rule
144A(d)(4) under the Securities Act to permit resales of the notes
pursuant to Rule 144A.
Shelf Registration
If (1) applicable law or SEC policy does not permit the exchange offer or (2)
you notify us before the 20th business day following the completion of the
exchange offer that:
. you are prohibited by law or SEC policy from participating in the
exchange offer;
. you may not resell the exchange notes acquired by you in the exchange
offer to the public without delivering a prospectus, and the prospectus
contained in the registration statement is not appropriate or available
for resales by you; or
. you are a broker-dealer and hold notes acquired directly from us,
we will file with the SEC a shelf registration statement to register for public
resale the transfer restricted securities held by you if you provide us with
the necessary information for inclusion in the shelf registration statement.
For the purposes of the registration rights agreement, "transfer restricted
securities" means each private note until the earliest date on which:
. the private note is exchanged in the exchange offer and entitled to be
resold to the public without complying with the prospectus delivery
requirements of the Securities Act;
24
<PAGE>
. the private note is disposed of in accordance with the shelf registration
statement;
. the private note is disposed of by a broker-dealer pursuant to the "Plan
of Distribution" contemplated by the registration statement; or
. the private note is distributed to the public pursuant to Rule 144 under
the Securities Act.
Liquidated Damages
If:
(1) we do not file the registration statement with the SEC on or before
December 28, 1998;
(2) the SEC does not declare the registration statement effective on or
before March 13, 1999;
(3) we do not complete the exchange offer on or before the 30th business
day after the SEC declares the registration statement effective;
(4) if we are obligated to file the shelf registration statement, we fail
to file the shelf registration statement with the SEC on or before the 30th
business day after the filing obligation arises;
(5) if we are obligated to file a shelf registration statement, the SEC
does not declare the shelf registration statement effective on or before
the 90th day after the obligation to file a shelf registration statement
arises; or
(6) if the registration statement or the shelf registration statement, as
the case may be, is declared effective but thereafter ceases to be
effective or useable in connection with resales of the transfer restricted
securities, for the time of non-effectiveness or non-usability,
with each of items (1) through (6) constituting a "registration default,"
we agree to pay you liquidated damages in an amount equal to $0.05 per week
per $1,000 in principal amount of transfer restricted securities held by
you for each week or portion of a week that the registration default
continues for the first 90-day period immediately following the occurrence
of the registration default. The amount of the liquidated damages will
increase by an additional $0.05 per week per $1,000 in principal amount of
transfer restricted securities at the beginning of and for each subsequent
90-day period until all registration defaults have been cured, up to a
maximum amount of liquidated damages of $0.50 per week per $1,000 in
principal amount of transfer restricted securities. We will not be required
to pay liquidated damages for more than one registration default at any
given time. Following the cure of all registration defaults, the accrual of
liquidated damages will cease.
We did not comply with our obligation to file and have the registration
statement declared effective as described in items (1) and (2) above and are
currently paying you liquidated damages in the form of additional interest
pursuant to the registration rights agreement. The rate is currently $20,000
per week in the aggregate. We will pay all accrued liquidated damages in the
same manner and on the same dates as the interest payments on the notes.
25
<PAGE>
Exchange Agent
We have appointed U.S. Trust Company, National Association as exchange agent
for the exchange offer. You should direct questions and requests for
assistance, requests for additional copies of this prospectus or the letter of
transmittal and requests for a notice of guaranteed delivery to the exchange
agent addressed as follows:
By registered or Certified Mail: By Hand Delivery:
c/o United States Trust Company of c/o United States Trust Company of
New York New York
P.O. Box 841 Peter Cooper Station 111 Broadway, Lower Level
New York, New York 10276-0841 New York, New York 10006-1906
Attn: Corporate Trust Operations Attn: Corporate Trust Operations
By Overnight Delivery: By Facsimile:
c/o United States Trust Company of (212) 420-6211
New York Attn: Customer Service
770 Broadway, 13th Floor
New York, New York 10003 Confirm by Telephone:
Attn: Corporate Trust Operations (800) 225-2398
Delivery to an address other than the one stated above or transmission via a
facsimile number other than the one stated above will not constitute a valid
delivery.
Fees and Expenses
We will bear the expenses of soliciting tenders. We are making the principal
solicitation by mail; however, our and our affiliates' officers and regular
employees may make additional solicitations by telegraph, telephone or in
person.
We have not retained any dealer manager in connection with the exchange offer
and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses.
We will pay the cash expenses incurred in connection with the exchange offer
which we estimate to be approximately $1 million. These expenses include
registration fees, fees and expenses of the exchange agent and the trustee,
accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of notes
pursuant to the exchange offer. If, however, a transfer tax is imposed for any
reason other than the exchange of the private notes pursuant to the exchange
offer, then you must pay the amount of the transfer taxes. If you do not submit
satisfactory evidence of payment of the taxes or exemption from payment with
the letter of transmittal, we will bill the amount of the transfer taxes
directly to you.
Consequence of Failures to Exchange
Participation in the exchange offer is voluntary. We urge you to consult your
financial and tax advisors in making your decisions on what action to take.
26
<PAGE>
Private notes that are not exchanged for exchange notes pursuant to the
exchange offer will remain restricted securities. Accordingly, those private
notes may be resold only:
. to a person whom the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of Rule
144A;
. in a transaction meeting the requirements of Rule 144 under the
Securities Act;
. outside the United States to a foreign person in a transaction meeting
the requirements of Rule 903 or 904 of Regulation S under the Securities
Act;
. in accordance with another exemption from the registration requirements
of the Securities Act and based upon an opinion of counsel if we so
request;
. to us; or
. pursuant to an effective registration statement.
In each case, the private notes may be resold only in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction.
27
<PAGE>
COMPANY HISTORY
We were established by Brentwood, a private equity fund located in Los
Angeles, in June 1998 through the acquisition and integration of two highly
regarded heavy duty vehicle aftermarket parts distributors: City Truck and
Stone, which have been in operation since 1975 and 1952, respectively. On June
1, 1998, Brentwood purchased 80% of the outstanding common stock of City Truck,
a Birmingham, Alabama based distributor with 17 branch locations in the
southeastern United States, in a recapitalization transaction. On June 19,
1998, City Truck acquired substantially all of the net assets of Stone, a
Raleigh, North Carolina based operator with 18 branch locations primarily in
the southeastern United States. On June 30, 1998, City Truck as recapitalized
and including Stone changed its name to HDA Parts System, Inc., the issuer of
the notes offered by this prospectus.
We were formed by Brentwood to pursue a consolidation strategy in the highly
fragmented heavy duty aftermarket parts industry. Since our inception, we have
acquired 14 companies, including our September 30, 1999 merger with QDSP, a
company formed in June 1998 by Aurora, a private equity fund located in Los
Angeles, to pursue an acquisition strategy similar to ours. Since QDSP's
inception, it has acquired 12 companies.
HDA's acquisitions are described below:
<TABLE>
<CAPTION>
Number
Acquisition of Branch
Company Date Region Locations
------- ----------- ------ ---------
<S> <C> <C> <C>
City Truck............................ May 1998 Southeast 17
Stone................................. June 1998 Mid-Atlantic 18
Truck & Trailer Parts................. September 1998 Southeast 7
Tampa Brake........................... October 1998 Southeast 5
Connecticut Driveshaft................ November 1998 New England 6
Truckparts............................ December 1998 New England 4
Associated............................ January 1999 West 22
Tisco................................. January 1999 West 4
Active Gear........................... April 1999 West 2
Vantage Parts......................... May 1999 National 7
Superior Truck........................ June 1999 New England 1
Certified Powertrain.................. August 1999 Northeast 1
California Equipment.................. August 1999 West 6
QDSP.................................. September 1999 National 63
Wheels and Brakes..................... October 1999 Southeast 10
---
173
===
</TABLE>
28
<PAGE>
QDSP's acquisitions are described below:
<TABLE>
<CAPTION>
Number
of Branch
Company Acquisition Date Region Locations
------- ---------------- ------ ---------
<S> <C> <C> <C>
Fleetpride, Inc............ July 1998 Northeast 8
Sharkey Family Holdings,
Inc. (d/b/a Universal
Joint Sales Company)...... July 1998 Northeast 11
Truck City Parts, Inc...... July 1998 Central/Mid-Atlantic 7
Wheatley Truck Parts,
Inc....................... July 1998 Central 4
Automotive Sales Company,
Inc....................... July 1998 Southwest 2
Drive Train Southwest,
Inc....................... July 1998 Southwest 4
SLM Group, Inc............. August 1998 Southcentral 14
Holt Incorporated.......... August 1998 Central 5
City Spring Works, Inc..... August 1998 Central 3
Clutch & Brake, Inc........ March 1999 Northeast 2
New England Truck & Auto
Service, Inc.............. March 1999 Northeast 1
TBS, Incorporated.......... March 1999 Southwest 2
---
63
===
</TABLE>
29
<PAGE>
USE OF PROCEEDS
The exchange offer satisfies an obligation under the registration rights
agreement. We will not receive any cash proceeds from the exchange offer.
CAPITALIZATION
The following table sets forth as of June 30, 1999 (1) our actual
capitalization and (2) our pro forma capitalization after giving effect to the
Certified Powertrain, California Equipment, QDSP and Wheels and Brakes
acquisitions and the related $40.0 million equity investment and refinancing of
the revolving credit facility. You should read this table in conjunction with
the "Unaudited Pro Forma Condensed Financial Data" and related notes, "Selected
Historical Financial and Operating Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," all included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of June 30,
1999
-----------------
Pro
Actual Forma
-------- --------
(In thousands)
<S> <C> <C>
Cash and cash equivalents.................................... $ 7,771 $ 5,074
======== ========
Long-term debt:
Note payable............................................... $ 150 $ 150
$85 million revolving credit facility...................... 66,750 --
New $150 million revolving credit facility................. -- 28,100
New Term loan.............................................. -- 75,000
Existing senior subordinated notes......................... 100,000 100,000
-------- --------
Total Debt............................................... 166,900 203,250
Stockholders' equity......................................... 78,823 188,394
-------- --------
Total Capitalization..................................... $245,723 $391,644
======== ========
</TABLE>
30
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
Holdings is our parent company and has no separate operations. Its only asset
is its investment in us and equity in our earnings recorded and it has no
liabilities. Holdings is contingently liable for its guarantee of our debt.
Thus, our separate pro forma financial statements are not presented.
We derived the following unaudited pro forma financial data by applying pro
forma consolidated adjustments to Holdings' historical financial statements,
after giving effect to:
(1) the recapitalization of City Truck;
(2) the acquisitions of Stone, Truck & Trailer Parts, Tampa Brake,
Connecticut Driveshaft, Truckparts, Tisco, Associated, Active Gear,
Vantage Parts, Superior Truck, Certified Powertrain, California
Equipment, Wheels and Brakes and QDSP;
(3) the effect of refinancing the revolving credit facility and the
issuance of the notes;
(4) the June 1998 private equity offering and the January 1999 private
equity offering, which was fully funded in April 1999; and
(5) the equity contribution we received in connection with the QDSP
merger.
These pro forma consolidated adjustments give effect to the above
transactions as if these transactions had occurred on January 1, 1998 for the
condensed pro forma income statement data, and as if these transactions had
occurred on June 30, 1999 for the condensed pro forma balance sheet data,
except that the acquisitions we completed prior to June 30, 1999 are included
in the June 30, 1999 balance sheet. We describe the pro forma adjustments in
the accompanying notes.
The unaudited pro forma financial data are subject to numerous assumptions
and estimates which are subject to change and, in many cases, are beyond our
control. The unaudited pro forma financial data may not be indicative of the
operating results or financial position we would have achieved had we
consummated the events described above. You should not construe this data as
representative of our future operating results or financial position. You
should read the unaudited pro forma financial data in conjunction with the
historical financial statements of Holdings, Stone, Truck & Trailer Parts,
Connecticut Driveshaft, Truckparts, Tisco, Associated, Vantage Parts, Superior
Truck, California Equipment, Wheels and Brakes and QDSP, and the related notes,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," all included elsewhere in this prospectus.
31
<PAGE>
CITY TRUCK HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
Post 06/30/99
Acquisitions
--------------------
(1) (2) (3)
Actual Actual Pro Forma
06/30/99 06/30/99 Adjustments Total
-------- -------- ----------- --------
ASSETS
------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents......... $ 7,771 $ 7,265 $ (9,962)(a) $ 5,074
Accounts receivable, net.......... 37,744 27,757 -- 65,501
Inventories....................... 71,318 41,686 -- 113,004
Prepaid expenses/other current
assets........................... 4,294 6,450 -- 10,744
Current portion of notes
receivable/patronage dividend.... 2,906 427 (98)(b) 3,235
-------- -------- -------- --------
Total current assets............ 124,033 83,585 (10,060) 197,558
Property, plant and equipment, net.. 19,191 7,812 -- 27,003
Other assets........................ 16,424 1,223 (46)(c) 17,601
Deferred financing fees............. 5,835 1,668 3,135 (d) 10,638
Goodwill and other intangibles(4)... 122,753 65,884 18,352 (e) 206,989
-------- -------- -------- --------
Total assets.................... $288,236 $160,172 $ 11,381 $459,789
======== ======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Bank overdraft.................... $ -- $ 231 $ (231)(f) $ --
Notes payable..................... 150 2,463 (2,463)(g) 150
Current portion of long-term
debt............................. -- 3,201 (3,201)(h) --
Accounts payable.................. 24,515 16,563 -- 41,078
Accrued liabilities............... 17,998 8,369 700 (i) 27,067
-------- -------- -------- --------
Total current liabilities....... 42,663 30,827 (5,195) 68,295
Revolving credit facility........... 66,750 56,963 (95,613)(h) 28,100
Term loan........................... -- -- 75,000 (h) 75,000
12% senior subordinated notes....... 100,000 -- -- 100,000
-------- -------- -------- --------
Total liabilities............... 209,413 87,790 (25,808) 271,395
Stockholders' equity:
Series B preferred stock.......... 88,142 32,573 49,489 (j) 170,204
Common stock...................... 2 256 (254)(j) 4
Additional paid-in capital........ 29,848 33,403 (2,931)(j) 60,320
Employee notes.................... (425) -- -- (425)
Retained earnings................. (38,744) 6,150 (9,115)(k) (41,709)
-------- -------- -------- --------
Total stockholders' equity
(deficit)...................... 78,823 72,382 37,189 188,394
-------- -------- -------- --------
Total liabilities and
stockholders' equity........... $288,236 $160,172 $ 11,381 $459,789
======== ======== ======== ========
</TABLE>
(footnotes on following page)
32
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 1999
(In thousands)
(1) "Actual 6/30/99" represents our actual historical June 30, 1999 balances,
including those of acquisitions purchased as of June 30, 1999.
(2) "Post 6/30/99 Acquisitions--Actual 6/30/99" represents the actual
historical June 30, 1999 balances for companies acquired after June 30,
1999: Certified Powertrain, California Equipment, Wheels and Brakes and
QDSP.
<TABLE>
<CAPTION>
Certified California Wheels and
Powertrain Equipment Brakes QDSP Total
---------- ---------- ---------- -------- --------
ASSETS
------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents.............. $ -- $ 279 $ 108 $ 6,878 $ 7,265
Accounts receivable, net.. 1,139 1,097 4,090 21,431 27,757
Inventories............... 1,465 2,305 5,586 32,330 41,686
Prepaid expenses and other
current assets........... -- 36 105 6,309 6,450
Current portion of notes
receivable and........... -- -- -- -- --
patronage dividend...... 329 65 33 -- 427
------ ------ ------- -------- --------
Total current assets.. 2,933 3,782 9,922 66,948 83,585
Property, plant and
equipment, net............. 125 129 251 7,307 7,812
Other assets................ -- 110 52 1,061 1,223
Deferred financing fees..... -- -- -- 1,668 1,668
Goodwill and other
intangibles................ -- -- -- 65,884 65,884
------ ------ ------- -------- --------
Total assets........ $3,058 $4,021 $10,225 $142,868 $160,172
====== ====== ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Current liabilities:
Bank overdraft............ $ -- $ 231 $ -- $ -- $ 231
Notes payable............. -- -- 2,463 -- 2,463
Current portion of long-
term debt................ -- -- 802 2,399 3,201
Accounts payable.......... 708 1,336 3,460 11,059 16,563
Accrued liabilities....... -- -- 602 7,767 8,369
------ ------ ------- -------- --------
Total current
liabilities.......... 708 1,567 7,327 21,225 30,827
Revolving credit facility... -- 1,587 -- 55,376 56,963
Term loan................... -- -- -- -- --
12% senior subordinated
notes...................... -- -- -- -- --
------ ------ ------- -------- --------
Total liabilities..... 708 3,154 7,327 76,601 87,790
Stockholders' equity:
Series B preferred stock.. -- -- -- 32,573 32,573
Common stock.............. -- 162 3 91 256
Additional paid-in
capital.................. -- 848 73 32,482 33,403
Retained earnings......... 2,350 (143) 2,822 1,121 6,150
------ ------ ------- -------- --------
Total stockholders'
equity................. 2,350 867 2,898 66,267 72,382
------ ------ ------- -------- --------
Total liabilities and
stockholders'
equity............... $3,058 $4,021 $10,225 $142,868 $160,172
====== ====== ======= ======== ========
</TABLE>
(3) "Post 6/30/99 Acquisitions--Pro Forma Adjustments" represents the pro forma
adjustments to the historical financial statements of the companies
acquired after June 30, 1999 as if the acquisitions and refinancings of
debt had been completed on June 30, 1999. The items below indicate the
changes made to the historical financial statements.
33
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET--(Continued)
(a) Reflects the elimination of cash of California Equipment ($279) and
Wheels and Brakes ($108) not acquired as part of the acquisition and
cash of $9,575 used to in-part finance the acquisition of Wheels and
Brakes.
(b) Reflects the elimination of patronage dividends of California Equipment
($65) and Wheels and Brakes ($33) not acquired as part of the
acquisitions.
(c) Reflects the elimination of other assets at California Equipment of $46
not acquired as part of the acquisition.
(d) Reflects transaction fees of $6,100 related to establishing the term
loan and new revolving credit facility and the elimination of financing
fees for the existing revolving credit facility ($2,965).
(e) Reflects the recognition of goodwill for Certified Powertrain ($4,255),
California Equipment ($5), Wheels and Brakes ($6,778) and an increase
of goodwill for QDSP ($4,919) and other intangibles for Certified
Powertrain ($195), Wheels and Brakes ($350) and QDSP ($1,850).
(f) Reflects the elimination of a bank overdraft at California Equipment of
$231 not acquired as part of the acquisition.
(g) Reflects the elimination of notes payable at Wheels and Brakes of
$2,463 not acquired as part of the acquisition.
(h) Reflects the elimination of debt of California Equipment ($1,587) and
Wheels and Brakes ($802) not acquired as part of the acquisition and a
$27,525 repayment of existing debt from equity contributions of $40,000
(see note i below), less $12,475 used to in-part finance the
acquisition of Certified Powertrain ($6,800), California Equipment
($2,250) and Wheels and Brakes ($3,425), and refinancing the remaining
debt with borrowings from the new revolving credit facility and term
loan, net of $6,100 in transaction fees.
(i) Reflects liabilities recorded in connection with the acquisitions of
California Equipment ($50), Wheels and Brakes ($150) and QDSP ($500).
(j) Reflects the issuance of stock related to the acquisition of QDSP
($72,536) and equity contributions in cash ($40,000) less QDSP
previously outstanding stock ($65,146) and the elimination of stock of
California Equipment ($1,010) and Wheels and Brakes ($76).
(k) Reflects the elimination of equity prior to the acquisitions for
Certified Powertrain ($2,350), California Equipment ($(143)), Wheels
and Brakes ($2,822) and QDSP ($1,121) and the elimination of financing
fees for the existing revolving credit facility ($2,965).
34
<PAGE>
(4) The purchase price for each acquisition has been allocated to the assets
acquired and liabilities assumed as shown below. Total consideration for
the businesses includes cash of $180.4 million, common and preferred stock
issued of $87.6 million and transaction fees of $18.9 million. The
allocation includes a building acquired with a value of $2.3 million based
upon an independent valution and the recognition $6.5 million of
liabilities in connection with vendor consolidations, the closure of
duplicate facilities and other activities that will be phased out in 1999.
We have determined the fair value of the remaining assets and liabilities
approximates the existing book values. Our business is that of a
distributor of heavy duty vehicle parts and as such we believe that profit
is attributable to the selling of the parts. Accordingly, the book value of
inventory acquired has not been increased since no previously earned profit
exists. The intangible assets were identified and valued by an independent
appraisal related to workforce knowledge and experience, non-compete
agreements with former owners and preferential customer agreements.
Amortization of goodwill and other intangibles from the date of acquisition
through June 30, 1999 was $2.1 million resulting in pro forma net goodwill
and intangibles of $207.0 at June 30, 1999.
<TABLE>
<CAPTION>
Total Tangible Identified
Purchase Assets Liabilities Intangible Recorded
Acquisition Price Acquired Acquired Assets Goodwill
----------- -------- -------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Stone................... $ 27,637 (1) $ 18,963 $ 8,880 $ 878 $ 16,676
Truck & Trailer Parts... 21,568 (1) 8,898 3,568 247 15,991
Tampa Brake............. 10,068 (1) 5,246 2,010 348 6,484
Connecticut Driveshaft.. 9,832 (1) 9,711 3,462 132 3,451
Truckparts.............. 14,297 (1) 6,150 3,573 260 11,460
Associated.............. 62,137 22,011 5,652 676 45,102
Tisco................... 7,666 3,598 1,013 220 4,861
Active Gear............. 8,578 4,332 702 223 4,725
Vantage Parts........... 28,510 16,532 872 345 12,505
Superior Truck.......... 2,043 2,071 335 -- 307
Certified Powertrain.... 6,800 3,058 708 195 4,255
California Equipment.... 2,250 3,631 1,386 -- 5
Wheels and Brakes....... 13,000 10,084 4,212 350 6,778
QDSP.................... 72,536 76,984 77,101 1,850 70,803
-------- -------- -------- ------ --------
$286,922 $191,269 $113,474 $5,724 $203,403
======== ======== ======== ====== ========
</TABLE>
- ---------------------
(1) The purchase price per the December 31, 1998 audited financial statements
of City Truck Holdings, Inc. is different from amounts above due to:
rounded amounts of $.1 million each for Stone Heavy Duty, Truck and Trailer
Parts and Connecticut Driveshaft, additional fees of $.2 million paid
subsequent to audit in 1999 for Truckparts, and a $.2 million working
capital adjustment settled subsequent to the audit for Tampa Brake.
35
<PAGE>
CITY TRUCK HOLDINGS, INC.
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
For the Twelve Months Ended December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
(1) (2) (3)
Pro Forma
Actual Pro Forma Subtotal Post 12/31/98 Twelve Months
12/31/98 Effect 1998 Acquisitions Ended 12/31/98
-------- --------- -------- ------------- -------------- ---
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $103,295 $89,555 $192,850 $350,465 $543,315
Cost of sales........... 65,855 61,254 127,109 239,757 366,866
-------- ------- -------- -------- --------
Gross profit............ 37,440 28,301 65,741 110,708 176,449
Selling, general and
administrative expenses
....................... 31,030 22,901 53,931 89,972 143,903
-------- ------- -------- -------- --------
Operating income........ 6,410 5,400 11,810 20,736 32,546
Interest expense........ 6,519 7,562 14,081 6,611 20,692
Interest (income)....... (624) 624 -- -- --
Other (income) expense.. (86) (5) (91) (353) (444)
-------- ------- -------- -------- --------
Income before income
taxes.................. 601 (2,781) (2,180) 14,478 12,298
Income tax expense
(benefit).............. (687) (181) (868) 5,762 4,894
-------- ------- -------- -------- --------
Net income.............. $ 1,288 $(2,600) $ (1,312) $ 8,716 $ 7,404
======== ======= ======== ======== ======== ===
</TABLE>
(footnotes on following page)
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
For the Twelve Months Ended December 31, 1998
(In thousands)
(1) "Actual 12/31/98" represents our actual historical 1998 results, including
the results of acquisitions purchased in 1998 from the date of acquisition.
(2) "Pro Forma Effect" represents the actual historical 1998 results prior to
the date of acquisition for companies acquired in 1998 and the application
of pro forma adjustments to the historical financial statements of the
companies owned as of December 31, 1998 as if the acquisitions and
associated refinancings of debt and equity had been completed on January 1,
1998. The table below summarizes the historical results prior to
acquisition and the effects of the pro forma adjustments.
<TABLE>
<CAPTION>
Truck & Connecticut Tampa
Stone Trailer Drive Shaft Brake Truckparts Total
------- ------- ----------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $23,379 $22,925 $16,393 $14,225 $12,633 $89,555
Cost of sales........... 14,652 16,879 11,045 10,175 8,503 61,254
------- ------- ------- ------- ------- -------
Gross profit............ 8,727 6,046 5,348 4,050 4,130 28,301
Selling, general and
administrative
expenses............... 6,804 4,283 5,269 2,936 3,428 22,720
------- ------- ------- ------- ------- -------
Operating income........ 1,923 1,763 79 1,114 702 5,581
Interest expense........ -- 119 140 14 50 323
Interest (income)....... -- -- (7) -- (14) (21)
Other (income) expense.. (6) 8 -- -- (7) (5)
------- ------- ------- ------- ------- -------
Income before income
taxes.................. 1,929 1,636 (54) 1,100 673 5,284
Income tax expense
(benefit).............. -- -- 105 -- 303 408
------- ------- ------- ------- ------- -------
Net income (loss)....... $ 1,929 $ 1,636 $ (159) $ 1,100 $ 370 $ 4,876
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Income
Prior to Pro Forma Pro Forma
Acquisition Adjustments Effect
----------- ----------- ---------
<S> <C> <C> <C>
Net sales............................. $89,555 $ -- $89,555
Cost of sales......................... 61,254 -- 61,254
------- ------- -------
Gross profit.......................... 28,301 -- 28,301
Selling, general and administrative
expenses............................. 22,720 181 (b) 22,901
------- ------- -------
Operating income...................... 5,581 (181) 5,400
Interest expense...................... 323 7,239 (c) 7,562
Interest (income)..................... (21) 645 (d) 624
Other (income) expense................ (5) -- (5)
------- ------- -------
Income before income taxes............ 5,284 (8,065) (2,781)
Income tax expense (benefit).......... 408 (589)(e) (181)
------- ------- -------
Net income (loss)..................... $ 4,876(a) $(7,476) $(2,600)
======= ======= =======
</TABLE>
--------
<TABLE>
<C> <C> <S> <C>
(a) Net income earned prior to acquisition. $4,876
(b) Reflects the pro forma adjustments to selling, general and
administrative expenses.
-- Expense related to the revision of lease agreements,
shortening the lease period and increasing amortization
expense related to leasehold improvements. (50)
-- Elimination of excess compensation, fringe benefits and
related expenses of existing employees based upon salaried
amounts in employment contracts entered into at the time
of the acquisitions. 2,008
</TABLE>
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT--(Continued)
<TABLE>
<C> <C> <S> <C>
-- Elimination of rent and related expenses for leased
property owned by stockholders' which is no longer being
leased to us, net of a contractual increase in lease
expense. 300
-- Elimination of excess depreciation due to converting to
a straight-line policy. 112
-- Elimination of the net costs included in the combined
financial statements of City Truck from the operation of
equipment which was not acquired as part of the
acquisitions, net of related outsourcing costs. 219
-- The elimination of accounting, legal and other fees no
longer required as a result of the acquisitions. 111
-- Annualization of amortization related to goodwill and
intangible assets. (1,158)
-- Annualization of amortization related to deferred
financing fees. (1,723)
--------
Total selling, general and administrative adjustments (181)
(c) Reflects the pro forma adjustments to interest expense.
-- Interest on $100,000 notes at 12%. (12,000)
-- Interest expense related to borrowing under the term
loan at 8.6% to finance acquisitions and replace
existing debt. (2,081)
-- Elimination of previously recognized interest expense
and amortization. 6,519
-- Elimination of historical interest expense recognized
prior to acquisition which is replaced by borrowing
under the term loan above. 323
--------
Total interest expense adjustments (7,239)
(d) Represents the elimination of previously recognized
interest income. (645)
(e) Represents the net effect of adjusting income taxes to
our effective tax rate of 39.8%. We and most of the
acquired companies were previously taxed as S
corporations. 589
--------
Total pro forma net income effect $ (2,600)
========
</TABLE>
38
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT--(Continued)
(3) "Post 12/31/98 Acquisitions" represent the actual historical 1998 results
for companies acquired after December 31, 1998 and the application of pro
forma adjustments as if the acquisitions had been completed as of January
1, 1998. The table below summarizes the actual results and the effects of
the pro forma adjustments.
<TABLE>
<CAPTION>
Vantage Active Superior Certified California Wheels & Truck
Associated Tisco Parts Gear Truck Powertrain Equipment Brakes(1) QDSP(2) Fleetpride(3) City(3)
---------- ------ ------- ------ -------- ---------- ---------- --------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....... $57,039 $8,877 $55,012 $7,922 $3,640 $8,182 $6,409 $23,702 $67,490 $12,830 $8,411
Cost of sales... 35,960 6,659 43,820 5,197 2,065 5,143 4,178 16,820 45,234 8,436 5,520
------- ------ ------- ------ ------ ------ ------ ------- ------- ------- ------
Gross profit.... 21,079 2,218 11,192 2,725 1,575 3,039 2,231 6,882 22,256 4,394 2,891
Selling, general
and
administrative
expenses....... 16,967 1,474 8,531 1,886 1,276 1,913 2,202 6,096 19,685 4,336 2,185
------- ------ ------- ------ ------ ------ ------ ------- ------- ------- ------
Operating
Income......... 4,112 744 2,661 839 299 1,126 29 786 2,571 58 706
Interest
expense........ 781 36 585 191 -- -- 102 386 1,949 195 100
Interest
(income)....... -- (41) -- -- -- -- -- -- -- -- (18)
Other (income)
expense........ 12 (1) (11) (14) -- -- (5) 9 -- -- --
------- ------ ------- ------ ------ ------ ------ ------- ------- ------- ------
Income before
income taxes... 3,319 750 2,087 662 299 1,126 (68) 391 622 (137) 624
Income tax
expense
(benefit)...... 2 -- 825 -- -- -- -- 161 473 (39) 241
------- ------ ------- ------ ------ ------ ------ ------- ------- ------- ------
Net income
(loss)......... $ 3,317 $ 750 $ 1,262 $ 662 $ 299 $1,126 $ (68) $ 230 $ 149 $ (98) $ 383
======= ====== ======= ====== ====== ====== ====== ======= ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
City Drive Clutch &
Wheatley(3) Universal(3) ASCO(3) Holt(3) SLM(3) Spring(3) Train(3) Brake(4) NETAS(4) TBS(4) Total
----------- ------------ ------- ------- ------- --------- -------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....... $5,851 $15,122 $7,108 $8,735 $36,945 $4,811 $3,316 $5,699 $1,964 $3,724 $352,789
Cost of sales... 3,725 9,548 5,251 6,107 25,668 3,097 1,967 3,381 1,292 2,696 241,764
------ ------- ------ ------ ------- ------ ------ ------ ------ ------ --------
Gross profit.... 2,126 5,574 1,857 2,628 11,277 1,714 1,349 2,318 672 1,028 111,025
Selling, general
and
administrative
expenses....... 1,789 4,525 1,290 2,498 8,688 1,365 1,093 1,845 533 1,000 91,177
------ ------- ------ ------ ------- ------ ------ ------ ------ ------ --------
Operating
Income......... 337 1,049 567 130 2,589 349 256 473 139 28 19,848
Interest
expense........ 5 86 105 136 434 74 60 -- 3 -- 5,228
Interest
(income)....... -- -- -- -- -- -- -- -- -- -- (59)
Other (income)
expense........ (8) (49) (15) 9 (203) (42) (35) -- -- -- (353)
------ ------- ------ ------ ------- ------ ------ ------ ------ ------ --------
Income before
income taxes... 340 1,012 477 (15) 2,358 317 231 473 136 28 15,032
Income tax
expense
(benefit)...... 135 23 -- -- 272 128 -- -- 61 10 2,292
------ ------- ------ ------ ------- ------ ------ ------ ------ ------ --------
Net income
(loss)......... $ 205 $ 989 $ 477 $ (15) $ 2,086 $ 189 $ 231 $ 473 $ 75 $ 18 $ 12,740
====== ======= ====== ====== ======= ====== ====== ====== ====== ====== ========
</TABLE>
- -------
(1) Amounts represent the results of operations of Wheels and Brakes from
January 1, 1998 to December 31, 1998.
(2) Amounts represent the consolidated results of operations of QDSP Holdings,
Inc. for the year ended December 31, 1998. Amounts include consolidated
results of operations for companies acquired before December 31, 1998
(Fleetpride, Truck City, Wheatley, Universal, ASCO, Holt, SLM,
City Spring, and Drive Train).
(3) Amounts represent the results of operations prior to acquisition for
companies acquired before December 31, 1998 by QDSP Holdings, Inc.
(4) Amounts represent the results of operations from January 1, 1998 to
December 31, 1998 for companies acquired by QDSP Holdings, Inc. subsequent
to December 31, 1998.
39
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT--(Continued)
<TABLE>
<CAPTION>
Annual Pro Forma Pro Forma
Income Adjustments Effect
-------- ----------- ---------
<S> <C> <C> <C>
Net sales............................. $352,789 $(2,324)(b) $350,465
Cost of sales......................... 241,764 (2,007)(b) 239,757
-------- ------- --------
Gross profit.......................... 111,025 (317)(b) 110,708
Selling, general and administrative
expenses............................. 91,177 (1,205)(c) 89,972
-------- ------- --------
Operating income...................... 19,848 888 20,736
Interest expense...................... 5,228 1,383 (d) 6,611
Interest (income)..................... (59) 59 (e) --
Other (income) expense................ (353) -- (353)
-------- ------- --------
Income before income taxes............ 15,032 (554) 14,478
Income tax expense (benefit).......... 2,292 3,470 (f) 5,762
-------- ------- --------
Net income (loss)..................... $ 12,740 (a) $(4,024) $ 8,716
======== ======= ========
</TABLE>
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT--(Continued)
<TABLE>
<C> <C> <S> <C>
(a) Net income for companies acquired after December 31, 1998. $ 12,740
(b) Elimination of sales, cost of sales and gross profit for Stats
Remanufacturing Center, Inc. which has been sold and Power Equipment de
Mexico, S.A. de C.V. which has been closed. (317)
(c) Reflects the pro forma adjustments to selling, general and administrative
expenses.
-- Elimination of excess compensation, fringe benefits and related expenses
of existing employees based upon salaried amounts in employment
contracts entered into at the time of the acquisitions. 2,954
-- Elimination of rent and related expenses for leased property owned by
stockholders' which is no longer being leased to us, net of a
contractual increase in lease expense. 272
-- Elimination of accounting, legal and other fees no longer required as a
result of the acquisitions. 812
-- Elimination of selling, general and administrative expenses for Stats
Remanufacturing Center, Inc. which has been sold and Power Equipment de
Mexico, S.A. de C.V. which has been closed. 924
-- Elimination of management fees previously charged to Vantage Parts by
its prior parent company, net of expense being incurred to replace
allocated expenses. 688
-- Annualization of amortization related to goodwill and intangible assets.
(4,445)
--------
Total selling, general and administrative adjustments 1,205
(d) Reflects the pro forma adjustments to interest expense.
-- Interest expense related to borrowing under the term loan at 8.6% to
fund the acquisitions and replace existing debt. (4,342)
-- Interest expense related to borrowing under the revolving credit
facility at 8.1% to fund the acquisitions and replace existing debt. (2,267)
-- Elimination of historical interest expense which is replaced by
borrowing under the term loan and revolving credit facility above. 5,226
--------
Total interest expense adjustments (1,383)
(e) Represents the elimination of previously recognized interest income. (59)
(f) Represents the net effect of adjusting income taxes to our effective tax rate
of 39.8%. Most of the companies acquired were previously taxed as S
corporations or partnerships. (3,470)
--------
Total pro forma net income effect $ 8,716
========
</TABLE>
41
<PAGE>
CITY TRUCK HOLDINGS, INC.
PRO FORMA CONSOLIDATED INCOME STATEMENT
For the Six Months Ended June 30, 1999
(In thousands)
<TABLE>
<CAPTION>
(1) (2) (3)
Pro Forma
Six Months
Actual Pro Forma Subtotal Post 6/30/99 Ended
6/30/99 Effect 1999 Acquisitions 6/30/99
-------- --------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Net sales................ $141,530 $28,783 $170,313 $113,755 $284,068
Cost of sales............ 91,891 21,564 113,455 77,589 191,044
-------- ------- -------- -------- --------
Gross profit............. 49,639 7,219 56,858 36,166 93,024
Selling, general and
administrative
expenses................ 37,075 6,030 43,105 30,749 73,854
-------- ------- -------- -------- --------
Operating income......... 12,564 1,189 13,753 5,417 19,170
Interest expense......... 8,283 837 9,120 1,225 10,345
Interest (income)........ (217) 217 -- -- --
Other (income) expense... 41 73 114 (71) 43
-------- ------- -------- -------- --------
Income before income
taxes................... 4,457 62 4,519 4,263 8,782
Income tax expense
(benefit)............... 1,774 25 1,799 1,697 3,496
-------- ------- -------- -------- --------
Net income............... $ 2,683 $ 37 $ 2,720 $ 2,566 $ 5,286
======== ======= ======== ======== ========
</TABLE>
(footnotes on following page)
42
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
For the Six Months Ended June 30, 1999
(In thousands)
(1) "Actual 6/30/99" represents our actual historical results for the six
months ended June 30, 1999, including the results of acquisitions purchased
prior to June 30, 1999 from the date of acquisition.
(2) "Pro Forma Effect" represents the actual historical 1999 results through
June 30, 1999 prior to the date of acquisition for companies acquired prior
to June 30, 1999 and the application of pro forma adjustments to the
historical financial statements of the companies owned as of June 30, 1999
as if the acquisitions and associated refinancings of debt and equity had
been completed on January 1, 1999. The tables below summarize the
historical results prior to acquisition and the effects of the pro forma
adjustments.
<TABLE>
<CAPTION>
Vantage Active Superior
Associated Tisco Parts Gear Truck Total
---------- ----- ------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $1,388 $136 $23,179 $2,466 $1,614 $28,783
Cost of sales........... 853 95 18,096 1,551 969 21,564
------ ---- ------- ------ ------ -------
Gross profit............ 535 41 5,083 915 645 7,219
Selling, general and
administrative
expenses............... 482 53 4,077 771 569 5,952
------ ---- ------- ------ ------ -------
Operating income........ 53 (12) 1,006 144 76 1,267
Interest expense........ 32 1 160 44 -- 237
Interest (income)....... -- (1) (24) -- -- (25)
Other (income) expense.. 77 (4) -- 73
------ ---- ------- ------ ------ -------
Income before income
taxes.................. 21 (12) 793 104 76 982
Income tax expense
(benefit).............. -- -- -- -- -- --
------ ---- ------- ------ ------ -------
Net income (loss)....... $ 21 $(12) $ 793 $ 104 $ 76 $ 982
====== ==== ======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Income
Prior to Pro Forma Pro Forma
Acquisition Adjustments Effect
----------- ----------- ---------
<S> <C> <C> <C>
Net sales............................. $28,783 $28,783
Cost of sales......................... 21,564 21,564
------- ----- -------
Gross profit.......................... 7,219 7,219
Selling, general and administrative
expenses............................. 5,952 $ 78 (b) 6,030
------- ----- -------
Operating income...................... 1,267 (78) 1,189
Interest expense...................... 237 600 (c) 837
Interest (income)..................... (25) 242 (d) 217
Other (income) expense................ 73 -- 73
------- ----- -------
Income before income taxes............ 982 (920) 62
Income tax expense (benefit).......... -- 25 (e) 25
------- ----- -------
Net income (loss)..................... $ 982 (a) $(945) $ 37
======= ===== =======
</TABLE>
--------
<TABLE>
<C> <C> <S> <C>
(a) Net income earned prior to acquisition. $982
(b) Reflects the pro forma adjustments to selling, general and
administrative expenses:
-- Elimination of excess compensation, fringe benefits and
related expenses of existing employees based upon salaried
amounts in employment contracts entered into at the time of
the acquisitions. 84
-- Elimination of rent and related expenses for leased property
owned by stockholders' which is no longer being leased to us,
net of a contractual increases in lease expense. 9
</TABLE>
43
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT--(Continued)
<TABLE>
<C> <C> <S> <C>
-- Elimination of management fees previously charged to
Vantage Parts by its prior parent company, net of expense
being incurred to replace allocated expenses. 334
-- Elimination of accounting, legal and other fees no longer
required as a result of the acquisitions. 63
-- Annualization of amortization related to goodwill and
intangible assets. (274)
-- Annualization of amortization related to deferred
financing fees. (294)
-------
Total selling, general and administrative adjustments (78)
(c) Reflects the pro forma adjustments to interest expense.
-- Interest on $100,000 notes at 12%. (6,000)
-- Interest expense related to borrowing under the term loan
at 8.6% to finance acquisitions and replace existing
debt. (3,120)
-- Elimination of previously recognized interest expense
which is replaced by borrowing under the term loan above. 8,520
-------
Total interest expense adjustments (600)
(d) Represents the elimination of previously recognized interest
income. (242)
(e) Represents the net effect of adjusting income taxes to our
effective tax rate of 39.8%. Most of the companies acquired
were previously taxed as S corporations or partnerships. (25)
-------
Total pro forma net income effect $ 37
=======
</TABLE>
44
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT--(Continued)
(3) "Post 6/30/99 Acquisitions" represent the actual historical results for the
six months ended June 30, 1999 for companies acquired after June 30, 1999
and the application of pro forma adjustments as if the acquisitions had been
completed as of January 1, 1999. The table below summarizes the actual
results and the effects of the pro forma adjustments.
<TABLE>
<CAPTION>
Certified California Wheels & Clutch &
Powertrain Equipment Brakes QDSP Brake NETAS TBS Total
---------- ---------- -------- ------- -------- ----- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $4,133 $3,435 $12,803 $91,983 $1,013 $424 $539 $114,330
Cost of sales........... 2,629 2,290 9,032 62,973 542 270 339 78,075
------ ------ ------- ------- ------ ---- ---- --------
Gross profit............ 1,504 1,145 3,771 29,010 471 154 200 36,255
Selling, general and
administrative
expenses............... 785 1,207 3,473 23,828 238 120 197 29,848
------ ------ ------- ------- ------ ---- ---- --------
Operating income........ 719 (62) 298 5,182 233 34 3 6,407
Interest expense........ -- -- -- 2,425 -- -- -- 2,425
Interest (income)....... -- -- -- -- -- -- -- --
Other (income) expense.. -- (71) -- -- -- -- -- (71)
------ ------ ------- ------- ------ ---- ---- --------
Income before income
taxes.................. 719 9 298 2,757 233 34 3 4,053
Income tax expense
(benefit).............. -- 2 -- 1,521 -- -- 1,523
------ ------ ------- ------- ------ ---- ---- --------
Net income (loss)....... $ 719 $ 7 $ 298 $ 1,236 $ 233 $ 34 $ 3 $ 2,530
====== ====== ======= ======= ====== ==== ==== ========
</TABLE>
<TABLE>
<CAPTION>
Annual Pro Forma Pro Forma
Income Adjustments Effect
-------- ----------- ---------
<S> <C> <C> <C>
Net sales............................. $114,330 $ (575)(b) $113,755
Cost of sales......................... 78,075 (486)(b) 77,589
-------- ------- --------
Gross profit.......................... 36,255 (89) 36,166
Selling, general and administrative
expenses............................. 29,848 901 (c) 30,749
-------- ------- --------
Operating income...................... 6,407 (990) 5,417
Interest expense...................... 2,425 (1,200)(d) 1,225
Interest (income)..................... -- -- --
Other (income) expense................ (71) -- (71)
-------- ------- --------
Income before income taxes............ 4,053 210 4,263
Income tax expense (benefit).......... 1,523 174 (e) 1,697
-------- ------- --------
Net income (loss)..................... $ 2,530 (a) $ 36 $ 2,566
======== ======= ========
</TABLE>
--------
<TABLE>
<C> <S> <C>
(a) Net income for companies acquired after June 30, 1999. $ 2,530
(b) Elimination of sales, cost of sales and gross profit for Stats
Remanufacturing Center, Inc. which has been sold and Power
Equipment de Mexico, S.A. de C.V. which has been closed. (89)
Reflects the pro forma adjustments to selling, general and
(c) administrative expenses.
--Elimination of excess compensation, fringe benefits and
related expenses of existing employees based upon salaried
amounts in employment contracts entered into at the time of
the acquisitions. 63
--Elimination of rent and related expenses for leased property
owned by stockholders' which is no longer being leased to us. 1
--Elimination of accounting, legal and other fees no longer
required as a result of the acquisitions. 3
--Elimination of selling, general and administrative expense
for Stats Remanufacturing Center, Inc. which has been sold and
Power Equipment de Mexico, S.A. de C.V. which has been closed. 270
--Annualization of amortization related to goodwill and
intangible assets. (1,238)
-------
Total selling, general and administrative adjustments (901)
</TABLE>
45
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT--(Continued)
<TABLE>
<C> <S> <C>
(d) Reflects the pro forma adjustments to interest expense.
--Interest expense related to borrowing under the revolving
credit facility at 8.1% to fund the
acquisitions of Certified Powertrain, California Equipment
and Wheels & Brakes. (1,225)
--Elimination of historical interest expense which is replaced
by borrowing under the revolving
credit facility above. 2,425
-------
Total interest expense adjustments. 1,200
(e) Represents the net effect of adjusting income taxes to our
effective tax rate of 39.8%. Most of the companies acquired
were previously taxed as S corporations. (174)
-------
Total pro forma net income effect $ 2,566
=======
</TABLE>
46
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
Holdings is our parent company and has no separate operations. Its only asset
is its investment in us and equity in our earnings recorded and it has no
liabilities. Holdings is contingently liable for its guarantee of our debt.
Thus, our separate financial statements are not presented.
The selected audited financial data of Holdings and its subsidiaries for the
years ended December 31, 1996, 1997 and 1998 set forth below are derived from
the more detailed financial statements and related notes of Holdings and its
subsidiaries included elsewhere in this prospectus. The unaudited financial
data of Holdings and subsidiaries for the years ended December 31, 1994 and
1995 and the six months ended June 30, 1998 and 1999 are derived from unaudited
financial statements of Holdings and its subsidiaries, which are prepared on
the same basis as the audited financial statements and, in the opinion of
management, reflect all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of data. In addition, Holdings
and its subsidiaries operated throughout the periods presented as independent,
privately owned entities, which influenced the historical level of owners'
compensation and other expenses. Accordingly, the historical results of
operations include (1) historical compensation expenses in excess of the
current compensation levels to the former owners of Holdings and its
subsidiaries, (2) other private company expenses and (3) no accrual for federal
income taxes before May 29, 1998. Therefore, the historical results discussed
below do not represent HDA's results had Holdings and its subsidiaries been
combined and operated under common ownership during that period. The
comparative financial data for 1994, 1995, 1996 and 1997 include only the
combined operations of City Truck and its subsidiaries and affiliated
companies. The 1998 and 1999 financial data also includes the operations of
Stone, Truck & Trailer, Connecticut Driveshaft, Truckparts, Tampa Brake,
Associated, Tisco, Active Gear and Superior Truck from their dates of
acquisition. The financial data set forth below should be read in conjunction
with the financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," all included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
-------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- ------- --------
(In thousands, except location and ratio data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Sales.................. $44,751 $50,063 $52,609 $57,837 $103,295 $33,755 $141,530
Cost of sales.......... 28,706 31,981 33,283 36,611 65,855 20,832 91,891
------- ------- ------- ------- -------- ------- --------
Gross profit........... 16,045 18,082 19,326 21,226 37,440 12,923 49,639
Selling, general and
administrative
expenses.............. 12,009 13,592 14,390 16,143 31,030 9,308 37,075
------- ------- ------- ------- -------- ------- --------
Income from
operations............ 4,036 4,490 4,936 5,083 6,410 3,615 12,564
Interest expense, net.. 31 31 628 776 5,895 596 8,066
Other (income)
expense............... (24) 4 (40) (58) (86) (79) 41
Income tax expense
(benefit)(1).......... 29 37 53 93 (687) 292 1,774
------- ------- ------- ------- -------- ------- --------
Net income............. $ 4,000 $ 4,418 $ 4,295 $ 4,272 $ 1,288 $ 2,806 $ 2,683
======= ======= ======= ======= ======== ======= ========
Supplemental pro forma
income data:
Pro forma income
taxes................. $ 1,604 $ 1,773 $ 1,731 $ 1,737 $ 239 $ 1,233 $ 1,774
Pro forma net income... 2,425 2,682 2,617 2,628 362 1,865 2,683
Balance Sheet Data:
Cash and cash
equivalents........... $ 2,985 $ 227 $ 152 $ 191 $ 8,328 $ 1,292 $ 7,771
Net working
capital(2)............ 12,127 12,176 12,403 13,872 43,387 29,649 81,370
Total assets........... 22,433 26,145 28,915 33,203 163,924 69,037 288,236
Total debt (including
current maturities)... 3,095 11,898 13,184 13,056 118,361 52,327 166,900
Stockholders' equity... 15,169 7,580 9,593 12,018 16,474 5,000 78,823
Other Data:
Capital
expenditures(3)....... $ 829 $ 1,234 $ 4,301 $ 1,627 $ 1,668 $ 442 $ 2,533
Number of locations.... 12 15 16 17 57 35 93
Ratio of earnings to
fixed charges......... 18.3x 15.1x 5.6x 5.1x 1.1x 5.0x 1.5x
</TABLE>
- --------------------
(1) Holdings and its subsidiaries were comprised solely of sub-chapter "S'
corporations prior to the recapitalization in 1998.
(2) Net working capital equals current assets less current liabilities.
(3) Capital expenditures for 1996 include $3.7 million related to the
construction of City Truck's new corporate offices and distribution center
in Birmingham, Alabama.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
"Selected Historical Financial and Operating Data" and our financial statements
and related notes included elsewhere in this prospectus. Certain statements
contained in Management's Discussion and Analysis of Financial Condition and
Results of Operations constitute forward-looking statements which are described
in the section entitled "Disclosure Regarding Forward-Looking Statements."
See "Risk Factors" for information concerning the factors that affect our
markets, our products, our profitability, our liquidity, restrictions on us
imposed by our debt agreements and other factors that may affect us in the
future.
General
Holdings is our parent company and has no separate operations. Its only asset
is its investment in us and equity in our earnings recorded and it has no
liabilities. Holdings is contingently liable for its guarantee of our debt.
Holdings' historical financial statements are identical to ours except with
respect to the accounts which comprise the stockholders' equity section of the
balance sheet.
Our historical financial data prior to 1998 reflect only City Truck's
financial results. Our financial data includes City Truck's results for all
periods and the following from the dates of acquisition:
<TABLE>
<CAPTION>
Date of
Company Acquisition
------- -----------
<S> <C>
Stone.................................................. June 19, 1998
Truck & Trailer Parts.................................. September 30, 1998
Tampa Brake............................................ October 31, 1998
Connecticut Driveshaft................................. November 4, 1998
Truckparts............................................. December 17, 1998
Associated............................................. January 11, 1999
Tisco.................................................. January 12, 1999
Active Gear............................................ April 20, 1999
Vantage Parts.......................................... May 28, 1999
Superior Truck......................................... June 7, 1999
</TABLE>
Accordingly, our historical financial results are not comparable for any
period that includes periods after June 30, 1998. Our historical financial
statements do not include the results of companies we acquired after June 30,
1999: Certified Powertrain, California Equipment, QDSP and Wheels and Brakes.
City Truck, prior to June 1, 1998, and the other acquired businesses, prior
to their acquisitions, operated as family owned entities, which influenced the
historical level of owners' compensation and other expenses. Accordingly, the
historical results of operations include historical compensation expenses in
excess of the current compensation levels to the former owners and certain
other private company expenses. In addition, we believe the combined companies
will benefit from:
. increased access to capital;
. the support of experienced and professional management;
. centrally coordinated purchasing;
48
<PAGE>
. the elimination of certain duplicative distribution and operating costs;
. cross-selling opportunities; and
. the enhanced capacity to service large national and regional accounts.
The historical results discussed below do not represent our results had all of
the acquired entities been combined and operated under common ownership during
that period. See "Business--HDA Parts System, Inc." for a general description
of our business
Our sales consist primarily of parts sales, including remanufactured parts,
and installation and repair income. Parts sales include the sales of parts,
supplies, accessories and equipment for heavy duty vehicles and equipment,
including braking, steering and suspension systems, transmissions, drivelines,
axles, wheels and rims, hydraulic systems and engines. Remanufacturing revenues
are derived from the sales of brake shoes, drivelines, hydraulic systems,
transmissions and rear axles which have been remanufactured. Service revenues
are derived from providing repair service to vehicles and equipment and
installing parts, supplies and equipment. Same location sales are calculated to
include a new location after a full calendar year of operations.
Our cost of sales consist of the cost of parts, supplies and equipment sold,
freight related thereto, and direct labor costs incurred to provide
remanufacturing and service, partially offset by volume-related rebates
received from component manufacturers and buying cooperatives.
Our selling, general and administrative expenses include the cost of
personnel conducting sales, warehousing, delivery and administrative
activities, including commissions and other forms of incentive compensation,
advertising and marketing expenses, depreciation and amortization expenses,
rent, delivery expenses, repairs, utilities, maintenance costs, professional
fees, property taxes and other costs not included in cost of sales that are
attributable to operations.
Results of Operations
The following table summarizes our historical results of operations for the
fiscal years ended December 31, 1996, 1997 and 1998 and for the six months
ended June 30, 1998 and 1999 (In millions):
<TABLE>
<CAPTION>
Unaudited Six Months
Fiscal Year Ended June 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------- ----------- ------------
$ % $ % $ % $ % $ %
----- ----- ----- ----- ------ ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... $52.6 100.0% $57.8 100.0% $103.3 100.0% $33.8 100.0% $141.5 100.0%
Gross profit............ 19.3 36.7 21.2 36.7 37.4 36.2 12.9 38.2 49.6 35.1
SG&A expenses........... 14.4 27.4 16.1 27.9 31.0 30.0 9.3 27.5 37.0 26.1
Income from operations.. 4.9 9.3 5.1 8.8 6.4 6.2 3.6 10.7 12.6 8.9
Interest expense, net... 0.6 1.1 0.8 1.4 5.9 5.7 0.5 1.5 8.1 5.7
Other income............ 0.1 0.2 0.1 0.2 0.1 0.1 -- -- -- --
Income tax expense
(benefit).............. 0.1 0.2 0.1 0.2 (0.7) 0.7 0.3 0.9 1.8 1.3
Net income.............. 4.3 8.2 4.3 7.4 1.3 1.3 2.8 8.3 2.7 1.9
Supplemental pro forma
income taxes........... 1.7 3.2 1.8 3.1 0.2 0.2 1.2 3.6 1.8 1.3
Supplemental pro forma
net income............. 2.7 5.1 2.6 4.5 0.4 0.4 1.9 5.6 2.7 1.9
</TABLE>
49
<PAGE>
Comparison of Results of Operations
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Sales. Sales for the six months ended June 30, 1999 increased to $141.5
million from $33.8 million for the same period in 1998, an increase of 318.6%.
The sales growth is attributable to the acquisitions completed in 1998 and
1999. The acquisitions were all completed after the second quarter of 1998,
with the exception of Stone, which was acquired on June 19, 1999. Same location
sales growth for the six month period was 4.3%.
Gross profit. Gross profit increased to $49.6 million for the first six
months of 1999 from $12.9 million in 1998, an increase of 284.5%, as a result
of our acquisitions. As a percentage of sales, our gross profit decreased to
35.1% in 1999 from 38.2% in 1998. The lower margin reflects the impact of
revenue from acquired companies with lower margins.
SG&A expenses. SG&A expenses increased to $37.0 million in 1999 from $9.3
million in 1998, an increase of 297.9%. As a percentage of sales, SG&A expenses
decreased to 26.1% in 1999 from 27.5% in 1998. The decrease in SG&A expenses as
a percentage of sales is the result of cost containment measures which reduced
expense growth, reductions in duplicate facilities and acquired companies with
lower SG&A as a percent of sales partially offset by acquired amortization of
goodwill and intangibles relating to the acquired companies and corporate
expenses.
Income from operations. Income from operations increased to $12.6 million in
1999 from $3.6 million in 1998, an increase of 250.0%. As a percentage of
sales, income from operations decreased to 8.9% from 10.7%. The decrease in
income from operations as a percentage of sales is primarily due to the lower
margin companies acquired and corporate expenses.
Interest expense. Interest expense increased to $8.1 million in 1999 from
$0.5 million in 1998. The increase was the result of higher debt incurred to
complete acquisitions in 1998 and January 1999. Debt at June 30, 1999 primarily
consisted of $100.0 million of senior subordinated notes and $66.8 million of
borrowings under the revolving credit facility. Comparably, long term debt at
June 30, 1998 was $52.0 million, however, all but approximately $12.0 million
was incurred on or after June 1, 1998.
Income tax expense. Income tax expense was $1.8 million in 1999 compared to
$0.3 in 1998. The increase was the result of income from acquired companies and
a change to C corporation status on June 1, 1998. Prior to that time, we were
taxed as an S corporation.
Net income. Net income for the first six months of 1999 decreased to $2.7
million from $2.8 million in 1998 primarily due to acquired amortization,
corporate expenses, higher interest expense and higher income tax expense
offset by income from acquired companies as discussed above.
Supplemental pro forma income taxes. Pro forma income taxes were $1.8 million
in 1999 compared to pro forma income taxes of $1.2 million in 1998. The higher
expense results from higher earnings due to income from acquired companies,
cost containment measures, reductions in duplicate facilities and acquired
companies with lower SG&A as a percent of sales as discussed above.
Supplemental pro forma net income. Pro forma net income increased to $2.7
million for the six months ended June 30, 1999 from pro forma net income of
$1.9 million in 1998 primarily due to income from acquired companies, cost
containment measures, reductions in duplicate facilities and acquired companies
with lower SG&A as a percent of sales as discussed above.
50
<PAGE>
Fiscal Year 1998 Compared to Fiscal Year 1997
Sales. Sales increased to $103.3 million in 1998 from $57.8 million in 1997,
an increase of 78.7%. The overall sales growth is attributable to the
acquisitions of Stone, Truck & Trailer, Tampa Brake, Connecticut Driveshaft and
Truckparts, which combined contributed $39.7 million to 1998 sales. Excluding
acquisitions, the sales increase was 10.0% which is attributable to the full
year impact of the location opened in Jackson, Mississippi in May 1997 and an
increase in sales at the Mobile, Alabama and Monroeville, Alabama locations due
to targeted sales initiatives. Same location sales growth, only at City Truck
was 7.8% in 1998.
Gross profit. Gross profit increased to $37.4 million in 1998 from $21.2
million in 1997, an increase of 76.4%. Excluding acquisitions, gross profit
increased by 12.7% to $23.9. As a percentage of sales, our gross profit
decreased to 36.2% in 1998 from 36.7% in 1997 reflecting the impact of revenue
from acquired businesses with lower margins. Excluding acquisitions, margins
increased to 37.6% due to higher vendor rebates.
SG&A expenses. SG&A expenses increased to $31.0 million in 1998 from $16.1
million in 1997, an increase of 92.5%. As a percentage of sales, SG&A expenses
increased to 30.0% in 1998 from 27.9% in 1997. The increase in SG&A expenses as
a percentage of sales is primarily the result of acquisition related
amortization expense, primarily goodwill and incremental overhead resulting
from establishing a corporate staff and corporate office. We expect to incur
increased SG&A expenses in 1999 resulting from having a corporate staff and
corporate office for the full year. Excluding acquired amortization and
corporate expenses, SG&A as a percent of sales decreased to 27.2% due to an
increase in sales without a similar increase in SG&A which includes overhead
and other fixed expenses.
Income from operations. Income from operations increased to $6.4 million in
1998 from $5.1 million in 1997, an increase of 25.5%. As a percentage of sales,
income from operations decreased to 6.2% from 8.8%. The decrease in income from
operations as a percentage of sales is primarily due to higher SG&A expenses as
a percent of sales. Excluding amortization and corporate expenses, income from
operations as a percentage of sales increased to 9.0%.
Interest expense. Interest expense increased to $5.9 million in 1998 from
$0.8 million in 1997, due to the $100.0 million of senior subordinated notes we
issued and increased borrowing under our revolving credit facility, primarily
to finance acquisitions completed in 1998.
Income tax expense (benefit). We recorded an income tax benefit of $0.7
million in 1998 compared to an expense of $0.1 million in 1997. Prior to June
1, 1998, we were taxed as an S corporation and as a result of the change to C
corporation status, a net deferred tax asset of $15.1 million was created, of
which $887 has been credited to the income statement, creating the income tax
benefit. The remainder, $14.2 million, has been credited to paid-in capital.
Net Income. Net income decreased to $1.3 million in 1998 from $4.3 million in
1997, a decrease of 69.8%. The decrease is due primarily to the factors
discussed above.
Supplemental pro forma income taxes. Pro forma income taxes were $0.2 million
in 1998 compared to pro forma income taxes of $1.8 million in 1997. The lower
expense results from lower earnings due to lower margin companies acquired,
acquired amortization, corporate expenses and higher interest expense as
discussed above.
51
<PAGE>
Supplemental pro forma net income. Pro forma net income decreased to $0.4
million in 1998 from pro forma net income of $2.6 million in 1997 primarily due
to lower margin companies acquired, acquired amortization, corporate expenses
and higher interest expense as discussed above.
Fiscal Year 1997 Compared to Fiscal Year 1996
Sales. Sales increased to $57.8 million in 1997 from $52.6 million in 1996,
an increase of 9.9%. The sales growth is primarily attributable to the opening
of a new location in Jackson, Mississippi in May 1997, the full year impact of
the location opened in Monroeville, Alabama in September 1996 and an increase
in sales at the Mobile, Alabama location due to targeted sales initiatives.
Same location sales growth was 7.2% in 1997.
Gross profit. Gross profit increased to $21.2 million in 1997 from $19.3
million in 1996, an increase of 9.8%. As a percentage of sales, the Company's
gross profit remained constant between the corresponding periods at 36.7%.
SG&A expenses. SG&A expenses increased to $16.1 million in 1997 from $14.4
million in 1996, an increase of 11.8%. As a percentage of sales, SG&A expenses
increased to 27.9% in 1997 from 27.4% in 1996. The increase in SG&A expenses as
a percentage of sales is primarily the result of the incremental overhead
resulting from the relocation of City Truck's corporate offices and
distribution center to a larger facility in Birmingham, Alabama in October
1996.
Income from operations. Income from operations increased to $5.1 million in
1997 from $4.9 million in 1996, an increase of 4.1%. As a percentage of sales,
income from operations decreased to 8.8% from 9.3%. The decrease in income from
operations as a percentage of sales is primarily due to higher SG&A expenses as
a percent of sales.
Interest expense. Interest expense increased to $0.8 million in 1997 from
$0.6 million in 1996 due to marginally higher average borrowings in 1997.
Income tax expense. Income tax expense was $0.1 million for 1997 and 1996.
During 1997 and 1996, we were taxed as an S corporation and paid taxes to only
those states that do not permit businesses to be taxed as S corporations.
Net Income. Net income remained relatively unchanged from 1997 to 1996.
Supplemental pro forma income taxes. Pro forma income taxes were $1.8 million
in 1997 and $1.7 million in 1996. Earnings were unchanged from 1996 to 1997 as
higher sales and gross profit were offset by an increase in SG&A expenses.
Supplemental pro forma net income. Pro forma net income was $2.6 million in
1997 and $2.7 million in 1996. Higher sales and gross profit in 1997 were
offset by an increase in SG&A expenses primarily due to incremental overhead
costs associated relocating the corporate headquarters as discussed above.
Liquidity and Capital Resources
City Truck historically used internal cash flow from operations to fund its
working capital requirements and capital expenditures and new branch locations.
We historically have had relatively low capital expenditure requirements since
we lease all but six of our 92 facilities. We spent on a pro forma (includes
all acquisitions and probable acquisitions) combined basis $5.2 million in 1998
52
<PAGE>
and $3.7 million for the six months ended June 30, 1999 on capital
expenditures. We also historically have paid dividends and distributions to
stockholders. However, we do not anticipate that we will pay dividends for the
foreseeable future. In 1998 and 1999 we funded our substantial acquisition
program with the proceeds from equity offerings and long-term borrowings.
We financed the recapitalization of City Truck, the acquisition of Stone and
the refinancing of the existing indebtedness of City Truck and Stone with:
. $52.0 million of borrowings under the revolving credit facility;
. $6.0 million of interim financing provided through the purchase of
securities by Brentwood; and
. the purchase by Brentwood and other investors of $10.2 million of our
series B preferred stock and common stock.
In addition, Brentwood purchased outstanding common stock of City Truck for $20
million in connection with the recapitalization.
On July 31, 1998, we issued our $100.0 million senior subordinated notes. We
used the net proceeds from the sale of these notes, which totaled approximately
$96.0 million, as follows:
. approximately $52.0 million to repay outstanding indebtedness under the
revolving credit facility; and
. approximately $6.0 million to redeem the interim securities purchased by
Brentwood, leaving approximately $38.0 million for general corporate
purposes.
After July 31, 1998, we spent $50 million for the acquisitions of Truck &
Trailer Parts, Tampa Brake, Connecticut Driveshaft and Truckparts. We borrowed
an additional $18.2 million under the revolving credit facility to complete
these acquisitions.
In January 1999, we secured $52.5 million of commitments for a private equity
offering consisting of series A preferred stock and common stock of Holdings.
Brentwood committed $15.0 million and other investors committed $37.5 million.
In January 1999, we received $10.5 million of the equity to partially finance
the acquisitions of Associated and Tisco and borrowed $49.3 million under the
revolving credit facility to finance the balance and an additional $4.0 million
for working capital. In April 1999, we received the remaining equity
commitments of $42.0 million which we used to finance the Vantage Parts, Active
Gear and Superior Truck acquisitions and for general corporate purposes.
Our $85.0 million revolving credit facility had undrawn availability of $66.8
million at December 31, 1998 and $18.3 million of undrawn availability at June
30, 1999.
On September 30, 1999, we entered into a new $225.0 million senior secured
credit facility. The facility will be made available in the form of a five-year
$150.0 million revolving credit facility and a five-year $75.0 million term
loan. We used the term loan to refinance existing bank indebtedness of HDA and
QDSP and paid fees and expenses related to the QDSP merger. We intend to use
the $150.0 million revolving credit facility for general corporate purposes,
including acquisitions. The effective rate of interest on our bank debt as of
September 30, 1999 was approximately 9.2% per year. For a more detailed
description of the terms of the credit facility, see "Description of Credit
Facility."
53
<PAGE>
Upon consummation of our merger with QDSP and after giving effect to the
additional issuance of common and preferred stock for cash, holders of existing
QDSP common and preferred stock received consideration, in the form of common
and preferred stock of Holdings, valued at $72.5 million in the aggregate. In
connection with the merger, Aurora and Brentwood made a combined cash equity
contribution of $40.0 million to Holdings.
We intend to continue to pursue a strategy to become the largest national
distributor of heavy duty vehicle parts, with a focus on building a national
system of branch locations primarily through acquisitions. We expect to fund
our working capital needs, capital expenditures and future acquisitions through
availability under our credit facility, future issuances of debt or equity
securities and cash flow generated from operations. However, our ability to
execute our growth strategy and to make scheduled payments of interest or
principal or to refinance our indebtedness will depend upon our future
operating performance, which will be affected by general economic, financial,
competitive, legislative, regulatory, business and other factors beyond our
control. For a more detailed description of these factors, see "Risk Factors--
If we breach the terms of our debt, it could prevent us from fulfilling our
obligations under the notes" and "Description of Credit Facility."
Effect of Inflation; Seasonality
Inflation has not had a significant effect on our results of operations in
recent years. Our selling, general and administrative expenses, such as
salaries, employee benefits, and facilities costs are subject to normal
inflationary pressures.
Many of our customers have a reduced number of working days in the fourth
quarter resulting from public holidays. As a result, we have lower sales in
that quarter than in the other quarters. With the exception of the fourth
quarter, our operations are generally not affected by seasonal fluctuations.
Year 2000 Issue
The Year 2000 issue relates to the inability of computer programs and
business equipment to properly process dates after December 31, 1999 and other
date combinations which have or once had special meaning in data file
processing. As a result, businesses may be at risk for miscalculations and
system failures.
In response to the Year 2000 issue, we initiated a series of projects to
identify, evaluate and implement necessary changes to our computerized business
systems, including our branch operating systems, and business equipment. We
have completed a review of all of our systems and equipment including vehicles,
manufacturing equipment and security, telephone and other systems. We examined
the importance of each category, the remediation necessary to make the category
compliant, the resources necessary to complete the remediation and a time frame
for completion.
We are addressing our software, hardware, and equipment issues primarily by
installing a Year 2000 compliant product at all of our operating locations. In
a limited number of cases, we will replace business equipment with Year 2000
compliant hardware. We have completed 80% of our hardware and equipment
remediation or replacement, and 70% of our software remediation or replacement.
The remediation and replacement process is proceeding as planned and we expect
to be fully compliant by November 30, 1999. We do not believe that any of our
systems or business equipment have critical dates prior to that time.
54
<PAGE>
We estimate the cost of the project to be less than $400,000, and we have not
made any material expenditures due solely to Year 2000 issues. Year 2000
compliance is an element of our strategic systems plan. We have planned all
systems implementations to enhance our business and address Year 2000 issues as
a matter of course.
Notwithstanding the above projects, our greatest risk and most reasonably
likely worst case scenario is with our branch operating application systems. If
the branch systems experience problems, it could disrupt our basic distribution
operations until we resolve the issue. To address this risk, we will be closed
for business Saturday, January 1, 2000 and Sunday, January 2, 2000. We will
test all material systems in production operation during this time with on site
support from, and in cooperation with, the software vendor. On December 31,
1999, without disrupting our normal business, we will print out all customer
orders scheduled to be shipped through January 13, 2000. We will also print a
price list which will enable us to manually conduct our business through
January 13, 2000. In addition, we are able to distribute software updates to
all of our processing centers and branch locations within a few hours. Should
our worst case scenario occur, we estimate the aggregate cost to us would be
$0.5 million.
If modifications and conversions by us and by those with whom we conduct
business are not completed in a timely manner, the Year 2000 issue may have a
material adverse effect on our business, financial condition and results of
operations. While we have endeavored to obtain assurances from our product
suppliers that they are adequately addressing the Year 2000 issue, we may
experience minimal interruptions in replenishment from some suppliers.
Our contingency plans include:
. retaining alternate software suppliers in the event that our primary
system fails the Year 2000 testing we currently have in progress, despite
written assurances from the vendor that the system is Year 2000
compliant;
. identifying alternate sources of supply for selected merchandise; and
. selectively increasing inventory for highly sensitive items.
55
<PAGE>
BUSINESS
HDA Parts System, Inc.
We believe that we are the largest and fastest growing independent
distributor in the highly fragmented $17 billion heavy duty vehicle parts and
repair industry. We distribute parts to over 25,000 customers through 173
branch locations across 31 states. Based on both sales and number of branch
locations, we are the largest independent distributor in the nation.
We purchase replacement parts for heavy duty vehicles from component
manufacturers, inventory a broad selection of these parts and deliver them
directly to customer locations from our branches or sell them "over-the-
counter" to customers who visit our branches. Our 173 branch locations consist
primarily of warehouse and service space, with a small retail selling space. A
typical location averages 10,000 square feet. Our breadth of product inventory
generally enables us to provide delivery customers with parts within 24 hours
and to provide over-the-counter customers with parts immediately. We maintain a
fleet of delivery vehicles that makes daily scheduled deliveries to customers,
picks up used parts for remanufacture or repair and makes other delivery stops
for special orders. By offering reliable and timely availability of a wide
range of heavy duty vehicle parts, we allow our customers to reduce their
investment in inventories and minimize lost productivity and other costs
associated with vehicle and equipment downtime.
We carry a comprehensive selection of heavy duty vehicle parts including
braking, steering and suspension systems, transmissions, drivelines, axles,
wheels and rims, hydraulic systems and engine components. Our customers use
these parts for regular preventative maintenance, such as replacement of worn
brake shoes and air and oil filters, and for repairs of damaged parts. To
complement our parts distribution business, we provide our customers with
value-added services, such as extensive remanufacturing capabilities and
machine shop services. Our remanufacturing facilities allow us to offer our
customers a timely and reliable source of high quality parts. We operate 30
facilities which reline brake shoes and 29 facilities which rebuild
transmissions, rear axles and other components.
Industry Overview
Industry sources estimate that the heavy duty vehicle parts and repair
industry generated $17.0 billion in revenues in 1997. An industry source
expects the market for replacement parts, which accounted for the majority of
revenues in the overall heavy duty vehicle parts and repair industry, to grow
17.7% from 1997 to 2002. We believe growth in the heavy duty vehicle parts and
repair industry and growth in market share for full-service independent
distributors like us has been and will continue to be driven by the following
primary factors:
. Expanding fleet of heavy duty vehicles. The population of heavy duty
vehicles increased from approximately 6.6 million in 1992 to
approximately 7.7 million in 1997, a 15.9% increase, and is projected to
reach 8.6 million by 2002.
. Increased life expectancy of fleet vehicles. The life expectancy of the
average fleet vehicle has grown 62% from 451,000 miles in 1978 to
approximately 730,000 miles in recent years. In addition, the expanding
population of trucks in prime repair age, 5 to 13 years old, is expected
to increase from 32.6 million in 1996 to 39.2 million by 2001, an
increase of over 20%, leading to an expected increase in demand for
replacement parts and service.
. Increased total truck miles driven annually. Annual truck miles driven
steadily increased from 2.0 billion in 1988 to 2.5 billion in 1997, a
24.9% increase. Over this period, the number of annual truck miles driven
never declined year over year.
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<PAGE>
. Increased outsourcing of parts inventory management by fleet
operators. We believe that heavy duty vehicle fleet operators are
increasingly outsourcing parts inventory management and service work and
concentrating supplier relationships in favor of a limited number of
integrated single-source suppliers. We believe that full service
independent distributors with a broad network of branch locations are
well positioned to capitalize on this outsourcing trend.
The independent heavy duty vehicle parts and repair industry is highly
fragmented, and we believe it is in the early stages of consolidation. Most of
the approximately 2,000 independent distributors and thousands of repair shops
in the industry are small, owner-operated businesses with limited access to the
capital required to develop and maintain a large volume and wide selection of
inventory, provide a full line of product offerings, implement advanced
management information systems and service national and regional accounts. We
believe that the five largest heavy duty vehicle parts distributors currently
account for less than 10% of all revenues generated in the heavy duty vehicle
parts and repair industry.
Competitive Strengths
We benefit from the following competitive strengths:
Ability to successfully execute our acquisition strategy. Since the
combination of City Truck and Stone in June 1998, we have successfully
identified, acquired and integrated 13 companies with 138 locations, forming
the largest distributor of heavy duty vehicle parts in the United States based
on both sales in the region and number of branch locations. The completed
acquisitions have permitted us to eliminate duplicative costs and reduce
overhead, expand product offerings and integrate regional sales activities.
Proven ability to grow revenue and profits. On a combined basis, we and our
predecessors have experienced strong same location sales growth averaging
approximately 4.4% annually over the past four years and approximately 6.1%
annually over the past two years. We have a strong record of successfully
opening or acquiring 47 branch locations since 1993. These locations generated
$101.0 million of 1998 sales.
Purchasing leverage. We are a leading customer of virtually all major heavy
duty vehicle replacement parts manufacturers. As a result of our purchasing
volume, we believe that we purchase parts at a discount to industry averages.
We are achieving cost savings by standardizing purchase prices at the lowest
cost among the acquired companies.
Established customer relationships. By emphasizing superior customer service,
we have developed long-standing relationships with many of our customers. We
are the leading distributor of heavy duty vehicle parts to local, regional and
national fleet operators such as United Parcel Service of America, Inc.,
Consolidated Freightways Corporation, Con-Way Transportation Services and
Penske Leasing, Inc. Our fleet customers depend on us for the timely
availability of high quality heavy duty parts. As evidence of the strength of
our customer relationships, we have served our top 10 customers for an average
of 14 years.
Superior inventory availability. Because of the significant costs associated
with vehicle downtime, we believe that the availability of parts on a timely
basis is the key component of quality service. We maintain a broad selection of
inventory with over 20,000 discrete part numbers. In order to achieve high fill
rates, we actively manage and track our inventory on a real-time basis through
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<PAGE>
advanced information systems. We believe that we are more likely than our
competitors to have parts in stock when requested by our customers.
Outstanding customer service. We believe that we have a leading reputation
for providing high quality service based on more than 40 years of operations.
We are committed to attracting new customers and retaining existing customers
by:
. offering numerous branch locations conveniently located near our major
customers;
. providing a knowledgeable and responsive sales staff;
. ensuring timely delivery of products to our customers; and
. providing a hassle-free warranty policy for all of the products we sell.
Experienced management team. Our operating management has an average of 24
years of experience in the heavy duty vehicle parts and repair industry. Our
management and sales staff have extensive knowledge of our markets and long-
standing relationships with a broad range of customers and suppliers. We
developed our management team by retaining key operating managers from our
acquired companies and by recruiting our senior executives from outside the
heavy duty vehicle parts industry. Management owns approximately 19% of
Holdings' outstanding equity.
The negative factors relating to our competitive position in the heavy duty
vehicle aftermarket parts industry include:
. the industry is highly fragmented but is experiencing consolidation.
Current and potential competitors may have financial, personnel and other
resources substantially greater than ours to finance acquisition and
development opportunities;
. the industry consolidation may result in our competitors having lower
overhead cost structures which may enable them to provide their parts and
services at lower rates than us;
. the industry is highly competitive based primarily on service,
availability and quality of parts, geographic proximity and price;
. original equipment manufacturers are in a position to offer incentives to
heavy duty vehicle owners to return to their authorized dealerships for
heavy duty vehicle parts and repair services, which could adversely
affect our ability to compete; and
. some owners of leased fleets may have sufficient leverage to purchase
replacement parts directly from component manufacturers or to negotiate
higher volume discounts from us.
Business Strategy
Our strategic objective is to further grow our sales and profits by
capitalizing on the continued growth and consolidation opportunities in the
heavy duty vehicle parts and repair industry. Our business strategy is to:
Become the largest national distributor of heavy duty vehicle parts. We
intend to build a nationwide system of branch locations through acquisitions as
well as the opening of new stores. As our customer base continues to
consolidate, we believe that it is increasingly important to establish a
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<PAGE>
national presence to serve our customers effectively. Smaller independent
distributors may be unable to adequately supply larger fleets because they lack
a broad network of branch locations to satisfy customer expectations for rapid
delivery times, availability of a broad selection of parts, consistent pricing
and a uniform warranty policy.
Further reduce cost of products sold. We expect to further reduce our cost of
products sold by:
. passing on our favorable vendor terms to acquired companies;
. negotiating more favorable pricing and terms from our suppliers as our
total volume of purchases increases through acquisitions and internal
growth; and
. sourcing remanufactured components from our facilities and thereby
reducing purchases from outside remanufacturers.
Develop distribution and operating efficiencies. We believe that we will be
able to achieve distribution and operating efficiencies as we continue to add
locations, including:
. improved operating efficiency through regional management of individual
branch locations and the closing of overlapping branch locations;
. improved inventory management and enhanced customer service through the
integration of newly acquired businesses into our information and
logistics systems; and
. reduced overhead costs by consolidating administrative functions such as
marketing, insurance, employee benefits, accounting and risk management.
Achieve benefits from combining complementary operations. We believe that we
can obtain significant synergies from combining the operations of recently
acquired businesses and future acquisitions, including:
. sharing customer bases and broadening product offerings including cross-
selling of parts not previously offered at many of our locations;
. enhancing the efficiency of our remanufacturing operations by increasing
capacity utilization and consolidating overlapping facilities; and
. sharing "best practices" and operational expertise throughout our
company.
We expect our completed and pending acquisitions to generate a number of these
benefits. For example, the acquisitions of Truck & Trailer Parts and Vantage
Parts allow us to offer a broad selection of trailer parts throughout our
system. In addition, the acquisition of Active Gear provides additional
remanufacturing expertise and the opportunity to take advantage of facility
consolidation opportunities in the Pacific Northwest.
Expand relationships with national and regional fleet operators. We believe
there are significant opportunities to expand our sales to national and
regional fleet operators who are increasingly seeking to outsource their parts
inventory management and service work to integrated single-source providers.
With our broad network of branch locations we believe we are one of the only
distributors capable of effectively serving large national and regional fleets
operating in the southeastern, western and New England regions of the United
States.
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Operations and Services
Our 173 branch locations, which consist primarily of warehouse and service
space with a small retail selling space, offer well-known national brand name
and private label heavy duty vehicle replacement parts. If we do not have a
specific part in stock at a particular location, our sales employee can utilize
our information system at many of our locations to attempt to locate the
requested product from another location. Our information system allows the
sales employee to record the sale, reserve the part and request delivery. As a
result of our inventory management programs, we believe we provide broad
product availability on a timely basis which enhances customer satisfaction and
loyalty.
We also provide commercial vehicle parts installation and repair services in
several locations. We employ mechanics and other technicians who repair
vehicles using parts maintained in inventory. In addition, at 117 of our
facilities we offer machine shop services to rebuild and repair damaged or used
heavy duty vehicle parts for our customers, including some or all of: axles,
transmissions, power steering and hydraulic and driveline components. We also
operate 30 brake shoe remanufacturing facilities where approximately 160,000
brake shoes are remanufactured monthly. In addition, we remanufacture
drivelines, hydraulic systems, transmissions and rear axles. We resell these
parts, remanufactured to meet original specifications or specifications
acceptable to the customer, at a lower price than new parts.
Products
We distribute replacement parts for substantially all heavy duty vehicle
makes and models in service in the United States, including imported vehicles.
Our extensive product line includes a wide selection of parts for braking,
steering and suspension systems, transmissions, drivelines, axles, wheels and
rims, hydraulic systems and engine components. The useful lives of parts range
from those of high-mortality items such as brake shoes and drums, clutches,
bearings, belts and hoses, which are generally replaced frequently, to those of
transmissions, engines and drivelines, which generally have significantly
longer useful lives. In addition to replacement parts, we distribute ancillary
supply items such as oil, antifreeze, transmission, brake and power steering
fluids, engine additives, protectants and waxes. We believe approximately 35%
of our parts sales are attributable to the regular preventative maintenance of
heavy duty vehicles as opposed to "as needed" repairs. We inventory over 150
component brands. We also offer remanufactured components, including
remanufactured brake shoes under our own brand, which provide customers with a
timely and reliable source of high quality parts. We offer customers a hassle-
free, uniform warranty policy across our extensive network of locations. In
addition, we honor original equipment manufacturers' warranties.
Customers
We believe that our commitment to high quality customer service, consistent
availability of parts and hassle-free warranty policy are the key elements to
maintaining and continuing to build our diverse base of over 25,000 customers.
Generally, our customers are located within 25 miles of a branch location. We
service a large variety of local and regional government entities and
businesses. Our customers include:
. the local operations of companies with national and regional fleets, such
as Waste Management, Inc., Browning-Ferris Industries, Inc., Dole Food,
Inc., and Tyson Foods, Inc.;
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. companies with common carrier and rental fleets, including United Parcel
Service of America, Inc. and Consolidated Freightways Corporation; and
. government entities and utilities, including the North Carolina
Department of Transportation and Alabama Power.
We also distribute parts to independent repair shops, heavy duty vehicle
dealerships authorized by original equipment manufacturers and other heavy duty
vehicle owners and operators. No single customer accounted for more than 3% of
our pro forma sales in 1998, and our top ten customers accounted for
approximately 9% of our 1998 pro forma sales.
Suppliers
We purchase heavy duty vehicle parts from over 150 component manufacturers.
Our five largest principal parts suppliers, Meritor/Euclid, Federal Mogul, Dana
Corporation, Webb Wheel Products, Inc. and Bendix Friction Materials Division
of AlliedSignal Inc., represented less than 25% of our purchases in 1998. We
frequently purchase comparable parts from multiple manufacturers to enable us
to offer a broader selection of products to our customers. To maximize
efficient distribution of our products, we strive to have suppliers deliver
shipments directly to each of our branch locations. When that arrangement is
not possible, we receive parts at our central warehouses and utilize our fleet
of delivery vehicles to distribute the parts to each of the branch locations.
We are not dependent on any one supplier and do not have a purchasing contract
with any suppliers.
We receive rebates on all parts we purchase directly from vendors and through
Heavy Duty America, our primary purchasing cooperative. Heavy Duty America, the
largest industry purchasing cooperative in the United States, obtains the
largest volume discounts relative to the other industry purchasing groups. We
believe that we will be able to obtain additional volume discounts from
component manufacturers on both parts purchased through Heavy Duty America and
those purchased directly from the component manufacturers. We believe this
purchasing advantage will improve as we add volume through internal growth and
acquisitions.
Sales and Marketing
We believe that our superior customer service and our consistent availability
and quality of parts are critical elements in the sales process. Based on these
factors, among others, we have been able to establish and maintain long-term
relationships with existing customers as well as expand our market share
through our sales and marketing efforts. Management constantly monitors sales
activity according to customer type, product line, product group and location
to identify trends and ensure that our market share is maintained or increased.
Management also frequently reviews sales by territory and continually revises
marketing strategies to maximize productivity and sales. We receive advertising
and marketing allowances from component manufacturers which are based on our
volume of purchases. In addition, we actively cooperate with our suppliers to
design and implement effective marketing programs to promote our products.
We employ 950 persons in sales and marketing functions. Our sales force is
two-tiered: "inside" salespeople are responsible for maintaining customer
relationships, receiving and soliciting individual over-the-counter orders at
branch locations and responding to service and other inquiries by customers,
while "outside" salespeople are primarily responsible for identifying new
customers and soliciting new business. Our sales personnel are highly
specialized with expertise in manufacturers' specifications and customers'
needs. We believe that our experienced sales force has enabled us to maintain
one of the largest customer bases in the heavy duty vehicle replacement parts
industry in the United States.
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Facilities and Vehicles
We own eight facilities located in Milford, Connecticut, South Windsor,
Connecticut, Fresno, California, Phoenix, Arizona, Las Vegas, Nevada, Atlanta,
Georgia, Corpus Christi, Texas and Klamath Falls, Oregon and lease 165
facilities throughout the United States. Leases for 24, 15, 20, 4 and 30
facilities expire in 1999, 2000, 2001, 2002 and 2003, respectively. The
remaining 72 leases expire on various dates through 2017. The average total
warehouse and service space is approximately 10,000 square feet per location,
which consists primarily of warehouse and service space, with a small retail
selling space. Our facilities are used for sales, services, warehousing and
administration.
The shaded areas of the United States map below reflect the states where we
have branch locations.
[MAP OF UNITED STATES APPEARS HERE]
- ---------------------
*Number denotes number of branch locations in each state.
**We also have one facility located in the United Kingdom.
Our corporate office is located in 7,000 square feet of office space in
Deerfield, Illinois. In addition, we lease 3,500 square feet of office space in
Portland, Oregon and we own the land on which the Gardena, California facility
is located and property in Huntington Park, California which we lease to an
unrelated third party.
We operate 815 delivery trucks and 12 tractor trailers. Approximately 95% of
our fleet is dedicated to delivery services. Our 30 drive-in service facilities
are comprised of approximately 241 service bays and, as of June 30, 1999 on a
pro forma basis, we employed 296 full-time mechanics at these service
facilities.
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Competition
We operate in a highly fragmented and competitive industry. Competition is
based primarily on service, availability and quality of parts, geographic
proximity and price. We compete with other heavy duty vehicle parts
distributors, dealerships authorized by the original equipment manufacturers,
independent repair shops and component manufacturers on a regional and local
level. The heavy duty vehicle parts and repair industry has experienced
consolidation, and we compete with other companies which may pursue a
consolidation strategy. In addition, the members of the National Auto Parts
Association comprise an affiliated network of locations that compete with us
primarily for over-the-counter parts sales. We also compete with dealerships
authorized by original equipment manufacturers, such as Freightliner
Corporation, Mack Trucks, Inc., Navistar International Corporation and Paccar
Inc. These dealerships sell replacement parts to customers who purchased
vehicles from their dealerships as well as to other heavy duty vehicle owners
and operators who purchase replacement parts in the aftermarket. We believe
that our market leadership, significant purchasing leverage, superior customer
service, parts availability and delivery capabilities provide us with a
competitive advantage over other companies in the heavy duty vehicle parts and
repair industry.
Government Regulations and Environmental Matters
We are subject to a number of environmental laws. We are also subject to
federal, state and local laws and regulations relating to workplace health and
safety. In particular, our operations are subject to environmental laws
governing waste disposal, air and water emissions, the handling of hazardous
substances, workplace exposure and other matters. Stringent environmental laws
govern the handling and disposal of chemicals and substances, such as solvents
and lubricants, commonly used in some of our service and remanufacturing
operations. In addition, some of our facilities operate, or have operated,
above-ground and underground storage tanks for fuels and other substances which
are subject to a variety of environmental laws. We conduct environmental
diligence in connection with our acquisition program and obtained indemnities
from sellers of the businesses we have acquired, which in some cases are
limited by time and dollar amounts. If we fail, or our predecessors failed, to
comply with environmental laws, we may be liable for administrative, civil or
criminal penalties assessed or asserted by government agencies or other
parties. We may not be fully indemnified with respect to the actions of our
predecessors. If we release the substances described above into the
environment, whether at facilities we operate or at facilities where we have
arranged for disposal of the substances, we may also be liable for cleaning up
contamination which results from the releases. Currently, we are not party to
any legal proceedings pursuant to applicable environmental laws and believe we
are in material compliance with all applicable environmental laws. We endeavor
to evaluate properties owned or leased by potential acquisition candidates to
assess environmental conditions at the properties before any acquisition.
Management Information Systems; Year 2000 Issue
Each of the acquired companies operates advanced management information
systems. We use these systems to purchase, monitor and allocate inventory on a
real-time basis throughout our branch system and central warehouses. The
systems enable us to effectively manage inventory costs and turnover rates. The
systems include computerized order entry, sales analysis, inventory status,
invoicing and payment. We employ systems to determine optimum branch location
inventory levels based on usage rates, production statistics, technological
advances and other factors. We intend to install a common management
information system among all acquired businesses supported by Karmak, Inc., the
leading designer of information systems specifically for the heavy duty vehicle
replacement parts industry. We believe that our management information systems
will be Year 2000
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compliant by September 30, 1999. For a more detailed discussion of our Year
2000 issue, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000 Issue."
Employees
As of June 30, 1999, on a pro forma basis, we employed 2,900 persons. Of
these employees, approximately 563 serve in management and administration
functions, 950 serve in sales and marketing functions, 725 serve in warehousing
functions and 662 serve in repair and service functions. To market heavy duty
vehicle parts effectively, salespeople must have significant expertise
regarding the various manufacturers and specifications of vehicle parts. We
believe we maintain a competitive advantage over other parts distributors due
to the high level of expertise of our sales force. None of our employees are
party to collective bargaining agreements, and we benefit from good employee
relations.
To maximize performance from certain of our employees, including branch
managers and the sales force, we have implemented incentive-based compensation
programs based on both sales growth and profitability. We believe that we will
be able to attract and retain employees based on our incentive-based
compensation programs, opportunities for career advancement and a strong
benefits program.
Recruiting, Training and Safety
We believe that recruiting and training high quality personnel is a major
component of a successful operation. We have implemented a number of training
programs and incentives to encourage the development of technical expertise by
our sales and service personnel, which enables them to advise customers when
vehicles need regular scheduled maintenance, recommend the appropriate products
and instruct customers on parts use and installation.
We seek to hire employees from universities, community colleges, vocational
schools, other educational institutions, competitors and other companies in the
trucking industry. In addition, we provide on-the-job training, attractive
benefits packages, steady employment and opportunities for advancement. We
currently have a variety of safety programs in place, including training with
respect to operation of certain equipment, such as fork-lifts, and a bonus
system based on an employee's or an employee team's safety record. We are in
the process of establishing "best practices" throughout our operations to
ensure that all employees comply with the safety standards established by us,
our insurance carriers and federal, state and local laws and regulations.
Risk Management and Insurance
The primary risks in our business are bodily injury, property damage and
injured workers' compensation. We maintain liability insurance for bodily
injury and third-party property damage and workers' compensation coverage that
is standard for the industry and that we consider sufficient to insure against
these risks. We self-insure certain risks and obtain stop loss and catastrophic
coverage from insurance companies.
Legal Proceedings
In the ordinary course of business we are involved in legal proceedings
relating to claims arising out of our operations. We do not believe that there
are any pending or threatened legal proceedings that are reasonably likely to
have a material adverse effect on us.
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MANAGEMENT
Executive Officers and Directors
The following sets forth information regarding our executive officers and
directors as of October 31, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
John J. Greisch......... 43 President, Chief Executive Officer and Director
Vice President, Chief Financial Officer and
John P. Miller.......... 41 Secretary
Anthony W. Cavalle...... 43 Vice President Operations
Gene L. Curtin.......... 51 Vice President and Chief Information Officer
Frederick J. Warren..... 60 Chairman of the Board of Directors
Robert Anderson......... 79 Director
W. Larry Clayton........ 51 Director
Richard R. Crowell...... 44 Director
Christopher A.
Laurence............... 32 Director
Gerald L. Parsky........ 57 Director
William S. Wade......... 52 Director
</TABLE>
John J. Greisch, President, Chief Executive Officer and Director. Mr. Greisch
has served as our President, Chief Executive Officer and as a director since
joining us in June 1998. From May 1986 to December 1997, Mr. Greisch served in
various positions at The Interlake Corporation, a global industrial equipment
manufacturer with approximately $800 million in 1997 sales that was acquired by
GKN plc in early 1999. Most recently, Mr. Greisch served as President of the
Material Handling Group, Interlake's largest operating unit with approximately
$475 million in 1997 sales, and before that he served as Vice President of
Finance, Chief Financial Officer. Mr. Greisch is a Certified Public Accountant.
John P. Miller, Vice President, Chief Financial Officer and Secretary. Mr.
Miller has served as our Vice President, Chief Financial Officer and Secretary
since joining us in June 1998. From 1997 to June 1998, Mr. Miller served as
Chief Financial Officer of Peapod, Inc., an internet-based grocery shopping
service. From 1985 to 1997, Mr. Miller served in various positions at
Interlake. Mr. Miller last served as Controller for Interlake, and before that
he served as Vice President Finance for Interlake's Material Handling Group.
Mr. Miller is a Certified Public Accountant.
Anthony W. Cavalle, Vice President Operations. Mr. Cavalle has served as Vice
President Operations since joining us in October 1998. From 1997 to October
1998, Mr. Cavalle served as Executive Vice President Operations of Carstar, a
franchiser and consolidator of collision service centers with approximately
$250 million in 1998 sales. From 1981 to 1997, Mr. Cavalle served in various
positions at Chief Auto Parts, an auto parts retailer and distributor with
approximately $500 million in 1997 sales. Mr. Cavalle's most recent position at
Chief Auto Parts was as Vice President Commercial and International Business
and before that he served as Vice President Marketing.
Gene L. Curtin, Vice President and Chief Information Officer. Mr. Curtin has
served as Vice President and Chief Information Officer since joining us in
February 1999. From 1992 to
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January 1999, Mr. Curtin served as Vice President and Chief Information Officer
of Wickes, Inc., a distributor of building supplies for professional
contractors with approximately $910 million in 1998 sales.
Frederick J. Warren, Chairman of the Board of Directors. Mr. Warren has
served as a director since June 1998. Mr. Warren has been with Brentwood since
co-founding it in 1972 and is presently a general partner of Brentwood Buyout
Management Partners, L.P. and Brentwood Buyout Partners, L.P., a managing
member of Brentwood Private Equity, L.L.C. and Brentwood Private Equity
Management, L.L.C. Mr. Warren is also a director of PulsePoint Communications.
Robert Anderson, Director. Mr. Anderson has served as a director since
October 1999. Mr. Anderson has been associated with Rockwell International
Corporation since 1968, where he has been Chairman Emeritus since 1990 and
served previously as Chairman of the Executive Committee from 1988 to 1990 and
as Chairman of the Board and Chief Executive Officer from 1979 to 1988. Mr.
Anderson is a director of Gulfstream Aerospace Corporation, Motor Cargo
Industries, Inc. and Optical Data Systems Company.
W. Larry Clayton, Regional General Manager and Director. Mr. Clayton has
served as a Regional General Manager and as a director since our inception in
June 1998. Mr. Clayton is the founder of City Truck, and served as President of
City Truck from its inception in 1975. Mr. Clayton is currently a member of the
HDA Marketing Committee.
Richard R. Crowell, Director. Mr. Crowell has served as a director since
October 1999. Mr. Crowell is President and a founding partner of Aurora Capital
Partners. Prior to forming Aurora Capital Partners in 1991, Mr. Crowell was
Managing Director of Rosecliff, Inc., the management company for Acadia
Partners L.P., since its inception in 1987.
Christopher A. Laurence, Director. Mr. Laurence has served as a director
since June 1998. Mr. Laurence joined Brentwood in 1991 and is presently a
managing member of Brentwood Private Equity, L.L.C. and Brentwood Private
Equity Management, L.L.C. Mr. Laurence is also a director of Aspen Marketing
Group, Inc., Silver Cinemas International, Inc. and World Point Logistics.
Gerald L. Parsky, Director. Mr. Parsky has served as a director since October
1999. Mr. Parsky is the Chairman and a founding partner of Aurora Capital
Partners. Prior to forming Aurora Capital Partners in 1991, Mr. Parsky was a
senior partner and a member of the Executive and Management Committees of the
law firm of Gibson, Dunn & Crutcher LLP.
William S. Wade, Director. Mr. Wade has served as a director since October
1999. Prior to joining the board, Mr. Wade served as the Chief Executive
Officer of QDSP since its inception in 1998. From 1997 to 1998, he served as
Senior Vice President of Stant Corporation, and from 1994 to 1997, he served as
the Chief Executive Officer of Americas of F.A.G. Bearings.
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Executive Compensation
The following table sets forth information with respect to the compensation
we paid for services rendered during the year ended December 31, 1998 to our
Chief Executive Officer and to each of our three other most highly compensated
executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
------------------ ----------------
Salary Restricted Stock
Name and Principal Position ($) Bonus ($) Award(s) ($)
- --------------------------- -------- --------- ----------------
<S> <C> <C> <C>
John J. Greisch (a)....................... $166,147 $82,106 --
President and Chief Executive Officer
John P. Miller (b)........................ $ 86,841 $69,255 $99,761
Vice President, Chief Financial Officer
and Secretary
Anthony W. Cavalle (c).................... $ 50,377 $16,285 --
Vice President Operations
Gene L. Curtin (d)........................ -- -- --
Vice President and Chief Information
Officer
</TABLE>
- --------
(a) Mr. Greisch became our President and Chief Executive Officer on June 1,
1998. His annualized salary from January 1, 1998 would have been $275,000.
(b) Mr. Miller became our Vice President, Chief Financial Officer and Secretary
on June 29, 1998. His annualized salary from January 1, 1998 would have
been $165,000. Mr. Miller's restricted stock awards represent the
difference between the purchase price and the fair market value of shares
of Holdings' preferred stock Mr. Miller acquired in July 1998. For a
summary of the terms of the purchase, see "Material Relationships and
Transactions."
(c) Mr. Cavalle became our Vice President Operations on October 6, 1998. His
annualized salary from January 1, 1998 would have been $175,000.
(d) Mr. Curtin became our Vice President and Chief Information Officer on
February 1, 1999 at an annual salary of $170,000.
Stock Options
On February 1, 1999, Holdings granted Mr. Curtin options to purchase 750
shares of Holdings common stock with an exercise price of $170 per share,
expiring on January 31, 2009, and vesting over eight years from the date of
grant. Vesting of the options may accelerate.
Compensation of Directors
The members of our board of directors do not receive any compensation for
their services as directors. They do receive reimbursement for travel and other
expenses incurred in their capacity as directors.
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PRINCIPAL STOCKHOLDERS
We are a wholly-owned subsidiary of our parent company, Holdings, which has
guaranteed the notes. Holdings has five classes of voting securities, common
stock and preferred stock designated as voting series A preferred stock, voting
series B preferred stock, series C special voting preferred stock and series D
special voting preferred stock. The common stock, series A preferred stock and
series B preferred stock vote together as a single class. Each of the series C
special voting preferred stock and series D special voting preferred stock vote
as separate classes and entitle each of Aurora and Brentwood, respectively, to
elect three directors, provided that Aurora and Brentwood maintain specified
ownership percentages of Holdings' common stock. The following table sets
forth, as of September 30, 1999 the ownership of Holdings' common stock and the
ownership of its voting preferred stock by each stockholder who is known by us
to own beneficially more than five percent of the outstanding common stock or
voting preferred stock, respectively, by each director, by each executive
officer listed in the table below, and by all directors and officers as a
group.
<TABLE>
<CAPTION>
Series A Series B Series C Series D
Preferred Preferred Preferred Preferred
Common Stock Stock Stock Stock Stock
Amount and Amount and Amount and Amount and Amount and
Nature of Percent Nature of Percent Nature of Percent Nature of Percent Nature of Percent Percent of
Beneficial of Beneficial of Beneficial of Beneficial of Beneficial of all Voting
Name and Address Ownership Class Ownership Class Ownership Class Ownership Class Ownership Class Securities
- ---------------- ------------ ------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Aurora(1)....... 170,061 43.2% -- -- 741,237 95.0% 1 100% -- -- 44.3%
Brentwood(2).... 143,771 36.5% 626,640 69.1% 17,506 2.2% -- -- 1 100.0% 37.5%
Frederick
Warren(2)(3)... -- -- -- -- -- -- -- -- -- -- --
Christopher
Laurence(2)(3).. -- -- -- -- -- -- -- -- -- -- --
Gerard
Parsky(1)(4)... -- -- -- -- -- -- -- -- -- -- --
Richard
Crowell(1)(4).. -- -- -- -- -- -- -- -- -- -- --
Robert
Anderson(1).... 236 * -- -- 884 0.1% -- -- -- -- *
William S.
Wade(1)........ 3,057 * -- -- 13,324 1.7% -- -- -- -- *
John J.
Greisch(5)..... 8,602 2.2% 6,983 * -- -- -- -- -- -- *
John P.
Miller(5)...... 1,979 * 998 * -- -- -- -- -- -- *
Anthony W.
Cavalle(5)..... 1,479 * 998 * -- -- -- -- -- -- *
W. Larry
Clayton(6)..... 8,600 2.2% 37,486 4.3% -- -- -- -- -- -- 2.2%
All directors
and officers as
a group (ten
persons)........ 23,953 6.1% 46,465 5.3% 14,208 1.8% -- -- -- -- 4.1%
</TABLE>
- ------------------
* Less than one percent.
(1) The address for Aurora and Messrs. Parsky, Crowell, Anderson and Wade is
c/o Aurora Capital Group, 10877 Wilshire Boulevard, Suite 2100, Los
Angeles, California 90024. Aurora Equity Partners II L.P. is the owner of
record of 147,868 shares of common stock and 644,504 shares of preferred
stock, Aurora Overseas Equity Partners II L.P. is the owner of record of
1,999 shares of common stock and 8,711 shares of preferred stock and
Quality Distribution Equity Partners L.P. is the owner of record of 20,195
shares of common stock and 88,022 shares of preferred stock, indicated as
owned by Aurora.
(2) The address for Brentwood and Messrs. Warren and Laurence, is c/o Brentwood
Associates, 11150 Santa Monica Boulevard, Suite 1200, Los Angeles,
California 90025. BABF City Corp., wholly owned by Brentwood Associates
Buyout Fund II, L.P., is the owner of record of 57,227 shares of common
stock and 249,428 shares of preferred stock and HDA Partners I, L.P., of
which Brentwood is the general partner, is the owner of record of 86,544
shares of common stock and 377,212 shares of preferred stock, indicated as
owned by Brentwood.
(3) Messrs. Warren and Laurence are managing members of the general partner of
Brentwood Associates Buyout Fund II, L.P., and in that capacity share
voting and dispositive power with respect to the shares owned by Brentwood
Associates Buyout Fund II, L.P. and may be deemed to be beneficial owners
of those shares but disclaim beneficial ownership of those shares.
(4) Messrs. Parsky and Crowell are managing members of the general partner of
Aurora Capital Group, and in that capacity share voting and dispositive
power with respect to the shares owned by Aurora Equity Partners II L.P.,
Aurora Overseas Equity Partners II L.P. and Quality Distribution Equity
Partners L.P. and may be deemed to be beneficial owners of those shares but
disclaim beneficial ownership of those shares.
(5) The address for Messrs. Greisch, Miller and Cavalle is c/o HDA Parts
System, Inc., 520 Lake Cook Road, Deerfield, Illinois 60015.
(6) The address for Mr. Clayton is c/o City Truck and Trailer Parts, 2912 3rd
Avenue North, Birmingham, Alabama 35202.
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MATERIAL RELATIONSHIPS AND TRANSACTIONS
Relationship with Brentwood and Aurora
Pursuant to a management services agreement, dated as of September 30, 1999,
among Holdings, Brentwood Private Equity Management, L.L.C., an affiliate of
Brentwood, and Aurora Management Partners LLC, an affiliate of Aurora,
Brentwood Private Equity Management and Aurora Management Partners have agreed
to provide us with financial consulting services, including consultation and
advice in such fields as financial services, accounting, general business
management, acquisitions, dispositions, banking and other matters.
We may terminate the management services agreement for justifiable cause with
respect to Brentwood Private Equity Management by written notice to it,
authorized by a majority of the directors other than those appointed by
Brentwood Private Equity Management. We may terminate the management services
agreement for justifiable cause with respect to Aurora Management Partners by
written notice to it, authorized by a majority of the directors other than
those appointed by Aurora Management Partners. Justifiable cause means
commission of any of the following acts by Brentwood Private Equity Management
or Aurora Management Partners, as the case may be:
(a)misappropriation of our funds or property;
(b) gross neglect or willful misconduct in the fulfillment of its
obligations under the management services agreement; or
(c) conviction of a felony involving moral turpitude that has become final
and not subject to appeal.
Unless earlier terminated for justifiable cause, the management services
agreement will automatically terminate:
(a) with respect to Brentwood Private Equity Management, on the date that
Brentwood no longer retains the voting and dispositive power with
respect to at least 45% of the total number of shares of our common
stock that it held immediately following the consummation of the
transactions contemplated by the QDSP merger agreement; and
(b) with respect to Aurora Management Partners on the date that Aurora no
longer retains the voting and dispositive power with respect to at
least 45% of the total number of shares of our common stock that it
held immediately following the consummation of the transactions
contemplated by the QDSP merger agreement.
Pursuant to the management services agreement, each of Brentwood Private
Equity Management and Aurora Management Partners are entitled to receive a fee
of $375,000 per year, payable semi-annually in advance. In addition, we will:
. pay to each of Brentwood Private Equity Management and Aurora Management
Partners a transaction fee for merger and acquisition services equal to
0.75% of the aggregate transaction consideration, not to exceed $100,000;
. promptly reimburse each of Brentwood Private Equity Management and Aurora
Management Partners for all reasonable out-of-pocket costs and expenses
incurred in connection with their investment in us and the performance of
their respective obligations under the management services agreement.
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In connection with the acquisitions, we have paid Brentwood Private Equity
Management and Aurora Management Partners fees amounting to $4.8 million and
$1.0 million, respectively. We believe the terms of the management services
agreement are as fair to us as those that could have been obtained from arms-
length negotiations with unrelated parties.
We financed a portion of our start-up costs, including the recapitalization
of City Truck, the Stone acquisition and the financing of City Truck and
Stone's then existing debt, with funds provided by Brentwood, as follows:
. Brentwood purchased $6.0 million in interim securities;
.Brentwood and other investors purchased $10.2 million of our equity
securities; and
.Brentwood purchased City Truck's outstanding common stock for $20 million.
We used a portion of the net proceeds from the July 31, 1998 issuance of the
private notes to redeem the $6.0 million of interim securities purchased by
Brentwood. In addition, in May 1999, Brentwood purchased another $15.0 million
of Holdings' equity securities. In connection with our merger with QDSP,
Brentwood and Aurora also made cash equity contributions of $3.1 million and
$36.9 million, respectively, to Holdings.
Stockholders' Agreement
On September 30, 1999, Holdings and each of Holdings' stockholders at that
time entered into a stockholders' agreement which amends and restates the
September 30, 1998 stockholders agreement and restricts the transfer of shares
of common stock and preferred stock held by the stockholders. The stockholders'
agreement also entitles the stockholders to rights regarding the transfer of
their shares and the election of directors.
The stockholders' agreement provides a "right of first refusal" to Holdings
and each of the stockholders owning the same class of securities being offered
for sale. The stockholders' agreement also provides stockholders with "tag-
along rights." If any stockholder then owning 10% or more of the outstanding
shares of any class or series of Holdings' common stock proposes to transfer
any shares, each of the other stockholders may require the proposed purchaser
to purchase a pro rata portion of its shares, and the 10% selling stockholder
would have to make a corresponding reduction in the number of its shares to be
purchased. In addition, the stockholders' agreement provides Brentwood and
Aurora with "drag-along rights." If Brentwood and Aurora desire to sell all of
their shares to an unaffiliated third-party who has offered to acquire all of
Holdings' outstanding shares, then Brentwood and Aurora may require each of the
other stockholders to sell all of their shares in the same transaction and upon
the same terms and conditions.
The right of first refusal, tag-along rights and drag-along rights terminate on
the earlier to occur of:
(1) the closing of an underwritten public offering of Holdings' common
stock, following which Holdings' common stock is listed on a national
securities exchange or the Nasdaq Stock Market, provided that the
proceeds of the offering are not less than $50,000,000; or
(2) any transfer of Holdings' equity securities in connection with a
merger, consolidation, sale of assets or sale or exchange of Holdings'
stock representing more than 50% of the voting power in terms of the
election of Holdings' directors.
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The stockholders' agreement provides the parties with rights to have their
shares registered for sale under the Securities Act.
The stockholders' agreement also provides that Larry Clayton, or in the event
of his death or incapacity to perform his duties as director, Delton Clayton,
shall be entitled to be a director as long as Larry Clayton and his affiliates
own at least 45% of the 11,445 shares of common stock owned by Larry Clayton
and his affiliates as of September 30, 1998. As long as the Clayton director is
entitled to be a member of the board and Holdings' series C preferred stock
remains outstanding, Aurora shall be entitled to nominate one director who is
not an employee of Aurora or its affiliates.
Stock Purchase Agreements
Several of our executive officers, senior managers and a director acquired
equity interests in Holdings consisting of common stock and series A preferred
stock pursuant to the stock purchase agreements summarized below.
John J. Greisch, President and Chief Executive Officer. Mr. Greisch purchased
6,602 shares of our common stock for $1.00 per share and 6,983.976 shares of
our series B preferred stock for $100 per share pursuant to his stock purchase
agreement, dated as of July 1, 1998. In connection with a stock contribution
agreement, dated as of August 27, 1998 between Holdings and the stockholders
listed therein, Mr. Greisch exchanged his shares of our common stock and series
B preferred stock for an equal number of shares of common stock and series A
preferred stock of Holdings.
Of the common stock purchased by Mr. Greisch, 5,000 of the shares vest over
eight years so long as he is employed by us, with one-half of the shares
eligible for accelerated vesting if we meet specified EBITDA targets. We were
deemed to meet the EBITDA targets for 1998 regardless of our actual results.
If Mr. Greisch's employment is terminated for any reason, a portion of the
unvested common shares will become immediately vested, and additional shares
may also vest if we meet specified EBITDA targets. Holdings may purchase any or
all of the remaining unvested shares for $1.00 per share.
Mr. Greisch also purchased 2,000 shares of Holdings' common stock for $170
per share pursuant to his stock purchase agreement dated as of March 5, 1999.
These shares vest over four years so long as he is employed by us. Of the
$340,000 purchase price for the shares, Mr. Greisch paid $3,400 in cash and
signed a promissory note for the remaining $336,600. The promissory note
matures on March 4, 2004, bears interest at 5.3% per year and requires payments
from time to time. The note is collateralized by these shares.
If Mr. Greisch's employment is terminated for any reason, a portion of the
unvested shares will become immediately vested. Holdings may purchase any or
all of the remaining unvested shares for $170 per share. If Mr. Greisch's
employment is terminated prior to an initial public offering of common stock,
Holdings may purchase any and all of the vested common shares at fair market
value.
If we are acquired by a third party through an asset purchase, merger or sale
of more than 50% of our outstanding equity, all of the common shares will vest
immediately before the acquisition.
John P. Miller, Vice President, Chief Financial Officer and Secretary. Mr.
Miller purchased 1,729 shares of our common stock for $1.00 per share and
997.710 shares of our series B preferred
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stock for $.01 per share pursuant to his stock purchase agreement, dated as of
July 10, 1998. In connection with the stock contribution agreement, Mr. Miller
exchanged his shares of our common stock and series B preferred stock for an
equal number of shares of common stock and series A preferred stock of
Holdings.
Of the common stock purchased by Mr. Miller, 1,500 of the shares are subject
to the same vesting conditions as Mr. Greisch's. The remaining 229 shares of
common stock and the preferred stock purchased by Mr. Miller vest over three
years.
If Mr. Miller's employment is terminated for any reason, his shares are
subject to the same vesting conditions as Mr. Greisch's, except that if Mr.
Miller's employment is terminated before an initial public offering of common
stock, Holdings may purchase any and all of the vested common shares at fair
market value.
If Mr. Miller is involuntarily terminated, his 229 additional shares become
immediately vested. If Mr. Miller voluntarily terminates his employment before
full vesting of the these additional shares, Holdings may purchase, and Mr.
Miller may require Holdings to purchase, any or all of his remaining unvested
shares at the purchase price for the shares.
Mr. Miller also purchased 250 shares of Holdings' common stock for $170 per
share pursuant to his stock purchase agreement dated as of March 5, 1999. Of
the $42,500 purchase price for the shares, Mr. Miller paid $425 in cash and
signed a promissory note for the remaining $42,075. The promissory note matures
on March 4, 2004, bears interest at 5.3% per annum and requires payments from
time to time. The note is collateralized by these shares. These shares are
otherwise subject to the same terms and conditions as Mr. Greisch's pledged
shares.
If we are acquired by a third party through an asset purchase, merger or sale
of more than 50% of our outstanding equity, Mr. Miller's common shares are
subject to the same conditions as Mr. Greisch's.
Anthony W. Cavalle, Vice President Operations. Mr. Cavalle purchased 1,229
shares of Holdings' common stock for $1.00 per share and 997.711 shares of
Holdings' series A preferred stock for $100 per share pursuant to his stock
purchase agreement, dated as of October 19, 1998.
Of the common stock purchased by Mr. Cavalle, 1,000 of the shares vest over
eight years, with one-half of the shares eligible for accelerated vesting if we
meet specified EBITDA targets. If we do not meet our EBITDA target in a given
year but exceed our target in the immediately following year, a portion of the
shares scheduled to vest in the prior year may qualify for accelerated vesting
in the subsequent year. All unvested shares will immediately vest upon Mr.
Cavalle's death or total physical disability.
If Mr. Cavalle's employment is involuntarily terminated before December 31,
2002, Holdings may purchase 1,000 of his common shares, whether vested or
unvested, for $1.00 per share and he will be released from his covenant not to
compete. If Mr. Cavalle's employment is terminated for any other reason, he has
the option to (1) allow Holdings to purchase 1,000 of his common shares,
whether vested or unvested, for $1.00 per share and be released from his
covenant not to compete or (2) keep his vested shares and not be subject to the
covenant not to compete, but Holdings may purchase the unvested shares for
$1.00 per share.
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Mr. Cavalle also purchased 250 shares of Holdings' common stock for $170 per
share pursuant to his stock purchase agreement dated as of March 5, 1999. Of
the $42,500 purchase price for the shares, Mr. Cavalle paid $425 in cash and
signed a promissory note for the remaining $42,075. The promissory note matures
on March 4, 2004, bears interest at 5.3% per annum and requires payments from
time to time. The note is collateralized by these shares. These shares are
otherwise subject to the same terms and conditions as Mr. Greisch's pledged
shares.
If we are acquired by a third party through an asset purchase, merger or sale
of more than 50% of our outstanding equity, Mr. Cavalle's common shares will be
subject to substantially the same conditions as Messrs. Greisch and Miller,
except that Holdings may purchase for $1.00 per share all shares eligible for
accelerated vesting which did not vest in the year before the year the
acquisition closed.
Gene L. Curtin, Vice President and Chief Information Officer. Mr. Curtin
purchased 174 shares of Holdings' common stock for $170 per share and 758.261
shares of Holdings Series A preferred stock for $100 per share pursuant to his
stock purchase agreement dated as of February 1, 1999. None of these shares are
subject to vesting conditions.
Martin R. Reid, Director. Mr. Reid purchased 858 shares of Holdings' common
stock for $1.00 per share and 1995.422 shares of Holdings' series A preferred
stock for $100 per share pursuant to his stock purchase agreement, dated as of
September 30, 1998.
Of the common stock purchased by Mr. Reid, 400 of the shares vest over five
years so long as Mr. Reid serves continuously as a director of Holdings. If Mr.
Reid's directorship is terminated for any reason, a portion of the vested
common shares will become immediately vested. Holdings may purchase any or all
of the remaining unvested common shares for $1.00 per share.
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DESCRIPTION OF CREDIT FACILITY
On September 30, 1999, we entered into a $225.0 million credit agreement with
the several lenders parties thereto, First Union National Bank, as
documentation agent, Credit Suisse First Boston, as syndication agent, Chase
Securities Inc. as advisor, lead arranger and book manager and The Chase
Manhattan Bank, as administrative agent, which replaced our previous $85.0
million revolving credit facility. The following is a summary description of
the principal terms of the credit facility and the related loan documents. For
a complete description, please refer to the credit facility which we have filed
as an exhibit to the registration statement. Our obligations under the credit
facility will constitute senior debt and designated senior debt with respect to
the notes.
Structure; Maturity. The lenders have committed, subject to compliance with
conditions customary for facilities of this nature, to provide us with a five-
year $75.0 million term loan and a five-year $150.0 million revolving credit
facility. We used the term loan to refinance our and QDSP's existing bank
indebtedness and paid fees and expenses related to the QDSP merger. We intend
to use the revolving credit facility for general corporate purposes, including
acquisitions.
The term loan matures in consecutive quarterly installments of $250,000
beginning on December 31, 1999 with a final payment of $70,250,000 due on
September 30, 2004. The revolving credit facility matures on September 30,
2004. Loans and letters of credit under the revolving credit facility will be
available at any time during its five-year term subject to the fulfillment of
customary conditions precedent, including the absence of specified events of
default under the revolving credit facility. Mandatory commitment reductions
will result from 100% of the net proceeds of specified asset sales not
reinvested in the business, 100% of net proceeds of capital stock or debt
issued or incurred, and, beginning on December 31, 1999, 100% of "excess cash
flow," as defined in the credit facility. Payments in respect of commitment
reductions are first applied to the prepayment of the term loan and second to
reduce permanently the availability under the credit facility.
Security; Guaranty. The credit facility is secured by a perfected first
priority security interest in substantially all of our and our subsidiaries'
assets including:
.all accounts receivable, inventory, intangibles and other property; and
. 100% of our and any domestic subsidiaries' capital stock and 65% of any
foreign subsidiaries' capital stock.
Any future domestic subsidiary will be required to enter into a guaranty of
the credit facility.
Interest. Borrowings under the credit facility will bear interest at a rate
per annum equal, at our option, to:
(1)the eurodollar rate, as defined in the credit facility; or
(2)the greatest of:
(a) the prime rate of interest publicly announced by The Chase
Manhattan Bank as its reference rate; and
(b) the base CD rate, as defined in the credit facility, plus 1%; and
(c) the federal funds effective rate, as defined in the revolving
credit facility, in effect from time to time plus 0.50%,
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in each case, plus an applicable margin, ranging from 2.00% to 3.75% in the
case the eurodollar rate and 1.00% to 2.75% in the case of the other rates. The
applicable margins will be subject to fluctuations pursuant to a grid based on
our consolidated leverage ratio, as defined in the credit facility. The
effective interest rate on our outstanding bank debt as of September 30, 1999
was approximately 9.2% per year.
Fees. We are required to pay, on a quarterly basis, a commitment fee on the
undrawn portion of the revolving credit facility generally at a rate equal to
0.50% per year. We are also obligated to pay:
.a letter of credit fee on the aggregate amount of outstanding letters of
credit;
.a fronting bank fee for the letter of credit issuing bank; and
.customary agent, arrangement and other similar fees.
Covenants. The credit facility contains covenants that, among other things,
restrict our and our subsidiaries' ability to dispose of assets, incur
additional debt, prepay other debt or amend debt instruments, pay dividends or
redeem stock, create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances, make acquisitions, engage in
mergers or consolidations, make capital expenditures, change the business
conducted by us or our subsidiaries or engage in transactions with affiliates
and otherwise restrict some of our corporate activities. In addition, we are
required to maintain specified financial ratios and satisfy specified financial
tests, including maximum leverage ratios and a minimum interest coverage ratio.
Events of Default. The credit facility contains events of default customary
for facilities of this nature, including:
. nonpayment of principal, interest or fees;
. breach of covenants, representations or warranties;
. cross-default to certain other debt;
. bankruptcy or insolvency;
. material judgments against us and our subsidiaries;
. invalidity of any guarantee or security interest;
. certain events under the Employee Retirement Income Security Act of 1974;
and
. a change in our control under the circumstances described in the
revolving credit facility.
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DESCRIPTION OF NOTES
You can find the definitions of terms used in this description under the
subheading "Definitions." In this description, the word "HDA" refers only to
HDA Parts System, Inc. and not to any of its subsidiaries.
HDA will issue the notes under an indenture among itself, the guarantors and
U.S. Trust Company, National Association, as trustee. The terms of the notes
include those stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of these notes. We have filed copies of the indenture and the
registration rights agreement as exhibits to the registration statement which
includes this prospectus.
Brief Description of the Notes and the Guarantees
The Notes
These notes:
.are general, unsecured obligations of HDA;
. are subordinated in right of payment to all existing and future senior
debt of HDA;
. are senior or pari passu in right of payment to any future subordinated
indebtedness of HDA; and
.are unconditionally guaranteed by the guarantors.
The Guarantees
These notes are guaranteed by the following subsidiaries of HDA:
City Truck and Trailer Parts of Alabama, Inc.
City Truck and Trailer Parts of Alabama, L.L.C.
City Truck and Trailer Parts of Alabama of Tennessee, Inc.
City Friction, Inc.
Truck & Trailer Parts, Inc.
Truckparts, Inc.
Associated Brake Supply, Inc.
Associated Truck Center, Inc.
Onyx Distribution, Inc.
Associated Truck Parts of Nevada, Inc.
Freeway Truck Parts of Washington, Inc.
Tisco, Inc.
Tisco of Redding, Inc.
Active Gear, L.L.C.
Superior Truck & Auto Supply, Inc.
QDSP Holdings, Inc.
Quality Distribution Service Partners, Inc.
Automotive Sales Company, Inc.
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City Spring Works, Inc.
Fleetpride, Inc.
Holt Incorporated
SLM Power Group, Inc.
Truck City Parts, Inc.
Universal Joint Sales Company, Inc.
Wheatley Truck Parts, Inc.
CB Acquisition Sub, Inc.
New England Truck & Auto Service, Inc.
TBS, Incorporated
Four-T Sales & Service, Inc.
Stats Remanufacturing Center, Inc.
Power Export Distributing Company
Power Equipment International, Inc.
Parts Management Company
Parts Holding Company
Specialized Sales & Service, Inc.
Parts Distributing Company, Ltd.
Wheels and Brakes, Inc.
Specrite Brake Company
These notes are also guaranteed by HDA's parent, City Truck Holdings, Inc.
The guarantees of these notes:
. are general, unsecured obligations of each guarantor;
. are subordinated in right of payment to all existing and future senior
debt of each guarantor; and
. are senior or pari passu in right of payment to any future subordinated
indebtedness of each guarantor.
As of June 30, 1999, HDA and the guarantors had total senior debt of
approximately $103.1 million. As indicated above and as discussed in detail
below under the subheading "Subordination," payments on the notes and under the
guarantees will be subordinated to the payment of senior debt. The indenture
will permit us and the guarantors to incur additional senior debt.
As of the date of the prospectus, all of our subsidiaries are "Restricted
Subsidiaries." However, the indenture permits us to designate our subsidiaries
as "Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject
to many of the restrictive covenants in the indenture. Unrestricted
Subsidiaries will not guarantee these notes.
Principal, Maturity and Interest
HDA will issue notes with a maximum aggregate principal amount of $100.0
million. HDA will issue notes in denominations of $1,000 and integral multiples
of $1,000. The notes will mature on August 1, 2005.
Interest on these notes will accrue at the rate of 12% per annum and will be
payable semi-annually in arrears on February 1 and August 1 of each year,
commencing on August 1, 1999. HDA
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will make each interest payment to the holders of record of these notes on the
immediately preceding January 15 and July 15.
Interest on these notes accrues from February 1, 1999. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Methods of Receiving Payments on the Notes
Principal of, premium, if any, and interest on the notes will be payable at
the office or agency of HDA maintained for that purpose within the City and
State of New York, unless HDA elects to make interest payments by check mailed
to the holders of notes at their address set forth in the register of holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar. HDA may change
the paying agent or registrar without prior notice to the holders of the notes,
and HDA or any of its subsidiaries may act as paying agent or registrar.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture. The
registrar and the trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and HDA may require a holder to
pay any taxes and fees required by law or permitted by the indenture. HDA is
not required to transfer or exchange any note selected for redemption. Also,
HDA is not required to transfer or exchange any note for a period of 15 days
before a selection of notes to be redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
Subsidiary and Parent Guarantees
The guarantors will fully and unconditionally guarantee HDA's obligations
under these notes on a joint and several basis. Each subsidiary guarantee will
be subordinated to the prior payment in full of all senior debt of that
guarantor. The obligations of each guarantor under its subsidiary guarantee
will be limited as necessary to prevent that Subsidiary Guarantee from
constituting a fraudulent conveyance under applicable law. See "Risk Factors--
The notes are subject to review for fraudulent transfer considerations" for a
more detailed description of the fraudulent transfer considerations.
A guarantor may not sell or otherwise dispose of all or substantially all of
its assets, or consolidate with or merge with or into another Person, whether
or not that guarantor is the surviving Person, unless:
(1) immediately after giving effect to that transaction, no Default or Event
of Default exists;
(2) either:
(a) the Person acquiring the property in that sale or disposition or the
Person formed by or surviving that consolidation or merger assumes all the
obligations of that guarantor pursuant to a supplemental indenture
satisfactory to the trustee; or
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(b) the Net Proceeds of that sale or other disposition are applied in
accordance with the applicable provisions of the indenture; and
(2) immediately after giving effect to that transaction on a pro forma basis,
the consolidated resulting, surviving or transferee entity would immediately
thereafter be permitted to incur at least $1.00 of additional indebtedness
pursuant to the Debt Incurrence Ratio set forth in the first paragraph of the
covenant in the indenture under the caption "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock."
The subsidiary guarantee of a guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that guarantor, including by way of merger or
consolidation, if HDA applies the Net Proceeds of that sale or other
disposition, in accordance with the applicable provisions of the indenture; or
(2) in connection with any sale of all of the capital stock of a guarantor,
if HDA applies the Net Proceeds of that sale in accordance with the applicable
provisions of the indenture; or
(3) if HDA designates any Restricted Subsidiary that is a guarantor as an
Unrestricted Subsidiary.
Subordination
The payment of principal, premium and interest, if any, on these notes will
be subordinated to the prior payment in full of all senior debt of HDA.
In the event of any distribution to creditors of the HDA, the holders of
senior debt will be entitled to receive payment in full of all obligations due
in respect of senior debt, including interest after the commencement of any
bankruptcy or insolvency proceeding at the rate specified in the applicable
senior debt, before the holders of notes will be entitled to receive any
payment with respect to the notes, except that holders of notes may receive and
retain Junior Securities and payments made from the trust described under "--
Legal Defeasance and Covenant Defeasance."
(1) in a liquidation or dissolution of HDA;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to HDA or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of HDA's assets and liabilities.
HDA also may not make any payment in respect of the notes, except in Junior
Securities or from the trust described under "--Legal Defeasance and Covenant
Defeasance", if:
(1) a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
(2) any other default occurs and is continuing on Designated Senior Debt that
permits holders of the Designated Senior Debt to accelerate its maturity and
the trustee receives a notice of that default (a "Payment Blockage Notice")
from HDA or the holders of any Designated Senior Debt.
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Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which that default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which that
nonpayment default is cured or waived or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
senior debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless that default shall have been
cured or waived for a period of not less than 90 days.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of HDA, holders of these notes may
recover less ratably than creditors of HDA who are holders of senior debt. For
a description of the risk to you, see "Risk Factors--Your right to receive
payments on the notes is subordinated to all of our existing and future senior
debt and we may not have sufficient assets to fulfill our obligations to you."
Optional Redemption
Until August 1, 2001, HDA may redeem up to 35% of the aggregate principal
amount of the notes issued pursuant to the indenture with cash from the Net
Cash Proceeds of a public equity offering of common stock of HDA. The parent
may also make the redemption if the Net Cash Proceeds sufficient to make the
redemption are contributed to HDA by the parent as a Capital Contribution, at a
redemption price equal to 112% of principal together with accrued and unpaid
interest and liquidated damages, if any, to the redemption date, provided that:
(1) immediately following that redemption not less than 65% of the
aggregate principal amount of the notes issued pursuant to the indenture
remain outstanding; and
(2) the redemption must occur within 90 days of that public equity
offering.
Except pursuant to the preceding paragraph, the notes will not be redeemable
at HDA's option prior to August 1, 2002.
On or after August 1, 2002, HDA may redeem all or a part of these notes upon
not less than 30 nor more than 60 days' notice, at the redemption prices set
forth below plus accrued and unpaid interest, if any, on these notes to the
applicable redemption date, if redeemed during the twelve-month period
beginning on August 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002.......................................................... 106.000%
2003.......................................................... 103.000%
2004 and thereafter........................................... 100.000%
</TABLE>
In the case of a partial redemption, the trustee shall select the notes or
portions of the notes for redemption on a pro rata basis or by lot. The notes
may be redeemed in part in multiples of $1,000 only.
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<PAGE>
The notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption to the holder
of each note to be redeemed to that holder's last address as then shown upon
the registry books of the registrar. Any notice which relates to a note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion of that note and must state that on and after the date
of redemption, upon surrender of that note, a new note or notes in a principal
amount equal to the unredeemed portion of that note will be issued. On and
after the date of redemption, interest will cease to accrue on the notes or
portions of the notes called for redemption, unless HDA defaults in the payment
of the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require HDA to repurchase all or any part of that holder's notes pursuant to
the Change of Control Offer. In the Change of Control Offer, HDA will offer a
Change of Control Purchase Price in cash equal to 101% of the aggregate
principal amount of notes repurchased plus accrued and unpaid interest thereon
and liquidated damages, if any, to the date of purchase. Within 20 business
days following any Change of Control, HDA will mail a notice to each holder of
notes describing the transaction or transactions that constitute the Change of
Control and offering to repurchase notes on the Change of Control Purchase Date
specified in the notice, pursuant to the procedures required by the indenture
and described in the notice. HDA will comply with the requirements of Rule 14e-
1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent those laws and regulations are applicable in
connection with the repurchase of the notes as a result of a Change of Control.
On the Change of Control Purchase Date, HDA will, to the extent lawful:
(1) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Purchase Price in respect of all notes or portions of notes properly tendered;
and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an officers' certificate stating the aggregate principal amount
of notes or portions of the notes being purchased by HDA.
The paying agent will promptly mail to each holder of notes properly tendered
the Change of Control Purchase Price for those notes, together with accrued and
unpaid interest thereon, and the trustee will promptly authenticate and mail,
or cause to be transferred by book entry, to each holder a new note equal in
principal amount to any unpurchased portion of the notes surrendered.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 20 business days following a Change of
Control, HDA will either repay in full and terminate all commitments under all
indebtedness under the credit agreement, offer to repay in full and terminate
all commitments under all indebtedness under the credit agreement and repay the
indebtedness owed to each lender which has accepted the offer in full, or
obtain the requisite consents under the credit agreement to permit the
repurchase of notes required by this covenant. HDA will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Purchase Date.
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<PAGE>
The provisions described above that require HDA to make a Change of Control
Offer following a Change of Control will be applicable regardless of whether or
not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the notes to require that HDA repurchase
or redeem the notes in the event of a takeover, recapitalization or similar
transaction.
HDA's outstanding senior debt currently prohibits HDA from purchasing any
notes, and also provides that certain change of control events with respect to
HDA would constitute a default under the agreements governing the senior debt.
Any future credit agreements or other agreements relating to senior debt to
which HDA becomes a party may contain similar restrictions and provisions. If a
Change of Control occurs at a time when HDA is prohibited from purchasing
notes, HDA could seek the consent of its senior lenders to the purchase of
notes or could attempt to refinance the borrowings that contain that
prohibition. If HDA does not obtain that consent or repay those borrowings, HDA
will remain prohibited from purchasing notes. In that case, HDA's failure to
purchase tendered notes would constitute an event of default under the
indenture which would, in turn, constitute a default under that senior debt. In
those circumstances, the subordination provisions in the indenture would likely
restrict payments to the holders of notes.
HDA will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by HDA and purchases all
notes validly tendered and not withdrawn under the Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of HDA or parent, as the case may be. Although there is a limited
body of case law interpreting the phrase "substantially all," there is no
precise established definition of the phrase under applicable law. Accordingly,
the ability of a holder of notes to require HDA to repurchase those notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of HDA or parent, as the case may be, to another Person or
group may be uncertain.
Asset Sales
HDA and the guarantors will not, and will not permit any of their respective
subsidiaries to, consummate an Asset Sale unless:
(1) the board of directors of HDA determines in good faith that HDA receives
consideration at the time of such Asset Sale at least equal to the fair market
value for such Asset Sale;
(2) no default or event of default shall have occurred and be continuing at
the time of, or would occur after giving effect, on a pro forma basis, to, such
Asset Sale; and
(3) at least 75% of the consideration therefor received by HDA or such
subsidiary is in the form of cash. For purposes of this provision, each of the
following shall be deemed to be cash:
(a) Purchase Money Indebtedness secured solely by the assets sold and
assumed by a transferee; and
(b) property that within 30 days of such Asset Sale is converted into
cash or Cash Equivalents; provided, that, such cash and Cash Equivalents
shall be treated as Net Cash Proceeds attributable to the original Asset
Sale for which such property was received.
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<PAGE>
Within 360 days after the receipt of any Net Proceeds from an Asset Sale, HDA
may apply such Net Proceeds at its option to the repurchase of the notes and
such other indebtedness on a parity with the notes and with similar provisions
requiring HDA to make an offer to purchase such indebtedness with the proceeds
from asset sales pursuant to a cash offer, pro rata in proportion to the
respective principal amounts, or accreted values in the case of indebtedness
issued with an original issue discount, of the notes and such other
indebtedness then outstanding (the "Asset Sale Offer") at a purchase price of
100% of principal amount or accreted value in the case of indebtedness issued
with an original issue discount (the "Asset Sale Offer Price") together with
accrued and unpaid interest and liquidated damages, if any, to the date of
payment, made within 330 days of such Asset Sale.
Within 330 days after the receipt of any Net Proceeds from an Asset Sale, HDA
may apply such Net Proceeds at its option:
(1) to redeem the notes in accordance with the terms of the indenture and
other indebtedness of HDA ranking on a parity with the notes and with similar
provisions requiring HDA to redeem such indebtedness with the proceeds for
asset sales, pro rata in proportion to the respective principal amounts or
accreted values in the case of indebtedness issued with an original issue
discount of the notes and such other indebtedness then outstanding;
(2) to invest in assets and property or other Permitted Investments pursuant
to clause (d) of the definition of Permitted Investments below, which in the
good faith reasonable judgment of the board will immediately constitute or be a
part of a Related Business of HDA or such subsidiary immediately following such
transaction; or
(3) to retire Purchase Money Indebtedness or senior debt and to permanently
reduce, in the case of senior debt that is not Purchase Money Indebtedness, the
amount of such indebtedness outstanding on the Issue Date or permitted pursuant
to paragraph (b) or (c) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," including that in the case of a
revolver or similar arrangement that makes credit available, such commitment is
so permanently reduced by such amount.
Pending the final application of any such Net Proceeds, HDA may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $5.0 million, HDA will make an
Asset Sale Offer to all holders of notes, and all holders of other Indebtedness
that is pari passu with the notes containing provisions similar to those set
forth in the indenture with respect to offers to purchase or redeem with the
proceeds of sales of assets, to purchase the maximum principal amount of notes
and such other pari passu indebtedness that may be purchased out of the Excess
Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of
principal amount or accreted value in the case of indebtedness issued with an
original issue discount plus accrued and unpaid interest to the date of
purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, HDA may use such Excess Proceeds for any
purpose not otherwise prohibited by the indenture. If the aggregate principal
amount of notes and such other pari passu indebtedness tendered in such Asset
Sale Offer exceeds the amount of Excess Proceeds, the notes and such other pari
passu indebtedness will be purchased on a pro rata basis. Upon completion of
each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
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<PAGE>
Notwithstanding, and without complying with, the provisions of this Asset
Sales covenant,
(1) HDA and its subsidiaries may, in the ordinary course of business,
(a) convey, sell, transfer, assign or otherwise dispose of inventory and
other assets acquired and held for resale in the ordinary course of
business and
(b) liquidate Cash Equivalents;
(2) HDA and its subsidiaries may convey, sell, transfer, assign or otherwise
dispose of assets pursuant to and in accordance with the covenant "Limitation
on Merger, Sale or Consolidation";
(3) HDA and its subsidiaries may sell or dispose of damaged, worn out or
other obsolete property in the ordinary course of business so long as such
property is no longer necessary for the proper conduct of the business of HDA
or such subsidiary, as applicable;
(4) HDA and the guarantors may convey, sell, transfer, assign or otherwise
dispose of assets to HDA or any of the guarantors;
(5) HDA and its subsidiaries, in the ordinary course of business, may convey,
sell transfer, assign, or otherwise dispose of assets, or related assets in
related transactions, with a fair market value of less than $250,000;
(6) HDA and each of its subsidiaries may surrender or waive contract rights
or settle, release or surrender of contract, tort or other claims of any kind
or grant Liens not prohibited by the indenture; and
(7) HDA may sell accounts receivable and related assets of the type specified
in the definition of Qualified Receivables Transaction to a Receivables
Subsidiary for the fair market value thereof, but in any case including cash in
an amount at least equal to 75% of the book value thereof as determined in
accordance with GAAP, and a Receivables Subsidiary may transfer accounts
receivable and related assets of the type specified in the definition of
Qualified Receivables Transaction, or a fractional undivided interest therein,
in a Qualified Receivables Transaction.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption on a pro rata basis or by lot.
Notes in denominations of $1,000 shall only be redeemed in whole. The notes
may be redeemed in part in multiples of $1,000 only. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each holder of notes to be redeemed at its
registered address.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the unredeemed portion of the principal
amount. A new note in principal amount equal to the unredeemed portion of the
original note will be issued in the name of the holder of that note upon
surrender of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption, unless HDA defaults
in the payment of the notes.
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<PAGE>
Covenants
Restricted Payments
HDA and the guarantors will not, and will not permit any of their respective
subsidiaries to, directly or indirectly (all such payments and other actions
set forth in clauses (1) through (4) below collectively referred to as
"Restricted Payments"):
(1) declare or pay any dividend or make any other payment or distribution on
account of HDA's or any of the guarantors', or any of their respective
Restricted Subsidiaries', Equity Interests, other than dividends or
distributions payable in Qualified Capital Stock of HDA, the guarantors, or
their respective Subsidiaries;
(2) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of HDA or any of the guarantors, or any of their respective
subsidiaries, or any subsidiary or parent of HDA or any of the guarantors, or
any of their respective subsidiaries, other than any such Equity Interests
owned by HDA, the guarantors, or their respective subsidiaries;
(3) other than with the proceeds from the substantially concurrent sale of,
or in exchange for, Refinancing Indebtedness,
. make any payment on or in respect of any amendment of the terms of
Subordinated Indebtedness or make any payment on or in respect of any
defeasance of Subordinated Indebtedness, or
. purchase, redeem, defease or otherwise acquire or retire for value any
Subordinated Indebtedness,
directly or indirectly, by HDA or any of the guarantors, or any of their
respective subsidiaries, or a parent or subsidiary of HDA or any of the
guarantors, or any of their respective subsidiaries. Nor may the entities,
prior to the scheduled maturity, make any scheduled repayment of principal, or
scheduled sinking fund payment, as the case may be, of such indebtedness; or
(4) make any Restricted Investment,
unless, at the time of and after giving effect to such Restricted Payment:
(1) no default or event of Default shall have occurred and be continuing; and
(2) HDA would, at the time of such Restricted Payment and after giving pro
forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to incur
at least $1.00 of additional indebtedness pursuant to the Debt Incurrence Ratio
test set forth in the first paragraph of the covenant described below under the
caption "--Incurrence of Additional Indebtedness and Disqualified Capital
Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by HDA and its Restricted Subsidiaries after the date
of the indenture, excluding Restricted Payments permitted by clauses (2) and
(3) of the next succeeding paragraph, is less than the sum, without
duplication, of
(a) 50% of the aggregate Consolidated Net Income of HDA for the period,
taken as one accounting period, from the beginning of the first fiscal
quarter commencing after the date of the indenture to and including the
last day of HDA's most recently ended fiscal quarter ended
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<PAGE>
immediately prior to the date of each such calculation, or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit, plus
(b) 100% of the aggregate net cash proceeds received by HDA from the sale
of its Qualified Capital Stock, other than to a subsidiary and to the
extent applied in connection with a Qualified Exchange, plus
(c) to the extent not included in Consolidated Net Income, 100% of any
dividends or other distributions received by HDA or a Subsidiary of HDA
after the date of the indenture from an Unrestricted Subsidiary of HDA,
plus
(d) to the extent that any Restricted Investment that was made after the
date of the indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (i) the cash return of capital with respect to such
Restricted Investment, less the cost of disposition, if any, and (ii) the
initial amount of such Restricted Investment, plus
(e) 100% of the aggregate net Cash Equivalent proceeds received by HDA,
other than from its subsidiaries, from Capital Contributions after the date
of the indenture.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) to the extent such payments would constitute a Restricted Payment, the
payments of amounts to Brentwood in accordance with the administrative services
agreement;
(2) repurchases of capital stock from employees of HDA, a parent or their
subsidiaries upon the death, disability or termination of employment in an
aggregate amount to all employees not to exceed $1.0 million per year or $3.0
million in the aggregate on and after the date of the indenture;
(3) any dividend, distribution or other payments by any subsidiary of HDA on
its Equity Interests that is paid pro rata to all holders of such Equity
Interests;
(4) a Qualified Exchange;
(5) the payment of any dividend on Qualified Capital Stock within 60 days
after the date of its declaration if such payment would have complied with the
provisions of the indenture; or
(6) Permitted Payments to parent.
The amount of any Restricted Payment, other than cash, shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by HDA or any of the
guarantors, or their respective subsidiaries, as the case may be, pursuant to
the Restricted Payment. The fair market value of any assets or securities that
are required to be valued by this covenant shall be determined in the good
faith reasonable judgment of the board of directors of HDA. Additionally,
within 5 days of each Restricted Payment in excess of $1.0 million, HDA shall
deliver an officers' certificate to the trustee describing in reasonable detail
the nature of such Restricted Payment, stating the amount of such Restricted
Payment, stating in reasonable detail the provisions of the indenture pursuant
to which such Restricted Payment was made and certifying that such Restricted
Payment was made in compliance with the terms of the indenture.
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<PAGE>
Incurrence of Additional Indebtedness and Disqualified Capital Stock
HDA and the guarantors will not, and will not permit any of their respective
subsidiaries to, directly or indirectly, issue, assume, guaranty, incur, become
directly or indirectly liable with respect to, or otherwise become responsible
for, contingently or otherwise (collectively, "incur") any indebtedness or any
Disqualified Capital Stock, including Acquired Indebtedness, other than
Permitted Indebtedness. Notwithstanding the foregoing, if
(1) no default or event of default shall have occurred and be continuing at
the time of, or would occur after giving effect on a pro forma basis to, such
incurrence of indebtedness or Disqualified Capital Stock and
(2) on the date of such incurrence (the "Incurrence Date"), the Consolidated
Coverage Ratio of HDA for the Reference Period immediately preceding the
Incurrence Date, after giving effect on a pro forma basis to such incurrence of
such indebtedness or Disqualified Capital Stock and, to the extent set forth in
the definition of Consolidated Coverage Ratio, the use of proceeds thereof,
would be at least 2 to l (the "Debt Incurrence Ratio"),
then HDA and the guarantors may incur such indebtedness or Disqualified Capital
Stock.
In addition, the foregoing limitations will not apply to:
(1) the incurrence by HDA or any of its subsidiaries of Purchase Money
Indebtedness, provided that:
(a) the aggregate amount of such indebtedness incurred and outstanding at
any time pursuant to this paragraph (1), plus any indebtedness issued to
retire, defease, refinance, replace or refund such indebtedness, shall not
exceed $10.0 million, and
(b) in each case, such indebtedness shall not constitute more than 100%
of the cost determined in accordance with GAAP, to HDA or such subsidiary,
as applicable, of the property so purchased or leased.
(2) if no event of default shall be continuing after application of the
proceeds from such incurrence, the incurrence by HDA or any guarantor of
indebtedness in an aggregate amount incurred and outstanding at any time
pursuant to this paragraph (b), plus any indebtedness incurred to retire,
defease, refinance, replace or refund such indebtedness, of up to $10.0
million; and
(3) the incurrence by HDA or any guarantor of indebtedness pursuant to the
credit agreement in an aggregate amount incurred and outstanding at any time
pursuant to this paragraph (3), plus any indebtedness incurred to retire,
defease, refinance, replace or refund such indebtedness, of up to $75.0
million, minus the amount of any such indebtedness:
(a) retired with the Net Cash Proceeds from any Asset Sale applied to
permanently reduce the outstanding amounts or the commitments with respect
to such indebtedness pursuant to clause (3) of the third paragraph under
the "Asset Sales" covenant described above; or
(b) assumed by a transferee in an Asset Sale;
provided, however, that neither HDA nor any guarantor may incur
indebtedness pursuant to this clause (3) the proceeds of which are used to
finance one or more acquisitions, including the repayment of any Acquired
Indebtedness substantially concurrently with such acquisition, unless the
Consolidated Coverage Ratio for the Reference Period immediately preceding
the Incurrence
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<PAGE>
Date, after giving effect on a pro forma basis to such incurrence of
indebtedness, would be greater than the ratio set forth below opposite such
period:
<TABLE>
<CAPTION>
Consolidated
Coverage
Reference Period ending Ratio
----------------------- ------------
<S> <C>
Prior to June 30, 1999.......................................... 1.50 to 1.00
June 30, 1999-June 29, 2000..................................... 1.75 to 1.00
June 30, 2000-June 29, 2001..................................... 1.90 to 1.00
June 30, 2001-June 29, 2002..................................... 2.00 to 1.00
June 30, 2002-and thereafter.................................... 2.25 to 1.00
</TABLE>
For purposes of this clause (3) only, Consolidated EBITDA as used to determine
the Consolidated Coverage Ratio shall be calculated after giving pro forma
effect to:
(a) any acquisition, including the Stone acquisition and the City
Recapitalization, occurring during the Reference Period as if such
acquisition occurred at the beginning of the Reference Period; and
(b) any Approved Cost Savings anticipated to be realized over the next
four fiscal quarters in connection with an acquisition, including the Stone
acquisition and the City Recapitalization, occurring during the Reference
Period.
For each full fiscal quarter completed after consummation of an acquisition
occurring during the Reference Period, 25% of the Approved Cost Savings
associated with such acquisition shall be excluded from the calculation of
Consolidated EBITDA, and comparable pro rata exclusions shall be made for post-
Acquisition periods of less than a full fiscal quarter. Such aggregate Approved
Cost Savings shall not exceed 25% of Consolidated EBITDA for any Reference
Period.
Indebtedness or Disqualified Capital Stock of any Person which is outstanding
at the time such Person becomes a subsidiary of HDA, including upon designation
of any subsidiary or other person as a subsidiary, or is merged with or into or
consolidated with HDA or a subsidiary of HDA shall be deemed to have been
incurred at the time such Person becomes such a subsidiary of HDA or is merged
with or into or consolidated with HDA or a subsidiary of HDA, as applicable.
Upon each incurrence, HDA may designate pursuant to which provision of this
covenant such indebtedness or Disqualified Capital Stock is being incurred and
such indebtedness or Disqualified Capital Stock shall not be deemed to have
been incurred or outstanding under any other provision of this covenant, except
as stated otherwise in any such provision or applicable definition.
No Senior Subordinated Debt
HDA will not incur, create, issue, assume, guarantee or otherwise become
liable for any indebtedness that is subordinate or junior in right of payment
to any other indebtedness of HDA and senior in any respect in right of payment
to the notes. No guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any indebtedness that is subordinate or junior in
right of payment to any other indebtedness of such guarantor and senior in any
respect in right of payment to such guarantor's subsidiary guarantee.
Liens
HDA and the guarantors will not, and will not permit any of their respective
subsidiaries to, create, incur, assume or suffer to exist any Lien, other than
Permitted Liens, on any asset now owned
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or acquired on or after the date of the indenture or on any income or profits
therefrom securing any indebtedness of HDA or any guarantor unless all payments
due under the notes, and the guarantees, as applicable, are secured on an equal
and ratable basis with the obligations so secured, provided, that, if such
indebtedness is subordinated indebtedness, the Lien securing such subordinated
indebtedness shall be subordinate and junior to the Lien securing the notes
with the same relative priority as such subordinated indebtedness shall have
with respect to the notes.
Dividend and Other Payment Restrictions Affecting Subsidiaries
HDA and the guarantors will not, and will not permit any of their respective
subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual restriction on the ability of any subsidiary of HDA
to:
(1) pay dividends or make any other distributions to or on behalf of HDA or
any subsidiary of HDA;
(2) pay any obligation to or on behalf of HDA or any subsidiary of HDA;
(3) make or pay loans or advances to or on behalf of HDA or any subsidiary of
HDA; or
(4) transfer any assets or property to or on behalf of HDA or any subsidiary
of HDA.
However, the preceding restrictions will not apply to restrictions existing
under or by reason of:
(1) the indenture and the notes or by other indebtedness of HDA ranking
senior or pari passu with the notes or the guarantees, as applicable, provided,
such restrictions taken as a whole are no more restrictive than those imposed
by the indenture and the notes;
(2) applicable law;
(3) indebtedness outstanding on the date of the indenture, including pursuant
to the credit agreement;
(4) any Acquired Indebtedness not incurred in violation of the indenture or
any agreement relating to any property, asset, or business acquired by HDA or
any of its subsidiaries, which restrictions in each case existed at the time of
acquisition, were not put in place in connection with or in anticipation of
such acquisition and are not applicable to any person, other than the person
acquired, or to any property, asset or business, other than the property,
assets and business so acquired;
(5) indebtedness incurred under the credit agreement pursuant to clause (3)
of the covenant described herein "Incurrence of Additional Indebtedness and
Disqualified Capital Stock," provided, in each case, such restriction or
requirement is no more restrictive taken as a whole than that imposed by the
credit agreement as of the date of the indenture;
(6) any binding agreement which has been entered into for the sale or
disposition of all or substantially all of the Equity Interests or assets of a
subsidiary of HDA, provided, such restrictions apply solely to the Equity
Interests or assets of such subsidiary which are being sold;
(7) Purchase Money Indebtedness incurred pursuant to clause (1) of the second
paragraph of the "Incurrence of Additional Indebtedness and Disqualified
Capital Stock" covenant described above,
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provided, such restrictions relate only to the transfer of the property
acquired with the proceeds of such Purchase Money Indebtedness;
(8) indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction, provided,
that, such restrictions apply only to such Receivables Subsidiary;
(9) permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such permitted Refinancings are no more
restrictive, taken as a whole, than those contained in the agreements governing
the Indebtedness being refinanced; and
(10) customary provisions restricting subletting or assignment of any lease
entered into in the ordinary course of business, consistent with industry
practice.
Notwithstanding the foregoing, any asset subject to a Lien which is not
prohibited to exist with respect to that asset pursuant to the terms of the
indenture may be subject to restrictions on the transfer or disposition thereof
in accordance with any such Liens.
Merger, Consolidation, or Sale of Assets
HDA may not, directly or indirectly: (1) consolidate or merge with or into
another Person; or (2) sell, convey or transfer all or substantially all of its
assets, in one or more related transactions, to another Person or group of
affiliated Persons, unless:
(1) either: (a) HDA is the surviving corporation; or (b) the resulting,
surviving or transferee entity is a corporation organized under the laws of the
United States, any state thereof or the District of Columbia and expressly
assumes by supplemental indenture all of the obligations of HDA in connection
with the notes and the indenture;
(2) immediately after such transaction no default or event of default exists;
and
(3) HDA or the Person formed by or surviving any such consolidation or merger
will, on the date of such transaction after giving pro forma effect thereto and
any related financing transactions as if the same had occurred at the beginning
of the applicable four-quarter period, be permitted to incur at least $1.00 of
additional indebtedness pursuant to the Debt Incurrence Ratio test set forth in
the first paragraph of the covenant described above under the caption "--
Incurrence of Additional Indebtedness and Disqualified Capital Stock."
Transactions with Affiliates
HDA and its subsidiaries will not enter into or suffer to exist any contract,
agreement, arrangement or transaction with any affiliate (each, an "affiliate
transaction"), unless:
(1) such affiliate transaction is on terms that are fair and reasonable to
HDA and no less favorable to HDA than could have been obtained in an arm's
length transaction with a non-affiliate; and
(2) HDA delivers to the trustee:
(a) with respect to any affiliate transaction or series of related
affiliate transactions involving aggregate consideration in excess of $1.0
million, a resolution of the board of directors set forth in an officers'
certificate certifying that such affiliate transaction complies with this
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covenant and that such affiliate transaction has been approved by a
majority of the disinterested members of the board of directors; and
(b) with respect to any affiliate transaction or series of related
affiliate transactions involving aggregate consideration in excess of $5.0
million, a written favorable opinion as to the fairness to HDA of such
affiliate transaction from a financial point of view issued by an
independent accounting, appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be affiliate transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) customary employee compensation arrangements approved by a majority of
independent members of the board of directors of HDA;
(2) Restricted Payments that are permitted by the provisions of the indenture
described above under the caption "--Restricted Payments."
(3) transactions between or among HDA and any of its wholly-owned
consolidated subsidiaries or solely among wholly-owned consolidated
subsidiaries of HDA;
(4) the administrative services agreement;
(5) leases entered into concurrently with the closing of the acquisition by
BABF City Corp. of 80% of the outstanding common stock of City Truck and
Trailer Parts, Inc. on June 1, 1998;
(6) leases entered into concurrently with the closing of the acquisition of
substantially all of the assets of Stone Heavy Duty, Inc. on June 19, 1998;
(7) Permitted Investments; and
(8) Capital Contributions from parent to HDA or any guarantor;
Additional Subsidiary Guarantees
If HDA acquires or creates other subsidiaries after the date of the
indenture, then each such newly acquired or created subsidiary, other than
Receivables Subsidiaries and Foreign Subsidiaries, must become a guarantor and
execute a supplemental indenture satisfactory to the trustee and deliver an
opinion of counsel to the trustee within 5 business days of the date on which
it was acquired or created. If HDA acquires or creates any Foreign Subsidiaries
after the date of the indenture, then each such newly acquired or created
Foreign Subsidiary (a) which guarantees or otherwise becomes liable for
indebtedness of HDA or any guarantor or (b) more than 65% of the capital stock
of which becomes pledged to secure any indebtedness of HDA or any guarantor,
must become a guarantor and execute a supplemental indenture satisfactory to
the trustee and deliver an opinion of counsel to the trustee within 5 business
days of the date on which it was acquired or created.
Release of Guarantors
The guarantors will not consolidate or merge with or into another person
unless:
(1) (a) the person formed by or surviving any such consolidation or merger
assumes all the obligations of such guarantor pursuant to a supplemental
indenture reasonably satisfactory to the trustee and unconditionally
guarantees, on a senior subordinated basis, all of such guarantor's obligations
under such guarantor's guarantee on the terms set forth in the indenture and
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(b) immediately before and immediately after giving effect to such transaction
on a pro forma basis, no default or event of default exists; or
(2) the other person is another guarantor or HDA.
On the sale or disposition,whether by merger, stock purchase, asset sale or
otherwise, of a guarantor or all of its assets to an entity which is not a
guarantor, or the designation of a subsidiary to become an Unrestricted
Subsidiary, which transaction is otherwise in compliance with the indenture,
such guarantor will be released from its obligations under its guarantee of the
notes; provided, however, that any such termination shall occur only to the
extent that all obligations of such guarantor under all of its guarantees of,
and under all of its pledges of assets or other security interests which
secure, any indebtedness of HDA or any other subsidiary of HDA will also
terminate upon such release, sale or transfer.
Business Activities
HDA and its subsidiaries, other than Receivables Subsidiaries, will not
directly or indirectly engage to any substantial extent in any business other
than that which, in the reasonable good faith judgment of the board of
directors of HDA, is a Related Business.
Status as Investment Company
HDA and its subsidiaries will not become required to register as an
"investment company," as that term is defined in the Investment Company Act of
1940, or otherwise become subject to regulation under the Investment Company
Act.
Reports
Whether or not required by the Commission, so long as any notes are
outstanding, HDA and the parent will furnish to the trustee and to holders of
notes, within 15 days after the time periods specified in the Commission's
rules and regulations:
(1) all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if HDA were
required to file such forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, with respect to the
annual information only, a report on the annual financial statements by HDA's
and the parent's certified independent accountants; and
(2) all other reports that would be required to be filed with the Commission,
including on Form 8-K, if HDA were required to file such reports.
HDA and the parent are not required to furnish separate financial results of
their subsidiaries unless otherwise required to do so by the Commission.
Whether or not required by the Commission, HDA will file a copy of all of the
information and reports referred to in clauses (1) and (2) above with the
Commission for public availability within 15 days after the time periods
specified in the Commission's rules and regulations, unless the Commission will
not accept such a filing.
Events of Default and Remedies
Each of the following is an event of default:
(1) default for 30 days in the payment when due of interest on the notes,
whether or not prohibited by the subordination provisions of the indenture;
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(2) default in payment when due of the principal of or premium, if any, on
the notes, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price on notes validly tendered pursuant
to a Change of Control Offer or Asset Sale Offer, as applicable, or otherwise,
whether or not prohibited by the subordination provisions of the indenture;
(3) failure by HDA or any subsidiary of HDA to observe or perform any other
covenant or agreement contained in the notes or the indenture and the
continuance of such failure for a period of 30 days after written notice is
given to HDA by the trustee or to HDA and the trustee by the holders of at
least 25% in aggregate principal amount of the notes outstanding, subject to
certain exceptions;
(4) certain events of bankruptcy, insolvency or reorganization in respect of
HDA or any of its Significant Subsidiaries;
(5) default on indebtedness of HDA or any of its subsidiaries with an
aggregate principal amount in excess of $5.0 million if that default:
(a) is caused by a failure to pay principal at maturity, or
(b) results in the acceleration of such indebtedness prior to its stated
maturity;
(6) any of the guarantees ceases to be in full force and effect or any of the
guarantees is declared to be null and void and unenforceable or any of the
guarantees is found to be invalid or any of the guarantors or parent denies its
liability under its guarantee, other than by reason of release of a guarantor
in accordance with the terms of the indenture; and
(7) failure by HDA or any of its subsidiaries to pay final unsatisfied
judgments not covered by insurance aggregating in excess of $5.0 million, which
judgments are not stayed, bonded or discharged within 60 days.
In the case of an event of default arising from certain events of bankruptcy
or insolvency, with respect to HDA, all principal and accrued interest on
outstanding notes will become due and payable immediately without further
action or notice. The holders of a majority in aggregate principal amount of
notes generally are authorized to rescind such acceleration if all existing
events of default, other than the non-payment of the principal of, premium, if
any, and interest on the notes which have become due solely by such
acceleration and except on default with respect to any provision requiring a
supermajority approval to amend, which default may only be waived by such a
supermajority, and have been cured or waived.
If any other event of default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all principal, determined as set forth below, and accrued interest on
the notes to be due and payable immediately; provided, however, that if any
senior debt is outstanding pursuant to the credit agreement, upon a declaration
of such acceleration, such principal and interest shall be due and payable upon
the earlier of:
(a) the fifth Business Day after the sending to HDA and the
Representative under the credit agreement of such written notice, unless
such event of default is cured or waived prior to such date; and
(b) the date of acceleration of any indebtedness under the credit
agreement.
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In the event a declaration of acceleration resulting from an event of default
described in clause (5) above has occurred and is continuing, such declaration
of acceleration shall be automatically annulled if within 15 days of the
declaration:
(1) such default is cured or waived or the holders of the indebtedness which
is the subject of such default have rescinded their declaration of acceleration
in respect of such indebtedness;
(2) the trustee has received written notice or such cure, waiver or
rescission;
(3) the annulment of the acceleration of the notes would not conflict with
any judgment or decree of a court of competent jurisdiction; and
(4) all existing events of default, except nonpayment of principal or
interest on the notes that became due solely because of the acceleration of the
notes, have been cured or waived and no other event of default described in
clause (5) above has occurred that has not been cured or waived within 15 days
of the declaration of such acceleration in respect of such indebtedness.
Prior to the declaration of acceleration of the maturity of the notes, the
holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing default or event of default and its consequences under
the indenture except a default with respect to any provision requiring a
supermajority approval to amend, which default may only be waived by such a
supermajority, and except a continuing default or event of default in the
payment of interest on, or the principal of, the notes not yet cured or a
default with respect to any covenant or provision which cannot be modified or
amended without the consent of the holder of each outstanding note affected.
Subject to the provisions of the indenture relating to the duties of the
trustee, the trustee will be under no obligation to exercise any of its rights
or powers under the indenture at the request, order or direction of any of the
holders, unless such holders have offered to the trustee reasonable security or
indemnity. Subject to all provisions of the indenture and applicable law, the
holders of a majority in aggregate principal amount of the notes at the time
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee.
No Personal Liability of Directors, Officers, Employees and Stockholders
No direct or indirect stockholder, employee, officer or director, as such,
past, present or future of the parent, HDA, the guarantors or any successor
entity shall have any personal liability for any obligations of HDA or the
guarantors under the indenture or the notes solely by reason of his or its
status as such stockholder, employee, officer or director, except that this
provision shall in no way limit the obligation of the parent or any guarantor
pursuant to any guarantee of the notes. Each holder of notes by accepting a
note waives and releases all such liability. The waiver and release are part of
the consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
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Legal Defeasance and Covenant Defeasance
HDA may, at its option and at any time, elect to have its obligations and the
obligations of the guarantors and the parent discharged with respect to the
outstanding notes ("Legal Defeasance") except for:
(1) the rights of holders to receive payments in respect of the principal of,
premium, if any, and interest, and liquidated damages, if any, on those notes
when such payments are due from the trust funds;
(2) HDA's obligations with respect to those notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or stolen
notes, and the maintenance of an office or agency for payment and money for
security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
HDA's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, HDA may, at its option and at any time, elect to have the
obligations of HDA, the parent and the guarantors released with respect to
certain covenants that are described in the indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants shall not constitute
a default or event of default with respect to the notes. In the event Covenant
Defeasance occurs, some of the events, not including non-payment, guarantees,
bankruptcy, receivership, rehabilitation and insolvency events, described under
"Events of Default" will no longer constitute an event of default with respect
to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) HDA must irrevocably deposit with the trustee, in trust, for the benefit
of the holders of the notes, U.S. legal tender, U.S. Government Obligations or
a combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the notes on the stated date for
payment of the notes or on the redemption date of such principal or installment
of principal of, premium, if any, or interest on such notes, and the holders of
notes must have a valid, perfected, exclusive security interest in such trust;
(2) in the case of Legal Defeasance, HDA shall have delivered to the trustee
an opinion of counsel in the United States reasonably acceptable to the trustee
confirming that (a) HDA has received from, or there has been published by the
Internal Revenue Service, a ruling or (b) since the date of the indenture,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of those notes will not recognize income, gain or
loss for federal income tax purposes as a result of the Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if the Legal Defeasance had
not occurred;
(3) in the case of Covenant Defeasance, HDA shall have delivered to the
trustee an opinion of counsel in the United States reasonably acceptable to the
trustee confirming that the holders of the notes will not recognize income,
gain or loss for federal income tax purposes as a result of the Covenant
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if the
Covenant Defeasance had not occurred;
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(4) no default or event of default shall have occurred and be continuing on
the date of such deposit or insofar as events of default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit;
(5) Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under the indenture or any other material
agreement or instrument to which HDA or any of its subsidiaries is a party or
by which HDA or any of its subsidiaries is bound;
(6) HDA shall have delivered to the trustee an officers' certificate stating
that the deposit was not made by HDA with the intent of preferring the holders
of the notes over any other creditors of HDA or with the intent of defeating,
hindering, delaying or defrauding any other creditors of HDA or others; and
(7) HDA shall have delivered to the trustee an officers' certificate and an
opinion of counsel, each stating that the conditions precedent provided for in,
in the case of the officers' certificate, (1) through (6) and, in the case of
the opinion of counsel, clauses (1), (with respect to the validity and
perfection of the security interest) (2), (3) and (5) of this paragraph have
been complied with and HDA shall have delivered to the trustee an officers'
certificate to the effect that, assuming no holder of the notes is an insider
of HDA, the trust funds will not be subject to the effect of any applicable
Federal bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally.
If the funds deposited with the trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest on the notes when due, then the obligations of HDA, the parent and
the guarantors under the indenture will be revived and no such defeasance will
be deemed to have occurred.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, with the consent of
the holders of not less than a majority in aggregate principal amount of the
notes at the time outstanding, HDA, the parent, the guarantors and the trustee
are permitted to amend or supplement the indenture or any supplemental
indenture or modify the rights of the holders.
Without the consent of each holder affected, an amendment or waiver may not,
with respect to any notes held by a non-consenting holder:
(1) change the Stated Maturity on any note, or reduce the principal amount of
any note or the rate, or extend the time for payment, of interest thereon or
any premium payable upon the redemption at the option of HDA of the notes, or
change the place of payment where, or the coin or currency in which, any note
or any premium or the interest on the notes is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the Stated
Maturity of the notes, or, in the case of redemption at the option of HDA, on
or after the Redemption Date, or reduce the Change of Control Purchase Price or
the Asset Sale Offer Price, after the occurrence of an event giving rise to a
Change of Control Offer or an Asset Sale Offer, respectively, or alter the
provisions, including the defined terms used therein, regarding the right of
HDA to redeem the notes as a right, or at the option of HDA in a manner adverse
to the holders;
(2) reduce the percentage in principal amount of the outstanding notes, the
consent of whose holders is required for any such amendment, supplemental
indenture or waiver provided for in the indenture; or
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(3) modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the indenture cannot
be modified or waived without the consent of the holder of each outstanding
note affected thereby.
Notwithstanding the preceding, without the consent of holders of at least 66
2/3% in aggregate principal amount of notes at the time outstanding, an
amendment or supplement or waiver may not modify the provisions, including the
defined terms used therein, of the covenant "Repurchase of Notes at the Option
of Holders--Change of Control" in a manner adverse to the holders.
Notwithstanding the preceding, without the consent of any holder of notes,
HDA and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of HDA's obligations to holders of notes in
the case of a merger or consolidation or sale of all or substantially all of
HDA's assets;
(4) to make any change that would provide any additional rights or benefits
to the holders of notes or that does not adversely affect the legal rights
under the indenture of any such holder;
(5) to comply with the procedures of the Depositary or the trustee with
respect to the provisions of the indenture and the notes relating to transfers
of notes; or
(6) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act.
Discharge of Indenture
HDA may terminate certain of its obligations and the obligations of the
parent and the guarantors with respect to the outstanding notes and the
indenture. Some of the provisions of the indenture will survive such
termination, including, without limitation:
(1) rights of holders to receive payments in respect of the principal of,
premium, if any, and interest on the notes when such payments are due;
(2) HDA's obligations with respect to such notes concerning issuing temporary
notes, registration of notes, mutilated, destroyed, lost or stolen notes, and
the maintenance of an office or agency for payment and money for security
payments held in trust;
(3) the compensation, indemnification and replacement of the trustee, and
HDA's obligations in connection therewith; and
(4) the repayment to HDA of any funds from the trust, in certain
circumstances.
In order to effect such termination:
(1) HDA shall have given irrevocable and unconditional notice to the trustee
and mailed a notice of such redemption to each holder and the trustee for the
redemption of all notes;
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(2) HDA must irrevocably deposit with the trustee, in trust, for the benefit
of the holders of the notes, U.S. legal tender, U.S. Government Obligations or
a combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such notes on the stated date
for payment of the notes or on the redemption date of such principal or
installment of principal of, premium, if any, or interest on such notes, as the
case may be;
(3) HDA shall have paid all other sums payable by it under the indenture and
the notes; and
(4) HDA shall have delivered to the trustee an officers' certificate and an
opinion of counsel in the United States reasonably acceptable to the trustee,
each stating that the conditions precedent with respect to termination of HDA's
obligations as described herein provided for under the indenture and the notes
have been complied with.
Definitions
Set forth below are some of the defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Indebtedness" means indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a subsidiary of the
Company, including by designation, or is merged or consolidated into or with
the Company or one of its subsidiaries.
"Acquisition" means the purchase or other acquisition of any person or all or
substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Administrative Services Agreement" means the corporate development and
administrative services agreement between the Company and Brentwood dated as of
May 29, 1998.
"Affiliate" means any person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Company. For purposes of
this definition, the term "control" means the power to direct the management
and policies of a person, directly or through one or more intermediaries,
whether through the ownership of voting securities, by contract, or otherwise,
provided, that, with respect to ownership interest in the Company and its
Subsidiaries, a Beneficial Owner of 10% or more of the total voting power
normally entitled to vote in the election of directors, managers or trustees,
as applicable, shall for such purposes be deemed to constitute control.
"Approved Cost Savings" means with respect to cost savings associated with
any Acquisition (other than the Stone Acquisition and the City
Recapitalization), those cost savings that result from elimination of any of
the following items:
(1) accounting policy-related charges;
(2) private company expenses;
(3) excess officer or owner compensation;
(4) expenses not required to operate the acquired business on an ongoing
basis; and
(5) business-related charges.
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"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing
(1) the sum of the products of (a) the number of years from the date of
determination to the date or dates of each successive scheduled principal (or
redemption) payment of such security or instrument and (b) the amount of each
such respective principal (or redemption) payment by
(2) the sum of all such principal (or redemption) payments.
"Beneficial Owner" or "beneficial owner" for purposes of the definitions of
Change of Control and Affiliate has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or
not applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"Board of Directors" means, with respect to any person, the board of
directors of such person or any committee of the Board of Directors of such
person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such person.
"Brentwood" means Brentwood Private Equity, L.L.C. and Brentwood Associates
Buyout Fund II, L.P. together with any person directly or indirectly
controlling or controlled by or under direct or indirect common control with
Brentwood Private Equity, L.L.C. and Brentwood Associates Buyout Fund II, L.P.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Change of Control" means
(1) prior to consummation of an Initial Public Equity Offering the Excluded
Persons shall cease to own beneficially and of record at least 51% of the
ordinary Voting Power represented by the Equity Interests of the Company unless
a Parent is formed after the date hereof and the Excluded Persons own
beneficially and of record at least 51% of the ordinary Voting Power of the
Parent and the Parent beneficially and of record owns 100% of the ordinary
Voting Power of the Company or
(2) following the consummation of an Initial Public Equity Offering,
(a) any merger or consolidation of the Company or Parent, as the case may
be, with or into any person or any sale, transfer or other conveyance,
whether direct or indirect, of all or substantially all of the assets of
the Company or Parent, as the case may be, on a consolidated basis, in one
transaction or a series of related transactions, if, immediately after
giving effect to such transaction(s),
(b) any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
(other than the Excluded Persons) is or becomes the "beneficial owner,"
directly or indirectly, of more than 35% of the total voting power in the
aggregate normally entitled to vote in the election of directors, managers,
or trustees, as applicable, of the transferee(s) or surviving entity or
entities, any "person" or "group" (as terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
(other than the Excluded Persons) is or becomes the "beneficial
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owner," directly or indirectly, of more than 35% of the total voting power
in the aggregate of all classes of Capital Stock of the Company or Parent,
as the case may be, then outstanding normally entitled to vote in elections
of directors,
(c) during any period of 12 consecutive months after the Issue Date,
individuals who at the beginning of any such 12-month period constituted
the Board of Directors of the Company or Parent, as the case may be,
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of the Company or
Parent, as the case may be, was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously
so approved including new directors designated in or provided for in an
agreement regarding the merger, consolidation or sale, transfer or other
conveyance, of all or substantially all of the assets of the Company or
Parent, as the case may be, if such agreement was approved by a vote of
such majority of directors) cease for any reason to constitute a majority
of the Board of Directors of the Company or Parent, as the case may be,
then in office or
(d) the Company or Parent, as the case may be, adopts a plan of
liquidation.
"Capital Contribution" means any contribution to the equity of the Company
from a direct or indirect parent of the Company for which no consideration
other than the issuance of common stock with no redemption rights and no
special preferences, privileges or voting rights is given.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of, or interests (however designated) in,
stock issued by that corporation.
"Capitalized Lease Obligation" means, as to any person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalent" means
(1) securities issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided,
that the full faith and credit of the United States of America is pledged in
support thereof); or
(2) time deposits and certificates of deposit and commercial paper issued by
the parent corporation of any domestic commercial bank of recognized standing
having capital and surplus in excess of $500.0 million; or
(3) commercial paper issued by others rated at least A-2 or the equivalent
thereof by Standard & Poor's Corporation or at least P-2 or the equivalent
thereof by Moody's Investors Service, Inc.,
and in the case of each of (1), (2), and (3) maturing within one year after the
date of acquisition.
"City Recapitalization" means the purchase by BABF City Corp., a company
formed by Brentwood, of 80% of the outstanding common stock of City Truck and
Trailer Parts, Inc. on June 1, 1998.
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"Consolidation" means, with respect to the Company, the consolidation of the
accounts of the Subsidiaries with those of the Company, all in accordance with
GAAP; provided, that "consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary with the accounts of the Company. The
term "consolidated" has a correlative meaning to the foregoing.
"Consolidated Coverage Ratio" of any person on any date of determination (the
"Transaction Date") means the ratio, on a pro forma basis, of
(1) the aggregate amount of Consolidated EBITDA of such person attributable
to continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to
(2) the aggregate Consolidated Fixed Charges of such person (exclusive of
amounts attributable to operations and businesses permanently discontinued or
disposed of, but only to the extent that the obligations giving rise to such
Consolidated Fixed Charges would no longer be obligations contributing to such
person's Consolidated Fixed Charges subsequent to the Transaction Date) during
the Reference Period;
provided, that for purposes of such calculation,
(1) Acquisitions which occurred during the Reference Period or subsequent to
the Reference Period and on or prior to the Transaction Date shall be assumed
to have occurred on the first day of the Reference Period;
(2) transactions giving rise to the need to calculate the Consolidated
Coverage Ratio shall be assumed to have occurred on the first day of the
Reference Period;
(3) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall
be assumed to have occurred on the first day of the Reference Period; and
(4) the Consolidated Fixed Charges of such person attributable to interest on
any Indebtedness or dividends on any Disqualified Capital Stock bearing a
floating interest (or dividend) rate shall be computed on a pro forma basis as
if the average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless
such Person or any of its Subsidiaries is a party to an Interest Swap or
Hedging Obligation (which shall remain in effect for the 12-month period
immediately following the Transaction Date) that has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used.
"Consolidated EBITDA" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication, the sum of
(1) Consolidated income tax expense;
(2) Consolidated depreciation and amortization expense;
(3) Consolidated Fixed Charges; and
(4) other non-recurring, non-cash charges of such person and its consolidated
subsidiaries,
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less the amount of all cash payments made by such person or any of its
Subsidiaries during such period to the extent such payments relate to non-
recurring, non-cash charges that were added back in determining Consolidated
EBITDA for such period or any prior period, less any non-cash items increasing
Consolidated Net Income for such period.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of
(1) interest expensed or capitalized, paid, accrued, or scheduled to be paid
or accrued (including, in accordance with the following sentence, interest
attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, including
(a) original issue discount and non-cash interest payments or accruals on
any Indebtedness,
(b) the interest portion of all deferred payment obligations,
(c) all commissions, discounts and other fees and charges owed with
respect to bankers' acceptances and letters of credit financings and
currency and Interest Swap and Hedging Obligations, in each case to the
extent attributable to such period, and
(d) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person or of any Restricted Subsidiary of such
Person (other than dividends paid in Qualified Capital Stock) paid, accrued
or scheduled to be paid or accrued during such period times (y) a fraction,
the numerator of which is one and the denominator of which is one minus the
then current effective consolidated federal, state and local tax rate of
such Person, expressed as a decimal, and
(2) the amount of dividends accrued or payable (or guaranteed) by such person
or any of its Consolidated Subsidiaries in respect of Preferred Stock (other
than by Subsidiaries of such person to such person or such person's Wholly-
Owned Subsidiaries).
For purposes of this definition, (x) interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
in good faith by the Company to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP and (y) interest expense
attributable to any Indebtedness represented by the guaranty by such person or
a Subsidiary of such person of an obligation of another person shall be deemed
to be the interest expense of such other person attributable to the
Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication):
(1) all gains (but not losses) which are either extraordinary (as determined
in accordance with GAAP) or are either unusual or nonrecurring (including any
gain from the sale or other disposition of assets outside the ordinary course
of business or from the issuance or sale of any capital stock),
(2) the net income, if positive, of any person, other than a Consolidated
Subsidiary, in which such person or any of its Consolidated Subsidiaries has an
interest, except to the extent of the amount of any dividends or distributions
actually paid in cash to such person or a Consolidated Subsidiary of such
person during such period, but in any case not in excess of such person's pro
rata share of such person's net income for such period,
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(3) the net income or loss of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition, and
(4) the net income, if positive, of any of such person's Consolidated
Subsidiaries to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the terms of
its charter or bylaws or any other agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such Consolidated
Subsidiary.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
"Credit Agreement" means the Revolving Credit Facility, including any related
notes, guarantees, collateral documents, instruments and agreements executed by
the Company or any of its Subsidiaries or other Affiliates in connection
therewith, as such credit agreement and/or related documents may be amended,
restated, supplemented, renewed, replaced or otherwise modified from time to
time whether or not with the same agent, trustee, representative lenders or
holders, and, subject to the proviso to the next succeeding sentence,
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Credit Agreement" shall
include agreements in respect of Interest Swap and Hedging Obligations with
lenders party to the Credit Agreement and shall also include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to any Credit Agreement and all refundings, refinancings and
replacements of any Credit Agreement, including any agreement:
(1) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby,
(2) adding or deleting borrowers or guarantors thereunder, so long as
borrowers and issuers include one or more of the Company and its Subsidiaries
and their respective successors and assigns,
(3) increasing the amount of Indebtedness incurred thereunder or available to
be borrowed thereunder, provided, that on the date such Indebtedness is
incurred it would not be prohibited by the covenant "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock" or
(4) otherwise altering the terms and conditions thereof in a manner not
prohibited by the terms of the indenture.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Designated Senior Debt" means
(1) Senior Debt originating under the Credit Agreement and
(2) any other Senior Debt in an aggregate outstanding principal amount in
excess of $25 million which is designated as Designated Senior Debt by the
Board of Directors.
"Disqualified Capital Stock" means
(1) except as set forth in (2), with respect to any person, Equity Interests
of such person that, by its terms or by the terms of any security into which it
is convertible, exercisable or exchangeable, is,
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or upon the happening of an event or the passage of time or both would be,
required to be redeemed or repurchased (including at the option of the holder
thereof) by such person or any of its Subsidiaries, in whole or in part, on or
prior to the Stated Maturity of the notes and
(2) with respect to any Subsidiary of such person (including with respect to
any Subsidiary of the Company), any Equity Interests other than any common
equity with no preference, privileges, or redemption or repayment provisions.
"Equity Interest" of any Person means any shares, interests, participations
or other equivalents (however designated) in such Person's equity, and shall in
any event include any Capital Stock issued by, or partnership or membership
interests in, such Person.
"Event of Loss" means, with respect to any property or asset, any
(1) loss, destruction or damage of such property or asset or
(2) any condemnation, seizure or taking, by exercise of the power of eminent
domain or otherwise, of such property or asset, or confiscation or requisition
of the use of such property or asset.
"Excluded Persons" means Brentwood, Larry Clayton and James Stone and
(1) any controlling stockholder, general partner, majority owned Subsidiary,
or spouse or immediate family member (in the case of an individual) of such
Person or
(2) (a) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
80% or more of the Voting Stock of which consist of such Person and/or such
other Persons referred to in the immediately preceding clause (1) or (b) any
partnership the sole general partner of which is such Person or one of the
Persons referred to in clause (1).
"Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
incorporated in a jurisdiction other than the United States of America and all
or substantially all of the sales, earnings or assets of which are located in,
generated from or derived from operations located in jurisdictions outside the
United States of America.
"GAAP" means United States generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.
"Guarantor" means all existing and future Subsidiaries of the Company other
than Receivables Subsidiaries and Foreign Subsidiaries; provided that any
Foreign Subsidiary that, pursuant to the terms of the indenture, guarantees the
obligations of the Company under the Securities and the indenture shall be
deemed to be a Guarantor.
"Incurrence Date" means the date on which a person directly or indirectly,
issues, assumes, guarantees, incurs, becomes directly or indirectly liable with
respect to (including as a result of an Acquisition), or otherwise become
responsible for, contingently or otherwise (collectively, "incur") any
Indebtedness or any Disqualified Capital Stock (including Acquired
Indebtedness).
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"Indebtedness" of any person means, without duplication,
(1) all liabilities and obligations, contingent or otherwise, of such person,
to the extent such liabilities and obligations would appear as a liability upon
the consolidated balance sheet of such person in accordance with GAAP,
(a) in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof),
(b) evidenced by bonds, notes, debentures or similar instruments,
(c) representing the balance deferred and unpaid of the purchase price of
any property or services, except (other than accounts payable or other
obligations to trade creditors which have remained unpaid for greater than
60 days past their original due date) those incurred in the ordinary course
of its business that would constitute ordinarily a trade payable to trade
creditors;
(2) all liabilities and obligations, contingent or otherwise, of such person
(a) evidenced by bankers' acceptances or similar instruments issued or
accepted by banks,
(b) relating to any Capitalized Lease Obligation, or
(c) evidenced by a letter of credit or a reimbursement obligation of such
person with respect to any letter of credit;
(3) all net obligations of such person under Interest Swap and Hedging
Obligations;
(4) all liabilities and obligations of others of the kind described in the
preceding clause (1), (2) or (3) that such person has guaranteed or that is
otherwise its legal liability or which are secured by any assets or property of
such person;
(5) any and all deferrals, renewals, extensions, refinancing and refundings
(whether direct or indirect) of, or amendments, modifications or supplements
to, any liability of the kind described in any of the preceding clauses (1),
(2), (3) or (4), or this clause (5), whether or not between or among the same
parties; and
(6) all Disqualified Capital Stock of such Person and its Subsidiaries
(measured at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends).
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be determined in good faith by the
board of directors of the issuer (or managing general partner of the issuer) of
such Disqualified Capital Stock.
"Initial Public Equity Offering" means an initial underwritten offering of
common stock of the Company or the Parent for cash pursuant to an effective
registration statement under the Securities Act following which the common
stock of the Company or the Parent is listed on a national securities exchange
or quoted on the national market system of the Nasdaq stock market.
"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate
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exchange agreement, currency exchange agreement or any other agreement or
arrangement designed to protect against fluctuations in interest rates or
currency values, including, without limitation, any arrangement whereby,
directly or indirectly, such person is entitled to receive from time to time
periodic payments calculated by applying either a fixed or floating rate of
interest on a stated notional amount in exchange for periodic payments made by
such person calculated by applying a fixed or floating rate of interest on the
same notional amount.
"Investment" by any person in any other person means (without duplication)
(1) the acquisition (whether by purchase, merger, consolidation or otherwise)
by such person (whether for cash, property, services, securities or otherwise)
of capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement to make any such acquisition;
(2) the making by such person of any deposit with, or advance, loan or other
extension of credit to, such other person (including the purchase of property
from another person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such other person) or any commitment to
make any such advance, loan or extension (but excluding accounts receivable,
endorsements for collection or deposits arising in the ordinary course of
business);
(3) other than guarantees of Indebtedness of the Company or any Guarantor to
the extent permitted by the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," the entering into by such person
of any guarantee of, or other credit support or contingent obligation with
respect to, Indebtedness or other liability of such other person;
(4) the making of any capital contribution by such person to such other
person; and
(5) the designation by the Board of Directors of the Company of any person to
be an Unrestricted Subsidiary.
The Company shall be deemed to make an Investment in an amount equal to the
fair market value of the net assets of any subsidiary (or, if neither the
Company nor any of its Subsidiaries has previously made an Investment in such
subsidiary, in an amount equal to the Investments being made), at the time that
such subsidiary is designated an Unrestricted Subsidiary, and any property
transferred to an Unrestricted Subsidiary from the Company or a Subsidiary of
the Company shall be deemed an Investment valued at its fair market value at
the time of such transfer.
"Issue Date" means the date of first issuance of the notes under the
indenture.
"Junior Security" means any Qualified Capital Stock and any Indebtedness of
the Company or a Guarantor, as applicable, that is subordinated in right of
payment to Senior Debt at least to the same extent as the notes or the
Guarantee, as applicable, and has no scheduled installment of principal due, by
redemption, sinking fund payment or otherwise, on or prior to the Stated
Maturity of the notes; provided, that, in the case of subordination in respect
of Senior Debt under the Credit Agreement, "Junior Security" shall mean any
Qualified Capital Stock and any Indebtedness of the Company or the Guarantor,
as applicable, that
(1) is unsecured,
(2) is not entitled to the benefits of covenants or defaults materially more
beneficial to the holders of such Junior Securities than those in effect with
respect to the notes on the date hereof (or
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the Senior Debt under the Credit Agreement, including after giving effect to
any plan of reorganization or readjustment),
(3) shall not provide for amortization (including sinking fund and mandatory
prepayment or redemption provisions) commencing prior to the date that is six
months following the final scheduled maturity date of the Senior Debt under
the Credit Agreement (as modified by any plan of reorganization or
readjustment),
(4) if a new corporation or other entity results from any reorganization or
readjustment, such corporation or other entity assumes such Senior Debt,
(5) the rights of the holders of Senior Debt under the Credit Agreement are
not, without the consent of such holders, materially altered by any such
reorganization or readjustment, including without limitation, such rights
being materially impaired within the meaning of Section 1124 of Title 11 of
the United States Code or any material impairment of the right to receive
interest accruing during the pendency of a bankruptcy or insolvency
proceeding, including proceedings under Title 11 of the United States Code,
and
(6) by their terms or by law are subordinated to Senior Debt outstanding
under the Credit Agreement on the date of issuance of such Qualified Capital
Stock or Indebtedness at least to the same extent as the notes or the
Guarantee, as applicable.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale or Capital Contribution in
respect of Qualified Capital Stock and by the Company and its Subsidiaries in
respect of an Asset Sale plus, in the case of an issuance of Qualified Capital
Stock upon any exercise, exchange or conversion of securities (including
options, warrants, rights and convertible or exchangeable debt) of the Company
that were issued for cash on or after the Issue Date, the amount of cash
originally received by the Company upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt)
less, in each case, the sum of all payments, fees, commissions and (in the
case of Asset Sales, reasonable and customary) expenses (including, without
limitation, the fees and expenses of legal counsel and investment banking fees
and expenses) incurred in connection with such Asset Sale or sale or Capital
Contribution in respect of Qualified Capital Stock, and, in the case of an
Asset Sale only, less the amount (estimated reasonably and in good faith by
the Company) of income, franchise, sales and other applicable taxes required
to be paid by the Company or any of its respective Subsidiaries in connection
with such Asset Sale in the taxable year that such sale is consummated or in
the immediately succeeding taxable year, the computation of which shall take
into account the reduction in tax liability resulting from any available
operating losses and net operating loss carry-overs, tax credits and tax
credit carry-forwards, and similar tax attributes.
"Non-Recourse Indebtedness" means Indebtedness
(1) as to which neither the Company nor any of its Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness),
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(b) is directly or indirectly liable (as a guarantor or otherwise), or
(c) constitutes the lender; and
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted Subsidiary)
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any of its Subsidiaries to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity.
"Obligation" means any principal, premium or interest payment, or monetary
penalty, or damages, due by the Company, the Parent or any Guarantor under the
terms of the notes or the indenture, including any liquidated damages due
pursuant to the terms of the Registration Rights Agreement.
"Offering Memorandum" means the final Offering Memorandum of the Company
dated July 28, 1998, relating to the offering of the Initial Securities in a
transaction exempt from the requirements of Section 5 of the Securities Act.
"Parent" means any Person, other than any Excluded Person, of which the
Company is a Subsidiary.
"Permitted Indebtedness" means that:
(1) The Company and the Guarantors may incur Indebtedness evidenced by the
notes and the Guarantees and represented by the indenture up to the $100.0
million issued on the Issue Date less any amounts refinanced, redeemed or
retired pursuant to clause (2) below;
(2) The Company and the Guarantors, as applicable, may incur Refinancing
Indebtedness with respect to any Indebtedness or Disqualified Capital Stock, as
applicable, described in clause (1) of this definition or incurred under the
Debt Incurrence Ratio test of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock," or which is
outstanding on the Issue Date (after giving effect to the repayment of
indebtedness as described under the heading "Use of Proceeds" in the Offering
Memorandum), provided, that, in each case such Refinancing Indebtedness is
secured only by the assets, if any, that secured the Indebtedness so
refinanced;
(3) The Company and its Subsidiaries may incur Indebtedness solely in respect
of bankers acceptances, letters of credit and performance bonds (to the extent
that such incurrence does not result in the incurrence of any obligation to
repay any obligation relating to borrowed money of others), all in the ordinary
course of business in accordance with customary industry practices, in amounts
and for the purposes customary in the Company's industry in order to provide
security for workers' compensation, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(4) The Company may incur Indebtedness to any Guarantor, and any Guarantor
may incur Indebtedness to any Guarantor or to the Company; provided, that, in
the case of Indebtedness of the Company, such obligations shall be unsecured
and subordinated in all respects to the Company's obligations pursuant to the
notes and any event that causes such Guarantor which loaned such Indebtedness
no longer to be a Guarantor shall be deemed to be a new incurrence subject to
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Stock;"
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(5) any Guarantor may guaranty any Indebtedness of the Company or another
Guarantor that was permitted to be incurred pursuant to the indenture,
substantially concurrently with such incurrence or at the time such person
becomes a Guarantor of the notes;
(6) Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction, provided,
that, such restrictions apply only to such Receivables Subsidiary;
(7) a Receivables Subsidiary may incur Indebtedness in a Qualified
Receivables Transaction that is without recourse to the Company or to any
Subsidiary of the Company or their assets (other than such Receivables
Subsidiary and its assets), and is not guaranteed by any such person and is not
otherwise such person's legal liability;
(8) Interest Swap and Hedging Obligations of the Company covering
Indebtedness of the Company or any of its Restricted Subsidiaries and Interest
Swap and Hedging Obligations of any Restricted Subsidiary of the Company
covering Indebtedness of such Restricted Subsidiary, provided, however, that
such Interest Swap and Hedging Obligations are entered into to protect the
Company and its Restricted Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with the indenture to the extent the
notional principal amount of such Interest Swap and Hedging Obligation does not
exceed the principal amount of the Indebtedness to which such Interest Swap and
Hedging Obligation relates; and
(9) Any Foreign Subsidiary may incur Indebtedness to any other Foreign
Subsidiary; provided, that any event that causes the Foreign Subsidiary which
loaned such Indebtedness no longer to be a Subsidiary shall be deemed to be a
new incurrence subject to the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Stock."
"Permitted Investment" means Investments in
(1) any of the notes and the Guarantees;
(2) Cash Equivalents;
(3) intercompany notes to the extent permitted under clauses (4) and (9) of
the definition of "Permitted Indebtedness" provided, however, that any event
that causes the obligee on such inter-company notes no longer to be a
Subsidiary shall be deemed a new Investment subject to the covenant entitled
"Limitation on Restricted Payments";
(4) Investment by the Company or any Guarantor in a Person in a Related
Business if as a result of such Investment such Person immediately becomes a
Wholly-Owned Subsidiary Guarantor or such Person is immediately merged with or
into the Company or a Wholly-Owned Subsidiary Guarantor;
(5) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or other
person established by such Receivables Subsidiary to effect such Qualified
Receivables Transaction;
(6) any Investment by the Company or any Guarantor in a Receivables
Subsidiary or any Investment by a Receivables Subsidiary in any other person in
connection with a Qualified Receivables Transaction; provided, that the
foregoing Investment is in the form of a note that the Receivables Subsidiary
or other person is required to repay as soon as practicable from available
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cash collections less amounts required to be established as reserves pursuant
to contractual arrangements with entities that are not Affiliates entered into
as part of a Qualified Receivables Transaction;
(7) loans and advances to employees and officers of the Company and its
Subsidiaries in the ordinary course of business for bona fide business purposes
not in excess of $1.5 million at any one time outstanding;
(8) Currency Agreements and Interest Swap and Hedging Obligations entered
into in the ordinary course of the Company's or its Subsidiaries' businesses
and otherwise in compliance with the indenture;
(9) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(10) Investments made by the Company or its Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance with
the "Limitation on Sale of Assets and Subsidiary Stock" covenant;
(11) Investments by the Company or any Guarantor in a Foreign Subsidiary in
the aggregate not in excess of $5.0 million plus to the extent that any
Investment (other than an Investment which when made was not deducted in this
clause (11)) that was made after the Issue Date is sold for cash or Cash
Equivalents or otherwise liquidated or repaid for cash or Cash Equivalents, the
lesser of
(a) the cash or Cash Equivalents return of capital with respect to such
Investment (less the cost of disposition, if any) and
(b) the initial amount of such Investment; and
(12) any Investment in the Company or in a Wholly-Owned Subsidiary Guarantor.
"Permitted Lien" means
(1) Liens existing on the Issue Date;
(2) Liens imposed by governmental authorities for taxes, assessments or other
charges not yet subject to penalty or which are being contested in good faith
and by appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP;
(3) statutory liens of carriers, warehousemen, mechanics, material men,
landlords, repairmen or other like Liens arising by operation of law in the
ordinary course of business provided, that,
(a) the underlying obligations are not overdue for a period of more than 30
days, or
(b) such Liens are being contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are maintained on
the books of the Company in accordance with GAAP;
(4) Liens securing the performance of bids, trade contracts (other than
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
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(5) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property, subject thereto (as
such property is used by the Company or any of its Subsidiaries) or interfere
with the ordinary conduct of the business of the Company or any of its
Subsidiaries;
(6) Liens arising by operation of law in connection with judgments, only to
the extent, for an amount and for a period not resulting in an Event of Default
with respect thereto;
(7) pledges or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security legislation;
(8) Liens securing the notes;
(9) Liens securing Indebtedness of a Person existing at the time such Person
becomes a Subsidiary or is merged with or into the Company or a Subsidiary or
Liens securing Indebtedness incurred in connection with an Acquisition,
provided, that such Liens
(a) were in existence prior to the date of such acquisition, merger or
consolidation,
(b) were not incurred in anticipation thereof, and
(c) do not extend to any other assets;
(10) Liens arising from Purchase Money Indebtedness permitted to be incurred
pursuant to clause (a) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" provided, such Liens relate solely
to the property which is subject to such Purchase Money Indebtedness;
(11) leases or subleases granted to other persons in the ordinary course of
business not materially interfering with the conduct of the business of the
Company or any of its Subsidiaries or materially detracting from the value of
the relative assets of the Company or any Subsidiary;
(12) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by the Company or any
of its Subsidiaries in the ordinary course of business;
(13) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more adverse to the
holders of the notes than the terms of the Liens securing such refinanced
Indebtedness, and provided, that the Indebtedness secured is not increased and
the lien is not extended to any additional assets or property that would not
have been security for the Indebtedness refinanced;
(14) Liens securing Senior Debt incurred in accordance with the terms of the
indenture; and
(15) Liens on assets of a Receivables Subsidiary incurred in connection with
a Qualified Receivables Transaction.
"Permitted Payments to Parent" means without duplication as to amounts,
(1) payments to Parent in an amount sufficient to permit Parent to pay
reasonable and necessary accounting, legal and administrative expenses of the
Parent, not in excess of $350,000 in the aggregate during any consecutive 12-
month period and
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(2) payment to Parent to enable Parent to pay foreign, federal, state or
local tax liabilities ("Tax Payment"), not to exceed the amount of any tax
liabilities that would be otherwise payable by the Company and its Subsidiaries
and Unrestricted Subsidiaries to the appropriate taxing authorities if each of
the Company, such Subsidiaries and Unrestricted Subsidiaries filed a separate
tax return, to the extent that Parent has an obligation to pay such tax
liabilities relating to the operations, assets or capital of the Company or its
Subsidiaries and Unrestricted Subsidiaries;
provided however, that
(1) notwithstanding the foregoing, in the case of determining the amount of a
Tax Payment that is permitted to be paid by Company and any of its United
States Subsidiaries in respect of their Federal income tax liability, such
payment shall be determined assuming that Company is the parent company of an
affiliated group (the "Company Affiliated Group") filing a consolidated Federal
income tax return and that Parent and each such United States subsidiary is a
member of the Company Affiliated Group; and
(2) any Tax Payments shall either be used by Parent to pay such tax
liabilities within 90 days of Parent's receipt of such payment or refunded to
the payee.
"Public Equity Offering" means an underwritten offering of common stock of
the Company for cash pursuant to an effective registration statement under the
Securities Act.
"Purchase Money Indebtedness" of any person means any Indebtedness of such
person to any seller or other person incurred solely to finance the acquisition
(including in the case of a Capitalized Lease Obligation, the lease) of any
after-acquired real or personal tangible property which, in the reasonable good
faith judgment of the Board of Directors of the Company, is directly related to
a Related Business of the Company and which is incurred concurrently with such
acquisition and is secured only by the assets so financed.
"Qualified Capital Stock" means any Capital Stock of the Company that is not
Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
on or after the Issue Date with the Net Cash Proceeds received by the Company
from the substantially concurrent sale of Qualified Capital Stock or a Capital
Contribution or any exchange of Qualified Capital Stock for any Capital Stock
or Indebtedness of the Company or Capital Stock of the Parent on or after the
Issue Date.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company, any Guarantor or any
Receivables Subsidiary pursuant to which the Company, any Guarantor or any
Receivables Subsidiary may sell, convey or otherwise transfer to, or grant a
security interest in for the benefit of,
(1) a Receivables Subsidiary (in the case of a transfer or encumbrancing by
the Company or any Guarantor) and
(2) any other person (solely in the case of a transfer or encumbrancing by a
Receivables Subsidiary),
solely accounts receivable (whether now existing or arising in the future) of
the Company or any Guarantor which arose in the ordinary course of business of
the Company or any Guarantor, and any
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assets related thereto, including, without limitation, all collateral securing
such accounts receivable, all contracts and all guarantees or other obligations
in respect of such accounts receivable, proceeds of such accounts receivable
and other assets which are customarily transferred or in respect of which
security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable.
"Receivables Subsidiary" means a Wholly-Owned Subsidiary of the Company which
engages in no activities other than in connection with the financing of
accounts receivable and which is designated by the Board of Directors of the
Company (as provided below) as a Receivables Subsidiary.
(1) no portion of any Indebtedness or any other obligations (contingent or
otherwise) of which, directly or indirectly, contingently or otherwise,
(a) is guaranteed by the Company or any other Subsidiary of the Company
(excluding guarantees of obligations (other than the principal of, and
interest on, Indebtedness) pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business
in connection with a Qualified Receivables Transaction),
(b) is recourse to or obligates the Company or any other Subsidiary of
the Company in any way other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business
in connection with a Qualified Receivables Transaction, or
(c) subjects any property or asset of the Company or any other Subsidiary
of the Company to the satisfaction thereof, other than pursuant to
representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction,
(2) with which neither the Company nor any other Subsidiary of the Company
has any material contract, agreement, arrangement or understanding other than
those customarily entered into in connection with Qualified Receivables
Transactions, and
(3) with which neither the Company nor any other Subsidiaries of the Company
has any obligation, directly or indirectly, contingently or otherwise, to
maintain or preserve such Subsidiary's financial condition or cause such
Subsidiary to achieve certain levels of operating results.
Any such designation by the Board of Directors of the Company shall be
evidenced to the trustee by filing with the trustee a certified copy of the
resolution of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions.
"Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the notes or the indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference, not
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to exceed (after deduction of reasonable and customary fees and expenses
incurred in connection with the Refinancing plus the amount of any premium paid
in connection with such Refinancing in accordance with the terms of the
documents governing the Indebtedness refinanced without giving effect to any
modification thereof made in connection with or in contemplation of such
refinancing) the lesser of
(1) the principal amount or, in the case of Disqualified Capital Stock,
liquidation preference, of the Indebtedness or Disqualified Capital Stock so
Refinanced and
(2) if such Indebtedness being Refinanced was issued with an original issue
discount, the accreted value thereof (as determined in accordance with GAAP) at
the time of such Refinancing;
provided, that,
(1) such Refinancing Indebtedness shall only be used to Refinance outstanding
Indebtedness or Disqualified Capital Stock of such person issuing such
Refinancing Indebtedness,
(2) such Refinancing Indebtedness shall (x) not have an Average Life shorter
than the Indebtedness or Disqualified Capital Stock to be so refinanced at the
time of such Refinancing and (y) in all respects, be no less subordinated or
junior, if applicable, to the rights of holders of the notes than was the
Indebtedness or Disqualified Capital Stock to be refinanced,
(3) such Refinancing Indebtedness shall have a final stated maturity or
redemption date, as applicable, no earlier than the final stated maturity or
redemption date, as applicable, of the Indebtedness or Disqualified Capital
Stock to be so refinanced, and
(4) such Refinancing Indebtedness shall be secured (if secured) in a manner
no more adverse to the holders of the notes than the terms of the Liens (if
any) securing such refinanced Indebtedness, including, without limitation, the
amount of Indebtedness secured shall not be increased.
"Related Business" means the business conducted (or proposed to be conducted)
by the Company and its Subsidiaries as of the Issue Date and any and all
businesses that in the good faith judgment of the Board of Directors of the
Company are reasonably related businesses.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than other Permitted Investments.
"Restricted Payment" means, with respect to any person,
(1) the declaration or payment of any dividend or other distribution in
respect of Equity Interests of such person or any parent or Subsidiary of such
person,
(2) any payment on account of the purchase, redemption or other acquisition
or retirement for value of Equity Interests of such person or any Subsidiary or
parent of such person,
(3) other than with the proceeds from the substantially concurrent sale of,
or in exchange for, Refinancing Indebtedness any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any amendment
of the terms of or any defeasance of, any Subordinated Indebtedness, directly
or indirectly, by such person or a parent or Subsidiary of such person prior to
the scheduled maturity, any scheduled repayment of principal, or scheduled
sinking fund payment, as the case may be, of such Indebtedness and
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(4) any Restricted Investment by such person;
provided, however, that the term "Restricted Payment" does not include
(1) any dividend, distribution or other payment on or with respect to Equity
Interests of an issuer to the extent payable solely in shares of Qualified
Capital Stock of such issuer;
(2) any dividend, distribution or other payment to the Company, or to any of
its Subsidiary Guarantors, by the Company or any of its Subsidiaries; or
(3) Permitted Investments.
"Senior Debt" of the Company or any Guarantor means
(1) Indebtedness (including any interest, whether or not allowable, accruing
on Indebtedness incurred pursuant to the Credit Agreement after the filing of a
petition initiating any proceeding under any bankruptcy, insolvency or similar
law) of the Company or such Guarantor arising under the Credit Agreement or
that, by the terms of the instrument creating or evidencing such Indebtedness,
is not expressly designated Subordinated Indebtedness or pari passu
Indebtedness with the notes and made subordinated or pari passu in right of
payment to the notes or the applicable Guarantee and
(2) all other amounts due on or in connection with such Indebtedness,
including all interest, premiums, reimbursement obligations, charges, fees,
indemnities and expenses (including fees and expenses of counsel);
provided, that in no event shall Senior Debt include:
(1) Indebtedness to any Subsidiary of the Company or any officer, director or
employee of the Company or any Subsidiary of the Company,
(2) Indebtedness incurred in violation of the terms of the indenture,
(3) Indebtedness to trade creditors,
(4) Disqualified Capital Stock,
(5) Capitalized Lease Obligations, and
(6) any liability for taxes owed or owing by the Company or such Guarantor.
"Significant Subsidiary" shall have the meaning provided under Regulation S-X
of the Securities Act, as in effect on the Issue Date.
"Stated Maturity," when used with respect to any note, means August 1, 2005.
"Stone Acquisition" means the acquisition by City Truck and Trailer Parts,
Inc. of substantially all of the assets of Stone Heavy Duty, Inc. on June 19,
1998.
"Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor
that is subordinated in right of payment by its terms or the terms of any
document or instrument relating thereto to the notes or such Guarantee, as
applicable, in any respect or has a stated maturity on (except for the notes)
or after the Stated Maturity.
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"Subsidiary," with respect to any person, means
(1) a corporation a majority of whose Equity Interests with voting power,
under ordinary circumstances, to elect directors is at the time, directly or
indirectly, owned by such person, by such person and one or more Subsidiaries
of such person or by one or more Subsidiaries of such person,
(2) any other person (other than a corporation) in which such person, one or
more Subsidiaries of such person, or such person and one or more Subsidiaries
of such person, directly or indirectly, at the date of determination thereof
has at least majority ownership interest, or
(3) a partnership in which such person or a Subsidiary of such person is, at
the time, a general partner and in which such person, directly or indirectly,
at the date of determination thereof has at least a majority ownership
interest.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not be a
Subsidiary of the Company or of any Subsidiary of the Company. Unless the
context requires otherwise, Subsidiary includes, without limitation, each
direct and indirect Subsidiary of the Company.
"Unrestricted Subsidiary" means any subsidiary of the Company that does not
own any Capital Stock of, or own or hold any Lien on any property of, the
Company or any other Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided, that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Indebtedness;
(2) is not party to any agreement, contract, arrangement or understanding
with the Company or any Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company;
(3) is a Person with respect to which neither the Company nor any of its
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Subsidiaries.
The Board of Directors of the Company may designate any Unrestricted Subsidiary
to be a Subsidiary, provided, that,
(1) no Default or Event of Default is existing or will occur as a consequence
thereof and
(2) immediately after giving effect to such designation, on a pro forma
basis, the Company could incur at least $1.00 of Indebtedness pursuant to the
Debt Incurrence Ratio of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock."
Each such designation shall be evidenced by filing with the trustee a certified
copy of the resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
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"U.S. Government Obligations" means direct non-callable obligations of, or
noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"Voting Power" with respect to any Person means the power of all classes of
Capital Stock of such Person then outstanding normally entitled to vote in
elections of directors.
"Wholly-Owned Subsidiary" means a Subsidiary at least 99% of the Equity
Interests of which are owned by the Company or one or more Wholly-Owned
Subsidiaries of the Company.
Book-Entry; Delivery; Form and Transfer
The notes sold to Qualified Institutional Buyers initially will be in the
form of one or more registered global notes without interest coupons. We refer
to these notes as the "U.S. global notes". On issuance, the U.S. global notes
will be deposited with the trustee, as custodian for DTC in New York, New York,
and registered in the name of DTC or its nominee for credit to the accounts of
DTC's direct and indirect participants, as defined below. The notes offered and
sold in offshore transactions in reliance on Regulation S, if any, initially
will be in the form of one or more temporary, registered, global book-entry
notes without interest coupons. We refer to these notes as the "Reg S temporary
global notes". The Reg S temporary global notes will be deposited with the
trustee, as custodian for DTC, in New York, New York, and registered in the
name of a nominee of DTC for credit to the accounts of indirect participants
participating in DTC through the Euroclear System and Cedel Bank, Societe
Anonyme. During the 40-day period commencing on the day after the later of the
offering date and the original issue date of the notes, the "distribution
compliance period", beneficial interests in the Reg S temporary global notes
may be held only through Euroclear or CEDEL, and, pursuant to DTC's procedures,
indirect participants that hold a beneficial interest in the Reg S temporary
global notes will not be able to transfer that interest to a person that takes
delivery in the form of an interest in the U.S. global notes. Within a
reasonable time after the expiration of the distribution compliance period, the
Reg S temporary global notes will be exchanged for one or more permanent global
notes upon delivery to DTC of certification of compliance with the transfer
restrictions applicable to the notes and pursuant to Regulation S as provided
in the indenture. After the distribution compliance period;
(1) beneficial interests in the Reg S permanent global notes may be
transferred to a person that takes delivery in the form of an interest
in the U.S. global notes; and
(2) beneficial interests in the U.S. global notes may be transferred to a
person that takes delivery in the form of an interest in the Reg S
permanent global notes,
provided, in each case, that the certification requirements described below are
complied with. For a more detailed description of the requirements, see
"Transfers of Interests in One Global Note for Interests in Another Global
Note." All registered global notes are referred to in this prospectus
collectively as "global notes."
Beneficial interests in all global notes and all certificated notes, as
defined below, if any, will be subject to restrictions on transfer and will
bear a restrictive legend as described in section 2.6(g) of the indenture. In
addition, transfer of beneficial interests in any global notes will be subject
to the applicable rules and procedures of DTC and its direct or indirect
participants including, if applicable, those of Euroclear and CEDEL, which may
change from time to time.
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The global notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in limited
circumstances. Beneficial interests in the global notes may be exchanged for
notes in certificated form in limited circumstances. For a more detailed
description of the requirements, see "Transfer of Interests in Global Notes for
Certificated Notes."
Initially, the trustee will act as paying agent and registrar. The notes may
be presented for registration of transfer and exchange at the offices of the
registrar.
Depository Procedures
DTC has advised HDA that DTC is a limited-purpose trust company created to
hold securities for its participating organizations, which we refer to as the
"direct participants," and to facilitate the clearance and settlement of
transactions in those securities between direct participants through electronic
book-entry changes in accounts of participants. The direct participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations, including Euroclear and CEDEL. Access to DTC's
system is also available to other entities that clear through or maintain a
direct or indirect, custodial relationship with a direct participant, which we
refer to as the "indirect participants".
DTC has also advised HDA that, pursuant to DTC's procedures:
(1) upon deposit of the global notes, DTC will credit the accounts of the
direct participants designated by the initial purchasers with portions of the
principal amount of the global notes that have been allocated to them by the
initial purchasers: and
(2) DTC will maintain records of the ownership interests of those direct
participants in the global notes and the transfer of ownership interests by and
between direct participants.
DTC will not maintain records of the ownership interests of, or the transfer
of ownership interests by and between, indirect participants or other owners of
beneficial interests in the global notes. Direct participants and indirect
participants must maintain their own records of the ownership interests of, and
the transfer of ownership interests by and between, indirect participants and
other owners of beneficial interests in the global notes.
Investors in the U.S. global notes may hold their interests in those notes
directly through DTC if they are direct participants in DTC or indirectly
through organizations that are direct participants in DTC. Investors in the Reg
S temporary global notes may hold their interests in those notes directly
through Euroclear or CEDEL or indirectly through organizations that are
participants in Euroclear or CEDEL. After the expiration of the distribution
compliance period, investors may hold interests in the Reg S global notes
through organizations other than Euroclear and CEDEL that are direct
participants in the DTC system. Morgan Guaranty Trust Company of New York,
Brussels office, is the operator and depository of Euroclear and Citibank, N.A.
is the operator and depository of CEDEL, each a "nominee" of Euroclear and
CEDEL, respectively. Therefore, they will each be recorded on DTC's records as
the holders of all ownership interests held by them on behalf of Euroclear and
CEDEL, respectively. Euroclear and CEDEL must maintain on their own records the
ownership interests, and transfers of ownership interests of, by and between
their own customers' securities accounts. DTC will not maintain those records.
All ownership interests in any global notes, including those of customers'
securities accounts held through Euroclear or CEDEL, may be subject to the
procedures and requirements of DTC.
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The laws of some states in the United States may require that persons take
physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in
a global note to those persons. Because DTC can act only on behalf of direct
participants, which in turn act on behalf of indirect participants and others,
the ability of a person having a beneficial interest in a global note to pledge
that interest to persons or entities that are not direct participants in DTC,
or to otherwise take actions in respect of those interests, may be affected by
the lack of physical certificates evidencing those interests. For other
restrictions on the transferability of the notes, see "Reg S Temporary and Reg
S Permanent Global Notes" and "--Transfers of Interests in Global Notes for
Certificated Notes."
Except as described in "Transfers of Interests in Global Notes for
Certificated Notes," owners of beneficial interests in the global notes will
not have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders of the notes under the indenture for any purpose.
Under the terms of the indenture, HDA, the guarantors and the trustee will
treat the persons in whose names the notes are registered, including notes
represented by global notes, as the owners of those notes for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal, premium, liquidated damages, if any, and interest on
global notes registered in the name of DTC or its nominee will be payable by
the trustee to DTC or its nominee as the registered holder under the indenture.
Consequently, neither HDA, the trustee nor any agent of HDA or the trustee has
or will have any responsibility or liability for:
(1) any aspect of DTC's records or any direct participant's or indirect
participant's records relating to or payments made on account of beneficial
ownership interests in the global notes or for maintaining, supervising or
reviewing any of DTC's records or any direct participant's or indirect
participant's records relating to the beneficial ownership interests in any
global note; or
(2) any other matter relating to the actions and practices of DTC or any of
its direct participants or indirect participants.
DTC has advised HDA that its current payment practice with respect to
securities such as the notes is to credit the accounts of the relevant direct
participants with that payment on the payment date in amounts proportionate to
those direct participants' respective ownership interests in the global notes
as shown on DTC's records. Payments by direct participants and indirect
participants to the beneficial owners of the notes will be governed by standing
instructions and customary practices between them and will not be the
responsibility of DTC, the trustee, HDA or the guarantors. Neither HDA, the
guarantors nor the trustee will be liable for any delay by DTC or its direct
participants or indirect participants in identifying the beneficial owners of
the notes, and HDA and the trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as the registered
owner of the notes for all purposes.
The global notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between direct participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between indirect participants, other than Indirect
Participants that hold an interest in the notes through Euroclear or CEDEL,
that hold an interest through a direct participant will be effected in
accordance with the procedures of that direct participant but generally will
settle in immediately available funds. Transfers between and among indirect
participants that hold interests in the notes through Euroclear and CEDEL will
be effected in the ordinary way in accordance with their respective rules and
operating procedures.
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Subject to compliance with the transfer restrictions applicable to the notes,
cross-market transfers between direct participants in DTC, on the one hand, and
indirect participants that hold interests in the notes through Euroclear or
CEDEL, on the other hand, will be effected by Euroclear's or CEDEL's respective
nominee through DTC in accordance with DTC's rules on behalf of Euroclear or
CEDEL; however, delivery of instructions relating to crossmarket transactions
must be made directly to Euroclear or CEDEL, as the case may be, by the
counterparty in accordance with the rules and procedures of Euroclear or CEDEL
and within their established deadlines. Indirect participants that hold
interest in the notes through Euroclear and CEDEL may not deliver instructions
directly to Euroclear's or CEDEL's nominee. Euroclear or CEDEL will, if the
transaction meets its settlement requirements, deliver instructions to its
respective nominee to deliver or receive interests on Euroclear's or CEDEL's
behalf in the relevant global note in DTC, and make or receive payment in
accordance with normal procedures for same-day fund settlement applicable to
DTC.
Because of time zone differences, the securities accounts of an indirect
participant that holds an interest in the notes through Euroclear or CEDEL
purchasing an interest in a global note from a direct participant in DTC will
be credited, and any such crediting will be reported to Euroclear or CEDEL
during the European business day immediately following the settlement date of
DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and CEDEL customers will not have access
to the cash amount credited to their accounts as a result of a sale of an
interest in Reg S permanent global note to a DTC participant until the European
business day for Euroclear or CEDEL immediately following DTC's settlement
date.
DTC has advised HDA that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more direct participants to
whose account interests in the global notes are credited and only in respect of
that portion of the aggregate principal amount of the notes as to which that
direct participant or direct participants has or have given direction. However,
if there is an event of default under the notes, DTC may, without the direction
of one or more of its direct participants, exchange global notes for legended
notes in certificated form, and to distribute those certificated forms of notes
to its direct participants. For more detail regarding transfer requirements,
see "Transfers of Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the Reg S global notes and in the U.S.
global notes among direct participants, including Euroclear and CEDEL, they are
under no obligation to perform or to continue to perform those procedures, and
those procedures may be discontinued at any time. None of HDA, the guarantors,
the initial purchasers or the trustee shall have any responsibility for the
performance by DTC, Euroclear or CEDEL or their respective direct and indirect
participants of their respective obligations under the rules and procedures
governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and their
book-entry systems has been obtained from sources that HDA believes to be
reliable, but HDA takes no responsibility for the accuracy thereof.
Reg S Temporary and Reg S Permanent Global Notes
An indirect participant who holds an interest in the Reg S temporary global
notes through Euroclear or CEDEL must provide Euroclear or CEDEL, as the case
may be, with a certificate in the form required by the indenture certifying
that those indirect participant is either not a U.S. Person or
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has purchased such interests in a transaction that is exempt from the
registration requirements under the Securities Act, and Euroclear or CEDEL, as
the case may be, must provide to the trustee or the paying agent a certificate
in the form required by the indenture prior to any exchange of those beneficial
interests for beneficial interests in Reg S permanent global notes.
"U.S. Person" means:
(1) any individual resident in the United States;
(2) any partnership or corporation organized or incorporated under the laws
of the United States;
(3) any estate of which an executor or administrator is a U.S. person, other
than an estate governed by foreign law and of which at least one executor or
administrator is a non-U.S. Person who has sole or shared investment discretion
with respect to its assets;
(4) any trust of which any trustee is a U.S. Person, other than a trust of
which at least one trustee is a non-U.S. Person who has sole or shared
investment discretion with respect to its assets and no beneficiary of the
trust, and no settler, if the trust is revocable, is a U.S. Person;
(5) any agency or branch of a foreign entity located in the United States;
(6) any non-discretionary or similar account, other than an estate or trust,
held by a dealer or other fiduciary for the benefit or account of a U.S.
person;
(7) any discretionary or similar account, other than an estate or trust, held
by a dealer or other fiduciary organized, incorporated or resident in the
United States; or
(8) any partnership or corporation organized or incorporated under the laws
of a foreign jurisdiction and formed by a U.S. person principally for the
purpose of investing in securities not registered under the Securities Act,
unless it is organized or incorporated and owned by "accredited investors"
within the meaning of Rule 501(a) under the Securities Act who are not natural
persons, estates or trusts;
provided, however, that the, "U.S. Person" shall not include:
(1) a branch or agency of a U.S. Person that is located and operating outside
the United States for valid business purposes as a locally regulated branch or
agency engaged in the banking or insurance business;
(2) any employee benefit plan established and administered in accordance with
the law, customary practices and documentation of a foreign country; and
(3) the international organizations set forth in Section 902(o)(7) of
Regulation S under the Securities Act and any other similar international
organizations, and their agencies, affiliates and pension plans.
Transfers of Interests in One Global Note for Interests in Another Global Note
Prior to the expiration of the distribution compliance period, an indirect
participant that holds an interest in the Reg S temporary global note through
Euroclear or CEDEL will not be permitted to transfer its interest to a U.S.
Person who takes delivery in the form of an interest in U.S. global notes.
After the expiration of the distribution compliance period, an indirect
participant that holds an interest in Reg S global notes will be permitted to
transfer its interest to a U.S. Person who takes
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delivery in the form of an interest in U.S. global notes only upon receipt by
the trustee of a written certification from the transferor to the effect that
the transfer is being made in accordance with the restrictions on transfer set
forth in section 2.6(g) of the indenture and set forth in the legend printed on
the Reg S permanent global notes.
Prior to the expiration of the distribution compliance period, a direct or
indirect participant that holds an interest in the U.S. global note will not be
permitted to transfer its interests to any person that takes delivery in the
form of an interest in the Reg S temporary global notes. After the expiration
of the distribution compliance period, a direct or indirect participant that
holds an interest in U.S. global notes may transfer its interests to a person
who takes delivery in the form of an interest in Reg S permanent global notes
only upon receipt by the trustee of a written certification from the transferor
to the effect that the transfer is being made in accordance with Rule 904 of
Regulation S.
Transfers involving an exchange of a beneficial interest in Reg S global
notes for a beneficial interest in U.S. global notes or vice versa will be
effected by DTC by means of an instruction originated by the trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection
with such transfer, appropriate adjustments will be made to reflect a decrease
in the principal amount of the one global note and a corresponding increase in
the principal amount of the other global note, as applicable. Any beneficial
interest in the one global note that is transferred to a person who takes
delivery in the form of the other global note will, upon transfer, cease to be
an interest in such first global note and become an interest in such other
global note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
other global note for as long as it remains such an interest.
Transfers of Interests in Global Notes for Certificated Notes
An entire global note may be exchanged for definitive notes in registered,
certificated form without interest coupons the "certificated notes", if:
(1) DTC (x) notifies HDA that it is unwilling or unable to continue as
depository for the global notes and HDA thereupon fails to appoint a successor
depository within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act;
(2) HDA, at its option, notifies the trustee in writing that it elects to
cause the issuance of certificated notes; or
(3) upon the request of the trustee or holders of a majority of the
outstanding principal amount of notes, there shall have occurred and be
continuing a default or an event of default with respect to the notes;
provided that in no event shall the Reg S temporary global security be
exchanged by HDA for certificated notes prior to:
(x) the expiration of the distribution compliance period; and
(y) the receipt by the registrar of any certificates identified by HDA or
its counsel to be required pursuant to Rule 903 or Rule 904 under the
Securities Act.
In any such case, HDA will notify the trustee in writing that, upon surrender
by the direct and indirect participants of their interest in such global note,
certificated notes will be issued to each person that such direct and indirect
participants and DTC identify as being the beneficial owner of the related
notes.
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Beneficial interests in global notes held by any direct or indirect
participant may be exchanged for certificated notes upon request to DTC, by
that direct participant, for itself or on behalf of an Indirect Participant, or
to the trustee in accordance with customary DTC procedures. Certificated notes
delivered in exchange for any beneficial interest in any global notes will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such direct or indirect participant, in accordance with DTC's
customary procedures.
In all cases described herein, such certificated notes will bear the
restrictive legend referred to in section 2.6(g) of the indenture unless HDA
determines otherwise in compliance with applicable law.
Neither HDA, the guarantors nor the trustee will be liable for any delay by
the holder of the global notes or DTC in identifying the beneficial owners of
notes, and HDA and the trustee may conclusively rely on, and will be protected
in relying on, instructions from the holder of the global note or DTC for all
purposes.
Transfers of Certificated Notes for Interests in Global Notes
Certificated notes may be transferred only if the transferor first delivers
to the trustee a written certificate and, if required, an opinion of counsel,
confirming that, in connection with the transfer, it has complied with the
restrictions on transfer described in section 2.6(g) of the indenture.
Same Day Settlement and Payment
The indenture requires that payments in respect of the notes represented by
the global notes be made by wire transfer of immediately available same day
funds to the accounts specified by the holders of interests in those global
notes. With respect to certificated notes, HDA will make all payments of
principal, premium, if any, interest and liquidated damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders of those notes or, if no such account is specified, by mailing a
check to each such holder's registered address. HDA expects that secondary
trading in the certificated notes will also be settled in immediately available
funds.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE
The following discussion is the opinion of Latham & Watkins, our counsel, as
to the material federal income tax income consequences expected to result to
you if you exchange your private notes for exchange notes in the exchange
offer. This opinion is based on:
. the facts described in the registration statement of which this
prospectus is a part,
. the Internal Revenue Code of 1986, as amended,
. current, temporary and proposed treasury regulations promulgated under
the Internal Revenue Code,
. the legislative history of the Internal Revenue Code,
. current administrative interpretations and practices of the Internal
Revenue Service, and
. court decisions,
all as of the date of this prospectus. In addition, the administrative
interpretations and practices of the Internal Revenue Service include its
practices and policies as expressed in private letter rulings that are not
binding on the Internal Revenue Service, except with respect to the particular
taxpayers who requested and received those rulings. Future legislation,
treasury regulations, administrative interpretations and practices and/or court
decisions may adversely affect, perhaps retroactively, the tax considerations
contained in this discussion. Any change could apply retroactively to
transactions preceding the date of the change. The tax considerations contained
in this discussion may be challenged by the Internal Revenue Service and may
not be sustained by a court if challenged by the Internal Revenue Service, and
we have not requested, and do not plan to request, any rulings from the
Internal Revenue Service concerning the tax treatment of the exchange of
private notes for the exchange notes.
Certain holders may be subject to special rules not discussed below,
including, without limitation:
. insurance companies;
. financial institutions or broker-dealers;
. tax-exempt organizations;
. stockholders holding securities as part of a conversion transaction, or a
hedge or hedging transaction or as a position in a straddle for tax
purposes;
. foreign corporations or partnerships; and
. persons who are not citizens or residents of the United States.
You should consult your tax advisor as to the particular tax consequences of
exchanging private notes for exchange notes, including the applicability and
effect of any state, local or foreign laws.
The exchange of private notes for exchange notes will be treated as a "non-
event" for federal income tax purposes, because the exchange notes will not be
considered to differ materially in kind or extent from the private notes.
Therefore, no material federal income tax consequences will result to you from
exchanging private notes for exchange notes.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. Broker-dealers may use this
prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of exchange notes received in exchange for private
notes where the broker-dealer acquired the private notes as a result of market-
making activities or other trading activities. We have agreed that for a period
of up to one year after the expiration date, we will make this prospectus, as
amended or supplemented, available to any broker-dealer that requests it in the
letter of transmittal for use in connection with any such resale.
We will not receive any proceeds from any sale of exchange notes by broker-
dealers or any other persons. Broker-dealers may sell exchange notes received
by broker-dealers for their own account pursuant to the exchange offer from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the exchange notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to the prevailing market prices or negotiated
prices. Broker-dealers may resell exchange notes directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any broker-dealer and/or the purchasers of the
exchange notes. Any broker-dealer that resells exchange notes that were
received by it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of the exchange notes may
be deemed to be "underwriters" within the meaning of the Securities Act and any
profit on any resale of exchange notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
We have agreed to pay all expenses incident to our performance of, or
compliance with, the registration rights agreement and will indemnify you
against liabilities under the Securities Act.
By its acceptance of the exchange offer, any broker-dealer that receives
exchange notes pursuant to the exchange offer agrees to notify us before using
the prospectus in connection with the sale or transfer of exchange notes. The
broker-dealer further acknowledges and agrees that, upon receipt of notice from
us of the happening of any event which makes any statement in the prospectus
untrue in any material respect or which requires the making of any changes in
the prospectus to make the statements in the prospectus not misleading or which
may impose upon us disclosure obligations that my have a material adverse
effect on us, which notice we agree to deliver promptly to the broker-dealer,
the broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and have furnished
copies of any amendment or supplement to the prospectus to the broker-dealer.
LEGAL MATTERS
Latham & Watkins, Los Angeles, California, will pass upon certain legal
matters for us. Partners of Latham & Watkins, members of their families,
related persons and others have an indirect interest in, through a limited
partnership, less than 1% of Holdings' common stock and series A preferred
stock. Those persons do not have the power to vote or dispose of the shares.
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EXPERTS
The consolidated financial statements of (i) City Truck Holdings, Inc. and
Subsidiaries as of December 31, 1997 and 1998 and for each of the three years
in the period ended December 31, 1998, (ii) Associated Brake Supply, Inc. and
Affiliates as of December 26, 1997 and December 31, 1998 and for the years
ended December 27, 1996, December 26, 1997, and December 31, 1998, (iii) Wheels
and Brakes, Inc and Subsidiaries as of January 31, 1998 and 1999 and for each
of the three years in the period ended January 31, 1998 and the combined
financial statements of (i) Stone Heavy Duty, Inc. as of December 31, 1996 and
1997 and at June 19, 1998, and for the years ended December 31, 1996, 1997 and
for the period from January 1, 1998 through June 19, 1998, (ii) Vantage Parts
as of December 31, 1997 and 1998 and for each of the three years in the period
ended December 31, 1998, (iii) Truck and Trailer Parts, Inc. and Affiliate as
of December 31, 1996, 1997 and at September 30, 1998 and for the years ended
December 31, 1996, 1997 and for the nine months in the period ended September
30, 1998, (iv) California Equipment Company and California Equipment Company of
Sacramento as of December 31, 1997 and 1998 and for each of the three years in
the period ended December 31, 1998 and the financial statements of (i) Active
Gear, L.L.C. as of December 31, 1997 and 1998 and for the each of the three
years in the period ended December 31, 1998, (ii) Superior Truck & Auto Supply,
Inc. as of December 31, 1997 and 1998 and for each of the three years in the
period ended December 31, 1998, (iv) TBS Incorporated as of December 31, 1997
and 1998 and for each of the three years in the period ended December 31, 1998,
and (v) New England Truck and Auto Service, Inc. as of December 31, 1997 and
1998 and for each of the three years in the period ended December 31, 1998
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers L.L.P., independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements of Connecticut Driveshaft, Inc., Truckparts, Inc.
and Tisco, Inc. and Tisco of Redding, Inc. appearing in this prospectus have
been audited by McGladrey & Pullen, LLP, independent accountants, to the extent
and for the periods indicated in its respective reports appearing in this
prospectus, and are included in reliance upon such reports and upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of (i) QDSP Holdings, Inc. as of
December 31, 1998 and for the period from July 28, 1998 (date of inception)
through December 31, 1998, (ii) SLM Group, Inc. as of August 7, 1998 and for
the period from April 1, 1998 through August 7, 1998, (iii) CSW Enterprises,
Inc. as of December 31, 1997 and August 7, 1998 and for the years ended
December 31, 1996 and 1997 and for the period from January 1, 1998 through
August 7, 1998, and (iv) Holt Incorporated as of August 7, 1998 and for the
year ended August 7, 1998 and the financial statements of (i) Wheatley Truck
Parts, Inc. as of November 30, 1997 and July 31, 1998 and for the years ended
November 30, 1996 and 1997 and the period from December 1, 1997 through July
31, 1998, (ii) Truck City Parts, Inc. as of December 31, 1997 and July 31, 1998
and for the year ended December 31, 1997 and the period from January 1, 1998
through July 31, 1998, (iii) Automotive Sales Company, Inc. as of December 31,
1997 and July 31, 1998 and for the years ended December 31, 1996 and 1997 and
the period from January 1, 1998 through July 31, 1998, (iv) Sharkey Family
Holdings, Inc. (d/b/a Universal Joint Sales Company) as of December 31, 1997
and July 31, 1998 and for the year ended December 31, 1997 and the period from
January 1, 1998 through July 31, 1998, and (v) Fleetpride, Inc. as of December
31, 1997 and July 31, 1998 and for the years ended December 31, 1996 and 1997
and the period from January 1, 1998 through July 31, 1998 included in this
prospectus have been audited by Ernst & Young LLP, independent auditors, as
stated in their reports appearing herein in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
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The combined financial statements of SLM Group, Inc. and subsidiaries as of
March 31, 1998 and 1997, and for each of the years in the two-year period ended
March 31, 1998, have been included in this prospectus in reliance upon the
report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
AVAILABLE INFORMATION
We are not currently subject to the periodic reporting and other information
requirements of the Exchange Act. We will become subject to the requirements
upon the effectiveness of the registration statement. Pursuant to the
indenture, we have agreed that for so long as the notes remain outstanding, we
will furnish to you (1) annual and quarterly financial statements substantially
equivalent to financial statements that would have been included in reports
filed with the SEC if we were subject to Section 13 or 15(d) of the Exchange
Act and (2) any other information, documents and other reports that we would be
required to filed with the SEC if we were subject to Section 13 or 15(d) of the
Exchange Act. In addition, whether or not required by the rules and regulations
of the SEC, we will also agree to file a copy of all such information and
reports with the SEC for public availability, unless the SEC will not accept
the filing, and make the information available to securities analysts and
prospective investors upon request.
This prospectus constitutes part of a registration statement on Form S-4
filed under the Securities Act with respect to the exchange notes to be issued
in the exchange offer. As permitted by the SEC rules, this prospectus omits
some of the information, exhibits and undertakings included in the registration
statement. You may read and copy the information omitted from this prospectus
but contained in the registration statement, as well as the periodic reports
and other information we file with the SEC, at the public reference facilities
maintained by the SEC in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference facilities. You may also access filed documents at the SEC's
web site at http://www.sec.gov.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance we refer you
to the copy of the contract or document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference.
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INDEX TO FINANCIAL STATEMENTS
We have presented Holdings' historical financial statements instead of ours.
Holdings is our parent company and has no separate operations. Its only asset
is its investment in us and equity in our earnings recorded and it has no
liabilities. Holdings is contingently liable for its guarantee of our debt.
Thus, our separate financial statements are not presented.
<TABLE>
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<S> <C>
City Truck Holdings, Inc. and Subsidiaries
Report of Independent Accountants........................................ F-6
Consolidated Balance Sheets at December 31, 1997 and 1998................ F-7
Consolidated Statements of Income for the Years Ended December 31, 1996,
1997 and 1998........................................................... F-8
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1997 and 1998........................................ F-9
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997, and 1998.................................................... F-10
Notes to Consolidated Financial Statements............................... F-11
Unaudited City Truck Holdings, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheets at June 30, 1999................... F-26
Unaudited Consolidated Income Statement for the Six Months Ended June 30,
1999.................................................................... F-27
Consolidated Statements of Stockholders' Equity for the Six Months Ended
June 30, 1999........................................................... F-28
Unaudited Consolidated Statements of Cash Flow for the Six Months Ended
June 30, 1999 and 1998.................................................. F-29
Notes to Unaudited Consolidated Financial Statements..................... F-30
Stone Heavy Duty, Inc.
Report of Independent Accountants........................................ F-34
Combined Balance Sheets at December 31, 1996, 1997 and at June 19, 1998.. F-35
Combined Statements of Income and Retained Earnings for the Years Ended
December 31, 1996, 1997 and for the period from January 1, 1998 through
June 19, 1998........................................................... F-36
Combined Statements of Cash Flows for the Years Ended December 31, 1996
and 1997 and for the period from January 1, 1998 through June 19, 1998.. F-37
Notes to Combined Financial Statements................................... F-38
Associated Brake Supply, Inc. and Affiliate
Report of Independent Accountants........................................ F-43
Consolidated Balance Sheets at December 26, 1997 and at December 31,
1998.................................................................... F-44
Consolidated Statements of Income for the Years Ended December 27, 1996,
December 26, 1997 and December 31, 1998................................. F-45
Consolidated Statements of Stockholders' Equity for the Years Ended
December 27, 1996, December 26, 1997 and December 31, 1998.............. F-46
Consolidated Statements of Cash Flows for the Years Ended December 27,
1996, December 26, 1997 and December 31, 1998........................... F-47
Notes to Consolidated Financial Statements............................... F-48
Vantage Parts
Report of Independent Accountants........................................ F-55
Combined Balance Sheets at December 31, 1997 and 1998.................... F-56
Combined Statements of Income for the Three Years Ended December 31,
1996, 1997 and 1998..................................................... F-57
Combined Statements of Cash Flows for the Three Years Ended December 31,
1996, 1997, and 1998.................................................... F-58
Notes to Combined Financial Statements................................... F-59
Unaudited Vantage Parts
Unaudited Combined Statement of Income for the Period from January 1,
1999 to May 28, 1999.................................................... F-64
Unaudited Combined Statement of Cash Flows for the Period from January 1,
1999 to May 28, 1999.................................................... F-65
Notes to Unaudited Combined Financial Statements......................... F-66
Truck and Trailer Parts, Inc. and Affiliate
Report of Independent Accountants........................................ F-68
Combined Balance Sheets at December 31, 1996, 1997, and at September 30,
1998.................................................................... F-69
</TABLE>
F-1
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<S> <C>
Combined Statements of Income and Stockholders' Equity for the Years
Ended December 31, 1996 and 1997 and for the nine month period ended
September 30, 1998...................................................... F-70
Combined Statements of Cash Flows for the Years Ended December 31, 1996
and 1997 and for the nine month period ended September 30, 1998......... F-71
Notes to Combined Financial Statements................................... F-72
Connecticut Driveshaft, Inc.
Independent Auditor's Report............................................. F-77
Balance Sheet at September 30, 1998...................................... F-78
Statement of Income for the nine months ended September 30, 1998......... F-79
Statement of Retained Earnings for the nine months ended September 30,
1998.................................................................... F-79
Statement of Cash Flows for the nine months ended September 30, 1998..... F-80
Notes to Financial Statements............................................ F-81
Truckparts, Inc.
Independent Auditor's Report............................................. F-84
Balance Sheets at September 30, 1997 and 1998............................ F-85
Statements of Income for the Years Ended September 30, 1997 and 1998..... F-86
Statements of Retained Earnings for the Years Ended September 30, 1997
and 1998................................................................ F-86
Statements of Cash Flows for the Years Ended September 30, 1997 and
1998.................................................................... F-87
Notes to Financial Statements............................................ F-88
Tisco, Inc. and Tisco of Redding, Inc.
Independent Auditor's Report............................................. F-93
Combined Balance Sheet at September 30, 1998............................. F-94
Combined Statement of Income for the Year Ended September 30, 1998....... F-95
Combined Statement of Stockholders' Equity for the Year Ended September
30, 1998................................................................ F-96
Combined Statement of Cash Flows for the Year Ended September 30, 1998... F-97
Notes to Combined Financial Statements................................... F-98
Unaudited Tisco, Inc. and Tisco of Redding, Inc.
Unaudited Combined Statement of Income for the Three Months Ended
December 31, 1998....................................................... F-102
Unaudited Combined Statement of Cash Flows for the Three Months Ended
December 31, 1998....................................................... F-103
Notes to Unaudited Combined Financial Statements......................... F-104
Active Gear, L.L.C.
Report of Independent Accountants........................................ F-106
Balance Sheets at December 31, 1997 and 1998............................. F-107
Statements of Operations and Members Equity for the Years Ended December
31, 1996, 1997 and 1998................................................. F-108
Statement of Cash Flows for the Years Ended December 31, 1996, 1997 and
1998.................................................................... F-109
Notes to Financial Statements............................................ F-110
Unaudited Active Gear, L.L.C.
Unaudited Statements of Operations and Member's Equity for the Period
from January 1, 1999 to April 20, 1999.................................. F-114
Unaudited Statement of Cash Flows for the Period from January 1, 1999 to
April 20, 1999.......................................................... F-115
Unaudited Notes to Financial Statements.................................. F-116
California Equipment Company and California Equipment Company of
Sacramento
Report of Independent Accountants........................................ F-118
Combined Balance Sheets at December 31, 1997 and 1998.................... F-119
Combined Statements of Income for the Years Ended December 31, 1996, 1997
and 1998................................................................ F-120
Combined Statements of Cash Flows for the Years Ended December 31, 1996,
1997 and 1998........................................................... F-121
Combined Statement of Changes in Stockholders' Equity for the Years Ended
December 31, 1996, 1997 and 1998........................................ F-122
Notes to Combined Financial Statements................................... F-123
</TABLE>
F-2
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Unaudited California Equipment Company and California Equipment Company
of Sacramento
Unaudited Combined Balance Sheet at June 30, 1999........................ F-129
Unaudited Combined Statement of Income for the Six Months Ended June 30,
1999.................................................................... F-130
Unaudited Combined Statement of Cash Flows for the Six Months Ended
June 30, 1999........................................................... F-131
Unaudited Combined Statement of Changes in Stockholders' Equity for the
Period Ended June 30, 1999.............................................. F-132
Notes to Unaudited Combined Financial Statements......................... F-133
Superior Truck & Auto Supply, Inc.
Report of Independent Accountants........................................ F-135
Balance Sheets at December 31, 1997 and 1998............................. F-136
Statements of Income and Retained Earnings for the Years Ended
December 31, 1996, 1997 and 1998........................................ F-137
Statements of Cash Flows for the Years Ended December 31, 1996, 1997, and
1998.................................................................... F-138
Notes to the Financial Statements........................................ F-139
Unaudited Superior Truck & Auto Supply, Inc.
Unaudited Statement of Income for the Period from January 1, 1999 to
June 7, 1999............................................................ F-141
Unaudited Statement of Cash Flows for the Period from January 1, 1999 to
June 7, 1999 ........................................................... F-142
Notes to the Unaudited Financial Statements.............................. F-143
Wheels and Brakes, Inc. and Subsidiaries
Report of Independent Accountants........................................ F-145
Consolidated Balance Sheets at January 31, 1998 and 1999................. F-146
Consolidated Statements of Income for the Years Ended January 31, 1997,
1998 and 1999........................................................... F-147
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended January 31, 1997, 1998, and 1999.................................. F-148
Consolidated Statements of Cash Flows for the Years Ended January 31,
1997, 1998, and 1999.................................................... F-149
Notes to Consolidated Financial Statements............................... F-150
Unaudited Wheels and Brakes, Inc., and Subsidiaries
Unaudited Consolidated Balance Sheet at June 30, 1999.................... F-156
Unaudited Consolidated Statement of Income for the Five Months Ended
June 30, 1999........................................................... F-157
Unaudited Consolidated Statement of Changes in Stockholders' Equity for
the Five Months Ended June 30, 1999..................................... F-158
Unaudited Consolidated Statement of Cash Flows for the Five Months Ended
June 30, 1999........................................................... F-159
Notes to Unaudited Consolidated Financial Statements..................... F-160
QDSP Holdings, Inc.
Report of Independent Auditors........................................... F-162
Consolidated Balance Sheet at December 31, 1998.......................... F-163
Consolidated Statement of Operations for the Period from July 28, 1998
(date of inception) to December 31, 1998................................ F-164
Consolidated Statement of Stockholders' Equity for the Period from
July 28, 1998 (date of inception) to December 31, 1998.................. F-165
Consolidated Statement of Cash Flows for the Period from July 28, 1998
(date of inception) to December 31, 1998................................ F-166
Notes to Consolidated Financial Statements............................... F-167
Supplemental Information:
Consolidating Balance Sheet at December 31, 1998......................... F-178
Consolidating Statement of Operations for the Period from July 28, 1998
(date of inception) to December 31, 1998................................ F-179
Unaudited QDSP Holdings, Inc.
Unaudited Consolidated Balance Sheet at June 30, 1999.................... F-180
Unaudited Consolidated Statement of Operations for the Six Months Ended
June 30, 1999........................................................... F-181
Unaudited Consolidated Statement of Stockholders' Equity for the Six
Months Ended June 30, 1999.............................................. F-182
Unaudited Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 1999........................................................... F-183
Notes to Unaudited Consolidated Financial Statements..................... F-184
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
SLM Group, Inc. and Subsidiaries
Report of Independent Auditors.......................................... F-188
Consolidated Balance Sheet at August 7, 1998............................ F-189
Consolidated Statement of Income for the Period from April 1, 1998 to
August 7, 1998......................................................... F-190
Consolidated Statement of Stockholders' Equity for the Period from April
1, 1998 to August 7, 1998.............................................. F-191
Consolidated Statement of Cash Flows from April 1, 1998 to August 7,
1998................................................................... F-192
Notes to Consolidated Financial Statements.............................. F-193
SLM Group, Inc. and Subsidiaries
Independent Auditors' Report............................................ F-199
Combined Balance Sheets at March 31, 1997 and 1998...................... F-200
Combined Statements of Income and Retained Earnings for the Years Ended
March 31, 1998 and 1997................................................ F-201
Combined Statements of Cash Flows for the Years Ended March 31, 1998 and
1997................................................................... F-202
Notes to Combined Financial Statements.................................. F-203
Wheatley Truck Parts, Inc.
Report of Independent Auditors.......................................... F-210
Balance Sheets at November 30, 1997 and July 31, 1998................... F-211
Statements of Income and Retained Earnings for the Years Ended November
30, 1996 and 1997 and the Period from December 1, 1997 to July 31,
1998................................................................... F-212
Statements of Cash Flows for the Years Ended November 30, 1996 and 1997
and the Period from December 1, 1997 to July 31, 1998.................. F-213
Notes to Financial Statements........................................... F-214
Truck City Parts, Inc.
Report of Independent Auditors.......................................... F-219
Balance Sheets at December 31, 1997 and July 31, 1998................... F-220
Statements of Income for the Year Ended December 31, 1997 and the Period
from January 1, 1998 to July 31, 1998.................................. F-221
Statements of Stockholders' Equity for the Year Ended December 31, 1997
and the Period from January 1, 1998 to July 31, 1998................... F-222
Statements of Cash Flows for the Year Ended December 31, 1997 and the
Period from January 1, 1998 to July 31, 1998........................... F-223
Notes to Financial Statements........................................... F-224
Automotive Sales Company, Inc.
Report of Independent Auditors.......................................... F-230
Balance Sheets at December 31, 1997 and July 31, 1998................... F-231
Statements of Income and Retained Earnings for the Years Ended December
31, 1996 and 1997 and the Period from January 1, 1998 to July 31,
1998................................................................... F-232
Statements of Cash Flows for the Years Ended December 31, 1996 and 1997
and the Period from January 1, 1998 to July 31, 1998 .................. F-233
Notes to Financial Statements........................................... F-234
CSW Enterprises, Inc.
Report of Independent Auditors.......................................... F-238
Consolidated Balance Sheets at December 31, 1997 and August 7, 1998..... F-239
Consolidated Statements of Income and Retained Earnings for the Years
Ended December 31, 1996 and 1997 and the Period from January 1, 1998 to
August 7, 1998......................................................... F-240
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996 and 1997 and the Period from January 1, 1998 to August 7, 1998.... F-241
Notes to Consolidated Financial Statements.............................. F-242
Holt Incorporated
Report of Independent Auditors.......................................... F-247
Consolidated Balance Sheet at August 7, 1998............................ F-248
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Consolidated Statement of Income and Retained Earnings for the Year Ended
August 7, 1998.......................................................... F-249
Consolidated Statement of Cash Flows for the Year Ended August 7, 1998... F-250
Notes to Consolidated Financial Statements............................... F-251
Sharkey Family Holdings, Inc. (d/b/a Universal Joint Sales Company)
Report of Independent Auditors........................................... F-256
Balance Sheets at December 31, 1997 and July 31, 1998.................... F-257
Statements of Income for the Year Ended December 31, 1997 and the Period
from January 1, 1998 to July 31, 1998................................... F-258
Statements of Stockholders' Equity for the Year Ended December 31, 1997
and the Period from January 1, 1998 to July 31, 1998.................... F-259
Statements of Cash Flows for the Year Ended December 31, 1997 and the
Period from January 1, 1998 to July 31, 1998 ........................... F-260
Notes to Financial Statements............................................ F-261
Fleetpride, Inc.
Report of Independent Auditors........................................... F-267
Balance Sheets at December 31, 1997 and July 31, 1998 ................... F-268
Statements of Operations for the Years Ended December 31, 1996 and 1997
and the Period from January 1, 1998 to July 31, 1998.................... F-269
Statements of Stockholders' Equity for the Years Ended December 31, 1996
and 1997 and the Period from January 1, 1998 to July 31, 1998........... F-270
Statements of Cash Flows for the Years Ended December 31, 1996 and 1997
and the Period from January 1, 1998 to July 31, 1998 ................... F-271
Notes to Financial Statements............................................ F-272
TBS Incorporated
Report of Independent Accountants........................................ F-279
Balance Sheets at December 31, 1997 and 1998............................. F-280
Statements of Income and Retained Deficit for the Years Ended December
31, 1996, 1997 and 1998................................................. F-281
Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and
1998.................................................................... F-282
Notes to Financial Statements............................................ F-283
New England Truck and Auto Service, Inc.
Report of Independent Accountants........................................ F-287
Balance Sheets at December 31, 1997 and 1998............................. F-288
Statements of Income and Retained Earnings for the Years Ended December
31, 1996, 1997 and 1998................................................. F-289
Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and
1998.................................................................... F-290
Notes to Financial Statements............................................ F-291
</TABLE>
We have not presented financial statements for Connecticut Driveshaft, Inc.
and Truckparts, Inc. for the period from date of the last fiscal audited period
for each company, September 30, 1998, to the date we acquired those companies.
We acquired Connecticut Driveshaft on November 4, 1998 and Truckparts on
December 19, 1998. Financial statements for those periods are not available.
Management feels it is impractical to prepare the financial statements for
those periods and that they are not meaningful to an assessment of this filing.
Additionally, management hereby represents there were no significant negative
events or trends during those periods.
We have not presented comparative unaudited financial statements for Vantage
Parts, Active Gear, L.L.C., California Equipment Company and California
Equipment Company of Sacramento, Superior Truck & Auto Supply, Inc., Wheels and
Brakes, Inc. and QDSP Holdings, Inc. for the period January 1, 1998 to the date
of acquisition or June 30, 1998. We also have not presented comparative
unaudited financial statements for Tisco, Inc. and Tisco of Redding, Inc. for
the period from October 1, 1997 to December 31, 1997. Management feels it is
impractical to prepare comparative financial statements for those periods and
that they are not meaningful to an assessment of this filing. Additionally,
management hereby represents there were no significant negative events or
trends during those periods.
F-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
City Truck Holdings, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of City Truck
Holdings, Inc. and Subsidiaries (the "Company") at December 31, 1997 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule listed in Item 21 of this Form S-4, presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These consolidated
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 31, 1999
Chicago, Illinois
F-6
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At December 31, 1997 and 1998
(amounts in thousands, except for share data)
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 191 $ 8,328
Trade accounts receivable, less allowance for doubtful
accounts of $13 and $1,149 in 1997 and 1998............. 5,146 18,099
Inventories, net......................................... 15,476 41,453
Prepaid expenses......................................... 254 55
Deferred tax asset....................................... -- 2,588
Current portion of patronage dividend receivable......... 1,751 2,108
Advances to shareholders and employees................... 271 6
-------- --------
Total current assets................................... 23,089 72,637
Property and equipment, net.............................. 9,030 13,613
Deferred financing fees.................................. -- 5,424
Goodwill and other intangibles, net...................... 99 55,496
Deferred tax asset....................................... -- 12,516
Other assets............................................. 985 4,238
-------- --------
Total assets........................................... $ 33,203 $163,924
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings.................................... $ 2,839 $ --
Line of credit........................................... 677 --
Note payable............................................. 150 161
Current portion of long-term debt........................ 261 --
Accounts payable......................................... 4,694 14,105
Accrued interest......................................... -- 5,217
Accrued liabilities relating to the acquisitions......... -- 2,279
Other accrued liabilities................................ 596 7,488
-------- --------
Total current liabilities.............................. 9,217 29,250
Long-term debt............................................. 3,213 100,000
Line of credit............................................. -- 18,200
Subordinated debt--related parties......................... 8,755 --
Commitments and contingencies
Stockholders' equity:
Series A Preferred Stock, liquidation value $100, par
value $.01 per share
Outstanding: none in 1997 and 435,750 shares in 1998.... -- 43,575
Common Stock, par value $1.00 and $.01 per share,
respectively
Outstanding: 938 shares in 1997 and 108,834 in 1998..... 2 1
Additional paid-in capital............................... 518 14,325
Treasury shares.......................................... (810) --
Retained earnings (deficit).............................. 12,308 (41,427)
-------- --------
Total stockholders' equity............................. 12,018 16,474
-------- --------
Total liabilities and stockholders' equity............. $ 33,203 $163,924
======== ========
</TABLE>
The accompanying notes are integral part of these consolidated financial
statements.
F-7
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Net sales........................................... $52,609 $57,837 $103,295
Cost of sales....................................... 33,283 36,611 65,855
------- ------- --------
Gross profit........................................ 19,326 21,226 37,440
Selling, general, and administrative expenses....... 14,390 16,143 31,030
------- ------- --------
Operating income................................ 4,936 5,083 6,410
Other income (expenses):
Interest expense.................................. (722) (841) (6,519)
Interest income................................... 94 65 624
Other income...................................... 40 58 86
------- ------- --------
Income before income taxes.......................... 4,348 4,365 601
Income tax expense (benefit)........................ 53 93 (687)
------- ------- --------
Net income and comprehensive income................. $ 4,295 $ 4,272 $ 1,288
======= ======= ========
Supplemental pro forma income data:
Pro forma income taxes............................ $ 1,731 $ 1,737 $ 239
------- ------- --------
Pro forma net income.............................. $ 2,617 $ 2,628 $ 362
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands, except for share data)
<TABLE>
<CAPTION>
HDA Parts City Truck
City Truck HDA Parts System, Inc. City Truck Holdings,
and Trailer System, Inc. HDA Parts Series B Holdings, Inc. Series A
Parts, Inc. Bridge System, Inc. Preferred Inc. Common Preferred City Truck
Common Stock Securities Common Stock Stock Stock Stock and Trailer
-------------- ------------- -------------- -------------- ------------- ------------- Parts, Inc.
Par Paid In Par Paid in Par Paid In Par Paid In Par Paid In Par Paid in Treasury
Value Capital Value Capital Value Capital Value Capital Value Capital Value Capital Stock
----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1996............ $ 2 $493 $-- $ -- $-- $ -- $-- $ -- $-- $ -- $-- $ -- $ (810)
Net Income and
Comprehensive
Income..........
Distribution to
Owners..........
---- ---- ---- ------ ---- ------- ---- ------- ---- ------- ---- ------- --------
Balance at
December 31,
1996............ 2 493 -- -- -- -- -- -- -- -- -- -- (810)
Net Income and
Comprehensive
Income..........
Capital
Contribution.... 25
Distributions to
Owners..........
---- ---- ---- ------ ---- ------- ---- ------- ---- ------- ---- ------- --------
Balance at
December 31,
1997............ 2 518 -- -- -- -- -- -- -- -- -- -- (810)
Distribution to
Owners..........
Stock Repurchase
of City Truck
and Trailer
Parts, Inc. .... (25,821)
Recapitalization.. (2) (518) 1 56 3 24,940 26,631
Recapitalization
Fees and Other..
Creation of
deferred tax
asset for
intangibles..... 14,217
Issuance of
Bridge
Securities...... -- 6,000
Repayment of
Bridge
Securities...... -- (6,000)
Issuance for of
HDA stock for
Acquisition of
Stone Heavy
Stone........... -- 7 -- 2,993
Issuance of HDA
stock........... -- 30 1 10,300
Formation and
Issuance of City
Truck Holdings,
Inc. stock...... (1) (14,310) (4) (38,233) 1 14,310 4 38,233
Issuance for
City Truck
Holdings, Inc.
stock for Truck
and Trailer,
Inc.
Acquisition..... -- 7 -- 2,993
Issuance for
City Truck
Holdings, Inc.
stock
Truckparts, Inc.
Acquisition..... -- 5 -- 1,995
Issuance of City
Truck Holdings,
Inc. stock...... -- 3 -- 350
Net Income and
Comprehensive
Income..........
---- ---- ---- ------ ---- ------- ---- ------- ---- ------- ---- ------- --------
Balance at
December 31,
1998............ $-- $-- $-- $ -- $-- $ -- $-- $ -- $ 1 $14,325 $ 4 $43,571 $ --
==== ==== ==== ====== ==== ======= ==== ======= ==== ======= ==== ======= ========
<CAPTION>
Retained Total
Earnings Shareholders'
(Deficit) Equity
--------- -------------
<S> <C> <C>
Balance at
January 1,
1996............ $ 7,896 $ 7,581
Net Income and
Comprehensive
Income.......... 4,295 4,295
Distribution to
Owners.......... (2,283) (2,283)
--------- -------------
Balance at
December 31,
1996............ 9,908 9,593
Net Income and
Comprehensive
Income.......... 4,272 4,272
Capital
Contribution.... -- 25
Distributions to
Owners.......... (1,872) (1,872)
--------- -------------
Balance at
December 31,
1997............ 12,308 12,018
Distribution to
Owners.......... (1,390) (1,390)
Stock Repurchase
of City Truck
and Trailer
Parts, Inc. .... (25,821)
Recapitalization.. (51,111) --
Recapitalization
Fees and Other.. (2,522) (2,522)
Creation of
deferred tax
asset for
intangibles..... 14,217
Issuance of
Bridge
Securities...... 6,000
Repayment of
Bridge
Securities...... (6,000)
Issuance for of
HDA stock for
Acquisition of
Stone Heavy
Stone........... 3,000
Issuance of HDA
stock........... 10,331
Formation and
Issuance of City
Truck Holdings,
Inc. stock...... --
Issuance for
City Truck
Holdings, Inc.
stock for Truck
and Trailer,
Inc.
Acquisition..... 3,000
Issuance for
City Truck
Holdings, Inc.
stock
Truckparts, Inc.
Acquisition..... 2,000
Issuance of City
Truck Holdings,
Inc. stock...... 353
Net Income and
Comprehensive
Income.......... 1,288 1,288
--------- -------------
Balance at
December 31,
1998............ $(41,427) $16,474
========= =============
</TABLE>
F-9
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net income and comprehensive income............. $ 4,295 $ 4,272 $ 1,288
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 877 1,187 1,752
Amortization.................................. 59 54 863
Gain on sale of property and equipment........ (40) (58) (86)
Changes in operating assets and liabilities
net of effect of acquisitions:
Accounts receivable......................... 278 (910) 40
Patronage dividend receivable............... (375) (387) (868)
Inventories................................. 770 (2,285) (1,366)
Prepaid expenses............................ (139) (89) 299
Advances to shareholders and employees...... (11) (259) 265
Other assets................................ (17) 28 (721)
Accounts payable............................ (349) (499) (1,634)
Accrued liabilities......................... 54 77 7,113
------- -------- --------
Net cash provided by operating activities.. 5,402 1,131 6,945
Investing activities:
Acquisition of property and equipment........... (4,301) (1,627) (1,668)
Proceeds from sale of property and equipment.... 54 98 116
Acquisitions, net of cash acquired.............. -- -- (74,527)
------- -------- --------
Net cash used by investing activities...... (4,247) (1,529) (76,079)
Financing activities:
Short term borrowings........................... (233) 2,412 (4,716)
Proceeds of short term revolving line of
credit......................................... 1,300 10,680 --
Payments of short term revolving line of
credit......................................... (1,600) (10,503) (677)
Proceeds on long term revolving line of credit
(net of fees).................................. -- -- 68,481
Payments on long term revolving line of credit.. -- -- (51,993)
Principal payment of long term debt............. (775) (455) (10,802)
Proceeds from issuance of long term debt (net of
fees).......................................... 2,361 150 95,931
Payments for stock repurchase................... -- -- (25,821)
Payments of recapitalization fees............... -- -- (2,522)
Proceeds from issuance of Preferred Stock....... -- -- 10,651
Proceeds from issuance of Common Stock.......... -- -- 33
Distribution to owners.......................... (2,283) (1,872) (1,294)
Contribution to stockholders' equity............ -- 25 --
------- -------- --------
Net cash used by financing activities...... (1,230) 437 77,271
------- -------- --------
Increase (decrease) in cash and cash
equivalents..................................... (75) 39 8,137
Cash and cash equivalents at beginning of year... 227 152 191
------- -------- --------
Cash and cash equivalents at end of year......... $ 152 $ 191 $ 8,328
======= ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest.......................... $ 620 $ 841 $ 1,214
Cash paid for income taxes...................... 42 77 273
Details of Acquisitions
Fair value of assets and liabilities acquired... $ -- $ -- $ 83,226
Less equity payments............................ -- -- 8,000
------- -------- --------
Cash paid....................................... -- -- 75,226
Less cash acquired.............................. -- -- 699
------- -------- --------
Net cash paid for acquisitions................ $ -- $ -- $ 74,527
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except for share data)
Note 1--Accounting Policies
Basis of Presentation
The consolidated financial statements are presented on the basis of
accounting principles that are generally accepted in the United States. All
professional standards that are effective as of December 31, 1998 have been
taken into consideration in preparing the financial statements. On June 1,
1998, BABF City Corp. purchased 80% of the outstanding capital stock of City
Truck and Trailer Parts, Inc. At December 31, 1998, this interest had reduced
to 53% as a result of various capital transactions.
Description of the Companies
As of May 29, 1998, City Truck and Trailer Parts of Tennessee, Inc., City
Truck and Trailer Parts of Alabama, Inc., City Truck and Trailer Parts of
Alabama LLC, and City Friction, Inc. were merged into City Truck and Trailer
Parts, Inc., an Alabama Corporation. All of these companies were under common
control. The stockholders of City Truck and Trailer Parts of Tennessee, Inc.,
City Truck and Trailer Parts of Alabama, Inc. and City Friction, Inc. converted
their shares into 498 shares of City Truck and Trailer Parts, Inc., such that
these three companies became wholly owned subsidiaries of City Truck and
Trailer Parts, Inc. The members of City Truck and Trailer Parts of Alabama LLC
contributed all of their equity interest to City Truck and Trailer Parts, Inc.
in exchange for 30 shares of common stock in City Truck and Trailer Parts, Inc.
and as a result became a wholly owned subsidiary. The merger has been accounted
for in a manner similar to a pooling of interests under Accounting Principles
Board Opinion No. 16. Accordingly, all prior period consolidated and combined
financial statements presented have been restated to include the combined
results of operations, financial position and cash flows of these companies as
though they had always been a part of City Truck and Trailer Parts, Inc. These
companies previously followed consistent accounting policies and there were no
adjustments to the book value of their assets and liabilities.
City Transportation, Inc., at net book value $94, a wholly owned subsidiary
of City Truck and Trailer Parts, Inc. was retained by the prior owners. This
has been accounted for as a dividend distribution at net book value on the
statement of stockholders' equity as a distribution to owners.
On June 19, 1998, City Truck and Trailer Parts, Inc. converted its 457 shares
of existing $1 par common stock into 57,227 shares of $0.01 par value common
stock ("HDA stock") and 249,427 shares of $0.01 par 6% preferred stock ("Series
B Preferred Stock").
On July 8, 1998, City Truck and Trailer Parts, Inc. was renamed HDA Parts
System Inc.
On September 30, 1998, City Truck Holdings, Inc., a Delaware corporation, was
formed by the share for share exchange of stock in HDA Parts System, Inc. for
stock in City Truck Holdings, Inc. City Truck Holdings, Inc. is a holding
company which has no operations or debt, except for its guarantee of HDA Parts
System, Inc.
On June 1, 1998, City Truck and Trailer Parts, Inc. issued $6,000 of
redeemable, non-convertible, non-voting preferred stock (the "Bridge
Securities"). In July, 1998, the Bridge Securities were redeemed.
F-11
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
At December 31, 1998, the consolidated financial statements for City Truck
Holdings division include its wholly owned subsidiary HDA Parts System, Inc.
The operations of HDA Parts System, Inc. now include its divisions: the City
Truck and Trailer Parts division, the Stone Heavy Duty division, the
Connecticut Driveshaft division and the Tampa Brake and Supply Co division. In
addition, HDA Parts System, Inc. also includes the operations of its wholly
owned subsidiaries: Truck and Trailer Parts, Inc. and Truckparts, Inc.
Nature of Operations
City Truck and Trailer Parts division is a Birmingham, Alabama based operator
of 17 branch locations, including 13 which provide machine shop services, in
Alabama, Georgia, Kentucky, Mississippi, and Tennessee. City Truck also
operates a remanufacturing business for brake shoes, drivelines, transmissions
and rear axles.
Stone Heavy Duty division based in Raleigh, North Carolina operates 18 branch
locations, including three which provide drive-in service facilities and 14
which provide machine shop services in North Carolina, South Carolina,
Tennessee, Virginia and West Virginia. Stone also operates a remanufacturing
business for brake shoes, drivelines, hydraulic systems, transmissions and rear
axles.
Truck and Trailer Parts, Inc. is an Atlanta-based heavy duty vehicle parts
distributor which operates seven branch locations in Florida, Georgia, North
Carolina, South Carolina and Texas.
Connecticut Drive Shaft division is a distributor of heavy duty vehicle parts
which repairs and rebuilds driveshafts, brake shoes, and brake drums. The
Company operates six locations in Connecticut and Massachusetts.
Truckparts, Inc. is a distributor of heavy duty vehicle parts which operates
four locations in Connecticut.
Tampa Brake and Supply Co. division operates five branches in Florida. Tampa
Brake and Supply Co., Inc. is a distributor of heavy duty vehicle parts and a
provider of brake related services for medium and heavy duty trucks.
Principles of Consolidation
The consolidated financial statements include the accounts of the company and
all subsidiary companies. All material intercompany transactions have been
eliminated in consolidation.
Segment Information
In June 1997, the FASB issued SFAS Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement, effective
for financial statements for fiscal years beginning after December 15, 1997,
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. Based on this criteria, the Company has
F-12
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
determined that it operates in one business segment, that being the
distribution of heavy duty vehicle parts in the United States. Thus, all
information required by SFAS No. 131 is included in the Company's financial
statements. No single customer represented more than 10% of the Company's total
sales in 1998, 1997 and 1996.
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 disclosure 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.
Cash and Cash Equivalents
Cash and cash equivalents consists of highly liquid instruments with original
maturities of three months or less from the date of purchase.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using either the first-in, first-out (FIFO) or average-costs basis.
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accumulated
depreciation and amortization. The Company provides for depreciation and
amortization of property and equipment using the straight-line method over the
following estimated useful lives:
<TABLE>
<CAPTION>
Classification Depreciation Lives
-------------- ------------------
<S> <C>
Buildings and building improvements........ 40 years or the life of the lease
Furniture and fixtures..................... 7 years
Vehicles................................... 6 years
Machinery and equipment.................... 3-8 years
</TABLE>
When assets are retired or otherwise disposed of, the assets and related
allowances for depreciation and amortization are eliminated from the accounts
and any resulting gain or loss is reflected in income.
Goodwill and Other Intangibles
Goodwill represents the excess of the purchase cost over the fair value of
net assets acquired in a business and is presented net of accumulated
amortization. Amortization of goodwill is recorded on a straight line basis
over 40 years. Other intangibles are amortized over the useful lives of these
assets which range from 5 to 9 years. When facts and circumstances indicate
impairment, the Company reviews goodwill and other intangibles to assess
recoverability from estimated future results of operations and cash flows.
F-13
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Long-Lived Assets
The Company evaluates its long-lived assets (including goodwill) on an
ongoing basis. Identifiable intangibles are reviewed for impairment wherever
events or changes in circumstances indicate that the carrying amount of the
related asset may be impaired. Whether assets to be held and used are impaired
is measured by a comparison of the carrying amount of the asset to future
undiscounted cash flows expected to be generated by the asset. If the asset is
determined to be impaired, the loss recognized is measured by the amount by
which the carrying value of the asset exceeds its fair value.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of a sale or within a specified period. Returned cores are either returned
to the vendor for credit or remanufactured.
Preopening Expense
Expenses associated with the opening of new branch locations are expensed in
the period such costs are incurred.
Income Taxes
Prior to the recapitalization on May 29, 1998, with the exception of
Truckparts, Inc. all of the companies included within these financial
statements, with the consent of its shareholders and members, had elected under
the Internal Revenue Code to be taxed as an S Corporation or a limited
liability company. In lieu of corporate income taxes, the stockholders of an S
corporation and the members of a limited liability company are taxed on their
proportionate share of the Company's taxable income. Therefore, no provision or
liability for federal income taxes had been included in the financial
statements for 1996 and 1997.
Concurrent with the recapitalization, the Company elected to be taxed as a C
corporation and is subject to income taxes on its profits in 1998. The Company
then set up a deferred tax asset of $15,104, increasing paid in capital by
$14,217 and recognized $887 net income. The Company applies an asset and
liability approach to accounting for income taxes. Deferred tax liabilities and
assets are recognized for the expected future tax consequences of temporary
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse. Supplemental pro-forma net income included
on the income statement is calculated by applying an income tax rate of 39.8%
to the historical income before taxes.
Deferred Financing Costs
In connection with establishing a revolving credit facility in June, 1998 and
the private placement of debt in July, 1998 the Company incurred various
financing costs which have been deferred on the Company's balance sheet and are
being amortized over the terms of the agreements.
F-14
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Stock Based Compensation
The Company has elected to follow the disclosure requirements of SFAS No.
123, "Accounting for Stock-Based Compensation" only and continues to account
for stock based compensation under the basis of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". During 1998, shares
of common stock and shares of preferred stock were issued to certain employees
who purchased the stock at the fair market value at the date of the issue. No
stock options have been authorized or issued during 1998.
Reclassifications
Certain amounts for the years ended December 31, 1996 and 1997 were
reclassified to conform to the current year presentation.
Note 2--Inventories
At December 31, inventories consist of the following:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Parts inventory.............................................. $14,290 $35,959
Cores........................................................ 1,186 5,494
------- -------
$15,476 $41,453
======= =======
</TABLE>
Note 3--Property and Equipment
Property and equipment consisted of the following as of December 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Land....................................................... $ -- $ 20
Buildings and building improvements........................ 4,668 7,732
Furniture and fixtures..................................... 713 920
Vehicles................................................... 3,796 3,862
Machinery and equipment.................................... 5,694 7,907
Construction in progress................................... 18 --
Less: accumulated depreciation............................. (5,859) (6,828)
------- -------
Net property and equipment................................. $ 9,030 $13,613
======= =======
</TABLE>
Note 4--Goodwill and Other Intangibles
At December 31, goodwill and other intangibles consists of:
<TABLE>
<CAPTION>
1997 1998
----- -------
<S> <C> <C>
Goodwill..................................................... $ 24 $54,061
Other intangibles............................................ 252 2,117
Less: accumulated amortization............................... (177) (682)
----- -------
Net goodwill and other intangibles........................... $ 99 $55,496
===== =======
</TABLE>
F-15
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Goodwill represents the cost in excess of the fair value of the net assets of
companies acquired in purchase transactions. Other intangibles assets have been
recognized for covenants not to compete and a specific beneficial customer
agreement arising from purchase transactions. The Company has charged $44, $44
and $505 in 1996, 1997 and 1998, respectively, for amortization of goodwill and
other intangibles.
Note 5--Borrowings
Revolving Line of Credit
The Company had a maximum availability of $5.0 million at December 31, 1997
on a line of credit from a bank with interest payable at the 90-day LIBOR
(London Interbank Offered Rate) plus 1.5%. The interest rate at December 31,
1997, was 7.2 %. The Company had pledged as collateral accounts receivable and
inventory. The Company's outstanding balance at December 31, 1997 was $677.
At December 30, 1998, the Company increased its maximum availability to $85.0
million on a revolving line of credit from a bank with interest based on the
LIBOR rate plus applicable margin, at 2.3% or, at the Company's option, several
other common indices. The interest rate at December 31, 1998, was 7.8%. The
Company has pledged all of the Company's assets as collateral. The Company's
outstanding balance at December 31, 1998 was $18.2 million. The revolving line
of credit expires in 2004. The weighted average interest rate on short-term
borrowings outstanding as of December 31, 1997 and 1998 are 7.2% and 7.8%,
respectively.
Senior Subordinated Notes
On July 31, 1998, the Company issued $100.0 million of 12% Senior
subordinated notes (the "Senior Subordinated Notes") due 2005 and received
approximately $96.0 million of proceeds after discounts, commissions and fees.
Interest on these notes is paid semi-annually on February 1, and August 1
commencing February 1, 1999. The Senior Subordinated Notes may be redeemed at
the option of the Company, in whole or in part, at any time on or after August
1, 2002 at the redemption prices set forth in the Indenture, plus accrued and
unpaid interest and liquidated damages, if any, to the date of redemption. In
addition, at any time prior to August 1, 2001, the Company may redeem up to 35%
of the aggregate principal amount of notes originally issued at a redemption
price equal to 112% of the aggregate principal amount thereof, plus accrued and
unpaid interest out of the proceeds of public equity offerings.
In connection with the issuance of the Senior Subordinated Notes, the Company
entered into a registration rights agreement that required it to file a
registration statement by December 28, 1998 and to use its best efforts to
cause the registration to become effective by March 13, 1999. The Company did
not comply with the obligations to file and have a registration statement
declared effective as set forth above. The Company is currently paying the
holders of the notes liquidated damages as set forth in the registration rights
agreements which are not material to the consolidated financial statements.
F-16
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Notes Payable
The Company had a note payable for $1,654 at December 31, 1997 to a finance
company. The interest rate was 5% until 1999, and at prime thereafter. Interest
was payable semi-annually until its maturity in 2005. This note was
collateralized by the Company's equipment. This note was repaid on May 29,
1998, concurrent with the recapitalization.
At December 31, 1997, the Company had certain subordinated notes payable to
stockholders. The interest rate at the applicable federal borrowing rate was
5.5% at December 31, 1997. These notes were collateralized by accounts
receivable and inventory. The principal balances due on these notes were $8,755
on December 31, 1997. This note was repaid on May 29, 1998, concurrent with the
recapitalization.
The Company had a note payable for $1,820 at December 31, 1997 with a bank.
The interest was at LIBOR plus 1.5% (7.18% at December 31, 1997). Interest was
due monthly until its maturity in 2002. This rate was collateralized by
accounts receivable, inventory and leasehold improvements. This note was repaid
on May 29, 1998, concurrent with the recapitalization.
The above debt agreements contain certain covenants that, among other things,
limit the ability of the Company to: (i) pay dividends or make certain other
restricted payments; (ii) incur additional Debt; (iii) encumber or sell assets;
(iv) enter into certain guarantees of Debt; (v) enter into transactions with
affiliates; and (vi) merge or consolidate with any other entity or transfer or
lease all or substantially all of their assets. In addition, under certain
circumstances, the Company will be required to offer to purchase the Senior
Subordinated Notes at a price of 100% of the principal amount thereof, plus
accrued and unpaid interest to the date of purchase with the proceeds of
certain assets sales.
Note 6--Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable, and
accrued expenses approximate fair value because of the short maturity of these
items.
The carrying amounts of the debt issued pursuant to the Company's revolving
line of credit agreement approximates fair value because the interest rates
change with market interest rates.
The 12% Senior Subordinated Notes are not actively traded however, the most
recent trade of the Senior Notes prior to December 31, 1998 was at a price of
$90. Using this price of $90, the fair value of these notes at December 31,
1998 would be $90.0 million.
There are no quoted market prices for the 6% Series A Preferred Stock. Each
share of the 6% Series A Preferred Stock has a liquidation value of $100 per
share, plus accrued and unpaid dividends. The total liquidation value of the
Series A Preferred Stock would be $44.9 million at December 31, 1998.
These fair value estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect these estimates.
F-17
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 7--Acquisitions
The Company has made the following acquisitions during 1998. They have all
been accounted for as a purchase, with the purchase price being allocated to
the fair value of the identified assets and liabilities of the Company with the
excess recorded as goodwill.
On June 19, 1998, City Truck and Trailer Parts, Inc. acquired substantially
all of the assets of Stone Heavy Duty, Inc. for approximately $24.5 million in
cash and $3.0 million in common and preferred stock. The Company has allocated
$11.9 million of the purchase price to the identified assets and liabilities.
The acquisition was accounted for as a purchase and the consolidated financial
statements for the Company include income since the date of acquisition.
On September 30, 1998, the Company acquired all of the capital stock of Truck
and Trailer Parts, Inc. for approximately $18.7 million in cash and $3.0
million in common and preferred stock. The Company has allocated $6.5 million
of the purchase price to the identified assets and liabilities. The acquisition
was accounted for as a purchase and the consolidated financial statements for
the Company include income since the date of acquisition.
On October 30, 1998, the Company acquired substantially all of the assets of
Tampa Brake and Supply Co., Inc. for approximately $9.9 million in cash. The
Company has allocated $4.1 million of the purchase price to the identified
assets and liabilities. The acquisition was accounted for as a purchase and the
consolidated financial statements for the Company include income since the date
of acquisition.
On November 4, 1998, the Company acquired substantially all of the assets of
Connecticut Drive Shaft for approximately $9.9 million in cash. The Company has
allocated $7.4 million of the purchase price to the identified assets and
liabilities. The acquisition was accounted for as a purchase and the
consolidated financial statements for the Company include income since the date
of acquisition.
On December 17, 1998, the Company acquired all of the capital stock of
Truckparts, Inc. for approximately $12.1 million in cash and $2.0 million in
common and preferred stock. The Company recorded approximately $10.8 million in
goodwill. The Company has allocated $3.3 million of the purchase price to the
identified assets and liabilities. The acquisition was accounted for as a
purchase and the consolidated financial statements for the Company include
income since the date of acquisition.
In connection with these acquisitions the Company has recorded aggregate
goodwill of $54.0 million and certain liabilities totaling $4.1 million in
connection with vendor consolidations, the closure of duplicate facilities, and
other activities that will be phased out during 1999.
F-18
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
The following unaudited pro forma financial information combines the results
of operations of City Truck and Trailer Parts, Inc., Stone Heavy Duty Inc.,
Truck and Trailer Parts Inc., Connecticut Drive Shaft Inc., Truckparts, Inc.
and Tampa Brake and Supply Co. Inc., as if the acquisitions had taken place on
January 1, 1997, after giving effect to certain adjustments including:
amortization of goodwill, interest expense and a normal charge for income taxes
assuming all of the companies had operated as "C" corporations for 1997 and
1998.
<TABLE>
<CAPTION>
1997 1998
------------------ -------------------
Actual Proforma Actual Proforma
------- ---------- -------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales......................... $57,837 $176,064 $103,295 $192,850
Net income and comprehensive
income (loss).................... 4,272 (2,779) 1,288 (1,614)
</TABLE>
In addition, the Company's subsidiaries, operated throughout the periods
presented as independent, privately owned entities, which influenced the
historical level of owners' compensation and other expenses. Accordingly, the
historical results of operations include (i) historical compensation expenses
in excess of the current compensation levels to the former owners of City Truck
Holdings, Inc. and its subsidiaries; and (ii) certain other private company
expenses.
Note 8--Common Stock
The following are the number of shares outstanding for each of the Company's
classes of common stock as of December 31:
<TABLE>
<CAPTION>
City Truck and HDA Parts City Truck
Trailer, Parts, Inc. Bridge Systems, Inc. Holdings, Inc.
Common Stock Securities Common Stock Common Stock
(Par value $1) (Par value $.01) (Par value $.01) (Par value $.01)
-------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance at January 1,
1996................... 938
---- ------- ------- -------
Balance at December 31,
1996................... 938
---- ------- ------- -------
Balance at December 31,
1997................... 938
Stock Repurchase........ (481)
Recapitalization........ (457) 57,227
Issuance of Bridge
Security............... 30,000
Repayment of Bridge
Security............... (30,000)
Issuance for acquisition
of Stone
Heavy Duty, Inc........ 6,867
Issuance to employees
and others............. 30,135
Formation of City Truck
Holdings, Inc.......... (94,229) 94,229
Issuance for acquisition
of Truck and
Trailer Parts, Inc..... 6,867
Issuance for acquisition
of Truckparts, Inc..... 4,578
Issuance to employees... 3,160
---- ------- ------- -------
Balance at December 31,
1998................... 0 0 0 108,834
==== ======= ======= =======
</TABLE>
The common stock of City Truck and Trailer Parts, Inc. had a par value of $1
per share, of which 2,000 were authorized, and 1,538 were issued at December
31, 1996 and 1997.
F-19
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
The common stock of City Truck Holdings, Inc. has a par value of $.01 per
share, of which 250,000 are authorized, and 108,834 are issued and outstanding
at December 31, 1998.
Note 9--Preferred Stock
The following are the number of shares issued for each of the Company's
classes of preferred stock as of December 31:
<TABLE>
<CAPTION>
HDA Parts City Truck
System, Inc. Holding, Inc.
Series B Series A
Preferred Stock Preferred Stock
(Par value $.01) (Par value $.01)
---------------- ----------------
<S> <C> <C>
Balance at January 1, 1996.................. 0 0
-------- -------
Balance at December 31, 1996................ 0 0
-------- -------
Balance at December 31, 1997................ 0 0
Recapitalization............................ 249,428
Issuance for acquisition of Stone Heavy
Duty, Inc.................................. 29,931
Issuance to employees and others............ 103,013
Formation of City Truck Holdings, Inc....... (382,372) 382,372
Issuance for acquisition of Truck and
Trailer Parts, Inc......................... 29,931
Issuance for acquisition of Truckparts,
Inc........................................ 19,954
Issuance to employees and others............ 3,493
-------- -------
Balance at December 31, 1998................ 0 435,750
======== =======
</TABLE>
The Series A Preferred Stock has a par value of $.01 per share, of which
850,000 are authorized, and 435,750 were issued at December 31, 1998. Each
share of Series A Preferred stock is entitled to one vote per share on all
matters. These shares earn dividends at a rate of 6.0% per annum, payable
quarterly on March 31, June 30, September 30 and December 31 of each year,
commencing June 30, 1998. Dividends not paid will cumulate whether or not
earned or declared with additional dividends thereon, compounded quarterly at
the rate of 6% per annum. At December 31, 1998, the Company had $1,320
cumulated dividends on these shares.
The Company has no right to redeem any shares of its Series A Preferred Stock
and the holders of the Company's Series A Preferred Stock do not have a right
to require the Company to redeem any of the shares.
Upon liquidation, holders of Series A Preferred Stock are entitled to $100
per share plus accrued and unpaid dividends.
F-20
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 10--HDA Parts System, Inc. Condensed Financial Information
HDA Parts System, Inc. is a wholly owned subsidiary of City Truck Holdings,
Inc. During September 1998, the shares of common stock of HDA Parts System,
Inc. were exchanged for shares of common stock in City Truck Holdings, Inc.
Guarantor subsidiaries were purchased by HDA Parts System, Inc. using, in
part, shares of common stock of City Truck Holdings, Inc. These holdings so
acquired were subsequently contributed to HDA Parts Systems, Inc. and recorded
as an increase to paid-in capital. As the only assets and operations of City
Truck Holdings, Inc. relate to its ownership of the shares of common and
preferred stock in HDA Parts System, Inc., the financial position and results
of operations of City Truck Holdings, Inc. are identical to HDA Parts System,
Inc.
HDA Parts System, Inc.'s payment obligations under the Senior Subordinated
Notes are fully and unconditionally guaranteed on a joint and several basis by
Truckparts, Inc. and Truck and Trailer Parts, Inc. (collectively Guarantor
Subsidiaries). The following consolidating condensed financial information is
listed below:
Consolidating Balance Sheet, At December 31, 1998
<TABLE>
<CAPTION>
HDA Parts
System, Guarantor Consolidated
Inc. Subsidiaries Eliminations Total
--------- ------------ ------------ ------------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents... $ 7,791 $ 537 $ -- $ 8,328
Accounts receivable, net.... 13,350 4,755 -- 18,105
Inventories................. 33,377 8,076 -- 41,453
Other current assets........ 4,556 195 -- 4,751
-------- ------- -------- --------
Total current assets...... 59,074 13,563 -- 72,637
Property, plant and equipment,
net.......................... 12,705 908 -- 13,613
Investments................... 34,497 -- $(34,497) --
Other long-term assets........ 21,773 405 -- 22,178
Goodwill and other
intangibles.................. 30,844 -- 24,652 55,496
-------- ------- -------- --------
Total assets.............. $158,893 $14,876 $ (9,845) $163,924
======== ======= ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY
<S> <C> <C> <C> <C>
Current liabilities:
Notes payable............... $ 12 $ 149 $ -- $ 161
Accounts payable............ 10,780 3,325 -- 14,105
Accrued liabilities......... 13,427 1,557 -- 14,984
-------- ------- -------- --------
Total current
liabilities.............. 24,219 5,031 -- 29,250
Revolving credit facility..... 18,200 -- -- 18,200
12% senior subordinated
notes........................ 100,000 -- -- 100,000
-------- ------- -------- --------
Total liabilities......... 142,419 5,031 -- 147,450
-------- ------- -------- --------
Total stockholders'
equity................... 16,474 9,845 (9,845) 16,474
-------- ------- -------- --------
Total liabilities and
stockholders' equity..... $158,893 $14,876 $ (9,845) $163,924
======== ======= ======== ========
</TABLE>
F-21
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Consolidated Income Statement, For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
HDA
Parts
System, Guarantor Consolidated
Inc. Subsidiaries Total
------- ------------ --- ------------
<S> <C> <C> <C> <C>
Net sales.............................. $95,089 $8,206 $103,295
Cost of sales.......................... 59,690 6,165 65,855
------- ------ --- --------
Gross profit........................... 35,399 2,041 37,440
Selling, general and administrative
expenses.............................. 29,498 1,532 31,030
------- ------ --- --------
Operating income....................... 5,901 509 6,410
Interest expense....................... 6,519 -- 6,519
Interest (income)...................... (624) -- (624)
Other (income) expense................. (87) 1 (86)
------- ------ --- --------
Income before income taxes............. 93 508 601
Income tax benefit..................... (687) -- (687)
------- ------ --- --------
Net income and comprehensive income.... $ 780 $ 508 $ 1,288
======= ====== === ========
</TABLE>
Consolidating Cash Flows, For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
HDA
Parts
System, Guarantor Consolidated
Inc. Subsidiaries Total
-------- ------------ --- ------------
<S> <C> <C> <C> <C>
Net income and comprehensive income... $ 779 $509 $ 1,288
Adjustments to reconcile net income to
net cash provided by operating
activities........................... 5,700 (43) 5,657
-------- ---- --- --------
Cash provided by operating
activities........................... 6,479 466 6,945
Cash (used) provided by investing
activities........................... (76,150) 71 (76,079)
Cash provided by financing
activities........................... 77,271 -- 77,271
-------- ---- --- --------
Net increase in cash.................. 7,600 537 8,137
Cash and cash equivalents at the
beginning of period.................. 191 -- 191
-------- ---- --- --------
Cash and cash equivalents at the end
of period............................ $ 7,791 $537 $ 8,328
======== ==== === ========
</TABLE>
Note 11--Employee Benefit Plans
The Company sponsors a number of defined contribution 401(k) plans covering
substantially all of its full-time employees. Employees may contribute up to
15% of their salary to the plan while the company may make discretionary
contributions to it. Total expenses under these plans were $111, $130 and $248
for the years ended December 31 1996, 1997 and 1998, respectively.
F-22
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 12--Operating Leases
The Company leases office and warehouse space from related parties and third
parties. Rental expense to related parties was $751, $750 and $1,136 in 1996,
1997 and 1998, respectively. The Company also leases office, warehouse space
and transportation equipment from unrelated parties. Rental expense to third
parties was $365, $381 and $494 in 1996, 1997 and 1998, respectively. Minimum
future rental payments under these leases for each of the next five years and
thereafter, and in the aggregate are as follows:
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
1999............................................................ $ 1,589
2000............................................................ 2,733
2001............................................................ 2,531
2002............................................................ 2,035
2003............................................................ 2,276
Thereafter...................................................... 7,981
--------
$ 19,145
========
</TABLE>
Note 13--Related Party Transactions
In addition to the transactions described in the above footnotes, the
following related parties existed at December 31, 1998.
The Company has entered into a Corporate Development and Administrative
Services Agreement with Brentwood Private Equity L.L.C., ("BPE"), an affiliate
of the Company's majority shareholder, Brentwood. Under the terms of the
agreement, BPE has agreed to assist the Company with corporate development
services for a predetermined percentage of certain transactions. In 1998, the
Company incurred $2,208 under the terms of this agreement in connection with
acquisitions made by the Company.
Note 14--Income Taxes
The income tax expense (benefit) for the years ended December 31, consists of
the following:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- -----
<S> <C> <C> <C>
Current tax expense (benefit)
Fed...................................................... $-- $-- $ --
State.................................................... 53 93 200
Deferred tax expense (benefit)
Fed...................................................... -- -- (751)
State.................................................... -- -- (136)
---- ---- -----
$ 53 $ 93 $(687)
==== ==== =====
</TABLE>
F-23
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
The provisions for income tax differs from the statutory tax expense computed
by applying the federal corporate tax rate of 34% for the years ended December
31 as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- -------
<S> <C> <C> <C>
Taxes computed at statutory rate........................ $ 53 $ 93 $ 204
State tax expense, net of federal benefit............... -- -- 42
Income earned while an S corporation.................... -- -- (1,017)
Goodwill amortization and other non-deductible
expenses............................................... -- -- 84
---- ---- -------
Total income tax expense (benefit)...................... $ 53 $ 93 $ (687)
==== ==== =======
</TABLE>
The approximate tax effects of the temporary differences between the tax
basis of assets and liabilities and their financial reporting amounts that give
rise to a significant portion of the deferred tax asset and deferred tax
liability are as follows, as of December 31:
<TABLE>
<CAPTION>
1997 1998
------ -------
Tax Tax
Effect Effect
------ -------
<S> <C> <C>
Inventories.................................................. $ -- $ 619
Accrued liabilities.......................................... -- 167
Recapitalization............................................. -- 14,217
Net operating loss carryforwards............................. -- 301
----- -------
Total deferred tax asset..................................... -- 15,304
Goodwill and other intangibles liabilities................... -- (200)
----- -------
Total deferred tax liability................................. -- --
----- -------
Net deferred tax asset....................................... $ -- $15,104
===== =======
</TABLE>
The acquisition of the Company's stock by BABF City Corp. resulted in a step-
up in the tax basis of the Company's net assets of $37,413. This amount will be
amortized over 15 years for tax purposes, resulting in a deferred tax asset of
$14,217. Pursuant to SFAS 109, the Company's contributed capital has been
increased by the amount of this tax benefit.
Net operating loss carryforwards for tax purposes of $2,109 at December 31,
1998, will begin expiring in 2018.
Note 15--Stock Plans
During 1998, the Company had two types of employee stock plans. Under the
terms of these plans, certain members of the Company's management purchased
10,150 shares of common stock at a value of $1.00 per share with forfeiture
restrictions expiring after eight years. As all common stock shares were
purchased by the Company's management at fair value and management paid for
these shares in cash, no compensation expense was recorded. The fair value was
based on the price paid by private investors and the value of the equity
instruments issued in purchase business combinations at the same time the
shares were purchased by management.
F-24
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 16--Subsequent Events
On January 11, 1999, the Company acquired all of the capital stock of
Associated Brake Supply, Inc. and its subsidiaries for approximately $57.1
million in cash and $5 million in common and preferred stock. The acquisition
will be accounted for as a purchase.
On January 12, 1999, the Company acquired all of the capital stock of Tisco,
Inc. and Tisco of Redding, Inc. for approximately $6.9 million in cash and $0.8
million in common and preferred stock. The acquisition will be accounted for as
a purchase.
In connection with the acquisitions the Company intends to record certain
liabilities totaling $1.4 million in connection with vendor consolidations, the
closure of duplicate facilities, and other activities that will be phased out
during 1999 and 2000.
On February 5, 1999 and January 25, 1999, the Company signed non-binding
letters of intent to acquire Vantage Parts and Active Gear, L.L.C.,
respectively. Vantage Parts is based in Portland, Oregon and Active Gear,
L.L.C. is based in Seattle, Washington. These companies have a total of nine
locations in California, Georgia, Illinois, Missouri, Nevada, Oregon and
Washington.
On January 11, 1999, the Company completed an additional issuance of common
and preferred stock. The Company issued 17,332 shares of common stock and
received proceeds of $2.9 million net of offering costs. The Company also
issued 75,538 shares of Series A Preferred Stock and received proceeds of $7.6
million. In addition, the Company obtained unconditional commitments for
further common and preferred shares, valued at $42.0 million, which will be
used to complete the acquisitions of Vantage Parts and Active Gear, L.L.C.
The Company anticipates filing a registration statement with the Securities
and Exchange Commission. The Company expects to exchange the $100 million 12%
Senior Subordinated Notes due 2005 for exchange notes of the same form and
terms as the private notes, except that the exchange notes will be registered
under the Securities Act, and, therefore, the exchange notes will not be
subject to certain transfer restrictions, registration rights and certain
provisions providing for an increase in the interest rate of the private notes
under certain circumstances relating to the registration of the exchange notes.
F-25
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
At June 30, 1999
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
June 30,
1999
--------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 7,771
Trade accounts receivable, less allowance for doubtful
accounts of $770................................................... 37,744
Inventories, net.................................................... 71,318
Prepaid expenses and other current assets........................... 4,294
Current portion of patronage dividend receivable.................... 2,906
--------
Total current assets.............................................. 124,033
Property and equipment, net........................................... 19,191
Other assets.......................................................... 16,424
Deferred financing fees............................................... 5,835
Goodwill and other intangibles........................................ 122,753
--------
Total assets...................................................... $288,236
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable....................................................... 150
Accounts payable.................................................... 24,515
Accrued liabilities................................................. 17,998
--------
Total current liabilities......................................... 42,663
Line of credit........................................................ 66,750
Long-term debt........................................................ 100,000
--------
Total liabilities................................................. 209,413
Stockholders' equity:
Series A Preferred Stock, liquidation value $100,
par value $.01 per share, Outstanding: 881,420 .................... 88,142
Common stock, par value $.01 per share outstanding:
212,373............................................................ 2
Additional paid-in capital.......................................... 29,848
Employee notes...................................................... (425)
Retained earnings (deficit)......................................... (38,744)
--------
Total stockholders' equity........................................ 78,823
--------
Total liabilities and stockholders' equity........................ $288,236
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED INCOME STATEMENT
For the Six Months Ended June 30, 1999
(amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
-----------------
June 30,
-----------------
1999 1998
-------- -------
<S> <C> <C>
Net Sales.................................................... $141,530 $33,755
Cost of sales................................................ 91,891 20,832
-------- -------
Gross profit................................................. 49,639 12,923
Selling, general and administrative expenses................. 37,075 9,308
-------- -------
Operating income......................................... 12,564 3,615
Interest expense............................................. 8,283 653
Interest (income) expense.................................. (217) (57)
Other (income) expense..................................... 41 (79)
-------- -------
Income before income taxes................................... 4,457 3,098
Income tax expense........................................... 1,774 292
-------- -------
Net income and comprehensive income.......................... $ 2,683 $ 2,806
======== =======
Supplemental pro forma income data:
Pro forma income taxes..................................... $1,774 $ 1,233
-------- -------
Pro forma net income....................................... $ 2,683 $ 1,865
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1999
(amounts in thousands)
<TABLE>
<CAPTION>
City Truck
Holdings, City Truck
City Truck Inc. Series A and
Holdings, Inc. Preferred Trailer
Common Stock Stock Parts,
---------------- ------------- Inc. Related Total
Par Paid In Par Paid In Treasury Earnings Shareholders'
Value Capital Value Capital Stock (Deficit) Equity
------ --------- ----- ------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998 .................. $ 1 $ 14,325 $ 4 $43,571 $-- $(41,427) $16,474
Issuance for City Truck
Holdings, Inc. stock
for Associated Brake
Supply, Inc.
Acquisition ........... -- 11 1 4,988 5,000
Issuance for City Truck
Holdings, Inc. stock
for Tisco, Inc.
Acquisition ........... -- 2 -- 748 750
Issuance of City Truck
Holdings, Inc. stock .. 1 15,145 4 37,891 53,041
Issuance for City Truck
Holdings, Inc. stock
for Active Gear, L.L.C.
Acquisition............ -- 281 -- 719 1,000
Issuance for City Truck
Holdings, Inc. stock
for Superior Truck &
Auto Supply Acquisition
....................... -- 84 -- 216 300
Promissory notes issued
by employees as
consideration for stock
issued ................ -- (425) -- -- (425)
Net Income and
Comprehensive Income... -- -- -- -- 2,683 2,683
----- --------- --- ------- ---- -------- -------
Balance at June 30, 1998
....................... $ 2 $ 29,423 $ 9 $88,133 $-- $(38,744) $78,823
===== ========= === ======= ==== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
CITY TRUCK HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
For the Six Months Ended June 30, 1999 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------
1999 1998
--------- --------
<S> <C> <C>
Operating activities:
Net income and comprehensive income..................... $ 2,683 $ 2,806
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 3,169 647
(Gain) loss on sale of property and equipment......... 30 (35)
Changes in operating assets and liabilities:
Accounts receivable.................................. (5,155) (1,275)
Patronage dividend receivable........................ (2,881) 354
Inventories.......................................... (3,682) (606)
Prepaid expenses..................................... (236) 42
Advances to shareholders and employees............... (115) --
Other assets......................................... 3,899 (1,390)
Accounts payable..................................... 1,903 940
Accrued liabilities.................................. 2,415 (196)
--------- --------
Net cash provided by investing activities........... 2,030 1,287
Investing activities:
Acquisition of property and equipment................... (2,533) (442)
Proceeds from sale of property and equipment............ 78 35
Acquisitions, net of cash acquired...................... (100,640) (23,108)
--------- --------
Net cash used by investing activities............... (103,095) (23,515)
Financing activities:
Short term borrowings................................... -- (3,516)
Net issuance (repurchase) of Bridge Securities.......... -- 6,000
Proceeds from issuance of Preferred Stock............... 49,669 9,503
Proceeds from issuance of Common Stock.................. 2,947 22
Payment on short term revolving line of credit.......... (36,200) (677)
Proceeds from line of credit (net of fees).............. 84,092 50,852
Principal payments of long-term debt.................... -- (10,798)
Payments for stock repurchase........................... -- (25,821)
Payments of recapitalization fees....................... -- (942)
Distribution to owners.................................. -- (1,294)
--------- --------
Net cash provided by financing activities........... 100,508 23,329
--------- --------
Increase (decrease) in cash and cash equivalents.......... (557) 1,101
Cash and cash equivalents at beginning of period.......... 8.328 191
--------- --------
Cash and cash equivalents at end of period................ $ 7,771 $ 1,292
========= ========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................. $ 8,310 $ 48
Cash paid for income taxes.............................. 82 29
Details of Acquisitions
Fair value of assets and liabilities acquired........... $ 108,022 $ 26,108
Less equity payments.................................... 7,050 3,000
--------- --------
Cash paid............................................... 100,972 23,108
Less cash acquired...................................... 332 --
--------- --------
Net cash paid for acquisitions...................... $ 100,640 $ 23,108
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
ITEM 1. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Accounting Policies
Basis of Presentation
The consolidated financial information presented herein is unaudited. The
interim financial statements and notes thereto do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the financial statements and notes thereto included in the
latest annual consolidated financial statements of City Truck Holdings, Inc.,
and its Subsidiaries (the "Company").
In the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of the
results for interim periods. The current period's results of operations are not
necessarily indicative of results that ultimately may be achieved for the year.
Description of Companies and Operations
City Truck Holdings, Inc., a Delaware corporation, was formed by the share
for share exchange of stock in HDA Parts System, Inc. for stock in City Truck
Holdings, Inc. City Truck Holdings, Inc. is a holding company which has no
operations or debt, except for its guarantee of HDA Parts System, Inc., its
wholly owned subsidiary. The historical financial statements for City Truck
Holdings, Inc. are identical to HDA Parts System, Inc. except with respect to
the accounts which comprise the stockholders' equity section for the balance
sheet.
The company operates as an independent distributor of heavy duty vehicle
parts and provider of related services. Operations include the six companies
acquired in 1998 and the operations of Associated Truck Parts, Inc., Tisco,
Inc., Active Gear, L.L.C., Vantage Parts and Superior Truck & Auto Supply, Inc.
since their dates of acquisition.
Segment Information
The Company has determined that it operates in one business segment, that
being the distribution of heavy duty vehicle parts in the United States. No
single customer represented more than 10% of the Company's total sales for the
first six months of 1999 and 1998.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using either the first-in, first-out (FIFO) or average-costs basis.
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation and
amortization. The Company provides for depreciation and amortization of
property and equipment using the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
Classification Depreciation Lives
-------------- ------------------
<S> <C>
Buildings and building improvements 40 years or the life of the lease
Furniture and fixtures 7 years
Vehicles 6 years
Machinery and equipment 3-8 years
</TABLE>
F-30
<PAGE>
When assets are retired or otherwise disposed of, the assets and related
allowances for depreciation and amortization are eliminated from the accounts
and any resulting gain or loss is reflected in income.
Supplemental Pro Forma Net Income
In 1998, the Company had elected "S" corporation status for federal and state
income tax reporting purposes. Supplemental pro forma net income included on
the income statement is calculated by applying an income tax rate of 39.8% to
the 1998 income before taxes assuming the Company was a "C" corporation.
Note 2--Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30,
1999
--------
<S> <C>
Purchased parts........................................................ $66,373
Core inventory......................................................... 4,945
-------
$71,318
=======
</TABLE>
Note 3--Capital Stock
On January 11, 1999, the Company completed an additional issuance of common
and preferred stock. The Company issued 17,332 shares of common stock and
received proceeds of $2.9 million net of offering costs. The Company also
issued 75,538 shares of Series A Preferred Stock and received proceeds of $7.6
million. On April 6, 1999, the Company issued 69,320 shares of common stock and
received proceeds of $11.8 million. The Company also issued 302,154 shares of
Series A Preferred Stock and received proceeds of $30.2 million.
On March 5, 1999, John J. Greisch, President and Chief Executive Officer,
John P. Miller, Chief Financial Officer and Secretary and Anthony W. Cavalle,
Vice President Operations, purchased 2,000, 250 and 250 shares of the Company's
common stock, respectively, subject to vesting over four years. Mr. Greisch,
Mr. Miller and Mr. Cavalle paid cash of $3,400, $425 and $425, respectively,
and signed promissory notes of $336,000, $42,075 and $42,075, respectively. The
promissory notes mature on March 4, 2004 and bear interest at 5.3%.
Note 4--Commitments and Contingencies
Risk Management and Insurance
The primary risks to the business are bodily injury, property damage and
injured workers' compensation. The Company maintains liability insurance for
bodily injury and third-party property damage and workers' compensation
coverage that is standard for the industry and considers the coverage
sufficient to insure against these risks. The Company self-insures certain
risks and obtains stop loss and catastrophic coverage from insurance companies.
Legal Proceedings
In the ordinary course of business the Company is involved in legal
proceedings relating to claims arising out of its operations. The Company does
not believe that there are any pending or threatened legal proceedings that are
reasonably likely to have a material adverse effect on it.
F-31
<PAGE>
Note 5--Acquisitions
The Company has made the following acquisitions during the six months ended
June 30, 1999. They have all been accounted for as purchases, with the purchase
price being allocated to the fair value of the identified assets and
liabilities of the Company with the excess recorded as goodwill. Amortization
of goodwill is recorded on a straight line basis over 40 years.
On January 11, 1999, the Company acquired all of the capital stock of
Associated Brake Supply, Inc. and its subsidiaries for approximately $57.1
million in cash and $5 million in common and preferred stock. The Company has
allocated $17.4 million of the purchase price to the identified assets and
liabilities. The acquisition was accounted for as a purchase and the
consolidated financial statements for the Company include income since the date
of acquisition.
On January 12, 1999, the Company acquired all of the capital stock of Tisco,
Inc. and Tisco of Redding, Inc. for approximately $6.9 million in cash and $0.8
million in common and preferred stock. The Company has allocated $2.9 million
of the purchase price to the identified assets and liabilities. The acquisition
was accounted for as a purchase and the consolidated financial statements for
the Company include income since the date of acquisition.
On April 20, 1999, the Company acquired all of the equity interest of Active
Gear, L.L.C. for approximately $7.6 million in cash and $1.0 million in common
and preferred stock. The company has allocated $3.8 million of the purchase
price to the indentified assets and liabilities. The acquisition was accounted
for as a purchase and the consolidated financial statements for the Company
include income since the date of acquisition.
On May 28, 1999, the Company acquired substantially all of the assets of
Vantage Parts, a division of CNF Transportation Inc., for approximately $28.5
million in cash. The Company has allocated $15.7 million of the purchase price
to the identified assets and liabilities. The acquisition was accounted for as
a purchase and the consolidated financial statements for the Company include
income since the date of acquisition.
On June 7, 1999, the Company acquired all of the capital stock of Superior
Truck & Auto Supply, Inc. for approximately $1.7 million in cash and $0.3
million in common and preferred stock. The Company has allocated $1.7 million
of the purchase price to the identified assets and liabilities. The acquisition
was accounted for as a purchase and the consolidated financial statements for
the Company include income since the date of acquisition.
In connection with the acquisitions, the Company recorded certain liabilities
totaling $1.6 million relating to vendor consolidations, the closure of
duplicate facilities and other activities that will be phased out during 1999
and 2000.
F-32
<PAGE>
The following unaudited pro forma financial information combines the results
of operations of City Truck and Trailer Parts, Inc., Stone Heavy Duty, Inc.,
Truck & Trailer Parts, Inc., Tampa Brake and Supply Co., Inc., Connecticut
Driveshaft, Inc., Truckparts, Inc., Tisco, Inc., Associated Brake Supply, Inc.,
Active Gear, L.L.C., Vantage Parts and Superior Truck & Auto Supply, Inc. as if
the acquisitions had taken place on January 1, 1998 after giving effect to
certain adjustments including: amortization of goodwill, interest expense and a
normal charge for income taxes assuming all of the companies operated as "C"
corporations for 1998 and 1999.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------------- ------------------------------------
1999 1998 1999 1998
----------------- ----------------- ------------------ -----------------
Actual Pro forma Actual Pro forma Actual Pro forma Actual Pro forma
------- --------- ------- --------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... $75,562 $86,063 $18,001 $83,257 $141,530 $170,313 $33,755 $163,220
Net income and
comprehensive income... 1,832 2,091 839 539 2,683 3,294 2,806 1,082
</TABLE>
Note 6--Senior Subordinated Notes
On April 8, 1999, the Company filed a registration statement with the
Securities and Exchange Commission. The Company expects to exchange the $100.0
million 12% Senior Subordinated Notes due 2005 for exchange notes of the same
form and terms as the private notes, except that the exchange notes will be
registered under the Securities Act, and, therefore, the exchange notes will
not be subject to certain transfer restrictions, registration rights and
certain provisions providing for an increase in the interest rate of the
private notes under certain circumstances relating to the registration of the
exchange notes.
Note 7--Subsequent Events
On August 9, 1999, the Company acquired certain assets of Certified Power,
Inc. for approximately $6.8 million in cash. The Company has allocated $2.5
million of the purchase price to the identified assets and liabilities. The
acquisition was accounted for as a purchase and the consolidated financial
statements for the Company include income since the date of acquisition.
On August 26, 1999, the Company acquired substantially all of the assets of
California Equipment Company and California Equipment Company of Sacramento for
approximately $2.2 million in cash. The Company has allocated $2.2 million of
the purchase price to the identified assets and liabilities. The acquisition
was accounted for as a purchase and the consolidated financial statements for
the Company include income since the date of acquisition.
On September 30, 1999, the Company merged with QDSP Holdings, Inc. (QDSP) by
exchanging all of the outstanding common and preferred stock of QDSP for common
and preferred stock of the Company valued at approximately $72.5 million. QDSP
operates 63 locations in 19 states and had pro forma revenues of approximately
$182 million in 1998. In conjunction with the merger, the Company received
proceeds of $40.0 million in cash from the issuance of the Company's common and
preferred stock to existing shareholders of the Company and QDSP.
On October 8, 1999, the Company acquired all of the capital stock of Wheels
and Brakes, Inc. for approximately $13.0 million in cash. The Company has
allocated $6.2 million of the purchase price to the identified assets and
liabilities. The acquisition was accounted for as a purchase and the
consolidated financial statements for the Company include income since the date
of acquisition.
F-33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Shareholders of
Stone Heavy Duty, Inc.
In our opinion, the accompanying combined balance sheets and related combined
statements of income and retained earnings and cash flows present fairly, in
all material respects, the combined financial position of Stone Heavy Duty,
Inc. and Ashland Automotive Parts, Inc. (together "the Company") at December
31, 1996 and 1997 and at June 19, 1998 and the results of their operations and
their cash flows for the two years ended December 31, 1997 and for the period
from January 1, 1998 through June 19, 1998 in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 12, 1999
Chicago, Illinois
F-34
<PAGE>
STONE HEAVY DUTY, INC.
COMBINED BALANCE SHEETS
At December 31, 1996 and 1997 and June 19, 1998
(amounts in thousands, except for share data)
<TABLE>
<CAPTION>
December 31, June 19,
--------------- --------
1996 1997 1998
------- ------- --------
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 2,697 $ 168 $ 239
Accounts receivable, less allowance for doubtful
accounts of $40...................................... 3,701 4,094 5,144
Inventory............................................. 7,857 9,374 10,305
Prepaid expenses and other current assets............. 212 112 168
Current portion of rebate receivable.................. 605 756 493
------- ------- -------
Total current assets.............................. 15,072 14,504 16,349
Property and equipment, net........................... 1,650 1,764 1,960
Long-term portion of receivables and other assets..... 1,081 1,337 1,828
------- ------- -------
Total assets...................................... $17,803 $17,605 $20,137
======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Bank overdraft........................................ $ 1,887 $ 402 $ 1,877
Current portion of long-term debt..................... 140 43 --
Accounts payable...................................... 3,083 3,514 3,886
Accrued liabilities................................... 2,114 1,947 1,509
------- ------- -------
Total current liabilities......................... 7,224 5,906 7,272
Long-term debt.......................................... -- 12 --
------- ------- -------
Total liabilities................................. 7,224 5,918 7,272
------- ------- -------
Stockholders' equity:
Common stock of Stone Heavy Duty, Inc. $1 par value:
Voting, 200,000 shares authorized, 24,999 shares
issued and outstanding............................... 25 25 25
Non-voting, 100,000 shares authorized, 15,000 shares
issued and outstanding............................... 15 15 15
Common stock of Ashland Automotive Parts, Inc., $1 par
value; 265,300 voting shares authorized, 265,300
shares issued and outstanding........................ 265 265 265
Additional paid-in capital.......................... 1,633 1,633 1,633
Retained earnings................................... 8,641 9,749 10,927
------- ------- -------
Total stockholders' equity........................ 10,579 11,687 12,865
------- ------- -------
Total liabilities and stockholders' equity........ $17,803 $17,605 $20,137
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
STONE HEAVY DUTY, INC.
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Years Ended December 31, 1996 and 1997 and for the
Period From January 1, 1998 Through June 19, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Years ended
December 31, Period ended
---------------- June 19,
1996 1997 1998
------- ------- ------------
<S> <C> <C> <C>
Net sales....................................... $41,386 $44,019 $24,819
Cost of sales................................... 25,477 27,126 15,657
------- ------- -------
Gross profit................................ 15,909 16,893 9,162
Selling, general and administrative expenses.... 13,195 14,087 7,195
------- ------- -------
Operating income............................ 2,714 2,806 1,967
Other income.................................... 16 35 6
------- ------- -------
Net income and comprehensive income......... 2,730 2,841 1,973
Retained earnings, beginning of year............ 7,032 8,641 9,749
Dividends paid.................................. (1,121) (1,733) (795)
------- ------- -------
Retained earnings, end of year.................. $ 8,641 $ 9,749 $10,927
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
STONE HEAVY DUTY, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1997 and
For the Period from January 1, 1998 through June 19, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Years ended
December 31, Period ended
---------------- June 19,
1996 1997 1998
------- ------- ------------
<S> <C> <C> <C>
Operating activities
Net income and comprehensive income........... $ 2,730 $ 2,841 $ 1,973
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation................................ 485 541 305
Gain on sale of equipment, net.............. (16) (35) (6)
Changes in operating assets and liabilities:
Accounts receivable, net.................. 42 (393) (1,050)
Inventory................................. 679 (1,517) (931)
Prepaid expenses and other current
assets................................... 35 100 (56)
Other assets.............................. 363 (407) (229)
Accounts payable.......................... (778) 431 372
Accrued liabilities....................... (379) (167) (437)
------- ------- -------
Net cash provided by (used in) operating
activities............................. 3,161 1,394 (59)
------- ------- -------
Investing activities
Acquisitions of property and equipment........ (782) (655) (501)
Proceeds from sale of property and equipment.. 16 35 6
Acquisitions, net of cash acquired............ (265) -- --
------- ------- -------
Net cash used in investing activities... (1,031) (620) (495)
Financing activities
Bank overdraft................................ 103 (1,485) 1,475
Principal payments of long-term debt.......... 3 (85) (55)
Payment of dividends.......................... (1,121) (1,733) (795)
------- ------- -------
Net cash provided (used) in financing
activities............................. (1,015) (3,303) 625
------- ------- -------
Net increase (decrease) in cash......... 1,115 (2,529) 71
Cash at beginning of year..................... 1,582 2,697 168
------- ------- -------
Cash at end of year........................... $ 2,697 168 $ 239
======= ======= =======
Supplemental disclosure of cash flow information
Cash paid during year for interest............ $ 17 $ 41 $ 38
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(amounts in thousands, except for share data)
Note 1--Basis of Presentation
Stone Heavy Duty, Inc. ("Stone") and Ashland Automotive Parts, Inc.
("Ashland") collectively (the "Company") are under common ownership and engage
in the sale of heavy duty truck parts and servicing of medium and heavy duty
vehicles. Effective January 13, 1997, the Company acquired the net assets of
A&B Truck Parts, Inc., a Virginia corporation with its principal business in
Roanoke, Virginia for $352 plus $12 in noncompete agreements. The acquisition
was accounted for under the purchase method of accounting. The combined results
of operations of the Company include the results of A&B Truck Parts, Inc. from
the date of acquisition.
The Company is headquartered in Raleigh, North Carolina and operates
seventeen branches in North Carolina, South Carolina, Virginia, West Virginia
and Tennessee.
Note 2--Summary of Significant Accounting Policies
Principles of Combination
The combined financial statements include all the accounts of the Company as
of June 19, 1998. All intercompany balances have been eliminated in
combination.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments with original
maturities of three months or less from the date of purchase.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined
using the average cost method.
Property and Equipment
Property and equipment is carried at cost less accumulated amortization and
depreciation. Depreciation is calculated using primarily accelerated methods
and is charged to operations over the estimated useful lives of the assets
which range from five to fifteen years as follows:
<TABLE>
<CAPTION>
Method Useful Life
------ -----------
<S> <C> <C>
Furniture and fixtures.................... MACRS Double Declining 5-7 years
Equipment................................. MACRS Double Declining 5-7 years
Computer Equipment........................ MACRS Double Declining 5 years
Automobiles and trucks.................... MACRS Double Declining 5 years
Leasehold improvements.................... Straight-line 15 years
</TABLE>
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts,
F-38
<PAGE>
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
may be exchanged for credit at the time of a sale or within a specified period.
Returned cores are either returned to the vendor for credit or remanufactured.
Income Taxes
The Company has elected "S" corporation status for federal and state income
tax reporting purposes. Accordingly, all federal and state income tax
liabilities pass through to the stockholders. Ashland has elected to be treated
as a "C" corporation which is subject to income taxes. Ashland has adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", ("SFAS 109") however, the impact does not have a material impact on the
combined financial statements.
Uses 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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Note 3--Inventory
The inventory balances at December 31, 1996 and 1997 and for the period
ending June 19, 1998 consist of the following:
<TABLE>
<CAPTION>
December 31, June 19,
------------- --------
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Parts................................................. $6,101 $7,177 $ 8,057
Cores................................................. 1,756 2,197 2,248
------ ------ -------
Total inventory..................................... $7,857 $9,374 $10,305
====== ====== =======
</TABLE>
Note 4--Other Assets
Other assets at December 31, 1996 and 1997 and June 19, 1998 consist of the
following:
<TABLE>
<CAPTION>
December 31, June 19,
------------- --------
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Rebate receivable..................................... $ 438 $ 574 $1,268
Patronage dividend receivable......................... 1,179 1,450 984
Other................................................. 69 69 69
------ ------ ------
1,686 2,093 2,321
Less: current portion of dividend receivable.......... 605 756 493
------ ------ ------
$1,081 $1,337 $1,828
====== ====== ======
</TABLE>
F-39
<PAGE>
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
The Company is a member of a buying cooperative that makes annual patronage
dividends to its members. These annual patronage dividends are paid by the
buying cooperative in two equal installments, one sixty days and the other
three years after year end.
Note 5--Property and Equipment
Property and equipment are recorded at cost. At December 31, 1996 and 1997
and June 19, 1998 property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, June 19,
------------- --------
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Furniture and fixtures................................ $ 226 $ 297 $ 372
Equipment............................................. 3,003 3,133 3,206
Computer equipment.................................... 612 704 772
Automobiles and trucks................................ 1,563 1,791 2,014
Leasehold improvements................................ 700 834 896
------ ------ ------
6,104 6,759 7,260
Less accumulated depreciation......................... 4,454 4,995 5,300
------ ------ ------
$1,650 $1,764 $1,960
====== ====== ======
</TABLE>
Note 6--Line of Credit
At June 19, 1998 the Company had an unsecured line of credit with a
commercial bank in the amount of $1,500. Amounts borrowed under the line of
credit are payable on demand and the interest rate was at the bank's 90-day
adjusted certificate of deposit rate plus 1%. The line of credit expires May
31, 1998. At June 19, 1998, there were no amounts outstanding under this line
of credit.
Note 7--Long-term Debt
Long-term debt at December 31, 1996 and 1997 and June 19, 1998 consists of
the following:
<TABLE>
<CAPTION>
December 31, June 19,
-------------- --------
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
8.25% unsecured notes payable to former
shareholders of A&B Truck Parts, Inc., payable in
quarterly installments of $12 through January
1999.............................................. $ -- $ 55 $ --
7.71% unsecured note payable to an irrevocable
trust in annual installments of $14, including
interest, through January 1996, with a final
payment of $140 in January 1997................... 140 -- --
------ ----- ----
140 55
Less--current portion.............................. (140) (43) --
------ ----- ----
$ -- $ 12 $ --
====== ===== ====
</TABLE>
F-40
<PAGE>
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 8--Accrued Liabilities
At December 31, 1996 and 1997 and June 19, 1998 accrued expenses include the
following:
<TABLE>
<CAPTION>
December 31, June 19,
------------- --------
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Accrued payroll...................................... $1,496 $1,199 $ 996
Accrued benefits..................................... 435 498 336
Other accruals....................................... 183 250 177
------ ------ ------
Total accrued expenses............................. $2,114 $1,947 $1,509
====== ====== ======
</TABLE>
Note 9--Retirement Savings Plan
The Company has a defined contribution retirement savings plan which covers
substantially all full-time employees. Eligible employees may contribute up to
6% of their annual compensation. The Company may match all or a portion of
these contributions. Retirement plan expenses were $233, $272 and $62 for the
years ending December 31, 1996 and 1997 and for the period ending June 19,
1998, respectively.
Note 10--Related Party Transactions
The Company leases seven branch facilities under noncancelable operating
leases with directors, officers and stockholders that extend through 2001.
Certain of these leases have renewal options. The following is a schedule of
future minimum lease payments under these leases as of June 19, 1998:
<TABLE>
<S> <C>
1998.................................................................. $ 300
1999.................................................................. 565
2000.................................................................. 360
2001.................................................................. 282
2002 and thereafter................................................... 19
------
Total............................................................... $1,526
======
</TABLE>
Aggregate payments of approximately $539, $1,057 and $923 were made to these
directors, officers and stockholders under these leases during 1996 and 1997
and for the period ending June 19, 1998, respectively.
The Company owns a minority interest in the stock of HD America, Inc., a
cooperative. For the years ended December 31, 1996 and 1997 and for the period
ending June 19, 1998, the Company purchased approximately 56%, 56% and 60% of
its goods through this cooperative and accrued a patronage dividend of $1,179,
$1,450 and $985, which was allocated between cost of sales and inventory.
F-41
<PAGE>
STONE HEAVY DUTY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Note 11--Operating Leases
The Company leases certain branch facilities under operating leases with
third-parties with terms extending through 2001. Certain of these leases have
renewal options. At June 19, 1998, the future minimum rental payments required
under these noncancelable leases are as follows:
<TABLE>
<S> <C>
1998.................................................................... $187
1999.................................................................... 260
2000.................................................................... 70
2001.................................................................... 25
2002 and thereafter..................................................... --
----
Total................................................................. $542
====
</TABLE>
Rent expense for third-party operating leases was approximately $313, $359
and $180 during the years ended 1996 and 1997 and for the period ending June
19, 1998, respectively.
Note 12--Commitments and Contingencies
The Company has a Stock Purchase Agreement (the "Agreement") whereby, upon a
shareholder's death or disability, the Company can be required to purchase the
individual's outstanding shares of stock. The purchase price stipulated in the
Agreement is the fair market value of the stock, as determined by the
stockholders. The Company is also the beneficiary under certain shareholder
life insurance policies from which the proceeds may be used to purchase the
shares.
The Company is self-insured for employee medical and dental benefits, general
liability, automobile and workers' compensation claims with various levels of
stop-loss coverage. The Company has two unsecured letters of credit with a bank
related to medical and dental insurance.
The Company also has two unsecured letters of credit with banks of
approximately $448 as required by the buying cooperative. These letters expire
on December 31, 1998.
Note 13--Subsequent Event
On June 19, 1998, the Company was acquired by HDA Parts System, Inc. The
financial statements have not been effected by this transaction.
F-42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Associated Brake Supply, Inc. and Affiliate
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Associated
Brake Supply, Inc. and Affiliates (the "Company") at December 26, 1997 and
December 31, 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit include examining, on a test basis evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
March 12, 1999
Chicago, Illinois
F-43
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
At December 26, 1997 and December 31, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1997 1998
------- -------
ASSETS
------
<S> <C> <C>
Current assets:
Trade accounts receivable, net of allowance for doubtful
accounts of $65 and $83 .................................... $ 5,403 $ 5,904
Inventories ................................................. 10,945 10,695
Prepaid expenses and other current assets ................... 782 673
Receivables from related parties ............................ 1,936 2,200
------- -------
Total current assets ...................................... 19,066 19,472
Property and equipment, net of accumulated depreciation........ 2,435 2,461
Other assets:
Notes receivables from related parties, net of current
portion..................................................... 1,409 1,727
Deposits and other........................................... 164 108
------- -------
Total assets............................................... $23,074 $23,768
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Bank overdraft............................................... $ 2,192 $ 3,060
Line of credit............................................... 4,000 4,000
Indebtedness to related parties.............................. 909 1,140
Current portion of long-term debt............................ 538 576
Accounts payable............................................. 3,471 3,270
Accrued expenses............................................. 771 1,128
Other current liabilities.................................... 362 239
------- -------
Total current liabilities.................................. 12,243 13,413
Long-term debt:
Long-term debt to related parties, net of current portion.... 3,179 3,145
Long-term debt, net of current portion....................... 1,557 1,308
Capital lease obligations, net of current portion............ 8 --
Deferred credit, net........................................... 2,151 2,084
Stockholders' equity:
Common stock................................................. 6 6
Additional paid-in capital................................... 10 10
Retained earnings............................................ 3,920 3,802
------- -------
Total stockholders' equity................................. 3,936 3,818
------- -------
Total liabilities and stockholders' equity................. $23,074 $23,768
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 27, 1996, December 26, 1997
and December 31, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Sales, net........................................... $44,320 $50,508 $57,039
Cost of sales........................................ 27,212 31,539 35,960
------- ------- -------
Gross profit..................................... 17,108 18,969 21,079
------- ------- -------
Operating expenses:
Selling expenses................................... 9,636 10,670 11,668
General and administrative......................... 3,743 3,984 4,561
Depreciation and amortization...................... 477 375 738
------- ------- -------
13,856 15,029 16,967
------- ------- -------
Income from operations............................... 3,252 3,940 4,112
------- ------- -------
Other income (expense):
Interest expense, net.............................. (475) (552) (781)
Other income (expense), net........................ 13 (1) (12)
------- ------- -------
(462) (553) (793)
------- ------- -------
Income before income taxes....................... 2,790 3,387 3,319
Income tax (benefit) expense......................... (30) 199 2
------- ------- -------
Net income and comprehensive income.............. $ 2,820 $ 3,188 $ 3,317
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 27, 1996, December 26, 1997
and December 31, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings Total
------ ---------- -------- -------
<S> <C> <C> <C> <C>
Balance, December 29, 1995.................. $ 6 $10 $ 2,343 $ 2,359
Distributions............................. (1,706) (1,706)
Net income and comprehensive income....... 2,820 2,820
--- --- ------- -------
Balance, December 27, 1996.................. 6 10 3,457 3,473
Distributions............................. (2,725) (2,725)
Net income and comprehensive income....... 3,188 3,188
--- --- ------- -------
Balance, December 26, 1997.................. 6 10 3,920 3,936
Distributions............................. (3,435) (3,435)
Net income and comprehensive income....... 3,317 3,317
--- --- ------- -------
Balance, December 31, 1998.................. $ 6 $10 $ 3,802 $ 3,818
=== === ======= =======
</TABLE>
F-46
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 27, 1996,
December 26, 1997 and December 31, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income and comprehensive income............. $ 2,820 $ 3,188 $ 3,317
Adjustments to reconcile net income to net cash
provided (used) in operating activities:
Depreciation and amortization.................. 477 375 738
Provision for bad debts........................ 67 103 82
Loss (gain) on disposition of assets, net...... (13) 1 12
Deferred income taxes.......................... (137) 150 --
(Increase) decrease in:
Trade accounts receivable...................... 198 (874) (583)
Inventories.................................... 1,012 (1,861) 250
Prepaid expenses and other..................... (10) (61)
Notes receivable from related parties.......... 169 (552) (372)
Employee advances.............................. 27 (40) (60)
Advances to stockholders, net.................. 142 (2,030) 85
Prepaid income taxes........................... 91 -- --
Income tax refund receivable................... -- (202) 170
Deposits and other............................. (78) (36) 56
Increase (decrease) in:
Accounts payable............................... (834) 1,363 (201)
Accrued expenses............................... 631 86 356
Sales tax payable.............................. (26) 51 2
Income taxes payable........................... 10 (668) --
------- -------- --------
Net cash provided (used) in operating
activities.................................. 4,546 (1,007) 3,852
------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment............. (422) (412) (588)
Proceeds from sales of property and equipment... 35 31 30
------- -------- --------
Net cash used in investing activities........ (387) (381) (558)
------- -------- --------
Cash flows from financing activities:
Increase (decrease) in bank overdraft........... (253) 623 868
Principal payments on notes payable............. (1,200) (465) (630)
Principal payments on capital lease
obligations.................................... -- (29) (32)
Principal payments on subordinated notes
payable........................................ -- (16) (65)
Proceeds from line of credit.................... 2,150 17,050 16,919
Principal payments on line of credit............ (3,150) (13,050) (16,919)
Distributions to stockholders................... (1,706) (2,725) (3,435)
------- -------- --------
Net cash provided (used) in financing
activities.................................. (4,159) 1,388 (3,294)
------- -------- --------
Net change in cash................................ 0 0 0
Cash, beginning of year........................... 0 0 0
------- -------- --------
Cash, end of year................................. $ 0 $ 0 $ 0
======= ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest....................................... $ 789 $ 537 $ 475
Taxes.......................................... 32 818 99
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
Notes to Consolidated Financial Statements
(amounts in thousands, except for share data)
Note 1. Basis of Presentation and Description of Business
Basis of Presentation
For each of three fiscal years ending December 31, 1998, the consolidated
financial statements of Associated Brake Supply, Inc. and Affiliates (the
"Company") include the results of Associated Brake Supply, Inc., Freeway Truck
Parts of Washington, Inc., Onyx Distribution, Inc., Associated Truck Parts of
Nevada, Inc., Associated Auto Parts, Inc., Freeway Truck Parts, Inc. and ATPM,
Inc. All of these companies operate in the same business and have been under
common control and ownership for the three year period ended December 31, 1998.
Note 2. Summary of Significant Accounting Policies
Method of Consolidation
The consolidation of these companies has been accounted for in a manner
similar to a pooling of interest under Accounting Principles Board Opinion No.
16. Accordingly, all prior period financial statements have been restated to
include the combined results of operations, financial position and cash flows
of these companies, as if they had always been a part of the Company. All
material intercompany transactions have been eliminated.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of sale or within a specified period. Returned cores are either returned
to the vendor for credit or remanufactured.
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 disclosure 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.
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents. These amounts are stated at cost
which approximates fair value.
Inventories
Inventories consist of truck parts and are valued at the lower of cost or
market. Cost is determined on the average cost method.
F-48
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using straight-line and accelerated
methods over the estimated useful lives of the assets. Maintenance and repairs
are charged to operations.
Methods of depreciation and useful lives for property and equipment are as
follows:
<TABLE>
<CAPTION>
Useful
Method life
---------------- ---------
<S> <C> <C>
Buildings and improvements Straight line 39 years
Computer equipment Double declining 5 years
Machinery, equipment, furniture & fixtures Double declining 5-7 years
Vehicles Double declining 5 years
</TABLE>
Note 3. Inventories
Inventories consist of the following at:
<TABLE>
<CAPTION>
December 26, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Parts.............................................. $ 9,404 $ 9,094
Cores.............................................. 1,541 1,601
-------- --------
$ 10,945 $ 10,695
======== ========
</TABLE>
Note 4. Property and equipment
Property and equipment consist of the following at:
<TABLE>
<CAPTION>
December 26, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Land............................................... $ 382 $ 382
Buildings and improvements......................... 1,205 1,482
Computer equipment................................. 337 525
Machinery, equipment, furniture & fixtures......... 2,387 2,399
Vehicles........................................... 305 260
------ ------
4,616 5,048
Less accumulated depreciation...................... 2,181 2,587
------ ------
$2,435 $2,461
====== ======
</TABLE>
Note 5. Borrowings
Line of Credit
At December 31, 1998, the Company had a line of credit with a bank which
expires on December 31, 1999, and is collaterized by the Company's accounts
receivable, inventory and property and equipment. The maximum borrowing on the
line of credit is the sum of 80% of eligible accounts receivable and the lessor
of $5,400 or 35% of the value of eligible inventory, up to 60% of
F-49
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
the amount of outstanding principal under the line. At December 26, 1997, the
maximum borrowing on the line of credit was $6,000. The line of credit provides
for cash advances, letters of credit up to $750, and financing overdrafts up to
$500. The interest rate on the line of credit was at the bank's reference rate
or an optional interest rate. At December 31, 1998 and December 26, 1997,
optional interest rates consist of (1) the short-term fixed rate plus 0.0% and
2.0%, respectively, (2) the offshore rate and the Cayman rate plus 2.0%,
respectively, or (3) the LIBOR rate 2.0%. The Company has the option to finance
a portion or all of the amount outstanding on the line of credit at the
different interest options above. At December 31, 1998, the Company has $4,000
outstanding on the line of credit at the bank's reference rate. At December 31,
1998, the bank's reference rate is 7.75%. The line of credit is guaranteed by
the Company's subsidiaries and subordinated to the Company's indebtedness to a
trust.
Notes Payable
At December 31, 1998, the Company has a note payable with a bank in which the
principal and interest are due August 2003, and is collaterized by accounts
receivable, inventory and property and equipment. The maximum borrowing limit
on this note is $1,250. The interest rate was at the bank's reference rate or
an optional interest rate. Interest is payable in monthly principal
installments of $4. At December 31, 1998, the outstanding note payable was
$388.
At December 31, 1998, the Company has a note payable with a bank in which the
principal and interest are due December 2001, and is collaterized by accounts
receivable, inventory and property and equipment. The interest rate was at the
bank's reference rate or an optional interest rate. Interest is payable in
monthly installments of $40. At December 31, 1998, the Company had $1,405
outstanding at the bank's prime rate and $0 at the LIBOR rate.
At December 31, 1998, the Company has a note payable with a bank in which the
principal and the interest are due January 2001, and is collaterized by
accounts receivable, inventory and property and equipment. The note bears
interest at 1.5% over the bank's reference rate. Interest is payable in monthly
principal installments of $4, plus interest. At December 31, 1998, the
outstanding note payable was $91.
<TABLE>
<CAPTION>
December 27, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Line of credit..................................... $ 4,000 $ 4,000
Note payable, bank................................. 30 388
Note payable, bank................................. 1,927 1,405
Note payable, bank................................. 138 91
Less current portion............................... (4,538) (4,576)
------- -------
Long-term debt..................................... $ 1,557 $ 1,308
======= =======
</TABLE>
F-50
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
The aggregate maturities of debt as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Year ending in December,
<S> <C>
1999............................................................ $4,576
2000............................................................ --
2001............................................................ 968
2002............................................................ --
2003............................................................ 340
Thereafter...................................................... --
------
$5,884
======
</TABLE>
The above debt agreements contain certain covenants that, among other things,
limit the ability of the Company and the Guarantors to: (i) make any loans to
or make any payments on loans to any of the Company's stockholders or ex-
stockholders, if any default occurs; (ii) incur additional Debt; (iii) extend
loans to subsidiaries or affiliates in excess of $750,000 outstanding at any
one time; (iv) enter into certain guarantees of Debt; (v) extend loans or
extensions of credit to any individual or entity; (vi) make investments in, or
give capital contributions to any individual or entity; (vii) encumber or sell
assets; (viii) merge or consolidate with any other entity or transfer or lease
all or substantially all of their assets.
Note 6. Operating leases and capital lease obligations and commitments
The Company leased equipment under agreements which are accounted for under
capital leases. The net balance of property and equipment at December 31, 1997
and 1998 under the capital leases is as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Gross amount under capital leases.............................. $89 $89
Less accumulated depreciation.................................. 39 53
--- ---
$50 $36
=== ===
</TABLE>
The Company leases automobiles and its facilities under non-cancelable
operating leases expiring through May 2001, that have an initial or remaining
lease terms in excess of one year as of December 31, 1998. The facilities'
leases have varying renewal options and a varying escalation clause based on
minimal increases and/or the consumer price index. Total rental expense for the
operating leases is approximately $707, $812, and $917 for the years ended
December 27, 1996, December 26, 1997 and December 31, 1998.
F-51
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
Future minimum lease payments for non-cancelable operating leases and capital
lease obligations are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases leases
Year ending in December 31, ------- ---------
<S> <C> <C>
1999..................................................... $ 9 $1,421
2000..................................................... -- 1,327
2001..................................................... -- 928
2002..................................................... -- 698
2003..................................................... -- 547
Thereafter............................................... -- 2,201
--- ------
Total minimum lease payments............................. 9 $7,122
--- ======
Less amounts representing interest ........................ 1
---
Present value of minimum lease payments.................... $ 8
===
</TABLE>
Note 7. Commitments and Contingencies
At December 27, 1997 and December 31, 1998 the Company has open stand-by
letters of credit totaling $490 and $448, respectively.
Note 8. Deferred credit
The deferred credit consists of the excess of net assets acquired over the
cost of Freeway Truck Parts, Inc., by ATPM, Inc. in 1988. The Company merged
with ATPM, Inc. under a method similar to a pooling of interest as of October
1, 1997 and carried over assets and liabilities at historical cost. The
deferred credit is being amortized over 40 years, and for each of the three
years ended December 31, 1998, amortization income recognized was $70.
Note 9. Retirement plan
The Company has a 401(k) profit sharing plan covering all eligible employees.
Under the provisions of the agreement, employees are allowed to make deferrals
to which the Company can elect to match at a rate of 25% of employee
contributions, up to a maximum of 15% of the participants' compensation. For
each of the three years ended December 31, 1998, the Company expensed
contributions of approximately $95, $98 and $108, respectively.
Note 10. Related party transactions
The Company leases facilities under operating leases from an ex-stockholder
and employee of the Company. Rent expense on the leases totaled $31 and for
each of the three years ended December 31, 1998.
At December 26, 1997 and December 31, 1998, the Company has advanced the
stockholders $1,206 and $1,417, respectively. The advances are non-interest
bearing and are due on demand. At December 31, 1998, the Company has an amount
due to the shareholders in the amount of $295.
F-52
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
At December 26, 1997 and December 31, 1998, the Company had long-term notes
receivable from certain stockholders of $2,139 and $2,510, respectively. The
current portion of these notes was $730 and $782 on December 26, 1997 and
December 31, 1998, respectively.
For the years ended December 26, 1997 and December 31, 1998, the Company has
a note payable to a trust, subordinated to the line of credit and each of the
note payables, bank. The subordinated note payable originally in the amount of
$3,260, is collaterized by the Company's Stock. The subordinated note payable
is due in monthly principal and interest installments of $24 maturing October
2019, bearing interest at 7.0% per annum. At December 26, 1997 and December 31,
1998, $3,244 and $3,178, respectively, is outstanding on the note payable, of
which $65 and $70, respectively, is current.
At December 26, 1997 and December 31, 1998, the Company had long-term notes
payable to certain stockholders of $844 and $812, respectively. The current
portion of these notes was $844 and $775 on December 26, 1997 and December 31,
1998, respectively.
Note 11. Income taxes
The Company and its affiliate have elected to be taxed under the provision of
Subchapter S of the Internal Revenue Code. Under the provisions, the Company
and affiliate does not pay federal corporate income taxes, but are subject to a
1.5% California corporate income tax. The stockholders of the Company and
affiliate report the Company's taxable income on their individual income tax
return.
Prior to the merger, ATPM, Inc. elected to be taxed as a "C" corporation and
after the merger elected to be taxed under the provision of Subchapter S of the
Internal Revenue Code. Under the provisions, the Company does not pay Federal
corporate income taxes, but is subject to a 1.5% California corporate income
tax.
For each of three years ended December 31, 1998, income tax expenses is
composed of the following:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------- ------------------- -------------------
Federal State Total Federal State Total Federal State Total
------- ----- ----- ------- ----- ----- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current income tax
expense (benefit)...... $ 25 $ 82 $107 $ 4 $45 $ 49 $-- $ 2 $ 2
Change in deferred tax
assets for ATPM, Inc... (99) (38) (137) 116 21 137 -- -- --
Provision for deferred
taxes.................. -- 13 13 -- -- --
---- ---- ---- ---- --- ---- --- --- ---
Total income tax expense
(benefit):............. $(74) $ 44 $(30) $120 $79 $199 $-- $ 2 $ 2
==== ==== ==== ==== === ==== === === ===
</TABLE>
Deferred income taxes are provided for the net tax effects of temporary
differences in the reporting of income for financial statement and income tax
reporting purposes. They arise principally from timing differences related to
the reporting of patronage dividends, and the capitalization of various
expenses required for taxation under Section 263A of the Internal Revenue Code.
F-53
<PAGE>
ASSOCIATED BRAKE SUPPLY, INC., AND AFFILIATE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands, except for share data)
At December 27, 1996, December 26, 1997 and December 31, 1998, the Company
has recorded deferred tax assets of approximately $543, $16 and $14, reflecting
the future deductibility of certain amounts not currently deductible.
Note 12. Common stock
Common stock of the Company includes the following: 10,000 shares of no par
Common Stock for Associated Brake Supply, Inc. in which 400 shares were issued
and authorized (valued at $4) on December 27, 1997 and December 31, 1998, and
10,000 shares of no par Common Stock for Onyx Distribution, Inc. in which 200
shares were issued and authorized (valued at $2) on December 27, 1997 and
December 31, 1998.
Note 13. Subsequent events
On January 11, 1999, HDA Parts System, Inc. purchased the Company. This was
accounted for as a purchase. The financial statements have not been effected by
this transaction.
F-54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors of HDA Parts System, Inc.
In our opinion, the accompanying combined balance sheets and related combined
statements of income and cash flows present fairly, in all material respects,
the combined financial position of Vantage Parts (the "Company") at December
31, 1997 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PriceWaterhouseCoopers LLP
April 27, 1999
Chicago, Illinois
F-55
<PAGE>
VANTAGE PARTS
COMBINED BALANCE SHEETS
At December 31, 1997 and 1998
(amount in thousands)
<TABLE>
<CAPTION>
1997 1998
------- -------
ASSETS
------
<S> <C> <C>
Current assets:
Cash......................................................... $ 275 $ 407
Accounts receivable, less allowance for doubtful accounts of
$444 and $371, respectively ................................ 5,632 5,157
Inventories.................................................. 7,594 9,848
Deferred income taxes........................................ 437 463
Other current assets......................................... 56 320
------- -------
Total current assets....................................... 13,994 16,195
------- -------
Property and equipment, net.................................. 1,335 1,304
Other assets................................................. 79 93
Goodwill, net of accumulated amortization of $11 and $105,
respectively................................................ 1,406 1,312
------- -------
Total assets............................................... $16,814 $18,904
======= =======
<CAPTION>
LIABILITIES AND EQUITY
----------------------
<S> <C> <C>
Current liabilities:
Accounts payable............................................. $ 4,058 $ 3,015
Accrued liabilities.......................................... 535 470
------- -------
Total current liabilities.................................. 4,593 3,485
------- -------
Deferred taxes................................................. 17 50
Commitments and contingencies
Company equity:
Investments by and advances from CNF......................... 12,204 15,369
------- -------
Total liabilities and company equity....................... $16,814 $18,904
======= =======
</TABLE>
See Notes to Financial Statements.
F-56
<PAGE>
VANTAGE PARTS
COMBINED STATEMENTS OF INCOME
For the three years ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Trade sales.......................................... $27,032 $30,250 $45,156
Affiliate sales...................................... 6,239 7,622 9,856
------- ------- -------
Total sales...................................... 33,271 37,872 55,012
------- ------- -------
Operating expenses:
Cost of sales...................................... 26,506 30,552 43,820
General and administrative......................... 5,400 6,017 8,260
Depreciation....................................... 193 228 271
------- ------- -------
Total operating expenses......................... 32,099 36,797 52,351
------- ------- -------
Income from operations............................... 1,172 1,075 2,661
Interest (expense)................................... (435) (374) (585)
Other income......................................... 3 -- 11
------- ------- -------
Income before income taxes........................... 740 701 2,087
------- ------- -------
Income taxes......................................... 297 282 825
------- ------- -------
Net income and comprehensive income.................. $ 443 $ 419 $ 1,262
======= ======= =======
</TABLE>
See Notes to Financial Statements.
F-57
<PAGE>
VANTAGE PARTS
COMBINED STATEMENTS OF CASH FLOWS
For the Three Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income and comprehensive income................. $ 443 $ 419 $ 1,262
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization...................... 219 251 377
Gain on disposal of property and equipment........ (3) -- (11)
Change in operating assets and liabilities net of
effect of acquisitions:
Accounts receivable, net......................... (664) (1,094) 475
Other current assets............................. 28 17 (264)
Inventory........................................ 233 (916) (2,254)
Provision for deferred taxes..................... (132) (92) 7
Other assets..................................... 5 (50) (26)
Accounts payable................................. 1,442 2,373 (1,043)
Accrued and other liabilities.................... 94 (1,963) (65)
------ ------- -------
Net cash provided by (used in) operating
activities..................................... 1,665 (1,055) (1,542)
------ ------- -------
Cash flows from investing activities:
Purchases of property and equipment................. (386) (295) (240)
Proceeds from sale of property and equipment........ 5 -- 11
Acquisition of parts distributorships............... -- (1,652) --
------ ------- -------
Net cash used in investing activities........... (381) (1,947) (229)
------ ------- -------
Cash flows from financing activities:
(Decrease) increase in investment and advances from
CNF................................................ (1,450) 3,124 1,903
------ ------- -------
Net cash (used for) provided by financing
activities..................................... (1,450) 3,124 1,903
------ ------- -------
Net change in cash.................................. (166) 122 132
------ ------- -------
Cash at beginning of year........................... 319 153 275
------ ------- -------
Cash at end of year.................................. $ 153 $ 275 407
====== ======= =======
Supplemental information to cash flows:
Detail of acquisitions:
Fair value of assets................................ $ -- $ 2,425 $ --
Fair value of liabilities........................... -- 2,190 --
------ ------- -------
Net fair value of assets and liabilities............. -- 235 --
Goodwill recorded................................... -- 1,417 --
------ ------- -------
Net cash paid for acquisitions....................... $ -- $ 1,652 $ --
====== ======= =======
</TABLE>
See Notes to Financial Statements.
F-58
<PAGE>
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS
(amounts in thousands)
1. Summary of Significant Accounting Policies:
Description of Business
Vantage Parts ("the Company") is owned by CNF Transportation Inc. ("CNF").
The Company is comprised of the assets of CNF's wholly owned Vantage Parts
division and Vantage Parts of Illinois, a wholly owned subsidiary of CNF.
The Company is engaged in the wholesale, retail, and refurbishing of truck
parts throughout the United States. The company is headquartered in Portland,
Oregon and has stores throughout the United States.
The accompanying financial statements have been prepared at the direction of
HDA Parts System, Inc. and reflect the "carve-out" financial position, results
of operations and cash flows of the Company for the periods presented. Certain
corporate general and administrative expenses of CNF have been allocated to the
Company (Note 4) on various bases which, in the opinion of management, are
reasonable. However, such expenses are not necessarily indicative of, and it is
not practicable for management to estimate, the nature and level of expenses
which might have been incurred had the Company operated as a stand-alone
Company.
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.
Cash and cash equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
Inventories
Inventories consist of truck parts and cores, and are valued at the lower of
cost or market. Cost is determined on the average cost method.
Property and equipment
Purchase of property and equipment, including additions and improvements and
expenditures for repairs and maintenance that significantly add to productivity
or extend the economic lives of the assets, are capitalized at cost and
depreciated on a straight-line basis over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Building and improvements........................................ 10-25 years
Equipment and furniture.......................................... 3-10 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
F-59
<PAGE>
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Goodwill
Goodwill consists of the acquisition cost in excess of the fair value of the
net assets acquired in 1996 (see Note 3). Goodwill is amortized on a straight-
line basis over fifteen years.
Income Taxes
The Company is included as part of the consolidated U.S. federal income tax
return of CNF. The provision for income taxes is computed on the taxable income
of the Company on a stand-alone basis.
The Company accounts for income taxes based on the asset and liability
approach in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". The asset and liability approach requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the financial reporting and
the tax bases of assets and liabilities.
The liability for the current portion of the tax provision is transferred to
the Investments by and advances from CNF account at the end of each year. The
net asset or liability for deferred income taxes has been included in the
accompanying balance sheets.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of purchase or within a specified period. Returned cores are either
returned to the vendor for credit or remanufactured.
2. Property and Equipment:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Land.......................................................... $ 145 $ 145
Building and improvements..................................... 781 803
Equipment and furniture....................................... 1,612 1,779
Construction-in-progress...................................... -- 13
------ ------
2,538 2,740
Less accumulated depreciation................................. 1,203 1,436
------ ------
Property and equipment, net................................... $1,335 $1,304
====== ======
</TABLE>
F-60
<PAGE>
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
3. Acquisition:
On November 17, 1997, the Company, through CNF, acquired the net assets of
Commercial Trailer Parts and Supply Company ("CTPS"), and Consolidated Spring
and Alignment Company ("CSA"), parts distributorships with a facility in
Willowbrook, Illinois, for cash of $1,652. This acquisition was accounted for
in accordance with the purchase method of accounting, and accordingly the
results of operations of CTPS and CSA were included in the accompanying
statements of income from the acquisition date. The net assets of CTPS and CSA
were included in the accompanying balance sheets at values representing the
allocation of the purchase cost to such net assets. At acquisition, the fair
value of tangible assets and liabilities totaled $2,425 and $2,190,
respectively. The excess of purchase cost over the valuation of the net
tangible assets of $1,417 was recorded as goodwill and is being amortized on a
straight-line basis over 15 years.
The following summary presents unaudited pro forma financial information as
if the CTPS and CSA were acquired at the beginning of each year, rather than
from the date of acquisition, after giving effect to certain adjustments
including amortization of goodwill, interest expense and a normal charge for
income taxes. The pro forma financial summary is for information purposes only,
based on historical information, and does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of future
results of operations of the combined.
<TABLE>
<CAPTION>
1996 1997
------------------- -------------------
Actual Proforma Actual Proforma
------- ----------- ------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales.......................... $33,271 $46,878 $37,872 $51,239
Net income and comprehensive
income............................ 443 931 419 951
</TABLE>
4. Related Party Transactions:
The Company has entered into sales transactions with CNF and its affiliates.
Revenues from these sales totaled $6,239, $7,622 and $9,856 for the years ended
December 31, 1996, 1997 and 1998, respectively. The Company's sales to CNF were
primarily at market prices as periodically determined by CNF.
CNF provides the Company certain management, data processing, human
resources, purchasing, credit, accounting and tax services. An allocation of
the estimated costs of these services is charged directly to the Company each
month by CNF using varying allocation bases (primarily number of transactions
processed or number of employees covered). The allocation process is consistent
with the methodology used by CNF to allocate costs of similar services provided
to its other business units. The allocated costs of these services, which
aggregated $456, $513 and $842 for the years ended December 31, 1996, 1997 and
1998, respectively, were reflected in general and administrative expenses in
the accompanying statements of operations.
CNF also provides certain employee benefits and insurance coverage to the
Company, including workers' compensation, health and welfare, pension and auto
liability. An allocation of the estimated costs of these services is charged
directly to the Company each month by CNF based on actual costs and using
various allocation methods. The allocation process is consistent with the
methodology used
F-61
<PAGE>
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
by CNF to allocate costs of similar services provided to its other business
units. The allocated costs of these services, which aggregated $514, $757 and
$763 for the years ended December 31, 1996, 1997 and 1998, respectively, were
reflected in cost of sales in the accompanying statements of operations.
The Company is dependent on CNF for financing. CNF maintains a centralized
cash management system and substantially all cash receipts and disbursements
are recorded at the corporate level. The Company is charged or credited for the
net of cash receipts and disbursements each month. The Company incurs a monthly
charge for interest expense from CNF based on a formula which takes into
consideration the Company's rolling twelve month average balance in its
investments by and advances from CNF account, excluding the current year and
cumulative earnings amounts, multiplied by an interest rate. The Company
incurred a charge for interest expense from CNF of $435, $374 and $585 for the
years ended December 31, 1996, 1997 and 1998, respectively.
The following table sets forth the activity in the Company Equity account for
the years ended December 31, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of year........................ $ 9,668 $ 8,661 $12,204
Net income and comprehensive income............... 443 419 1,262
Investments by and advances from (distributions
to) CNF.......................................... (1,450) 3,124 1,903
------- ------- -------
Balance, end of year.............................. $ 8,661 $12,204 $15,369
======= ======= =======
</TABLE>
5. Income Taxes:
The provision for income taxes for the years ended December 31, 1996, 1997
and 1998 was as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current income taxes:
Federal.................................................... $133 $153 $672
State...................................................... 32 37 160
Deferred income taxes........................................ 132 92 (7)
---- ---- ----
$297 $282 $825
==== ==== ====
</TABLE>
The provision for income taxes differed from the United States statutory rate
for the years ended December 31, 1996, 1997 and 1998 for the following reasons:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate........................................... $251 $238 $710
State and local taxes, net of federal benefit................ 38 36 105
Non-deductible expenses...................................... 8 8 10
---- ---- ----
$297 $282 $825
==== ==== ====
</TABLE>
F-62
<PAGE>
VANTAGE PARTS
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Deferred tax assets (liabilities) were comprised of the following at December
31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Gross deferred tax assets:
Employee benefits.............................................. $ 57 $ 64
Inventories.................................................... 204 246
Accounts receivable............................................ 173 145
Other.......................................................... 3 8
---- ----
437 463
Gross deferred tax liabilities:
Property and equipment......................................... (17) (50)
---- ----
Net deferred tax asset........................................... $420 $413
==== ====
</TABLE>
6. Operating Leases:
The Company leases manufacturing, warehouse and office facilities, cars and
certain equipment. Future minimum lease payments required under operating
leases having initial or remaining noncancelable lease terms in excess of one
year are set forth below:
<TABLE>
<S> <C>
1999.................................................................. $ 513
2000.................................................................. 385
2001.................................................................. 266
2002.................................................................. 155
2003.................................................................. 148
Thereafter............................................................ 148
------
$1,615
======
</TABLE>
Rental expense under operating leases amounted to $433, $484 and $507 for the
years ended December 31, 1996, 1997 and 1998, respectively.
7. Commitments and Contingencies:
The Company is involved in litigation from time to time incidental to the
conduct of its business; however, the Company is not currently a party to any
lawsuit or proceeding which, in the opinion of management, is likely to have a
material adverse effect on the financial position or results of operations of
the Company.
8. Subsequent Event:
On February 5, 1999, CNF entered into a letter of intent agreement with HDA
Parts System, Inc. ("HDA") whereby HDA will acquire the Company.
F-63
<PAGE>
VANTAGE PARTS
UNAUDITED COMBINED STATEMENT OF INCOME
For the Period from January 1, 1999 to May 28, 1999
(amounts in thousands)
<TABLE>
<S> <C>
Net sales.............................................................. $23,179
Operating expenses:
Cost of sales........................................................ 18,096
General and administrative........................................... 3,957
Depreciation and amortization........................................ 120
-------
Total operating expenses........................................... 22,173
-------
Income from operations................................................. 1,006
Interest (expense)..................................................... (136)
Other (expense)........................................................ (77)
-------
Income before income taxes............................................. 793
-------
Income taxes........................................................... --
-------
Net income and comprehensive income.................................... $ 793
=======
</TABLE>
See Notes to Financial Statements.
F-64
<PAGE>
VANTAGE PARTS
UNAUDITED COMBINED STATEMENT OF CASH FLOWS
For the Period from January 1, 1999 to May 28, 1999
(amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income and comprehensive income.................................. $ 793
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization....................................... 120
Change in operating assets and liabilities:
Accounts receivable, net.......................................... (401)
Other current assets.............................................. (224)
Inventory......................................................... 583
Provision for deferred taxes...................................... 157
Other assets...................................................... 27
Accounts payable.................................................. (2,004)
Accrued and other liabilities..................................... (132)
-------
Net cash used in operating activities............................ (1,081)
-------
Cash flows from investing activities:
Purchases of property and equipment.................................. (38)
-------
Net cash used in investing activities............................ (38)
-------
Cash flows from financing activities:
Increase in investment and advances from CNF......................... 1,110
-------
Net cash provided by financing activities........................ 1,110
-------
Net change in cash................................................... (9)
-------
Cash at beginning of year............................................ 407
-------
Cash at end of year................................................... $ 398
=======
</TABLE>
See Notes to Financial Statements.
F-65
<PAGE>
VANTAGE PARTS
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(amounts in thousands)
1. Summary of Significant Accounting Policies:
Description of Business and Basis of Presentation
Vantage Parts ("the Company") is owned by CNF Transportation Inc. ("CNF").
The Company is comprised of the assets of CNF's wholly owned Vantage Parts
division and Vantage Parts of Illinois, a wholly owned subsidiary of CNF.
The Company is engaged in the wholesale, retail, and refurbishing of truck
parts throughout the United States. The company is headquartered in Portland,
Oregon and has stores throughout the United States.
The accompanying financial statements reflect the "carve-out" results of
operations and cash flows of the Company for the period presented. Certain
corporate general and administrative expenses of CNF have been allocated to the
Company on various bases which, in the opinion of management, are reasonable.
However, such expenses are not necessarily indicative of, and it is not
practicable for management to estimate, the nature and level of expenses which
might have been incurred had the Company operated as a stand-alone Company.
The consolidated financial information presented herein is unaudited. The
interim financial statements and notes thereto do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the financial statements and notes thereto included in the
latest consolidated financial statements of the Companies. In the opinion of
management, the interim financial statements reflect all adjustments of a
normal recurring nature necessary for a fair statement of the results for
interim periods. The current period's results of operations are not necessarily
indicative of results that ultimately may be achieved for the year.
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.
Cash and cash equivalents
Cash and cash equivalents are highly liquid investments with original
maturities of three months or less.
Inventories
Inventories consist of truck parts and cores, and are valued at the lower of
cost or market. Cost is determined on the average cost method.
Property and equipment
Purchase of property and equipment, including additions and improvements and
expenditures for repairs and maintenance that significantly add to productivity
or extend the economic lives of the
F-66
<PAGE>
VANTAGE PARTS
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
assets, are capitalized at cost and depreciated on a straight-line basis over
their estimated useful lives as follows:
<TABLE>
<S> <C>
Building and improvements........................................ 10-25 years
Equipment and furniture.......................................... 3-10 years
</TABLE>
Maintenance, repairs, and minor replacements of these items are charged to
expense as incurred.
Goodwill
Goodwill consists of the acquisition cost in excess of the fair value of the
net assets acquired in 1996. Goodwill is amortized on a straight-line basis
over fifteen years.
Income Taxes
The Company is included as part of the consolidated U.S. federal income tax
return of CNF. The provision for income taxes is computed on the taxable income
of the Company on a stand-alone basis.
The Company accounts for income taxes based on the asset and liability
approach in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes". The asset and liability approach requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the financial reporting and
the tax bases of assets and liabilities.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of purchase or within a specified period. Returned cores are either
returned to the vendor for credit or remanufactured.
2. Subsequent Event:
On May 28, 1999, HDA Parts System, Inc. purchased the Company. This was
accounted for as a purchase. The unaudited financial statements have not been
effected by this transaction.
F-67
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Truck and Trailer Parts, Inc. and Affiliate
In our opinion, the accompanying combined balance sheets and the related
combined statements of income and stockholders' equity and cash flows present
fairly, in all material respects, the combined financial position of Truck and
Trailer Parts, Inc. and Affiliate (the "Companies") at December 31, 1996 and
1997 and at September 30, 1998, and the results of their operations and their
cash flows for the years ended December 31, 1996 and 1997 and the nine-month
period ended September 30, 1998 in conformity with generally accepted
accounting principles. These combined financial statements are the
responsibility of the Companies' management; our responsibility is to express
an opinion on these combined financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
December 30, 1998
Atlanta, Georgia
F-68
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
COMBINED BALANCE SHEETS
At December 31, 1996 and 1997 and at September 30, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
December 31,
------------- September 30,
1996 1997 1998
------ ------ -------------
ASSETS
------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents......................... $ 60 $ 18 $ 127
Accounts receivables.............................. 2,021 2,493 3,151
Notes receivable from related parties............. 22 237 --
Inventories....................................... 2,890 4,676 5,281
Prepaid expenses.................................. 72 19 102
Advances to shareholders and employees............ 2 2 2
------ ------ ------
Total current assets............................ 5,067 7,445 8,663
------ ------ ------
Property and equipment
Transportation equipment.......................... 544 646 607
Machinery and equipment........................... 324 404 455
Computer equipment................................ 202 307 309
Office furniture and equipment.................... 137 185 196
Leasehold improvements............................ 16 18 18
------ ------ ------
1,223 1,560 1,585
Less accumulated depreciation..................... 710 916 1,093
------ ------ ------
513 644 492
------ ------ ------
Other assets
Intangible assets, net............................ 48 45 43
Deposits.......................................... 11 17 17
------ ------ ------
59 62 60
------ ------ ------
Total assets.................................... $5,639 $8,151 $9,215
====== ====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities
Line of credit.................................... $ 943 $1,095 $2,725
Current portion of long-term debt................. 89 70 47
Accounts payable.................................. 1,281 2,401 2,416
Accrued liabilities............................... 447 324 268
------ ------ ------
Total current liabilities....................... 2,760 3,890 5,456
Long-term liabilities
Long-term debt.................................... 323 315 265
Notes payable to related parties.................. 132 129 80
------ ------ ------
455 444 345
Stockholders' equity................................ 2,424 3,817 3,414
------ ------ ------
Total liabilities and stockholders' equity...... $5,639 $8,151 $9,215
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME AND STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1997 and
for the Nine Month Period Ended September 30, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Nine Month
Year Ended Period Ended
December 31 September 30,
---------------- -------------
1996 1997 1998
------- ------- -------------
<S> <C> <C> <C>
Sales.......................................... $19,963 $24,011 $22,925
Cost of sales.................................. 16,223 19,697 18,702
------- ------- -------
Gross profit............................... 3,740 4,314 4,223
Selling, general and administrative expenses... 2,537 2,838 2,485
------- ------- -------
Income from operations..................... 1,203 1,476 1,738
Other income (expense)
Interest expense............................. (126) (85) (119)
Gain (loss) on disposal of fixed assets...... 12 10 (8)
Other income (expense)....................... 12 10 (8)
------- ------- -------
Income before income taxes................. 1,101 1,411 1,603
Income tax expense............................. 411 18 --
------- ------- -------
Net income and comprehensive income........ 690 1,393 1,603
Stockholders' equity--beginning of year........ 1,734 2,424 3,817
Distributions to stockholders.................. -- -- (2,006)
------- ------- -------
Stockholders' equity--end of period............ $ 2,424 $ 3,817 $ 3,414
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1997 and
For the Nine Month Period Ended September 30, 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Year Ended Nine Month
December 31, Period Ended,
---------------- September 30,
1996 1997 1998
------- ------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income and comprehensive income.......... $ 690 $ 1,393 $ 1,603
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities
Depreciation............................... 227 265 215
Amortization of intangibles................ 2 3 2
(Gain) loss on disposal of fixed assets.... (12) (10) 8
Changes in operating assets and liabilities
Accounts receivable...................... (14) (472) (658)
Notes receivable......................... 40 (215) 237
Inventories.............................. 594 (1,786) (605)
Prepaid expenses......................... 13 53 (83)
Other assets............................. (10) (6) --
Accounts payable......................... (176) 1,120 15
Accrued liabilities...................... 135 (123) (56)
------- ------- -------
Net cash provided by operating
activities............................ 1,489 222 678
------- ------- -------
Cash flows provided by (used for) investing
activities
Acquisition of property and equipment........ (315) (431) (86)
Purchase of a business....................... (619) -- --
Proceeds from sale of property and
equipment................................... 84 45 15
------- ------- -------
Net cash used for investing
activities............................ (850) (386) (71)
------- ------- -------
Cash flows provided by (used for) financing
activities
Principal payments of long-term debt......... (229) (110) (122)
Proceeds fom short term line of credit....... 7,154 7,755 8,463
Payments of short term line of credit........ (7,533) (7,603) (6,833)
Proceeds from issuance of long-term debt..... 18 80 --
Distribution to stockholders................. -- -- (2,006)
------- ------- -------
Net cash provided by (used for)
financing activities.................. (590) 122 (498)
------- ------- -------
Increase (decrease) in cash and cash
equivalents................................... 49 (42) 109
Cash and cash equivalents at beginning of
year.......................................... 11 60 18
------- ------- -------
Cash and cash equivalents at end of period..... $ 60 $ 18 $ 127
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
For the Years Ended December 31, 1996 and 1997 and
For the Nine Month Period Ended September 30, 1998
(amounts in thousands)
Note 1--Basis of Presentation
The accompanying combined financial statements include Truck and Trailer
Parts, Inc. (TTPI) and DHP Leasing, Inc. (the "Companies") which are under
common ownership. TTPI engages in the sale of replacement parts for heavy duty
trucks and trailers in the southeastern United States. DHP Leasing, Inc. leases
certain office and warehouse equipment to TTPI. The combined financial
statements include the accounts of the Companies as of December 31, 1996 and
1997 and September 30, 1998, and for each of the two years ended December 31,
1996 and 1997 and for the nine-month period ended September 30, 1998. All
material intercompany balances have been eliminated.
Effective September 30, 1998 the Companies were acquired by HDA Parts System,
Inc. These financial statements represent the Companies' financial position
prior to any effect of the acquisition.
Note 2--Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents consist of highly liquid instruments with original
maturities of three months or less from date of purchase.
Accounts receivable
Substantially all of the accounts receivable are pledged as collateral for
the bank line of credit (See Note 4). Bad debts charged to operations amounted
to $77 and $106 for 1996 and 1997 and $27 for the nine-month period ended
September 30, 1998, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the average cost basis (See Note 3).
Property and equipment
Property and equipment is carried at cost less accumulated depreciation.
Improvements, which are capitalized, extend the useful life of the underlying
assets. Expenditures for maintenance and repairs are charged to expense as
incurred. The Companies provide for depreciation of property and equipment
using accelerated methods over estimated useful lives of five to seven years.
Other assets
Included in other assets are goodwill and noncompete agreements totaling $48,
$45, and $43 at December 31, 1996 and 1997 and September 30, 1998,
respectively. These assets are being
F-72
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
amortized over their estimated useful life of 15 years. Accumulated
amortization amounted to $2, $5 and $7 at December 31, 1996 and 1997 and
September 30, 1998, respectively.
Revenue recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of purchase or within a specified period. Returned cores are returned to
the vendor for credit.
Income taxes
On January 1, 1997 and future years TTPI, with the consent of its
stockholders, elected under the Internal Revenue Code to be taxed as an S
corporation. DHP Leasing, Inc., from its inception in 1995, elected to be taxed
as an S corporation. In lieu of corporate income taxes, the stockholders of an
S corporation are taxed on their proportionate share of the Companies' taxable
income. Therefore, no provision or liability for federal income taxes has been
included in the financial statements for 1997. Prior to 1997, deferred income
tax assets and liabilities were recognized for the expected future tax
consequences of temporary differences between the income tax and financial
reporting carrying amounts of assets and liabilities (See Note 7).
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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 3--Inventories
At December 31, 1996 and 1997 and September 30, 1998, inventories consist of
the following:
<TABLE>
<CAPTION>
September 30,
1996 1997 1998
------ ------ -------------
<S> <C> <C> <C>
Parts Inventory.................................. $2,643 $4,488 $4,955
Core Inventory................................... 247 188 326
------ ------ ------
$2,890 $4,676 $5,281
====== ====== ======
</TABLE>
F-73
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Note 4--Long-Term Debt
At December 31, 1996 and 1997 and September 30, 1998 long-term debt consists
of the following:
<TABLE>
<CAPTION>
September 30,
1996 1997 1998
---- ---- -------------
<S> <C> <C> <C>
8% unsecured note payable in monthly installments
of $4, including interest to 2006................ $322 $299 $282
8% note payable, secured by property and
equipment, payable in monthly installments of $2,
including interest to 2000....................... -- 63 30
7% note payable, secured by computer equipment
with a carrying value of $55 in 1996 and $44 in
1997............................................. 61 21 --
6.5% note payable, secured by a truck, payable in
monthly installments of $1, including interest in
1998............................................. 8 2 --
Other............................................. 21 -- --
---- ---- ----
Less current portion.............................. (89) (70) (47)
---- ---- ----
$323 $315 $265
==== ==== ====
</TABLE>
The Companies had a maximum availability of $3,000 in 1996, 1997 and 1998 on
a line of credit from a bank with interest payable at the 30 day LIBOR (London
Interbank Offered Rate) plus 2 percent. The line is secured by accounts
receivable and inventories. The Companies' outstanding balance at December 31,
1996 and 1997 and September 30, 1998, was, $943, $1,095 and $2,725
respectively. The Companies paid $126, $85, and $119 interest during 1996,
1997, and 1998, respectively.
Note 5--Combined Stockholders' Equity
At December 31, 1996 and 1997 and September 30, 1998, combined stockholders'
equity consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1996 1997 1998
------ ------ -------------
<S> <C> <C> <C>
Truck and Trailer Parts, Inc.
Common stock, $0 par value, 10,000 shares
authorized, 1,069 shares issued and
outstanding................................ $ -- $ -- $ --
Additional paid-in capital.................. 55 55 55
Retained earnings........................... 2,371 3,728 3,297
------ ------ ------
2,426 3,783 3,352
DHP Leasing, Inc.
Common stock, voting, $0 par value, 150,000
shares authorized, 1,000 shares issued and
outstanding................................ -- -- --
Additional paid-in capital.................. 5 5 5
Retained earnings (deficit)................. (7) 29 57
------ ------ ------
Stockholders' equity.......................... $2,424 $3,817 $3,414
====== ====== ======
</TABLE>
F-74
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Note 6--Employee Benefit Plans
The Companies have a contributory employee benefit plan which is qualified
under Section 401(k) of the Internal Revenue Code. Substantially all employees
are eligible for participation in the plan. An employee may have up to 15% of
his/her salary withheld. The Companies may contribute for each participant a
matching contribution equal to a percentage of the participant's contribution.
The Companies' total expenses for contributions to the plan was $106, $179, and
$88, in 1996, 1997 and 1998, respectively.
Note 7--Commitments
The Companies lease office and warehouse space from related parties. Rent
expense to related parties was $133, $179, and $163 in 1996, 1997, and 1998,
respectively. The Companies also lease office and warehouse space from
unrelated parties. Rent expense to third-parties was $145, $125, and $122 in
1996, 1997, and 1998, respectively. Minimum future rental payments under these
leases for each of the next five years, and thereafter, and in the aggregate,
are as follows:
<TABLE>
<CAPTION>
Related
Parties Other Total
------- ----- ------
<S> <C> <C> <C>
1999.................................................... $224 $ 94 $ 318
2000.................................................... 224 86 311
2001.................................................... 144 82 225
2002.................................................... -- 83 83
2003 and thereafter..................................... -- 463 463
---- ---- ------
Total................................................. $592 $808 $1,400
==== ==== ======
</TABLE>
Note 8--Related Party Transactions
Unsecured notes payable, on demand to related parties amounted to $132, $129,
and $80 at December 31, 1996 and 1997 and September 30, 1998, respectively.
Interest on these notes amounted to $10, $8, and $6 in 1996, 1997, and 1998,
respectively. Interest is payable at 1% above the prime rate.
Notes receivable from related parties amounted to $22 and $237 at December
31, 1996 and 1997, respectively. The interest rate was prime plus 2%.
F-75
<PAGE>
TRUCK AND TRAILER PARTS, INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Note 9--Income Taxes
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
Year
ended
December Nine-Month
31, Period Ended
---------- September 30,
1996 1997 1998
---- ---- -------------
<S> <C> <C> <C>
Current expense
Federal.......................................... $366 $-- $ --
State............................................ 65 -- --
---- --- ----
Total current.................................... 431 -- --
Deferred expense (benefit)
Federal.......................................... $(17) $15 $ --
State............................................ (3) 3 --
---- --- ----
Total deferred................................... $411 $18 $ --
==== === ====
</TABLE>
Income taxes in the amount of $356 and $38 were paid in 1996 and 1997,
respectively. In conjunction with the election on January 1, 1997 to be taxed
as an S corporation, Truck & Trailer Parts, Inc. (TTPI) recognized an expense
of $18 resulting from the transfer of TTPI's deferred tax assets to its
stockholders as explained in Note 1.
At December 31, 1997, significant components of TTPI's deferred tax assets
were as follows:
<TABLE>
<S> <C>
Deferred tax assets
Uniform capitalization................................................ $16
Capital loss carryforwards............................................ 2
---
$18
===
</TABLE>
As described in Note 1, TTPI filed a Subchapter S election effective January
1, 1997. Therefore, there is no current income tax provision for the periods
ended December 31, 1997 and September 30, 1998. The amount included in the 1997
income statement for income tax expense reflects the write-off of the deferred
tax asset.
Note 10--Subsequent Event
Effective September 30, 1998, the Companies were sold to HDA Parts System,
Inc. The financial statements have not been effected by this transaction. As a
result of this transaction, the Companies' operating facilities in Greenville,
SC, and Dalton, GA, have been transferred to other companies held by HDA Parts
System, Inc.
F-76
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
HDA Parts System, Inc.
Chicago, Illinois
We have audited the accompanying balance sheet of Connecticut Driveshaft,
Inc. as of September 30, 1998, and the related statements of income, retained
earnings, and cash flows for the nine months ended September 30, 1998. The
financial statements are the responsibility of Connecticut Driveshaft, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Connecticut Driveshaft, Inc.
as of September 30, 1998, and the results of its operations and its cash flows
for the nine months ended September 30, 1998, in conformity with generally
accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Minneapolis, Minnesota
November 4, 1998
F-77
<PAGE>
CONNECTICUT DRIVESHAFT, INC.
BALANCE SHEET
September 30, 1998
(In thousands, except share data)
<TABLE>
<S> <C>
ASSETS
------
Current Assets
Cash and cash equivalents............................................. $ 3
Receivables:..........................................................
Trade, less allowance for doubtful accounts of $268................. 1,824
Vendor.............................................................. 236
Inventories........................................................... 4,863
Other assets.......................................................... 31
------
Total current assets.............................................. 6,957
------
Equipment and Leasehold Improvements, at cost (Note 2)
Machinery and equipment............................................... 1,026
Vehicles.............................................................. 952
Furniture and fixtures................................................ 686
Leasehold improvements................................................ 202
------
2,866
Less accumulated depreciation......................................... 2,552
------
314
------
Cash Value of Life Insurance............................................ 247
------
Security Deposits....................................................... 14
------
$7,532
======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Bank note payable (Note 2)............................................ $1,713
Current maturities of long-term debt (Note 2)......................... 56
Accounts payable...................................................... 1,802
Accrued expenses...................................................... 376
Income taxes payable.................................................. 138
------
Total current liabilities......................................... 4,085
------
Long-Term Debt, less current maturities (Note 2)........................ 5
------
Commitments and Contingencies (Notes 4 and 5)...........................
Stockholders' Equity
Common stock, no par value; authorized 5,000 shares; issued and
outstanding 1,000 shares............................................. 1
Retained earnings..................................................... 3,441
------
3,442
------
$7,532
======
</TABLE>
See Notes to Financial Statements.
F-78
<PAGE>
CONNECTICUT DRIVESHAFT, INC.
STATEMENT OF INCOME
Nine Months Ended September 30, 1998
(In thousands)
<TABLE>
<S> <C>
Net sales.............................................................. $14,860
Cost of goods sold..................................................... 11,038
-------
Gross profit....................................................... 3,822
Operating expenses (Note 3)............................................ 3,497
-------
Operating income................................................... 325
-------
Nonoperating income (expense):
Interest income...................................................... 7
Interest expense..................................................... (126)
-------
(119)
-------
Income before income taxes......................................... 206
Provision for state income taxes....................................... (32)
-------
Net income......................................................... $ 174
=======
STATEMENT OF RETAINED EARNINGS
Nine Months Ended September 30, 1998
(In thousands)
Balance, beginning (Note 6)............................................. $3,267
Net income............................................................ 174
------
Balance, ending......................................................... $3,441
======
</TABLE>
See Notes to Financial Statements.
F-79
<PAGE>
CONNECTICUT DRIVESHAFT
STATEMENT OF CASH FLOWS
Nine Months Ended September 30, 1998
(In thousands)
<TABLE>
<S> <C>
Cash Flows From Operating Activities
Net income............................................................ $ 174
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation........................................................ 131
Changes in assets and liabilities:
Trade receivables................................................. (80)
Vendor receivables................................................ (50)
Inventories....................................................... (241)
Other assets...................................................... 3
Accounts payable.................................................. (99)
Accrued expenses.................................................. 68
Income taxes payable.............................................. 20
-----
Net cash used in operating activities........................... (74)
-----
Cash Flows From Investing Activities
Increase in cash value of life insurance.............................. (16)
Purchase of equipment................................................. (22)
-----
Net cash used in investing activities........................... (38)
-----
Cash Flows From Financing Activities
Net borrowings on bank note payable................................... 171
Principal payments on long-term debt.................................. (63)
-----
Net cash provided by financing activities....................... 108
-----
Decrease in cash and cash equivalents........................... (4)
Cash and Cash Equivalents
Beginning............................................................. 7
-----
Ending................................................................ $ 3
=====
Supplemental Disclosures of Cash Flow Information
Cash payments for interest............................................ $ 125
Cash payments for income taxes........................................ 2
=====
</TABLE>
See Notes to Financial Statements.
F-80
<PAGE>
CONNECTICUT DRIVESHAFT, INC.
NOTES TO FINANCIAL STATEMENTS
(In Thousands)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: The Company is a distributor of motor vehicle parts and
repairs and rebuilds driveshafts, brake shoes, and brake drums. The Company
operates out of six locations in Connecticut and Massachusetts. The Company
sells its products primarily to customers in the United States on credit terms
that the Company establishes for its customers.
A summary of the Company's significant accounting policies follows:
Cash and cash equivalents: For purposes of reporting the statement of cash
flows, the Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt instruments to
be cash equivalents. The Company maintains its cash accounts at levels which at
times may exceed federally insured limits. The Company has not experienced any
losses on these deposits.
Vendor receivables: The vendor receivables consist primarily of rebates to be
received from vendors for meeting certain purchase levels. The receivable
represents management's estimate of rebates to be received based on purchasing
activity calculated by rates included in the rebate agreements.
Inventories: Inventories are stated at the lower of cost (first in, first out
method) or market, and are comprised solely of purchased and finished goods.
Depreciation: Depreciation is computed over the estimated useful lives of the
respective assets using accelerated methods. The estimated useful lives by
class are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Machinery............................................................. 3-10
Vehicles.............................................................. 3-5
Furniture and fixtures................................................ 3-7
Leasehold improvements................................................ 10-40
</TABLE>
Income taxes: The Company, with the consent of its stockholders, has elected
to be taxed under sections of federal income tax law, which provide that, in
lieu of corporation income taxes, the stockholders separately account for their
pro rata shares of the Company's items of income, deductions, losses, and
credits. As a result of this election, no federal income taxes have been
recognized in the accompanying financial statements. For state income tax
purposes, the Company is required to pay corporate income taxes, and
accordingly, these taxes have been reflected in the accompanying financial
statements.
Revenue recognition: Revenue is recognized when products are shipped. Sales
for core parts are recorded net of exchanges and core credits. Cores may be
exchanged for credit at the time of a sale or within a specified period.
Returned cores are either returned to the vendor for credit or remanufactured.
Segment information: In June 1998, the FASB issued SFAS Statement No 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement, effective for financial
F-81
<PAGE>
CONNECTICUT DRIVESHAFT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands)
statements for fiscal years beginning after December 15, 1997, requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. Generally, financial information is required
to be reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Based on this
criteria, the Company has determined that it operates in one business segment,
that being the distribution of heavy duty vehicle parts in the United States.
Thus, all information required by SFAS No. 131 is included in the Company's
financial statements.
Fair value of financial instruments: The carrying amounts of cash, accounts
receivable, long-term debt, accounts payable, and accrued expenses approximate
fair value because of the short maturity of these items.
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
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Note 2. Line of Credit and Long-Term Debt
The Company has a $2,000 line of credit available with a financial
institution. Borrowings under the line are limited to 75 percent of eligible
accounts receivable plus the lesser of 25 percent of inventory or $600. The
borrowings bear interest at the prime rate (8.25 percent at September 30, 1998)
and are secured by substantially all of the Company's assets and the guarantee
of the Company's majority shareholder and a related Company. The agreement
expires in November 1998. Borrowings under the line of credit at September 30,
1998, were $1,713. Subsequent to September 30, 1998, pursuant to the terms of
the Asset Purchase Agreement (see Note 5), the line of credit was paid in full.
Long-term debt: Long-term debt consists of the following at September 30,
1998:
<TABLE>
<S> <C>
Bank note payable, bearing interest at 8.07%, due in monthly
payments of $4 plus interest, through July 1999, secured by
substantially all assets of the Company and the guarantee of the
Company's majority shareholder and a related Company. Subsequent to
September 30, 1998, pursuant to the terms of the Asset Purchase
Agreement, the note was paid in full............................... $ 42
Note payable to officer, paid in full subsequent to September 30,
1998. Interest expense on this note was $1 during the nine months
ended September 30, 1998........................................... 5
9.9% Capital leases, due in monthly payments of $1, including
interest, through April 2000, secured by vehicles.................. 14
----
61
Less current portion................................................ (56)
----
$ 5
====
</TABLE>
Note 3. Leasing Arrangements
The Company leases land and property on a month-to-month basis from related
parties, under five operating leases, requiring various monthly payments.
Subsequent to September 30, 1998, these operating leases were terminated
pursuant to the terms of the Asset Purchase Agreement noted in Note 5.
F-82
<PAGE>
CONNECTICUT DRIVESHAFT, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands)
The Company also leases land, property, and vehicles from unrelated parties,
under operating leases, requiring various monthly payments. The leases expire
at various dates through June 2001. Certain of these leases include an
additional annual payment for property taxes.
Future minimum lease payments on operating lease commitments to unrelated
parties at September 30, 1998, are as follows:
<TABLE>
<S> <C>
Fiscal years ending:
1999.................................................................. $140
2000.................................................................. 58
2001.................................................................. 38
----
$236
====
</TABLE>
Rent expense was approximately $365 during the nine months ended September
30, 1998, including approximately $241 to related parties.
Note 4. Commitments and Contingencies
Profit sharing: The Company maintains a 401(k) profit sharing plan for
eligible employees. Under the terms of the plan, employees may contribute up to
18 percent of their salary to the plan, not to exceed the maximum allowed by
the IRS. The Company can make discretionary matching contributions. The Company
made matching contributions of $19 to the plan during the nine months ended
September 30, 1998.
Litigation: The Company is a defendant in various lawsuits. In the opinion of
management, these suits are without substantial merit and should not result in
judgments, which in the aggregate, would have a material adverse effect on the
Company's financial statements.
Note 5. Asset Purchase Agreement
On November 4, 1998, the stockholders of Connecticut Driveshaft, Inc. entered
into an asset purchase agreement (the Agreement) with HDA Parts System, Inc.
(HDA) to sell substantially all of the assets of the Company in exchange for
the assumption of certain liabilities of the Company for a purchase price of
$7,300 cash. The acquisition cost includes the assignment of the purchase of
land and buildings from the owners.
In connection with the Agreement, HDA entered into employment agreements with
two shareholders of the Company. These employment agreements can be terminated
by either party at any time. In addition, HDA entered into three-year
noncompete agreements with two shareholders of the Company.
Note 6. Prior-Period Adjustment
The financial statements as presented include prior-period adjustments for
inventory, accounts receivable, vendor receivables, and accrued expenses. The
gross effect on retained earnings at October 1, 1997, was approximately $909.
The effect on retained earnings at October 1, 1997, net of tax, was
approximately $791.
F-83
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
HDA Parts System, Inc.
Chicago, Illinois
We have audited the accompanying balance sheets of Truckparts, Inc. as of
September 30, 1997 and 1998, and the related statements of income, retained
earnings, and cash flows for the years then ended. The financial statements are
the responsibility of Truckparts, Inc.'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 financial statements referred to above present fairly, in
all material respects, the financial position of Truckparts, Inc. as of
September 30, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ McGladrey & Pullen, LLP
Minneapolis, Minnesota
December 18, 1998
F-84
<PAGE>
TRUCKPARTS, INC.
BALANCE SHEETS
September 30, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
ASSETS
------
Current Assets
Cash and cash equivalents....................................... $ 134 $ 580
Receivables:
Trade, less allowance for doubtful accounts of $97 (Note 7)... 1,531 1,638
Vendor........................................................ 436 414
Inventories..................................................... 3,237 3,585
Deferred taxes (Note 4)......................................... -- 78
Other assets.................................................... 53 53
------ ------
Total current assets........................................ 5,391 6,348
------ ------
Equipment and Leasehold Improvements, at cost
Transportation equipment (Note 2)............................... 562 623
Leasehold improvements.......................................... 143 143
Furniture and fixtures.......................................... 206 281
------ ------
911 1,047
Less accumulated depreciation................................... 541 611
------ ------
370 436
------ ------
$5,761 $6,784
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Notes payable to related parties (Note 3)....................... $ 497 $ 555
Current maturities of long-term debt............................ 101 84
Accounts payable................................................ 2,167 2,451
Accrued expenses................................................ 205 380
Deferred taxes (Note 4)......................................... 100 --
Income taxes payable............................................ 588 1,015
------ ------
Total current liabilities..................................... 3,658 4,485
------ ------
Long-Term Debt, less current maturities (Note 2).................. 56 69
------ ------
Deferred Taxes (Note 4)........................................... 10 13
------ ------
Commitments and Contingencies (Notes 5 and 8)
Stockholders' Equity (Note 6)
Preferred stock................................................. 295 295
Class A common stock............................................ 1 1
Class B common stock............................................ 10 10
Retained earnings............................................... 1,731 1,911
------ ------
2,037 2,217
------ ------
$5,761 $6,784
====== ======
</TABLE>
See Notes to Financial Statements.
F-85
<PAGE>
TRUCKPARTS, INC.
STATEMENTS OF INCOME
Years Ended September 30, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Net sales (Note 7)............................................ $13,204 $13,460
Cost of goods sold............................................ 9,455 9,093
------- -------
Gross profit.............................................. 3,749 4,367
Operating expenses (Note 3)................................... 3,324 3,703
------- -------
Operating income.......................................... 425 664
------- -------
Nonoperating income (expense):
Interest income............................................. 14 17
Gain on sale of equipment................................... 5 7
Interest expense (Note 3)................................... (48) (62)
------- -------
(29) (38)
------- -------
Income before income taxes................................ 396 626
------- -------
Provision for income taxes (Note 4):
Currently payable........................................... 178 621
Deferred.................................................... (13) (175)
------- -------
165 446
------- -------
Net income................................................ $ 231 $ 180
======= =======
</TABLE>
STATEMENTS OF RETAINED EARNINGS
Years Ended September 30, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Balance, beginning (Note 9)...................................... $1,500 $1,731
Net income..................................................... 231 180
------ ------
Balance, ending.................................................. $1,731 $1,911
====== ======
</TABLE>
See Notes to Financial Statements.
F-86
<PAGE>
TRUCKPARTS, INC.
STATEMENTS OF CASH FLOWS
Years Ended September 30, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Cash Flows From Operating Activities
Net income..................................................... $ 231 $ 180
Adjustments to reconcile net income to net cash provided by
(used in)
operating activities:
Gain on sale of equipment.................................... (5) (7)
Depreciation................................................. 94 121
Deferred taxes............................................... (13) (175)
Changes in assets and liabilities:
Trade receivables.......................................... (155) (107)
Vendor receivables......................................... (111) 22
Inventories................................................ (271) (348)
Other assets............................................... 13 --
Accounts payable........................................... 13 284
Accrued expenses........................................... 16 175
Income taxes payable....................................... 73 427
----- -----
Net cash provided by (used in) operating activities...... (115) 572
----- -----
Cash Flows From Investing Activities
Purchase of equipment.......................................... (154) (195)
Proceeds from disposal of equipment............................ 22 15
----- -----
Net cash used in investing activities.................... (132) (180)
----- -----
Cash Flows From Financing Activities
Principal payments on long-term debt........................... (97) (123)
Borrowings on long-term debt................................... 421 177
----- -----
Net cash provided by financing activities................ 324 54
----- -----
Increase in cash and cash equivalents.................... 77 446
Cash and Cash Equivalents
Beginning...................................................... 57 134
----- -----
Ending......................................................... $ 134 $ 580
===== =====
Supplemental Disclosures of Cash Flow Information
Cash payments for interest..................................... $ 48 $ 62
Cash payments for income taxes................................. 108 208
===== =====
</TABLE>
See Notes to Financial Statements.
F-87
<PAGE>
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS
(In Thousands, Except Share and Per Share Data)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: The Company is a distributor of motor vehicle parts. The
Company operates out of four locations in Connecticut. The Company sells its
products primarily to customers in the United States on credit terms that the
Company establishes for its customers.
A summary of the Company's significant accounting policies follows:
Cash and cash equivalents: For purposes of reporting the statement of cash
flows, the Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid debt instruments to
be cash equivalents. The Company maintains its cash accounts at levels which at
times may exceed federally insured limits. The Company has not experienced any
losses on these deposits.
Vendor receivables: The vendor receivables consist primarily of rebates to be
received from vendors for meeting certain purchase levels. The receivable
represents management's estimate of rebates to be received based on purchasing
activity calculated by rates included in the rebate agreements. In connection
with these receivables, the Company is required to have a letter of credit in
the amount of the receivable.
Inventories: Inventories are stated at the lower of cost (first in, first out
method) or market, and are comprised solely of purchased goods.
Depreciation: Depreciation is computed over the estimated useful lives of the
respective assets using accelerated methods. The estimated useful lives by
class are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Transportation equipment............................................... 3-5
Furniture and fixtures................................................. 3-7
Leasehold improvements................................................. 8-10
</TABLE>
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.
Revenue recognition: Revenue is recognized when products are shipped. Sales
for core parts are recorded net of exchanges and core credits. Cores may be
exchanged for credit at the time of a sale or within a specified period.
Returned cores are returned to the vendor for credit.
Segment information: In June 1998, the FASB issued SFAS Statement No 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement, effective for financial
F-88
<PAGE>
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share and Per Share Data)
statements for fiscal years beginning after December 15, 1997, requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. Generally, financial information is required
to be reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. Based on this
criteria, the Company has determined that it operates in one business segment,
that being the distribution of heavy duty vehicle parts in the United States.
Thus, all information required by SFAS No. 131 is included in the Company's
financial statements.
Fair value of financial instruments: The carrying amounts of cash, accounts
receivable, long-term debt, accounts payable, and accrued expenses approximate
fair value because of the short maturity of these items.
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
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Note 2. Long-Term Debt
Long-term debt: Long-term debt consists of several capitalized leases with
various monthly installments and interest rates ranging from 4.8 to 11.0
percent. The leases mature at various dates through September 2001, and are
secured by transportation equipment.
Aggregate maturities on capital lease obligations at September 30, 1998, are
as follows:
<TABLE>
<CAPTION>
Capital Leases
-------------------------------------------
Total Minimum Less Amount Present Value of
Lease Representing Net Minimum
Payments Interest Lease Payments
------------- ------------ ----------------
<S> <C> <C> <C>
Years ending September 30:
1999......................... $ 91 $ 7 $ 84
2000......................... 55 2 52
2001......................... 17 1 17
---- --- ----
$163 $10 $153
==== === ====
</TABLE>
Subsequent to September 30, 1998, approximately $73 of these leases were paid
in full.
Note 3. Related-Party Transactions and Leasing Arrangements
The Company has two notes payable with related parties which were paid in
full subsequent to year end. Interest expense relating to these notes payable
was $29 and $48 the years ended September 30, 1997 and 1998, respectively.
One note was unsecured and accrued interest at 10 percent. The other note was
secured by computer equipment and accrued interest at 8.75 percent.
F-89
<PAGE>
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share and Per Share Data)
The Company leases vehicles, buildings, and property from related and
unrelated parties, under operating leases, requiring various monthly payments.
The leases expire at various dates through September 2008. Certain of these
leases include an additional annual payment for property taxes.
Future minimum lease payments on operating lease commitments at September 30,
1998, are as follows:
<TABLE>
<CAPTION>
Related Unrelated
Parties Parties Total
------- --------- ------
<S> <C> <C> <C>
1999................................................ $ 250 $110 $ 360
2000................................................ 250 92 342
2001................................................ 253 43 296
2002................................................ 275 -- 275
2003................................................ 277 -- 277
Thereafter.......................................... 1,090 -- 1,090
------ ---- ------
$2,395 $245 $2,640
====== ==== ======
</TABLE>
Rent expense was approximately $273 and $297 in 1997 and 1998, respectively,
including $197 and $212, respectively, to related parties.
Note 4. Income Taxes
The components of income tax expense charged to operations for the years
ended September 30, 1997 and 1998, are as follows:
<TABLE>
<CAPTION>
1997 1998
---- -----
<S> <C> <C>
Current tax expense:
Federal....................................................... $132 $ 477
State......................................................... 46 144
Deferred tax benefit............................................ (13) (175)
---- -----
$165 $ 446
==== =====
</TABLE>
The Company's income tax expense varies from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax income for
the years ended September 30, 1997 and 1998, due to the following:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Computed "expected" tax expense.................................. $134 $213
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal benefit..................... 32 50
Nontaxable items............................................... 4 7
Nondeductible interest and underpayment penalties.............. (5) 176
---- ----
$165 $446
==== ====
</TABLE>
F-90
<PAGE>
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share and Per Share Data)
Net deferred tax assets consisted of the following components as of September
30, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.............................. $ 19 $ 20
Accrued compensation and other............................... 21 95
Inventory reserve............................................ 42 123
----- -----
82 238
----- -----
Deferred tax liabilities:
Depreciation................................................. (10) (13)
Rebates receivable........................................... (182) (160)
----- -----
(192) (173)
----- -----
$(110) $ 65
===== =====
</TABLE>
The Company's deferred tax amounts have been classified in the accompanying
financial statements as follows:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Current assets................................................. $ 82 $ 238
Current liabilities............................................ (182) (160)
----- -----
Net current asset (liability).................................. (100) 78
Noncurrent liabilities......................................... (10) (13)
----- -----
$(110) $ 65
===== =====
</TABLE>
Note 5. Commitments and Contingencies
Profit sharing: The Company maintains a 401(k) profit sharing plan for
eligible employees. Under the terms of the plan, employees may contribute up to
the maximum allowed by the IRS. The Company can make discretionary matching
contributions. No discretionary contributions were made to the plan during 1997
or 1998.
Pension plan: The Company maintains a defined contribution pension plan for
eligible employees. Under the terms of the plan, employees may contribute up to
10 percent of their compensation. The Company can make discretionary
contributions to the plan. Company contributions to the plan for the years
ended September 30, 1997 and 1998, were $117 and $143, respectively.
Note 6. Components of Stockholders' Equity
The Company has authorized the issuance of 2,000 shares of 6 percent
noncumulative, nonparticipating, nonvoting preferred stock, with a par value of
$500 per share. The Company has issued 590 shares of preferred stock, which is
entitled to dividends of $30 per share before any dividends are paid on the
Class A common stock of the Company. The preferred stock is callable at
F-91
<PAGE>
TRUCKPARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share and Per Share Data)
the option of the Company at $500 per share and is preferred in liquidation
over all share of Class A common stock and Class B common stock.
The Company has authorized the issuance of 2,000 shares of Class A voting
common stock, with a par value of $1 per share. The Company has issued 1,000
shares of Class A common stock which, after the dividend preference of the
preferred stock and the Class B common stock, can participate in dividends as
described below.
In addition, the Company has authorized the issuance of 1,000 shares of Class
B voting common stock, with a par value of $100 per share. The Company has
issued 100 shares of Class B common stock, which is entitled to dividends of
$50 per share before any dividends are paid on preferred stock or Class A
common stock. After dividends are paid on the Class B common stock and
preferred stock, the Class B common stock can participate in further dividends
jointly with the Class A common stock in proportion with their respective par
values.
The Class B common stock and Class A common stock shall participate in
liquidation in accordance with their respective par values after the
liquidation preference of the preferred stock.
Note 7. Major Customers
Trade receivables and sales as of and for the years ended September 30, 1997
and 1998, included amounts to a major customer. Sales to this customer were
approximately 17 and 10 percent of total sales in 1997 and 1998, respectively.
Accounts receivable from this customer as of September 30, 1998, were
approximately $25.
Note 8. Stock Purchase Agreement
On December 17, 1998, the shareholders of Truckparts, Inc. entered into a
stock purchase agreement (the Agreement) with HDA Parts System, Inc. (HDA) to
sell all of the outstanding stock of the Company for a purchase price of
$11,700, less the outstanding balance of the related-party note payable
outstanding at the date of closing, plus certain shares of common and preferred
stock of an entity controlled by HDA. Under the terms of the Agreement, the
notes payable to related parties (see Note 3) were paid in full.
In connection with the Agreement, HDA also entered into three-year employment
agreements and five-year noncompete agreements with two shareholders of
Truckparts, Inc. In addition, HDA entered into a consulting agreement whereby
the consultant will be paid $56 per year for two years.
Note 9. Prior-Period Adjustment
The financial statements as presented include prior-period adjustments for
inventory, accounts receivable, vendor receivables, and accrued expenses. The
gross effect on retained earnings at October 1, 1996, and net income for the
year ended September 30, 1997, was approximately $1,240. The effect on retained
earnings at October 1, 1996, and net income for 1997, net of tax, was
approximately $617.
F-92
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
HDA Parts System, Inc.
Chicago, Illinois
We have audited the accompanying combined balance sheet of Tisco, Inc. and
Tisco of Redding, Inc. as of September 30, 1998, and the related combined
statements of income, stockholders' equity, and cash flows for the year then
ended. The financial statements are the responsibility of the Companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Tisco,
Inc. and Tisco of Redding, Inc. as of September 30, 1998, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ McGladrey & Pullen, llp
Minneapolis, Minnesota
December 12, 1998
F-93
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
COMBINED BALANCE SHEET
September 30, 1998
(In thousands)
<TABLE>
<S> <C>
ASSETS (Note 2)
---------------
Current Assets
Cash.................................................................. $ 355
Receivables:
Trade accounts, less allowance for doubtful accounts of $31......... 976
Vendor rebates (Note 1)............................................. 324
Inventories........................................................... 2,300
Prepaid expenses...................................................... 11
------
Total current assets.............................................. 3,966
------
Other Assets............................................................ 89
------
Property and Equipment
Transportation equipment.............................................. 258
Equipment............................................................. 201
Furnitures and fixtures............................................... 88
Leasehold improvements................................................ 5
------
552
Less accumulated depreciation......................................... 423
------
129
------
$4,184
======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current maturities of long-term debt (Note 2)......................... $ 49
Accounts payable...................................................... 879
Accrued expenses:
Compensation and employee benefits.................................. 44
Profit sharing contribution (Note 4)................................ 47
Sales tax........................................................... 55
Other............................................................... 68
------
Total current liabilities......................................... 1,142
------
Long-Term Debt, less current maturities (Note 2)........................ 262
------
Commitments and Contingencies (Notes 2, 3, and 6)
Stockholders' Equity
Common stock (Note 5)............................................... 109
Unearned compensation............................................... (37)
Retained earnings................................................... 2,708
------
2,780
------
$4,184
======
</TABLE>
See Notes to Combined Financial Statements.
F-94
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
COMBINED STATEMENT OF INCOME
Year Ended September 30, 1998
(In thousands)
<TABLE>
<S> <C>
Net sales............................................................... $8,641
Cost of sales........................................................... 6,146
------
Gross profit........................................................ 2,495
Operating expenses...................................................... 1,492
------
Operating income.................................................... 1,003
Nonoperating income (expense):
Interest expense (Note 2)............................................. (17)
Gain on sale of property and equipment................................ 1
------
Income before income taxes.......................................... 987
Provision for state income taxes........................................ 21
------
Net income.......................................................... $ 966
======
</TABLE>
See Notes to Combined Financial Statements.
F-95
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
Year Ended September 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Common Unearned Retained
Stock Compensation Earnings Total
------ ------------ -------- ------
<S> <C> <C> <C> <C>
Balance, September 30, 1997 $109 $ (50) $2,064 $2,123
Net income............................... -- -- 966 966
Amortization of unearned compensation.... -- 13 -- 13
Distributions to stockholders............ -- -- (322) (322)
---- ----- ------ ------
Balance, September 30, 1998 $109 $ (37) $2,708 $2,780
==== ===== ====== ======
</TABLE>
See Notes to Combined Financial Statements.
F-96
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
COMBINED STATEMENT OF CASH FLOWS
Year Ended September 30, 1998
(In thousands)
<TABLE>
<S> <C>
Cash Flows From Operating Activities
Net income............................................................ $ 966
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization....................................... 67
Deferred compensation............................................... 13
Gain on sale of property and equipment.............................. (1)
Changes in current assets and liabilities:
Receivables....................................................... (400)
Inventories....................................................... (731)
Prepaid expenses and other assets................................. 14
Accounts payable.................................................. 240
Accrued expenses.................................................. 99
-----
Net cash provided by operating activities....................... 267
-----
Cash Flows From Investing Activities
Purchases of property and equipment................................... (28)
Proceeds from sale of equipment....................................... 2
-----
Net cash used in investing activities........................... (26)
-----
Cash Flows From Financing Activities
Proceeds from long-term borrowings.................................... 250
Principal payments on long-term borrowings............................ (55)
Distributions to stockholders......................................... (323)
-----
Net cash used in financing activities........................... (128)
-----
Net increase in cash............................................ 113
Cash
Beginning............................................................. 242
-----
Ending................................................................ $ 355
-----
Supplemental Disclosure of Cash Flow Information
Cash payments for interest............................................ $ 13
Cash payments for state income taxes.................................. 4
=====
Supplemental Schedule of Noncash Investing and Financing Activities
Assets acquired under capital lease obligations....................... $ 26
=====
</TABLE>
See Notes to Combined Financial Statements.
F-97
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: Tisco, Inc. and Tisco of Redding, Inc. (together referred
to herein as the Companies) are distributors of motor vehicle parts and operate
out of four locations in northern California. The Companies sell their products
primarily to customers in the United States on credit terms established for its
customers on an individual and industry practice basis.
A summary of the Companies' significant accounting policies follows:
Principles of combination: The accompanying combined financial statements
include the accounts of Tisco, Inc. and Tisco of Redding, Inc., which are
related through common ownership. Management has elected to reflect these
financial statements as combined for the period presented. All material,
intercompany balances and transactions have been eliminated in combination.
Cash: The Companies maintain cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Companies have not experienced any
losses in such accounts.
Vendor rebates receivables: The vendor rebate receivables consist primarily
of rebates to be received from vendors for meeting certain purchase levels. The
receivable represents management's estimate of rebates to be received based on
purchasing activity calculated by rates included in the rebate agreements.
Inventories: Inventories are stated at the lower of cost (first in, first out
method) or market, and are comprised solely of purchased parts.
Property and equipment: Property and equipment are recorded at cost.
Depreciation is computed over the estimated useful lives of the respective
assets using straight-line and accelerated methods. The estimated useful lives
by class are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Transportation equipment............................................... 5-7
Equipment, furniture and fixtures...................................... 5-7
Leasehold improvements................................................. 39
</TABLE>
Income taxes: The Companies have elected to be taxed for federal and state
income tax purposes as an S Corporation. Under these provisions, the
stockholders' share in the net income of the Companies is reportable on their
individual tax returns. Therefore, these statements do not include any
provision for federal corporation income taxes and as the section of the
California tax law requires, the state income taxes are at a reduced rate. The
Companies intend to make distributions to the stockholders in amounts that will
at least allow them to pay the personal income taxes on the taxable income of
the Companies.
Revenue recognition: Revenue is recognized when products are shipped. Sales
for core parts are recorded net of exchanges and core credits. Cores may be
exchanged for credit at the time of a sale or within a specified period.
Returned cores are returned to the vendor for credit.
F-98
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share Data)
Segment information: In June 1998, the FASB issued SFAS Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement, effective for financial statements for fiscal years beginning after
December 15, 1997, requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. Based on this criteria, the Company has determined that
it operates in one business segment, that being the distribution of heavy duty
vehicle parts in the United States. Thus, all information required by SFAS No.
131 is included in the Company's financial statements.
Fair value of financial instruments: The carrying amounts of cash, accounts
receivable, long-term debt, accounts payable, and accrued expenses approximate
fair value because of the short maturity of these items.
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
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Note 2. Line of Credit and Long-Term Debt
Line of credit: The Companies combined have a $400 working capital agreement
with a financial institution. The borrowings bear interest at the prime rate
plus 1 percent (9.5 percent at September 30, 1998) and are secured by
substantially all of the Companies' assets and the guarantee of the Companies'
majority shareholder. The agreement expires in January 1999. There were no
outstanding borrowings under the line of credit at September 30, 1998.
Long-term debt: Long-term debt consists of the following at September 30,
1998:
<TABLE>
<CAPTION>
Tisco of
Tisco, Inc. Redding, Inc. Total
----------- ------------- -----
<S> <C> <C> <C>
Note payable, bearing interest at 7%, due
in monthly payments of $3, including
interest, through March, 2008, guaranteed
by the Companies' majority stockholder and
secured by certain assets of the
stockholder............................... $246 $-- $246
Capital leases, finance company, bearing
interest of 7.9% to 10.0%, due in varying
monthly payments, including interest,
through January 2002, secured by
transportation equipment.................. 39 20 59
Other...................................... 4 2 6
---- ---- ----
289 22 311
Less current portion....................... (42) (7) (49)
---- ---- ----
$247 $ 15 $262
==== ==== ====
</TABLE>
F-99
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share Data)
The approximate aggregate annual maturities are as follows:
<TABLE>
<S> <C>
Years ending September 30:
1999................................................................ $ 49
2000................................................................ 40
2001................................................................ 35
2002................................................................ 30
2003................................................................ 27
Thereafter.......................................................... 130
----
$311
====
</TABLE>
Minimum future lease obligations under these leases at September 30, 1998,
are as follows:
<TABLE>
<S> <C>
Years ending September 30:
1999.................................................................. $25
2000.................................................................. 22
2001.................................................................. 14
2002.................................................................. 6
---
Total minimum lease payments............................................ 67
Less amounts represent interest......................................... (8)
---
$59
===
</TABLE>
Note 3. Related-Party Transactions and Leasing Arrangements
Debt guarantee: The Companies have guaranteed payment of a stockholder note
payable with a financial institution. The outstanding balance of the note at
September 30, 1998, was approximately $44. All payments are current.
Property leases: The Companies lease space on a month-to-month basis pursuant
to four operating leases, requiring various monthly payments. Three leases are
with related parties. Rent expense was approximately $100 in 1998, including
$75 to related parties.
Note 4. Profit Sharing and Money Purchase Plan
The Companies maintain a profit sharing plan and a money purchase plan for
eligible employees. Under the terms of the profit sharing plan the Companies
can make discretionary contributions. The money purchase plan requires a
minimum contribution equal to 6 percent of each participant's total
compensation plus 5.7 percent of each participant's compensation for the plan
year in excess of the 100 percent of the taxable wage base in effect on the
first day of the plan year. No employee contributions are allowed under the
plans. The Companies' contributions to the plans for the year ended September
30, 1998, were $47.
F-100
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(In Thousands, Except Share Data)
Note 5. Stockholders' Equity
Common stock: Common stock consists of the following at September 30, 1998:
<TABLE>
<CAPTION>
Common
Stock
------
<S> <C>
Tisco, Inc. 100,000 shares authorized; no par value; 25,000 shares
issued and outstanding; stated at ........................... $ 9
Tisco of Redding, Inc. 500,000 shares authorized; no par value; 127
shares issued and outstanding, stated at .................... 100
----
$109
====
</TABLE>
Stock bonus plan: One of the Companies adopted a stock bonus plan on January
1, 1995. Under this plan, a restricted stock award of common stock was made to
an employee. The fair market value of these shares was determined to be $84.
The stock award is vesting over seven years, as long as the employee
continues employment with the Company. The resulting amortization of unearned
compensation recognized for the year ended September 30, 1998, was $12.
Note 6. Stock Purchase Agreement
Subsequent to September 30, 1998, the shareholders of the Companies entered
into a stock purchase agreement (the Agreement) with HDA Parts System, Inc.
(HDA) to sell all of the outstanding stock of the Companies. Terms of the
Agreement provide, in part, the following:
. Stock purchase price of $5,750 in cash plus common and preferred stock
of City Holdings, Inc., an HDA-controlled entity.
. Three (3) year noncompete agreements with the two officer/shareholders
of the Companies.
. The guaranteed note payable (Note 3) will be paid in full and the
unearned compensation of $37 relating to the 1995 stock bonus plan (Note
5) will be fully vested.
F-101
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
UNAUDITED COMBINED STATEMENT OF INCOME
For the Three Months Ended December 31, 1998
(In thousands)
<TABLE>
<S> <C>
Net sales............................................................... $2,152
Cost of sales........................................................... 1,563
------
Gross profit........................................................ 589
Operating expenses...................................................... 389
------
Operating income.................................................... 200
Nonoperating income:
Interest income ...................................................... 1
------
Income before income taxes.......................................... 201
Provision for state income taxes........................................ --
------
Net income and comprehensive income................................. $ 201
======
</TABLE>
See Notes to Combined Financial Statements.
F-102
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
UNAUDITED COMBINED STATEMENT OF CASH FLOWS
For the Three Months Ended December 31, 1998
(In thousands)
<TABLE>
<S> <C>
Cash Flows From Operating Activities
Net income and comprehensive income.................................... $201
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization........................................ 3
Changes in current assets and liabilities:
Receivables........................................................ (158)
Inventories........................................................ 92
Prepaid expenses and other assets.................................. (65)
Accounts payable................................................... (264)
Accrued expenses................................................... 28
----
Net cash used in operating activities............................ (163)
----
Cash Flows From Investing Activities
Purchases of property and equipment.................................... (11)
----
Net cash used in investing activities............................ (11)
----
Cash Flows From Financing Activities
Principal payments on long-term borrowings............................. (15)
----
Net cash used in financing activities............................ (15)
----
Net decrease in cash............................................. (189)
Cash
Beginning.............................................................. 355
----
Ending................................................................. $166
----
</TABLE>
See Notes to Combined Financial Statements.
F-103
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(In Thousands)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business and basis of presentation: Tisco, Inc. and Tisco of
Redding, Inc. (together referred to herein as the Companies) are distributors
of motor vehicle parts and operate out of four locations in northern
California. The Companies sell their products primarily to customers in the
United States on credit terms established for its customers on an individual
and industry practice basis.
The consolidated financial information presented herein is unaudited. The
interim financial statements and notes thereto do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the financial statements and notes thereto included in the
latest consolidated financial statements of the Companies. In the opinion of
management, the interim financial statements reflect all adjustments of a
normal recurring nature necessary for a fair statement of the results for
interim periods. The current period's results of operations are not necessarily
indicative of results that ultimately may be achieved for the year.
A summary of the Companies' significant accounting policies follows:
Principles of combination: The accompanying combined financial statements
include the accounts of Tisco, Inc. and Tisco of Redding, Inc., which are
related through common ownership. Management has elected to reflect these
financial statements as combined for the period presented. All material,
intercompany balances and transactions have been eliminated in combination.
Cash: The Companies maintain cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Companies have not experienced any
losses in such accounts.
Vendor rebates receivables: The vendor rebate receivables consist primarily
of rebates to be received from vendors for meeting certain purchase levels. The
receivable represents management's estimate of rebates to be received based on
purchasing activity calculated by rates included in the rebate agreements.
Inventories: Inventories are stated at the lower of cost (first in, first out
method) or market, and are comprised solely of purchased parts.
Property and equipment: Property and equipment are recorded at cost.
Depreciation is computed over the estimated useful lives of the respective
assets using straight-line and accelerated methods. The estimated useful lives
by class are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Transportation equipment............................................... 5-7
Equipment, furniture and fixtures...................................... 5-7
Leasehold improvements................................................. 39
</TABLE>
Income taxes: The Companies have elected to be taxed for federal and state
income tax purposes as an S Corporation. Under these provisions, the
stockholders' share in the net income of the Companies is reportable on their
individual tax returns. Therefore, these statements do not
F-104
<PAGE>
TISCO, INC. AND TISCO OF REDDING, INC.
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(In Thousands)
include any provision for federal corporation income taxes and as the section
of the California tax law requires, the state income taxes are at a reduced
rate. The Companies intend to make distributions to the stockholders in amounts
that will at least allow them to pay the personal income taxes on the taxable
income of the Companies.
Revenue recognition: Revenue is recognized when products are shipped. Sales
for core parts are recorded net of exchanges and core credits. Cores may be
exchanged for credit at the time of a sale or within a specified period.
Returned cores are returned to the vendor for credit.
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
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Note 2. Subsequent events
On January 12, 1999, HDA Parts System, Inc. purchased the Company. This was
accounted for as a purchase. The unaudited financial statements have not been
effected by this transaction.
F-105
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Member of
Active Gear, L.L.C.
In our opinion, the accompanying balance sheets and the related statements of
operations and member's equity, and cash flows present fairly, in all material
respects, the financial position of Active Gear, L.L.C. (the "Company") at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
September 10, 1999
Chicago, Illinois
F-106
<PAGE>
ACTIVE GEAR, L.L.C.
BALANCE SHEETS
at December 31, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
ASSETS
------
Current assets:
Cash........................................................... $ 44 $ 32
Accounts receivable, net of allowance for doubtful accounts of
$0 and $10.................................................... 658 725
Inventories.................................................... 2,521 2,897
Prepaid expenses............................................... 5 6
------ ------
Total current assets......................................... 3,228 3,660
------ ------
Property and equipment........................................... 333 345
------ ------
Total assets................................................. $3,561 $4,005
====== ======
LIABILITIES AND MEMBER'S EQUITY
-------------------------------
Current Liabilities:
Cash overdraft................................................. $ 271 $ 232
Current portion of long-term debt.............................. 33 28
Short-term bank borrowing...................................... 585 590
Accounts payable............................................... 394 486
Accrued expenses............................................... 128 139
Notes payable, related parties................................. 1,518 1,331
------ ------
Total current liabilities.................................... 2,929 2,806
------ ------
Long-term debt, net of current portion........................... 40 12
------ ------
Total liabilities............................................ 2,969 2,818
------ ------
Member's equity.................................................. 592 1,187
------ ------
Total liabilities and member's equity........................ $3,561 $4,005
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE>
ACTIVE GEAR, L.L.C.
STATEMENTS OF OPERATIONS AND MEMBER'S EQUITY
For the years ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Sales................................................... $8,445 $7,148 $7,922
Cost of sales........................................... 6,293 5,003 5,197
------ ------ ------
Gross profit.......................................... 2,152 2,145 2,725
------ ------ ------
Operating expenses
Selling, general, and administrative expenses......... 1,345 1,623 1,811
Depreciation and amortization......................... 62 73 75
------ ------ ------
1,407 1,696 1,886
Income from operations.................................. 745 449 839
------ ------ ------
Other income (expenses):
Interest income....................................... 2 -- --
Other income.......................................... 49 3 --
Rental income......................................... 13 13 14
Interest expense...................................... (33) (77) (62)
Interest expense-related parties...................... (153) (139) (129)
------ ------ ------
(122) (200) (177)
------ ------ ------
Net income and comprehensive income..................... 623 249 662
------ ------ ------
Member's beginning equity............................... (161) 428 592
Distributions........................................... (34) (85) (67)
------ ------ ------
Member's ending equity.................................. $ 428 $ 592 $1,187
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-108
<PAGE>
ACTIVE GEAR, L.L.C.
STATEMENT OF CASH FLOWS
For the years ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------ ----- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income and comprehensive income.................... $ 623 $ 249 $ 662
Adjustments to reconcile net income to net cash
provided in operating activities:
Depreciation and amortization........................ 62 73 75
(Gain) on disposition of assets...................... -- (3) --
(Increase) decrease in operating assets and
liabilities
Accounts receivable.................................. 37 (50) (67)
Inventories.......................................... (706) (406) (376)
Prepaid expenses..................................... 2 (1) (1)
Accounts payable..................................... (223) 146 92
Accrued expenses..................................... 1 32 11
------ ----- -----
Net cash provided (used) by operating activities... (204) 40 396
------ ----- -----
Cash flows from investing activities:
Purchases of property and equipment.................... (79) (150) (87)
Proceeds from sale of property and equipment........... -- 16 --
------ ----- -----
Net cash used by investing activities.................. (79) (134) (87)
------ ----- -----
Cash flows from financing activities:
Increase(decrease) in cash overdraft................... 173 (31) (39)
Payments on note payable, bank......................... (920) -- --
Proceeds from note payable, bank....................... -- 325 5
Payments on long-term debt............................. (16) -- (33)
Proceeds from long-term debt........................... -- 9 --
Payments on note payable, related parties.............. -- (82) (187)
Proceeds from note payable, related parties............ 1,081 -- --
Distributions to members............................... (34) (85) (67)
------ ----- -----
Net cash provided (used) by financing activities..... 284 136 (321)
------ ----- -----
Net change in cash....................................... 1 42 (12)
Cash at beginning of year................................ 1 2 44
------ ----- -----
Cash at end of year...................................... $ 2 $ 44 $ 32
====== ===== =====
Supplemental disclosures of cash flow information:
Cash paid for interest............................... $ 186 $ 217 $ 191
====== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-109
<PAGE>
ACTIVE GEAR, L.L.C.
NOTES TO FINANCIAL STATEMENTS
(amounts in thousands)
1. Nature of Business
Nature of Business
Active Gear, L.L.C. (the "Company") was incorporated in the State of
Washington in March 1995 as a Limited Liability Company. The Company sells
truck gears, units and component parts and rebuilds units for sale to both
retail and wholesale customers
2. Summary of Significant Accounting Policies
Inventory
Inventory consists of truck parts and cores and is valued at the lower of
cost or market. Cost is determined on the weighted average cost method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization which is calculated on a straight-line basis. Equipment is
depreciated over the estimated useful lives which range from 4 to 10 years.
Leasehold improvements are depreciated over 10 years.
Income Taxes
The company is treated as a partnership for federal income tax purposes and
does not incur income taxes. Instead, its earnings and losses are included in
the personal returns of the members and taxed depending on their personal tax
situations. Accordingly, the financial statements do not reflect a provision
for income taxes.
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 disclosure 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.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchange and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of sale of within a specified period. Returned cores are either returned
to the vendor for credit or remanufactured.
Cash and cash equivalents
Cash and equivalents represent cash and short-term, highly liquid investments
with original maturities three months or less.
F-110
<PAGE>
ACTIVE GEAR, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
3. Inventories
Inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Part inventory................................................ $2,319 $2,727
Cores......................................................... 202 170
------ ------
$2,521 $2,897
====== ======
4. Property and Equipment
Property, plant and equipment at December 31 consists of the following:
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Office equipment.............................................. $ 116 $ 121
Machinery and equipment....................................... 171 236
Vehicles...................................................... 119 129
Leasehold improvements........................................ 94 102
------ ------
500 588
Less: accumulated depreciation................................ 167 243
------ ------
$ 333 $ 345
====== ======
</TABLE>
5. Short Term Bank Borrowings
In October 1997 the Company obtained a $1.75 million bank credit facility for
letters of credit and an operating line of credit that matured in November
1998. The note was renewed in November 1998 and matures in October 2000, with
an adjusted limit of $2.0 million, and bearing interest at the bank's prime
rate, 9.00% and 7.75% at December 31, 1997 and 1998 respectively. At
December 31, 1997 and 1998, respectively, letters of credit outstanding totaled
$178 and $403, and borrowings under the line of credit totaled $585 and $590.
The credit facility is secured by the Company's trade receivables, inventory,
leaseholds and equipment and is personally guaranteed by the principle owner of
the Company. Covenants with the bank require minimum tangible net worth, as
defined, of the company of not less than $800.
F-111
<PAGE>
ACTIVE GEAR, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
6. Long-Term Debt and Capital Lease Obligations
A summary of long-term debt at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Notes payable requiring monthly payments of $1 including interest
at 10.75%. Final payment due April 1999, collateralized by
transportation equipment......................................... $15 $ 4
Capitalized lease obligation requiring monthly lease payments of
$1 including interest at 14.9%. Final payment due March 2000,
collateralized by computer equipment............................. 31 21
Note payable requiring monthly payment of $1 including interest at
9.99%. Final payment due February 2000, collateralized by
automobile....................................................... 27 15
--- ---
73 40
Less current portion.............................................. 33 28
--- ---
$40 $12
=== ===
</TABLE>
Principal payments required for future years ending December 31 are as
follows:
<TABLE>
<S> <C>
1999..................................................................... $28
2000..................................................................... 12
---
$40
===
</TABLE>
7. Leases
Future minimum lease payments for non-cancelable operating leases are as
follows:
<TABLE>
<S> <C>
1999.................................................................... $134
2000.................................................................... 137
2001.................................................................... 139
2002.................................................................... 102
2003.................................................................... 25
Thereafter.............................................................. --
----
$537
====
</TABLE>
The leases require payment of property taxes and operational expenses in
addition to base periodic rentals. The company has an option to renew the
Seattle store lease for an additional five year term when the current lease
expires in April 2003. Base rent for the option period will be negotiated at
the current market rate. The lease on the Tacoma store and yard expires in
December 2001. Total rent expense for operating leases, including rentals on
month-to-month leases was $115, $143, and $49 for the years ended December 31,
1996, 1997, 1998, respectively.
8. Related Party Transactions
The Company borrows from related parties that include the owners of the
Company, the owners' spouses, the owners' father's estate, and a trust for the
benefit of the owners' children. Notes payable to related parties at December
31, 1997 and 1998 were $1,518 and $1,331 respectively.
F-112
<PAGE>
ACTIVE GEAR, L.L.C.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
The notes are demand notes and are collateralized by accounts receivable,
inventory, equipment and general tangibles. The notes call for interest at the
Seafirst Bank reference rate plus, 9.00% and 7.75% at December 31,1997 and 1998
respectively. Interest paid by the Company during 1996, 1997, and 1998 on these
loans totaled $153, $139, and $129, respectively.
The Company rented the Tacoma store and yard, from the Members, for $2 per
month respectively in 1998. The lease expires in December 2001. Rents paid by
the Company to the Members during 1996, 1997, and 1998 totaled, $3, $28, and
$28, respectively.
9. Profit Sharing Plan
Substantially all employees of the Company are covered by the Company's
employee 401(k) profit sharing plan. The plan was established on March 10,
1995. The amount of the contributions is at the discretion of the Company. The
Company contributes 3% of eligible compensations. Employer contributions to the
401(k) profit sharing plan were $24, $29 and $34 in 1996, 1997 and 1998
respectively.
10. Subsequent Events
On April 20, 1999, the Company was acquired by HDA Parts System, Inc. This
was accounted for as a purchase. The financial statements have not been
effected by this transaction.
F-113
<PAGE>
ACTIVE GEAR, L.L.C.
UNAUDITED STATEMENTS OF OPERATIONS AND MEMBER'S EQUITY
For the Period from January 1, 1999 to April 20, 1999
(amounts in thousands)
<TABLE>
<S> <C>
Sales................................................................... $2,466
Cost of sales........................................................... 1,551
------
Gross profit.......................................................... 915
------
Operating expenses
Selling, general, and administrative expenses......................... 746
Depreciation and amortization......................................... 25
------
771
Income from operations.................................................. 144
------
Other income (expenses):
Other income.......................................................... 1
Rental income......................................................... 3
Interest expense...................................................... (44)
------
(40)
------
Net income and comprehensive income..................................... 104
------
Member's beginning equity............................................... 1,187
Distributions........................................................... (85)
------
Member's ending equity.................................................. $1,206
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-114
<PAGE>
ACTIVE GEAR, L.L.C.
UNAUDITED STATEMENT OF CASH FLOWS
For the Period from January 1, 1999 to April 20, 1999
(amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income and comprehensive income................................... $ 104
Adjustments to reconcile net income to net cash provided in (used by)
operating activities:
Depreciation and amortization....................................... 25
(Increase) decrease in operating assets and liabilities
Accounts receivable................................................. (292)
Inventories......................................................... (68)
Prepaid expenses.................................................... (29)
Accounts payable.................................................... (45)
Accrued expenses.................................................... 62
-----
Net cash used by operating activities............................. (243)
-----
Cash flows from investing activities:
Purchases of property and equipment................................... (35)
-----
Net cash used by investing activities................................. (35)
-----
Cash flows from financing activities:
Increase(decrease) in cash overdraft.................................. (209)
Proceeds from note payable, bank...................................... 107
Proceeds from long-term debt.......................................... 5
Proceeds from note payable, related parties........................... 429
Distributions to members.............................................. (85)
-----
Net cash provided by financing activities........................... 247
-----
Net change in cash...................................................... (31)
Cash at beginning of year............................................... 32
-----
Cash at end of year..................................................... $ 1
=====
Supplemental disclosures of cash flow information:
Cash paid for interest.............................................. $ 44
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-115
<PAGE>
ACTIVE GEAR, L.L.C.
UNAUDITED NOTES TO FINANCIAL STATEMENTS
(amounts in thousands)
1. Nature of Business and Basis of Presentation
Nature of Business
Active Gear, L.L.C. (the "Company") was incorporated in the State of
Washington in March 1995 as a Limited Liability Company. The Company sells
truck gears, units and component parts and rebuilds units for sale to both
retail and wholesale customers
The consolidated financial information presented herein is unaudited. The
interim financial statements and notes thereto do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the financial statements and notes thereto included in the
latest consolidated financial statements of the Companies. In the opinion of
management, the interim financial statements reflect all adjustments of a
normal recurring nature necessary for a fair statement of the results for
interim periods. The current period's results of operations are not necessarily
indicative of results that ultimately may be achieved for the year.
2. Summary of Significant Accounting Policies
Inventory
Inventory consists of truck parts and cores and is valued at the lower of
cost or market. Cost is determined on the weighted average cost method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization which is calculated on a straight-line basis. Equipment is
depreciated over the estimated useful lives which range from 4 to 10 years.
Leasehold improvements are depreciated over 10 years.
Income Taxes
The company is treated as a partnership for federal income tax purposes and
does not incur income taxes. Instead, its earnings and losses are included in
the personal returns of the members and taxed depending on their personal tax
situations. Accordingly, the financial statements do not reflect a provision
for income taxes.
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 disclosure 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.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchange and "core" credits. Cores, which are reusable
components of originally purchased parts,
F-116
<PAGE>
ACTIVE GEAR, L.L.C.
UNAUDITED NOTES TO FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
may be exchanged for credit at the time of sale of within a specified period.
Returned cores are either returned to the vendor for credit or remanufactured.
Cash and cash equivalents
Cash and equivalents represent cash and short-term, highly liquid investments
with original maturities three months or less.
2. Subsequent Events
On April 20, 1999, the Company was acquired by HDA Parts System, Inc. This
was accounted for as a purchase. The unaudited financial statements have not
been effected by this transaction.
F-117
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
California Equipment Company and California Equipment of Sacramento
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, stockholders' equity, and cash flows present
fairly, in all material respects, the financial position of California
Equipment Company and California Equipment Company of Sacramento (the
"Companies") at December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Companies' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
September 3, 1999
Chicago, Illinois
F-118
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND
CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
Combined Balance Sheets
At December 31, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.................................... $ 12 $ 55
Restricted cash.............................................. 142 122
Accounts receivable, net of allowance for doubtful accounts
of $45 in 1997 and
$56 in 1998................................................. 706 883
Current portion of patronage dividend receivable............. 186 122
Inventories.................................................. 2,025 1,761
Prepaid expenses and other current assets.................... 25 33
------ ------
Total current assets....................................... 3,096 2,976
Property and equipment, net.................................. 87 130
Long-term portion of patronage dividend receivable........... 52 65
Other assets................................................. 48 35
------ ------
Total assets............................................... $3,283 $3,206
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Cash overdraft............................................... $ 277 $ 162
Accounts payable............................................. 737 866
Current portion of long-term debt............................ 34 22
Other payables............................................... 39 45
Due to affiliate............................................. 1,048 1,079
Other accrued expenses and other liabilities................. 153 141
------ ------
Total current liabilities.................................. 2,288 2,315
Long-term debt................................................. 22 31
Other long-term payables....................................... 45 --
Stockholders' equity:
Common stock................................................. 162 162
Additional paid-in capital................................... 848 848
Retained earnings............................................ (82) (150)
------ ------
Total stockholders' equity................................. 928 860
------ ------
Total liabilities and stockholders' equity................. $3,283 $3,206
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-119
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
COMBINED STATEMENTS OF INCOME
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C> <C>
Sales............................................... $6,644 $6,431 $6,409
Cost of sales....................................... 4,349 4,241 4,178
------ ------ ------
Gross profit........................................ 2,295 2,190 2,231
Operating expenses:
Selling, general, and administrative expenses..... 2,241 2,210 2,180
Depreciation and amortization..................... 53 56 55
------ ------ ------
2,294 2,266 2,235
Income (loss) from operations..................... 1 (76) (4)
Other income (expense):
Interest expense.................................. (114) (115) (102)
Other income, net................................. 72 9 38
------ ------ ------
(42) (106) (64)
Loss before income taxes.......................... (41) (182) (68)
Provision for income taxes.......................... -- -- --
------ ------ ------
Net loss and comprehensive loss................... $ (41) $ (182) $ (68)
====== ====== ====== ===
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-120
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
COMBINED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -----
<S> <C> <C> <C>
Operating activities:
Net loss and comprehensive loss...................... $ (41) $ (182) $ (68)
Adjustments to net loss:
Depreciation and amortization...................... 53 56 55
Net loss (gain) on disposal of assets.............. 1 (4) (5)
Changes in operating assets and liabilities:
Restricted cash.................................... (52) (6) 20
Accounts receivable................................ 74 81 (177)
Patronage dividends receivable..................... 45 158 51
Inventories........................................ 107 (31) 264
Prepaid expenses and other current assets.......... (9) (9) (8)
Other assets....................................... 5 7 13
Accounts payable................................... 62 (124) 129
Other payables..................................... 44 (44) 6
Accrued expenses and other current liabilities..... (63) (27) (12)
Other long-term payables........................... 7 (39) (45)
------- ------- -----
Net cash provided by (used in) operating
activities...................................... 233 (164) 223
Investing activities:
Purchase of property and equipment................... (34) (16) (91)
Proceeds from sales of property and equipment........ -- 28 6
------- ------- -----
Net cash provided by (used in) investing
activities...................................... (34) 12 (85)
Financing activities:
Increase/(decrease) in cash overdraft................ (208) 254 (115)
Principal payments on line of credit................. (7,585) (6,577) --
Proceeds from line of credit......................... 7,627 6,517 --
Principal payments on notes payable.................. (37) (68) (33)
Proceeds from notes payable.......................... 15 -- 27
Principal payments on capital lease obligations...... (1) (4) (5)
Due to affiliate..................................... (7) 37 31
------- ------- -----
Net cash provided by (used in) financing
activities...................................... (196) 159 (95)
Net increase in cash and equivalents................... 3 7 43
Cash and equivalents, beginning of year................ 2 5 12
------- ------- -----
Cash and equivalents, end of year...................... $ 5 $ 12 $ 55
======= ======= =====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................... $ 105 $ 113 $ 101
Income taxes....................................... $ 2 $ 2 $ 2
Non-cash investing and financing activities:
Additions to property and equipment financed through
capital lease obligations........................... $ 16 $ 7 $ 8
Debt re-financed through affiliate (see Note 9)...... $ -- $ 865 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-121
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND
CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balances at January 1, 1996........... $162 $848 $ 141 $1,151
Net loss and comprehensive loss....... -- -- (41) (41)
---- ---- ----- ------
Balance at December 31, 1996.......... 162 848 100 1,110
Net loss and comprehensive loss....... -- -- (182) (182)
---- ---- ----- ------
Balance at December 31, 1997.......... 162 848 (82) 928
Net loss and comprehensive loss....... -- -- (68) (68)
---- ---- ----- ------
Balance at December 31, 1998.......... $162 $848 $(150) $ 860
==== ==== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-122
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
NOTES TO COMBINED FINANCIAL STATEMENTS
(amounts in thousands)
1. Description of the business and basis of presentation
California Equipment Company and California Equipment Company of Sacramento
(the "Companies") are distributors of truck parts and selected speciality
products throughout Northern California.
During the period from January 1, 1996 through December 31, 1998, the
Companies have been under the common ownership and control of management. The
combination of California Equipment Company and the California Equipment
Company of Sacramento has been accounted for in a manner similar to a pooling
of interests.
2. Summary of Significant Accounting Policies
Revenue recognition
Revenue is recognized when products are shipped. Sales of cores are recorded
net of exchanges and "core" credits. Cores, which are reusable components of
originally purchased parts, may be exchanged for credit at the time of sale or
within a specified period. Returned cores are returned to the vendor for
credit.
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 disclosure 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.
Cash and cash equivalents
All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents. These amounts are stated at cost
which approximates fair value due to short-term nature of these investments.
Inventories
Inventories consist of truck parts and cores, which are valued at the lower
of cost or market. Cost is determined on the average cost method.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using straight-line and accelerated methods over the
estimated useful lives of the assets. Maintenance and repairs are charged to
operations as incurred.
F-123
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND
CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
The useful lives for property and equipment are as follows:
<TABLE>
<CAPTION>
Useful
life
---------
<S> <C>
Leasehold improvements............................................. 10 years
Equipment, furniture, & fixtures................................... 5-7 years
Computer and data processing equipment............................. 5 years
Vehicles........................................................... 5 years
</TABLE>
3. Restricted cash
The Companies receive patronage dividends from a cooperative with whom they
maintain a joint account. The cooperative has the right to offset these
funds against amounts owed if the Companies fail to meet their minimum
purchase obligations.
4. Inventories
Inventories consist of the following at December 31,
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Parts inventory................................................ $1,504 $1,265
Cores.......................................................... 521 496
------ ------
$2,025 $1,761
====== ======
</TABLE>
5. Property & equipment
Property and equipment consist of the following at December 31,
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Leasehold improvement...................................... $ 51 $ 53
Machinery, equipment, furniture & fixtures................. 463 504
Computer and data processing equipment..................... 339 341
Vehicles................................................... 203 238
Equipment under capital leases............................. 38 46
------- -------
1,094 1,182
Less: accumulated depreciation............................. (1,007) (1,052)
------- -------
$ 87 $ 130
======= =======
</TABLE>
F-124
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND
CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
6. Long-term debt
At December 31, the Companies were obligated under notes payable and other
financing arrangements as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Notes payable with a credit company, collateralized by certain
vehicles; due in monthly installments ranging from $0.2 to $0.8
inclusive of interest at fixed rates ranging from 0.9% to 9.75%;
maturing September 1998 to May 2002.............................. $25 $30
Note payable to a former employee, due in monthly installments of
$1, inclusive of interest at a fixed rate of 10%; maturing
February 1999.................................................... 13 2
Obligations under capital leases (See Note 7)..................... 18 21
--- ---
56 53
Less: current maturities.......................................... 34 22
--- ---
$22 $31
=== ===
</TABLE>
The aggregate maturities of debt as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1999............................................................... $22
2000............................................................... 16
2001............................................................... 13
2002............................................................... 2
---
$53
===
</TABLE>
7. Operating leases and capital lease obligations and commitments
The Companies lease certain equipment under agreements which are classified
as capital leases. The net balance of property and equipment at December 31,
1997 and 1998 under capital leases is as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Gross amount under capital lease................................. $ 38 $ 46
Less accumulated depreciation.................................... (24) (32)
---- ----
$ 14 $ 14
==== ====
</TABLE>
The Companies lease office space and warehouse facilities under six operating
lease agreements with terms of one month to seven years and expiring through
September 2003. The facilities have fixed rental payments for the term of the
leases. Total rental expense for the operating leases is $341, $299, and $304
for each of the three years ended December 31, 1998, respectively.
F-125
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND
CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Future minimum lease payments for non-cancellable operating leases and
capital lease obligations are as follows:
<TABLE>
<CAPTION>
Capital Operating
Year ending December 31, leases leases
------------------------ ------- ---------
<S> <C> <C>
1999....................................................... $ 8 $ 298
2000....................................................... 8 298
2001....................................................... 6 298
2002....................................................... -- 298
2003....................................................... -- 225
--- ------
Total minimum lease payments............................... 22 $1,417
--- ======
Less amounts representing interest......................... (2)
---
Present value of minimum lease payments.................... $20
===
</TABLE>
8. Profit sharing plan
The Companies have a defined contribution plan for all eligible employees.
Contributions are discretionary and determined annually by the Board of
Directors of the respective companies. No contributions were made in each of
the three years ended December 31, 1998.
9. Related party transactions
Effective November 27, 1997, the Companies entered into a re-financing
agreement with a new lending agent. Prior to the re-financing, the Companies
held debt of $853 under a $1.25 million revolving credit facility and $12 under
a note payable jointly with its affiliate, Milligan-Spika Company. The
Milligan-Spika Company is held under common ownership and control with
California Equipment Company and California Equipment Company of Sacramento.
These debts were held in their entirety on the Companies' financial statements.
Subsequent to the refinancing, the Milligan-Spika Company retained primary
title to the debts of $617 under a $1.0 million revolving credit facility and
$250 under a note payable. However, the Companies continued to have use of the
credit facility and proceeds from the note payable through the year ending
December 31, 1998. Net borrowings and repayments are recorded in the due to
affiliate balance sheet account. As discussed in Note 12, California Equipment
Company and California Equipment Company of Sacramento have placed an
unconditional guarantee on these debts. Additionally, the Milligan-Spika
Company has charged the Companies interest expense relating to this debt of $7
and $97 for each of the two years ending December 31, 1998, respectively.
The Companies share facilities and common corporate and administrative
services with Milligan-Spika Company, a company held under common ownership and
control. These corporate general and administrative expenses have been
allocated to the Companies and Milligan-Spika Company using various management
assumptions. These expenses are not necessarily indicative of, and it is not
practicable for management to estimate, the nature and level of expenses which
might have been incurred had the Companies operated separately of Milligan-
Spika Company.
F-126
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND
CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
The Companies made purchases, at cost, totalling $10, $20, and $38 for each
of the three years ended December 31, 1998, respectively from its affiliate,
the Milligan-Spika Company.
The Companies also share a joint bank account with Milligan-Spika Company.
All cash has been included on the Companies' financial statements with the net
transactions to and from the Milligan-Spika Company recorded in due to
affiliate balance sheet account.
The Companies lease facilities under various operating leases from a
corporation owned by a stockholder of the Companies. The leases provide for
fixed rates and that the lessee pay expenses related to the properties,
primarily property taxes. The leases all expire in September 2003. Rent expense
on the leases amounted to $283, $271, and $277 for each of the three years
ended December 31, 1998, respectively.
10. Income taxes
The Companies file separate Federal and State tax returns and must elect to
apportion surtax exemptions and other tax benefits.
The components of the provision for income taxes from continuing operations
are:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Deferred income taxes:
Federal.................................................. $ 12 $ 57 $ 21
State.................................................... 4 16 7
Change in valuation allowance............................ (16) (73) (28)
---- ---- ----
$ -- $ -- $ --
==== ==== ====
</TABLE>
The provision for income taxes differed from the United States statutory rate
for each of the three years ended December 31, 1998 for the following reasons:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate......................................... $ 14 $ 62 $ 24
State and local taxes, net of federal benefits............. 2 11 4
Change in valuation allowance.............................. (16) (73) (28)
---- ---- ----
$ -- $ -- $ --
==== ==== ====
</TABLE>
F-127
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND
CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands except share data)
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 purposes. Deferred tax assets
(liabilities) were comprised of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1998
1997 -----
<S> <C> <C>
Gross deferred tax assets:
Inventories.................................................. $ 99 $ 99
Property & equipment......................................... 8 10
NOL carryforward............................................. 85 104
----- -----
192 213
Gross deferred tax liabilities:
Account receivable........................................... (9) (2)
Valuation allowance............................................ (183) (211)
----- -----
$ -- $ --
===== =====
</TABLE>
11. Common stock
Common stock of the Companies includes the following: 2,000 shares of $100
par Common Stock for California Equipment Company of which 1,016 shares were
issued and outstanding and 1,000 shares of $100 par Common Stock for California
Equipment Company of Sacramento of which 600 shares were issued and outstanding
on December 31, 1997 and 1998.
12. Commitments and contingencies
The Companies guarantee the outstanding debt under revolving credit facility
and note payable of its affiliate, Milligan-Spika Company. Debt outstanding at
December 31, 1997 and 1998, totalled $936 and $1,026, respectively. Such debt
has been subsequently paid off.
13. Subsequent event
On August 26, 1999, HDA Parts System, Inc. purchased the Companies. This was
accounted for as a purchase. The financial statements have not been effected by
this transaction.
F-128
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND
CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
Unaudited Combined Balance Sheet
At June 30, 1999
(amounts in thousands)
<TABLE>
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents............................................. $ 103
Restricted cash....................................................... 176
Accounts receivable, net of allowance for doubtful accounts of $69.... 1,097
Current portion of patronage dividend receivable...................... 65
Inventories........................................................... 2,305
Prepaid expenses and other current assets............................. 36
------
Total current assets................................................ 3,782
Property and equipment, net........................................... 129
Other assets.......................................................... 110
------
Total assets........................................................ $4,021
======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Cash overdraft........................................................ $ 231
Accounts payable...................................................... 1,336
------
Total current liabilities........................................... 1,567
Long Term Liabilities................................................... 1,587
Stockholders' equity:
Common stock.......................................................... 162
Additional paid-in capital............................................ 848
Retained earnings..................................................... (143)
------
Total stockholders' equity.......................................... 867
------
Total liabilities and stockholders' equity.......................... $4,021
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-129
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
UNAUDITED COMBINED STATEMENT OF INCOME
For the Six Months Ended June 30, 1999
(amounts in thousands)
<TABLE>
<S> <C>
Sales................................................................... $3,435
Cost of sales........................................................... 2,290
------
Gross profit............................................................ 1,145
Operating expenses:
Selling, general, and administrative expenses......................... 1,175
Depreciation and amortization......................................... 32
------
1,207
Loss from operations.................................................. (62)
Other income (expense):
Interest expense...................................................... (53)
Other income, net..................................................... 124
------
71
Income before income taxes............................................ 9
Provision for income taxes.............................................. 2
------
Net income and comprehensive income................................... $ 7
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-130
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
UNAUDITED COMBINED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1999
(amounts in thousands)
<TABLE>
<CAPTION>
June 30,
1999
--------
<S> <C>
Operating activities:
Net income and comprehensive income.................................. $ 7
Adjustments to net income:
Depreciation and amortization...................................... 32
Changes in operating assets and liabilities:
Restricted cash.................................................... (54)
Accounts receivable................................................ (214)
Patronage dividends receivable..................................... 122
Inventories........................................................ (544)
Prepaid expenses and other current assets.......................... (3)
Other assets....................................................... (75)
Accounts payable................................................... 470
Other payables..................................................... (45)
Accrued expenses and other current liabilities..................... 375
-----
Net cash provided by operating activities........................ 71
Investing activities:
Purchase of property and equipment................................... (31)
-----
Net cash used in investing activities............................ (31)
Financing activities:
Increase in cash overdraft........................................... 69
Principal payments on notes payable.................................. (53)
Due to affiliate..................................................... (8)
-----
Net cash provided by financing activities........................ 8
Net increase in cash and equivalents................................... 48
Cash and equivalents, beginning of year................................ 55
-----
Cash and equivalents, end of year...................................... $ 103
=====
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................................... $ 52
Income taxes....................................................... $ 1
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-131
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND
CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
UNAUDITED COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Period Ended June 30, 1999
(amounts in thousands)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998.......... $162 $848 $(150) $860
Net income and comprehensive income... -- -- 7 7
---- ---- ----- ----
Balance at June 30, 1999.............. $162 $848 $(143) $867
==== ==== ===== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-132
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
(amounts in thousands)
1. Description of the business and basis of presentation
California Equipment Company and California Equipment Company of Sacramento
(the "Companies") are distributors of truck parts and selected speciality
products throughout Northern California.
During the period from January 1, 1999 through June 30, 1999, the Companies
have been under the common ownership and control of management. The combination
of California Equipment Company and the California Equipment Company of
Sacramento has been accounted for in a manner similar to a pooling of
interests.
The consolidated financial information presented herein is unaudited. The
interim financial statements and notes thereto do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the financial statements and notes thereto included in the
latest consolidated financial statements of the Companies. In the opinion of
management, the interim financial statements reflect all adjustments of a
normal recurring nature necessary for a fair statement of the results for
interim periods. The current period's results of operations are not necessarily
indicative of results that ultimately may be achieved for the year.
2. Summary of Significant Accounting Policies
Revenue recognition
Revenue is recognized when products are shipped. Sales of cores are recorded
net of exchanges and "core" credits. Cores, which are reusable components of
originally purchased parts, may be exchanged for credit at the time of sale or
within a specified period. Returned cores are returned to the vendor for
credit.
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 disclosure 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.
Cash and cash equivalents
All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents. These amounts are stated at cost
which approximates fair value due to short-term nature of these investments.
Inventories
Inventories consist of truck parts and cores, which are valued at the lower
of cost or market. Cost is determined on the average cost method.
F-133
<PAGE>
CALIFORNIA EQUIPMENT COMPANY AND
CALIFORNIA EQUIPMENT COMPANY OF SACRAMENTO
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using straight-line and accelerated methods over the
estimated useful lives of the assets. Maintenance and repairs are charged to
operations as incurred.
The useful lives for property and equipment are as follows:
<TABLE>
<CAPTION>
Useful
life
---------
<S> <C>
Leasehold improvements............................................. 10 years
Equipment, furniture, & fixtures................................... 5-7 years
Computer and data processing equipment............................. 5 years
Vehicles........................................................... 5 years
</TABLE>
3. Restricted cash
The Companies receive patronage dividends from a cooperative with whom they
maintain a joint account. The cooperative has the right to offset these
funds against amounts owed if the Companies fail to meet their minimum
purchase obligations.
4. Inventories
Inventories consist of the following at June 30, 1999
<TABLE>
<S> <C>
Parts inventory....................................................... $1,723
Cores................................................................. 582
------
$2,305
======
</TABLE>
5. Property & equipment
Property and equipment consist of the following at June 30, 1999
<TABLE>
<S> <C>
Leasehold improvement............................................... $ 52
Machinery, equipment, furniture & fixtures.......................... 515
Computer and data processing equipment.............................. 363
Vehicles............................................................ 226
Equipment under capital leases...................................... 43
-------
1,199
Less: accumulated depreciation...................................... (1,070)
-------
$ 129
=======
</TABLE>
6. Subsequent event
On August 26, 1999, HDA Parts System, Inc. purchased the Companies. This
was accounted for as a purchase. The unaudited financial statements have
not been affected by this transaction.
F-134
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Shareholders of
Superior Truck & Auto Supply, Inc.:
In our opinion, the accompanying balance sheets and related statements of
income and retained earnings and cash flows present fairly, in all material
respects, the financial position of Superior Truck & Auto Supply, Inc. ("the
Company") at December 31, 1997 and 1998 and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
September 16, 1999
Chicago, Illinois
F-135
<PAGE>
SUPERIOR TRUCK & AUTO SUPPLY, INC.
BALANCE SHEETS
At December 31, 1997 and 1998
(amounts in thousands, except for share data)
<TABLE>
<CAPTION>
1997 1998
------ ------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................... $ 84 $ 69
Investments.................................................... 71 65
Accounts receivable, less allowance for doubtful accounts of
$20 and $23, respectively..................................... 339 371
Inventory...................................................... 995 1,110
Current portion of rebate receivable........................... 16 42
Prepaid expenses and other current assets...................... 45 13
------ ------
Total current assets......................................... 1,550 1,670
Property and equipment, net.................................... 334 347
Long-term portion of rebate receivable and other assets........ 46 87
------ ------
Total assets................................................. $1,930 $2,104
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. 399 302
Accrued liabilities.............................................. 62 69
Note payable, related party...................................... 1,118 1,084
------ ------
Total liabilities............................................ 1,579 1,455
====== ======
Stockholders' equity:
Common stock ($5 par value; 10,001 shares authorized and
outstanding).................................................... 50 50
Retained earnings................................................ 301 599
------ ------
Total stockholders' equity................................... 351 649
------ ------
Total liabilities and stockholders' equity................... $1,930 $2,104
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-136
<PAGE>
SUPERIOR TRUCK & AUTO SUPPLY, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net sales............................................... $3,004 $3,343 $3,640
Cost of sales........................................... 1,918 1,969 2,065
------ ------ ------
Gross profit............................................ 1,086 1,374 1,575
Selling, general and administrative expenses............ 1,039 1,208 1,285
------ ------ ------
Operating income........................................ 47 166 290
Other Income............................................ (7) (11) (9)
------ ------ ------
Net income and comprehensive income..................... 54 177 299
Retained earnings, beginning of year.................... 70 124 301
------ ------ ------
Stockholder distribution................................ -- -- (1)
------ ------ ------
Retained earnings, end of year.......................... $ 124 $ 301 $ 599
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-137
<PAGE>
SUPERIOR TRUCK & AUTO SUPPLY, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- -----
<S> <C> <C> <C>
Operating activities
Net income and comprehensive income........................ $ 54 $177 $ 299
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................. 76 63 57
Changes in operating assets and liabilities:
Accounts receivable, net................................. (49) (38) (32)
Rebate receivable........................................ (16) (20) (41)
Inventory, net........................................... (30) (98) (115)
Prepaid expenses and other current assets................ (64) (20) 6
Other assets............................................. -- (10) --
Accounts payable......................................... 76 73 (97)
Accrued liabilities...................................... (23) 6 7
---- ---- -----
Net cash provided by operating activities.................. 24 133 84
---- ---- -----
Investing activities
Investments................................................ -- (71) 6
Acquisitions of property and equipment..................... (49) (23) (70)
---- ---- -----
Net cash used in investing activities...................... (49) (94) (64)
---- ---- -----
Financing activities
Stockholder distribution................................... -- -- (1)
Increase (decrease) in loan payable........................ 16 (16) 3
Increase (decrease) in note payable........................ 60 (16) (37)
---- ---- -----
Net cash provided (used) in financing activities........... 76 (32) (35)
---- ---- -----
Net increase (decrease) in cash............................ 51 7 (15)
Cash at beginning of year.................................. 26 77 84
---- ---- -----
Cash at end of year........................................ $ 77 $ 84 $ 69
==== ==== =====
Supplemental disclosure of cash flow information:
Cash paid during year for interest....................... $ -- $ -- $ --
==== ==== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-138
<PAGE>
SUPERIOR TRUCKS & AUTO SUPPLY, INC.
NOTES TO THE FINANCIAL STATEMENTS
(amounts in thousands)
1. Basis of Presentation
The Company is engaged in the wholesale, retail, and refurbishing of truck
parts in the Northeast. The Company is headquartered in Norwell, Massachusetts.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments with original
maturities of three months or less from the date of purchase.
Inventory
Inventories consist of truck parts and cores, which are valued at the lower
of cost or market. Cost is determined using the average cost method.
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accumulated
amortization and depreciation. Depreciation is calculated using primarily
accelerated methods and is charged to operations over the estimated useful
lives of the assets which range from five to thirty-nine years as follows:
<TABLE>
<CAPTION>
Methods Useful Life
------- -----------
<S> <C> <C>
Furniture and fixtures MACRS 150% Declining 5 years
Equipment MACRS 150% Declining 5 years
Computer Equipment MACRS 150% Declining 5 years
Automobiles and trucks MACRS 150% Declining 5 years
Leasehold improvements Straight-line 31 1/2-39 years
</TABLE>
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of a sale or within a specified period. Returned cores are either returned
to the vendor for credit or remanufactured.
Income Taxes
The Company has elected "S" corporation status for federal and state income
tax reporting purposes. Accordingly, all federal and state income tax
liabilities pass through to the stockholders.
Uses 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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
F-139
<PAGE>
SUPERIOR TRUCKS & AUTO SUPPLY, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
3. Inventory
The inventory balances at December 31, 1996, 1997 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Parts........................................................... $953 $1,065
Cores........................................................... 42 45
---- ------
Total inventory................................................. $995 $1,110
==== ======
4. Property, Plant and Equipment
Property, plant and equipment are recorded at cost. At December 31, 1997 and
1998 property and equipment consisted of the following:
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Furniture and fixtures.......................................... $148 $ 150
Machinery and equipment......................................... 187 202
Automobiles and trucks.......................................... 153 188
Leasehold improvements.......................................... 280 284
---- ------
768 824
Less: accumulated depreciation.................................. 434 477
---- ------
$334 $ 347
==== ======
</TABLE>
5. Related Party Transactions
The Company has a month to month rental arrangement with a shareholder.
Aggregate payments of approximately $72, $71 and $71 were under this
arrangement during 1996, 1997 and 1998, respectively.
The Company has a note payable with a shareholder of the Company. The note is
non-interest bearing and due on demand.
The Company owns a minority interest in the stock of HD America, Inc., a
cooperative. The Company purchased approximately 37%, 56% and 64% of its goods
through this cooperative and recorded a rebate receivable of $32, $71 and $84,
for the years ended December 31, 1996, 1997 and 1998, respectively. These
rebates earned are allocated between cost of sales and inventory.
6. Profit Sharing Plan
Substantially all employees of the Company are covered by the Company's
employee profit sharing plan. The amount of the contributions is at the
discretion of the Company. There were no employer contributions for the years
ended December 31, 1996, 1997, and 1998.
7. Subsequent Event
On June 7, 1999 the Company was acquired by HDA Parts System, Inc. The
financial statements have not been effected by this transaction.
F-140
<PAGE>
SUPERIOR TRUCK & AUTO SUPPLY, INC.
UNAUDITED STATEMENT OF INCOME
For the Period from January 1, 1999 to June 7, 1999
(amounts in thousands)
<TABLE>
<S> <C>
Net sales............................................................... $1,614
Cost of sales........................................................... 969
------
Gross profit............................................................ 645
Selling, general and administrative expenses............................ 569
------
Operating income........................................................ 76
Other Income............................................................ --
------
Net income and comprehensive income..................................... $ 76
======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-141
<PAGE>
SUPERIOR TRUCK & AUTO SUPPLY, INC.
UNAUDITED STATEMENT OF CASH FLOWS
For the Period from January 1, 1999 to June 7, 1999
(amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
Operating activities
Net income and comprehensive income..................................... $ 76
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.......................................................... 35
Changes in operating assets and liabilities:
Accounts receivable, net.............................................. (58)
Rebate receivable..................................................... 17
Inventory, net........................................................ 44
Prepaid expenses and other current assets............................. 7
Accounts payable...................................................... (4)
Accrued liabilities................................................... 6
----
Net cash provided by operating activities............................... 123
----
Financing activities
Decrease in loan payable................................................ (94)
----
Net cash used in financing activities................................... (94)
----
Net increase in cash.................................................... 29
Cash at beginning of year............................................... 134
----
Cash at end of year..................................................... $163
====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-142
<PAGE>
SUPERIOR TRUCKS & AUTO SUPPLY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
(amounts in thousands)
1. Basis of Presentation
The Company is engaged in the wholesale, retail, and refurbishing of truck
parts in the Northeast. The Company is headquartered in Norwell, Massachusetts.
The consolidated financial information presented herein is unaudited. The
interim financial statements and notes thereto do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the financial statements and notes thereto included in the
latest consolidated financial statements of the Companies. In the opinion of
management, the interim financial statements reflect all adjustments of a
normal recurring nature necessary for a fair statement of the results for
interim periods. The current period's results of operations are not necessarily
indicative of results that ultimately may be achieved for the year.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments with original
maturities of three months or less from the date of purchase.
Inventory
Inventories consist of truck parts and cores, which are valued at the lower
of cost or market. Cost is determined using the average cost method.
Property, Plant and Equipment
Property, plant and equipment is carried at cost less accumulated
amortization and depreciation. Depreciation is calculated using primarily
accelerated methods and is charged to operations over the estimated useful
lives of the assets which range from five to thirty-nine years as follows:
<TABLE>
<CAPTION>
Methods Useful Life
------- -----------
<S> <C> <C>
Furniture and fixtures MACRS 150% Declining 5 years
Equipment MACRS 150% Declining 5 years
Computer Equipment MACRS 150% Declining 5 years
Automobiles and trucks MACRS 150% Declining 5 years
Leasehold improvements Straight-line 31 1/2-39 years
</TABLE>
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of a sale or within a specified period. Returned cores are either returned
to the vendor for credit or remanufactured.
F-143
<PAGE>
SUPERIOR TRUCKS & AUTO SUPPLY, INC.
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Income Taxes
The Company has elected "S" corporation status for federal and state income
tax reporting purposes. Accordingly, all federal and state income tax
liabilities pass through to the stockholders.
Uses 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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
2. Subsequent Event
On June 7, 1999 the Company was acquired by HDA Parts System, Inc. This was
accounted for as a purchase. The unaudited financial statements have not been
effected by this transaction.
F-144
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Wheels and Brakes, Inc. and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income and stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Wheels and
Brakes, Inc. and subsidiaries (the "Company") at January 31, 1998 and 1999, and
the results of their operations and their cash flows for each of the three
years in the period ended January 31, 1999 in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
September 15, 1999
Chicago, Illinois
F-145
<PAGE>
WHEELS AND BRAKES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
At January 31, 1998 and 1999
(amounts in thousands except share data)
<TABLE>
<CAPTION>
1998 1999
------ -------
ASSETS
------
<S> <C> <C>
Current Assets:
Cash........................................................ $ 96 $ 99
Receivables, net of allowance for doubtful accounts of $146
and $151................................................... 2,390 2,339
Rebate receivable........................................... 456 510
Inventories................................................. 5,218 5,592
Deferred income taxes....................................... 175 196
Prepaid expenses............................................ 54 66
------ -------
Total current assets...................................... 8,389 8,802
Property and equipment, net of accumulated depreciation....... 563 535
Other Assets
Cash value of life insurance, net of loans of $49 and $49... 118 121
Other Assets................................................ 50 44
Non-current portion of rebate receivables................... 731 804
------ -------
Total Assets.............................................. $9,851 $10,306
====== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities:
Cash overdraft.............................................. $ 915 $ 1,102
Line of credit.............................................. 2,722 2,645
Current portion of note payable............................. 44 93
Current portion of capital lease obligation................. 15 17
Current portion of liability for ESOP indebtedness.......... 52 56
Accounts payable............................................ 2,253 2,261
Employee savings............................................ 299 303
Accrued expenses............................................ 546 505
Income taxes payable........................................ (5) 42
------ -------
Total current liabilities................................. 6,841 7,024
------ -------
Long-term debt:
Notes payable, net of current portion......................... 214 293
Capital lease obligations, net of current portion............. 70 54
Deferred income taxes......................................... 25 32
Liability for ESOP indebtedness............................... 119 63
------ -------
Total liabilities......................................... 7,269 7,466
------ -------
Stockholders' Equity
Common stock ($.04 par value; 100,000 shares authorized;
85,925 and 82,175 shares issued; 70,174 and 68,934 shares
outstanding)............................................... 3 3
Paid in capital............................................. 84 73
Retained earnings........................................... 2,930 3,114
Less: Guarantee for ESOP contribution....................... (170) (118)
Cost of treasury stock (15,731 and 13,241 shares)........... (265) (232)
------ -------
Total stockholders' equity................................ 2,582 2,840
------ -------
Total liabilities and stockholders' equity................ $9,851 $10,306
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-146
<PAGE>
WHEELS AND BRAKES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended January 31, 1997, 1998 and 1999
(amounts in thousands)
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net sales............................................ $22,980 $23,119 $23,702
Cost of sales........................................ 16,135 16,405 16,846
------- ------- -------
Gross profit......................................... 6,845 6,714 6,856
Selling, general and administrative expense.......... 6,490 6,380 6,302
------- ------- -------
Income from operations........................... 355 334 554
------- ------- -------
Other income (expenses):
Net gain (loss) on disposals of fixed assets....... 2 -- (9)
Interest expense................................... (362) (388) (386)
Bad debt recoveries................................ 1 4 7
Finance charges.................................... 34 37 39
Rental income, net................................. 119 109 144
Interest income.................................... 24 36 40
Other.............................................. 9 26 17
------- ------- -------
Net other expenses............................... (173) (176) (148)
------- ------- -------
Income before income taxes........................... 182 158 406
Provision for income taxes........................... 77 66 166
------- ------- -------
Net income and comprehensive income.................. $ 105 $ 92 $ 240
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-147
<PAGE>
WHEELS AND BRAKES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended January 31, 1997, 1998 and 1999
(amounts in thousands)
<TABLE>
<CAPTION>
Guarantee
Common Paid in Retained for ESOP Treasury
stock capital earnings contribution stock Totals
------ ------- -------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance--January 31,
1996................... $ 4 $ 84 $2,775 $(257) $(270) $2,336
Net income and
comprehensive income... -- -- 105 -- -- 105
Reduction in ESOP
guarantee.............. -- -- -- 41 -- 41
Purchases of treasury
stock.................. -- -- -- -- (4) (4)
--- ---- ------ ----- ----- ------
Balance--January 31,
1997................... 4 84 2,880 (216) (274) 2,478
Net income and
comprehensive income... -- -- 92 -- -- 92
Reduction in ESOP
guarantee.............. -- -- -- 46 -- 46
Purchases of treasury
stock.................. -- -- -- -- (34) (34)
Retirement of treasury
stock.................. (1) -- (42) -- 43 --
--- ---- ------ ----- ----- ------
Balance--January 31,
1998................... 3 84 2,930 (170) (265) 2,582
Net income and
comprehensive income... -- -- 240 -- -- 240
Reduction in ESOP
guarantee.............. -- -- -- 52 -- 52
Purchases of treasury
stock.................. -- -- -- -- (34) (34)
Retirement of treasury
stock.................. -- (11) (56) -- 67 --
--- ---- ------ ----- ----- ------
Balance--January 31,
1999................... 3 73 3,114 (118) (232) 2,840
=== ==== ====== ===== ===== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-148
<PAGE>
WHEELS AND BRAKES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended January 31, 1997, 1998 and 1999
(amounts in thousands)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income and comprehensive income............ $ 105 $ 92 $ 240
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 48 59 64
Loss (gain) on disposals of fixed assets...... (2) -- 9
Change in operating assets and liabilities:
Receivables................................. (188) 204 167
Rebate receivables.......................... (36) (167) (127)
Inventories................................. (12) (350) (241)
Prepaid expenses............................ 24 (49) (12)
Other assets................................ (8) (6) 3
Deferred taxes.............................. (30) 10 (14)
Accounts payable............................ 556 171 (68)
Employee savings............................ 23 21 4
Accrued expenses............................ (54) 44 (41)
Income taxes payable........................ 23 (28) 47
-------- -------- --------
Net cash provided by operating
activities:.............................. 449 1 31
-------- -------- --------
Cash Flows From Investing Activities
Purchases of property, plant and equipment..... (141) 15 (21)
Proceeds from sales of property and equipment.. 5 20 --
-------- -------- --------
Net cash provided (used) by investing
activities............................... (136) 35 (21)
-------- -------- --------
Cash Flows From Financing Activities
Proceeds from line of credit................... 23,775 25,806 26,118
Payments on line of credit..................... (24,640) (25,421) (26,195)
Cash overdraft................................. 619 (351) 187
Payments on notes payable and capital lease.... (38) (55) (83)
Purchases of treasury stock.................... (4) (34) (34)
Proceeds from notes payable.................... -- 47 --
-------- -------- --------
Net cash provided (used) by financing
activities............................... (288) (8) (7)
Net increase in cash............................. 25 28 3
Cash--Beginning.................................. 43 68 96
-------- -------- --------
Cash--Ending..................................... $ 68 $ 96 $ 99
======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest...................................... $ 363 $ 385 $ 387
======== ======== ========
Taxes......................................... $ 68 $ 116 $ 146
======== ======== ========
Schedule of Non-Cash Investing and Financing
Activities:
Decrease in liability for ESOP indebtedness and
guarantee for ESOP contribution............... $ 41 $ 46 $ 52
======== ======== ========
New borrowings of debt to finance purchases of
property and equipment........................ $ -- $ 89 $ 196
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-149
<PAGE>
WHEELS AND BRAKES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying financial statements include the accounts of Wheels and
Brakes, Inc. (the "Company") and its wholly owned subsidiaries, Power Train of
Georgia, Inc., Southeastern Commercial Warehouse, Inc. and Spec-rite Brake
Company. All significant intercompany balances and transactions between the
Company and its wholly owned subsidiaries have been eliminated.
On September 2, 1997, Power Train of Georgia, Inc. and Southeastern
Commercial Warehouse, Inc. were dissolved. Their operations were merged into
the operations of the Company.
Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include any
highly liquid investment instruments purchased with a maturity of three months
or less. Cash and cash equivalents do not include disbursements which have not
yet cleared the line of credit, and which are listed as cash overdrafts in the
accompanying consolidated balance sheets.
Inventories
Inventories consist of truck parts and cores, which are valued at the lower
of the cost or market using the last in, first out (LIFO) method. Inventories
valued at LIFO amounted to $5,327 and $5,638 at January 31, 1998 and 1999,
respectively, which were below estimated average cost by $386 and $391,
respectively.
Deferred Income Taxes
The Company applies an asset and liability approach to accounting for income
taxes. Deferred tax liabilities and assets are recognized for the expected
future tax consequences of temporary differences between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the years in which the differences are expected to reverse.
Property and Equipment
Property and equipment are recorded at cost. Depreciation of fixed assets is
provided using straight-line methods over estimated useful lives for financial
reporting purposes and accelerated methods over statutory lives for income tax
reporting purposes. Amortization of leasehold improvements is provided over
estimated useful lives for financial reporting purposes. Maintenance and
repairs are expensed as incurred, and major renewals and betterments are
capitalized. The net gain or loss on retires property is charged to operations,
and the related cost and accumulated depreciation are removed from the
accounts.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core credits". Cores, which are reusable
components of originally purchased parts,
F-150
<PAGE>
WHEELS AND BRAKES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
may be exchanged for credit at the time of sale or within a specified period.
Returned cores are either returned to the vendor for credit or remanufactured.
Use of Estimates
The preparation of the 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
disclosure 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.
2. Inventories
The inventory balances at January 31 consist of the following:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Parts.......................................................... $4,112 $4,371
Cores.......................................................... 1,106 1,221
------ ------
Total inventory................................................ $5,218 $5,592
====== ======
</TABLE>
3. Property and equipment
Property and equipment consists of the following at January 31:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Computer systems.............................................. $ 204 $ 108
Office furniture and fixtures................................. 285 291
Machinery and equipment....................................... 584 602
Vehicles...................................................... 45 44
Buildings and improvements.................................... 404 396
Land.......................................................... 96 96
------ ------
1,618 1,537
Less: accumulated depreciation................................ 1,055 1,002
------ ------
$ 563 $ 535
====== ======
</TABLE>
F-151
<PAGE>
WHEELS AND BRAKES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
4. Notes Payable
The Company's indebtedness under notes as of January 31 consists of the
following:
<TABLE>
<CAPTION>
1998 1999
----- ----
<S> <C> <C>
Note, payable in quarterly installments of $15 principal and
interest (at 7%) through April 2002; guaranteed by the
majority stockholder.......................................... $ -- $172
Note to American National Bank & Trust Company, payable in
monthly installments appropriate to amortize the note through
September 2005. The interest rate is equivalent to the three
year U.S. Treasury note plus 3% and is adjusted every 3 years;
collateralized by land and buildings.......................... 173 157
Note to former shareholder, payable in monthly installments of
$1 principal and interest (at 10%) through January 2001;
collateralized by 8,425 shares treasury stock................. 43 30
Note to First Union, payable in monthly installments of $1
principal and interest (at 9.51%) through February 2001;
collateralized by equipment................................... 38 27
Note to former shareholder, payable in monthly installments of
$1 principal and interest (at 10.0%) through May 1998;
collateralized by 3,750 shares of treasury stock.............. 4 --
----- ----
Total.......................................................... 258 386
Less current portion........................................... 44 93
----- ----
$ 214 $293
===== ====
</TABLE>
As of January 31, 1999, future maturities are as follows:
<TABLE>
<S> <C>
2000............................................................... $ 93
2001............................................................... 101
2002............................................................... 79
2003............................................................... 37
2004............................................................... 25
Thereafter.......................................................... 51
----
$386
====
</TABLE>
5. Line of Credit
The Company has a $4,500 line of credit agreement with NationsBank.
Borrowings bear an interest at prime plus 0.75% and interest is paid monthly.
The borrowings are collateralized by trade accounts receivable and inventories
of the Company; the Company can borrow up to 85% of accounts receivable, as
defined, and up to 45% of inventories, as defined. In addition, the borrowings
are guaranteed by the President, who is the largest single stockholder of the
Company. The borrowings outstanding on the line of credit were $2,722 and
$2,645 at January 31, 1998 and 1999, respectively.
F-152
<PAGE>
WHEELS AND BRAKES, INC. AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
6. Lease Agreements
Operating Leases
The Company leases office space, warehouse facilities, vehicles and certain
equipment under non-cancelable leases expiring at various dates. Certain
offices and facilities leases are with companies owned by stockholders or
employees of the Company. In addition to the fixed rentals, certain leases
require payment of taxes, utilities, and various other use and occupancy costs,
and include renewal provisions. The approximate future minimum rental
obligations under these leases are as follows:
<TABLE>
<S> <C>
2000............................................................. $ 610
2001............................................................. 503
2002............................................................. 451
2003............................................................. 342
2004............................................................. 314
Thereafter........................................................ 400
------
$2,620
======
</TABLE>
Rent expense for offices and warehouse facilities during the years ended
January 31, 1997, 1998 and 1999 amounted to $424, $425 and $437, respectively.
In addition, $35, $36 and $31, respectively, of additional rent were offset
against rental income. Rental payments for leases with related parties amounted
to $317, $318 and $313, respectively, during the years ended January 31, 1997,
1998 and 1999.
Capital Lease
The Company leases certain equipment under a capital lease which will expire
October 2002. The economic substance of these leases has the company financing
its acquisition of assets through the leases over their terms and, accordingly,
they are reflected in the Company's assets and liabilities. The value of the
leases assets as of January 31, 1998 and 1999 is as follows:
Future minimum payments under the capital lease are as follows:
<TABLE>
<S> <C>
2000................................................................ $22
2001................................................................ 22
2002................................................................ 22
2003................................................................ 17
---
83
Less: Amount representing interest.................................. 12
---
71
Less: Current portion............................................... 17
---
$54
===
</TABLE>
Total lease payments under this capital lease were $4 and $22 during the
years ended January 31, 1998 and 1999, respectively.
F-153
<PAGE>
WHEELS AND BRAKES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands except share data)
7. Income Taxes
The provision for income taxes for the years ended January 31 was as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Current income taxes:
Federal.................................................. $ 92 $35 $152
State.................................................... 14 8 28
Deferred income taxes...................................... (29) 23 (14)
---- --- ----
$ 77 $66 $166
==== === ====
</TABLE>
The provision for income taxes differed from the United States statutory rate
for the years ended January 31 for the following reasons:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate....................... $62 $54 $138
Surtax exemption........................................... (6) (8) --
State tax provision, net................................... 8 7 16
Non-deductible entertainment expense....................... 8 7 5
Officers' life insurance................................... 4 5 6
Other...................................................... 1 1 1
--- --- ----
$77 $66 $166
=== === ====
</TABLE>
Deferred tax assets (liabilities) were comprised of the following at January
31:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Gross deferred tax assets:
Inventory...................................................... $ 76 $ 90
Accounts receivable............................................ 55 57
Vacation and bonus accruals.................................... 44 49
---- ----
175 196
Gross deferred tax liabilities:
Property and equipment......................................... (25) (32)
---- ----
Net deferred tax asset........................................... $150 $164
==== ====
</TABLE>
8. Employee Stock Ownership Plan (ESOP)
In 1985 the Company adopted an ESOP. Upon adoption, the ESOP Plan purchased
27,600 shares of common stock, constituting 30.78% of the outstanding common
stock, from the major stockholder at that time. The purchase price was $554 and
was evidenced by a payment of $54 and $500 financed by the seller for fifteen
years at 10.5%, with monthly payments of $6 beginning February 1986. The
Company has guaranteed the note of the ESOP. This guarantee is shown as a
reduction of stockholders' equity in the accompanying consolidated balance
sheets in the amount of $170 and $119 as of January 31, 1998 and 1999,
respectively.
F-154
<PAGE>
WHEELS AND BRAKES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands except share data)
During the years ended January 31, 1997, 1998 and 1999, the Company purchased
153, 1,334 and 1,240 shares, respectively, of stock from ESOP. This stock
represented the vested shares owned by certain individuals who no longer worked
for the Company or participated in the ESOP. Rather than have the ESOP
repurchase the shares and reallocate them to other participants, the Company
elected to acquire them. These shares are included in treasury stock in the
accompanying consolidated balance sheets.
9. Related Party Transactions
The Company is a minority stockholder in HD America, Inc., a cooperative. As
an incentive to purchase from HD America, Inc., the Company receives rebates
based on amounts purchased. These rebates are paid over a three year period.
During the years ended January 31, 1997, 1998 and 1999, the Company purchased
$8,078, $8,711 and $10,646, respectively, resulting in rebates of $675, $811
and $814, respectively. At January 31, 1998 and 1999, $1,187 and $1,314 of HD
America, Inc. rebate receivables are included in the balance sheet,
respectively.
The Company leases certain office and warehouse facilities from related
parties.
The Company periodically loans money to its employees and officers. No
interest is generally charged on these advances and there is generally no fixed
repayment date. At January 31, 1998 and 1999 these advances were $10 and $5,
respectively.
10. Subsequent Events
Subsequent to January 31, 1999, the Company's stockholders have agreed to
sell their ownership interest in the Company to HDA Parts System, Inc. The
financial statements have not been affected by this transaction.
F-155
<PAGE>
WHEELS AND BRAKES, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
At June 30, 1999
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
Current Assets:
Cash................................................................ $ 108
Receivables, net of allowance for doubtful accounts of $228 ........ 4,090
Inventories......................................................... 5,586
Prepaid expenses.................................................... 105
Current portion of notes receivable/patronage dividend.............. 33
-------
Total current assets.............................................. 9,922
Property and equipment, net of accumulated depreciation............... 251
Other Assets........................................................ 52
-------
Total Assets...................................................... $10,225
=======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C>
Current Liabilities:
Note payable........................................................ 2,463
Current portion of long term debt................................... 802
Accounts payable.................................................... 3,460
Accrued liabilities................................................. 602
-------
Total current liabilities......................................... 7,327
-------
Stockholders' Equity
Common stock ($.04 par value; 100,000 shares authorized; 82,175
shares issued; 68,934 shares outstanding).......................... 3
Paid in capital..................................................... 73
Retained earnings................................................... 3,172
Less: Guarantee for ESOP contribution............................... (118)
Cost of treasury stock (13,241 shares).............................. (232)
-------
Total stockholders' equity........................................ 2,898
-------
Total liabilities and stockholders' equity........................ $10,225
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-156
<PAGE>
WHEELS AND BRAKES, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
For the Five Months Ended June 30, 1999
(amounts in thousands)
<TABLE>
<S> <C>
Net sales.............................................................. $10,943
Cost of sales.......................................................... 7,785
-------
Gross profit........................................................... 3,158
Selling, general and administrative expense............................ 3,052
-------
Income from operations............................................. 106
-------
Other income (expenses):
Interest expense..................................................... (108)
Interest income...................................................... --
Other income......................................................... 98
-------
Income before income taxes............................................. 96
Provision for income taxes............................................. 38
-------
Net income and comprehensive income.................................... $ 58
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-157
<PAGE>
WHEELS AND BRAKES, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Five Months Ended June 30, 1999
(amounts in thousands)
<TABLE>
<CAPTION>
Guarantee
Common Paid in Retained for ESOP Treasury
stock capital earnings contribution stock Totals
------ ------- -------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance--January 31,
1999................... $ 3 $ 73 $ 3,114 $ (118) $ (232) $ 2,840
Net income and
comprehensive income... -- -- 58 -- -- 58
--- ---- ------- ------ ------ -------
Balance at June 30,
1999................... $ 3 $ 73 $ 3,172 $ (118) $ (232) $2,898
=== ==== ======= ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-158
<PAGE>
WHEELS AND BRAKES, INC., AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Five Months Ended June 30, 1999
(amounts in thousands)
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net income and comprehensive income................................... $ 58
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 27
Change in operating assets and liabilities:
Receivables........................................................ 826
Inventories........................................................ (6)
Prepaid expenses................................................... (157)
Current Portion Notes Receivable/patronage dividend................ (477)
Other assets....................................................... 8
Accounts payable................................................... (97)
Accrued expenses................................................... (97)
-----
Net cash provided by operating activities:....................... 85
-----
Cash Flows From Investing Activities
Purchases of property, plant and equipment............................ (19)
Proceeds from sales of property and equipment......................... 276
-----
Net cash provided by investing activities........................ 257
-----
Cash Flows From Financing Activities
Payments on notes payable and capital lease........................... (333)
-----
Net cash used by financing activities............................ (333)
Net increase in cash.................................................... 9
Cash--Beginning......................................................... 99
-----
Cash--Ending............................................................ $ 108
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-159
<PAGE>
WHEELS AND BRAKES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands)
1. Summary of Significant Accounting Policies and basis of presentation
The consolidated financial information presented herein is unaudited. The
interim financial statements and notes thereto do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the financial statements and notes thereto included in the
latest consolidated financial statements of the Companies. In the opinion of
management, the interim financial statements reflect all adjustments of a
normal recurring nature necessary for a fair statement of the results for
interim periods. The current period's results of operations are not necessarily
indicative of results that ultimately may be achieved for the year.
Principles of Consolidation
The accompanying financial statements include the accounts of Wheels and
Brakes, Inc. (the "Company") and its wholly owned subsidiaries, Power Train of
Georgia, Inc., Southeastern Commercial Warehouse, Inc. and Spec-rite Brake
Company. All significant intercompany balances and transactions between the
Company and its wholly owned subsidiaries have been eliminated.
Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include any
highly liquid investment instruments purchased with a maturity of three months
or less. Cash and cash equivalents do not include disbursements which have not
yet cleared the line of credit, and which are listed as cash overdrafts in the
accompanying consolidated balance sheets.
Inventories
Inventories consist of truck parts and cores, which are valued at the lower
of the cost or market using the last in, first out (LIFO) method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation of fixed assets is
provided using straight-line methods over estimated useful lives for financial
reporting purposes and accelerated methods over statutory lives for income tax
reporting purposes. Amortization of leasehold improvements is provided over
estimated useful lives for financial reporting purposes. Maintenance and
repairs are expensed as incurred, and major renewals and betterments are
capitalized. The net gain or loss on retires property is charged to operations,
and the related cost and accumulated depreciation are removed from the
accounts.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core credits". Cores, which are reusable
components of originally purchased parts,
may be exchanged for credit at the time of sale or within a specified period.
Returned cores are either returned to the vendor for credit or remanufactured.
F-160
<PAGE>
WHEELS AND BRAKES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(amounts in thousands)
Use of Estimates
The preparation of the 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
disclosure 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.
2. Inventories
The inventory balances at June 30, 1999 consist of the following:
<TABLE>
<S> <C>
Parts................................................................. $4,321
Cores................................................................. 1,265
------
Total inventory....................................................... $5,586
======
</TABLE>
3. Property and equipment
Property and equipment consists of the following at June 30, 1999:
<TABLE>
<S> <C>
Computer systems..................................................... $ 117
Office furniture and fixtures........................................ 291
Machinery and equipment.............................................. 609
Vehicles............................................................. 44
Buildings and improvements........................................... 172
------
1,233
Less: accumulated depreciation....................................... 982
------
$ 251
======
</TABLE>
4. Subsequent Events
On October 8, 1999, the Company's stockholders sold their ownership interest
in the Company to HDA Parts System, Inc. This was accounted for as a purchase.
The unaudited financial statements have not been affected by this transaction.
F-161
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
QDSP Holdings, Inc.
We have audited the accompanying consolidated balance sheet of QDSP Holdings,
Inc. and subsidiaries (the Company) as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period from July 28, 1998 (date of inception) to December 31, 1998. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of QDSP Holdings, Inc. and subsidiaries at December 31, 1998, and the
consolidated results of their operations and their consolidated cash flows for
the period from July 28, 1998 (date of inception) to December 31, 1998, in
conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The consolidating balance
sheet and consolidating statement of operations appearing in conjunction with
the consolidated financial statements are presented for purposes of additional
analysis and are not a required part of the consolidated financial statements.
Such information has been subjected to the auditing procedures applied in our
audit of the consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the consolidated financial
statements taken as a whole.
/s/ Ernst & Young LLP
Chicago, Illinois
April 23, 1999
F-162
<PAGE>
QDSP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1998
(Dollars in Thousands, Except per Share Data)
<TABLE>
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......................................... $ 1,432
Accounts receivable, net of allowance for doubtful accounts of
$430.............................................................. 17,425
Inventories........................................................ 31,305
Deferred income taxes.............................................. 2,001
Other current assets............................................... 2,179
--------
Total current assets............................................. 54,342
Property, plant, and equipment, net................................ 6,667
Goodwill, net...................................................... 61,584
Deferred financing costs, net...................................... 1,715
Deferred income taxes.............................................. 45
Other assets....................................................... 878
--------
Total assets..................................................... $125,231
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................................................... $ 10,429
Accrued expenses................................................... 12,176
Current portion of long-term debt.................................. 1,270
Current portion of capital lease obligations....................... 333
--------
Total current liabilities........................................ 24,208
Long-term debt, less current portion............................... 46,982
Capital lease obligations, less current portion.................... 176
Other long-term liabilities........................................ 154
Stockholders' equity:
Preferred stock, $100 stated value; authorized shares 500,000;
issued and outstanding shares 269,250............................. 26,925
Common stock, $.01 par value; authorized shares 5,000,000; issued
and outstanding shares 2,692,500.................................. 27
Additional paid-in capital......................................... 26,898
Retained earnings.................................................. 149
Accumulated other comprehensive loss............................... (38)
Note receivable due from stockholder............................... (250)
--------
Total stockholders' equity....................................... 53,711
--------
Total liabilities and stockholders' equity....................... $125,231
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-163
<PAGE>
QDSP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Period from July 28, 1998 (date of inception) to December 31, 1998
(Dollars in Thousands)
<TABLE>
<S> <C>
Net sales.............................................................. $67,490
Cost of goods sold..................................................... 45,234
-------
Gross profit........................................................... 22,256
Selling, general, and administrative expenses.......................... 19,685
-------
Operating income....................................................... 2,571
Interest expense....................................................... 1,949
-------
Income before income taxes............................................. 622
Income taxes........................................................... 473
-------
Net income............................................................. $ 149
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-164
<PAGE>
QDSP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Period from July 28, 1998 (date of inception) to December 31, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated Note
Additional Other Receivable Total
Preferred Common Paid-In Retained Comprehensive Due From Stockholders'
Stock Stock Capital Earnings Loss Stockholder Equity
--------- ------ ---------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capital
contributions.......... $26,925 $27 $26,898 $-- $ -- $ -- $53,850
Net income.............. -- -- -- 149 -- -- 149
Currency translation
adjustment............. -- -- -- -- (38) -- (38)
-------
Comprehensive loss...... 111
Note receivable due from
stockholder............ -- -- -- -- -- (250) (250)
------- --- ------- ---- ---- ----- -------
Balance at December 31,
1998................... $26,925 $27 $26,898 $149 $(38) $(250) $53,711
======= === ======= ==== ==== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-165
<PAGE>
QDSP HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Period from July 28, 1998 (date of inception) to December 31, 1998
(Dollars in Thousands)
<TABLE>
<S> <C>
Operating activities
Net income......................................................... $ 149
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization.................................... 1,399
Amortization of deferred financing costs......................... 104
Deferred income taxes............................................ 51
Changes in operating assets and liabilities (net of acquired
businesses):
Accounts receivable............................................ (509)
Inventories.................................................... (2,881)
Other current assets........................................... (746)
Accounts payable and accrued expenses.......................... (420)
--------
Net cash used in operating activities........................ (2,853)
Investing activities
Acquisition of businesses, net of cash acquired.................... (95,389)
Capital expenditures............................................... (626)
--------
Net cash used in investing activities........................ (96,015)
Financing activities
Initial capital contributions...................................... 53,850
Proceeds from long-term debt....................................... 47,000
Proceeds from revolving credit facility............................ 1,542
Payments on revolving credit facility.............................. (290)
Payment of deferred financing costs................................ (1,819)
--------
Net cash provided by financing activities.................... 100,283
Effect of exchange rate changes on cash.............................. 17
--------
Increase in cash and cash equivalents................................ 1,432
Cash and cash equivalents at beginning of period..................... --
--------
Cash and cash equivalents at end of period........................... $ 1,432
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-166
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from July 28, 1998 (date of inception) to December 31, 1998
(Dollars in Thousands)
1. Description of Business and Basis of Presentation
QDSP Holdings, Inc. (the Company) was formed to act as a holding company to
acquire heavy-duty aftermarket parts distribution and service companies. The
Company's operating subsidiaries distribute heavy-duty replacement parts from
distribution centers and provide services for heavy-duty vehicles primarily
throughout the United States. The Company's customers include independent
distributors, general repair shops, independent trucking businesses, major
fleets, and other operators of heavy-duty equipment.
The consolidated financial statements are presented as of December 31, 1998,
and for the period from July 28, 1998 (date of inception) through December 31,
1998.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The 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 considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined on the first in, first out (FIFO) method, and consist primarily of
cores and finished goods.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less accumulated
depreciation. Depreciation is principally computed using the straight-line
method over the respective estimated useful lives of the assets for financial
reporting purposes as follows: 5 to 20 years for machinery and equipment, 5 to
10 years for furniture and fixtures, 5 years for vehicles, 20 years for
buildings and land improvements, and the shorter of the lease term or the
useful life for leasehold improvements. Depreciation expense was $751 for the
period ended December 31, 1998.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets of
businesses acquired and is amortized using the straight-line method over 40
years. Accumulated amortization of goodwill was $648 at December 31,1998.
F-167
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred Financing Costs
The costs of obtaining financing are capitalized and amortized over the term
of the related financing using the straight-line method which approximates the
interest method. Accumulated amortization of deferred financing costs was $104
at December 31, 1998.
Income Taxes
Deferred taxes are recognized for the tax consequences of the differences
between the financial statement carrying amounts and the tax bases of the
existing assets and liabilities by applying the enacted statutory income tax
rates applicable to the periods when such differences are expected to reverse.
Deferred taxes are recognized for the timing of these differences for financial
reporting and income tax reporting purposes.
Stock Options
The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25). The Company recognizes compensation expense to the extent that the
fair value of the Company's stock exceeds the stock option exercise price at
the measurement date. The measurement date is the date at which both the
exercise price and the number of options to be issued are known. No
compensation expense was recognized for the period ended December 31, 1998.
Revenue Recognition
Revenue is recognized when products are shipped or services are performed.
Foreign Currency Translation
The functional currency for the Company's foreign operations is the
operation's local currency. Accordingly, all balance sheet accounts have been
translated using the exchange rates in effect at the balance sheet date and
income statement amounts have been translated using the average exchange rate
for the year. The translation adjustments resulting from the changes in
exchange rates have been reported separately in stockholders' equity as
accumulated other comprehensive income (loss).
Long-Lived Assets
The Company evaluates its long-lived assets (including goodwill) on an
ongoing basis. Identifiable intangibles are reviewed for impairment wherever
events or changes in circumstances indicate that the carrying amount of the
related asset may be impaired. Whether assets to be held and used are impaired
is measured by a comparison of the carrying amount of the asset to future
undiscounted cash flows expected to be generated by the asset. If the asset is
determined to be impaired, the loss recognized is measured by the amount by
which the carrying value of the asset exceeds its fair value.
F-168
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The carrying amounts reported in the Company's balance sheet for cash and
cash equivalents, trade accounts receivable, other current assets, accounts
payable and accrued expenses approximate fair value because of the short-term
maturity of these instruments.
The Company estimates the fair value of its long-term debt obligations, using
the discounted cash flow method with interest rates currently available for
similar obligations. The carrying amounts reported in the Company's balance
sheet for these obligations approximate fair value as the debt contains
variable interest rates and, as such, approximate fair value on an ongoing
basis.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
To minimize this risk, the Company performs ongoing credit evaluations of
customers' financial condition.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-169
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Acquisitions
Effective July 31, 1998, the Company acquired 100% of the stock of (i)
Fleetpride, Inc., (ii) Truck City Parts, Inc., (iii) Wheatly Truck Parts, Inc.,
and (iv) Universal Joint Sales, Inc. Effective July 31, 1998, the Company
purchased certain net assets of (i) Automotive Sales Company, Inc. (ASCO) and
(ii) Drive Train Southwest, Inc. (Drive Train). Effective August 7, 1998, the
Company acquired 100% of the stock of (i) SLM Group, Inc., (ii) Holt, Inc., and
(iii) City Spring Works, Inc. The aggregate purchase price of these
acquisitions (collectively, the Acquired Companies) was approximately $95,389
including expenses relating to the purchase of approximately $6,420 and net of
acquired cash of $7,046. Included in the aggregate purchase price is $5,014 of
estimated additional payments based on working capital adjustments. The
financial statements reflect the preliminary purchase price which will be
finalized upon the determination of additional earn-out payments contingent
upon the attainment of specified future earnings levels by certain of the
Acquired Companies. The Company has not included these earn-out payments in the
aggregate purchase price and believes that such payments will not exceed
$2,100. The purchase price allocation will be finalized upon a final valuation
of certain assets of the Acquired Companies. The allocation of the preliminary
purchase price to the fair values of significant assets and liabilities as of
the dates of purchase is as follows:
<TABLE>
<S> <C>
Purchase price..................................................... $ 95,389
Assets acquired/liabilities assumed:
Accounts receivable.............................................. 16,751
Inventories...................................................... 28,204
Other current assets............................................. 3,555
Property, plant, and equipment................................... 6,796
Accounts payable................................................. (11,131)
Accrued expenses................................................. (11,018)
--------
Goodwill........................................................... $ 62,232
========
</TABLE>
The acquisitions were accounted for under the purchase method of accounting
and, as such, the results of the operations of the Acquired Companies
subsequent to the dates of acquisition have been included in the consolidated
operations of the Company.
4. Inventories
Inventories at December 31, 1998, consist of the following:
<TABLE>
<S> <C>
Cores................................................................ $ 2,746
Finished goods....................................................... 28,559
-------
$31,305
=======
</TABLE>
F-170
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Property, Plant, and Equipment
Property, plant, and equipment consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Land and land improvements........................................... $ 118
Buildings and leasehold improvements................................. 2,154
Machinery and equipment.............................................. 2,968
Furniture and fixtures............................................... 374
Vehicles............................................................. 1,795
------
7,409
Less: Accumulated depreciation....................................... (742)
------
$6,667
======
</TABLE>
6. Accrued Expenses
Accrued expenses at December 31, 1998, are summarized as follows:
<TABLE>
<S> <C>
Accrued acquisition costs........................................... $ 5,014
Employee compensation and benefits.................................. 2,338
Other............................................................... 4,824
-------
$12,176
=======
</TABLE>
7. Long-Term Debt
Long-term debt at December 31, 1998, is summarized as follows:
<TABLE>
<S> <C>
Term loans.......................................................... $47,000
Revolving credit facility........................................... 1,252
-------
48,252
Less: Current maturities............................................ (1,270)
-------
$46,982
=======
</TABLE>
On August 7, 1998, the Company entered into a credit agreement which provided
for a $20.0 million term loan (Term Loan A) and a $27.0 million term loan (Term
Loan B) to fund business acquisitions. Term Loan A and Term Loan B are payable
in quarterly principal installments ranging from $68 to $6,345 through August
7, 2004 and August 7, 2006, respectively.
The credit agreement also includes a revolving credit facility (the Credit
Facility) which is available to the Company for working capital purposes and
for business acquisitions. Maximum borrowings under the Credit Facility are
$28.0 million (including letters of credit of up to $5.0 million). Commitment
fees on the unused balance of 0.375% to 0.50% are payable monthly.
At the Company's election, amounts outstanding under the term loans and the
Credit Facility will bear interest, payable not less than quarterly, at either
the bank's Prime Rate (7.75% at December 31, 1998) plus 0.75% to 2.0% or the
London Interbank Offered Rate (LIBOR) (5.07% at December 31, 1998) plus 2.0% to
3.25%. The blended interest rate for the period ended
F-171
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998, was 8.23%. The funds available to be advanced may not exceed
4.5 times the Company's earnings before interest, income taxes, depreciation,
and amortization, as defined in the credit agreement. The Company had $640
available to be advanced in additional borrowings at December 31, 1998.
The credit agreement covering the term loans and Credit Facility contain
covenants, which among other things, require the Company to maintain certain
financial ratios. The Company was in compliance with such covenants at December
31, 1998. The term loans and the Credit Facility are collateralized by
substantially all of the assets of the Company.
Annual maturities of the Company's long-term debt are as follows at December
31, 1998:
<TABLE>
<S> <C>
1999................................................................. $ 1,270
2000................................................................. 1,770
2001................................................................. 3,270
2002................................................................. 4,270
2003................................................................. 4,770
2004 and thereafter.................................................. 32,902
-------
$48,252
=======
</TABLE>
8. Capital Leases
Vehicles and equipment under capital leases consist of the following at
December 31, 1998:
<TABLE>
<S> <C>
Vehicles.............................................................. $ 449
Machinery and equipment............................................... 172
-----
621
Less: Accumulated amortization........................................ (125)
-----
$ 496
=====
</TABLE>
Future minimum lease payments under capital leases with initial or remaining
terms of one year or more consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
1999................................................................... $333
2000................................................................... 167
2001................................................................... 77
2002................................................................... 23
----
Total minimum payments................................................. 600
Less: Amounts representing interest.................................... 91
----
Present value of minimum lease payments................................ 509
Less: Current portion.................................................. 333
----
Total long-term portion................................................ $176
====
</TABLE>
F-172
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Operating Leases
The Company leases buildings under operating leases for some of its
distribution and service centers from certain stockholders of the Company. The
leases expire at various dates through 2008. Rent expense under the operating
leases to these related parties was $965 for the period ended December 31,
1998.
Additionally, the Company leases buildings and machinery and equipment under
operating leases from unaffiliated entities. The leases expire on various dates
through 2003. Rent expense for such leases was $299 for the period ended
December 31, 1998.
Future minimum lease payments under operating leases with terms in excess of
one year are as follows at December 31, 1998:
<TABLE>
<S> <C>
1999................................................................. $ 3,064
2000................................................................. 2,606
2001................................................................. 2,341
2002................................................................. 2,089
2003................................................................. 1,466
2004 and thereafter.................................................. 1,090
-------
$12,656
=======
</TABLE>
10. Income Taxes
Income tax expense consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Current:
Federal............................................................... $338
State................................................................. 77
Foreign............................................................... 7
----
422
Deferred................................................................ 51
----
$473
====
</TABLE>
Reconciliation of income taxes computed at the U.S. federal statutory tax
rate to income tax expense is as follows at December 31, 1998:
<TABLE>
<S> <C>
Income taxes at U.S. federal statutory rate............................ $211
State income taxes, net of federal tax benefit......................... 51
Nondeductible goodwill amortization.................................... 206
Other, net............................................................. 5
----
Income tax expense..................................................... $473
====
</TABLE>
F-173
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred income taxes at December 31,
1998, are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Inventory obsolescence reserve..................................... $1,178
Inventory capitalization........................................... 273
Allowance for doubtful accounts.................................... 154
Employee compensation and benefits................................. 443
Other.............................................................. 108
------
2,156
Deferred tax liabilities:
Amortization of deductible goodwill................................ (84)
Accelerated depreciation........................................... (26)
------
(110)
------
Net deferred tax asset............................................... $2,046
======
</TABLE>
11. Related Party Transactions
The Company paid Aurora Capital Partners and its affiliates (ACP), the
controlling stockholders of the Company, $3,542 in fees for services provided
in connection with companies acquired during the period ended December 31,
1998. These costs incurred as a result of the acquisitions during 1998 were
included in the aggregate purchase price. In addition, ACP was paid management
fees of $104 for the period ended December 31, 1998.
As described in Note 9, the Company leases some buildings from certain
stockholders of the Company. Additionally, the Company has a note receivable
from a certain officer and stockholder of the Company, bearing interest at the
prime rate (7.75% at December 31, 1998), due August 19, 2003, and
collateralized by the stockholder's capital stock.
12. Preferred Stock
Preferred stock is nonvoting. The holders of preferred stock are entitled to
receive dividends at the rate of 10% per annum on the stated value ($100 per
share of preferred stock), plus any dividends in arrears. Accumulated dividends
in arrears aggregate approximately $1,122 as of December 31, 1998. In the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company, the holders of the preferred stock are entitled to a
liquidation preference equal to $100 per share plus accrued but unpaid
dividends.
Subject to certain restrictions as defined in the agreement, the Company may
redeem all or a portion of the preferred stock at any time. The preferred
stockholders also may require the Company to redeem all or any portion of the
preferred stock generally upon the occurrence of certain defined events. At the
option of the Company, the preferred stock is exchangeable, in whole or in
part, any time on or after January 1, 2000, into subordinated debentures due
January 1, 2011.
F-174
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Stock Options
The Company's 1998 Stock Incentive Plan (the Plan), provides incentives to
employees and nonemployee directors of the Company by granting them ownership
awards of up to 600,000 shares of the Company's common stock. The Plan is
administered by a committee of the Board of Directors which has the authority
to determine the employees to whom awards will be made, the amount of the
awards, and other terms and conditions of the awards. Under the Plan, awards
may be granted in the form of stock options, stock appreciation rights, stock
purchase warrants, performance units, or performance shares and are generally
subject to time and performance vesting. Options are generally granted at not
less than the fair value on the date of grant. The options expire ten years
from the date of the grant. Options available for grant are 218,127 at December
31, 1998. Awards pursuant to the Plan granted in 1998 were issued in the form
of stock options. The stock options vest over periods of time ranging from
immediate vesting to vesting ratably over a five-year period.
A summary of the status of the Company's option plan is presented below:
<TABLE>
<CAPTION>
Exercise
Options Price Range
------- -----------
<S> <C> <C>
Balance at July 28, 1998 -- $ --
Options granted.......................................... 381,873 10
------- ----
Balance at December 31, 1998............................. 381,873 $ 10
======= ====
Exercisable at December 31, 1998......................... 111,124
=======
</TABLE>
Had compensation expense for the Company's Plan been determined in accordance
with Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), the Company's pro forma net income would
have been approximately $172 (net of tax benefit of $108) less than the net
income reported in the statement of operations for the period ended December
31, 1998.
The fair value of each option is estimated on the date of grant using the
Minimum Value method for nonpublic companies with risk-free interest rates of
5.25% and expected award lives of five years for 1998. The Company has not paid
and does not anticipate paying dividends; therefore, the expected dividend
yield is assumed to be zero. The weighted-average fair value of all options
granted during 1998 was $2.34. The weighted-average remaining contractual life
of the options is 9.8 years at December 31, 1998.
Because the Company's awards have characteristics significantly different
from those of traded stock options, and because changes in subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its awards.
14. Employee Savings Plan
The Company sponsors several defined-contribution plans to provide
substantially all employees of the Company an opportunity to accumulate
personal funds for their retirement, subject to minimum duration of employment
requirements. Employees may contribute up to 16% of before-tax earnings to
substantially all of these plans. The Company matches a portion of the
employees' basic
F-175
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
voluntary contributions as determined by the provisions of each plan. Company
matching contributions to the plans were approximately $147 for the period
ended December 31, 1998.
15. Subsequent Events
Effective March 1999, the Company purchased all of the outstanding stock of
TBS Incorporated for approximately $1,685. Goodwill of $1,026 was recognized in
the acquisition. On March 2, 1999, the Company purchased all of the outstanding
stock of New England Truck & Auto Service, Inc. for approximately $963.
Goodwill of $754 was recognized in the acquisition. On March 2, 1999, the
Company purchased substantially all the assets of Clutch & Brake, Inc. for
approximately $4,200. Goodwill of $3,011 was recognized in the acquisition.
Effective February 1999, the Company sold substantially all of the assets of
Stats Remanufacturing Center, Inc., a subsidiary of Holt, Inc., to
HaldexMidland Corporation for proceeds approximating $417. The net assets sold
and gain on the sale of assets approximated $481 and $64, respectively.
Effective March 1999, the Company sold approximately 50,279 shares of
preferred stock and approximately 502,790 shares of common stock for $5,028 and
$5,028, respectively. A portion of the proceeds from the sale of these shares
was used for the acquisitions described above.
16. Impact of Year 2000 (Unaudited)
The Company is heavily reliant on computerized information systems, and the
Company has chosen to upgrade its current systems to correct Year 2000
compliance issues. The upgrades are expected to be in place by midyear 1999.
While the Company believes its planning efforts are adequate to address its
Year 2000 compliance issues, there can be no assurance that the systems of all
other companies on which the Company's systems and operations rely will be
converted on a timely basis and will not have a material effect on the Company.
The Company has incurred no costs in relation to the upgrades as of December
31, 1998, and anticipates costs of $200 in 1999 to complete the project.
17. Supplemental Cash Flow Information
The following table provides supplemental cash flow data in addition to the
information provided in the consolidated statement of cash flows for the period
ending December 31, 1998:
<TABLE>
<S> <C>
Cash paid for:
Income taxes......................................................... $ 866
Interest............................................................. 1,090
</TABLE>
F-176
<PAGE>
Supplemental Information
F-177
<PAGE>
QDSP HOLDINGS, INC.
CONSOLIDATING BALANCE SHEET
December 31, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Truck Wheatley Universal Automotive City
QDSP City Truck Joint Sales SLM Spring
Holdings, QDSP, Fleetpride, Parts, Parts, Sales, Company, Holt, Group, Works,
Inc. Inc. Inc. Inc. Inc. Inc. Inc. Inc. Inc. Inc. Eliminations
--------- -------- ----------- ------- -------- --------- ---------- ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $ 41 $ (291) $ 235 $ 14 $ 190 $ 124 $ 8 $ 169 $ 783 $ 159 $ --
Accounts
receivable,
net.............. -- -- 2,451 1,246 894 2,131 1,666 925 7,409 757 (54)
Inventories....... -- -- 2,759 3,679 1,570 5,502 2,247 3,226 11,399 889 34
Deferred income
taxes............ -- -- 269 292 238 322 26 264 380 210 --
Other current
assets........... 120 1,349 53 -- 196 368 6 106 56 (75) --
------- -------- ------- ------- ------ ------- ------- ------ ------- ------ ---------
Total current
assets......... 161 1,058 5,767 5,231 3,088 8,447 3,953 4,690 20,027 1,940 (20)
Property, plant,
and equipment,
net............... -- 151 1,238 919 219 1,125 723 326 1,614 352 --
Investment in
subsidiaries...... 53,190 102,725 -- -- -- -- -- -- -- -- (155,915)
Intercompany
receivable........ 504 1,458 -- -- 2 411 -- -- 343 300 (3,018)
Goodwill, net...... -- -- 4,239 7,896 3,153 8,675 5,531 3,121 25,006 3,963 --
Deferred financing
costs, net........ -- 1,820 113 166 73 219 116 81 546 73 (1,492)
Deferred income
taxes............. -- -- -- -- 6 6 -- -- 179 -- (146)
Other assets....... -- 262 56 -- -- 370 88 (11) 94 19 --
------- -------- ------- ------- ------ ------- ------- ------ ------- ------ ---------
$53,855 $107,474 $11,413 $14,212 $6,541 $19,253 $10,411 $8,207 $47,809 $6,647 $(160,591)
======= ======== ======= ======= ====== ======= ======= ====== ======= ====== =========
LIABILITIES AND
TOCKHOLDERS'SEQUITY
Accounts payable... $ -- $ -- $ 1,845 $ 863 $ 505 $ 2,325 $ 1,103 $ 980 $ 2,646 $ 162 $ --
Accrued expenses... -- 5,235 776 893 107 587 470 264 3,072 781 (9)
Current portion of
long-term debt.... -- 1,270 104 151 65 201 106 74 501 68 (1,270)
Current portion of
capital lease
obligations....... -- -- 191 -- -- 29 -- 36 77 -- --
Intercompany
payable........... 2 1,607 230 429 14 92 58 561 -- 25 (3,018)
------- -------- ------- ------- ------ ------- ------- ------ ------- ------ ---------
Total current
liabilities.... 2 8,112 3,146 2,336 691 3,234 1,737 1,915 6,296 1,036 (4,297)
Long-term debt,
less current
portion........... -- 46,982 3,738 5,447 2,350 7,238 3,832 2,682 18,012 2,431 (45,730)
Capital lease
obligations, less
current portion... -- -- 70 -- -- 16 -- 78 12 -- --
Deferred income
taxes............. -- -- 7 52 -- -- 51 26 -- 10 (146)
Other long-term
liabilities....... -- -- -- -- -- -- -- 101 53 -- --
Stockholders'
equity:
Preferred stock... 26,925 -- -- -- -- -- -- -- --
Common stock...... 27 -- 38 10 62 136 -- 27 2 20 (295)
Additional paid-
in capital....... 26,898 53,190 4,299 6,261 3,295 8,531 4,760 3,436 23,284 3,053 (110,109)
Retained earnings
(accumulated
deficit)......... 3 (560) 115 106 143 98 31 (58) 188 97 (14)
Accumulated other
comprehensive
loss............. -- -- -- -- -- -- -- -- (38) -- --
Note receivable
due from
stockholder...... -- (250) -- -- -- -- -- -- -- -- --
------- -------- ------- ------- ------ ------- ------- ------ ------- ------ ---------
Total
stockholders'
equity......... 53,853 52,380 4,452 6,377 3,500 8,765 4,791 3,405 23,436 3,170 (110,418)
------- -------- ------- ------- ------ ------- ------- ------ ------- ------ ---------
Total
liabilities and
stockholders'
equity......... $53,855 $107,474 $11,413 $14,212 $6,541 $19,253 $10,411 $8,207 $47,809 $6,647 $(160,591)
======= ======== ======= ======= ====== ======= ======= ====== ======= ====== =========
<CAPTION>
Consolidated
------------
<S> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $ 1,432
Accounts
receivable,
net.............. 17,425
Inventories....... 31,305
Deferred income
taxes............ 2,001
Other current
assets........... 2,179
------------
Total current
assets......... 54,342
Property, plant,
and equipment,
net............... 6,667
Investment in
subsidiaries...... --
Intercompany
receivable........ --
Goodwill, net...... 61,584
Deferred financing
costs, net........ 1,715
Deferred income
taxes............. 45
Other assets....... 878
------------
$125,231
============
LIABILITIES AND
TOCKHOLDERS'SEQUITY
Accounts payable... $ 10,429
Accrued expenses... 12,176
Current portion of
long-term debt.... 1,270
Current portion of
capital lease
obligations....... 333
Intercompany
payable........... --
------------
Total current
liabilities.... 24,208
Long-term debt,
less current
portion........... 46,982
Capital lease
obligations, less
current portion... 176
Deferred income
taxes............. --
Other long-term
liabilities....... 154
Stockholders'
equity:
Preferred stock... 26,925
Common stock...... 27
Additional paid-
in capital....... 26,898
Retained earnings
(accumulated
deficit)......... 149
Accumulated other
comprehensive
loss............. (38)
Note receivable
due from
stockholder...... (250)
------------
Total
stockholders'
equity......... 53,711
------------
Total
liabilities and
stockholders'
equity......... $125,231
============
</TABLE>
F-178
<PAGE>
QDSP HOLDINGS, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
Period from July 28, 1998 (date of inception) to December 31, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Automotive
QDSP Truck City Wheatley Universal Sales SLM
Holdings, QDSP, Fleetpride, Parts, Truck Joint Sales, Company, Group, City Spring
Inc. Inc. Inc. Inc. Parts, Inc. Inc. Inc. Holt, Inc. Inc. Works, Inc.
--------- ----- ----------- ---------- ----------- ------------ ---------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....... $ -- $ -- $8,619 $5,563 $4,108 $10,243 $7,189 $4,976 $24,182 $2,787
Cost of goods
sold............ -- -- 5,463 3,646 2,604 6,535 4,640 3,377 17,957 1,167
----- ----- ------ ------ ------ ------- ------ ------ ------- ------
Gross profit.... -- -- 3,156 1,917 1,504 3,708 2,549 1,599 6,225 1,620
Selling,
general, and
administrative
expenses........ (9) 764 2,775 1,477 1,158 3,201 2,340 1,568 5,074 1,337
----- ----- ------ ------ ------ ------- ------ ------ ------- ------
Operating income
(loss).......... 9 (764) 381 440 346 507 209 31 1,151 283
Interest
expense, net.... -- 176 164 209 90 277 147 103 690 93
----- ----- ------ ------ ------ ------- ------ ------ ------- ------
Income before
income taxes.... 9 (940) 217 231 256 230 62 (72) 461 190
Income taxes.... 6 (380) 102 125 113 132 31 (14) 273 93
----- ----- ------ ------ ------ ------- ------ ------ ------- ------
Net income
(loss).......... $ 3 $(560) $ 115 $ 106 $ 143 $ 98 $ 31 $ (58) $ 188 $ 97
===== ===== ====== ====== ====== ======= ====== ====== ======= ======
<CAPTION>
Eliminations Consolidated
------------ ------------
<S> <C> <C> <C>
Net sales....... $(177) $67,490
Cost of goods
sold............ (155) 45,234
------------ ------------
Gross profit.... (22) 22,256
Selling,
general, and
administrative
expenses........ -- 19,685
------------ ------------ ---
Operating income
(loss).......... (22) 2,571
Interest
expense, net.... -- 1,949
------------ ------------
Income before
income taxes.... (22) 622
Income taxes.... (8) 473
------------ ------------
Net income
(loss).......... $ (14) $ 149
============ ============
</TABLE>
F-179
<PAGE>
QDSP HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
At June 30, 1999
(Dollars in Thousands, Except per Share Data)
<TABLE>
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......................................... $ 6,878
Accounts receivable, net of allowance for doubtful accounts of
$511.............................................................. 21,431
Inventories........................................................ 32,330
Deferred income taxes.............................................. 2,001
Other current assets............................................... 4,308
--------
Total current assets............................................. 66,948
Property, plant, and equipment, net................................ 7,307
Goodwill, net...................................................... 65,884
Deferred financing costs, net...................................... 1,668
Deferred income taxes.............................................. 45
Other assets....................................................... 1,016
--------
Total assets..................................................... $142,868
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................................................... $ 11,059
Accrued expenses................................................... 7,767
Current portion of long-term debt.................................. 2,172
Current portion of capital lease obligations....................... 227
--------
Total current liabilities........................................ 21,225
Long-term debt, less current portion............................... 55,142
Capital lease obligations, less current portion.................... 201
Other long-term liabilities........................................ 33
Stockholders' equity:
Preferred stock, $100 stated value; authorized shares 500,000;
issued and outstanding shares 325,730............................. 32,573
Common stock, $.01 par value; authorized shares 5,000,000; issued
and outstanding shares 3,257,300.................................. 91
Additional paid-in capital......................................... 32,482
Retained earnings.................................................. 1,385
Accumulated other comprehensive loss............................... (38)
Note receivable due from stockholder............................... (226)
--------
Total stockholders' equity....................................... 66,267
--------
Total liabilities and stockholders' equity....................... $142,868
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-180
<PAGE>
QDSP HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1999
(Dollars in Thousands)
<TABLE>
<S> <C>
Net sales.............................................................. $91,983
Cost of goods sold..................................................... 62,973
-------
Gross profit........................................................... 29,010
Selling, general, and administrative expenses.......................... 23,828
-------
Operating income....................................................... 5,182
Interest expense....................................................... 2,425
-------
Income before income taxes............................................. 2,757
Income taxes........................................................... 1,521
-------
Net income and comprehensive income.................................... $ 1,236
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-181
<PAGE>
QDSP HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated Note
Additional Other Receivable Total
Preferred Common Paid-In Retained Comprehensive Due From Stockholders'
Stock Stock Capital Earnings Loss Stockholder Equity
--------- ------ ---------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998................... $26,925 $27 $26,898 $ 149 $(38) $(250) $53,711
Capital contributions... 5,648 64 5,584 -- -- -- 11,296
Net income and
comprehensive income... -- -- -- 1,236 -- -- 1,236
Note receivable due from
stockholder............ -- -- -- -- -- 24 24
------- --- ------- ------ ---- ----- -------
Balance at June 30,
1999................... $32,573 $91 $32,482 $1,385 $(38) $(226) $66,267
======= === ======= ====== ==== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-182
<PAGE>
QDSP HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1999
(Dollars in Thousands)
<TABLE>
<S> <C>
Operating activities
Net income and comprehensive income................................. $ 1,236
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization..................................... 1,593
Amortization of deferred financing costs.......................... 131
Changes in operating assets and liabilities (net of acquired
businesses):
Accounts receivable............................................. (2,769)
Inventories..................................................... 702
Other current assets............................................ (1,820)
Accounts payable and accrued expenses........................... (4,633)
-------
Net cash used in operating activities......................... (5,560)
Investing activities
Acquisition of businesses, net of cash acquired..................... (7,869)
Capital expenditures................................................ (1,094)
-------
Net cash used in investing activities......................... (8,963)
Financing activities
Capital contributions............................................... 11,296
Payments on long-term debt.......................................... (635)
Proceeds from revolving credit facility............................. 9,655
Payment of deferred financing costs................................. (347)
-------
Net cash provided by financing activities..................... 19,969
-------
Increase in cash and cash equivalents................................. 5,446
Cash and cash equivalents at beginning of period...................... 1,432
-------
Cash and cash equivalents at end of period............................ $ 6,878
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-183
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Description of Business and Basis of Presentation
QDSP Holdings, Inc. (the Company) was formed to act as a holding company to
acquire heavy-duty aftermarket parts distribution and service companies. The
Company's operating subsidiaries distribute heavy-duty replacement parts from
distribution centers and provide services for heavy-duty vehicles primarily
throughout the United States. The Company's customers include independent
distributors, general repair shops, independent trucking businesses, major
fleets, and other operators of heavy-duty equipment.
The consolidated financial statements are presented as of June 30, 1999, and
for the period from January 1, 1999 through June 30, 1999.
The consolidated financial information presented herein is unaudited. The
interim financial statements and notes thereto do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the financial statements and notes thereto included in the
latest consolidated financial statements of the Companies. In the opinion of
management, the interim financial statements reflect all adjustments of a
normal recurring nature necessary for a fair statement of the results for
interim periods. The current period's results of operations are not necessarily
indicative of results that ultimately may be achieved for the year.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The 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 considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined on the first in, first out (FIFO) method, and consist primarily of
cores and finished goods.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less accumulated
depreciation. Depreciation is principally computed using the straight-line
method over the respective estimated useful lives of the assets for financial
reporting purposes as follows: 5 to 20 years for machinery and equipment, 5 to
10 years for furniture and fixtures, 5 years for vehicles, 20 years for
buildings and land improvements, and the shorter of the lease term or the
useful life for leasehold improvements.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets of
businesses acquired and is amortized using the straight-line method over 40
years.
F-184
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred Financing Costs
The costs of obtaining financing are capitalized and amortized over the term
of the related financing using the straight-line method which approximates the
interest method.
Income Taxes
Deferred taxes are recognized for the tax consequences of the differences
between the financial statement carrying amounts and the tax bases of the
existing assets and liabilities by applying the enacted statutory income tax
rates applicable to the periods when such differences are expected to reverse.
Deferred taxes are recognized for the timing of these differences for financial
reporting and income tax reporting purposes.
Stock Options
The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25). The Company recognizes compensation expense to the extent that the
fair value of the Company's stock exceeds the stock option exercise price at
the measurement date. The measurement date is the date at which both the
exercise price and the number of options to be issued are known. No
compensation expense was recognized for the period ended June 30, 1999.
Revenue Recognition
Revenue is recognized when products are shipped or services are performed.
F-185
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Acquisitions
The Company has made the following acquisitions during the six months ended
June 30, 1999. They have all been accounted for as purchases, with the purchase
price being allocated to the fair value of the identified assets and
liabilities of the Company with the excess recorded as goodwill. Amortization
of goodwill is recorded on a straight line basis over 40 years.
On March 1, 1999, the Company acquired all of the capital stock of TBS, Inc.
for approximately $1.7 million in cash. The Company has allocated $0.8 million
of the purchase price to the identified assets and liabilities. The acquisition
was accounted for as a purchase and the consolidated financial statements for
the Company include income since the date of acquisition.
On March 2, 1999, the Company acquired all of the capital stock of New
England Truck & Auto Service, Inc. for approximately $1.0 million in cash. The
Company has allocated $0.3 million of the purchase price to the identified
assets and liabilities. The acquisition was accounted for as a purchase and the
consolidated financial statements for the Company include income since the date
of acquisition.
On March 2, 1999, the Company acquired substantially all of the assets of
Clutch & Brake, Inc. for approximately $4.2 million in cash. The Company has
allocated $1.7 million of the purchase price to the identified assets and
liabilities. The acquisition was accounted for as a purchase and the
consolidated financial statements for the Company include income since the date
of acquisition.
4. Inventories
Inventories at June 30, 1999, consist of the following:
<TABLE>
<S> <C>
Cores................................................................ $ 1,618
Finished goods....................................................... 30,712
-------
$32,330
=======
</TABLE>
F-186
<PAGE>
QDSP HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Employee Savings Plan
Effective March 1999, the Company merged several defined contribution plans
into one plan for the entire Company. Under the terms of the new plan,
employees may contribute up to 15% of before-tax earnings. The Company matches
a portion of the employee's voluntary contribution as determined by the
provisions of the plan.
6. Supplemental Cash Flow Information
The following table provides supplemental cash flow data in addition to the
information provided in the consolidated statement of cash flows for the six
months ending June 30, 1999:
<TABLE>
<S> <C>
Cash paid for:
Income taxes........................................................ $1,120
Interest............................................................ 3,700
</TABLE>
7. Equity
In March 1999, the Company issued approximately 564,800 shares of common
stock and 56,480 shares of preferred stock receiving proceeds of approximately
$11.3 million. A portion of the proceeds were used to fund the acquisitions
described in note number 3.
8. Subsequent events
On September 30, 1999, HDA Parts System, Inc. purchased the Company. This was
accounted for as a purchase. The unaudited financial statements have not been
affected by this transaction.
F-187
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SLM Group, Inc.
We have audited the accompanying consolidated balance sheet of SLM Group,
Inc. and Subsidiaries (the Company) as of August 7, 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for the
period from April 1, 1998 to August 7, 1998. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SLM Group, Inc.
and Subsidiaries at August 7, 1998, and the consolidated results of their
operations and their cash flows for the period from April 1, 1998 to August 7,
1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
December 18, 1998
F-188
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
August 7, 1998
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents............................................ $ 671
Accounts receivable, less allowance for doubtful accounts of $60..... 6,550
Other receivables.................................................... 301
Inventories.......................................................... 10,375
Deferred income taxes................................................ 241
Prepaid expenses and other current assets............................ 386
-------
Total current assets............................................... 18,524
Property, plant and equipment, net..................................... 1,773
Deferred income taxes.................................................. 183
Other assets........................................................... 165
-------
Total assets....................................................... $20,645
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 2,698
Accrued expenses..................................................... 1,766
Income taxes payable................................................. 235
Current portion of long-term debt.................................... 1,055
Current portion of capital lease obligation.......................... 80
-------
Total current liabilities.......................................... 5,834
Long-term debt, less current portion................................... 2,532
Capital lease obligations, less current portion........................ 42
Minority interest...................................................... 41
Stockholders' equity:
Common stock, $.01 par value, 180,000 shares authorized, issued and
outstanding......................................................... 2
Additional paid-in capital........................................... 3,508
Retained earnings.................................................... 8,686
-------
Total stockholders' equity......................................... 12,196
-------
Total liabilities and stockholders' equity......................... $20,645
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-189
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Period from April 1, 1998 to August 7, 1998
(Dollars in Thousands)
<TABLE>
<S> <C>
Net sales.............................................................. $21,946
Cost of goods sold..................................................... 15,707
-------
Gross profit........................................................... 6,239
Selling, general, and administrative expenses.......................... 5,404
-------
Operating income................................................... 835
Interest expense....................................................... (284)
Other income, net...................................................... 79
-------
Income before income taxes............................................. 630
Income taxes........................................................... 272
-------
Net income............................................................. $ 358
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-190
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Period from April 1, 1998 to August 7, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balance at April 1, 1998............... $ 2 $ 59 $8,328 $ 8,389
Net income............................. -- -- 358 358
Capital contribution................... -- 3,449 -- 3,449
--- ------ ------ -------
Balance at August 7, 1998.............. $ 2 $3,508 $8,686 $12,196
=== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-191
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Period from April 1, 1998 to August 7, 1998
(Dollars in Thousands)
<TABLE>
<S> <C>
Operating activities
Net income........................................................... $ 358
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization...................................... 209
Deferred income taxes.............................................. (258)
Gain on sale of fixed assets....................................... (16)
Changes in operating assets and liabilities:
Trade accounts receivable........................................ (759)
Other receivables................................................ 2,431
Inventories...................................................... 817
Prepaid expenses and other assets................................ 617
Accounts payable and accrued expenses............................ (152)
Income taxes payable............................................. 180
-------
Net cash provided by operating activities...................... 3,427
Investing activities
Proceeds on the sale of fixed assets................................. 200
Capital expenditures................................................. (246)
-------
Net cash used in investing activities.......................... (46)
Financing activities
Net payments on revolving lines of credit............................ (4,000)
Payments on long-term debt........................................... (194)
-------
Net cash used in financing activities.......................... (4,194)
-------
Net decrease in cash and cash equivalents............................ (813)
Cash and cash equivalents at April 1, 1998........................... 1,484
-------
Cash and cash equivalents at August 7, 1998.......................... $ 671
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-192
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period from April 1, 1998 to August 7, 1998
(Dollars in Thousands)
1. Description of Business and Basis of Presentation
SLM Group, Inc. and Subsidaries (the Company) distributes heavy duty truck
parts and equipment to retail and wholesale customers, and provides related
repair services. The Company's primary operations are located in and service
Texas, Oregon, northern Mexico and Great Britain-based customers.
Effective August 7, 1998, the Company was sold to Quality Distribution
Service Partners, Inc.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The Company's subsidiaries consist of SLM Group, Inc. and SLM
Power Group, Inc. and subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined on the first in, first out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over the
respective estimated useful lives of the assets for financial reporting
purposes as follows: 10 to 20 years for buildings and improvements, 3 to 10
years for machinery and equipment, 5 to 7 years for furniture and fixtures, 5
years for vehicles, and the shorter of the lease term or the useful life for
leasehold improvements. Depreciation and amortization was $209 for the period
ended August 7, 1998.
Income Taxes
Deferred taxes are recognized for the tax consequences of the differences
between the financial statement carrying amounts and the tax bases of the
existing assets and liabilities by applying the enacted statutory income tax
rates applicable to the periods when such differences are expected to reverse.
Deferred taxes are recognized for the timing of these differences for financial
reporting and income tax reporting purposes.
F-193
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Revenue is recognized when products are shipped or services are performed.
Long-Lived Assets
The Company evaluates its long-lived assets on an ongoing basis. Such assets
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the related asset may be impaired. Whether
assets to be held and used are impaired is measured by a comparison of the
carrying amount of the asset to future undiscounted cash flows expected to be
generated by the asset. If the asset is determined to be impaired, the loss
recognized is measured by the amount by which the carrying value of the asset
exceeds its fair value.
Fair Value of Financial Instruments
The carrying amounts reported in the Company's balance sheet for cash and
cash equivalents, trade accounts receivable, prepaid expenses and other current
assets, accounts payable, accrued expenses and other current liabilities
approximate fair value because of the short-term maturity of these instruments.
The carrying amounts reported in the Company's balance sheets for variable-
rate long-term debt, including current portion, approximate fair value, as the
underlying long-term debt instruments are comprised of notes that are repriced
on a short-term basis.
The Company estimates the fair value of fixed rate long-term debt obligations
including current portion, using the discounted cash flow method with interest
rates currently available for similar obligations. The carrying amounts
reported in the Company's balance sheets for these obligations approximate fair
value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
To minimize this risk, the Company performs ongoing credit evaluations of
customers' financial condition, although collateral is not required.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-194
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Inventories
Inventories at August 7, 1998 consist of the following:
<TABLE>
<S> <C>
Cores.............................................................. $ 900
Trucks............................................................. 1,237
Finished goods..................................................... 8,238
-------
$10,375
=======
</TABLE>
4. Property, Plant and Equipment
Property, plant and equipment consist of the following at August 7, 1998:
<TABLE>
<S> <C>
Land............................................................... $ 118
Building and leasehold improvements................................ 1,842
Machinery and equipment............................................ 2,944
Furniture and fixtures............................................. 103
Vehicles........................................................... 1,013
------
6,020
Less: Accumulated depreciation..................................... 4,247
------
$1,773
======
</TABLE>
5. Accrued Expenses
Accrued expenses at August 7, 1998 are summarized as follows:
<TABLE>
<S> <C>
Employee compensation and benefits................................. $ 667
Other.............................................................. 1,099
------
$1,766
======
</TABLE>
6. Long-Term Debt
Long-term debt consists of the following at August 7, 1998:
<TABLE>
<S> <C>
Revolving line of credit........................................... $ 600
Term loans......................................................... 1,745
Notes payable to former shareholder................................ 1,242
------
3,587
Less: Current maturities........................................... 1,055
------
$2,532
======
</TABLE>
The Company entered into a credit agreement on September 20, 1995, which
provided for revolving lines of credit. The first line of credit (Revolver I)
is available to the Company for working capital purposes. Funds available to be
advanced under Revolver I may not exceed the lesser of (i) $7.0 million or (ii)
80% of eligible accounts receivable and the lesser of 50% of eligible inventory
F-195
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
or $3.0 million, as defined in the credit agreement. Revolver I matures on
August 1, 1999. The Company had $6.2 million available to be advanced in
additional borrowings on Revolver I at August 7, 1998. The second line of
credit (Revolver II) was available to the Company for capital expenditures and
had a maximum borrowing base of $1.0 million. Revolver II matured on August 1,
1998. The third line of credit (Revolver III) was available to a subsidiary of
the Company, Power Equipment International, Inc., and had a maximum borrowing
base of $2.0 million. Revolver III matured on August 1, 1998. No outstanding
balances remained at August 7, 1998 on Revolver II or Revolver III.
At the Company's election, amounts outstanding under Revolver I bear interest
at either the bank's prime rate (8.5% at August 7, 1998), payable monthly, or
the London Interbank Offered Rate (LIBOR) plus 2.5%, payable on the last day of
the respective LIBOR term.
The credit agreement also provided for a $726 term loan (Term Loan I) and
subsequent amendments made to the credit agreement provided for a $625 term
loan (Term Loan II) and an $865 term loan (Term Loan III). Term Loan I, Term
Loan II and Term Loan III are payable in monthly principal and interest
installments of $8, $8 and $14, respectively, and one remaining balance payment
at the maturity date of August 2000, August 2001 and August 2002, respectively.
The term loans bear interest at approximately 8.1%.
The credit agreement covering the revolving lines of credit and term loans
requires the Company to comply with certain financial and nonfinancial
covenants. The revolving lines of credit and term loans are collateralized by
substantially all of the assets of the Company.
The notes payable to a former shareholder for repurchase of Company stock are
payable in quarterly principal installments of $54 through October 2004, bear
interest payable quarterly at 9.0% and are secured by the Company's stock.
The Company had several notes payable to related parties, bearing interest at
rates varying between 8.0% and 9.25%, which were paid in full during the period
ended August 7, 1998.
Annual maturities of the Company's long-term debt are as follows at August 7,
1998:
<TABLE>
<S> <C>
1999................................................................ $1,055
2000................................................................ 962
2001................................................................ 813
2002................................................................ 379
2003................................................................ 216
2004 and thereafter................................................. 162
------
$3,587
======
</TABLE>
7. Leases
The Company has entered into a capital lease for equipment that expires in
2001. The Company also leases retail and office facilities under operating
leases that expire at various dates through 2004.
F-196
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In most cases, management expects that leases will be renewed or replaced by
other similar leases in the normal course of business. Future minimum lease
payments required under capital and operating leases that have initial or
remaining noncancelable terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
Periods ending August 7:
1999................................................... $ 80 $ 464
2000................................................... 46 398
2001................................................... -- 279
2002................................................... -- 252
2003 and thereafter.................................... -- 347
---- ------
Total minimum lease payments............................. 126 $1,740
======
Amounts representing interest............................ (4)
----
Present value of minimum lease payments.................. 122
Less: Current portion.................................... 80
----
Total long-term portion.................................. $ 42
====
</TABLE>
Rent expense for operating leases was $190 for the period ended August 7,
1998. Equipment leased under capital leases, net of accumulated depreciation of
$106, was $118 at August 7, 1998.
8. Income Taxes
Income tax expense for the period ended August 7, 1998 consisted of the
following:
<TABLE>
<S> <C>
Current:
Federal........................................................... $ 462
State............................................................. 68
-----
530
Deferred............................................................ (258)
-----
$ 272
=====
</TABLE>
Reconciliation of the income tax rate computed at the U.S. federal statutory
tax rate to the income tax expense is as follows for the period ended August 7,
1998:
<TABLE>
<S> <C>
Income taxes at U.S. federal statutory rate.......................... 34.0%
State income taxes, net of federal tax benefit....................... 6.0
Other................................................................ 3.2
----
Income tax expense................................................... 43.2%
====
</TABLE>
F-197
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred income taxes at August 7,
1998 is as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts................................... $ 24
Employee compensation and benefits................................ 158
Accelerated depreciation.......................................... 183
Inventory obsolescence reserve.................................... 125
Other............................................................. 50
-----
540
Deferred tax liabilities:
Prepaid expenses.................................................. (116)
-----
Net deferred tax asset.............................................. $ 424
=====
</TABLE>
9. Employee Savings Plan
The Company sponsors a 401(k) savings plan. Substantially all full-time
employees upon reaching certain age and service requirements are eligible to
participate in the Plan. Employees may contribute up to 16% of their
compensation with matching contributions equal to 100% on the first $200 and
25% on the remaining contribution up to 6% of eligible salary. Company matching
contributions to the Plan were approximately $38 for the period ended August 7,
1998.
10. Supplemental Cash Flow Information
The following table provides supplemental cash flow data in addition to the
information provided in the consolidated statement of cash flows for the period
ended August 7, 1998:
<TABLE>
<S> <C>
Cash paid for:
Income taxes........................................................ $372
Interest............................................................ 281
</TABLE>
F-198
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
SLM Group, Inc.:
We have audited the accompanying combined balance sheets of SLM Group, Inc.
and subsidiaries as of March 31, 1998 and 1997, and the related combined
statements of income and retained earnings, and cash flows for the years then
ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of SLM Group, Inc. and
subsidiaries as of March 31, 1998 and 1997, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
San Antonio, Texas
June 4, 1998
F-199
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
COMBINED BALANCE SHEETS
March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash.................................................. $ 1,524,585 1,464,738
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$60,000 in 1998 and 1997........................... 5,790,645 4,807,967
U.S. Government..................................... 432,004 403,795
Other............................................... 681,689 904,828
Inventories........................................... 11,192,157 8,951,248
Prepaid expenses and other current assets............. 483,008 461,183
Current portion of notes receivable................... 34,991 89,374
Income taxes receivable............................... -- 43,710
Deferred income taxes................................. 62,000 27,000
----------- ----------
Total current assets.............................. 20,201,079 17,153,843
Net property and equipment.............................. 6,843,115 6,943,279
Long-term portion of notes receivable................... 50,493 193,736
Deferred income taxes................................... 170,000 136,000
Other assets............................................ 639,814 528,079
----------- ----------
$27,904,501 24,954,937
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Trade accounts payable................................ $ 2,562,759 2,577,616
Accrued expenses...................................... 1,309,673 1,163,901
Current installments of long-term debt................ 796,025 642,318
Other current liabilities............................. 498,608 331,443
Interest-bearing obligations payable under floorplan
arrangements......................................... 320,262 --
----------- ----------
Total current liabilities......................... 5,487,327 4,715,278
Notes payable to bank................................... 4,000,000 4,500,000
Long-term debt, excluding current installments.......... 4,423,897 4,068,711
----------- ----------
Total liabilities................................. 13,911,224 13,283,989
----------- ----------
Minority interest in consolidated partnerships.......... 1,968,193 2,015,239
----------- ----------
Stockholders' equity:
Common stock, $.01 par value. Authorized, issued and
outstanding 180,000 shares........................... 1,800 1,800
Additional paid-in capital............................ 59,200 59,200
Retained earnings..................................... 11,964,084 9,594,709
----------- ----------
Total stockholders' equity........................ 12,025,084 9,655,709
Commitments.............................................
----------- ----------
$27,904,501 24,954,937
=========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-200
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Sales................................................ $60,227,048 50,720,719
Cost of sales........................................ 42,335,208 35,469,594
----------- ----------
Gross profit....................................... 17,891,840 15,251,125
Selling, general and administrative expenses......... 13,735,954 12,011,796
----------- ----------
Operating income................................... 4,155,886 3,239,329
----------- ----------
Other income (expense):
Interest expense, net.............................. (660,555) (779,290)
Gain (loss) on sale of property and equipment,
net............................................... 5,718 (67,902)
Foreign currency loss, net......................... (33,668) (22,721)
Flood loss......................................... -- (203,810)
Other, net......................................... 192,865 171,505
----------- ----------
(495,640) (902,218)
----------- ----------
Income before income taxes and minority interest... 3,660,246 2,337,111
Income taxes......................................... (1,337,917) (756,000)
----------- ----------
Income before minority interest.................... 2,322,329 1,581,111
Minority interest in net losses of consolidated
partnerships........................................ 47,046 144,506
----------- ----------
Net income......................................... 2,369,375 1,725,617
Retained earnings, beginning of year................. 9,594,709 7,869,092
----------- ----------
Retained earnings, end of year....................... $11,964,084 9,594,709
=========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-201
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
Years Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 2,369,375 1,725,617
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 917,188 1,022,134
(Gain) loss on sale of property and equipment,
net.............................................. (5,718) 67,902
Flood loss........................................ -- 203,810
Equity in loss from investment in affiliated
partnership...................................... -- 34,923
Minority interest in net losses of consolidated
partnerships..................................... (47,046) (144,506)
Changes in operating assets and liabilities:
Accounts receivable............................. (787,748) (88,131)
Inventories..................................... (2,240,909) 284,894
Prepaid expenses and other current assets....... (21,825) (239,348)
Deferred income taxes........................... (69,000) (153,000)
Income taxes receivable......................... 43,710 (38,000)
Other assets.................................... (111,735) 30,820
Trade accounts payable.......................... (14,857) 975,573
Accrued expenses................................ 145,772 (569,879)
Other current liabilities....................... 167,165 (129,300)
----------- ----------
Net cash provided by operating activities..... 344,372 2,983,509
----------- ----------
Cash flows from investing activities:
Purchase of property and equipment.................. (1,175,739) (916,993)
Proceeds from sale of property and equipment........ 364,433 88,286
Issuance of notes receivable........................ (33,673) (239,837)
Payments from notes receivable...................... 231,299 245,111
Purchase of investment in affiliated partnership.... -- (53,828)
Acquisition of controlling interest in affiliated
partnership, net of cash acquired.................. -- 22,967
----------- ----------
Net cash used in investing activities......... (613,680) (854,294)
----------- ----------
Cash flows from financing activities:
Net increase (decrease) in interest-bearing
obligations payable under floor plan arrangements.. 320,262 (391,366)
Principal payments on notes payable to bank......... (5,000,000) (4,100,000)
Proceeds from notes payable to bank................. 4,500,000 2,200,000
Principal payments on long-term debt................ (700,107) (656,876)
Proceeds from issuance of long-term debt............ 1,209,000 919,000
Proceeds from minority interest in consolidated
partnerships....................................... -- 16,395
----------- ----------
Net cash provided by(used in) financing
activities................................... 329,155 (2,012,847)
----------- ----------
Net increase in cash.......................... 59,847 116,368
Cash at beginning of year............................. 1,464,738 1,348,370
----------- ----------
Cash at end of year................................... $ 1,524,585 1,464,738
=========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-202
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS
March 31, 1998 and 1997
(1) Summary of Significant Accounting Policies and Practices
(a) Description of Business
SLM Group, Inc. and its subsidiaries (the Company) market and sell heavy duty
trucks and parts and also service heavy duty trucks and trailers primarily from
locations in Texas, Oregon and Mexico and, through its telemarketing
operations, throughout the United States. Avantra Corporation's revenues are
from refueling contracts with the United States Department of Defense. On March
31, 1998 the operations of Avantra Corporation ceased as its remaining
government contracts expired. Management does not anticipate any new contracts.
Avantra's operations are not significant to the Company's operations and the
contract expirations are not expected to have a material adverse effect on the
Company.
(b) Principles of Combination
The combined financial statements include the following companies:
. SLM Group, Inc.,
. PEI Properties, Inc. and majority-owned partnership,
. Avantra Corporation, and,
. SLM Power Group, Inc. and subsidiaries
SLM Power Group, Inc. is an 85.99% owned subsidiary of the Company. The
financial statements of the Company are combined because SLM Power Group, Inc.
is under common management. All other subsidiaries are wholly-owned by the
Company. The combined financial statements also include a 70% owned joint
venture, Parts Distributing Company (U.K.), Ltd. The joint venture was formed
on December 1, 1996. In addition, an approximate 53% owned ranch partnership is
also included in the combined financial statements. Minority interest is
charged for the earnings or losses attributable to the minority interest.
The foreign operations are not significant to the combined operations of the
Company.
All significant intercompany balances and transactions have been eliminated
in combination.
(c) Inventories
Parts inventory are stated at the lower of replacement cost, which
approximates the first-in, first-out method, or market. Trucks, trailers and
cores for rebuilt parts are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized straight line over the shorter of the lease term or
estimated useful life of the asset.
F-203
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(e) Investment in Affiliated Partnership
In fiscal year 1996, the Company acquired a 21.28% general partner interest
in an affiliated partnership. This investment was accounted for using the
equity method through June 30, 1996. On July 1, 1996, the Company purchased an
additional 31.73% general partner interest in the partnership. The acquisition
resulted in the Company obtaining an approximate 53% general partner interest
in the partnership. Accordingly, the operations of the partnership after July
1, 1996 are included in the combined financial statements of the Company. The
acquisition of the these partnership interests has been accounted for at the
Company's historical cost as the entities are under common control.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
year in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
(g) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) Inventories
Inventories consist of the following at March 31:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Parts, net of reserves for obsolescence of $38,059
in 1998 and 1997................................... $ 8,799,041 7,510,971
Trucks and trailers................................. 1,734,010 765,896
Cores for rebuilt parts............................. 659,106 674,381
----------- ---------
$11,192,157 8,951,248
=========== =========
</TABLE>
F-204
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(3) Property and Equipment
Property and equipment consists of the following at March 31:
<TABLE>
<CAPTION>
Estimated
useful life 1998 1997
------------- ----------- ----------
<S> <C> <C> <C>
Land.................................. -- $ 3,214,692 3,291,372
Buildings............................. 20 years 3,243,346 3,210,231
Equipment............................. 2 to 10 years 5,942,740 5,938,598
Livestock............................. 5-7 years 630,399 572,143
Furniture and fixtures................ 2-3 years 133,937 133,937
Leasehold improvements................ 3 years 251,749 214,996
----------- ----------
13,416,863 13,361,277
Less accumulated depreciation and amortization...... (6,573,748) (6,417,998)
----------- ----------
$ 6,843,115 6,943,279
=========== ==========
</TABLE>
(4) Notes Payable to Bank
The Company has two revolving lines of credit ($7,000,000 for working capital
and $1,000,000 for capital expenditures) established with a bank on August 1,
1996. The interest rate on advances under this facility (8.5% at March 31,
1998) is, at the option of the Company, the bank's prime rate payable monthly,
or 2.5% above the London InterBank Offered Rate (LIBOR rate) for 30, 60, 90 or
180 days, payable on the last day of the LIBOR term selected by the Company.
The unused line of credit available to the Company, subject to certain
borrowing base obligations and reserves, was approximately $3,800,000 at March
31, 1998. The lines of credit are secured by inventory, eligible accounts
receivable and certain other assets of the Company. The loan agreement
requires, among other matters, maintenance of certain financial ratios. The
working capital line of credit has a March 31, 1998 balance of $3,000,000 and
expires August 1, 1999. The capital expenditures line of credit has a March 31,
1998 balance of zero and expires August 1, 1998.
The Company also has a $2,000,000 revolving line of credit with a bank. The
outstanding balance on the line of credit at March 31, 1998 is $1,000,000. The
interest rate on advances under this facility (8.5% at March 31, 1998) is, at
the option of the Company, the bank's prime rate which is payable monthly, or
2.5% above the London InterBank Offered Rate (LIBOR rate) for 30, 60, 90 or 180
days, payable on the last day of the LIBOR term selected by the Company. The
unused line of credit available to the Company was approximately $1,000,000 at
March 31, 1998. The line of credit is secured by new and used truck inventory.
The line of credit expires August 1, 1999.
(5) Interest-Bearing Obligations Payable Under Floorplan Arrangements and Long-
Term Debt
The Company finances a portion of their new and used truck inventory under a
blanket floorplan financing agreement with their vendor which bears interest at
the prime rate (8.5% at March 31, 1998) plus 1% for new vehicles and plus 1.5%
for used vehicles. The floorplan agreement has a March 31, 1998 balance of
$320,262 and is secured by new and used truck inventories. Interest is payable
monthly and principal payments are due when a truck is sold.
F-205
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Long-term debt consists of the following at March 31:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Notes payable to a former stockholder in quarterly
installments of $54,000 including interest at 9%; due
October 2004; secured by stock of the Company........... $1,296,000 1,512,000
Note payable to bank due in monthly installments of
$7,900 including interest at 8.1% due August 2000;
secured by real estate.................................. 619,974 661,959
Notes payable to a related party; due in monthly
installments of $5,050 and $5,099 including interest at
5.45% and 5.6% for 1998 and 1997, respectively; maturing
through March 2007, secured by real estate.............. 613,366 639,409
Note payable to bank due in monthly installments of
$7,565 including interest at 8.1%; due August 2001;
secured by real estate.................................. 558,878 601,817
Note payable to a stockholder of SLM, due in monthly
installments of $3,960 including interest at 9%; due
June 1999; secured by real estate....................... 252,384 276,020
Unsecured notes payable to a related party with interest
payable semi-annually at 6.26%; due June 2005........... 180,000 210,000
Unsecured notes payable to a related party; due in annual
installments of $16,667; interest is payable semi-
annually at 6.26%; due June 2005........................ 133,333 150,000
Note payable to individuals in monthly installments of
$2,446, including interest at 8%, due May 2001, secured
by a lien on real estate................................ 81,880 103,727
Unsecured note payable to a related party due in
quarterly installments of $2,027 including interest at
6.8%; due December 2022................................. 96,787 98,603
Unsecured notes payable to a shareholder of SLM due in
monthly installments of $6,000 including interest at 9%
, maturing through May 1999............................. 21,321 83,847
Unsecured notes payable to a stockholder due in monthly
installments of $3,000 including interest at 10.5%; due
July 2003............................................... 134,993 155,626
Unsecured notes payable to a related party due in monthly
installments of $4,500 and $5,500 in 1998 and 1997,
respectively, including interest at 9%; maturing through
July 2000............................................... 70,146 60,661
Unsecured notes payable to affiliated individuals in
monthly installments of $1,310 including interest at 9
%; maturing through December 1998....................... 51,361 41,812
Unsecured notes payable to stockholders of SLM with
interest payable semi-annually at 6.26%; due June 2005.. 60,000 30,000
Unsecured note payable to a related party due in annual
installments of $4,000 for 1998 and annual installments
of $10,500 plus interest thereafter at 5.39%, due March
2000.................................................... 21,000 25,000
Unsecured note payable to former stockholders in semi-
annual installments of $25,000 including interest at 8%;
due August 2000......................................... 286,788 --
Note payable to bank due in monthly installments of
$14,200 including interest at 8.05%; due August 2002;
secured by trade accounts receivable and inventory...... 618,616 --
Unsecured notes payable to shareholder of SLM due in
monthly installments of $8,500 including interest at 9%;
maturing through March 2000............................. 78,095 --
</TABLE>
F-206
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Unsecured notes payable to affiliated individuals due at
maturity including interest at 9% and 9.25%; maturing
through March 1999..................................... $ 45,000 --
Unsecured note payable to a related party due in monthly
installments of $6,982 including interest at 9%; due
December 1997.......................................... -- 60,548
---------- ---------
Total long-term debt.................................. 5,219,922 4,711,029
Less current installments of long-term debt........... (796,025) (642,318)
---------- ---------
Long-term debt, excluding current installments........ $4,423,897 4,068,711
========== =========
</TABLE>
The aggregate maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ending March 31:
1999............................................................ $ 796,025
2000............................................................ 872,529
2001............................................................ 1,284,177
2002............................................................ 919,409
2003............................................................ 291,822
Thereafter...................................................... 1,055,960
----------
$5,219,922
==========
</TABLE>
The Company paid $692,963 and $799,359 for interest for the years ended March
31, 1998 and 1997, respectively.
(6) Income Taxes
Income tax (expense) benefit for the years ended March 31 consist of the
following:
<TABLE>
<CAPTION>
Current Deferred Total
----------- -------- ----------
<S> <C> <C> <C>
Year ended March 31, 1998:
U.S. federal............................... $(1,325,917) 63,000 (1,262,917)
State...................................... (81,000) 6,000 (75,000)
----------- ------- ----------
$(1,406,917) 69,000 (1,337,917)
=========== ======= ==========
Year ended March 31, 1997:
U.S. federal............................... $ (864,000) 141,000 (723,000)
State...................................... (45,000) 12,000 (33,000)
----------- ------- ----------
$ (909,000) 153,000 (756,000)
=========== ======= ==========
</TABLE>
F-207
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Income tax expense was $1,337,917 and $756,000 for the years ended March 31,
1998 and 1997, respectively, and differed from the amounts computed by applying
the U.S. federal income tax rate of 34 percent to income before income taxes
and minority interest as a result of the following:
<TABLE>
<CAPTION>
1998 1997
----------- --------
<S> <C> <C>
Computed "expected" tax
expense.................. $(1,244,483) (794,618)
(Increase) decrease in
income taxes resulting
from:
State income taxes, net
of federal income tax
benefit................ (53,460) (29,700)
Non-deductible loss of
foreign subsidiary..... 19,907 17,600
Non-deductible portion
of loss from affiliated
entity................. (25,236) (47,940)
Non-deductible key man
life insurance
premiums............... (35,931) (31,358)
Cash surrender value of
life insurance
policies............... 39,004 66,673
Prior year tax
adjustments............ 4,083 79,607
Other, net.............. (41,801) (16,264)
----------- --------
$(1,337,917) (756,000)
=========== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at March 31 are
presented below:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for
doubtful accounts....................................... $ 21,000 21,000
Inventories, principally due to reserve for
obsolescence............................................ 14,000 14,000
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax Reform
Act of 1986............................................. 80,000 55,000
Employee benefits, principally due to accrual for
financial reporting purposes............................ 45,000 44,000
Property and equipment, principally due to differences in
depreciation............................................ 170,000 136,000
-------- --------
Total gross deferred tax assets........................ 330,000 270,000
Deferred tax liabilities--prepaid expenses................. (98,000) (107,000)
-------- --------
Net deferred tax asset................................. $232,000 163,000
======== ========
</TABLE>
In assessing the realizability of net deferred tax asset, management
considers whether it is more likely than not that some portion or all of the
deferred tax asset will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences are deductible. Management
considers projected future taxable income and tax planning strategies in making
this assessment. Based upon the level of historical taxable income projections
for future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences at March 31, 1998.
The Company paid $1,250,000 and $930,000 for income taxes for the years ended
March 31, 1998 and 1997, respectively.
F-208
<PAGE>
SLM GROUP, INC. AND SUBSIDIARIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
(7) Leases
The Company has several noncancelable operating leases, primarily for office
and warehouse space, that expire over the next five years. Future minimum lease
payments under these leases as of March 31, 1998 are:
<TABLE>
<S> <C>
Year ending March 31:
1999............................................................ $ 679,474
2000............................................................ 539,486
2001............................................................ 373,717
2002............................................................ 333,274
2003............................................................ 346,607
----------
$2,272,558
==========
</TABLE>
Rental expense for operating leases was approximately $687,000 and $436,000
for the years ended March 31, 1998 and 1997, respectively.
The Company paid $63,000 to an entity owned by stockholders of the Company
for equipment leases for each of the years ended March 31, 1998 and 1997,
respectively.
(8) Flood Loss
On January 1, 1997, the Company's Sparks, Nevada facility was affected by a
flood that encompassed the Reno/Sparks metropolitan area. The losses were
limited primarily to inventory, supplies and equipment. The facility was closed
for thirty days, and the operations were temporarily shifted to the Carrollton,
Texas facility during the clean-up and restart phase.
(9) Year 2000 (unaudited)
Management has initiated an company-wide program to prepare the Company's
computer systems and applications for the year 2000. The Company expects to
incur internal staff costs related to infrastructure and facilities
enhancements necessary to prepare the systems for the year 2000. Management
does not anticipate testing and conversion of system applications to have a
material financial effect upon the Company as a whole, as a significant
proportion of these costs are not likely to be incremental costs to the
Company, but rather will represent the redeployment of existing information
technology resources.
(10) Subsequent Events (unaudited)
Subsequent to March 31, 1998, the Company was sold to Quality Distribution
Service Partners, Inc. As part of this transaction, PEI Properties, Inc. was
sold to the stockholders of SLM Group, Inc. and Avantra Corporation was
dissolved.
F-209
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wheatley Truck Parts, Inc.
We have audited the accompanying balance sheets of Wheatley Truck Parts, Inc.
as of November 30, 1997 and July 31, 1998, and the statements of income and
retained earnings and cash flows for the years ended November 30, 1996 and
1997, and the period from December 1, 1997 to July 31, 1998. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Wheatley Truck Parts, Inc. as
of November 30, 1997 and July 31, 1998, and the results of its operations and
its cash flows for the years ended November 30, 1996 and 1997, and the period
from December 1, 1997 to July 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
August 27, 1999
F-210
<PAGE>
WHEATLEY TRUCK PARTS, INC.
BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
July
November 30 31
1997 1998
----------- ------
ASSETS
------
<S> <C> <C>
Current assets:
Cash...................................................... $ 39 $ 249
Accounts receivable, net of allowance for doubtful
accounts of $25.......................................... 813 876
Inventories............................................... 1,608 1,624
Deferred income taxes..................................... 222 222
Other current assets...................................... 7 5
------ ------
Total current assets.................................... 2,689 2,976
Property and equipment, net............................... 212 214
------ ------
Total assets............................................ $2,901 $3,190
====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Revolving line of credit.................................. $ 96 $ 218
Current portion of long-term debt......................... 32 25
Accounts payable.......................................... 758 642
Accrued expenses.......................................... 39 59
Income taxes payable...................................... 44 68
------ ------
Total current liabilities............................... 969 1,012
Long-term debt, less current portion........................ 9 20
Stockholders' equity:
Common stock, no par value, 1,000 shares authorized, 1,000
shares issued and outstanding 62 62
Retained earnings......................................... 1,861 2,096
------ ------
Total stockholders' equity.............................. 1,923 2,158
------ ------
Total liabilities and stockholders' equity.............. $2,901 $3,190
====== ======
</TABLE>
See accompanying notes to financial statements.
F-211
<PAGE>
WHEATLEY TRUCK PARTS, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Period from
Year ended December 1,
November 30, 1997 to
-------------- July 31,
1996 1997 1998
------ ------ -----------
<S> <C> <C> <C>
Net sales.......................................... $9,278 $9,501 $6,670
Cost of goods sold................................. 5,893 6,128 4,251
------ ------ ------
Gross profit....................................... 3,385 3,373 2,419
Selling, general, and administrative expenses...... 2,992 2,992 2,033
------ ------ ------
Operating income................................... 393 381 386
Interest expense................................... (22) (16) (7)
Other income....................................... 3 9 8
------ ------ ------
Income before income taxes......................... 374 374 387
Income taxes....................................... 148 148 152
------ ------ ------
Net income......................................... 226 226 235
Retained earnings at beginning of period........... 1,409 1,635 1,861
------ ------ ------
Retained earnings at end of period................. $1,635 $1,861 $2,096
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-212
<PAGE>
WHEATLEY TRUCK PARTS, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended Period from
November December 1,
30, 1997 to
------------ July 31,
1996 1997 1998
----- ----- -----------
<S> <C> <C> <C>
Operating activities
Net income.......................................... $ 226 $ 226 $235
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 113 88 29
(Gain) loss on sale of equipment.................. 4 1 (5)
Changes in operating assets and liabilities:
Accounts receivable............................. 43 (61) (63)
Inventories..................................... (125) (117) (16)
Other assets.................................... 9 1 2
Accounts payable and accrued expenses (3) (63) (96)
Income taxes payable............................ 65 (62) 24
----- ----- ----
Net cash provided by operating activities........... 332 13 110
Investing activities
Capital expenditures................................ (88) (54) (32)
Proceeds from sale of equipment..................... 18 -- 6
----- ----- ----
Net cash used in investing activities............... (70) (54) (26)
Financing activities
Net borrowings (payments) on revolving line of
credit............................................. (237) 86 122
Borrowings of long-term debt........................ 63 -- 32
Payments on long-term debt.......................... (64) (49) (28)
----- ----- ----
Net cash (used in) provided by financing
activities......................................... (238) 37 126
----- ----- ----
Net increase (decrease) in cash..................... 24 (4) 210
Cash at beginning of period......................... 19 43 39
----- ----- ----
Cash at end of period............................... $ 43 $ 39 $249
===== ===== ====
</TABLE>
See accompanying notes to financial statements.
F-213
<PAGE>
WHEATLEY TRUCK PARTS, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended November 30, 1996 and 1997
and period from December 1, 1997 to July 31, 1998
(Dollars in Thousands)
1. Description of Business and Basis of Presentation
Wheatley Truck Parts, Inc. (the Company) distributes heavy-duty replacement
parts for heavy-duty vehicles primarily throughout the Midwest region of the
United States. The Company's principal products include truck and trailer
brakes, suspensions, drivelines, hydraulic parts, and other replacement parts.
The Company's customers include independent distributors, general repair shops,
independent trucking businesses, major fleets, and other operators of heavy-
duty equipment.
Effective July 31, 1998, the Company was sold to Quality Distribution Service
Partners, Inc.
2. Summary of Significant Accounting Policies
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined on the first in, first out (FIFO) method, and consist primarily of
finished goods.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using accelerated tax methods over the respective
estimated useful lives of the assets for financial reporting purposes as
follows: 5 to 20 years for machinery and equipment, 5 to 10 years for furniture
and fixtures, 5 years for vehicles, and 5 to 30 years for leasehold
improvements. Leasehold improvements are stated at cost and amortized over the
shorter of the lease term or the useful life of improvements. Depreciation and
amortization was $113, $88, and $29 for the years ended November 30, 1996 and
1997 and the period ended July 31, 1998, respectively.
Income Taxes
Deferred income taxes are recognized for the tax consequences of the
differences between the financial statement carrying amounts and the tax bases
of the existing assets and liabilities by applying the enacted statutory income
tax rates applicable to the periods when such differences are expected to
reverse. Deferred taxes are recognized for the timing of these differences for
financial reporting and income tax reporting purposes.
Revenue Recognition
Revenue is recognized when products are shipped.
Long-Lived Assets
The Company evaluates its long-lived assets on an ongoing basis. Such assets
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the related asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of the asset to future undiscounted cash flows expected to be
generated by the asset. If the asset is determined to be impaired, the
impairment recognized is measured by the amount by which the carrying value of
the asset exceeds its fair value.
F-214
<PAGE>
WHEATLEY TRUCK PARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The carrying amounts reported in the Company's balance sheets for cash,
accounts receivable, other current assets, accounts payable, and accrued
expenses approximate their fair value because of the short-term maturity of
these instruments.
The Company estimates the fair value of the fixed rate long-term debt
obligations, including current portions, using the discounted cash flow method
with interest rates currently available for similar obligations. The carrying
amounts reported in the Company's balance sheets for these obligations
approximate fair value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
To minimize this risk, ongoing credit evaluations of customers' financial
condition are performed, although collateral is not required.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Property and Equipment
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
November 30 July 31
1997 1998
----------- -------
<S> <C> <C>
Machinery and equipment.................................. $ 519 $ 519
Furniture and fixtures................................... 311 311
Vehicles................................................. 345 353
Leasehold improvements................................... 112 112
------ ------
1,287 1,295
Less: Accumulated depreciation and amortization 1,075 1,081
------ ------
$ 212 $ 214
====== ======
</TABLE>
4. Revolving Line of Credit
The Company maintains a revolving line of credit (Revolver) providing for
borrowings of up to $600 for working capital purposes. The Revolver bears
interest payable monthly at the bank's prime rate (8.5% at July 31, 1998).
Amounts advanced are due on April 1999 subject to certain lending restrictions
and collateralized by substantially all assets of the Company. At July 31,
1998, the Company had an unused portion of the Revolver of $382.
F-215
<PAGE>
WHEATLEY TRUCK PARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Long-Term Debt
Long-term debt are summarized as follows:
<TABLE>
<CAPTION>
November 30 July 31
1997 1998
----------- -------
<S> <C> <C>
Notes payable.......................................... $41 $45
Less: Current maturities............................... 32 25
--- ---
$ 9 $20
=== ===
</TABLE>
The Company entered into several notes payable (Notes) for vehicles. The
Notes are payable in monthly installments, bear interest ranging from 7.5% to
9.0%, and mature at various dates through February 2001.
Annual maturities of long-term debt are as follows for the years ending July
31:
<TABLE>
<S> <C>
1999................................................................... $25
2000................................................................... 11
2001................................................................... 9
---
$45
===
</TABLE>
6. Operating Leases
The Company leases buildings under operating leases from certain stockholders
of the Company. The leases expire at various dates through 2001. Rent under the
operating leases to these related parties was $176 for the years ended November
1996 and 1997, respectively, and $118 for the period ended July 31, 1998.
Additionally, the Company leases buildings and equipment under operating
leases from unaffiliated entities. The leases expire on various dates through
2001. Rent expense for such leases was $44, $41, and $29 for the years ended
November 30, 1996 and 1997 and period ended July 31, 1998, respectively.
Future minimum lease payments under operating leases with terms in excess of
one year are as follows for the years ending July 31:
<TABLE>
<S> <C>
1999.................................................................. $ 82
2000.................................................................. 97
2001.................................................................. 28
----
$207
====
</TABLE>
F-216
<PAGE>
WHEATLEY TRUCK PARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Income Taxes
Income taxes included in the statement of income consist of the following:
<TABLE>
<CAPTION>
Year
ended Period from
November December 1,
30, 1997 to
--------- July 31,
1996 1997 1998
---- ---- -----------
<S> <C> <C> <C>
Current:
Federal............................................ $127 $127 $132
State.............................................. 21 21 20
---- ---- ----
$148 $148 $152
==== ==== ====
</TABLE>
Reconciliation of effective income tax rate computed at the U.S. federal
statutory tax rate to income tax expense is as follows:
<TABLE>
<CAPTION>
Period from
Year ended December 1,
November 30, 1997 to
-------------- July 31,
1996 1997 1998
------ ------ -----------
<S> <C> <C> <C>
Income taxes at U.S. federal statutory rate.. 34.0% 34.0% 34.0%
State income taxes, net of federal tax
benefit..................................... 4.7 4.7 4.7
Other........................................ 0.8 0.8 0.6
------ ------ ----
Income tax benefit........................... 39.5% 39.5% 39.3%
====== ====== ====
</TABLE>
Significant components of the Company's deferred income are as follows:
<TABLE>
<CAPTION>
November 30 July 31
1997 1998
----------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts...................... $ 10 $ 10
Inventory obsolescence reserve....................... 212 212
---- ----
Net deferred tax assets................................ $222 $222
==== ====
</TABLE>
8. Related Party Transactions
The Company leases buildings from certain stockholders of the Company as
described in Note 6.
9. Employee Savings Plan
The Company sponsors a defined-contribution, profit-sharing plan to provide
substantially all employees of the Company an opportunity to accumulate
personal funds for their retirement subject to minimum duration of employment
requirements. Participating employees may contribute up to 15% of before-tax
earnings to the plan, and the Company matches up to 2% of the employees'
contributions to the plan. Company matching contributions to the plan were $19,
$20, and $15 for the years ended November 30, 1996 and 1997 and the period
ended July 31, 1998, respectively.
F-217
<PAGE>
WHEATLEY TRUCK PARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Supplemental Cash Flow Information
The following table provides supplemental cash flow data in addition to the
information provided in the statement of cash flows:
<TABLE>
<CAPTION>
Period from
Year ended December 1,
November 30, 1997 to
------------- July 31,
1996 1997 1998
------ ------ -----------
<S> <C> <C> <C>
Cash paid for:
Interest......................................... $ 20 $ 16 $ 7
Income taxes..................................... 56 122 128
</TABLE>
F-218
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Truck City Parts, Inc.
We have audited the accompanying balance sheets of Truck City Parts, Inc. as
of December 31, 1997 and July 31, 1998, and the statements of income,
stockholder's equity, and cash flows for the year ended December 31, 1997 and
period from January 1, 1998 to July 31, 1998. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Truck City Parts, Inc. at
December 31, 1997 and July 31, 1998, and the results of its operations and its
cash flows for the year ended December 31, 1997 and period from January 1, 1998
to July 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
December 18, 1998
F-219
<PAGE>
TRUCK CITY PARTS, INC.
BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------ --------
ASSETS
<S> <C> <C>
Current assets:
Accounts receivable, net of allowance for doubtful
accounts of $70....................................... $1,260 $1,356
Inventories............................................ 2,523 2,017
Deferred income taxes.................................. 278 273
Other current assets................................... 131 39
------ ------
Total current assets................................. 4,192 3,685
Property, plant, and equipment, net.................... 911 937
------ ------
Total assets......................................... $5,103 $4,622
====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable....................................... $1,047 $ 973
Accrued expenses....................................... 182 386
Due to stockholders.................................... 277 140
Current portion of long-term debt...................... 1,228 477
------ ------
Total current liabilities............................ 2,734 1,976
Long-term debt, less current portion..................... 869 767
Deferred income taxes.................................... 59 55
Stockholders' equity:
Common stock, $10 par value, 5,000 shares authorized,
1,000 shares
issued and outstanding................................ 10 10
Additional paid-in capital............................. 318 318
Retained earnings...................................... 1,142 1,525
Cost of 39 shares of common stock in treasury.......... (29) (29)
------ ------
Total stockholders' equity........................... 1,441 1,824
------ ------
Total liabilities and stockholders' equity........... $5,103 $4,622
====== ======
</TABLE>
See accompanying notes to financial statements.
F-220
<PAGE>
TRUCK CITY PARTS, INC.
STATEMENTS OF INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
Period from
January 1,
Year ended 1998 to
December 31, July 31,
1997 1998
------------ -----------
<S> <C> <C>
Net sales.............................................. $13,539 $8,411
Cost of goods sold..................................... 9,208 5,520
------- ------
Gross profit........................................... 4,331 2,891
Selling, general, and administrative expenses.......... 3,817 2,185
------- ------
Operating income....................................... 514 706
Interest expense....................................... (210) (100)
Interest income........................................ 48 18
------- ------
Income before income taxes............................. 352 624
Income taxes........................................... 141 241
------- ------
Net income............................................. $ 211 $ 383
======= ======
</TABLE>
See accompanying notes to financial statements.
F-221
<PAGE>
TRUCK CITY PARTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Year ended December 31, 1997 and
period from January 1, 1998 to July 31, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Cost of
Additional Common Total
Common Paid-In Retained Stock in Stockholders'
Stock Capital Earnings Treasury Equity
------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997.. $10 $318 $ 931 $ -- $1,259
Purchase of common stock for
treasury................... -- -- -- (29) (29)
Net income.................. -- -- 211 -- 211
--- ---- ------ ---- ------
Balance at December 31,
1997....................... 10 318 1,142 (29) 1,441
Net income.................. -- -- 383 -- 383
--- ---- ------ ---- ------
Balance at July 31, 1998.... $10 $318 $1,525 $(29) $1,824
=== ==== ====== ==== ======
</TABLE>
See accompanying notes to financial statements.
F-222
<PAGE>
TRUCK CITY PARTS, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Period from
January 1,
Year ended 1998 to
December 31, July 31,
1997 1998
------------ -----------
<S> <C> <C>
Operating activities
Net income............................................ $ 211 $ 383
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 209 126
Deferred income taxes............................... 25 1
Gain on sale of property, plant, and equipment...... (4) (1)
Changes in operating assets and liabilities:
Accounts receivable................................ 109 (96)
Inventories........................................ (344) 506
Other current assets............................... (111) 92
Accounts payable and accrued expenses.............. (297) 130
----- -------
Net cash provided by (used in) operating
activities....................................... (202) 1,141
Investing activities
Capital expenditures.................................. (93) (111)
Proceeds from sale of property, plant, and equipment.. 9 118
----- -------
Net cash provided by (used in) investing
activities....................................... (84) 7
Financing activities
Proceeds (payments) on amounts due to stockholders.... 12 (137)
Proceeds from issuance of long-term debt.............. 764 330
Payments on long-term debt............................ (476) (1,341)
Purchase of treasury stock............................ (14) --
----- -------
Net cash provided by (used in) financing activities... 286 (1,148)
----- -------
Net change in cash.................................... -- --
Cash at beginning of period........................... -- --
----- -------
Cash at end of period................................. $ -- $ --
===== =======
</TABLE>
See accompanying notes to financial statements.
F-223
<PAGE>
TRUCK CITY PARTS, INC.
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1997 and
period from January 1, 1998 to July 31, 1998
(Dollars in Thousands)
1. Description of Business
Truck City Parts, Inc. (the Company) distributes heavy duty truck parts to
retail and wholesale customers, mainly in the coal, timber, and trucking
industries. The Company's products such as brakes, suspensions, filters, and
other replacement parts, are sold primarily throughout the mid-Atlantic region
of the United States.
Effective July 31, 1998, the Company was sold to Quality Distribution Service
Partners, Inc.
2. Summary of Significant Accounting Policies
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined on the last in, first out (LIFO) method.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method over the
respective estimated useful lives of the assets for financial reporting
purposes as follows: 5 to 20 years for machinery and equipment, 5 to 10 years
for furniture and fixtures, 5 years for vehicles, 5 to 30 years for leasehold
improvements, and 20 years for land improvements. Accelerated depreciation
methods are used for income tax purposes. Leasehold improvements are stated at
cost and amortized over the shorter of the lease term or the useful life of
improvements. Depreciation and amortization was $176 and $126 for the year
ended December 31, 1997 and period ended July 31, 1998, respectively.
Income Taxes
Deferred income taxes are recognized for the tax consequences of the
differences between the financial statement carrying amounts and the tax bases
of the existing assets and liabilities by applying the enacted statutory income
tax rates applicable to the periods when such differences are expected to
reverse. Deferred taxes are recognized for the timing of these differences for
financial reporting and income tax reporting purposes.
Revenue Recognition
Revenue is recognized when products are shipped.
Long-Lived Assets
The Company evaluates its long-lived assets on an ongoing basis. Such assets
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the related asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
F-224
<PAGE>
TRUCK CITY PARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
comparison of the carrying amount of the asset to future undiscounted cash
flows expected to be generated by the asset. If the asset is determined to be
impaired, the impairment recognized is measured by the amount by which the
carrying value of the asset exceeds its fair value.
Fair Value of Financial Instruments
The carrying amounts reported in the Company's balance sheet for accounts
receivable, other current assets, accounts payable, and accrued expenses
approximate their fair value because of the short-term maturity of these
instruments.
The carrying amounts reported in the Company's balance sheets for variable
rate long-term debt, including current portion, approximate fair value, as the
underlying long-term debt instrument is comprised of a note that is repriced on
a short-term basis.
The Company estimates the fair value of the fixed rate long-term debt
obligations including current portions, using the discounted cash flow method
with interest rates currently available for similar obligations. The carrying
amounts reported in the Company's balance sheets for these obligations
approximate fair value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
To minimize this risk, ongoing credit evaluations of customers' financial
condition are performed, although collateral is not required.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
July
December 31, 31,
1997 1998
------------ ------
<S> <C> <C>
Parts, including core inventories..................... $ 317 $ 375
Finished goods........................................ 2,206 1,642
------ ------
$2,523 $2,017
====== ======
</TABLE>
If the first in, first out method (FIFO) had been used for valuing
inventories, the total amount of income before income taxes would have
increased by $73 and $84 for the year ended December 31, 1997 and period ended
July 31, 1998, respectively.
F-225
<PAGE>
TRUCK CITY PARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Property, Plant, and Equipment
Property, plant, and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------ --------
<S> <C> <C>
Land and land improvements............................. $ 21 $ 3
Machinery and equipment................................ 574 528
Furniture and fixtures................................. 142 189
Vehicles............................................... 662 639
Leasehold improvements................................. 282 278
------ ------
1,681 1,637
Less: Accumulated depreciation......................... 770 700
------ ------
$ 911 $ 937
====== ======
</TABLE>
5. Long-Term Debt
Long-term debts are summarized as follows:
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------ --------
<S> <C> <C>
Revolving line of credit............................... $ 950 $ 150
Term loan.............................................. 1,040 870
Installment notes...................................... 107 224
------ ------
2,097 1,244
Less: Current maturities............................... 1,228 477
------ ------
$ 869 $ 767
====== ======
</TABLE>
On March 28, 1997, the Company entered into a credit agreement providing for
a $1,200 revolving line of credit (the Revolver) available to the Company for
working capital purposes. Advances may be made under the Revolver up to an
aggregate of $1,200, subject to certain lending restrictions. The Revolver
matures on April 1, 2002, and bears interest at the banks' prime rate (8.5% at
July 31, 1998) plus 0.5%. Interest is due on the first day of each month, and
the interest rate was approximately 9.0% at July 31, 1998. At July 31, 1998,
the Company had no outstanding letters of credit and an unused portion of the
Revolver of $1,050.
On March 28, 1997, the Company entered into a credit agreement providing for
a $1,200 term loan (Term Loan) to refinance existing bank term loans. The Term
Loan is payable in monthly principal installments of $20 and bears interest
payable monthly at the bank's prime rate plus 0.5% through April 1, 2002.
The Revolver and Term Loan are collateralized by substantially all assets of
the Company and guaranteed by a stockholder of the Company. In addition, the
Revolver and Term Loan require the Company to comply with certain nonfinancial
covenants.
Installment notes for vehicles mature through 2001, are payable in monthly
principal and interest installments, bear interest at 3.0%, and are
collateralized by vehicles.
F-226
<PAGE>
TRUCK CITY PARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Annual maturities of long-term debt are as follows at July 31, 1998:
<TABLE>
<CAPTION>
1999............................................................. $ 477
<S> <C>
2000............................................................. 324
2001............................................................. 293
2002............................................................. 150
------
$1,244
======
</TABLE>
6. Operating Leases
The Company leases buildings and an airplane under operating leases from a
stockholder of the Company. The leases expire at various dates through 2003.
Rent under the operating leases to this related party was $250 and $146 for the
year ended December 31, 1997 and the period ended July 31, 1998, respectively.
Additionally, the Company leases buildings under noncancelable operating
leases from unaffiliated entities. The leases expire on various dates through
2003. Rent expense for such leases was $78 and $75 for the year ended December
31, 1997 and the period ended July 31, 1998, respectively.
Future minimum lease payments under operating leases with terms in excess of
one year are as follows at July 31, 1998:
<TABLE>
<CAPTION>
1999............................................................. $ 311
<S> <C>
2000............................................................. 307
2001............................................................. 216
2002............................................................. 180
2003............................................................. 105
------
$1,119
======
</TABLE>
7. Income Taxes
Income taxes included in the statement of income consist of the following:
<TABLE>
<CAPTION>
Period from
January 1,
Year ended 1998 to
December 31, July 31,
1997 1998
------------ -----------
<S> <C> <C>
Current:
Federal........................................ $102 $212
State.......................................... 14 28
---- ----
116 240
Deferred......................................... 25 1
---- ----
$141 $241
==== ====
</TABLE>
F-227
<PAGE>
TRUCK CITY PARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Reconciliation of effective income tax rate computed at the U.S. federal
statutory tax rate to income tax expense is as follows:
<TABLE>
<CAPTION>
Period from
January 1,
Year ended 1998 to
December 31, July 31,
1997 1998
------------ -----------
<S> <C> <C>
Income taxes at U.S. federal statutory rate...... 34.0% 34.0%
State income taxes, net of federal tax benefit... 4.6 4.6
Other............................................ 1.4 0.2
---- ----
Income tax expense............................... 40.0% 38.8%
==== ====
</TABLE>
Significant components of the Company's deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------ --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................... $ 27 $ 27
Inventory obsolescence reserve.................... 232 232
Other............................................. 19 14
---- ----
278 273
Deferred tax liability:
Accelerated depreciation.......................... (59) (55)
---- ----
Net deferred tax asset.............................. $219 $218
==== ====
</TABLE>
8. Related Party Transactions
The Company has a note payable due to a stockholder of the Company, bearing
interest at 9.0% and due on demand. The balance outstanding was $140 at July
31, 1998.
The Company also made payments of $137 for a note payable due to a
stockholder of the Company during the period ended July 31, 1998. No balance
remained outstanding at July 31, 1998.
In addition, the Company leases buildings and an airplane from a stockholder
of the Company as described in Note 6.
9. Employee Savings Plan
The Company sponsors a contributory savings plan to provide substantially all
employees of the Company an opportunity to accumulate personal funds for their
retirement subject to minimum duration of employment requirements.
Participating employees may contribute up to 10% of before-tax earnings to the
plan, which are matched up to 2%. Company matching contributions to the plan
were $15 and $10 for the year ended December 31, 1997 and period ended July 31,
1998, respectively.
F-228
<PAGE>
TRUCK CITY PARTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Supplemental Cash Flow Information
The following table provides supplemental cash flow data in addition to the
information provided in the statements of cash flows:
<TABLE>
<CAPTION>
Period from
Year ended January 1,
December 31, 1998 to
1997 July 31, 1998
------------ -------------
<S> <C> <C>
Cash paid for:
Interest..................................... $210 $100
Income taxes................................. 306 47
</TABLE>
The Company issued $164 and $158 in notes payable for the year ended December
31, 1997 and period ended July 31, 1998, respectively, to purchase machinery
and equipment. The Company issued $15 in notes payable for the year ended
December 31, 1997 to purchase treasury stock.
F-229
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Automotive Sales Company, Inc.
We have audited the accompanying balance sheets of Automotive Sales Company,
Inc. (the Company) as of December 31, 1997 and July 31, 1998 and, the
statements of income and retained earnings and cash flows for the years ended
December 31, 1996 and 1997 and period from January 1, 1998 to July 31, 1998.
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 financial statements referred to above present fairly, in
all material respects, the financial position of Automotive Sales Company, Inc.
as of December 31, 1997 and July 31, 1998, and the results of its operations
and its cash flows for the years ended December 31, 1996 and 1997 and period
from January 1, 1998 to July 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
August 27, 1999
F-230
<PAGE>
AUTOMOTIVE SALES COMPANY, INC.
BALANCE SHEETS
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
July
December 31, 31,
1997 1998
------------ ------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 20 $ 18
Accounts receivable, net of allowance for doubtful
accounts of $5.......................................... 829 1,092
Inventories.............................................. 1,464 1,301
Current portion of rebates receivable.................... 134 73
Other current assets..................................... 109 107
------ ------
Total current assets................................... 2,556 2,591
Property, plant, and equipment, net...................... 1,598 1,607
Rebates receivable, less current portion................. 257 330
Other assets............................................. 104 112
------ ------
Total assets........................................... $4,515 $4,640
====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Revolving line of credit................................. $ 25 $ 80
Current portion of long-term debt........................ 189 200
Accounts payable......................................... 1,260 1,086
Accrued expenses......................................... 271 286
------ ------
Total current liabilities.............................. 1,745 1,652
Long-term debt, less current portion....................... 2,031 1,915
Stockholder's equity:
Common stock, $1 par value; 100,000 shares authorized;
50,000 shares issued and outstanding.................... 50 50
Retained earnings........................................ 689 1,023
------ ------
Total stockholder's equity............................. 739 1,073
------ ------
Total liabilities and stockholder's equity............. $4,515 $4,640
====== ======
</TABLE>
See accompanying notes to financial statements.
F-231
<PAGE>
AUTOMOTIVE SALES COMPANY, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(dollars in thousands)
<TABLE>
<CAPTION>
Period from
Year ended January 1,
December 31, 1998 to
---------------- July 31,
1996 1997 1998
------- ------- -----------
<S> <C> <C> <C>
Net sales........................................ $12,008 $11,784 $7,108
Cost of goods sold............................... 8,302 8,235 5,251
------- ------- ------
Gross profit..................................... 3,706 3,549 1,857
Selling, general, and administrative expenses.... 3,388 3,242 1,290
------- ------- ------
Operating income................................. 318 307 567
Interest expense................................. (208) (207) (105)
Other income..................................... 64 60 15
------- ------- ------
Net income....................................... 174 160 477
Retained earnings at beginning of period......... 689 687 689
Distributions.................................... (176) (158) (143)
------- ------- ------
Retained earnings at end of period............... $ 687 $ 689 $1,023
======= ======= ======
</TABLE>
See accompanying notes to financial statements.
F-232
<PAGE>
AUTOMOTIVE SALES COMPANY, INC.
STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year ended Period from
December January 1,
31, 1998 to
------------ July 31,
1996 1997 1998
----- ----- -----------
<S> <C> <C> <C>
Operating activities:
Net income......................................... $ 174 $ 160 $ 477
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.................... 84 80 44
Changes in operating assets and liabilities:
Accounts receivable.............................. (24) 35 (263)
Inventories...................................... (38) 193 163
Other assets..................................... (49) (74) (18)
Accounts payable and accrued expenses............ 242 (476) (159)
----- ----- -----
Net cash provided by (used in) operating
activities.................................... 389 (82) 244
Investing activities:
Capital expenditures............................... (21) (29) (53)
----- ----- -----
Net cash used in investing activities.......... (21) (29) (53)
Financing activities:
Net borrowings (payments) on revolving credit
facility.......................................... 105 (295) 55
Borrowings of long-term debt....................... -- 750 --
Payments on long-term debt......................... (294) (183) (105)
Distributions...................................... (176) (158) (143)
----- ----- -----
Net cash provided by (used in) financing
activities.................................... (365) 114 (193)
----- ----- -----
Increase (decrease) in cash and cash equivalents..... 3 3 (2)
Cash and cash equivalents at beginning of period..... 14 17 20
----- ----- -----
Cash and cash equivalents at end of period........... $ 17 $ 20 $ 18
===== ===== =====
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $ 208 $ 199 $ 93
</TABLE>
See accompanying notes to financial statements.
F-233
<PAGE>
AUTOMOTIVE SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1997 and 1996 and
period from January 1, 1998 to July 31, 1998
(Dollars in Thousands)
1. Description of Business
Automotive Sales Company, Inc. (the Company) distributes heavy duty truck
parts to retail and wholesale customers and provides related repair services.
Products and services are sold primarily to Arizona-based customers.
Effective July 31, 1998, the Company was sold to Quality Distribution Service
Partners, Inc.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined on the first in, first out (FIFO) method, and consist primarily of
finished goods.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
respective estimated useful lives of the assets for financial reporting
purposes as follows: 5 to 20 years for machinery and equipment, 5 to 10 years
for furniture and fixtures, 5 years for vehicles, 5 to 30 years for leasehold
improvements, and 20 years for land improvements. Leasehold improvements are
stated at cost and amortized over the shorter of the lease term or the useful
life of improvements. Depreciation and amortization was $84, $80, and $44 for
the years ended December 31, 1996 and 1997, and period ended July 31, 1998,
respectively.
Income Taxes
The Company has elected to be taxed as an S Corporation under the provisions
of the Internal Revenue Code and similar Arizona statutes. Under these
provisions, the Company does not pay federal or state income taxes at the
corporate level. Instead, the shareholders are liable for individual income
taxes on the Company's taxable income.
Revenue Recognition
Revenue is recognized when products are shipped or services are performed.
Long-Lived Assets
The Company evaluates its long-lived assets on an ongoing basis. Such assets
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the
F-234
<PAGE>
AUTOMOTIVE SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
related asset may be impaired. Whether assets to be held and used are impaired
is measured by a comparison of the carrying amount of the asset to future
undiscounted cash flows expected to be generated by the asset. If the asset is
determined to be impaired, the loss recognized is measured by the amount by
which the carrying value of the asset exceeds its fair value.
Fair Value of Financial Instruments
The carrying amounts reported in the Company's balance sheet for cash and
cash equivalents, trade accounts receivable, rebates receivable, other current
assets, accounts payable, and accrued expenses approximate their fair value
because of the short-term maturity of these instruments.
The carrying amount of the Company's long-term variable rate debt
approximates its fair value. The fair value of the fixed rate long-term debt
obligations is estimated using the discounted cash flow method with interest
rates currently available for similar obligations.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
To minimize this risk, the Company performs ongoing credit evaluations of
customers' financial condition, although collateral is not required.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Property, Plant, and Equipment
Property, plant, and equipment are summarized as follows:
<TABLE>
<CAPTION>
July
December 31, 31,
1997 1998
------------ ------
<S> <C> <C>
Land.................................................. $ 252 $ 252
Buildings and leasehold improvements.................. 1,404 1,404
Machinery and equipment............................... 636 544
Furniture and fixtures................................ 380 479
Vehicles.............................................. 8 47
------ ------
2,680 2,726
Less: Accumulated depreciation........................ 1,082 1,119
------ ------
$1,598 $1,607
====== ======
</TABLE>
F-235
<PAGE>
AUTOMOTIVE SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
4. Rebates Receivable
The Company holds non-interest-bearing certificates of indebtedness from HD
America, Inc., a purchasing cooperative from whom the Company purchases
approximately 30%-35% of their parts. The Company is eligible for various
discounts and rebates in the form of patronage dividends on its purchases from
the cooperative. Patronage dividends are earned annually and received in the
following year in the form of cash and a nonnegotiable, non-interest-bearing
certificate of indebtedness. The Company posted an irrevocable standby letter
of credit for the benefit of HD America, Inc. in the amount of $128 expiring
December 1998. The Company has the ability to replace this group of suppliers,
but it may not be at such favorable terms.
Annual maturities of the Company's rebate receivables are as follows for the
years ending July 31:
<TABLE>
<S> <C>
1999................................................................ $ 73
2000................................................................ 123
2001................................................................ 134
2002................................................................ 73
----
$403
====
</TABLE>
5. Long-Term Debt
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
July
December 31, 31,
1997 1998
------------ ------
<S> <C> <C>
Revolving credit facility............................... $ 25 $ 80
Term loan............................................... 677 604
Mortgage notes.......................................... 1,374 1,355
Note payable............................................ 147 136
Other................................................... 22 20
------ ------
2,245 2,195
Less: Current maturities................................ 214 280
------ ------
$2,031 $1,915
====== ======
</TABLE>
The Company maintains a revolving credit facility (the Facility) with the
bank providing for borrowings of up to $650, subject to certain lending
restrictions, and bearing interest at the bank's prime rate (8.5% at July 31,
1998). The Facility matures in May 1999 and funds borrowed may not exceed 80.0%
and 50.0% of the Company's eligible accounts receivable and eligible
inventories, respectively. Available borrowings under the Facility were $401 at
July 31, 1998.
In April 1997, the Company entered into a credit agreement providing for a
$750 term loan (Term Loan) to refinance existing term loans. The Term Loan is
payable in monthly installments of $10, plus interest at the prime rate through
May 2003.
The Facility and Term Loan require the Company to comply with certain
financial and nonfinancial covenants. The Company was in compliance with such
covenants at July 31, 1998. The Facility and Term Loan are collateralized by
substantially all of the assets of the Company.
F-236
<PAGE>
AUTOMOTIVE SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
In December 1997, the Company entered into a mortgage note payable for $1,200
to purchase property. The mortgage note payable is due in monthly principal and
interest installments of $8 through December 2002, and bears interest at 7.0%.
The note is secured by land and building and a $400 personal guarantee by the
majority stockholder. Additionally, the Company has a mortgage note payable due
in monthly installments of $3 through March 2006, including principal and
interest at a rate adjusted every three years to the 3-year U.S. Treasury note
rate plus 3.0% (9.25% at July 31, 1998), and is secured by land and building.
The Company has a note payable due in monthly installments of $2 including
principal and interest at 6.0% through February 2004 and is secured by
inventory.
Annual maturities of the Company's long-term debt are as follows for the
years ending July 31:
<TABLE>
<S> <C>
1999.............................................................. $ 280
2000.............................................................. 185
2001.............................................................. 190
2002.............................................................. 194
2003.............................................................. 179
2004 and thereafter............................................... 1,167
------
$2,195
======
</TABLE>
6. Operating Leases
The Company leases vehicles under noncancelable operating leases which expire
on various dates through 2000. Rent expense approximated $158, $153, and $74
for the years ended December 31, 1996 and 1997 and period ended July 31, 1998,
respectively. Future minimum lease payments under operating leases with terms
in excess of one year are as follows for the years ending July 31:
<TABLE>
<S> <C>
1999................................................................. $44
2000................................................................. 22
---
$66
===
</TABLE>
7. Employee Savings Plan
The Company sponsors a profit-sharing plan with an employee contribution
provision to provide substantially all employees of the Company an opportunity
to accumulate personal funds for their retirement, subject to minimum duration
of employment requirements. Employees may contribute up to 10% of before-tax
earnings to the plan. The Company's contributions to the plan are
discretionary. The Company made no contributions to the plan for the years
ended December 31, 1996 and 1997, respectively. Company contributions to the
plan were approximately $8 for the period ended July 31, 1998.
F-237
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
CSW Enterprises, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of CSW
Enterprises, Inc. and Subsidiary (the Company) as of December 31, 1997 and
August 7, 1998, and the related consolidated statements of income and retained
earnings and cash flows for the years ended December 31, 1996 and 1997 and for
the period from January 1, 1998 to August 7, 1998. These consolidated 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 consolidated financial position
of CSW Enterprises, Inc. and Subsidiary as of December 31, 1997 and August 7,
1998, and the consolidated results of its operations and its consolidated cash
flows for the years ended December 31, 1996 and 1997 and period from January 1,
1998 to August 7, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Chicago, Illinois
September 3, 1999
F-238
<PAGE>
CSW ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 31, August 7,
1997 1998
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 828 $ 256
Accounts receivable, net of allowance for doubtful
accounts of $45...................................... 756 849
Inventories........................................... 818 933
Deferred income taxes................................. 187 237
Other current assets.................................. 43 62
------ ------
Total current assets.................................... 2,632 2,337
Property, plant, and equipment, net..................... 1,711 1,665
Other assets............................................ 40 5
------ ------
Total assets............................................ $4,383 $4,007
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 280 $ 401
Accrued expenses...................................... 429 529
Income taxes payable.................................. 21 143
Due to stockholders................................... 800 --
Current portion of long-term debt..................... 164 229
------ ------
Total current liabilities............................... 1,694 1,302
Long-term debt, less current portion.................... 427 254
Stockholders' equity:
Common stock, $1 par value; 5,000 shares authorized;
524 shares issued and outstanding.................... 1 1
Additional paid-in capital............................ 193 193
Retained earnings..................................... 2,068 2,257
------ ------
Total stockholders' equity.............................. 2,262 2,451
------ ------
Total liabilities and stockholders' equity.............. $4,383 $4,007
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-239
<PAGE>
CSW ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Dollars in thousands)
<TABLE>
<CAPTION>
Period
from
Year ended January 1,
December 31, 1998 to
-------------- August 7,
1996 1997 1998
------ ------ ----------
<S> <C> <C> <C>
Net sales............................................ $6,792 $7,359 $4,811
Cost of goods sold................................... 4,551 4,701 3,097
------ ------ ------
Gross profit......................................... 2,241 2,658 1,714
Selling, general, and administrative expenses........ 1,910 2,178 1,365
------ ------ ------
Operating income..................................... 331 480 349
Other income, net.................................... 41 82 42
Interest expense..................................... (154) (139) (74)
------ ------ ------
Income before income taxes........................... 218 423 317
Income taxes......................................... 91 172 128
------ ------ ------
Net income........................................... 127 251 189
Retained earnings at beginning of period............. 1,690 1,817 2,068
------ ------ ------
Retained earnings at end of period................... $1,817 $2,068 $2,257
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-240
<PAGE>
CSW ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Period
ended from
December January 1,
31, 1998 to
---------- August 7,
1996 1997 1998
---- ---- ----------
<S> <C> <C> <C>
Operating activities
Net income............................................. $127 $251 $189
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 178 168 77
Deferred income taxes................................ (43) (5) (50)
Loss on sale of investments.......................... -- -- 24
Changes in operating assets and liabilities:
Accounts receivable................................ 93 (122) (93)
Inventories........................................ 69 (17) (115)
Other assets....................................... 59 (7) (17)
Accounts payable and accrued expenses.............. 140 18 221
Income taxes payable............................... 19 3 122
---- ---- ----
Net cash provided by operating activities.............. 642 289 358
Investing activities
Capital expenditures................................... (47) (84) (31)
Proceeds from sale of investments...................... -- -- 9
---- ---- ----
Net cash used in investing activities.................. (47) (84) (22)
Financing activities
Payments on long-term debt............................. (174) (160) (108)
Payments on notes due to stockholders.................. -- -- (800)
---- ---- ----
Net cash used in financing activities.................. (174) (160) (908)
---- ---- ----
Net increase (decrease) in cash........................ 421 45 (572)
Cash at beginning of period............................ 362 783 828
---- ---- ----
Cash at end of period.................................. $783 $828 $256
==== ==== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-241
<PAGE>
CSW ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1996 and 1997 and the
period from January 1, 1998 to August 7, 1998
1. Description of Business and Presentation
CSW Enterprises, Inc. and Subsidiary (collectively the Company) is engaged in
the distribution of heavy-duty replacement parts from distribution centers and
provides services for heavy-duty vehicles in the Oklahoma City, Oklahoma,
metropolitan area. The Company's principal products include truck and trailer
brake, suspension, axle, and other replacement parts. The Company's customers
include independent distributors, general repair shops, independent trucking
businesses, major fleets, and other operators of heavy-duty equipment.
Effective August 7, 1998, the Company was purchased by Quality Distribution
Service Partners, Inc.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined on the first in, first out (FIFO) method, and consist primarily of
cores and finished goods.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less accumulated
depreciation. Depreciation is principally computed using the straight-line
method over the respective estimated useful lives of the assets for financial
reporting purposes as follows: 5 to 8 years for machinery and equipment, 5 to
10 years for furniture and fixtures, 5 years for vehicles, and 5 to 39 years
for leasehold improvements. Leasehold improvements are stated at cost and
amortized over the shorter of the lease term or the useful life for leasehold
improvements. Depreciation and amortization was $178, 168, and $77 for the
years ended December 31, 1996 and 1997 and period ended August 7, 1998,
respectively.
Income Taxes
Deferred taxes are recognized for the tax consequences of the differences
between the financial statement carrying amounts and the tax bases of the
existing assets and liabilities by applying the enacted statutory income tax
rates applicable to the periods when such differences are expected to reverse.
Deferred taxes are recognized for the timing of these differences for financial
reporting and income tax reporting purposes.
Revenue Recognition
Revenue is recognized when products are shipped or services are performed.
F-242
<PAGE>
CSW ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-Lived Assets
The Company evaluates its long-lived assets on an ongoing basis. Identifiable
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the related asset may be impaired. Whether
assets to be held and used are impaired is measured by a comparison of the
carrying amount of the asset to future undiscounted cash flows expected to be
generated by the asset. If the asset is determined to be impaired, the loss
recognized is measured by the amount by which the carrying value of the asset
exceeds its fair value.
Fair Value of Financial Instruments
The carrying amounts reported in the Company's balance sheet for cash,
accounts receivable, other current assets, other assets, accounts payable, and
accrued expenses approximate fair value because of the short-term maturity of
these instruments.
The Company estimates the fair value of its long-term debt obligations, using
the discounted cash flow method with interest rates currently available for
similar obligations. The carrying amounts reported in the Company's balance
sheet for these obligations approximate fair value as the debt contains
variable interest rates and, as such, approximate fair value on an ongoing
basis.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
To minimize this risk, the Company performs ongoing credit evaluations of
customers' financial condition, although collateral is not required.
The Company has two vendors with significant purchases of 14% and 10%,
respectively, for the year ended December 31, 1997, and 18% and 14%,
respectively, for the period ended August 7, 1998. The Company believes that
other suppliers could provide the Company's needs in comparable terms.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, August 7,
1997 1998
------------ ---------
<S> <C> <C>
Cores............................................... $153 $135
Finished goods...................................... 665 798
---- ----
$818 $933
==== ====
</TABLE>
F-243
<PAGE>
CSW ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Property, Plant, and Equipment
Property, plant, and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31, August 7,
1997 1998
------------ ---------
<S> <C> <C>
Land and building.................................. $2006 $2,006
Leasehold improvements............................. 251 258
Machinery and equipment............................ 1,006 1,014
Furniture and fixtures............................. 79 79
Vehicles........................................... 210 226
------ ------
3,552 3,583
Less: Accumulated depreciation and amortization.... 1,841 1,918
------ ------
$1,711 $1,665
====== ======
</TABLE>
5. Accrued Expenses
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
December 31, August 7,
1997 1998
------------ ---------
<S> <C> <C>
Profit sharing...................................... $293 $390
Employee compensation and benefits.................. 81 114
Other............................................... 55 25
---- ----
$429 $529
==== ====
</TABLE>
6. Long-Term Debt
Long-term debt are summarized as follows:
<TABLE>
<CAPTION>
December 31, August 7,
1997 1998
------------ ---------
<S> <C> <C>
Installment notes................................... $591 $483
Less: Current reclassification...................... 164 229
---- ----
$427 $254
==== ====
</TABLE>
On October 1, 1992, the Company entered into an agreement providing for an
$877 installment note (Note I) to purchase land and a building. Note I is
payable in monthly principal and interest installments of $12 and bears
interest at the bank's prime rate (8.5% at August 7, 1998) plus 0.5% through
October 1, 2000.
On January 30, 1995, the Company entered into an agreement providing for a
$180 installment note (Note II) to finance building improvements. Note II is
payable in monthly principal and interest installments of $2 and bears interest
at the bank's prime rate (8.5% at August 7, 1998) plus 0.5% through February 1,
2005.
F-244
<PAGE>
CSW ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On December 29, 1994, the Company entered into an agreement providing for a
$150 installment note (Note III) to finance computer needs. Note III is payable
in monthly principal and interest installments of $3 and bears interest at a
fixed rate of 9.0% through May 1, 2000.
The credit agreement covering the installment notes requires the Company to
comply with certain financial and nonfinancial covenants. The installment notes
are collateralized by substantially all assets of the Company and guaranteed by
stockholders of the Company.
Annual maturities of long-term debt are as follows for the years ending
August 7:
<TABLE>
<S> <C>
1999.................................................................. $229
2000.................................................................. 167
2001.................................................................. 19
2002.................................................................. 20
2003.................................................................. 22
2004 and thereafter................................................... 26
----
$483
====
</TABLE>
7. Operating Leases
The Company leases office equipment under noncancelable operating leases
which expire on various dates through 2005. Rent expense for such leases
approximated $6, $7, and $4 for the years ended December 31, 1996 and 1997, and
period ended August 7, 1998, respectively.
8. Income Taxes
Income taxes included in the consolidated statement of income consist of the
following:
<TABLE>
<CAPTION>
Period from
Year ended January 1,
December 31, 1998 to
-------------- August 7,
1996 1997 1998
------ ------ -----------
<S> <C> <C> <C>
Current:
Federal....................................... $ 114 $ 150 $150
State......................................... 20 27 28
------ ------ ----
134 177 178
Deferred....................................... (43) (5) (50)
------ ------ ----
$ 91 $ 172 $128
====== ====== ====
</TABLE>
Reconciliation of the effective income tax rate computed at the U.S. federal
statutory tax rate to income tax expense is as follows:
<TABLE>
<CAPTION>
Year
ended Period from
December January 1,
31, 1998 to
---------- August 7,
1996 1997 1998
---- ---- -----------
<S> <C> <C> <C>
Income taxes at U.S. federal statutory rate....... 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit.... 6.2 6.0 5.5
Other............................................. 1.5 0.7 0.9
---- ---- ----
41.7% 40.7% 40.4%
==== ==== ====
</TABLE>
F-245
<PAGE>
CSW ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31, August 7,
1997 1998
------------ ---------
<S> <C> <C>
Inventory obsolescence reserve...................... $ 34 $ 34
Allowance for doubtful accounts..................... 18 18
Employee compensation and benefits.................. 135 185
---- ----
Deferred tax asset.................................. $187 $237
==== ====
</TABLE>
9. Related Party Transactions
As of August 7, 1998, the Company sold investments held in property to a
stockholder of the Company for proceeds approximating $9. A loss of $24 on the
sale was recognized for the difference between the financial statement carrying
amounts and the proceeds received in the transaction. The proceeds received
approximate fair value based on an appraisal from a third party.
The Company had notes payable due to certain stockholders of the Company
totaling $800 outstanding at December 31, 1997. During the period ended August
7, 1998, the Company paid these notes in full and no balances remained
outstanding.
10. Employee Savings Plan
The Company sponsors a defined-contribution plan to provide substantially all
employees of the Company an opportunity to accumulate personal funds for their
retirement. Employees may contribute up to 15% of before-tax earnings to the
plan, and the Company matches up to 2% of the employees' contributions to the
plan. For the year ended December 31, 1996, no Company matching contributions
were made to the Plan. Company matching contributions to the plan were
approximately $18 and $21 for the year ended December 31, 1997 and the period
ended August 7, 1998, respectively.
11. Supplemental Cash Flow Information
The following table provides supplemental cash flow data to the information
provided in the consolidated statement of cash flows:
<TABLE>
<CAPTION>
Period from
Year ended January 1,
December 31, 1998 to
------------- August 7,
1996 1997 1998
------ ------ -----------
<S> <C> <C> <C>
Cash paid for:
Income taxes.................................... $ 101 $ 176 $137
Interest........................................ 154 139 74
</TABLE>
F-246
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Holt Incorporated
We have audited the accompanying consolidated balance sheet of Holt
Incorporated and Subsidiaries (the Company) as of August 7, 1998, and the
related consolidated statements of income and retained earnings and cash flows
for the year then ended. 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 audit.
We conducted our audit 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 also 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 audit provides 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 Holt
Incorporated and Subsidiaries at August 7, 1998, and the consolidated results
of their operations and their consolidated cash flows for the year then ended
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
December 11, 1998
F-247
<PAGE>
HOLT INCORPORATED
CONSOLIDATED BALANCE SHEET
August 7, 1998
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.................................................................. $ 33
Accounts receivable, net of allowance for doubtful accounts of $43.... 928
Inventories........................................................... 3,081
Deferred income taxes................................................. 333
Other current assets.................................................. 94
------
Total current assets................................................ 4,469
Property, plant, and equipment, net..................................... 363
------
Total assets........................................................ $4,832
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit.............................................. $1,970
Accounts payable...................................................... 1,377
Accrued expenses...................................................... 404
Current portion of long-term debt..................................... 54
Current portion of capital lease obligations.......................... 48
------
Total current liabilities........................................... 3,853
Long-term debt, less current portion.................................... 27
Capital lease obligations, less current portion......................... 79
Stockholders' equity:
Common stock, $10 par value; 100,000 shares authorized shares; 2,710
shares issued and outstanding........................................ 27
Retained earnings..................................................... 846
------
Total stockholders' equity.......................................... 873
------
Total liabilities and stockholders' equity.......................... $4,832
======
</TABLE>
See accompanying notes to consolidated financial statements.
F-248
<PAGE>
HOLT INCORPORATED
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Year ended August 7, 1998
(Dollars in Thousands)
<TABLE>
<S> <C>
Net sales.............................................................. $14,193
Cost of goods sold..................................................... 9,510
-------
Gross profit........................................................... 4,683
Selling, general, and administrative expenses.......................... 4,432
-------
Operating income....................................................... 251
Other income........................................................... 57
Interest expense....................................................... (249)
-------
Income before income taxes............................................. 59
Income taxes........................................................... 26
-------
Net income............................................................. 33
Retained earnings at August 6, 1997.................................... 813
-------
Retained earnings at August 7, 1998.................................... $ 846
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-249
<PAGE>
HOLT INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended August 7, 1998
(Dollars in Thousands)
<TABLE>
<S> <C>
Operating activities
Net income............................................................. $ 33
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 190
Deferred income taxes................................................ (6)
Gain on sale of equipment............................................ (17)
Changes in operating assets and liabilities:
Accounts receivable................................................ 437
Inventories........................................................ (174)
Other current assets............................................... (31)
Accounts payable and accrued expenses.............................. (27)
-----
Net cash provided by operating activities.............................. 405
Investing activities
Proceeds from sale of equipment........................................ 28
Capital expenditures................................................... (45)
-----
Net cash used in investing activities.................................. (17)
Financing activities
Net payments on revolving line of credit............................... (142)
Payments on long-term debt............................................. (109)
Net payments on related party notes.................................... (137)
Payments on capital lease obligations.................................. (21)
-----
Net cash used in financing activities.................................. (409)
-----
Net decrease in cash................................................... (21)
Cash at August 8, 1997................................................. 54
-----
Cash at August 7, 1998................................................. $ 33
=====
</TABLE>
See accompanying notes to consolidated financial statements.
F-250
<PAGE>
HOLT INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended August 7, 1998
(Dollars in Thousands)
1. Description of Business and Basis of Presentation
Holt Incorporated and Subsidiaries (collectively the Company) are engaged in
the distribution of heavy-duty replacement parts and provide services for
heavy-duty vehicles primarily throughout the midwest United States. The
Company's principal products include truck and trailer wheels, rims, brakes,
suspensions, axles, electrical, and other replacement parts. The Company's
customers include independent distributors, general repair shops, independent
trucking businesses, major fleets, and other operators of heavy-duty equipment.
Effective August 7, 1998, the Company was sold to Quality Distribution
Service Partners, Inc. (QDSP). The Company's fiscal year end is July 31. In
connection with the sale of the Company to QDSP, the financial statements are
presented as of August 7, 1998, and for the year then ended.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Stats Remanufacturing Center, Inc. and Four T
Sales & Service, Inc. All significant intercompany transactions and balances
have been eliminated in consolidation.
Inventories
Inventories are lower of cost or market and consist primarily of finished
goods. The cost of inventories are determined using average cost, which
approximates the first in, first out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed using the straight-line and accelerated methods over
the respective estimated useful lives of the assets for financial reporting
purposes as follows: 3 to 8 years for machinery and equipment, 5 years for
vehicles, and 15 years for leasehold improvements. Depreciation and
amortization was $190 for the year ended August 7, 1998.
Income Taxes
Deferred taxes are recognized for the tax consequences of the differences
between the financial statement carrying amounts and the tax bases of the
existing assets and liabilities by applying the enacted statutory income tax
rates applicable to the periods when such differences are expected to reverse.
Deferred taxes are recognized for the timing of these differences for financial
reporting and income tax reporting purposes.
F-251
<PAGE>
HOLT INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Revenue is recognized when products are shipped or services are performed.
Long-Lived Assets
The Company evaluates its long-lived assets on an ongoing basis. Such assets
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the related asset may be impaired. Whether
assets to be held and used are impaired is measured by a comparison of the
carrying amount of the asset to future undiscounted cash flows expected to be
generated by the asset. If the asset is determined to be impaired, the loss
recognized is measured by the amount by which the carrying value of the asset
exceeds its fair value.
Fair Value of Financial Instruments
The carrying amounts reported in the Company's balance sheet for cash, trade
accounts receivable, other current assets, accounts payable, and accrued
expenses approximate their fair value because of the short-term maturity of
these instruments.
The carrying amounts reported in the Company's balance sheet for variable-
rate long-term debt, including current portion, approximate fair-value, as the
underlying long-term debt instruments are comprised of notes that are repriced
on a short-term basis.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
To minimize this risk, the Company performs ongoing credit evaluations of
customers' financial condition, although collateral is not required.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Property and Equipment
Property and equipment consist of the following at August 7, 1998:
<TABLE>
<S> <C>
Leasehold improvements............................................. $ 141
Machinery and equipment............................................ 1,393
Vehicles........................................................... 556
------
2,090
Less: Accumulated depreciation..................................... 1,727
------
$ 363
======
</TABLE>
F-252
<PAGE>
HOLT INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Revolving Line of Credit
The Company maintains a revolving line of credit (Revolver) providing for
borrowings of up to $3.0 million including letters of credit of up to $50 for
working capital purposes. The Revolver bears interest payable monthly at the
bank's prime rate (8.5% at August 7, 1998) plus 1.0%. Amounts advanced are due
on October 31, 1998, subject to certain lending restrictions and financial and
nonfinancial covenants, collateralized by substantially all assets of the
Company and guaranteed by a majority stockholder. At August 7, 1998, the
Company had no outstanding letters of credit and an unused portion of the
Revolver of approximately $1.0 million.
5. Long-Term Debt
Long-term debt at August 7, 1998, consists of the following:
<TABLE>
<S> <C>
Term loan............................................................. $35
Installment loans..................................................... 46
---
81
Less: Current maturities.............................................. 54
---
$27
===
</TABLE>
On August 17, 1994, the Company entered into an agreement providing for a
$150 term loan (Term Loan) to refinance an existing term loan. The Term Loan is
payable in monthly principal and interest installments of $7 and bears interest
payable monthly at the bank's prime rate (8.5% at August 7, 1998) plus 2.0%
through August 1999. The Term Loan requires the Company to comply with certain
financial and nonfinancial covenants and is collateralized by substantially all
assets of the Company and guaranteed by a majority stockholder.
Installment notes for vehicles are payable in quarterly principal and
interest installments, bear interest at rates varying from 3.9% to 9.9%, mature
ranging from October 1998 through February 2002 and are collateralized by
vehicles.
Annual maturities of the Company's long-term debt are as follows at August 7,
1998:
<TABLE>
<S> <C>
Year ending August 7:
1999................................................................. $54
2000................................................................. 16
2001................................................................. 9
2002................................................................. 2
2003 and thereafter.................................................. --
---
$81
===
</TABLE>
F-253
<PAGE>
HOLT INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Capital Leases
Future minimum lease payments under capital leases with initial or remaining
terms of one year or more consisted of the following at July 31, 1998:
<TABLE>
<S> <C>
1999................................................................. $ 49
2000................................................................. 41
2001................................................................. 38
2002................................................................. 22
----
Total minimum payments............................................... 150
Less: Amounts representing interest.................................. 23
----
Present value of minimum lease payments.............................. 127
Less: Current portion................................................ 48
----
Total long-term portion.............................................. $ 79
====
</TABLE>
Vehicles leased under capital leases, net of accumulated depreciation of $26,
were approximately $130 at July 31, 1998.
7. Operating Leases
The Company leases buildings under noncancelable operating leases from a
partnership owned by stockholders of the Company. The leases expire at various
dates through 2001. Rent under the operating leases to this related party was
$123 for the year ended August 7, 1998.
Additionally, the company leases machinery and equipment under operating
leases from unaffiliated entities. The leases expire at various dates through
2002. Rent expense approximated $287 for the year ended August 7, 1998.
Future minimum lease payments under operating leases with terms in excess of
one year are as follows at August 7, 1998:
<TABLE>
<S> <C>
1999.................................................................. $377
2000.................................................................. 271
2001.................................................................. 250
2002.................................................................. 77
----
$975
====
</TABLE>
8. Income Taxes
The income tax expense consists of the following for the period ended August
7, 1998:
<TABLE>
<S> <C>
Current:
Federal............................................................. $28
State............................................................... 4
---
32
Deferred.............................................................. (6)
---
$26
===
</TABLE>
F-254
<PAGE>
HOLT INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reconciliation of effective income tax rate computed at the U.S. federal
statutory tax rate to the income tax expense is as follows for the period ended
August 7, 1998:
<TABLE>
<S> <C>
Federal taxes at statutory rate...................................... 34.0%
State income taxes, net of federal benefit........................... 5.4
Other................................................................ 4.7
----
Income tax expense................................................... 44.1%
====
</TABLE>
Significant components of the Company's deferred income taxes at August 7,
1998, are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for receivables.......................................... $ 16
Inventory reserve.................................................. 213
Other.............................................................. 104
----
Total deferred tax assets............................................ $333
====
</TABLE>
9. Related Parties
As described in Note 7, the Company leases buildings from JDH Investments, a
partnership owned by stockholders of the Company. The lease expense related to
these leases was financed by JDH Investments. A net payment of $137 was made on
the balance of the financing of the leases. No balance remained outstanding at
August 7, 1998.
10. Employee Savings and Profit-Sharing Plans
The Company sponsors a defined-contribution plan to provide substantially all
employees of the Company an opportunity to accumulate personal funds for their
retirement subject to minimum duration of employment requirements.
Participating employees may contribute up to 15% of before-tax earnings to the
plan which are matched by the Company up to the lesser of 25% of the employees'
contribution or two hundred and fifty dollars. Company matching contributions
to the plan were $7 for the year ended August 7, 1998.
The Company has a profit-sharing plan that covers employees who have
completed one year of service and attained the age of twenty-one. Contributions
to the profit-sharing plan are determined by the Board of Directors of the
Company and were $20 for the year ended August 7, 1998.
11. Supplemental Cash Flow Information
The following table provides supplemental cash flow data in addition to the
information provided in the consolidated statement of cash flows for the year
ended August 7, 1998:
<TABLE>
<S> <C>
Cash paid for:
Income taxes........................................................ $232
Interest............................................................ 249
</TABLE>
F-255
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Sharkey Family Holdings, Inc.
We have audited the accompanying balance sheets of Sharkey Family Holdings,
Inc. (d/b/a Universal Joint Sales Company), as of December 31, 1997 and July
31, 1998, and the statements of income, stockholders' equity, and cash flows
for the year ended December 31, 1997 and period from January 1, 1998 to July
31, 1998. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Universal Joint Sales Company
at December 31, 1997 and July 31, 1998, and the results of their operations and
their cash flows for the year ended December 31, 1997 and period from January
1, 1998 to July 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Chicago, Illinois
December 18, 1998
F-256
<PAGE>
UNIVERSAL JOINT SALES COMPANY
BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
July
December 31, 31,
1997 1998
------------ ------
ASSETS
------
<S> <C> <C>
Current assets:
Cash.................................................... $ -- $ 141
Accounts receivable, less allowance for doubtful
accounts of $65........................................ 1,864 2,134
Inventories............................................. 4,583 5,518
Current portion of rebates receivable................... 457 183
Due from stockholders................................... -- 40
Other current assets.................................... 61 62
------ ------
Total current assets.................................. 6,965 8,078
Property, plant, and equipment, net..................... 1,143 1,143
Rebates receivable, less current portion................ 232 599
Other assets............................................ 103 102
------ ------
Total assets.......................................... $8,443 $9,922
====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Revolving line of credit................................ $ 880 $1,180
Accounts payable........................................ 1,760 2,348
Accrued expenses........................................ 250 325
Due to stockholders..................................... 180 --
Current portion of long-term debt....................... 409 381
Current portion of capital lease obligation............. 27 32
------ ------
Total current liabilities............................. 3,506 4,266
Long-term debt, less current portion...................... 723 540
Capital lease obligation, less current portion............ 45 24
Stockholders' equity:
Common stock, Class A voting, no par value, 100 shares
authorized, issued, and outstanding.................... -- --
Common stock, Class B nonvoting, $.00001 par value,
1,000,000 shares authorized, issued, and outstanding... -- --
Additional paid-in capital.............................. 372 372
Retained earnings....................................... 3,914 4,903
Cost of 1,000 shares of common stock in treasury........ (117) (183)
------ ------
Total stockholders' equity............................ 4,169 5,092
------ ------
Total liabilities and stockholders' equity............ $8,443 $9,922
====== ======
</TABLE>
See notes to financial statements.
F-257
<PAGE>
UNIVERSAL JOINT SALES COMPANY
STATEMENTS OF INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Period from
January 1,
Year ended 1998 to
December 31, July 31,
1997 1998
------------ -----------
<S> <C> <C>
Net sales.............................................. $24,248 $15,122
Cost of goods sold..................................... 16,011 9,548
------- -------
Gross profit........................................... 8,237 5,574
Selling, general, and administrative expenses.......... 7,871 4,525
------- -------
Operating income................................. 366 1,049
Interest expense....................................... (237) (86)
Other income........................................... 118 49
------- -------
Income before income taxes............................. 247 1,012
Income taxes........................................... 7 23
------- -------
Net income............................................. $ 240 $ 989
======= =======
</TABLE>
See notes to financial statements.
F-258
<PAGE>
UNIVERSAL JOINT SALES COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
Year ended December 31, 1997 and
period from January 1, 1998 to July 31, 1998
<TABLE>
<CAPTION>
Cost of
Additional Common Total
Common Paid-In Retained Stock in Stockholders'
Stock Capital Earnings Treasury Equity
------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997.. $134 $238 $4,510 $(117) $4,765
Distributions to
stockholders'.............. -- -- (836) -- (836)
Net income.................. -- -- 240 -- 240
---- ---- ------ ----- ------
Balance at December 31,
1997....................... 134 238 3,914 (117) 4,169
Purchase of common stock for
treasury................... -- -- -- (66) (66)
Net income.................. -- -- 989 -- 989
---- ---- ------ ----- ------
Balance at July 31, 1998.... $134 $238 $4,903 $(183) $5,092
==== ==== ====== ===== ======
</TABLE>
See notes to financial statements.
F-259
<PAGE>
UNIVERSAL JOINT SALES COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Period
from
January 1,
Year ended 1998 to
December 31, July 31,
1997 1998
------------ ----------
<S> <C> <C>
Operating activities
Net income............................................. $ 240 989
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 291 132
Gain on sale of property, plant, and equipment..... (2) (14)
Changes in operating assets and liabilities:
Accounts receivable.............................. (88) (270)
Inventories...................................... 283 (935)
Other assets..................................... (100) (93)
Accounts payable and accrued expenses............ 474 662
------- ----
Net cash provided by operating activities...... 1,098 471
Investing activities
Capital expenditures................................... (272) (169)
Proceeds from sale of property, plant, and equipment... 34 64
------- ----
Net cash used in investing activities.................. (238) (105)
Financing activities
Payments on amounts due to stockholders................ (40) (220)
Net proceeds from revolving line of credit............. 130 300
Payments on long-term debt............................. (382) (223)
Payments on capital lease obligation................... (13) (16)
Purchase of treasury stock............................. -- (66)
Distributions.......................................... (836) --
------- ----
Net cash used in financing activities.......... (1,141) (225)
------- ----
Net increase (decrease) in cash........................ (281) 141
Cash at beginning of period............................ 281 --
------- ----
Cash at end of period.................................. $ -- $141
======= ====
</TABLE>
See notes to financial statements.
F-260
<PAGE>
UNIVERSAL JOINT SALES COMPANY
NOTES TO FINANCIAL STATEMENTS
Year ended December 31, 1997 and
period from January 1, 1998 to July 31, 1998
(Dollars in thousands)
1. Description of Business and Basis of Presentation
Sharkey Family Holdings, Inc. (d/b/a Universal Joint Sales Company) was
formed on January 1, 1998, through the combination of five companies controlled
through common ownership. The companies combined were: (i) Universal Joint
Sales Company inc., (ii) Universal Joint Sales of Buffalo, Inc.; (iii)
Universal Joint Sales of Watertown, Inc.; (iv) Driveshaft Specialists, Inc.;
and (v) Driveshaft Specialists of Jacksonville, Inc. Upon the combination of
these companies, the entities became divisions of Sharkey Family Holdings, Inc.
All references to the Company refer collectively to the combined entities prior
to January 1, 1998, and to Sharkey Family Holdings, Inc. subsequently.
The financial statements as of and for the year ended December 31, 1997 are
presented on a combined basis. All significant intercompany transactions and
balances have been eliminated.
The Company distributes heavy-duty replacement parts from distribution
centers and provides services for heavy-duty vehicles in New York,
Pennsylvania, and Florida. The Company's principal products include drive
lines, brakes, clutches, power takeoffs, front wheel drive components, and
other replacement parts.
Effective July 31, 1998, the Company was purchased by Quality Distribution
Service Partners, Inc.
2. Significant Accounting Policies
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined on the first in, first out (FIFO) method, and consist primarily of
core and finished goods.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over the
respective estimated useful lives of the assets for financial reporting
purposes as follows: 25 years for buildings, 5 to 7 years for furniture and
fixtures, 5 to 7 years for machinery and equipment, 5 years for vehicles, and
the shorter of the lease term or the useful life for leasehold improvements.
Depreciation and amortization was $291 and $132 for the year ended December 31,
1997 and period ended July 31, 1998, respectively.
Income Taxes
The Company has elected to be taxed as an S Corporation under the Internal
Revenue Code. Under these provisions, the Corporation does not pay federal
income tax at the corporate level. Instead shareholders are liable for
individual income taxes for the Company's taxable income. Therefore, no
provision or liability for federal income taxes have been included in the
financial statements for the Company. The Company is liable for various state
income taxes. Provisions of $7 and $23 were recorded for the year ended
December 31, 1997 and period ended July 31, 1998.
F-261
<PAGE>
UNIVERSAL JOINT SALES COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Revenue is recognized when products are shipped or services are performed.
Long-Lived Assets
The Company evaluates its long-lived assets on an ongoing basis. Such assets
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the related asset may be impaired. Whether
assets to be held and used are impaired is measured by a comparison of the
carrying amount of the asset to future undiscounted cash flows expected to be
generated by the asset. If the asset is determined to be impaired, the loss
recognized is measured by the amount by which the carrying value of the asset
exceeds its fair value.
Fair Value of Financial Instruments
The carrying amounts reported in the Company's balance sheet for cash,
accounts receivable, rebates receivable, other current assets, accounts
payable, and accrued expenses approximate their fair value because of the
short-term maturity of these instruments.
The Company estimates the fair value of the long-term debt obligations
including current portions, using the discounted cash flow method with interest
rates currently available for similar obligations. The carrying amounts
reported in the Company's balance sheets for these obligations approximate fair
value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
To minimize this risk, the Company performs ongoing credit evaluations of
customers' financial condition, although collateral is not required.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
July
December 31, 31,
1997 1998
------------ ------
<S> <C> <C>
Cores.................................................. $ 385 $1,439
Finished Goods......................................... 4,198 4,079
------ ------
$4,583 $5,518
====== ======
</TABLE>
F-262
<PAGE>
UNIVERSAL JOINT SALES COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Property, Plant, and Equipment
Property, plant, and equipment are summarized as follows:
<TABLE>
<CAPTION>
July
December 31, 31,
1997 1998
------------ ------
<S> <C> <C>
Buildings and leasehold improvements................ $1,171 $1,170
Machinery and equipment............................. 1,441 1,511
Furniture and fixtures.............................. 821 821
Vehicles............................................ 631 652
------ ------
4,064 4,154
Less: Accumulated depreciation...................... 2,921 3,011
------ ------
$1,143 $1,143
====== ======
</TABLE>
5. Rebates Receivable
The Company holds non-interest-bearing certificates of indebtedness from HD
America, Inc., a purchasing cooperative from whom the Company purchases a
significant amount of their inventory. The Company is eligible for various
discounts and rebates in the form of patronage dividends on their purchases
from the cooperative. Patronage dividends are earned annually and are received
in the following year in the form of cash and non-negotiable, non-interest-
bearing certificates of indebtedness. The Company has the ability to replace
this group of suppliers; however, it may not be at such favorable terms.
Annual maturities of the Company's rebates receivable are as follows at July
31, 1998:
<TABLE>
<S> <C>
Period ending July 31:
1999.............................................................. $183
2000.............................................................. 176
2001.............................................................. 240
2002.............................................................. 183
----
$782
====
</TABLE>
6. Revolving Line of Credit
The Company maintains a revolving line of credit providing for borrowings of
up to $1,250 bearing interest at the prime rate (8.5% at July 31, 1998) plus
0.25%. The revolving line of credit is renewable annually on July 31 and is
secured by substantially all assets of the Company and guaranteed by the
stockholders. As of July 31, 1998, $1,180 was outstanding on the line of
credit.
F-263
<PAGE>
UNIVERSAL JOINT SALES COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
7. Long-Term Debt
Long-term debts are summarized as follows:
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------ --------
<S> <C> <C>
Installment notes.................................. $ 912 $790
Notes payable...................................... 128 69
Other notes payable................................ 92 62
------ ----
Total long-term debt............................... 1,132 921
Less: Current maturities........................... 409 381
------ ----
$ 723 $540
====== ====
</TABLE>
In October 1994, the Company entered into an agreement providing for a $250
installment note to purchase machinery. The installment note is payable in
monthly principal installments of $4 and interest at the bank's prime rate
(8.5% at July 31, 1998) plus 1.0% through October 1999. The installment note is
guaranteed by the majority shareholder of the Company. The amount outstanding
under the installment note at July 31, 1998, was $63.
In August 1996, the Company entered into an agreement providing for a $300
installment note to purchase inventory. The installment note is payable in
monthly principal installments of $5 and interest at the bank's prime rate plus
1.0% through August 2001. The installment note is collateralized by inventory
and personally guaranteed by the majority stockholder of the Company. The
amount outstanding under the note at July 31, 1998, was $190.
In December 1996, the Company entered into an agreement providing for a $750
installment note to provide working capital. The installment note is payable in
monthly principal installments of $13 and interest at the bank's prime rate
plus 0.25% through December 2001. The installment note is personally guaranteed
by the majority stockholder of the Company. The amount outstanding under the
note at July 31, 1998, was $537.
The Company has two notes payable due to 805 Spencer Street Partnership, a
partnership owned by stockholders of the Company. The notes bear interest at
9.25% and are payable in monthly principal and interest installments of $8 and
$1 through December 1998 and June 2000, respectively.
The Company has entered into several notes payable (Notes) to purchase
automobiles and equipment. The Notes are payable in monthly principal and
interest installments and bear interest at rates varying from 6.65% to 11.95%
and mature through 2001. The Notes are collateralized by the vehicles and
equipment purchased with the loan proceeds.
Annual maturities of the Company's long-term debt are as follows at July 31,
1998:
<TABLE>
<S> <C>
1999................................................................ $381
2000................................................................ 253
2001................................................................ 219
2002................................................................ 68
----
$921
</TABLE>
F-264
<PAGE>
UNIVERSAL JOINT SALES COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Capital Leases
Equipment under capital leases consists of the following:
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------ --------
<S> <C> <C>
Equipment.......................................... $84 $84
Less: Accumulated amortization..................... 14 30
--- ---
$70 $54
=== ===
</TABLE>
Future minimum lease payments under capital leases with initial or remaining
terms of one year or more consist of the following at July 31, 1998:
<TABLE>
<S> <C>
1999................................................................ $32
2000................................................................ 29
---
Total minimum lease payments........................................ 61
Amounts representing interest....................................... 5
---
Present value of minimum lease payments............................. 56
Less: Current portion............................................... 32
---
$24
===
</TABLE>
9. Operating Leases
The Company leases buildings under operating leases from stockholders of the
Company. The leases expire at various dates through 2006. Rent expense under
the operating leases to the related parties was $814 and $497 for the year
ended December 31, 1997 and the period ended July 31, 1998, respectively.
Additionally, the Company leases equipment and vehicles under operating
leases from unaffiliated entities. The leases expire on various dates through
2001. Rent expense for such leases was $28 and $22 for the year ended December
31, 1997 and period ended July 31, 1998, respectively.
Future minimum lease payments under operating leases with terms in excess of
one year are as follows at July 31, 1998:
<TABLE>
<S> <C>
1999.............................................................. $ 499
2000.............................................................. 174
2001.............................................................. 138
2002.............................................................. 137
2003.............................................................. 76
2004 and thereafter............................................... 227
------
$1,251
======
</TABLE>
10. Related Party Transactions
As described in Note 9, the Company leases buildings from stockholders of the
Company. In addition, the Company has notes payable with stockholders as
described in Note 7.
F-265
<PAGE>
UNIVERSAL JOINT SALES COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
11. Employee Savings Plan
The Company sponsors a qualified defined-contribution plan to provide
substantially all employees of the Company an opportunity to accumulate
personal funds for their retirement subject to minimum duration of employment
requirements. Participating employees may contribute up to 15% of before-tax
earnings to the plan. The Company will match up to 5% of employees'
contributions to the plan. Company contributions to the plan were $176 and $104
for the year ended December 31, 1997 and period ended July 31, 1998.
12. Supplemental Cash Flow Information
The following table provides supplemental cash flow data in addition to the
information provided in the statements of cash flows:
<TABLE>
<CAPTION>
Period
Year ended ended
December 31, July 31,
1997 1998
------------ --------
<S> <C> <C>
Cash paid for:
Income taxes..................................... $ 14 $ 5
Interest......................................... 181 79
</TABLE>
The Company issued $70 and $12 in notes payable to purchase vehicles and
machinery for the year ended December 31, 1997 and period ended July 31, 1998,
respectively.
F-266
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Fleetpride, Inc.
We have audited the accompanying balance sheets of Fleetpride, Inc. as of
December 31, 1997 and July 31, 1998, and the related statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1996 and
1997 and for the period from January 1, 1998 to July 31, 1998. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Fleetpride, Inc. as of
December 31, 1997 and July 31, 1998, and the results of its operations and its
cash flows for the years ended December 31, 1996 and 1997, and period from
January 1, 1998 to July 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
September 3, 1999
F-267
<PAGE>
FLEETPRIDE, INC.
BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------ --------
ASSETS
------
<S> <C> <C>
Current assets:
Cash................................................... $ 10 $ 51
Accounts receivable, net of allowance for doubtful
accounts of $50....................................... 1,923 2,306
Inventories............................................ 1,953 2,467
Deferred income taxes.................................. 253 255
Other current assets................................... 537 224
------ ------
Total current assets................................. 4,676 5,303
Property and equipment, net............................ 1,348 1,278
Deferred income taxes.................................. 43 31
Other assets........................................... 56 55
------ ------
Total assets......................................... $6,123 $6,667
====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Revolving line of credit............................... $2,651 $2,589
Accounts payable....................................... 1,247 1,913
Accrued expenses....................................... 415 636
Current portion of long-term debt...................... 180 131
Current portion of capital lease obligations........... 247 182
------ ------
Total current liabilities............................ 4,740 5,451
Long-term debt, less current portion................... 133 93
Capital lease obligations, less current portion........ 180 169
Stockholders' equity:
Preferred stock: $1,000 stated value; 400 shares
authorized, issued, and outstanding 400 400
Common stock: $10 par value; 5,000 shares authorized,
3,805 shares issued, and 950 outstanding.............. 38 38
Additional paid-in capital............................. 283 283
Retained earnings...................................... 824 708
Accumulated other comprehensive loss:
Unrealized loss on securities available-for-sale....... (52) (52)
Cost of 2,855 shares of common stock in treasury....... (423) (423)
------ ------
Total stockholders' equity........................... 1,070 954
------ ------
Total liabilities and stockholders' equity........... $6,123 $6,667
====== ======
</TABLE>
See accompanying notes to financial statements.
F-268
<PAGE>
FLEETPRIDE, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended Period from
December 31, January 1,
---------------- 1998 to
1996 1997 July 31, 1998
------- ------- -------------
<S> <C> <C> <C>
Net sales............... $27,152 $19,833 $12,830
Cost of goods sold...... 19,927 12,860 8,436
------- ------- -------
Gross profit............ 7,225 6,973 4,394
Selling, general, and
administrative
expenses............... 6,608 6,867 4,336
------- ------- -------
Operating income........ 617 106 58
Interest expense........ (387) (318) (195)
------- ------- -------
Income (loss) before
income taxes........... 230 (212) (137)
Income taxes (benefit).. 114 (60) (39)
------- ------- -------
Net income (loss)....... $ 116 $ (152) $ (98)
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-269
<PAGE>
FLEETPRIDE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumulated Cost of
Additional Other Common Total
Preferred Common Paid-In Retained Comprehensive Stock in Stockholders'
Stock Stock Capital Earnings Loss Treasury Equity
--------- ------ ---------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... $400 $38 $283 $ 932 $ -- $(423) $1,230
Net income.............. -- -- -- 116 -- -- 116
Preferred stock
dividends.............. -- -- -- (36) -- -- (36)
Change in unrealized
loss on securities
available for sale..... -- -- -- -- (49) -- (49)
---- --- ---- ----- ---- ----- ------
Balance at December 31,
1996................... 400 38 283 1,012 (49) (423) 1,261
Net loss................ -- -- -- (152) -- -- (152)
Preferred stock
dividends.............. -- -- -- (36) -- -- (36)
Change in unrealized
loss on securities
available for sale..... -- -- -- -- (3) -- (3)
---- --- ---- ----- ---- ----- ------
Balance at December 31,
1997................... 400 38 283 824 (52) (423) 1,070
Net loss................ -- -- -- (98) -- -- (98)
Preferred stock
dividends.............. -- -- -- (18) -- -- (18)
---- --- ---- ----- ---- ----- ------
Balance at July 31,
1998................... $400 $38 $283 $ 708 $(52) $(423) $ 954
==== === ==== ===== ==== ===== ======
</TABLE>
See accompanying notes to financial statements.
F-270
<PAGE>
FLEETPRIDE, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended Period from
December 31, January 1,
------------- 1998 to
1996 1997 July 31, 1998
------ ----- -------------
<S> <C> <C> <C>
Operating activities
Net income (loss)................................ $ 116 $(152) $ (98)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................... 251 277 215
Deferred income taxes............................ (21) (70) 10
Changes in operating assets and liabilities:
Accounts receivable.............................. 974 (127) (383)
Inventories...................................... 1,017 10 (514)
Other assets..................................... 257 96 314
Accounts payable and accrued expenses............ (935) (75) 887
------ ----- -----
Net cash provided by (used in) operating
activities...................................... 1,659 (41) 431
Investing activities
Capital expenditures............................. (172) (184) (103)
------ ----- -----
Net cash used in investing activities............ (172) (184) (103)
Financing activities
Net proceeds (borrowings) from revolving line of
credit (1,195) 570 (62)
Payments on other long-term debt................. (166) (173) (89)
Payments on capital lease obligations............ (108) (150) (118)
Dividends paid................................... (36) (36) (18)
------ ----- -----
Net cash provided by (used in) financing
activities...................................... (1,505) 211 (287)
------ ----- -----
Net increase (decrease) in cash.................. (18) (14) 41
Cash at beginning of period...................... 42 24 10
------ ----- -----
Cash at end of period............................ $ 24 $ 10 $ 51
====== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-271
<PAGE>
FLEETPRIDE, INC.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1996 and 1997 and
period from January 1, 1998 to July 31, 1998
(Dollars in Thousands)
1. Description of Business and Basis of Presentation
Fleetpride, Inc. (the Company) distributes heavy-duty replacement parts from
distribution centers and provides services for heavy-duty vehicles primarily
throughout the Northeastern United States. The Company's principal products
include truck and trailer wheel, brake, suspension, body, and other replacement
parts. The Company's customers include independent distributors, general repair
shops, independent trucking businesses, major fleets, and other operators of
heavy-duty equipment.
Effective July 31, 1998, the Company was purchased by Quality Distribution
Service Partners, Inc.
2. Summary of Significant Accounting Policies
Inventories
Inventories are valued at the lower of cost or market, with cost being
determined on an average basis, which approximates first in, first out (FIFO)
method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the respective
estimated useful lives of the assets for financial reporting purposes as
follows: 6 to 12 years for machinery and equipment, 5 to 12 years for furniture
and fixtures, 5 years for vehicles, and the shorter of the lease term or the
useful life for leasehold improvements. Depreciation and amortization was $251,
$277, and $215 for the year ended December 31, 1996 and 1997 and period ended
July 31, 1998, respectively.
Income Taxes
Deferred income taxes are recognized for the tax consequences of the
differences between the financial statement carrying amounts and the tax bases
of the existing assets and liabilities by applying the enacted statutory income
tax rates applicable to the periods when such differences are expected to
reverse. Deferred taxes are recognized for the timing of these differences for
financial reporting and income tax reporting purposes.
Revenue Recognition
Revenue is recognized when products are shipped or services are performed.
Long-lived Assets
The Company evaluates its long-lived assets on an ongoing basis. Such assets
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the
F-272
<PAGE>
FLEETPRIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
related asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of the asset to future
undiscounted cash flows expected to be generated by the asset. If the asset is
determined to be impaired, the impairment recognized is measured by the amount
by which the carrying value of the asset exceeds its fair value.
Fair Value of Financial Instruments
The carrying amounts reported in the Company's balance sheet for cash, trade
accounts receivable, other current assets, accounts payable, and accrued
expenses approximate their fair value because of the short-term maturity of
these instruments. The fair value of investments in marketable securities is
estimated based on quotes from brokers or current rates offered for instruments
with similar characteristics.
The Company estimates the fair value of the fixed rate long-term debt
obligations, including current portions, using the discounted cash flow method
with interest rates currently available for similar obligations. The carrying
amounts reported in the Company's balance sheets for these obligations
approximate fair value.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts receivable.
To minimize this risk, the Company performs ongoing credit evaluations of
customers' financial condition, although collateral is not required.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. Investments
Available-for-sale marketable securities, classified as other current assets,
are accounted for at market prices with the unrealized loss shown as a separate
component of stockholders' equity. They consisted of the following:
<TABLE>
<CAPTION>
Amortized Unrealized Market
Cost Loss Value
--------- ---------- ------
<S> <C> <C> <C>
December 31, 1997 Common stock................. $65 $(52) $13
July 31, 1998 Common stock..................... 65 (52) 13
</TABLE>
F-273
<PAGE>
FLEETPRIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
July
December 31, 31,
1997 1998
------------ ------
<S> <C> <C>
Cores.................................................. $ 373 $ 398
Finished goods......................................... 1,580 2,069
------ ------
$1,953 $2,467
====== ======
</TABLE>
5. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
July
December 31, 31,
1997 1998
------------ ------
<S> <C> <C>
Machinery and equipment.............................. $1,124 $1,166
Furniture and fixtures............................... 787 828
Vehicles............................................. 890 930
Leasehold improvements............................... 587 609
------ ------
3,388 3,533
Less: Accumulated depreciation
and amortization..................................... 2,040 2,255
------ ------
$1,348 $1,278
====== ======
</TABLE>
6. Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------ --------
<S> <C> <C>
Employee compensation and benefits................... $315 $431
Core inventory to be returned........................ 49 128
Interest............................................. 18 23
Other................................................ 33 54
---- ----
$415 $636
==== ====
</TABLE>
7. Revolving Line of Credit
The Company maintains a revolving line of credit (Revolver) providing for
borrowings of up to $2,750 including letters of credit of up to $150. The
Revolver bears interest payable monthly at the bank's prime rate (8.5% at July
31, 1998) plus .75%. Amounts advanced are due on demand, subject to certain
lending restrictions, collateralized by substantially all assets of the Company
and guaranteed by a majority stockholder. At July 31, 1998, the Company had no
outstanding letters of credit, and an unused portion of the Revolver of $161.
F-274
<PAGE>
FLEETPRIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Long-term Debt
Long-term debt are summarized as follows:
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------ --------
<S> <C> <C>
Term loan............................................ $213 $173
Note payable......................................... 100 51
---- ----
313 224
Less: Current maturities............................. 180 131
---- ----
$133 $ 93
==== ====
</TABLE>
The term loan (Term Loan) is payable in monthly principal and interest
installments of $7 and bears interest payable monthly at the bank's prime rate
plus 0.75% through March 2000. The Term Loan requires the Company to comply
with certain financial and nonfinancial covenants and is collateralized by
substantially all assets of the Company and guaranteed by a majority
stockholder.
A note payable for inventory and equipment is payable in quarterly principal
and interest installments of $26 through November 1998, bears interest at 7.0%
and is guaranteed by a majority stockholder.
Annual maturities of the Company's debt are as follows for the years ending
July 31:
<TABLE>
<S> <C>
1999.................................................................. $131
2000.................................................................. 80
2001.................................................................. 13
----
$224
====
</TABLE>
9. Capital Leases
Vehicles under capital leases consist of the following:
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------ --------
<S> <C> <C>
Vehicles............................................. $ 827 $ 869
Less: Accumulated amortization....................... (428) (547)
----- -----
$ 399 $ 322
===== =====
</TABLE>
Future minimum lease payments under capital leases with initial or remaining
terms of one year or more consisted of the following for the years ending July
31:
<TABLE>
<S> <C>
1999................................................................. $195
2000................................................................. 120
2001................................................................. 68
2002................................................................. 8
----
Total minimum payments............................................... 391
Less: Amounts representing interest.................................. 40
----
Present value of minimum lease payments.............................. 351
Less: Current portion................................................ 182
----
Total long-term portion.............................................. $169
====
</TABLE>
F-275
<PAGE>
FLEETPRIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
10. Operating Leases
The Company leases buildings under operating leases for some of its
distribution and service centers from certain stockholders of the Company. The
leases expire at various dates through 2018. Rent expense under the operating
leases to these related parties was $422, $415, and $272 for the years ended
December 31, 1996 and 1997 and for the period ended July 31, 1998,
respectively.
Additionally, the Company leases buildings, machinery and equipment, and
vehicles under operating leases from unaffiliated entities. These leases expire
on various dates through 2001. Rent expense for such leases was $275, $304, and
$167 for the years ended December 31, 1996 and 1997 and for the period ended
July 31, 1998, respectively.
Future minimum lease payments under operating leases with terms in excess of
one year are as follows for the years ending July 31:
<TABLE>
<S> <C>
1999................................................................ $ 574
2000................................................................ 421
2001................................................................ 397
2002................................................................ 314
2003................................................................ 338
2004 and thereafter................................................. 2,875
------
$4,919
======
</TABLE>
11. Income Taxes
The income taxes (benefit) consist of the following:
<TABLE>
<CAPTION>
Period from
Year ended January 1,
December 31, 1998 to
1996 1997 July 31, 1998
------ ------ -------------
<S> <C> <C> <C>
Current:
Federal.................................... $ 119 $ 9 $(43)
State...................................... 16 1 (6)
------ ------ ----
135 10 (49)
Deferred..................................... (21) (70) 10
====== ====== ====
$ 114 $ (60) $(39)
====== ====== ====
</TABLE>
Reconciliation of effective income tax rate computed at the U.S. federal
statutory tax rate to income taxes (benefit) are as follows:
<TABLE>
<CAPTION>
Period from
Year ended January 1,
December 31, 1998 to
1996 1997 July 31, 1998
------ ------ -------------
<S> <C> <C> <C>
Income taxes at U.S. federal statutory
rate...................................... 34.0% (34.0)% (34.0)%
State income taxes, net of federal tax
benefit................................... 5.7 (3.5) (3.3)
Other...................................... 9.9 9.2 8.8
----- ------ -----
Income taxes............................... 49.6% (28.3)% (28.5)%
===== ====== =====
</TABLE>
F-276
<PAGE>
FLEETPRIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred income taxes are as follows:
<TABLE>
<CAPTION>
December 31, July 31,
1997 1998
------------ --------
<S> <C> <C>
Deferred tax assets:
Inventory obsolescence reserve..................... $131 $131
Allowance for doubtful accounts.................... 19 19
Amortization of noncompete agreement............... 116 112
Employee compensation and benefits................. 77 77
Other.............................................. 33 29
---- ----
376 368
Deferred tax liabilities:
Accelerated depreciation........................... 80 82
---- ----
Net deferred tax asset............................... $296 $286
==== ====
</TABLE>
12. Related Party Transactions
As described in Note 10, the Company leases some buildings from certain
stockholders of the Company.
The Company sells products in the ordinary course of business to companies
owned by certain stockholders of the Company. Sales for the years ended
December 31, 1996 and 1997 and for the period ended July 31, 1998, approximated
$130, $428, and $228, respectively.
In September 1996, the Company discontinued selling new and used trailers and
truck bodies and sold its related equipment inventory at cost of $2,007 to a
stockholder of the Company. Noncash proceeds from the sale of the equipment
inventory were received in the form of a $1,767 equipment inventory notes
payable assumed by the purchaser and a $240 note receivable accepted by the
Company.
13. Preferred Stock
The holders of preferred stock are entitled to receive semiannual cumulative
dividends at the rate of 9% on the $1,000 stated value of the preferred stock.
There are no accumulated dividends in arrears as of December 31, 1997 and July
31, 1998.
The Company may redeem all or a portion of the preferred stock at any time
prior to the fourth anniversary of that investor's purchase.
14. Employee Savings Plan
The Company sponsors a defined-contribution plan to provide substantially all
employees of the Company an opportunity to accumulate personal funds for their
retirement, subject to minimum duration of employment requirements. Employees
may contribute up to 15% of before-tax earnings to the plan. The plan is
structured in the form of a 401(k). The Company matches a portion of the
employees' contributions as determined by the provision of the plan. The
Company's contribution to the plan for any year, as determined by the Board of
Directors, is discretionary, but in no event will
F-277
<PAGE>
FLEETPRIDE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
it exceed the amount deductible for income tax purposes. There were no Company
contributions to the plan for the years ended December 31, 1996 or 1997 and
period ended July 31, 1998.
15. Commitments and Contingencies
Prior to 1997, the Company's former equipment division customers financed
trailer purchases through a finance company, whereby the Company arranged to
receive a fee for each sale being financed. Under this agreement, the Company
was liable for 25% of the related outstanding loan, in the event the customer
went into default. As of July 31, 1998, total loans outstanding are $848 and
the maximum exposure for the Company is $212. The Company does not currently
believe that potential additional expenses for customers in default will have a
material adverse effect on the financial condition or results of operations of
the Company and, as such, no reserve has been recorded as of July 31, 1998.
16. Supplemental Cash Flow Information
The following table provides supplemental cash flow data in addition to the
information provided in the statement of cash flows:
<TABLE>
<CAPTION>
Year ended Period from
December 31, January 1,
------------- 1998 to
1996 1997 July 31, 1998
------ ------ -------------
<S> <C> <C> <C>
Cash paid (received) for:
Income taxes................................ $ 2 $ 91 $(63)
Interest.................................... 464 317 193
</TABLE>
Capital lease obligations of $180 and $42 were incurred when the Company
entered into leases for equipment for the year ended December 31, 1997 and
period ended July 31, 1998, respectively.
As described in Note 12, the Company sold equipment inventory for noncash
proceeds of $2,007.
F-278
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Stockholders of TBS Incorporated:
In our opinion, the accompanying balance sheets and related statements of
income and retained deficit and cash flows present fairly, in all material
respects, the financial position of TBS Incorporated (the "Company") at
December 31, 1997 and 1998 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
September 10, 1999
Chicago, Illinois
F-279
<PAGE>
TBS INCORPORATED
BALANCE SHEETS
At December 31, 1997 and 1998
(amounts in thousands except for share data)
<TABLE>
<CAPTION>
1997 1998
------ ------
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 19 $ --
Accounts receivable, less allowance for doubtful accounts of
$2 and $2 at 1997 and 1998 respectively..................... 306 322
Inventory.................................................... 441 582
Note receivable from related party........................... 22 28
Prepaid expenses and other current assets.................... 19 29
Rebate receivable............................................ 45 80
------ ------
Total current assets....................................... 852 1,041
Property and equipment, net.................................. 170 195
Goodwill, net................................................ 160 152
Deferred taxes............................................... 120 162
Other assets................................................. 42 7
------ ------
Total assets............................................... $1,344 $1,557
====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Bank overdraft............................................... $ -- $ 8
Line of credit............................................... 241 224
Current portion of long-term debt............................ 88 54
Accounts payable............................................. 321 482
Accrued taxes................................................ 84 99
Accrued liabilities.......................................... 50 53
------ ------
Total current liabilities.................................. 784 920
Long-term debt................................................. 341 400
------ ------
Total liabilities.......................................... 1,125 1,320
------ ------
Stockholders' equity:
Common stock of TBS Incorporated, $1 par value 1,000,000
shares authorized,
24,324 shares issued and outstanding........................ 24 24
Additional paid-in capital................................... 673 673
Retained deficit............................................. (478) (460)
------ ------
Total stockholders' equity................................. 219 237
------ ------
Total liabilities and stockholders' equity................. $1,344 $1,557
====== ======
</TABLE>
F-280
<PAGE>
TBS INCORPORATED
STATEMENTS OF INCOME AND RETAINED DEFICIT
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Net sales.............................................. $2,641 $3,245 $3,724
Cost of sales.......................................... 1,970 1,912 2,696
------ ------ ------
Gross profit........................................... 671 1,333 1,028
Selling, general and administrative expenses........... 754 1,060 914
------ ------ ------
Operating income....................................... (83) 273 114
Other expense.......................................... (70) (87) (86)
------ ------ ------
Income before income taxes............................. (153) 186 28
Income taxes........................................... -- 75 10
------ ------ ------
Net income (loss) and comprehensive income (loss)...... (153) 111 18
Retained deficit, beginning of year.................... (436) (589) (478)
------ ------ ------
Retained deficit, end of year.......................... $ (589) $ (478) $ (460)
====== ====== ======
</TABLE>
F-281
<PAGE>
TBS INCORPORATED
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Operating activities
Net income (loss) and comprehensive income (loss)........ $(153) $ 111 $ 18
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of goodwill............................... -- 10 7
Depreciation and amortization.......................... 48 38 39
Provision for bad debt................................. (1) 2 --
Deferred taxes......................................... -- (4) (42)
Gain on sale of equipment, net......................... 3 -- --
Changes in operating assets and liabilities:
Accounts receivable.................................... (141) (90) (15)
Inventory.............................................. (57) (77) (141)
Prepaid expenses and other current assets.............. (10) (44) (52)
Other assets........................................... 3 (20) 35
Accounts payable....................................... (106) 68 160
Accrued liabilities.................................... (63) 75 18
----- ----- -----
Net cash provided by (used in) operating activities...... (477) 69 27
----- ----- -----
Investing activities
Acquisitions of property and equipment................... (32) (48) (63)
Proceeds from sale of property and equipment............. 3 -- --
----- ----- -----
Net cash used in investing activities.................... (29) (48) (63)
Financing activities
Bank overdraft........................................... (7) -- 8
Net change in line of credit............................. 124 67 (17)
Proceeds from issuance of debt........................... 435 147 173
Principal payments of long-term debt..................... (35) (211) (139)
Payments on obligations under capital leases............. (9) (7) (8)
----- ----- -----
Net cash provided (used) in financing activities......... 508 (4) 17
----- ----- -----
Net increase (decrease) in cash.......................... 2 17 (19)
Cash at beginning of year................................ -- 2 19
----- ----- -----
Cash at end of year...................................... $ 2 $ 19 $ --
===== ===== =====
Supplemental disclosure of cash flow information
Cash paid during year for interest..................... $ 55 $ 102 $ 79
===== ===== =====
Cash paid during year for taxes........................ $ -- $ -- $ 29
===== ===== =====
</TABLE>
F-282
<PAGE>
TBS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
Note 1--Description of Business
TBS Incorporated (the "Company") engages in the sale of heavy duty truck
parts and servicing of medium and heavy duty vehicles. The Company is
headquartered in Tucson, Arizona and operates branches in both Tucson and
Phoenix, Arizona. The Company's primary markets are located in Arizona and
southwestern New Mexico.
Note 2--Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments with original
maturities of three months or less from the date of purchase.
Inventory
Inventories consist of truck parts and cores, which are stated at the lower
of cost or market. Cost is determined using the average cost method.
Property and Equipment
Property and equipment is carried at cost less accumulated amortization and
depreciation. Depreciation is calculated using the straight-line method over
the estimated useful lives of the assets, which range from three to 31 years as
follows:
<TABLE>
<CAPTION>
Useful
Method Life
------ ------
<S> <C>
Furniture and fixtures............................................... 5-7
Equipment............................................................ 3-7
Automobiles and trucks............................................... 3-5
Leasehold improvements............................................... 31
</TABLE>
Goodwill
Goodwill represents the excess of the purchase cost over the fair value of
net assets acquired in a business and is presented net of accumulated
amortization. Amortization of goodwill is recorded on a straight line basis
over 40 years.
Revenue Recognition
Revenue is recognized when products are shipped. Sales for core parts are
recorded net of exchanges and "core" credits. Cores, which are reusable
components of originally purchased parts, may be exchanged for credit at the
time of a sale or within a specified period. Returned cores are either returned
to the vendor for credit or remanufactured.
Uses 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
F-283
<PAGE>
TBS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Note 3--Inventory
The inventory balances at December 31, 1997 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Parts inventory.................................................... $408 $551
Cores.............................................................. 33 31
---- ----
$441 $582
==== ====
</TABLE>
Note 4--Property and Equipment
Property and equipment are recorded at cost. At December 31, 1997 and 1998
property and equipment consisted of the following:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Office and shop equipment...................................... $ 541 $ 604
Automobiles and trucks......................................... 183 168
Leasehold improvements......................................... 168 168
----- -----
892 940
Less: accumulated depreciation................................. (722) (745)
----- -----
$ 170 $ 195
===== =====
</TABLE>
Depreciation expense was $48, $38, and $39 for the years ending December 31,
1996, 1997 and 1998, respectively.
Note 5--Line of Credit
At December 31, 1997 and 1998 the Company had an unsecured line of credit
with a commercial bank in which it may borrow the lesser of $300 or 80% of
accounts receivable. Interest is payable monthly at the prime rate plus 6.5%
with a minimum rate of 15%. The line of credit expires May 1999. At December
31, 1998, the Company had $224 outstanding under this line of credit.
F-284
<PAGE>
TBS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 6--Long-term Debt
Long-term debt at December 31, 1997 and 1998 consists of the following:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Various unsecured notes payable to former stockholders and employees
of TBS, Inc., with interest rates from 5.5% to 15% through May
1999............................................................... $155 $191
Various collateralized notes payable to a financial institution with
interest rates from 10.75% to prime plus 5% through December 2001;
collateralized by all equipment and inventory...................... 260 217
Various capital leases for shop and office equipment through October
2003............................................................... 14 46
---- ----
429 454
Less current portion.............................................. 88 54
---- ----
$341 $400
==== ====
</TABLE>
At December 31, 1997 and 1998 the Company had unamortized deferred debt
issuance costs of $10 and $7, respectively. These amounts are being amortized
over the lives of the related debt issues.
Note 7--Retirement Savings Plan
The Company sponsors a 401(k) retirement savings plan implemented on October
1, 1997 which covers substantially all employees. The Company makes a matching
contribution equal to 20% of each employee's contribution up to 5% of their
annual salary. The Company may also elect to make additional discretionary
contributions, allocated on the basis of compensation. Employees are
immediately vested in their own contributions, if any, and are 100% vested in
the Company's matching contributions upon completion of five years of service.
Matching contributions were $0, $1 and $5 for the years ending December 31,
1996, 1997 and 1998, respectively.
Note 8--Related Party Transactions
The Company leases both branch facilities under noncancelable operating
leases with the stockholders that extend through March 2018. Certain of these
leases have renewal options. The following is a schedule of future minimum
lease payments under these leases as of December 31, 1998:
<TABLE>
<S> <C>
1999................................................................ $ 116
2000................................................................ 116
2001................................................................ 116
2002................................................................ 116
2003 and thereafter................................................. 1,864
------
Total............................................................. $2,328
======
</TABLE>
Aggregate payments of approximately $85, $98 and $116 were made to these
stockholders under these leases during 1996, 1997 and 1998, respectively.
F-285
<PAGE>
TBS INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note 9--Capital Leases
The Company leases telephone equipment, computers and copiers under capital
leases with third-parties with terms extending through October 2003. Certain of
these leases have renewal options. At December 31, 1998, the future minimum
rental payments required under these noncancelable leases are as follows:
<TABLE>
<S> <C>
1999................................................................ $14
2000................................................................ 12
2001................................................................ 8
2002................................................................ 8
2003 and thereafter................................................. 8
---
Total minimum lease payments.......................................... 50
---
Less amounts representing interest.................................... 4
---
Present value of minimum lease payments............................... $46
===
</TABLE>
Depreciation expense for third-party capital leases was approximately $9, $10
and $14 during the years ended 1996, 1997 and 1998, respectively.
Note 10--Income Taxes
As of January 1, 1997, the Company changed their corporate status from a "S"
Corporation to a "C" Corporation for federal and state income tax reporting
purposes. The Company then set up a deferred tax asset of $119 and deferred tax
liability of $17, increasing paid in capital by $115 and recognized $13 in net
income. The Company applies an asset and liability approach to accounting for
deferred income taxes. These assets and liabilities relate principally to
differing methods of depreciation, amortization of goodwill and the
disallowance of the reserve for inventory obsolescence and allowance for
doubtful accounts.
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Current expense
Federal........................................................ 49 37
State.......................................................... 13 9
--- ---
Total Current.................................................... 62 46
=== ===
Deferred expense (benefit)
Federal........................................................ 10 (29)
State.......................................................... 3 (7)
--- ---
Total Deferred................................................... 13 (36)
=== ===
</TABLE>
Note 11--Subsequent Event
On March 1, 1999, the Company was acquired by QDSP Parts System, Inc. The
financial statements have not been effected by this transaction.
F-286
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
New England Truck and Auto Service, Inc.
In our opinion, the accompanying balance sheets and the related statements of
income and retained earnings, and cash flows present fairly, in all material
respects, the financial position of New England Truck and Auto Service, Inc.
(the "Company") at December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
September 10, 1999
Chicago, Illinois
F-287
<PAGE>
NEW ENGLAND TRUCK AND AUTO SERVICE, INC.
BALANCE SHEETS
at December 31, 1997 and 1998
(amounts in thousands except share data)
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 40 $ 36
Accounts receivable, net of allowance for doubtful accounts of $0
and $2, respectively.............................................. 105 195
Accounts receivable, related parties............................... -- 39
Inventories........................................................ 75 44
Deferred tax assets................................................ -- 2
Prepaid expenses and other assets.................................. 4 4
---- ----
Total current assets............................................. 224 320
---- ----
Property and equipment, net.......................................... 155 123
---- ----
Total assets..................................................... 379 443
==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion, long term debt.................................... 2 --
Short-term bank borrowing.......................................... 27 22
Accounts payable................................................... 109 75
Accrued expenses................................................... 30 82
Customer advances.................................................. 19 --
Notes payable, related parties..................................... 6 --
---- ----
Total current liabilities........................................ 193 179
---- ----
Deferred tax liability............................................. 5 8
Total liabilities................................................ 198 187
---- ----
Stockholders' equity
Capital stock ($150 par value; 100 shares authorized and
outstanding)...................................................... 15 15
Additional paid in capital......................................... 50 50
Retained earnings.................................................. 116 191
---- ----
Total stockholders' equity....................................... 181 256
---- ----
Total liabilities and stockholders' equity....................... $379 $443
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-288
<PAGE>
NEW ENGLAND TRUCK AND AUTO SERVICE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
for the years ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Sales................................................... $1,864 $1,834 $1,964
Cost of sales........................................... 1,259 1,247 1,292
------ ------ ------
Gross profit............................................ 605 587 672
Selling, general, and administrative expenses........... 574 560 533
------ ------ ------
Income from operations.................................. 31 27 139
Interest expense........................................ (14) (7) (3)
------ ------ ------
Income before income taxes.............................. 17 20 136
Provision for income taxes.............................. 7 7 61
------ ------ ------
Net income and comprehensive income..................... 10 13 75
------ ------ ------
Retained earnings, beginning of year.................... 93 103 116
------ ------ ------
Retained earnings, end of year.......................... $ 103 $ 116 $ 191
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-289
<PAGE>
NEW ENGLAND TRUCK AND AUTO SERVICE, INC.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income and comprehensive income......................... $10 $ 13 $ 75
Adjustments to reconcile net income to net cash provided
(used) in operating activities:
Depreciation.............................................. 39 47 40
Change in operating assets and liabilities:
Trade accounts receivable............................... 5 63 (90)
Accounts receivable, related parties.................... 2 47 (39)
Inventories............................................. -- (12) 31
Deferred taxes.......................................... 5 3 1
Prepaid expenses........................................ 1 (4) --
Accounts payable trade.................................. (10) (35) (34)
Accrued expenses........................................ (2) 25 33
--- ---- ----
Net cash provided by operating activities..................... 50 147 17
--- ---- ----
Cash flows from investing activities:
Purchases of property and equipment......................... (32) (47) (8)
--- ---- ----
Net cash (used) by investing activities....................... (32) (47) (8)
--- ---- ----
Cash flows from financing activities:
Payments on note payable, bank.............................. (11) (81) (7)
Payment on note payable, related parties.................... -- -- (6)
Proceeds from note payable, related parties................. 6 6 --
--- ---- ----
Net cash (used) by financing activities....................... (5) (75) (13)
--- ---- ----
Net change in cash............................................ 13 25 (4)
Cash at beginning of year..................................... 2 15 40
--- ---- ----
Cash at end of year........................................... $15 $ 40 $ 36
=== ==== ====
Supplemental disclosures of cash flow information
Cash paid for interest........................................ $ 4 $ 7 $ 14
=== ==== ====
Cash paid for income taxes.................................... $ 5 $ -- $ --
=== ==== ====
</TABLE>
The accompanying notes are an integral part of these statements.
F-290
<PAGE>
NEW ENGLAND TRUCK AND AUTO SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
(dollars in thousands)
1. Nature of Business
Nature of Business
The Company was incorporated in the State of Massachusetts in 1988, and is a
repair and service facility for trucks and automobiles. All of its sales are to
customers located in the state of Massachusetts.
2. Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and equivalents represent cash and short-term, highly liquid investments
with original maturities three months or less.
Inventory
Inventory consists of minor parts and materials associated with the repair
process. Also included in inventory are materials and labor related to jobs in
process at year-end. Parts and materials are valued at the lower of cost or
market.
Deferred Income Taxes
The Company applies an asset and liability approach to accounting for income
taxes. Deferred tax liabilities and assets are recognized for the expected
future tax consequences of temporary differences between the financial
statements and tax basis of assets and liabilities using enacted tax rates in
effect for the years in which the differences are expected to reverse.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization which is calculated on the double declining basis. Equipment is
depreciated over the estimated useful lives, which range from 4 to 10 years.
Leasehold improvements are depreciated over 10 years.
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 disclosure 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.
Revenue Recognition
Revenue is recognized when products are released to the customer and
invoiced.
F-291
<PAGE>
NEW ENGLAND TRUCK AND AUTO SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Inventories
Inventories at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Parts and materials inventory...................................... $32 $17
Work in-process.................................................... 43 27
--- ---
$75 $44
=== ===
</TABLE>
4. Property and Equipment
Property and equipment at December 31 consists of the following:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Machinery and equipment........................................... $477 $482
Leasehold improvements............................................ 99 100
Automobiles....................................................... 86 87
---- ----
662 669
Less: accumulated depreciation.................................... 507 546
---- ----
$155 $123
==== ====
</TABLE>
5. Short Term Bank Borrowings
In July 1996 the Company obtained a $40 bank credit facility with the Bank of
Braintree for an operating line of credit that was renewable annually. This
line of credit was closed in February 1997. In March 1997 a new bank credit
facility was obtained from Charter Bank. The note was renewed in March 1998 and
matures in March 1999. The note bears interest at 1% plus the bank's prime
rate, 9.5% and 8.75% at December 31, 1997 and 1998 respectively. At December
31, 1997 and 1998, respectively, borrowings under the line of credit totaled
$27 and $22. The credit facility is collateralized by the Company's trade
receivables, inventory, leaseholds and equipment.
6. Long-Term Debt
The current portion of long term debt in 1997 is a note payable to the Bank
of Braintree requiring monthly payments of $347 plus interest at 10.25%. Final
payment was made in July of 1998.
7. Leases
Future minimum lease payments for non-cancelable operating leases are as
follows:
<TABLE>
<CAPTION>
Leases
------
<S> <C>
1999.................................................................. $ 98
2000.................................................................. 98
2001.................................................................. 98
2002, and thereafter.................................................. 25
----
$319
====
</TABLE>
F-292
<PAGE>
NEW ENGLAND TRUCK AND AUTO SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The rental lease requires payment of property taxes and operational expenses
in addition to base periodic rentals. The lease on the York property expires in
April 2002. Total rent expense for the operating leases was $96, $120 and $109
for the years ended December 31, 1996, 1997, and 1998.
8. Related Party Transactions
At December 31, 1997, the Company had short-term notes payable to the owner
of the Company of $35. The notes are non-interest bearing and are due on
demand. Notes payable are combined with related party receivables of $29 and
$39 at December 31, 1997 and 1998 respectively. Related party receivables
include receivables from the owner as well as various employees.
The Company rented the facility at York Road, from the owner, for
approximately $8 per month (Note 7).
9. Income Taxes
The provision for income taxes for the years ended December 31, 1996, 1997
and 1998 was as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current income taxes:
Federal..................................................... $ -- $ 2 $46
State....................................................... 2 2 14
Deferred income taxes......................................... 5 3 1
---- --- ---
$ 7 $ 7 $61
==== === ===
</TABLE>
The provision for income taxes differs from the United States statutory rate
for the years ended December 31, 1996, 1997 and 1998 for the following reasons:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate............................................ $ 3 $ 3 $46
State and local taxes, net of federal benefit................. 2 2 9
Nondeductible expenses........................................ 2 2 2
Other......................................................... -- -- 4
--- --- ---
$ 7 $ 7 $61
=== === ===
</TABLE>
Deferred tax assets (liabilities) were comprised of the following at December
31, 1997 and 1998:
<TABLE>
<S> <C> <C>
Gross deferred tax assets:
Accounts receivable............................................ $-- $ 1
Capital loss carryover......................................... -- 1
Other.......................................................... -- 4
---- ---
-- 2
Gross deferred tax liabilities:
Property and equipment......................................... (5) (8)
---- ---
Net deferred tax liability....................................... $ (5) $(6)
==== ===
</TABLE>
11. Subsequent Events
On March 3, 1999, the Company was acquired by QDSP, Inc. This was accounted
for as a purchase. The financial statements have not been effected by this
transaction.
F-293
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HDA PARTS SYSTEM, INC.
Offer to Exchange up to $100,000,000 of its
12% Senior Subordinated Notes due 2005,
Which Have Been Registered Under the Securities Act,
for up to $100,000,000 of its Outstanding
12% Senior Subordinated Notes due 2005
----------------
PROSPECTUS
----------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification Of Directors And Officers.
HDA, City Truck and Trailer Parts of Alabama, Inc., City Truck and Trailer
Parts of Alabama, L.L.C. and City Friction, Inc. are incorporated or organized
in Alabama. Their articles of incorporation or organization and bylaws provide
for indemnification of their officers and directors to the fullest extent
permitted by Alabama law. The Alabama Business Corporation Act permits
indemnification of individuals in their capacities as directors and officers if
the director or officer acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interest of the
corporation, or, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. HDA's Amended and Restated
Articles of Incorporation further requires a finding by the disinterested
members of its board of directors, or by special counsel, that the director or
officer met the standards of conduct discussed above before indemnification is
allowed, unless the director or officer has been successful in defending the
proceeding. A corporation may not indemnify a director under the Alabama
Business Corporation Act (1) in a proceeding by or in the right of the
corporation, if the director has been adjudged liable to the corporation; or
(2) if the director was adjudged liable on the basis that he or she improperly
received personal benefit.
Holdings, QDSP Holdings, Inc., Quality Distribution Service Partners, Inc.,
Automotive Sales Company, Inc., City Spring Works, Inc., Fleetpride, Inc.,
Holt, Incorporated, SLM Power Group, Inc., Truck City Parts, Inc., Universal
Joint Sales Company, Inc., Wheatley Truck Parts, Inc., CB Acquisition Sub, Inc.
are Delaware corporations. Their certificates of incorporation and bylaws
provide for indemnification of their officers and directors to the fullest
extent permitted by Delaware law. Section 145 of the Delaware General
Corporation Law provides for the indemnification by a corporation of its
directors, officers, employees and agents in connection with actions, suits or
proceedings brought by reason of the fact that they were or are directors,
officers, employees or agents. Section 102(b)(7) of the Delaware General
Corporation Law eliminates the liability of a corporation's directors,
officers, agents or employees to a corporation or its stockholders, except for
liabilities related to breach of duty of loyalty, intentional misconduct and
knowing violations of law, unlawful payment of dividends or receipt of improper
personal benefit.
Associated Brake Supply, Inc., Associated Truck Center, Inc. and Onyx
Distribution, Inc. are California corporations. Their articles of incorporation
or bylaws provide for indemnification of their officers and directors to the
fullest extent permitted by California law. Section 204 of the California
General Corporation Law eliminates the liability of a corporation's directors
for monetary damages arising from a breach of a fiduciary duty, except for
liabilities arising from intentional misconduct, knowing violations of law,
improper distributions to shareholders, improper receipt of personal benefit
and various other liabilities. Section 317 of the California General
Corporation Law provides for indemnification by a California corporation of its
directors, officers, employees and agents, to the maximum extent permitted by
the California General Corporation Law, in connection with any proceeding
arising by reason of the fact that such person is or was a director, officer,
employee or agent.
Tisco, Inc. and Tisco of Redding, Inc. are also California corporations.
Their bylaws permit indemnification for directors, officers agents or employees
if the individuals acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interest of the
II-1
<PAGE>
corporation, or, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The bylaws do not permit
indemnification (1) if the individual has been adjudged liable to the
corporation; (2) of amounts paid to settle or otherwise dispose of the action,
with or without court approval; or (3) of expenses incurred in defending an
action which is disposed of without court approval.
Associated Truck Parts of Nevada, Inc. is a Nevada corporation. Its articles
of incorporation and bylaws do not provide for indemnification of its officers
and directors. Section 78.037 of the Nevada General Corporation Law eliminates
the liability of a corporation's directors for monetary damages to the fullest
extent permissible under Nevada law, except for intentional misconduct, fraud,
a knowing violation of the law or the payment or dividends in violation of the
Nevada General Corporation Law.
Parts Holding Company also is a Nevada corporation. Its articles of
incorporation and bylaws provide for indemnification of its officers and
directors to the fullest extent permitted by Nevada law.
Truck & Trailer Parts is a Georgia corporation. Its bylaws and the Georgia
Business Corporation Code permit indemnification of individuals in their
capacities as directors and officers if the director or officer acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed
to, the best interest of the corporation, or, with respect to any criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful,
if a determination has been made that the director or officer has met the
standard of conduct. A corporation may not indemnify a director under the
Georgia Business Corporation Code (1) in a proceeding by or in the right of the
corporation, unless the director has met the relevant standard of conduct; or
(2) if the director was adjudged liable on the basis that he or she improperly
received personal benefit, whether or not involving action in his or her
official capacity.
Wheels and Brakes, Inc. and Specrite Brake Company also are Georgia
corporations. Wheels and Brakes' articles of incorporation permit
indemnification of its officers and directors except in matters where the
individual is adjudged to have been derelict in the performance of his duties
as such officer or director due to his own individual neglect or malfeasance.
The foregoing right is not exclusive of other rights to which the officer or
director may be entitled to as a matter of law. Specrite Brake Company's
articles of incorporation and bylaws do not provide for indemnification of its
officers and directors.
City Truck & Trailer Parts of Tennessee, Inc. is a Tennessee Corporation. Its
articles of incorporation and bylaws provide for indemnification of its
officers and directors to the fullest extent permitted by Tennessee law. The
Tennessee Business Corporation Act permits indemnification of individuals in
their capacities as directors and officers if the director or officer acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to, the best interest of the corporation, or, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. A corporation may not indemnify a director under Tennessee Business
Corporation Act (1) in a proceeding by or in the right of the corporation, if
the director has been adjudged liable to the corporation; or (2) if the
director was adjudged liable on the basis that he or she improperly received
personal benefit.
Truckparts is a Connecticut corporation. Its certificate of incorporation and
bylaws do not provide for indemnification of its officers and directors. The
Connecticut Business Corporation Act permits indemnification of individuals in
their capacities as directors and officers if the director or officer acted in
good faith and in a manner he or she reasonably believed to be in, or not
opposed to,
II-2
<PAGE>
the best interest of the corporation, or, with respect to any criminal
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
A corporation may not indemnify a director under the Connecticut Business
Corporation Act (1) in a proceeding by or in the right of the corporation, if
the director has been adjudged liable to the corporation; or (2) if the
director was adjudged liable on the basis that he or she improperly received
personal benefit.
Freeway Truck Parts of Washington, Inc. is also a Washington corporation. Its
articles and bylaws do not provide for indemnification of its directors and
officers. The Washington Business Corporation Act permits indemnification of
individuals in their capacities as directors and officers if the director or
officer acted in good faith and in a manner he or she reasonably believed to be
in, or not opposed to, the best interest of the corporation, or, with respect
to any criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. A corporation may not indemnify a
director under the Washington Business Corporation Act (1) in a proceeding by
or in the right of the corporation, if the director has been adjudged liable to
the corporation; or (2) if the director was adjudged liable on the basis that
he or she improperly received personal benefit.
Active Gear, L.L.C. is a Washington limited liability company. Its limited
liability company agreement provides for indemnification of its officers and
directors for any liability, loss, damage, cost or expense incurred for actions
in furtherance of its interests except with respect to liability arising from
fraud, misconduct, bad faith or negligence.
Superior Truck & Auto Supply, Inc. is a Massachusetts corporation. Its
articles of incorporation and bylaws provide for indemnification of its
officers and directors to the fullest extent permitted by Massachusetts law.
Massachusetts General Laws, Chapter 156B, Section 67, empowers a Massachusetts
corporation to indemnify any person in connection with any action, suit or
proceeding brought or threatened by reason of the fact that such person is or
was a director, officer, employee or agent of the corporation or was serving as
such with respect to another corporation, unless such person shall have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that such action was in the best interests of the corporation.
New England Truck & Auto Service, Inc. also is a Massachusetts corporation.
Its articles of incorporation and bylaws provide for indemnification of its
officers and directors to the fullest extent permitted by Massachusetts law.
TBS, Incorporated is an Arizona corporation. Its articles of incorporation
and bylaws provide for indemnification of its officers and directors to the
fullest extent permitted by Arizona law. Arizona law generally permits
indemnification of an officer or director if such individual acted in good
faith and with respect to conduct of an official capacity, in a manner he or
she reasonably believed to be in the best interests of the corporation, and in
all other cases, at least not opposed to the corporation's best interests, and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. A corporation may not indemnify any
director who is adjudged liable to the corporation or who is adjudged,
regardless of the nature of the proceeding, liable on the basis that the
director received an improper benefit.
Four-T Sales & Service, Inc. and Stats Remanufacturing Center, Inc. are
Nebraska corporations. Their articles of incorporation and bylaws provide for
indemnification of their officers and directors to the fullest extent permitted
by Nebraska law. The Nebraska Business Corporation Act permits indemnification
of an officer or director if such individual acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, and with
II-3
<PAGE>
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful.
Power Export Distributing Company, Power Equipment International, Inc., Parts
Management Company and Parts Distributing Company, Ltd. are Texas corporations.
Their articles of incorporation and bylaws provide for indemnification of their
officers and directors to the fullest extent permitted by Texas law. The Texas
Business Corporation Act permits indemnification of an officer or director if
such individual acted in good faith and with respect to conduct of an official
capacity, in a manner he or she reasonably believed to be in the best interests
of the corporation, and in all other cases, at least not opposed to the
corporation's best interests, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Specialized Sales & Service, Inc. is an Oregon corporation. Its articles of
incorporation and bylaws provide for indemnification of its officers and
directors to the fullest extent permitted by
Oregon law. The Oregon Business Corporation Act generally permit
indemnification of an officer or director if such individual acted in good
faith and in a manner which he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation or, with respect to a
criminal matter, if the individual had no reasonable cause to believe his or
her conduct was unlawful.
HDA insures its and its subsidiaries' directors and officers against
liabilities which they may incur in their capacity as directors and officers
under liability insurance policies carried by HDA, subject to some exceptions
and deductions.
Item 21. Exhibits And Financial Statement Schedules.
(a) Exhibits
A list of exhibits filed with this registration statement on Form S-4 is set
forth on the Exhibit Index and is incorporated in this Item 21 by reference.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts for the years ended December
31, 1996, 1997 and 1998 is filed with this registration statement.
Item 22. Undertakings.
(a) The undersigned registrants hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the registrants
pursuant to the provisions, described under Item 15 above, or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrants will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
Company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) above do not
apply if the registration statement is on Form S-3 or Form S-8 and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Deerfield, State of Illinois, on November 9, 1999.
HDA PARTS SYSTEM, INC.
CITY TRUCK HOLDINGS, INC.
/s/ John J. Greisch
By: _________________________________
Name: John J. Greisch
President and Chief Executive
Officer
Title:
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities indicated on November 9, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ John J. Greisch President and Chief Executive Officer and
____________________________________ Director (Principal Executive Officer)
John J. Greisch
* Vice President, Chief Financial Officer
____________________________________ and Secretary (Principal Financial and
John P. Miller Accounting Officer)
* Chairman of the Board of Directors
____________________________________
Frederick J. Warren
Director
____________________________________
Robert Anderson
* Director
____________________________________
W. Larry Clayton
* Director
____________________________________
Christopher A. Laurence
/s/ Richard R. Crowell Director
____________________________________
Richard R. Crowell
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ Gerald L. Parsky Director
____________________________________
Gerald L. Parsky
/s/ William S. Wade Director
____________________________________
William S. Wade
</TABLE>
/s/ John J. Greisch
*By: __________________________
John J. Greisch
Attorney-in-Fact
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Deerfield, State of Illinois, on November 9, 1999.
CITY TRUCK AND TRAILER PARTS OF
ALABAMA, INC.
CITY TRUCK AND TRAILER PARTS OF
TENNESSEE, INC.
CITY FRICTION, INC.
/s/ John P. Miller
By: _________________________________
Name: John P. Miller
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities indicated on November 9, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
* President & Secretary (Principal
____________________________________ Executive Officer) and Director
W. Larry Clayton
/s/ John P. Miller Vice President (Principal Financial and
____________________________________ Accounting Officer)
John P. Miller
* Director
____________________________________
Frederick J. Warren
* Director
____________________________________
Christopher A. Laurence
</TABLE>
/s/ John P. Miller
*By: __________________________
John P. Miller
Attorney-in-fact
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Deerfield, State of Illinois, on November 9, 1999.
CITY TRUCK AND TRAILER PARTS OF
ALABAMA, L.L.C.
By: HDA Parts System, Inc., its sole
member
/s/ John J. Greisch
By: _________________________________
Name: John J. Greisch
President and Chief Executive
Officer
Title:
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities indicated on November 9, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ John J. Greisch President and Chief Executive Officer and
____________________________________ Director (Principal Executive Officer)
John J. Greisch
* Vice President, Chief Financial Officer and
____________________________________ Secretary (Principal Financial and
John P. Miller Accounting Officer)
* Chairman
____________________________________ of
Frederick J. Warren the
Board
of
Directors
/s/ Robert Anderson Director
____________________________________
Robert Anderson
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
* Director
____________________________________
W. Larry Clayton
* Director
____________________________________
Christopher A. Laurence
/s/ Richard R. Crowell Director
____________________________________
Richard R. Crowell
/s/ Gerald L. Parsky Director
____________________________________
Gerald L. Parsky
/s/ William S. Wade Director
____________________________________
William S. Wade
</TABLE>
*By:
/s/ John J. Greisch
- -------------------------------
John J. Greisch
Attorney-in-Fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Deerfield, State of Illinois, on November 9, 1999.
TRUCK & TRAILER PARTS, INC.
/s/ John J. Greisch
By: _________________________________
Name: John J. Greisch
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities indicated on November 9, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ John J. Greisch President (Principal Executive Officer)
____________________________________ and Director
John J. Greisch
* Secretary (Principal Financial and
____________________________________ Accounting Officer) and Director
John P. Miller
* Director
____________________________________
</TABLE>W. Louis Bissette III
/s/ John J. Greisch
*By:
- -------------------------------
John J. Greisch
Attorney-in-Fact
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Deerfield, State of Illinois, on November 9, 1999.
TRUCKPARTS, INC.
/s/ John J. Greisch
By: _________________________________
Name: John J. Greisch
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities indicated on November 9, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ John J. Greisch Chief Executive Officer (Principal
____________________________________ Executive Officer) and Director
John J. Greisch
* Vice President of Finance (Principal
____________________________________ Financial and Accounting Officer) and
John P. Miller Director
* Director
____________________________________
Anthony N. Vingiano
* Director
____________________________________
James T. Stone
</TABLE>
/s/ John J. Greisch
*By: __________________________
John J. Greisch
Attorney-in-Fact
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Deerfield, State of Illinois, on November 9, 1999.
ASSOCIATED BRAKE SUPPLY, INC.
ASSOCIATED TRUCK CENTER, INC.
ONYX DISTRIBUTION, INC.
ASSOCIATED TRUCK PARTS OF NEVADA,
INC.
FREEWAY TRUCK PARTS OF WASHINGTON,
INC.
/s/ John P. Miller
By: _________________________________
Name: John P. Miller
Title:Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities indicated on November 9, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
* President (Principal Executive Officer)
____________________________________ and Director
David S. Seewack
/s/ John P. Miller Vice President and Secretary (Principal
____________________________________ Financial and Accounting Officer)
John P. Miller
* Director
____________________________________
John J. Greisch
* Director
____________________________________
Christopher A. Laurence
* Director
____________________________________
Frederick J. Warren
* Director
____________________________________
Scott Spiwak
</TABLE>
/s/ John P. Miller
*By: __________________________
John P. Miller
Attorney-in-Fact
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Deerfield, State of Illinois, on November 9, 1999.
TISCO, INC.
TISCO OF REDDING, INC.
/s/ John P. Miller
By: _________________________________
Name: John P. Miller
Title:Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities indicated on November 9, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
* President (Principal Executive Officer)
____________________________________ and Director
Gregory D. Mathis
/s/ John P. Miller Vice President and Secretary (Principal
____________________________________ Financial and Accounting Officer)
John P. Miller
* Director
____________________________________
John J. Greisch
* Director
____________________________________
Christopher A. Laurence
* Director
____________________________________
Frederick J. Warren
/s/ John P. Miller
*By: __________________________
John P. Miller
Attorney-in-Fact
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Deerfield, State of Illinois, on November 9, 1999.
SUPERIOR TRUCK & AUTO SUPPLY, INC.
/s/ John P. Miller
By: _________________________________
Name: John P. Miller
Title:Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities indicated on November 9, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
* President and Director (Principal
____________________________________ Executive Officer)
L. Scott Esposito
/s/ John P. Miller Vice President and Secretary (Principal
____________________________________ Financial and Accounting Officer)
John P. Miller
* Director
____________________________________
Christopher A. Laurence
* Director
____________________________________
Frederick J. Warren
* Vice President and Director
____________________________________
John J. Greisch
</TABLE>
/s/ John P. Miller
*By: _____________________
John P. Miller
Attorney-in-fact
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Deerfield, State of Illinois, on November 9, 1999.
ACTIVE GEAR, L.L.C.
By: HDA Parts System, Inc., its sole
member
/s/ John J. Greisch
By: _________________________________
Name: John J. Greisch
Title:
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities indicated on November 9, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ John J. Greisch President and Chief Executive Officer and
____________________________________ Director (Principal Executive Officer)
John J. Greisch
* Vice President, Chief Financial Officer
____________________________________ and Secretary (Principal Financial and
John P. Miller Accounting Officer)
* Director
____________________________________
Frederick J. Warren
/s/ Robert Anderson Director
____________________________________
Robert Anderson
* Director
____________________________________
W. Larry Clayton
</TABLE>
II-16
<PAGE>
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
* Director
____________________________________
Christopher A. Laurence
/s/ Richard R. Crowell Director
____________________________________
Richard R. Crowell
/s/ Gerald L. Parsky Director
____________________________________
Gerald L. Parsky
/s/ William S. Wade Director
____________________________________
William S. Wade
</TABLE>
*By: /s/ John J. Greisch
__________________________
John J. Greisch
Attorney-in-Fact
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Deerfield, State of Illinois, on November 9, 1999.
WHEELS AND BRAKES, INC.
SPECRITE BRAKE COMPANY
By: /s/ John J. Greisch
_____________________________________
Name: John J. Greisch
Title: President and Assistant
Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities indicated on November 9, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ John J. Greisch President, Assistant Treasurer and
____________________________________ Director (Principal Executive Officer)
John J. Greisch
/s/ John P. Miller Vice President Treasurer, Secretary and
____________________________________ Director (Principal Financial and
John P. Miller Accounting Officer)
/s/ Christopher A. Laurence Director
____________________________________
Christopher A. Laurence
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Deerfield, State of Illinois, on November 9, 1999.
QDSP HOLDINGS, INC.
QUALITY DISTRIBUTION SERVICE
PARTNERS, INC.
AUTOMOTIVE SALES COMPANY, INC.
CITY SPRING WORKS, INC.
FLEETPRIDE, INC.
HOLT, INCORPORATED
SLM POWER GROUP, INC.
TRUCK CITY PARTS, INC.
UNIVERSAL JOINT SALES COMPANY, INC.
WHEATLEY TRUCK PARTS, INC.
CB ACQUISITION SUB, INC.
NEW ENGLAND TRUCK & AUTO SERVICE,
INC.
TBS, INCORPORATED
FOUR-T SALES & SERVICE, INC.
STATS REMANUFACTURING CENTER, INC.
POWER EXPORT DISTRIBUTING COMPANY
POWER EQUIPMENT INTERNATIONAL, INC.
PARTS MANAGEMENT COMPANY
PARTS HOLDING COMPANY
SPECIALIZED SALES & SERVICE, INC.
PARTS DISTRIBUTING COMPANY, LTD.
/s/ John J. Greisch
By: ____________________________
Name: John J. Greisch
Title: President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John J. Greisch and John P. Miller to be his
true and lawful attorney-in-fact and agent, each acting alone, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign this registration statement and any and all
amendments thereto (including post-effective amendments and any registration
statement pursuant to Rule 462(b)), and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities
and Exchange Commission, and every act and thing necessary or desirable to be
done, as fully to all intents and purposes as he might or could do in person,
thereby
II-19
<PAGE>
ratifying and confirming all that said attorney-in-fact and agent, each acting
alone, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 2 to the registration statement has been signed by the
following persons in the capacities indicated on November 9, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<C> <S>
/s/ John J. Greisch President and Director (Principal
____________________________________ Executive Officer)
John J. Greisch
/s/ John P. Miller Vice President, Secretary, Treasurer and
____________________________________ Director (Principal Financial and
John P. Miller Accounting Officer)
</TABLE>
II-20
<PAGE>
SCHEDULE II
CITY TRUCK HOLDINGS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Additions
---------------------------------
Balance at Charged to Charged to Balance at
Description beginning of period costs and expenses other accounts Deductions end of period
----------- ------------------- ------------------ -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
For the year ended
December 31, 1996.... $ 13 $132 $ 132 $ 13
==== ==== ====== ===== ======
For the year ended
December 31, 1997.... $ 13 $121 $ 121 $ 13
==== ==== ====== ===== ======
For the year ended
December 31, 1998.... $ 13 $134 $1,002(1) $ -- $1,149
==== ==== ====== ===== ======
Inventory valuation
allowance:
For the year ended
December 31, 1996.... $350 $108 $ 108 $ 350
==== ==== ====== ===== ======
For the year ended
December 31, 1997.... $350 $150 $ 150 $ 350
==== ==== ====== ===== ======
For the year ended
December 31, 1998.... $350 $440 $2,682(1) $ 123 $3,349
==== ==== ====== ===== ======
</TABLE>
- ---------------------
(1) These additions relate to businesses acquired during the year.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
3.1 Amended and Restated Articles of Incorporation of HDA Parts System,
Inc.*
3.2 Bylaws of HDA Parts System, Inc.*
4.1 Indenture, dated as of July 31, 1998, by and among HDA Parts System,
Inc., the guarantors identified therein and U.S. Trust Company of
California, N.A., as trustee*
4.1.1 First Supplemental Indenture, dated as of September 30, 1998 among
Truck & Trailer Parts, Inc., City Truck Holdings, Inc., HDA, any
other Guarantors party thereto, and Parent party thereto and U.S.
Trust Company, National Association, as trustee*
4.1.2 Second Supplemental Indenture, dated as of December 21, 1998 among
Truckparts, Inc., HDA, any other Guarantors party to the Indenture
referred to therein and U.S. Trust Company, National Association, as
trustee*
4.1.3 Third Supplemental Indenture, dated as of January 14, 1999 among
Associated Brake Supply, Inc., Associated Truck Center, Inc., Onyx
Distribution, Inc., Associated Truck Parts of Nevada, Inc., Freeway
Truck Parts of Washington, Inc., Tisco, Inc. and Tisco of Redding,
Inc. HDA, any other Guarantors party to the Indenture referred to
therein and U.S. Trust Company, National Association, as trustee*
4.1.4 Fourth Supplemental Indenture, dated as of April 20, 1999, among
Active Gear, L.L.C., the Company, any other Guarantors party thereto,
any Parent party thereto and U.S. Trust Company, National
Association, as trustee
4.1.5 Fifth Supplemental Indenture, dated as of June 7, 1999, among Superior
Truck & Auto Supply, Inc., the Company, any other Guarantors party
thereto and U.S. Trust Company, National Association, as trustee
4.1.6 Sixth Supplemental Indenture, dated as of September 27, 1999, among
HDA Parts System, Inc., the several guarantors party thereto and U.S.
Trust Company of California, N.A., as trustee
4.1.7 Seventh Supplemental Indenture, dated as of October 1, 1999, among
QDSP Holdings, Inc., Quality Distribution Service Partners, Inc.,
Automotive Sales Company, Inc., CB Acquisition Sub, Inc., City Spring
Works, Inc., Fleetpride, Inc., Four T Sales & Service, Inc., Holt
Incorporated, New England Truck & Auto Service, Inc., Parts
Distributing Company, Ltd., Parts Holding Company, Parts Management
Company, Power Equipment International, Inc., Power Export
Distributing Company, SLM Power Group, Inc., Specialized Sales &
Service, Inc., TBS Incorporated, Truck City Parts, Inc., Stats
Remanufacturing Center, Inc., Universal Joint Sales Company, Inc.,
and Wheatley Truck Parts, Inc., the Company, any other guarantors
party to the indenture referred to therein and U.S. Trust Company,
National Association, as trustee
4.1.8 Eighth Supplemental Indenture, dated as of October 8, 1999, among
Wheels and Brakes, Inc. and Specrite Brake Company, the Company, any
other guarantors party to the indenture referred to therein and U.S.
Trust Company, National Association, as trustee
4.2 A/B Exchange Registration Rights Agreement, dated as of July 31, 1998,
by and among HDA Parts System, Inc. the guarantors identified therein
and Donaldson, Lufkin & Jenrette Securities Corporation and
BancAmerica Robertson Stephens*
5 Opinion of Latham & Watkins*
10.1 $225.0 million Credit Agreement, dated as of September 30, 1999, among
City Truck Holdings, Inc., HDA Parts System, Inc., as Borrower, The
Several Lenders from Time to Time Parties Thereto, First Union
National Bank, as Documentation Agent, Credit Suisse First Boston, as
Syndication Agent, and The Chase Manhattan Bank, as Administrative
Agent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
10.2 Stock Purchase Agreement, dated as of May 29, 1998, by and among BABF
City Corp., City Truck and Trailer Parts, Inc. and its Affiliates and
Merger Subsidiaries named therein and the Shareholders and Members of
City Truck and Trailer Parts, Inc. and its Affiliates and Merger
Subsidiaries*
10.3 Asset Contribution Agreement, dated as of June 19, 1998, by and among
City Truck and Trailer Parts, Inc. and Stone Heavy Duty, Inc.,
Ashland Automotive Parts, Inc., Fred A. Stone, Jr., James T. Stone
and Thomas D. Stone*
10.4 Contribution and Purchase Agreement, dated as of September 30, 1998,
by and among City Truck Holdings, Inc., HDA Parts System, Inc. and
Truck & Trailer Parts, Inc., DHP Leasing, Inc., the Shareholders of
Truck & Trailer Parts, Inc. and DHP Leasing, Inc.*
10.5 Asset Purchase Agreement, dated as of October 31, 1998, by and among
HDA Parts System, Inc. and Tampa Brake & Supply Co., Inc. and the
Shareholders of Tampa Brake & Supply Co., Inc.*
10.6 Asset Purchase Agreement, dated as of November 4, 1998, by and among
HDA Parts System, Inc. and Connecticut Driveshaft, Inc. and the
Shareholders of Connecticut Driveshaft, Inc.*
10.7 Stock Purchase Agreement, dated as of December 17, 1998, by and among
City Truck Holdings, Inc., HDA Parts System, Inc. and Truckparts,
Inc., and the Shareholders of Truckparts, Inc.*
10.8 Stock Purchase Agreement, dated as of January 11, 1999, by and among
City Truck Holdings, Inc., HDA Parts System, Inc. and Associated
Brake Supply, Inc. and the Shareholders of Associated Brake Supply,
Inc.*
10.9 Stock Purchase Agreement, dated as of January 12, 1999, by and among
City Truck Holdings, Inc., HDA Parts System, Inc. and the
Shareholders of Tisco, Inc. and Tisco of Redding, Inc.*
10.10 Trademark License Agreement, dated as of July 6, 1998, by and between
HD America, Inc. and City Truck & Trailer Parts, Inc.*
10.11 Management Services Agreement, dated as of September 30, 1999, among
City Truck Holdings, Inc., Brentwood Private Equity Management LLC
and Aurora Management Partners LLC
10.12 Stock Contribution Agreement, dated as of August 27, 1998, by and
among the parties identified on the signature page thereto and City
Truck Holdings, Inc.*
10.13 Amended and Restated Stockholders' Agreement, dated as of September
30, 1999, by and among the parties listed on the signature pages
attached thereto and City Truck Holdings, Inc.
10.14 Stock Purchase Agreement, dated as of July 1, 1998, by and between
City Truck & Trailer Parts, Inc. and John J. Greisch*
10.15 Stock Purchase Agreement, dated as of July 10, 1998, by and between
HDA Parts System, Inc. and John P. Miller*
10.16 Stock Purchase, Vesting and Repurchase Agreement, dated as of October
19, 1998, between City Truck Holdings, Inc. and A. William Cavalle*
10.17 Form of Stock Purchase, Vesting and Repurchase Agreement*
10.18 Stock Purchase Agreement, dated as of September 30, 1998, by and
between City Truck Holdings, Inc. and Martin R. Reid*
10.19 Stock Purchase Agreement, dated as of March 5, 1999, by and between
City Truck Holdings, Inc. and John J. Greisch*
10.20 Stock Purchase Agreement, dated as of March 5, 1999, by and between
City Truck Holdings, Inc. and John P. Miller*
10.21 Stock Purchase Agreement, dated as of March 5, 1999, by and between
City Truck Holdings, Inc. and Anthony William Cavalle*
10.22 Stock Purchase Agreement, dated as of February 1, 1999, by and between
City Truck Holdings, Inc. and Gene L. Curtin*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
10.23 Purchase Agreement, dated April 20, 1999, by and among City Truck
Holdings, Inc. and HDA Parts System, Inc. and the Member of Active
Gear, L.L.C.*
10.24 Asset Purchase Agreement dated as of May 28, 1999 by and among HDA
Parts System, Inc. and CNF Transportation Inc. and Vantage Parts of
Illinois, Inc.*
10.25 Stock Purchase Agreement dated as of June 7, 1999 by and among City
Truck Holdings, Inc. and HDA Parts System, Inc. and The Shareholders
of Superior Truck & Auto Supply, Inc.*
10.26 Asset Purchase Agreement dated as of August 6, 1999 by and among HDA
Parts Systems, Inc. and Certified Power, Inc.*
10.27 Asset Purchase Agreement dated as of August 25, 1999 by and among
Associated Brake Supply, Inc., California Equipment company,
California Equipment Co. of Sacramento and The Shareholders of
California Equipment Company and California Equipment Co. of
Sacramento*
10.28 Agreement and Plan of Merger, dated September 3, 1999, by and among
QDSP Holdings, Inc., City Truck Holdings, Inc. and Fleetpride
Acquisition Corporation.*
10.29 Stock Purchase Agreement, dated as of October 8, 1999, among HDA Parts
System, Inc. and The Shareholders of Wheels and Brakes, Inc.
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of HDA Parts System, Inc.
23.1 Consent of Latham & Watkins (included in Exhibit 5)*
23.2 Consent of PriceWaterhouseCoopers LLP
23.3 Consent of McGladrey & Pullen, LLP
23.4 Consent of Ernst & Young LLP
23.5 Consent of KPMG LLP
24 Powers of Attorney of the directors and executive officers of City
Truck and Trailer Parts of Alabama, Inc., City Truck and Trailer
Parts of Tennessee, Inc., City Friction, Inc., Truck & Trailer Parts,
Inc., Truckparts, Inc., Associated Brake Supply, Inc., Associated
Truck Center, Inc., Onyx Distribution, Inc., Associated Truck Parts
of Nevada, Inc., Freeway Truck Parts of Washington, Inc., Tisco,
Inc., Tisco of Redding, Inc. and Superior Truck & Auto Supply, Inc.*
24.1 Powers of Attorney of the directors and executive officers of HDA
Parts System, Inc., City Truck Holdings, Inc., City Truck and Trailer
Parts of Alabama, L.L.C., Active Gear, L.L.C., QDSP Holdings, Inc.,
Quality Distribution Service Partners, Inc., Automotive Sales
Company, Inc., City Spring Works, Inc., Fleetpride, Inc., Holt,
Incorporated, SLM Power Group, Inc., Truck City Parts, Inc.,
Universal Joint Sales Company, Inc., Wheatley Truck Parts, Inc., CB
Acquisition Sub, Inc., New England Truck & Auto Service, Inc., TBS,
Incorporated, Four-T Sales & Service, Inc., Stats Remanufacturing
Center, Inc., Power Export Distributing Company, Power Equipment
International, Inc., Parts Management Company, Parts Holding Company,
Specialized Sales & Service, Inc., Parts Distributing Company, Ltd.,
Wheels and Brakes, Inc. and Specrite Brake Company (included in the
signature pages in Part II of this Pre-Effective Amendment No. 2)
25 Statement of Eligibility and Qualification on Form T-1 of U.S. Trust
Company of California, N.A., as trustee
27 Financial Data Schedule
99.1 Letter of Transmittal with respect to the Exchange Offer
99.2 Notice of Guaranteed Delivery with respect of the Exchange Offer
</TABLE>
- ---------------------
* Previously filed.
<PAGE>
EXHIBIT 4.1.4
FOURTH SUPPLEMENTAL INDENTURE
Fourth Supplemental Indenture (this "Fourth Supplemental Indenture"), dated
as of April 20, 1999 among Active Gear, L.L.C. ("Active Gear") (the
"Guarantor"), the Company (as defined in the Indenture referred to herein), any
other Guarantors (as defined in the Indenture referred to herein) party thereto,
any Parent (as defined in the Indenture referred to herein) party thereto and
U.S. Trust Company, National Association, as Trustee under the indenture
referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture, dated as of July 31, 1998 as supplemented by the First
Supplemental Indenture dated September 30, 1998; the Second Supplemental
Indenture dated December 21, 1998; and the Third Supplemental Indenture dated
January 14, 1999 (as supplemented, the "Indenture") providing for the issuance
of 12% Senior Subordinated Notes due 2005 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guarantors shall execute and deliver to the Trustee a supplemental indenture
pursuant to which subsequent Guarantors shall unconditionally guarantee all of
the Company's Obligations under the Notes and the Indenture on the terms and
conditions set forth herein (the "Guarantee"); and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is
authorized to execute and deliver this Fourth Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guarantors and the Trustee mutually covenant and agree of the equal and ratable
benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized Terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. Each of the Guarantors irrevocably and
unconditionally guarantees the Guarantee Obligations, which include (i) the due
and punctual payment of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the Notes, whether at stated maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and premium, if any, and (to the extent permitted by law)
interest on any interest and Liquidated Damages, if any, on the Notes, and the
due and punctual performance of all other obligations of the Company, to the
Holders or the Trustee all in accordance with the terms set forth in Article XI
of the Indenture, and (ii) in case of any extension of time of payment or
renewal of any Notes or any such other obligations, that the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
<PAGE>
The obligations of the Guarantors to the Holders and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in Article
XI of the Indenture and reference is hereby made to such Indenture for the
precise terms of this Guarantee.
No stockholder, employee, officer, director or incorporator, as such, past,
present or future of the Guarantors shall have any liability under this
Guarantee by reason of his or its status as such stockholder, employee, officer,
director or incorporator.
This is a continuing Guarantee and shall remain in full force and effect
and shall be binding upon the Guarantors and their respective successors and
assigns until full and final payment of all of the Company's obligations under
the Notes and Indenture or until released in accordance with the Indenture and
shall inure to the benefit of the successors and assigns of the Trustee and the
Holders, and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges herein conferred upon that party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof. This is a Guarantee of payment and
not of collectibility.
The Obligations of the Guarantors under its Guarantee shall be limited to
the extent necessary to insure that it does not constitute a fraudulent
conveyance under applicable law.
THE TERMS OF ARTICLE XI OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
3. THIS FOURTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
4. Counterparts. The parties may sign any number of copies of this Fourth
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
5. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fourth Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
HDA PARTS SYSTEM, INC., an Alabama corporation
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
CITY TRUCK AND TRAILER PARTS OF ALABAMA,
INC., an Alabama corporation
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK AND TRAILER PARTS OF ALABAMA,
L.L.C., an Alabama limited liability company
HDA PARTS SYSTEM, INC., as sole member
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
CITY TRUCK AND TRAILER PARTS OF TENNESSEE,
INC., a Tennessee corporation
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
CITY FRICTION, INC., an Alabama corporation
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
TRUCK & TRAILER PARTS, INC., a Georgia
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK HOLDINGS, INC., a Delaware corporation
as Guarantor
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
TRUCKPARTS, INC., a Connecticut corporation,
as Guarantor
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
ASSOCIATED BRAKE SUPPLY, INC., a California
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
ASSOCIATED TRUCK CENTER, INC., a California
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
ASSOCIATED TRUCK PARTS OF NEVADA, INC.,
a Nevada corporation, as Guarantor
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
ONYX DISTRIBUTION, INC., a California corporation,
as Guarantor
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
FREEWAY TRUCK PARTS OF WASHINGTON, INC., a
Washington corporation, as Guarantor
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
TISCO, INC., a California corporation, as Guarantor
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
TISCO OF REDDING, INC., a California corporation,
as Guarantor
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
U.S. TRUST COMPANY, NATIONAL ASSOCIATION,
as Trustee
By: /s/ Sandee Parks
-------------------------------------------------
Name: Sandee Parks
Title: Vice President
ACTIVE GEAR, L.L.C., a Washington limited liability
company, as Guarantor
HDA PARTS SYSTEM, INC., as sole member
By: /s/ John J. Greisch
-------------------------------------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
<PAGE>
U.S. TRUST COMPANY, NATIONAL ASSOCIATION,
as Trustee
By: /s/ Sandee Parks
-------------------------------------------------
Name: Sandee Parks
Title: Vice President
ACTIVE GEAR, L.L.C., a Washington limited liability
company, as Guarantor
HDA PARTS SYSTEM, INC., as sole member
By: /s/ John J. Greisch
-------------------------------------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
<PAGE>
Exhibit 4.1.5
FIFTH SUPPLEMENTAL INDENTURE
Fifth Supplemental Indenture (this "Fifth Supplemental Indenture"), dated
as of June 7, 1999 among Superior Truck & Auto Supply, Inc. (the "Guarantor"),
the Company (as defined in the Indenture referred to herein), any other
Guarantors (as defined in the Indenture referred to herein) party to the
Indenture referred to herein and U.S. Trust Company, National Association, as
trustee under the indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture, dated as of July 31, 1998, as supplemented by the First
Supplemental Indenture dated September 30, 1998; the Second Supplemental
Indenture dated December 21, 1998; the Third Supplemental Indenture dated
January 14, 1999; and the Fourth Supplemental Indenture dated April 20, 1999 (as
supplemented, the "Indenture"), providing for the issuance of 12% Senior
Subordinated Notes due 2005 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guarantors shall execute and deliver to the Trustee a supplemental indenture
pursuant to which subsequent Guarantors shall unconditionally guarantee all of
the Company's Obligations under the Notes and the Indenture on the terms and
conditions set forth herein (the "Guarantee"); and
WHEREAS, pursuant to Section of the Indenture, the Trustee is authorized to
execute and deliver this Fifth Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guarantors and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. Each of the Guarantors irrevocably and
unconditionally guarantees the Guarantee Obligations, which include (i) the due
and punctual payment of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the Notes, whether at stated maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and premium, if any, and (to the extent permitted by law)
interest on any interest and Liquidated Damages, if any, on the Notes, and the
due and punctual performance of all other obligations of the Company, to the
Holders or the Trustee all in accordance with the terms set forth in Article XI
of the Indenture, and (ii) in case of any extension of time of payment or
renewal of any Notes or any such other obligations, that the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
<PAGE>
The obligations of the Guarantors to the Holders and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in Article
XI of the Indenture and reference is hereby made to such Indenture for the
precise terms of this Guarantee.
No stockholder, employee, officer, director or incorporator, as such, past,
present or future of the Guarantors shall have any liability under this
Guarantee by reason of his or its status as such stockholder, employee, officer,
director or incorporator.
This is a continuing Guarantee and shall remain in full force and effect
and shall be binding upon the Guarantors and their respective successors and
assigns until full and final payment of all of the Company's obligations under
the Notes and Indenture or until released in accordance with the Indenture and
shall inure to the benefit of the successors and assigns of the Trustee and the
Holders, and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges herein conferred upon that party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof. This is a Guarantee of payment and
not of collectibility.
The Obligations of the Guarantors under its Guarantee shall be limited to
the extent necessary to insure that it does not constitute a fraudulent
conveyance under applicable law.
THE TERMS OF ARTICLE XI OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
3. THIS FIFTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
4. Counterparts. The parties may sign any number of copies of this Fifth
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
5. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
HDA PARTS SYSTEM, INC., an Alabama corporation
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: President
CITY TRUCK AND TRAILER PARTS OF ALABAMA,
INC., an Alabama corporation
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK AND TRAILER PARTS OF ALABAMA,
L.L.C., an Alabama limited liability company
HDA PARTS SYSTEM, INC., as sole member
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: President
CITY TRUCK AND TRAILER PARTS OF TENNESSEE,
INC., a Tennessee corporation
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
CITY FRICTION, INC., an Alabama corporation
By: /s/ John J. Greisch
--------------------------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
TRUCK & TRAILER PARTS, INC., a Georgia
corporation, as Guarantor
By: /s/ John J. Greisch
---------------------------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK HOLDINGS, INC;. a Delaware
corporation as Guarantor
By: /s/ John J. Greisch
----------------------------------------
Name: John J. Greisch
Title: President
TRUCKPARTS, INC., a Connecticut corporation,
as Guarantor
/s/ John J. Greisch
By: ----------------------------------------
Name: John J. Greisch
Title: Vice President
ASSOCIATED BRAKE SUPPLY, INC., a California
corporation, as Guarantor
/s/ John J. Greisch
By: ----------------------------------------
Name: John J. Greisch
Title: Vice President
ASSOCIATED TRUCK CENTER INC., a California
corporation, as Guarantor
/s/ John J. Greisch
By: ----------------------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
ASSOCIATED TRUCK PARTS OF NEVADA, INC., a
Nevada corporation, as Guarantor
By: /s/ John J. Greisch
---------------------------------------
Name: John J. Greisch
Title: Vice President
ONYX DISTRIBUTION, INC., a California
corporation, as Guarantor
By: /s/ John J. Greisch
---------------------------------------
Name: John J. Greisch
Title: Vice President
FREEWAY TRUCK PARTS OF WASHINGTON, INC.,
a Washington corporation, as Guarantor
By: /s/ John J. Greisch
---------------------------------------
Name: John J. Greisch
Title: Vice President
TISCO, INC., a California corporation,
as Guarantor
By: /s/ John J. Greisch
---------------------------------------
Name: John J. Greisch
Title: Vice President
TISCO OF REDDING, INC., a California
corporation, as Guarantor
By: /s/ John J. Greisch
---------------------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
ACTIVE GEAR, L.L.C., a Washington limited liability
company, as Guarantor
HDA PARTS SYSTEM, INC., as sole member
By: /s/ John J. Greisch
-----------------------------------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
U.S. TRUST COMPANY, NATIONAL ASSOCIATION,
as Trustee
By: _______________________________________________
Name: Sandee Parks
Title: Vice President
SUPERIOR TRUCK & AUTO SUPPLY, INC.,
a Massachusetts corporation, as Guarantor
By: /s/ John J. Greisch
-----------------------------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
ACTIVE GEAR, L.L.C., a Washington limited liability
company, as Guarantor
HDA PARTS SYSTEM, INC., as sole member
By: _______________________________________________
Name: John J. Greisch
Title: President and Chief Executive Officer
U.S. TRUST COMPANY NATIONAL ASSOCIATION,
as Trustee
By: /s/ Sandee Parks
-----------------------------------------------
Name: Sandee Parks
Title: Vice President
SUPERIOR TRUCK & AUTO SUPPLY, INC.,
a Massachusetts corporation, as Guarantor
By: _______________________________________________
Name: John J. Greisch
Title: Vice President
<PAGE>
Exhibit 4.1.6
HDA PARTS SYSTEM, INC.,
AS ISSUER
THE SEVERAL GUARANTORS PARTIES THERETO
AND
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
AS TRUSTEE
SIXTH SUPPLEMENTAL INDENTURE
DATED AS OF SEPTEMBER 27, 1999
SUPPLEMENTING THE INDENTURE,
DATED AS OF JULY 31, 1998,
AS SUPPLEMENTED BY THE FIRST SUPPLEMENTAL INDENTURE
DATED AS OF SEPTEMBER 30, 1999,
AND THE SECOND SUPPLEMENTAL INDENTURE
DATED AS OF DECEMBER 21, 1998,
AS SUPPLEMENTED BY THE THIRD SUPPLEMENTAL INDENTURE
DATED AS OF JANUARY 11, 1999,
AND THE FOURTH SUPPLEMENTAL INDENTURE
DATED AS OF April 20, 1999, AND
AS SUPPLEMENTED BY THE FIFTH SUPPLEMENTAL INDENTURE
DATED AS OF June 7, 1999,
AMONG HDA PARTS SYSTEM, INC.,
THE SEVERAL GUARANTORS PARTIES THERETO
AND U.S. TRUST COMPANY OF CALIFORNIA, N.A., AS TRUSTEE
___________________
$100,000,000
12% SENIOR SUBORDINATED NOTES DUE 2005
<PAGE>
THIS SIXTH SUPPLEMENTAL INDENTURE (the "Supplemental Indenture"), dated as
of September 27, 1999, among HDA Parts System, Inc. (the "Company"), the several
guarantors parties thereto (the "Guarantors") and U.S. Trust Company of
California, N.A., as trustee under the indenture referred to below (the
"Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture (the "Indenture"), dated as of July 31, 1998 providing for the
issuance of 12% Senior Subordinated Notes due 2005 (the "Notes");
WHEREAS, Section 9.2 of the Indenture provides that the Company, when
authorized by a resolution of its Board of Directors, and the Trustee, together
with the written consent of the Holders of at least a majority in aggregate
principal amount of the Notes outstanding and not owned by the Company or an
affiliate of the Company, may amend the Indenture, provided that the consent of
Holders of at least 662/3% in aggregate principal amount of Notes outstanding
and not owned by the Company or an affiliate of the Company is necessary to
modify the provisions of Article X (Right to Require Repurchase) of the
Indenture in a manner adverse to the Holders;
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture;
WHEREAS, the parties hereto are entering into this Supplemental Indenture
to amend certain of the definitions contained in Article I of the Indenture (the
"Proposed Amendment"); and
WHEREAS, the Holders of not less than 662/3% in aggregate principal amount
of the Notes outstanding and not owned by the Company or an affiliate of the
Company, have duly consented to the Proposed Amendment; and
WHEREAS, the Company has heretofore delivered or is delivering
contemporaneously herewith to the Trustee (i) a copy of resolutions of the Board
of Directors of the Company, (ii) evidence of the written consent of the Holders
of Notes described in the immediately preceding clause and (iii) an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent and covenants, if any, provided for in the Indenture relating to the
execution and delivery of the Supplemental Indenture have been complied with;
and
WHEREAS, the conditions set forth in the Indenture for the execution and
delivery of this Supplemental Indenture have been complied with; and
WHEREAS, all other acts and things necessary to make this Supplemental
Indenture a valid agreement of the Company and the Trustee, in accordance with
its terms, and a valid amendment of, and supplement to, the Indenture have been
done;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Company, the Guarantors and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
<PAGE>
1. Capitalized terms used herein without definition shall have the
meanings assigned to them in the Indenture.
2. Amendment of Section 1.1 of the Indenture:
(a) The definition of "Excluded Persons " in Section 1.1 is amended to
read in its entirety as follows:
"Excluded Persons" means Brentwood, Larry Clayton, James Stone and the
Aurora Funds and (i) any controlling stockholder, general partner, majority
owned Subsidiary, or spouse or immediate family member (in the case of an
individual) of such Person or (ii) (a) any trust, corporation, partnership
or other entity, the beneficiaries, stockholders, partners, owners of
Persons beneficially holding 80% or more of the Voting Stock of which
consist of such Person and/or such other Persons referred to in the
immediately preceding clause (i) or (b) any partnership the sole general
partner of which is such Person or one of the Persons referred to in clause
(i).
(b) The definition of "Aurora Funds" will be added to Section 1.1 and
will read in its entirety as follows:
"Aurora Funds" means Aurora Equity Partners II, L.P., Aurora Overseas
Equity Partners II, L.P. and Quality Distribution Equity Partners, L.P.,
together with any Person directly or indirectly controlling or controlled
by or under direct or common control with Aurora Equity Partners II, L.P.,
Aurora Overseas Equity Partners II, L.P. and Quality Distribution Equity
Partners, L.P.
3. Operation of Proposed Amendment. Upon the execution and delivery of
this Supplemental Indenture by the Trustee, the Company and the Guarantors, the
Proposed Amendment contained herein will become effective but will not become
operative until (i) the merger between the Company and QDSP Holdings, Inc. is
consummated and (ii) the Company has deposited with the Trustee, acting as
paying agent, the Consent Payment of $ 30.00 per $1,000 of Notes, for
distribution to Holders of Notes who have consented to the Proposed Amendment.
THE TERMS OF ARTICLE XI OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
4. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAWS.
5. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
HDA PARTS SYSTEM, INC., an Alabama corporation
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: President and CEO
CITY TRUCK AND TRAILER PARTS OF ALABAMA, INC.,
an Alabama corporation, as Guarantor
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK AND TRAILER PARTS OF ALABAMA L.L.C.,
an Alabama limited liability company, as Guarantor
By: HDA Parts System, Inc., its sole member
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: President and CEO
CITY TRUCK AND TRAILER PARTS OF TENNESSEE INC., a Tennessee
corporation, as Guarantor
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: Vice President
CITY FRICTION, INC., an Alabama corporation, as Guarantor
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
TRUCK AND TRAILER PARTS, INC., a Georgia corporation, as
Guarantor
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK HOLDINGS, INC., a Delaware corporation, as
Guarantor
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: President
TRUCK PARTS, INC., a Connecticut corporation, as Guarantor
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: Vice President
ASSOCIATED BRAKE SUPPLY, INC., a California
corporation, as Guarantor
ASSOCIATED TRUCK CENTER, INC., a California
corporation, as Guarantor
ASSOCIATED TRUCK PARTS OF NEVADA, INC., a Nevada
corporation, as Guarantor
ONYX DISTRIBUTION, INC., a California corporation, as
Guarantor
FREEWAY TRUCK PARTS OF WASHINGTON, INC., a
Washington corporation, as Guarantor
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
TISCO, INC., a California corporation, as Guarantor
TISCO OF REDDING, INC., a California corporation, as
Guarantor
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: Vice President
ACTIVE GEAR, L.L.C., a Washington limited liability
company, as Guarantor
By: HDA Parts System, Inc., its sole member
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: President and CEO
U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Trustee
By: __________________________________________
Name:
Title:
SUPERIOR TRUCK & AUTO SUPPLY, INC., a Massachusetts
corporation, as Guarantor
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
TISCO, INC., a California corporation, as Guarantor
TISCO OF REDDING, INC., a California corporation, as
Guarantor
By:
------------------------------------------
Name: John J. Greisch
Title: Vice President
ACTIVE GEAR, L.L.C., a Washington limited liability
company, as Guarantor
By: HDA Parts System, Inc., its sole member
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: President and CEO
U.S. TRUST COMPANY OF CALIFORNIA, N.A., as Trustee
By: /s/ Sandee Parks
------------------------------------------
Name: Sandee Parks
Title: Vice President
SUPERIOR TRUCK & AUTO SUPPLY, INC., a Massachusetts
corporation, as Guarantor
By: /s/ John J. Greisch
------------------------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
EXHIBIT 4.1.7
SEVENTH SUPPLEMENTAL INDENTURE
Seventh Supplemental Indenture (this "Seventh Supplemental Indenture"),
dated as of October 1, 1999 among QDSP Holdings, Inc., Quality Distribution
Service Partners, Inc., Automotive Sales Company, Inc., CB Acquisition Sub,
Inc., City Spring Works, Inc., Fleetpride, Inc., Four T Sales & Service, Inc.,
Holt Incorporated, New England Truck & Auto Service, Inc., Parts Distributing
Company, Ltd., Parts Holdings Company, Parts Management Company, Power Equipment
International, Inc., Power Export Distributing Company, SLM Power Group, Inc.,
Specialized Sales & Service, Inc., TBS Incorporated, Truck City Parts, Inc.,
Stats Remanufacturing Center, Inc., Universal Joint Sales Company, Inc. and
Wheatley Truck Parts, Inc. (the "Guarantors"), the Company (as defined in the
Indenture referred to herein), any other Guarantors (as defined in the Indenture
referred to herein) party to the Indenture referred to herein and U.S. Trust
Company, National Association, as trustee under the indenture referred to below
(the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture, dated as of July 31, 1998, as supplemented by the First
Supplemental Indenture dated September 30, 1998; the Second Supplemental
Indenture dated December 21, 1998; the Third Supplemental Indenture dated
January 14, 1999; the Fourth Supplemental Indenture dated April 20, 1999; the
Fifth Supplemental Indenture dated June 7, 1999; and the Sixth Supplemental
Indenture dated September 27, 1999 (as supplemented, the "Indenture"), providing
for the issuance of 12% Senior Subordinated Notes due 2005 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guarantors shall execute and deliver to the Trustee a supplemental indenture
pursuant to which subsequent Guarantors shall unconditionally guarantee all of
the Company's Obligations under the Notes and the Indenture on the terms and
conditions set forth herein (the "Guarantee"); and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is
authorized to execute and deliver this Seventh Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guarantors and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. Each of the Guarantors irrevocably and
unconditionally guarantees the Guarantee Obligations, which include (i) the due
and punctual payment of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the Notes, whether at stated maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and premium, if any, and (to the extent permitted by law)
interest on any
<PAGE>
interest and Liquidated Damages, if any, on the Notes, and the due and punctual
performance of all other obligations of the Company, to the Holders or the
Trustee all in accordance with the terms set forth in Article XI of the
Indenture, and (ii) in case of any extension of time of payment or renewal of
any Notes or any such other obligations, that the same will be promptly paid in
full when due or performed in accordance with the terms of the extension or
renewal, whether at stated maturity, by acceleration or otherwise.
The obligations of the Guarantors to the Holders and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in Article
XI of the Indenture and reference is hereby made to such Indenture for the
precise terms of this Guarantee.
No stockholder, employee, officer, director or incorporator, as such, past,
present or future of the Guarantors shall have any liability under this
Guarantee by reason of his or its status as such stockholder, employee, officer,
director or incorporator.
This is a continuing Guarantee and shall remain in full force and effect
and shall be binding upon the Guarantors and their respective successors and
assigns until full and final payment of all of the Company's obligations under
the Notes and Indenture or until released in accordance with the Indenture and
shall inure to the benefit of the successors and assigns of the Trustee and the
Holders, and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges herein conferred upon that party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof. This is a Guarantee of payment and
not of collectibility.
The Obligations of the Guarantors under its Guarantee shall be limited to
the extent necessary to insure that it does not constitute a fraudulent
conveyance under applicable law.
THE TERMS OF ARTICLE XI OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
3. THIS SEVENTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
4. Counterparts. The parties may sign any number of copies of this
Seventh Supplemental Indenture. Each signed copy shall be an original, but all
of them together represent the same agreement.
5. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Seventh
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
HDA PARTS SYSTEM, INC., an Alabama corporation
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: President
CITY TRUCK AND TRAILER PARTS OF ALABAMA,
INC., an Alabama corporation
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK AND TRAILER PARTS OF ALABAMA,
L.L.C., an Alabama limited liability company
HDA PARTS SYSTEM, INC., as sole member
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: President
CITY TRUCK AND TRAILER PARTS OF
TENNESSEE, INC., a Tennessee corporation
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
CITY FRICTION, INC., an Alabama corporation
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
4
TRUCK & TRAILER PARTS, INC., a Georgia
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK HOLDINGS, INC., a Delaware
corporation as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: President
TRUCKPARTS, INC., a Connecticut corporation,
as Guarantor
By: /s/ John J. Greisch
--------------------------
Name: John J. Greisch
Title: Vice President
ASSOCIATED BRAKE SUPPLY, INC., a California
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
ASSOCIATED TRUCK CENTER, INC., a California
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
5
ASSOCIATED TRUCK PARTS OF NEVADA, INC., a
Nevada corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
ONYX DISTRIBUTION, INC., a California
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
FREEWAY TRUCK PARTS OF WASHINGTON, INC., a
Washington corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
TISCO, INC., a California corporation, as
Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
TISCO OF REDDING, INC., a California
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
6
ACTIVE GEAR, L.L.C., a Washington limited
liability company, as Guarantor
HDA PARTS SYSTEM, INC., as sole member
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: President and Chief Executive
Officer
SUPERIOR TRUCK & AUTO SUPPLY, INC.,
a Massachusetts corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
U.S. TRUST COMPANY, NATIONAL ASSOCIATION,
as Trustee
By: /s/ Garrett P. Smith
--------------------------
Name: Garrett P. Smith
Title: Assistant Vice President
QDSP HOLDINGS, INC., a Delaware corporation,
as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
QUALITY DISTRIBUTION SERVICE PARTNERS, INC.,
a Delaware corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
7
AUTOMOTIVE SALES COMPANY, INC., a Delaware
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
CB ACQUISITION SUB, INC., a Delaware
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
CITY SPRING WORKS, INC., a Delaware
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
FLEETPRIDE, INC., a Delaware corporation, as
Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
FOUR T SALES & SERVICE, INC., a Nebraska
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
8
HOLT INCORPORATED, a Delaware corporation, as
Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
NEW ENGLAND TRUCK & AUTO SERVICE, INC., a
Massachusetts corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
PARTS DISTRIBUTING COMPANY, LTD., a Texas
limited partnership, as Guarantor
PARTS MANAGEMENT COMPANY, as General Partner
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
PARTS HOLDINGS COMPANY, a Nevada corporation,
as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
PARTS MANAGEMENT COMPANY, a Texas corporation,
as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
9
POWER EQUIPMENT INTERNATIONAL, INC., a Texas
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
POWER EXPORT DISTRIBUTING COMPANY, a Texas
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
SLM POWER GROUP, INC., a Delaware corporation,
as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
SPECIALIZED SALES & SERVICE, INC., an Oregon
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
10
TBS INCORPORATED, an Arizona corporation, as
Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
TRUCK CITY PARTS, INC., a Delaware
corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
STATS REMANUFACTURING CENTER, INC., a
Nebraska corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
UNIVERSAL JOINT SALES COMPANY, INC., a
Delaware corporation, as Guarantor
By: /s/ John J. Greisch
-------------------------
Name: John J. Greisch
Title: Vice President
WHEATLEY TRUCK PARTS, INC., a Delaware
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
Exhibit 4.1.8
EIGHTH SUPPLEMENTAL INDENTURE
Eighth Supplemental Indenture (this "Eighth Supplemental Indenture"), dated
as of October 8, 1999 among Wheels and Brakes, Inc. and Specrite Brake Company
(the "Guarantors"), the Company (as defined in the Indenture referred to
herein), any other Guarantors (as defined in the Indenture referred to herein)
party to the Indenture referred to herein and U.S. Trust Company, National
Association, as trustee under the indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee
an indenture, dated as of July 31, 1998, as supplemented by the First
Supplemental Indenture dated September 30, 1998; the Second Supplemental
Indenture dated December 21, 1998; the Third Supplemental Indenture dated
January 14, 1999; the Fourth Supplemental Indenture dated April 20, 1999; the
Fifth Supplemental Indenture dated June 7, 1999; the Sixth Supplemental
Indenture dated September 27, 1999; and the Seventh Supplemental Indenture dated
October 1, 1999 (as supplemented, the "Indenture"), providing for the issuance
of 12% Senior Subordinated Notes due 2005 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guarantors shall execute and deliver to the Trustee a supplemental indenture
pursuant to which subsequent Guarantors shall unconditionally guarantee all of
the Company's Obligations under the Notes and the Indenture on the terms and
conditions set forth herein (the "Guarantee"); and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is
authorized to execute and deliver this Eighth Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guarantors and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. Each of the Guarantors irrevocably and
unconditionally guarantees the Guarantee Obligations, which include (i) the due
and punctual payment of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the Notes, whether at stated maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and premium, if any, and (to the extent permitted by law)
interest on any interest and Liquidated Damages, if any, on the Notes, and the
due and punctual performance of all other obligations of the Company, to the
Holders or the Trustee all in accordance with the terms set forth in Article XI
of the Indenture, and (ii) in case of any extension of time of payment or
renewal of any Notes or any such other obligations, that the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at
<PAGE>
stated maturity, by acceleration or otherwise.
The obligations of the Guarantors to the Holders and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in Article
XI of the Indenture and reference is hereby made to such Indenture for the
precise terms of this Guarantee.
No stockholder, employee, officer, director or incorporator, as such, past,
present or future of the Guarantors shall have any liability under this
Guarantee by reason of his or its status as such stockholder, employee, officer,
director or incorporator.
This is a continuing Guarantee and shall remain in full force and effect
and shall be binding upon the Guarantors and their respective successors and
assigns until full and final payment of all of the Company's obligations under
the Notes and Indenture or until released in accordance with the Indenture and
shall inure to the benefit of the successors and assigns of the Trustee and the
Holders, and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges herein conferred upon that party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof. This is a Guarantee of payment and
not of collectibility.
The Obligations of the Guarantors under its Guarantee shall be limited to
the extent necessary to insure that it does not constitute a fraudulent
conveyance under applicable law.
THE TERMS OF ARTICLE XI OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
3. THIS EIGHTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
4. Counterparts. The parties may sign any number of copies of this
Eighth Supplemental Indenture. Each signed copy shall be an original, but all
of them together represent the same agreement.
5. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
<PAGE>
3
IN WITNESS WHEREOF, the parties hereto have caused this Eighth Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
HDA PARTS SYSTEM, INC., an Alabama corporation
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: President
CITY TRUCK AND TRAILER PARTS OF ALABAMA,
INC., an Alabama corporation
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK AND TRAILER PARTS OF ALABAMA,
L.L.C., an Alabama limited liability company
HDA PARTS SYSTEM, INC., as sole member
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: President
CITY TRUCK AND TRAILER PARTS OF TENNESSEE,
INC., a Tennessee corporation
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
CITY FRICTION, INC., an Alabama corporation
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
4
TRUCK & TRAILER PARTS, INC., a Georgia
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
CITY TRUCK HOLDINGS, INC., a Delaware corporation
as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: President
TRUCKPARTS, INC., a Connecticut corporation,
as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
ASSOCIATED BRAKE SUPPLY, INC., a California
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
ASSOCIATED TRUCK CENTER, INC., a California
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
5
ASSOCIATED TRUCK PARTS OF NEVADA, INC., a
Nevada corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
ONYX DISTRIBUTION, INC., a California corporation,
as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
FREEWAY TRUCK PARTS OF WASHINGTON, INC.,
a Washington corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
TISCO, INC., a California corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
TISCO OF REDDING, INC., a California corporation,
as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
6
ACTIVE GEAR, L.L.C., a Washington limited liability
company, as Guarantor
HDA PARTS SYSTEM, INC., as sole member
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: President and Chief Executive Officer
SUPERIOR TRUCK & AUTO SUPPLY, INC.,
a Massachusetts corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
QDSP HOLDINGS, INC., a Delaware corporation, as
Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
QUALITY DISTRIBUTION SERVICE PARTNERS,
INC., a Delaware corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
AUTOMOTIVE SALES COMPANY, INC., a Delaware
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
7
CB ACQUISITION SUB, INC., a Delaware corporation,
as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
CITY SPRING WORKS, INC., a Delaware corporation, as
Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
FLEETPRIDE, INC., a Delaware corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
FOUR T SALES & SERVICE, INC., a Nebraska
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
8
HOLT INCORPORATED, a Delaware corporation, as
Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
NEW ENGLAND TRUCK & AUTO SERVICE, INC., a
Massachusetts corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
PARTS DISTRIBUTING COMPANY, LTD., a Texas
limited partnership, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
PARTS HOLDINGS COMPANY, a Nevada corporation,
as Guarantor
PARTS MANAGEMENT COMPANY, as General Partner
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
PARTS MANAGEMENT COMPANY, a Texas
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
9
POWER EQUIPMENT INTERNATIONAL, INC., a Texas
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
POWER EXPORT DISTRIBUTING COMPANY, a Texas
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
SLM POWER GROUP, INC., a Delaware corporation, as
Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
SPECIALIZED SALES & SERVICE, INC., an Oregon
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
10
TBS INCORPORATED, an Arizona corporation, as
Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
TRUCK CITY PARTS, INC., a Delaware corporation, as
Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
STATS REMANUFACTURING CENTER, INC., a
Nebraska corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
UNIVERSAL JOINT SALES COMPANY, INC., a
Delaware corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
WHEATLEY TRUCK PARTS, INC., a Delaware
corporation, as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: Vice President
<PAGE>
11
U.S. TRUST COMPANY, NATIONAL ASSOCIATION,
as Trustee
By: /s/ Garrett P. Smith
---------------------
Name: Garrett P. Smith
Title: Assistant Vice President
WHEELS AND BRAKES, INC., a Georgia corporation,
as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: President
SPECRITE BRAKE COMPANY, a Georgia corporation,
as Guarantor
By: /s/ John J. Greisch
--------------------
Name: John J. Greisch
Title: President
<PAGE>
EXECUTION COPY
EXHIBIT 10.1
================================================================================
$225,000,000
CREDIT AGREEMENT
among
CITY TRUCK HOLDINGS, INC.,
HDA PARTS SYSTEM, INC.,
as Borrower,
The Several Lenders
from Time to Time Parties Hereto,
FIRST UNION NATIONAL BANK,
as Documentation Agent,
CREDIT SUISSE FIRST BOSTON,
as Syndication Agent,
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of September 30, 1999
================================================================================
CHASE SECURITIES, INC.,
as Lead Arranger and Book Manager
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS...................................................... 1
1.1 Defined Terms...................................................... 1
1.2 Other Definitional Provisions...................................... 19
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.................................. 19
2.1 Term Loan Commitments.............................................. 19
2.2 Procedure for Term Loan Borrowing.................................. 19
2.3 Repayment of Term Loans............................................ 20
2.4 Revolving Commitments.............................................. 20
2.5 Procedure for Revolving Loan Borrowing............................. 20
2.6 Commitment Fees, etc............................................... 21
2.7 Termination or Reduction of Revolving Commitments.................. 21
2.8 Optional Prepayments............................................... 21
2.9 Mandatory Prepayments and Commitment Reductions.................... 22
2.10 Conversion and Continuation Options............................... 22
2.11 Limitations on Eurodollar Tranches................................ 23
2.12 Interest Rates and Payment Dates.................................. 23
2.13 Computation of Interest and Fees.................................. 23
2.14 Inability to Determine Interest Rate.............................. 24
2.15 Pro Rata Treatment and Payments................................... 24
2.16 Requirements of Law............................................... 25
2.17 Taxes............................................................. 26
2.18 Indemnity......................................................... 28
2.19 Change of Lending Office.......................................... 28
2.20 Replacement of Lenders............................................ 28
2.21 Increase in Revolving Commitments or Term Loans................... 29
SECTION 3. LETTERS OF CREDIT................................................ 29
3.1 L/C Commitment...................................................... 29
3.2 Procedure for Issuance of Letter of Credit.......................... 30
3.3 Fees and Other Charges.............................................. 30
3.4 L/C Participations.................................................. 30
3.5 Reimbursement Obligation of the Borrower............................ 31
3.6 Obligations Absolute................................................ 31
3.7 Letter of Credit Payments........................................... 32
3.8 Applications........................................................ 32
SECTION 4. REPRESENTATIONS AND WARRANTIES................................... 32
4.1 Financial Condition................................................. 32
4.2 No Change........................................................... 33
4.3 Corporate Existence; Compliance with Law............................ 33
4.4 Corporate Power; Authorization; Enforceable Obligations............. 33
4.5 No Legal Bar........................................................ 33
4.6 Litigation.......................................................... 34
4.7 No Default.......................................................... 34
4.8 Ownership of Property; Liens........................................ 34
4.9 Intellectual Property............................................... 34
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.10 Taxes............................................................. 34
4.11 Federal Regulations............................................... 34
4.12 Labor Matters..................................................... 34
4.13 ERISA............................................................. 35
4.14 Investment Company Act; Other Regulations......................... 35
4.15 Subsidiaries...................................................... 35
4.16 Use of Proceeds................................................... 35
4.17 Environmental Matters............................................. 36
4.18 Accuracy of Information, etc...................................... 36
4.19 Security Documents................................................ 37
4.20 Solvency.......................................................... 37
4.21 Year 2000 Matters................................................. 37
4.22 Senior Indebtedness............................................... 38
4.23 Regulation H...................................................... 38
4.24 Certain Documents................................................. 38
SECTION 5. CONDITIONS PRECEDENT............................................. 38
5.1 Conditions to Initial Extension of Credit.......................... 38
5.2 Conditions to Each Extension of Credit............................. 41
SECTION 6. AFFIRMATIVE COVENANTS............................................ 41
6.1 Financial Statements............................................... 41
6.2 Certificates; Other Information.................................... 42
6.3 Payment of Obligations............................................. 43
6.5 Maintenance of Property; Insurance................................. 43
6.6 Inspection of Property; Books and Records; Discussions............. 43
6.7 Notices............................................................ 44
6.8 Environmental Laws................................................. 44
6.9 Interest Rate Protection........................................... 45
6.10 Additional Collateral, etc........................................ 45
6.11 Landlord Waivers................................................... 46
6.12 Mortgages.......................................................... 46
SECTION 7. NEGATIVE COVENANTS............................................... 47
7.1 Financial Condition Covenants...................................... 47
7.2 Indebtedness....................................................... 49
7.3 Liens.............................................................. 50
7.4 Fundamental Changes................................................ 51
7.5 Disposition of Property............................................ 51
7.6 Restricted Payments................................................ 52
7.7 Capital Expenditures............................................... 52
7.8 Investments........................................................ 52
7.9 Transactions with Affiliates....................................... 53
7.10 Sales and Leasebacks.............................................. 54
7.11 Changes in Fiscal Periods......................................... 54
7.12 Negative Pledge Clauses........................................... 54
7.13 Clauses Restricting Subsidiary Distributions...................... 54
7.14 Lines of Business................................................. 54
7.15 Amendments to Acquisition Documents............................... 54
7.16 Optional Payments and Modifications of Certain Debt Instruments... 55
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8. EVENTS OF DEFAULT................................................ 55
SECTION 9. THE ADMINISTRATIVE AGENT......................................... 58
9.1 Appointment........................................................ 58
9.2 Delegation of Duties............................................... 58
9.3 Exculpatory Provisions............................................. 58
9.4 Reliance by Administrative Agent................................... 58
9.5 Notice of Default.................................................. 59
9.6 Non-Reliance on the Administrative Agent and Other Lenders......... 59
9.7 Indemnification.................................................... 59
9.8 Administrative Agent in Its Individual Capacity.................... 60
9.9 Successor Administrative Agent..................................... 60
SECTION 10. MISCELLANEOUS................................................... 60
10.1 Amendments and Waivers............................................ 60
10.2 Notices........................................................... 61
10.3 No Waiver; Cumulative Remedies.................................... 62
10.4 Survival of Representations and Warranties........................ 62
10.5 Payment of Expenses and Taxes..................................... 63
10.6 Successors and Assigns; Participations and Assignments............ 63
10.7 Adjustments; Set-off.............................................. 66
10.8 Counterparts...................................................... 66
10.9 Severability...................................................... 66
10.10 Integration...................................................... 66
10.11 GOVERNING LAW.................................................... 67
10.12 Submission To Jurisdiction; Waivers.............................. 67
10.13 Acknowledgements................................................. 67
10.14 Releases of Guarantees and Liens................................. 67
10.15 Confidentiality.................................................. 68
10.16 WAIVERS OF JURY TRIAL............................................ 68
</TABLE>
-iii-
<PAGE>
ANNEX:
A Pricing Grid
B Sources and Uses
SCHEDULES:
1.1A Commitments
1.1B Mortgaged Property
4.4 Consents, Authorizations, Filings and Notices
4.15 Subsidiaries
4.17 Environmental Matters
4.19(a) UCC Filing Jurisdictions
4.19(b) Mortgage Filing Jurisdictions
7.2(f) Existing Indebtedness
7.3(f) Existing Liens
EXHIBITS:
A Form of Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D Form of Assignment and Acceptance
E-1 Form of Legal Opinion of Jones, Day, Reavis & Pogue
E-2 Form of Legal Opinion of Bradley Arant Rose & White LLP
F Form of Exemption Certificate
G-1 Form of Term Note
G-2 Form of Revolving Note
H Form of New Lender Supplement
-iv-
<PAGE>
CREDIT AGREEMENT, dated as of September 30, 1999, among CITY TRUCK
HOLDINGS, INC., a Delaware corporation ("Holdings"), HDA PARTS SYSTEM, INC., an
--------
Alabama corporation (the "Borrower"), the several banks and other financial
--------
institutions or entities from time to time parties to this Agreement (the
"Lenders"), FIRST UNION NATIONAL BANK, as documentation agent (in such capacity,
- --------
the "Documentation Agent"), CREDIT SUISSE FIRST BOSTON, as syndication agent (in
-------------------
such capacity, the "Syndication Agent"), CHASE SECURITIES INC., as Advisor, Lead
-----------------
Arranger and Book Manager (in such capacity, the "Arranger") and THE CHASE
--------
MANHATTAN BANK, as administrative agent (in such capacity, the "Administrative
--------------
Agent").
- -----
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in
-------------
this Section 1.1 shall have the respective meanings set forth in this Section
1.1.
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
---
to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on
such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal
Funds Effective Rate in effect on such day plus 2 of 1%. For purposes hereof:
"Prime Rate" shall mean the rate of interest per annum publicly announced from
----------
time to time by the Reference Lender as its prime rate in effect at its
principal office in New York City (the Prime Rate not being intended to be the
lowest rate of interest charged by the Reference Lender in connection with
extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a) the
------------
product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the
numerator of which is one and the denominator of which is one minus the C/D
Reserve Percentage and (b) the C/D Assessment Rate; and "Three-Month Secondary
---------------------
CD Rate" shall mean, for any day, the secondary market rate for three-month
- -------
certificates of deposit reported as being in effect on such day (or, if such day
shall not be a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week following such
day), or, if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 A.M., New York City time, on such day (or, if
such day shall not be a Business Day, on the next preceding Business Day) by the
Reference Lender from three New York City negotiable certificate of deposit
dealers of recognized standing selected by it. Any change in the ABR due to a
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
---------
upon the ABR.
"Acquisition": as defined in Section 5.1(b)(ii).
-----------
"Acquisition Agreement": Agreement and Plan of Merger, dated as of
---------------------
September 3, 1999, by and among QDSP, Holdings and Fleetpride Acquisition
Corporation.
"Acquisition Documentation": collectively, the Acquisition Agreement
-------------------------
and all schedules, exhibits and annexes thereto and all side letters and
agreements affecting the terms thereof or entered into in connection therewith,
in each case as amended, supplemented or otherwise modified from time to time in
accordance with Section 7.15.
<PAGE>
2
"Acquisition Ratio": as at any date in a fiscal quarter, the ratio
-----------------
set forth below opposite such fiscal quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Acquisition Ratio
-------------- -----------------
<S> <C>
December 31, 1999 3.25 : 1.00
March 31, 2000 3.00 : 1.00
June 30, 2000 3.00 : 1.00
September 30, 2000 2.75 : 1.00
December 31, 2000 2.75 : 1.00
March 31, 2001 2.50 : 1.00
June 30, 2001 2.50 : 1.00
September 30, 2001 2.50 : 1.00
December 31, 2001 2:50 : 1.00
March 31, 2002 2:25 : 1.00
June 30, 2002 2:25 : 1.00
September 30, 2002 2.00 : 1.00
December 31, 2002 2.00 : 1.00
March 31, 2003 1.75 : 1.00
June 30, 2003 1.75 : 1.00
September 30, 2003 1.50 : 1.00
December 31, 2003 1.50 : 1.00
March 31, 2004 1.25 : 1.00
June 30, 2004 1.25 : 1.00
September 30, 2004 1.25 : 1.00.
</TABLE>
"Additional Extensions of Credit": as defined in Section 10.1.
-------------------------------
"Adjustment Date": as defined in the Pricing Grid.
---------------
"Administrative Agent": The Chase Manhattan Bank, together with its
--------------------
affiliates, as the administrative agent for the Lenders under this Agreement and
the other Loan Documents, together with any of its successors.
"Affiliate": as to any Person, any other Person that, directly or
---------
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors (or persons
performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"Aggregate Exposure": with respect to any Lender at any time, an
------------------
amount equal to (a) until the Closing Date, the aggregate amount of such
Lender's Commitments at such time and (b) thereafter, the sum of (i) the
aggregate then unpaid principal amount of such Lender's Term Loans and (ii) the
amount of such Lender's Revolving Commitment then in effect or, if the Revolving
Commitments have been terminated, the amount of such Lender's Revolving
Extensions of Credit then outstanding.
"Aggregate Exposure Percentage": with respect to any Lender at any
-----------------------------
time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure
at such time to the Aggregate Exposure of all Lenders at such time.
<PAGE>
3
"Agreement": this Credit Agreement, as amended, supplemented or
---------
otherwise modified from time to time.
"Applicable Margin": for each Type of Loan, the rate per annum is set
-----------------
forth in respect thereof on the Pricing Grid corresponding to the then
applicable leverage ratio.
"Application": an application, in such form as the Issuing Lender may
-----------
specify from time to time, requesting the Issuing Lender to open a Letter of
Credit.
"Approved Fund": with respect to any Lender that is a fund that
-------------
invests in commercial loans, any other fund that invests in commercial loans and
is managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor.
"Arranger": Chase Securities, together with its affiliates, as the
--------
sole and exclusive advisor, lead arranger and book manger for the Facilities.
"Asset Sale": any Disposition of property or series of related
----------
Dispositions of property (excluding any such Disposition permitted by clause
(a), (b), (c), (d) or (e) of Section 7.5) that yields gross proceeds to
Holdings, the Borrower or any of its Subsidiaries (valued at the initial
principal amount thereof in the case of non-cash proceeds consisting of notes or
other debt securities and valued at fair market value in the case of other non-
cash proceeds) in excess of $500,000.
"Assignee": as defined in Section 10.6(c).
--------
"Assignment and Acceptance": an Assignment and Acceptance,
-------------------------
substantially in the form of Exhibit D.
"Assignor": as defined in Section 10.6(c).
--------
"Aurora Capital Group": (i) Aurora Equity Partners II L.P. and Aurora
--------------------
Overseas Equity Partners II, L.P. (the "Limited Partnerships"), (ii) Aurora
Capital Partners II L.P. and Aurora Overseas Capital Partners II, L.P. (the
"General Partners"), (iii) Aurora Advisors II LLC (the "Ultimate General
- ----------------- ----------------
Partner"), (iv) any limited partners of the Limited Partnerships, provided that
- -------
a Limited Partnership, a General Partner or the Ultimate General Partner holds a
proxy entitled to vote shares owned by such limited partners for election of
directors of the Borrower and (v) employees of Aurora Management Partners LLC.
"Available Revolving Commitment": as to any Revolving Lender at any
------------------------------
time, an amount equal to the excess, if any, of (a) such Lender's Revolving
Commitment then in effect over (b) such Lender's Revolving Extensions of Credit
----
then outstanding.
"Benefitted Lender": as defined in Section 10.7(a).
-----------------
"Board": the Board of Governors of the Federal Reserve System of the
-----
United States (or any successor).
"Borrower": as defined in the preamble hereto.
--------
"Borrowing Date": any Business Day specified by the Borrower as a
--------------
date on which the Borrower requests the relevant Lenders to make Loans
hereunder.
<PAGE>
4
"Brentwood Associates": (i) Brentwood Associates Buyout Fund II,
--------------------
L.P., (ii) BABF City Corp. and (iii) employees of Brentwood Associates Buyout
Fund II, L.P. and BABF City Corp.
"Business": as defined in Section 4.17(b).
--------
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York City are authorized or required by law to
close, provided, that with respect to notices and determinations in connection
--------
with, and payments of principal and interest on, Eurodollar Loans, such day is
also a day for trading by and between banks in Dollar deposits in the interbank
Eurodollar market.
"Capital Expenditures": for any period, with respect to any Person,
--------------------
the aggregate of all expenditures by such Person and its Subsidiaries for the
acquisition or leasing (pursuant to a capital lease) of fixed or capital assets
or additions to equipment (including replacements, capitalized repairs and
improvements during such period) that should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries but excluding (i)
expenditures constituting the purchase price for Permitted Acquisitions and (ii)
amounts constituting Net Cash Proceeds of asset sales and property and casualty
insurance policies which are reinvested in the business of the Borrower in
accordance with Section 2.9 by the Borrower and its Subsidiaries during such
period that, in conformity with GAAP, are or are required to be included as
additions during such period to property, plant or equipment reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of
-------------------------
such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.
"Cash Equivalents": (a) marketable direct obligations issued by, 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; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities of six months or less from the date of
acquisition issued by any Lender or by any commercial bank organized under the
laws of the United States or any state thereof having combined capital and
surplus of not less than $500,000,000; (c) commercial paper of an issuer rated
at least A-1 by Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's
---
Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a
-------
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of commercial paper issuers generally, and maturing
within six months from the date of acquisition; (d) repurchase obligations of
any Lender or of any commercial bank satisfying the requirements of clause (b)
of this definition, having a term of not more than 30 days, with respect to
securities issued or fully guaranteed or insured by the United States
government; (e) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or A by Moody's; (f) securities with maturities of six months or less
from the date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank
<PAGE>
5
satisfying the requirements of clause (b) of this definition; or (g) shares of
money market mutual or similar funds which invest exclusively in assets
satisfying the requirements of clauses (a) through (f) of this definition.
"C/D Assessment Rate": for any day as applied to any ABR Loan, the
-------------------
annual assessment rate in effect on such day that is payable by a member of the
Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation (the
"FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a
----
comparable successor assessment risk classification) within the meaning of 12
C.F.R. (S) 327.4 (or any successor provision) to the FDIC (or any successor) for
the FDIC's (or such successor's) insuring time deposits at offices of such
institution in the United States.
"C/D Reserve Percentage": for any day as applied to any ABR Loan,
----------------------
that percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board, for determining the maximum reserve requirement for a
Depositary Institution (as defined in Regulation D of the Board as in effect
from time to time) in respect of new non-personal time deposits in Dollars
having a maturity of 30 days or more.
"Chase": The Chase Manhattan Bank.
-----
"Closing Date": the date on which the conditions precedent set forth
------------
in Section 5.1 shall have been satisfied, which date is September 30, 1999.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all property of the Loan Parties, now owned or
----------
hereafter acquired, upon which a Lien is purported to be created by any Security
Document.
"Commitment": as to any Lender, the sum of the Term Loan Commitment
----------
and the Revolving Commitment of such Lender.
"Commitment Fee Rate": for each Type of Loan, the rate per annum is
-------------------
set forth in respect thereof on the Pricing Grid corresponding to the then
applicable leverage ratio.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
that is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group that includes the Borrower and that is
treated as a single employer under Section 414 of the Code.
"Compliance Certificate": a certificate duly executed by a
----------------------
Responsible Officer substantially in the form of Exhibit B.
"Confidential Information Memorandum": the Confidential Information
-----------------------------------
Memorandum dated August 1999 and furnished to the Lenders.
"Consolidated Current Accounts": at any date, the sum of net accounts
-----------------------------
receivable and net inventory, after allowances and reserves accrued by the
Borrower and its consolidated Subsidiaries, reflected in the most recent
financial statements delivered pursuant to Section 6.1 minus, (a) the amount of
-----
trade credit secured by Liens permitted under Section 7.3(g)(i), which amount
may be reduced from time to time in accordance with the terms of such Section
and (b) the amount of inventory on consignment.
"Consolidated Current Assets": at any date, all amounts (other than
---------------------------
cash and Cash Equivalents) that would, in conformity with GAAP, be set forth
opposite the caption "total current
<PAGE>
6
assets" (or any like caption) on a consolidated balance sheet of the Borrower
and its Subsidiaries at such date.
"Consolidated Current Liabilities": at any date, all amounts that
--------------------------------
would, in conformity with GAAP, be set forth opposite the caption "total current
liabilities" (or any like caption) on a consolidated balance sheet of the
Borrower and its Subsidiaries at such date, but excluding (a) the current
portion of any Funded Debt of the Borrower and its Subsidiaries and (b) without
duplication of clause (a) above, all Indebtedness consisting of Revolving Loans
to the extent otherwise included therein.
"Consolidated EBITDA": for any period, Consolidated Net Income for
-------------------
such period plus, without duplication and to the extent reflected as a charge in
----
the statement of such Consolidated Net Income for such period, the sum of (a)
income tax expense, (b) interest expense, amortization or writeoff of debt
discount and debt issuance costs and commissions, discounts and other fees and
charges associated with Indebtedness (including the Loans), (c) depreciation and
amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any expenses or losses that
are extraordinary, unusual or non-recurring (including, whether or not otherwise
includable as a separate item in the statement of such Consolidated Net Income
for such period, non-cash losses on sales of assets outside of the ordinary
course of business), and (f) any other non-cash charges, and minus, to the
-----
extent included in the statement of such Consolidated Net Income for such
period, the sum of (a) interest income, (b) any extraordinary, unusual or non-
recurring income or gains (including, whether or not otherwise includable as a
separate item in the statement of such Consolidated Net Income for such period,
gains on the sales of assets outside of the ordinary course of business) and (c)
any other non-cash income, all as determined on a consolidated basis; provided
--------
that, for the purposes of determining the ratios described in Section 7.1 for
the fiscal quarters of the Borrower ending December 31, 1999, March 31, 2000 and
September 30, 2000, Consolidated EBITDA for each of the three fiscal quarters
occurring immediately prior to the Closing Date shall be deemed to equal
$13,529,000 for the quarter ended March 31, 1999, $13,331,000 for the quarter
ended June 30, 1999 and $14,162,000 for the quarter ended September 30, 1999.
For the purposes of calculating Consolidated EBITDA for any period of four
consecutive fiscal quarters (each, a "Reference Period") pursuant to any
----------------
determination of the Consolidated Leverage Ratio, (i) if at any time during such
Reference Period the Borrower or any Subsidiary shall have made any Material
Disposition, the Consolidated EBITDA for such Reference Period shall be reduced
by an amount equal to the Consolidated EBITDA (if positive) attributable to the
property that is the subject of such Material Disposition for such Reference
Period or increased by an amount equal to the Consolidated EBITDA (if negative)
attributable thereto for such Reference Period and (ii) if during such Reference
Period the Borrower or any Subsidiary shall have made a Material Acquisition,
Consolidated EBITDA for such Reference Period shall be calculated after giving
pro forma effect to (A) such Acquisition as if such Material Acquisition
- --- -----
occurred on the first day of such Reference Period and (B) any operating expense
reductions and other cost savings to be implemented in connection with such
Acquisition, determined on the basis of a four-quarter period in accordance with
the provisions of Regulation S-X of the Securities Act of 1933, as amended. As
used in this definition, "Material Acquisition" means any acquisition of
--------------------
property or series of related acquisitions of property that (a) constitutes
assets comprising all or substantially all of an operating unit, division or
product line of a business or constitutes all or substantially all of the common
stock of a Person and (b) involves the payment of consideration by the Borrower
and its Subsidiaries in excess of $500,000; and "Material Disposition" means any
--------------------
Disposition of property or series of related Dispositions of property that
yields gross proceeds to the Borrower or any of its Subsidiaries in excess of
$500,000.
"Consolidated Interest Coverage Ratio": for any period, the ratio of
------------------------------------
(a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for
such period.
"Consolidated Interest Expense": for any period, total cash interest
-----------------------------
expense (including that attributable to Capital Lease Obligations) of the
Borrower and its Subsidiaries for such period with
<PAGE>
7
respect to all outstanding Indebtedness of the Borrower and its Subsidiaries
(including all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing and net costs
under Hedge Agreements in respect of interest rates to the extent such net costs
are allocable to such period in accordance with GAAP), minus the aggregate
-----
amount of interest income of the Borrower and its Subsidiaries during such
period paid in cash; provided, that for the purposes of determining the ratio
--------
described in Section 7.1 for the fiscal quarters of the Borrower ending December
31, 1999, March 31, 2000 and June 30, 2000, total cash interest expense for each
of the three fiscal quarters occurring immediately prior to the Closing Date
shall be deemed to equal $4,558,000 for the quarter ended March 31, 1999,
$4,503,000 for the quarter ended June 30, 1999 and $4,889,000 for the quarter
ended September 30, 1999.
"Consolidated Leverage Ratio": as at the last day of any period, the
---------------------------
ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for
such period.
"Consolidated Net Income": for any period, the consolidated net
-----------------------
income (or loss) of the Borrower and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
--------
excluded (a) the income (or deficit) of any Person accrued prior to the date it
becomes a Subsidiary of the Borrower or is merged into or consolidated with the
Borrower or any of its Subsidiaries (except as expressly provided in the
definition of Consolidated EBITDA), (b) the income (or deficit) of any Person
(other than a Subsidiary of the Borrower) in which the Borrower or any of its
Subsidiaries has an ownership interest, except to the extent that any such
income is actually received by the Borrower or such Subsidiary in the form of
dividends or similar distributions and (c) the undistributed earnings of any
Subsidiary of the Borrower to the extent that the declaration or payment of
dividends or similar distributions by such Subsidiary is not at the time
permitted by the terms of any Contractual Obligation (other than under any Loan
Document) or Requirement of Law applicable to such Subsidiary.
"Consolidated Net Worth": at any date, all amounts that would, in
----------------------
conformity with GAAP, be included on a consolidated balance sheet of the
Borrower and its Subsidiaries under stockholders' equity at such date.
"Consolidated Senior Debt": all Consolidated Total Debt other than
------------------------
the Senior Subordinated Notes.
"Consolidated Senior Leverage Ratio": as of the last day of any
----------------------------------
period of four consecutive fiscal quarters, the ratio of (a) Consolidated Senior
Debt on such day to (b) Consolidated EBITDA for such period.
"Consolidated Total Debt": at any date, the aggregate principal
-----------------------
amount of all Indebtedness of the Borrower and its Subsidiaries at such date,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Working Capital": at any date, the excess of
----------------------------
Consolidated Current Assets on such date over Consolidated Current Liabilities
----
on such date.
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Control Investment Affiliate": as to any Person, any other Person
----------------------------
that (a) directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person and (b) is organized by such Person primarily
for the purpose of making equity or debt investments in one or more
<PAGE>
8
companies. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
"Default": any of the events specified in Section 8, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Disposition": with respect to any property, any sale, lease, sale
-----------
and leaseback, assignment, conveyance, transfer or other disposition thereof.
The terms "Dispose" and "Disposed of" shall have correlative meanings.
------- -----------
"Documentation Agent": as defined in the preamble hereto.
-------------------
"Dollars" and "$": dollars in lawful currency of the United States.
------- -
"Domestic Subsidiary": any Subsidiary of the Borrower organized under
-------------------
the laws of any jurisdiction within the United States.
"ECF Percentage": 75%; provided that with respect to each fiscal year
-------------- --------
of the Borrower beginning on or after January 1, 2000, the ECF Percentage shall
be reduced to 50% if the Consolidated Leverage Ratio as of the last day of such
fiscal year is not greater than 4.50 to 1.0.
"Environmental Laws": any and all foreign, Federal, state, local or
------------------
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"Equity Investment": the investment by the Sponsors of cash common
-----------------
equity in Holdings as set forth in Section 5.1(b)(iii).
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate": with respect to each day during each Interest
--------------------
Period pertaining to a Eurodollar Loan, the rate per annum determined on the
basis of the rate for deposits in Dollars for a period equal to such Interest
Period commencing on the first day of such Interest Period appearing on Page
3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business
Days prior to the beginning of such Interest Period. In the event that such rate
does not appear on Page 3750 of the Dow Jones Markets screen (or otherwise on
such screen), the "Eurodollar Base Rate" shall be determined by reference to
--------------------
such other comparable publicly available service for displaying eurodollar rates
as may be selected by the Administrative Agent or, in the absence of such
availability, by reference to the rate at which the Administrative Agent is
offered Dollar deposits at or about 11:00 A.M., New York City time, two Business
Days prior to the beginning of such Interest Period in the interbank eurodollar
market
<PAGE>
9
where its eurodollar and foreign currency and exchange operations are then being
conducted for delivery on the first day of such Interest Period for the number
of days comprised therein.
"Eurodollar Loans": Loans the rate of interest applicable to which is
----------------
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
---------------
Period pertaining to a Eurodollar Loan, a rate per annum determined for such day
in accordance with the following formula (rounded upward to the nearest 1/100th
of 1%):
Eurodollar Base Rate
--------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans
------------------
under a particular Facility the then current Interest Periods with respect to
all of which begin on the same date and end on the same later date (whether or
not such Loans shall originally have been made on the same day).
"Event of Default": any of the events specified in Section 8,
----------------
provided that any requirement for the giving of notice, the lapse of time, or
- --------
both, has been satisfied.
"Excess Cash Flow": for any fiscal year of the Borrower, the excess,
----------------
if any, of (a) the sum, without duplication, of (i) Consolidated Net Income for
such fiscal year, (ii) an amount equal to the amount of all non-cash charges
(including depreciation and amortization) deducted in arriving at such
Consolidated Net Income, (iii) decreases in Consolidated Working Capital for
such fiscal year, and (iv) an amount equal to the aggregate net non-cash loss on
the Disposition of property by the Borrower and its Subsidiaries during such
fiscal year (other than sales of inventory in the ordinary course of business),
to the extent deducted in arriving at such Consolidated Net Income over (b) the
----
sum, without duplication, of (i) an amount equal to the amount of all non-cash
credits included in arriving at such Consolidated Net Income, (ii) the aggregate
amount actually paid by the Borrower and its Subsidiaries in cash during such
fiscal year on account of Capital Expenditures (excluding the principal amount
of Indebtedness incurred in connection with such expenditures, (iii) the
aggregate amount of all prepayments of Revolving Loans during such fiscal year
to the extent accompanying permanent optional reductions of the Revolving
Commitments and all optional prepayments of the Term Loans during such fiscal
year, (iv) the aggregate amount of all regularly scheduled or mandatory
principal payments of Funded Debt (including the Term Loans) of the Borrower and
its Subsidiaries made during such fiscal year (other than in respect of any
revolving credit facility to the extent there is not an equivalent permanent
reduction in commitments thereunder), (v) increases in Consolidated Working
Capital for such fiscal year, (vi) an amount equal to the aggregate net gain on
the Disposition of property by the Borrower and its Subsidiaries during such
fiscal year (other than sales of inventory in the ordinary course of business),
to the extent included in arriving at such Consolidated Net Income and to the
extent constituting an Asset Sale for the purposes of Section 2.9 and (vii) the
amount paid in cash during such period as set forth in Section 7.6(ii).
"Excess Cash Flow Application Date": as defined in Section 2.9(c).
---------------------------------
"Excluded Foreign Subsidiary": any Foreign Subsidiary in respect of
---------------------------
which either (a) the pledge of all of the Capital Stock of such Subsidiary as
Collateral or (b) the guaranteeing by such Subsidiary of the Obligations, would,
in the good faith judgment of the Borrower, result in adverse tax consequences
to the Borrower.
"Facility": each of the Term Facility and the Revolving Facility.
--------
<PAGE>
10
"Federal Funds Effective Rate": for any day, 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 on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for the day of such transactions received by the Reference Lender
from three federal funds brokers of recognized standing selected by it.
"Foreign Subsidiary": any Subsidiary of the Borrower that is not a
------------------
Domestic Subsidiary.
"Funded Debt": as to any Person, all Indebtedness of such Person that
-----------
matures more than one year from the date of its creation or matures within one
year from such date but is renewable or extendible, at the option of such
Person, to a date more than one year from such date or arises under a revolving
credit or similar agreement that obligates the lender or lenders to extend
credit during a period of more than one year from such date, including all
current maturities and current sinking fund payments in respect of such
Indebtedness whether or not required to be paid within one year from the date of
its creation and, in the case of the Borrower, Indebtedness in respect of the
Loans.
"Funding Office": the office of the Administrative Agent specified in
--------------
Section 10.2 or such other office as may be specified from time to time by the
Administrative Agent as its funding office by written notice to the Borrower and
the Lenders.
"GAAP": generally accepted accounting principles in the United States
----
as in effect from time to time, except that for purposes of Section 7.1, GAAP
shall be determined on the basis of such principles in effect on the date hereof
and consistent with those used in the preparation of the most recent audited
financial statements delivered pursuant to Section 4.1(b). In the event that any
"Accounting Change" (as defined below) shall occur and such change results in a
change in the method of calculation of financial covenants, standards or terms
in this Agreement, then the Borrower and the Administrative Agent agree to enter
into negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating the Borrower's financial condition shall be the same
after such Accounting Changes as if such Accounting Changes had not been made.
Until such time as such an amendment shall have been executed and delivered by
the Borrower, the Administrative Agent and the Required Lenders, all financial
covenants, standards and terms in this Agreement shall continue to be calculated
or construed as if such Accounting Changes had not occurred. "Accounting
Changes" refers to changes in accounting principles required by the promulgation
of any rule, regulation, pronouncement or opinion by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants or, if
applicable, the SEC.
"Governmental Authority": any nation or government, any state or
----------------------
other political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization (including the National Association of Insurance Commissioners).
"Guarantee and Collateral Agreement": the Guarantee and Collateral
----------------------------------
Agreement to be executed and delivered by Holdings, the Borrower and each
Subsidiary Guarantor, substantially in the form of Exhibit A, as the same may be
amended, supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person (including
any bank under any letter of credit) to induce the creation of which the
guaranteeing person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
-------------------
of any other third Person (the "primary obligor") in any
---------------
<PAGE>
11
manner, whether directly or indirectly, including any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
-------- -------
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good faith.
"Guarantors": the collective reference to Holdings and the Subsidiary
----------
Guarantors.
"Hedge Agreements": all interest rate swaps, caps or collar
----------------
agreements or similar arrangements dealing with interest rates or currency
exchange rates or the exchange of nominal interest obligations, either generally
or under specific contingencies.
"Holdings": as defined in the preamble hereto.
--------
"Indebtedness": of any Person at any date, without duplication, (a)
------------
all indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of property or services (other than
current trade payables incurred in the ordinary course of such Person's
business), (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), (e) all Capital Lease Obligations of
such Person, (f) all obligations of such Person, contingent or otherwise, as an
account party under acceptances, letters of credit, surety bonds or similar
arrangements, (g) the liquidation value of all mandatorily redeemable preferred
Capital Stock or such Person that has any mandatory redemption or then required
dividend or payment due and payable (other than in Capital Stock), or that could
become payable, prior to the date that is eight years after the Closing Date,
(h) all Guarantee Obligations of such Person in respect of obligations of the
kind referred to in clauses (a) through (g) above, (i) all obligations of the
kind referred to in clauses (a) through (h) above secured by (or for which the
holder of such obligation has an existing right, contingent or otherwise, to be
secured by) any Lien on property (including accounts and contract rights) owned
by such Person, whether or not such Person has assumed or become liable for the
payment of such obligation, and (j) for the purposes of Sections 7.2 and 8(e)
only, all obligations of such Person in respect of Hedge Agreements. The
Indebtedness of any Person shall include the Indebtedness of any other entity
(including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Person's ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness expressly provide that such Person is not liable
therefor.
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
<PAGE>
12
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including
copyrights, copyright licenses, patents, patent licenses, trademarks, trademark
licenses, technology, know-how and processes, and all rights to sue at law or in
equity for any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom.
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
---------------------
March, June, September and December to occur while such Loan is outstanding and
the final maturity date of such Loan, (b) as to any Eurodollar Loan having an
Interest Period of three months or less, the last day of such Interest Period,
(c) as to any Eurodollar Loan having an Interest Period longer than three
months, each day that is three months, or a whole multiple thereof, after the
first day of such Interest Period and the last day of such Interest Period and
(d) as to any Loan (other than any Revolving Loan that is an ABR Loan), the date
of any repayment or prepayment made in respect thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the
---------------
period commencing on the borrowing or conversion date, as the case may be, with
respect to such Eurodollar Loan and ending one, two, three or six or (if
available to all Lenders under the relevant Facility and permitted under such
Lender's applicable policies with respect thereto) nine or twelve months
thereafter , as selected by the Borrower in its notice of borrowing or notice of
conversion, as the case may be, given with respect thereto; and (b) thereafter,
each period commencing on the last day of the next preceding Interest Period
applicable to such Eurodollar Loan and ending one, two, three or six months
thereafter, as selected by the Borrower by irrevocable notice to the
Administrative Agent not less than three Business Days prior to the last day of
the then current Interest Period with respect thereto; provided that, all of the
--------
foregoing provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(ii) the Borrower may not select an Interest Period under a
particular Facility that would extend beyond the Revolving Termination Date
or beyond the date final payment is due on the Term Loans;
(iii) 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 end on the last Business Day of a calendar month; and
(iv) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an Interest
Period for such Loan.
"Investments": as defined in Section 7.8.
-----------
"Issuing Lender": The Chase Manhattan Bank, in its capacity as issuer
--------------
of any Letter of Credit; provided that the Issuing Lender, may, in its
--------
discretion, arrange for one or more Letters of Credit to be issued by any of its
Affiliates (including without limitation, Chase Manhattan Bank Delaware), in
which case, the term "Issuing Lender" shall include any such Affiliate with
respect to Letters of Credit issued by such Affiliate.
<PAGE>
13
"L/C Commitment": $5,000,000.
--------------
"L/C Fee Payment Date": the last day of each March, June, September
--------------------
and December and the last day of the Revolving Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
---------------
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit that
have not then been reimbursed pursuant to Section 3.5.
"L/C Participants": the collective reference to all the Revolving
----------------
Lenders other than the Issuing Lender.
"Lenders": as defined in the preamble hereto.
-------
"Letters of Credit": as defined in Section 3.1(a).
-----------------
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any conditional sale or
other title retention agreement and any capital lease having substantially the
same economic effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
----
"Loan Documents": this Agreement, the Security Documents and the
--------------
Notes.
"Loan Parties": the Borrower and each Subsidiary of the Borrower that
------------
is a party to a Loan Document.
"Majority Facility Lenders": with respect to any Facility, the
-------------------------
holders of more than 50% of the aggregate unpaid principal amount of the Term
Loans or the Total Revolving Extensions of Credit, as the case may be,
outstanding under such Facility (or, in the case of the Revolving Facility,
prior to any termination of the Revolving Commitments, the holders of more than
50% of the Total Revolving Commitments).
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
Transaction, (b) the business, property, operations, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole or
(c) the validity or enforceability of this Agreement or any of the other Loan
Documents or the rights or remedies of the Administrative Agent or the Lenders
hereunder or thereunder.
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, regulated under any
Environmental Law, including asbestos, polychlorinated biphenyls and urea-
formaldehyde insulation.
"Mortgaged Properties": the real properties listed on Schedule 1.1B,
--------------------
as to which the Administrative Agent for the benefit of the Lenders shall be
granted a Lien pursuant to the Mortgages.
"Mortgages": each of the mortgages and deeds of trust made by any
---------
Loan Party in favor of, or for the benefit of, the Administrative Agent for the
benefit of the Lenders, in form and substance
<PAGE>
14
reasonably satisfactory to the Administrative Agent, as the same may be amended,
supplemented or otherwise modified from time to time.
"Multiemployer Plan": a Plan that is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Asset Sale or any
-----------------
Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents
(including any such proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price adjustment
receivable or otherwise, but only as and when received) of such Asset Sale or
Recovery Event, net of attorneys' fees, accountants' fees, investment banking
fees, broker's fees and commissions, amounts required to be applied to the
repayment of Indebtedness secured by a Lien expressly permitted hereunder on any
asset that is the subject of such Asset Sale or Recovery Event (other than any
Lien pursuant to a Security Document) and other customary fees and expenses
actually incurred in connection therewith and net of taxes paid or reasonably
estimated to be payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements) and (b) in
connection with any issuance or sale of Capital Stock (other than a sale of
Capital Stock constituting an Asset Sale covered by clause (a) above) or any
incurrence of Indebtedness, the cash proceeds received from such issuance or
incurrence, net of attorneys' fees, investment banking fees, accountants' fees,
underwriting discounts and commissions and other customary fees and expenses
actually incurred in connection therewith.
"New Lender": as defined in Section 2.21(d).
----------
"New Lender Supplement": as defined in Section 2.21(d).
---------------------
"Non-Excluded Taxes": as defined in Section 2.17(a).
------------------
"Non-U.S. Lender": as defined in Section 2.17(d).
---------------
"Notes": the collective reference to any promissory note evidencing
-----
Loans.
"Obligations": the unpaid principal of and interest on (including
-----------
interest accruing after the maturity of the Loans and Reimbursement Obligations
and interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Borrower, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) the Loans and all other obligations and
liabilities of the Borrower to the Administrative Agent or to any Lender (or, in
the case of Hedge Agreements, any affiliate of any Lender), whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, any other Loan Document, the Letters of Credit, any Hedge Agreement
entered into with any Lender or any affiliate of any Lender or any other
document made, delivered or given in connection herewith or therewith, whether
on account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses (including all fees, charges and disbursements of counsel to the
Administrative Agent or to any Lender that are required to be paid by the
Borrower pursuant hereto) or otherwise.
"Other Taxes": any and all present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement or any other Loan Document.
"Participant": as defined in Section 10.6(b).
-----------
<PAGE>
15
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
----
to Subtitle A of Title IV of ERISA (or any successor).
"Permitted Acquisition": any acquisition of property or series of
---------------------
related acquisitions of property that (a) constitutes assets comprising all or
substantially all of an operating unit, division, or product line of a business
or constitutes all or substantially all of the common stock of a Person and (b)
is permitted by and consummated in compliance with the requirements of Section
7.8(h).
"Permitted Investors": the collective reference to the Sponsors and
-------------------
their Control Investment Affiliates.
"Person": an individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan that is
----
covered by ERISA and in respect of which the Borrower or a Commonly Controlled
Entity is (or, if such plan were terminated at such time, would under Section
4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of
ERISA.
"Pricing Grid": the pricing grid attached hereto as Annex A.
------------
"Pro Forma Consolidated Balance Sheet": as defined in Section 4.1(a).
------------------------------------
"Pro Forma Consolidated Income Statement": a pro forma consolidated
---------------------------------------
income statement of Holdings for the year ended on December 31, 1998, adjusted
to give effect to the consummation of the Transaction and the financings
contemplated hereby as if such transactions had occurred on such date, and
reflecting a Consolidated EBITDA for such period of at least $42,500,000.
"Projections": as defined in Section 6.2(c).
-----------
"Properties": as defined in Section 4.17(a).
----------
"QDSP": QDSP Holdings, Inc., a Delaware corporation.
----
"Recovery Event": any settlement of or payment in respect of any
--------------
property or casualty insurance claim or any condemnation proceeding relating to
any asset of the Borrower or any of its Subsidiaries.
"Reference Lender": The Chase Manhattan Bank.
----------------
"Refinancing": the refinancing of certain existing Indebtedness of
-----------
the Loan Parties as set forth in Section 5.1(b)(vi).
"Register": as defined in Section 10.6(d).
--------
"Regulation U": Regulation U of the Board as in effect from time to
------------
time.
"Reimbursement Obligation": the obligation of the Borrower to
------------------------
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under
Letters of Credit.
<PAGE>
16
"Reinvestment Deferred Amount": with respect to any Reinvestment
----------------------------
Event, the aggregate Net Cash Proceeds received by Holdings, the Borrower or any
of its Subsidiaries in connection therewith that are not applied to prepay the
Term Loans or reduce the Revolving Commitments pursuant to Section 2.9(b) as a
result of the delivery of a Reinvestment Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of
------------------
which the Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible
-------------------
Officer stating that no Event of Default has occurred and is continuing and that
the Borrower (directly or indirectly through a Subsidiary) intends and expects
to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or
Recovery Event to acquire assets (including capital stock of businesses) useful
in its business.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
------------------------------
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to acquire assets
(including capital stock of businesses) useful in the Borrower's business.
"Reinvestment Prepayment Date": with respect to any Reinvestment
----------------------------
Event, the earlier of (a) the date occurring 270 days after such Reinvestment
Event and (b) the date on which the Borrower shall have determined not to
acquire assets useful in the Borrower's business with all or any portion of the
relevant Reinvestment Deferred Amount.
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.
"Reportable Event": any of the events set forth in Section 4043(c) of
----------------
ERISA, other than those events as to which the thirty day notice period is
waived under PBGC Reg. (S) 4043.
"Required Lenders": at any time, the holders of more than 50% of (a)
----------------
until the Closing Date, the Commitments then in effect and (b) thereafter, the
sum of (i) the aggregate unpaid principal amount of the Term Loans then
outstanding and (ii) the Total Revolving Commitments then in effect or, if the
Revolving Commitments have been terminated, the Total Revolving Extensions of
Credit then outstanding.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer": the chief executive officer, president or chief
-------------------
financial officer of the Borrower, but in any event, with respect to financial
matters, the chief financial officer of the Borrower.
"Restricted Payments": as defined in Section 7.6.
-------------------
"Revolving Commitment": as to any Lender, the obligation of such
--------------------
Lender, if any, to make Revolving Loans and participate in Letters of Credit in
an aggregate principal and/or face amount not to exceed the amount set forth
under the heading "Revolving Commitment" opposite such Lender's name on Schedule
1.1A or in the Assignment and Acceptance pursuant to which such Lender became a
party hereto, as the same may be changed from time to time pursuant to the terms
hereof. The original amount of the Total Revolving Commitments is $150,000,000.
<PAGE>
17
"Revolving Commitment Period": the period from and including the
---------------------------
Closing Date to the Revolving Termination Date.
"Revolving Extensions of Credit": as to any Revolving Lender at any
------------------------------
time, an amount equal to the sum of (a) the aggregate principal amount of all
Revolving Loans held by such Lender then outstanding and (b) such Lender's
Revolving Percentage of the L/C Obligations then outstanding.
"Revolving Facility": the Revolving Commitments and the extensions of
------------------
credit made thereunder.
"Revolving Lender": each Lender that has a Revolving Commitment or
----------------
that holds Revolving Loans.
"Revolving Loans": as defined in Section 2.4(a).
---------------
"Revolving Percentage": as to any Revolving Lender at any time, the
--------------------
percentage which such Lender's Revolving Commitment then constitutes of the
Total Revolving Commitments (or, at any time after the Revolving Commitments
shall have expired or terminated, the percentage which the aggregate principal
amount of such Lender's Revolving Loans then outstanding constitutes of the
aggregate principal amount of the Revolving Loans then outstanding).
"Revolving Termination Date": September 30, 2004.
--------------------------
"SEC": the Securities and Exchange Commission, any successor thereto
---
and any analogous Governmental Authority.
"Security Documents": the collective reference to the Guarantee and
------------------
Collateral Agreement, the Mortgages and all other security documents hereafter
delivered to the Administrative Agent granting a Lien on any property of any
Person to secure the obligations and liabilities of any Loan Party under any
Loan Document.
"Senior Subordinated Note Indenture": the Indenture, dated as of July
----------------------------------
31, 1998, entered into by the Borrower, City Truck and Trailer Parts of Alabama,
Inc., City Truck and Trailer Parts of Alabama, L.L.C., City Truck and Trailer
Parts of Tennessee, Inc., City Friction, Inc. and U.S. Trust Company, National
Association, in connection with the issuance of the Senior Subordinated Notes,
together with all instruments and other agreements entered into by the Borrower
in connection therewith, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with Section 7.16.
"Senior Subordinated Notes": the 12% senior subordinated notes due
-------------------------
2005 of the Borrower issued pursuant to the Senior Subordinated Note Indenture.
"Single Employer Plan": any Plan that is covered by Title IV of ERISA,
--------------------
but that is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of any
-------
date of determination, (a) the amount of the "present fair saleable value" of
the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such
<PAGE>
18
date, an unreasonably small amount of capital with which to conduct its
business, and (d) such Person will be able to pay its debts as they mature. For
purposes of this definition, (i) "dept" means liability on a "claim", and (ii)
"claim" means any (x) right to payment, whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an
equitable remedy for breach of performance if such breach gives rise to a right
to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured
or unsecured.
"Sponsor Contribution": as defined in Section 5.1(b)(iv).
--------------------
"Sponsors": (i) Aurora Capital Group and (ii) Brentwood Associates.
--------
"Subsidiary": as to any Person, a corporation, partnership, limited
----------
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Borrower.
"Subsidiary Guarantor": each Subsidiary of the Borrower that is a
--------------------
party to the Guarantee and Collateral Agreement as a guarantor thereunder
without any limitations applicable to it that are not applicable to all the
other guarantors thereunder.
"Term Facility": the Term Loan Commitments and the Term Loans made
-------------
thereunder.
"Term Lender": each Lender that has a Term Loan Commitment or is the
-----------
holder of a Term Loan.
"Term Loan": as defined in Section 2.1.
---------
"Term Loan Commitment": as to any Lender, the obligation of such
--------------------
Lender, if any, to make a Term Loan to the Borrower hereunder in a principal
amount not to exceed the amount set forth under the heading "Term Loan
Commitment" opposite such Lender's name on Schedule 1.1A. The original aggregate
amount of the Term Loan Commitments is $75,000,000.
"Term Loan Maturity Date": September 30, 2004
-----------------------
"Term Percentage": as to any Term Lender at any time, the percentage
---------------
which such Lender's Term Loan Commitment then constitutes of the aggregate Term
Loan Commitments (or, at any time after the Closing Date, the percentage which
the principal amount of such Lender's Term Loan then outstanding constitutes of
the aggregate principal amount of the Term Loans then outstanding).
"Total Revolving Commitments": at any time, the aggregate amount of
---------------------------
the Revolving Commitments then in effect.
"Total Revolving Extensions of Credit": at any time, the aggregate
------------------------------------
amount of the Revolving Extensions of Credit of the Revolving Lenders
outstanding at such time.
"Transactions": collectively, the Acquisition, the Equity Investment,
------------
the Sponsor Contribution, the Refinancing and the transactions related thereto.
<PAGE>
19
"Transferee": any Assignee or Participant.
----------
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
----
Loan.
"United States": the United States of America.
-------------
"Wholly Owned Subsidiary": as to any Person, any other Person all of
-----------------------
the Capital Stock of which (other than directors' qualifying shares required by
law) is owned by such Person directly and/or through other Wholly Owned
Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is
---------------------------------
a Wholly Owned Subsidiary of the Borrower.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto, (i)
accounting terms relating to Holdings, the Borrower and its Subsidiaries not
defined in Section 1.1 and accounting terms partly defined in Section 1.1, to
the extent not defined, shall have the respective meanings given to them under
GAAP, (ii) the words "include", "includes" and "including" shall be deemed to be
followed by the phrase "without limitation", (iii) the word "incur" shall be
construed to mean incur, create, issue, assume, become liable in respect of or
suffer to exist (and the words "incurred" and "incurrence" shall have
correlative meanings), and (iv) the words "asset" and "property" shall be
construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, Capital Stock,
securities, revenues, accounts, leasehold interests and contract rights.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Term Loan Commitments. Subject to the terms and conditions
hereof, each Term Lender severally agrees to make a term loan (a "Term Loan") to
---------
the Borrower on the Closing Date in an amount not to exceed the amount of the
Term Loan Commitment of such Lender. The Term Loans may from time to time be
Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to the
Administrative Agent in accordance with Sections 2.2 and 2.10.
2.2 Procedure for Term Loan Borrowing. The Borrower shall give the
---------------------------------
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 10:00 A.M., New York City time, one Business Day
prior to the anticipated Closing Date) requesting that the Term Lenders make the
Term Loans on the Closing Date and specifying the amount to be borrowed. The
Term Loans made on the Closing Date shall initially be ABR Loans. Upon receipt
of such notice the Administrative Agent shall promptly notify each Term Lender
thereof. Not later than 12:00 Noon, New York City time, on the Closing Date each
Term Lender shall make available to the Administrative Agent
<PAGE>
20
at the Funding Office an amount in immediately available funds equal to the Term
Loan to be made by such Lender. The Administrative Agent shall credit the
account of the Borrower on the books of such office of the Administrative Agent
with the aggregate of the amounts made available to the Administrative Agent by
the Term Lenders in immediately available funds.
2.3 Repayment of Term Loans. (a) The Term Loan of each Term Lender
-----------------------
shall mature in consecutive quarterly installments, commencing on December 31,
1999, in an aggregate amount for each installment equal to such Lender's Term
Percentage multiplied by the amount set forth below opposite the due date of
such installment set forth below:
Installment Principal Amount
----------- ----------------
December 31, 1999 $250,000
March 31, 2000 250,000
June 30, 2000 250,000
September 30, 2000 250,000
December 31, 2000 250,000
March 31, 2001 250,000
June 30, 2001 250,000
September 30, 2001 250,000
December 31, 2001 250,000
March 31, 2002 250,000
June 30, 2002 250,000
September 30, 2002 250,000
December 31, 2002 250,000
March 31, 2003 250,000
June 30, 2003 250,000
September 30, 2003 250,000
December 31, 2003 250,000
March 31, 2004 250,000
June 30, 2004 250,000
September 30, 2004 70,250,000
2.4 Revolving Commitments. (a) Subject to the terms and conditions
---------------------
hereof, each Revolving Lender severally agrees to make revolving credit loans
("Revolving Loans") to the Borrower from time to time during the Revolving
---------------
Commitment Period in an aggregate principal amount at any one time outstanding
which, when added to such Lender's Revolving Percentage of the L/C Obligations
then outstanding, does not exceed the amount of such Lender's Revolving
Commitment. During the Revolving Commitment Period the Borrower may use the
Revolving Commitments by borrowing, prepaying the Revolving Loans in whole or in
part, and reborrowing, all in accordance with the terms and conditions hereof.
The Revolving Loans may from time to time be Eurodollar Loans or ABR Loans, as
determined by the Borrower and notified to the Administrative Agent in
accordance with Sections 2.5 and 2.10.
(b) The Borrower shall repay all outstanding Revolving Loans on the
Revolving Termination Date.
2.5 Procedure for Revolving Loan Borrowing. The Borrower may borrow
--------------------------------------
under the Revolving Commitments during the Revolving Commitment Period on any
Business Day, provided that the Borrower shall give the Administrative Agent
--------
irrevocable notice (which notice must be received by the Administrative Agent
prior to 12:00 Noon, New York City time, (a) three Business Days prior to the
requested Borrowing Date, in the case of Eurodollar Loans, or (b) one Business
Day prior to the
<PAGE>
21
requested Borrowing Date, in the case of ABR Loans), specifying (i) the amount
and Type of Revolving Loans to be borrowed, (ii) the requested Borrowing Date
and (iii) in the case of Eurodollar Loans, the respective amounts of each such
Type of Loan and the respective lengths of the initial Interest Period therefor.
Any Revolving Loans made on the Closing Date shall initially be ABR Loans. Each
borrowing under the Revolving Commitments shall be in an amount equal to (x) in
the case of ABR Loans, $1,000,000 or a whole multiple thereof (or, if the then
aggregate Available Revolving Commitments are less than $1,000,000, such lesser
amount) and (y) in the case of Eurodollar Loans, $5,000,000 or a whole multiple
of $1,000,000 in excess thereof. Upon receipt of any such notice from the
Borrower, the Administrative Agent shall promptly notify each Revolving Lender
thereof. Each Revolving Lender will make the amount of its pro rata share of
--- ----
each borrowing available to the Administrative Agent for the account of the
Borrower at the Funding Office prior to 12:00 Noon, New York City time, on the
Borrowing Date requested by the Borrower in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the Borrower
by the Administrative Agent crediting the account of the Borrower on the books
of such office with the aggregate of the amounts made available to the
Administrative Agent by the Revolving Lenders and in like funds as received by
the Administrative Agent. Notwithstanding the foregoing, not more than
$52,100,000 of Revolving Extensions of Credit may be outstanding on the Closing
Date.
2.6 Commitment Fees, etc. (a) The Borrower agrees to pay to the
--------------------
Administrative Agent for the account of each Revolving Lender a commitment fee
for the period from and including the Closing Date to the last day of the
Revolving Commitment Period, computed at the Commitment Fee Rate on the average
daily amount of the Available Revolving Commitment of such Lender during the
period for which payment is made, payable quarterly in arrears on the last day
of each March, June, September and December and on the Revolving Termination
Date, commencing on the first of such dates to occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent the fees
in the amounts and on the dates previously agreed to in writing by the Borrower
and the Administrative Agent.
2.7 Termination or Reduction of Revolving Commitments. The Borrower
-------------------------------------------------
shall have the right, upon not less than three Business Days' notice to the
Administrative Agent, to terminate the Revolving Commitments or, from time to
time, to reduce the amount of the Revolving Commitments; provided that no such
--------
termination or reduction of Revolving Commitments shall be permitted if, after
giving effect thereto and to any prepayments of the Revolving Loans made on the
effective date thereof, the Total Revolving Extensions of Credit would exceed
the Total Revolving Commitments. Any such reduction shall be in an amount equal
to $1,000,000, or a whole multiple thereof, and shall reduce permanently the
Revolving Commitments then in effect.
2.8 Optional Prepayments. (a) The Borrower may at any time and from
--------------------
time to time prepay the Loans, in whole or in part, without premium or penalty,
upon irrevocable notice delivered to the Administrative Agent at least three
Business Days prior thereto in the case of Eurodollar Loans and at least one
Business Day prior thereto in the case of ABR Loans, which notice shall specify
the date and amount of prepayment and whether the prepayment is of Eurodollar
Loans or ABR Loans; provided, that if a Eurodollar Loan is prepaid on any day
--------
other than the last day of the Interest Period applicable thereto, the Borrower
shall also pay any amounts owing pursuant to Section 2.18.
(b) Upon receipt of any such notice the Administrative Agent shall
promptly notify each relevant Lender thereof. If any such notice is given, the
amount specified in such notice shall be due and payable on the date specified
therein, together with (except in the case of Revolving Loans that are ABR
Loans) accrued interest to such date on the amount prepaid.
<PAGE>
22
(c) Partial prepayments of Term Loans and Revolving Loans shall be in
an aggregate principal amount of $1,000,000 or a whole multiple thereof.
2.9 Mandatory Prepayments and Commitment Reductions. (a) If any
-----------------------------------------------
Capital Stock or Indebtedness shall be issued or incurred by Holdings, the
Borrower or any of its Subsidiaries (excluding (i) any Capital Stock issued by
any Subsidiary to the Borrower or another Subsidiary, (ii) any Capital Stock
issued by Holdings to its or any of its Subsidiaries' employees or directors or
to a seller of property pursuant to a Permitted Acquisition and (iii) any
Indebtedness incurred in accordance with Section 7.2), an amount equal to 100%
of the Net Cash Proceeds thereof shall be applied on the date of such issuance
or incurrence toward the prepayment of the Term Loans and the reduction of the
Revolving Commitments as set forth in Section 2.9(d).
(b) If on any date Holdings, the Borrower or any of its Subsidiaries
shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then,
unless a Reinvestment Notice shall be delivered in respect thereof, such Net
Cash Proceeds shall be applied on such date toward the prepayment of the Term
Loans and the reduction of the Revolving Commitments as set forth in Section
2.9(d); provided, that, notwithstanding the foregoing, on each Reinvestment
--------
Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with
respect to the relevant Reinvestment Event shall be applied toward the
prepayment of the Term Loans and the reduction of the Revolving Commitments as
set forth in Section 2.9(d).
(c) If, for any fiscal year of the Borrower commencing with the
fiscal year ending December 31, 1999 (but including, for the purposes hereof,
only the period from the Closing Date through December 31, 1999 in determining
Excess Cash Flow for such fiscal year), there shall be Excess Cash Flow, the
Borrower shall, on the relevant Excess Cash Flow Application Date, apply the ECF
Percentage of such Excess Cash Flow toward the prepayment of the Term Loans and
the reduction of the Revolving Commitments as set forth in Section 2.9(d). Each
such prepayment and commitment reduction shall be made on a date (an "Excess
------
Cash Flow Application Date") no later than five days after the earlier of (i)
- --------------------------
the date on which the financial statements of the Borrower referred to in
Section 6.1(a), for the fiscal year with respect to which such prepayment is
made, are required to be delivered to the Lenders and (ii) the date such
financial statements are actually delivered.
(d) Amounts to be applied in connection with prepayments and
Commitment reductions made pursuant to Section 2.9 shall be applied, first, to
the prepayment of the Term Loans and, second, to reduce permanently the
Revolving Commitments. Any such reduction of the Revolving Commitments shall be
accompanied by prepayment of the Revolving Loans to the extent, if any, that the
Total Revolving Extensions of Credit exceed the amount of the Total Revolving
Commitments as so reduced, provided that if the aggregate principal amount of
--------
Revolving Loans then outstanding is less than the amount of such excess (because
L/C Obligations constitute a portion thereof), the Borrower shall, to the extent
of the balance of such excess, replace outstanding Letters of Credit and/or
deposit an amount in cash in a cash collateral account established with the
Administrative Agent for the benefit of the Lenders on terms and conditions
satisfactory to the Administrative Agent. The application of any prepayment
pursuant to Section 2.9 shall be made, first, to ABR Loans and, second, to
----- ------
Eurodollar Loans. Each prepayment of the Loans under Section 2.9 (except in the
case of Revolving Loans that are ABR Loans) shall be accompanied by accrued
interest to the date of such prepayment on the amount prepaid.
2.10 Conversion and Continuation Options. (a) The Borrower may elect
-----------------------------------
from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may only be
--------
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert ABR Loans to Eurodollar Loans by giving
the Administrative Agent at least three Business Days' prior irrevocable notice
of such election (which notice shall specify the length of
<PAGE>
23
the initial Interest Period therefor), provided that no ABR Loan under a
--------
particular Facility may be converted into a Eurodollar Loan when any Event of
Default has occurred and is continuing and the Administrative Agent or the
Majority Facility Lenders in respect of such Facility have determined in its or
their sole discretion not to permit such conversions. Upon receipt of any such
notice the Administrative Agent shall promptly notify each relevant Lender
thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
--------
that no Eurodollar Loan under a particular Facility may be continued as such
when any Event of Default has occurred and is continuing and the Administrative
Agent has or the Majority Facility Lenders in respect of such Facility have
determined in its or their sole discretion not to permit such continuations, and
provided, further, that if the Borrower shall fail to give any required notice
- -------- -------
as described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
ABR Loans on the last day of such then expiring Interest Period. Upon receipt of
any such notice the Administrative Agent shall promptly notify each relevant
Lender thereof.
2.11 Limitations on Eurodollar Tranches. Notwithstanding anything to
----------------------------------
the contrary in this Agreement, all borrowings, conversions and continuations of
Eurodollar Loans hereunder and all selections of Interest Periods hereunder
shall be in such amounts and be made pursuant to such elections so that, (a)
after giving effect thereto, the aggregate principal amount of the Eurodollar
Loans comprising each Eurodollar Tranche shall be equal to $1,000,000 or a whole
multiple of $500,000 in excess thereof and (b) no more than twelve Eurodollar
Tranches shall be outstanding at any one time.
2.12 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall
--------------------------------
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to
the ABR plus the Applicable Margin.
(c) (i) If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum equal to (x) in the case of the Loans, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
Section plus 2% or (y) in the case of Reimbursement Obligations, the rate
----
applicable to ABR Loans under the Revolving Facility plus 2%, and (ii) if all or
----
a portion of any interest payable on any Loan or Reimbursement Obligation or any
commitment fee or other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to the rate then applicable
to ABR Loans under the relevant Facility plus 2% (or, in the case of any such
----
other amounts that do not relate to a particular Facility, the rate then
applicable to ABR Loans under the Revolving Facility plus 2%), in each case,
----
with respect to clauses (i) and (ii) above, from the date of such non-payment
until such amount is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
--------
shall be payable from time to time on demand.
2.13 Computation of Interest and Fees. (a) Interest and fees payable
--------------------------------
pursuant hereto shall be calculated on the basis of a 360-day year for the
actual days elapsed, except that, with respect to ABR Loans the rate of interest
on which is calculated on the basis of the Prime Rate, the interest thereon
<PAGE>
24
shall be calculated on the basis of a 365- (or 366-, as the case may be) day
year for the actual days elapsed. The Administrative Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of each determination
of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the ABR or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Borrower and the relevant Lenders of the effective date and the amount of each
such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.12(a).
2.14 Inability to Determine Interest Rate. If prior to the first day
------------------------------------
of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Administrative Agent shall have received notice from the
Majority Facility Lenders in respect of the relevant Facility that the
Eurodollar Rate determined or to be determined for such Interest Period
will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans under the relevant Facility requested
to be made on the first day of such Interest Period shall be made as ABR Loans,
(y) any Loans under the relevant Facility that were to have been converted on
the first day of such Interest Period to Eurodollar Loans shall be continued as
ABR Loans and (z) any outstanding Eurodollar Loans under the relevant Facility
shall be converted, on the last day of the then-current Interest Period, to ABR
Loans. Until such notice has been withdrawn by the Administrative Agent, no
further Eurodollar Loans under the relevant Facility shall be made or continued
as such, nor shall the Borrower have the right to convert Loans under the
relevant Facility to Eurodollar Loans.
2.15 Pro Rata Treatment and Payments. (a) Each borrowing by the
-------------------------------
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Commitments of the Lenders shall be
made pro rata according to the respective Term Percentages or Revolving
--- ----
Percentages, as the case may be, of the relevant Lenders.
(b) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Term Loans shall be made pro rata
--- ----
according to the respective outstanding principal amounts of the Term Loans then
held by the Term Lenders. The amount of each principal prepayment of the Term
Loans shall be applied to reduce the then remaining installments of the Term
Loans pro rata based upon the then remaining principal amount thereof. Amounts
--- ----
prepaid on account of the Term Loans may not be reborrowed.
(c) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the Revolving Loans shall be made pro
---
rata according to the respective outstanding principal amounts of the Revolving
- ----
Loans then held by the Revolving Lenders.
<PAGE>
25
(d) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Funding Office, in Dollars and in immediately
available funds. The Administrative Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day. In the case of
any extension of any payment of principal pursuant to the preceding two
sentences, interest thereon shall be payable at the then applicable rate during
such extension.
(e) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this paragraph shall be conclusive in the
absence of manifest error. If such Lender's share of such borrowing is not made
available to the Administrative Agent by such Lender within three Business Days
of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
ABR Loans under the relevant Facility, on demand, from the Borrower.
(f) Unless the Administrative Agent shall have been notified in
writing by the Borrower prior to the date of any payment being made hereunder
that the Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
--- ----
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.16 Requirements of Law. (a) If the adoption of or any change in any
-------------------
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Letter of Credit, any Application or
any Eurodollar Loan made by it, or change the basis of taxation of payments
to such Lender in respect thereof (except for Non-Excluded Taxes covered by
Section 2.17 and changes in the rate of tax on the overall net income of
such Lender);
<PAGE>
26
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, any
office of such Lender that is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount that such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit, or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay such Lender,
upon its demand, any additional amounts necessary to compensate such Lender for
such increased cost or reduced amount receivable. If any Lender becomes entitled
to claim any additional amounts pursuant to this paragraph, it shall promptly
notify the Borrower (with a copy to the Administrative Agent) of the event by
reason of which it has become so entitled.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under or in respect of any Letter of
Credit to a level below that which such Lender or such corporation could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy)
by an amount deemed by such Lender to be material, then from time to time, after
submission by such Lender to the Borrower (with a copy to the Administrative
Agent) of a written request therefor, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such reduction;
provided that the Borrower shall not be required to compensate a Lender pursuant
- --------
to this paragraph for any amounts incurred more than six months prior to the
date that such Lender notifies the Borrower of such Lender's intention to claim
compensation therefor; and provided further that, if the circumstances giving
-------- -------
rise to such claim have a retroactive effect to a period prior to when the
Lender acquired knowledge of such circumstances, then such six-month period
shall be extended to include the period of such retroactive effect.
(c) A certificate as to any additional amounts payable pursuant to
this Section submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.17 Taxes. (a) All payments made by the Borrower under this Agreement
-----
shall be made free and clear of, and without deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority, excluding
net income taxes and franchise taxes (imposed in lieu of net income taxes)
imposed on the Administrative Agent or any Lender as a result of a present or
former connection between the Administrative Agent or such Lender and the
jurisdiction of the Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising solely from the Administrative Agent or such Lender having
executed, delivered or performed its obligations or received a payment under, or
enforced, this Agreement or any other Loan Document). If any such non-excluded
taxes, levies, imposts, duties, charges, fees, deductions or withholdings
("Non-Excluded Taxes") or Other Taxes are required to be withheld from any
------------------
amounts payable to the Administrative Agent or any
<PAGE>
27
Lender hereunder, the amounts so payable to the Administrative Agent or such
Lender shall be increased to the extent necessary to yield to the Administrative
Agent or such Lender (after payment of all Non-Excluded Taxes and Other Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Agreement, provided, however, that the Borrower shall
-------- -------
not be required to increase any such amounts payable to any Lender with respect
to any Non-Excluded (i) that are attributable to such Lender'requirements of
paragraph (d) or (e) of this Section or (ii) that are United States withholding
taxes imposed on amounts payable to such Lender at the time the Lender becomes a
party to this Agreement, except to the extent that such Lender's assignor (if
any) was entitled, at the time of assignment, to receive additional amounts from
the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph.
(b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for its own account or for the account of the relevant
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to pay
any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure.
(d) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
---------------
deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a statement substantially in the form of
Exhibit G and a Form W-8, or any subsequent versions thereof or successors
thereto, properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for such purpose). Notwithstanding any
other provision of this paragraph, a Non-U.S. Lender shall not be required to
deliver any form pursuant to this paragraph that such Non-U.S. Lender is not
legally able to deliver.
(e) A Lender that is entitled to an exemption from or reduction of
non-U.S. withholding tax under the law of the jurisdiction in which the Borrower
is located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law or
reasonably requested by the Borrower, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be
made without withholding or at a reduced rate, provided that such Lender is
--------
legally entitled to complete, execute and deliver such documentation and in
<PAGE>
28
such Lender's judgment such completion, execution or submission would not
materially prejudice the legal position of such Lender.
(f) The agreements in this Section shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder.
2.18 Indemnity. The Borrower agrees to indemnify each Lender and to
---------
hold each Lender harmless from any loss or expense that such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment of or conversion
from Eurodollar Loans after the Borrower has given a notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day that is not the last day of an Interest
Period with respect thereto. Such indemnification may include an amount equal to
the excess, if any, of (i) the amount of interest that would have accrued on the
amount so prepaid, or not so borrowed, converted or continued, for the period
from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of such Interest Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Loans provided for herein (excluding, however, the Applicable Margin
included therein, if any) over (ii) the amount of interest (as reasonably
----
determined by such Lender) that would have accrued to such Lender on such amount
by placing such amount on deposit for a comparable period with leading banks in
the interbank eurodollar market. A certificate as to any amounts payable
pursuant to this Section submitted to the Borrower by any Lender shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.19 Change of Lending Office. Each Lender agrees that, upon the
------------------------
occurrence of any event giving rise to the operation of Section 2.16 or 2.17(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided, that such
--------
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section shall affect
-------- -------
or postpone any of the obligations of any Borrower or the rights of any Lender
pursuant to Section 2.16 or 2.17(a).
2.20 Replacement of Lenders. The Borrower shall be permitted to
----------------------
replace any Lender that (a) requests reimbursement for amounts owing pursuant to
Section 2.16 or 2.17(a) or (b) defaults in its obligation to make Loans
hereunder, with a replacement financial institution; provided that (i) such
--------
replacement does not conflict with any Requirement of Law, (ii) no Event of
Default shall have occurred and be continuing at the time of such replacement,
(iii) prior to any such replacement, such Lender shall have taken no action
under Section 2.19 so as to eliminate the continued need for payment of amounts
owing pursuant to Section 2.16 or 2.17(a), (iv) the replacement financial
institution shall purchase, at par, all Loans and other amounts owing to such
replaced Lender on or prior to the date of replacement, (v) the Borrower shall
be liable to such replaced Lender under Section 2.18 if any Eurodollar Loan
owing to such replaced Lender shall be purchased other than on the last day of
the Interest Period relating thereto, (vi) the replacement financial
institution, if not already a Lender, shall be reasonably satisfactory to the
Administrative Agent, (vii) the replaced Lender shall be obligated to make such
replacement in accordance with the provisions of Section 10.6 (provided that the
Borrower shall be obligated to pay the registration and processing fee referred
to therein), (viii) until such time as such replacement shall be consummated,
the Borrower shall pay all additional amounts (if any) required pursuant to
Section 2.16 or 2.17(a), as the case may be, and (ix) any such replacement shall
not be deemed to be a waiver of any
<PAGE>
29
rights that the Borrower, the Administrative Agent or any other Lender shall
have against the replaced Lender.
2.21 Increase in Revolving Commitments or Term Loans. (a) The Borrower
-----------------------------------------------
may, with notice to the Administrative Agent but without the consent of the
Required Lenders, (a) from time to time during the Revolving Commitment Period,
request that the Revolving Commitments be increased, or (b) from time to time
prior to the Termination Date, request to borrow additional Term Loans; provided
--------
that the sum of incremental Revolving Commitments and additional Term Loans
obtained pursuant to this Section shall not exceed $50,000,000 and shall, in
each case, aggregate at least $5,000,000 per requested increase. Upon receipt of
such notice, the Administrative Agent will seek the agreement of one or more
Lenders (including New Lenders) to increase or, in the case of New Lenders,
make, its or their Revolving Commitment or make additional Term Loans, as
applicable, in an aggregate amount equal to the amount so requested by the
Borrower.
(b) If one or more of the Lenders (including New Lenders) shall have
agreed to increase its or their existing Revolving Commitment or, in the case of
New Lenders, agree to a Revolving Commitment, or to make a Term Loan, in each
case pursuant to a request made as described in the foregoing clause (a) (it
being understood that no Lender shall have any obligation to increase its
Revolving Commitment or make such additional Term Loan), such increases in
Revolving Commitments shall become effective, and such Term Loans shall be made
available to the Borrower, on a date mutually agreed upon among the
Administrative Agent, the Borrower and the Lenders providing such increase
and/or such new Revolving Commitments or Term Loans and shall be implemented
pursuant to documentation consistent herewith and otherwise in form and
substance reasonably satisfactory to the Administrative Agent, providing, among
other things, (x) for adjustments to cause the Loans of each Lender to
correspond to their respective percentage of the applicable facility after
giving effect to such increase (including, without limitation, by providing for
prepaying and reborrowing all then outstanding Loans) and (y) that the
conditions set forth in Section 5.2 are required to be satisfied prior to the
effectiveness of any such increase in the Revolving Commitment or the
availability of any such additional Term Loan.
(c) Revolving Loans, Revolving Commitments and Term Loans made or
agreed to pursuant to this Section shall have the same maturities, proportional
installments, interest and fee rates and other terms as the other Revolving
Loans, Revolving Commitments and/or Term Loans hereunder, as applicable, and
shall for all purposes be deemed to be Revolving Loans, Revolving Commitments
and/or Term Loans hereunder, as the case may be.
(d) Any bank, financial institution or other entity which, with the
consent of the Borrower and the Administrative Agent (which consent shall not be
unreasonably withheld), elects to become a "Lender" under this Agreement
pursuant to this Section shall execute a New Lender Supplement (each, a "New
---
Lender Supplement") substantially in the form of Exhibit H, whereupon such bank,
- -----------------
financial institution or other entity (a "New Lender") shall become a Revolving
----------
Lender or Term Lender, as the case may be, for all purposes and to the same
extent as if originally a party hereto and shall be bound by and entitled to the
benefits of this Agreement.
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions hereof,
--------------
the Issuing Lender, in reliance on the agreements of the other Revolving Lenders
set forth in Section 3.4(a), agrees to issue letters of credit ("Letters of
----------
Credit") for the account of the Borrower on any Business Day during the
- ------
Revolving Commitment Period in such form as may be approved from time to time by
the Issuing Lender; provided that the Issuing Lender shall have no obligation to
issue any Letter of Credit if, after
<PAGE>
30
giving effect to such issuance, (i) the L/C Obligations would exceed the L/C
Commitment or (ii) the aggregate amount of the Available Revolving Commitments
would be less than zero. Each Letter of Credit shall (i) be denominated in
Dollars, (ii) have a face amount of at least $50,000 (unless otherwise agreed by
the Issuing Lender) and (iii) expire no later than the earlier of (x) the first
anniversary of its date of issuance and (y) the date that is five Business Days
prior to the Revolving Termination Date, provided that any Letter of Credit with
a one-year term may provide for the renewal thereof for additional one-year
-------
periods (which shall in no event extend beyond the date referred to in clause
(y) above).
(b) The Issuing Lender shall not at any time be obligated to issue
any Letter of Credit hereunder if such issuance would conflict with, or cause
the Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
3.2 Procedure for Issuance of Letter of Credit. The Borrower may from
------------------------------------------
time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at its address for notices specified herein an
Application therefor, completed to the satisfaction of the Issuing Lender, and
such other certificates, documents and other papers and information as the
Issuing Lender may request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Administrative Agent, which shall
in turn promptly furnish to the Lenders, notice of the issuance of each Letter
of Credit (including the amount thereof).
3.3 Fees and Other Charges. (a) The Borrower will pay a fee on all
----------------------
outstanding Letters of Credit at a per annum rate equal to the Applicable Margin
then in effect with respect to Eurodollar Loans under the Revolving Facility,
shared ratably among the Revolving Lenders and payable quarterly in arrears on
each L/C Fee Payment Date after the issuance date. In addition, the Borrower
shall pay to the Issuing Lender for its own account a fronting fee of 0.25% per
annum on the undrawn and unexpired amount of each Letter of Credit, payable
quarterly in arrears on each L/C Fee Payment Date after the Issuance Date.
(b) In addition to the foregoing fees, the Borrower shall pay or
reimburse the Issuing Lender for such normal and customary costs and expenses as
are incurred or charged by the Issuing Lender in issuing, negotiating, effecting
payment under, amending or otherwise administering any Letter of Credit.
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees to
------------------
grant and hereby grants to each L/C Participant, and, to induce the Issuing
Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and purchases from the Issuing
Lender, on the terms and conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided interest equal to such L/C
Participant's Revolving Percentage in the Issuing Lender's obligations and
rights under each Letter of Credit issued hereunder and the amount of each draft
paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and
irrevocably agrees with the Issuing Lender that, if a draft is paid under any
Letter of Credit for which the Issuing Lender is not reimbursed in full by the
Borrower in accordance with the terms of this Agreement, such L/C Participant
shall pay to the Issuing Lender upon demand at the Issuing Lender's address for
notices
<PAGE>
31
specified herein an amount equal to such L/C Participant's Revolving Percentage
of the amount of such draft, or any part thereof, that is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing Lender under any Letter of Credit is paid to
the Issuing Lender within three Business Days after the date such payment is
due, such L/C Participant shall pay to the Issuing Lender on demand an amount
equal to the product of (i) such amount, times (ii) the daily average Federal
Funds Effective Rate during the period from and including the date such payment
is required to the date on which such payment is immediately available to the
Issuing Lender, times (iii) a fraction the numerator of which is the number of
days that elapse during such period and the denominator of which is 360. If any
such amount required to be paid by any L/C Participant pursuant to Section
3.4(a) is not made available to the Issuing Lender by such L/C Participant
within three Business Days after the date such payment is due, the Issuing
Lender shall be entitled to recover from such L/C Participant, on demand, such
amount with interest thereon calculated from such due date at the rate per annum
applicable to ABR Loans under the Revolving Facility. A certificate of the
Issuing Lender submitted to any L/C Participant with respect to any amounts
owing under this Section shall be conclusive in the absence of manifest error.
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any L/C Participant its pro
---
rata share of such payment in accordance with Section 3.4(a), the Issuing Lender
- ----
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Lender), or any payment of interest on account thereof, the Issuing
Lender will distribute to such L/C Participant its pro rata share thereof;
--- ----
provided, however, that in the event that any such payment received by the
- -------- -------
Issuing Lender shall be required to be returned by the Issuing Lender, such L/C
Participant shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to
----------------------------------------
reimburse the Issuing Lender on each date on which the Issuing Lender notifies
the Borrower of the date and amount of a draft presented under any Letter of
Credit and paid by the Issuing Lender for the amount of (a) such draft so paid
and (b) any taxes, fees, charges or other costs or expenses incurred by the
Issuing Lender in connection with such payment. Each such payment shall be made
to the Issuing Lender at its address for notices specified herein in lawful
money of the United States and in immediately available funds. Interest shall be
payable on any and all amounts remaining unpaid by the Borrower under this
Section from the date such amounts become payable (whether at stated maturity,
by acceleration or otherwise) until payment in full at the rate set forth in (i)
until the second Business Day following the date of the applicable drawing,
Section 2.12(b) and (ii) thereafter, Section 2.12(c).
3.6 Obligations Absolute. The Borrower's obligations under this
--------------------
Section 3 shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment that the
Borrower may have or have had against the Issuing Lender, any beneficiary of a
Letter of Credit or any other Person. The Borrower also agrees with the Issuing
Lender that the Issuing Lender shall not be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even though such documents shall in fact prove to be invalid,
fraudulent or forged, or any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party to which such Letter of
Credit may be transferred or any claims whatsoever of the Borrower against any
beneficiary of such Letter of Credit or any such transferee. The Issuing Lender
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions found by a final and nonappealable decision of a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the Issuing Lender. The Borrower agrees
- ---- -----
<PAGE>
32
that any action taken or omitted by the Issuing Lender under or in connection
with any Letter of Credit or the related drafts or documents, if done in the
absence of gross negligence or willful misconduct and in accordance with the
standards of care specified in the Uniform Commercial Code of the State of New
York, shall be binding on the Borrower and shall not result in any liability of
the Issuing Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for
-------------------------
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower of the date and amount thereof. The responsibility of the Issuing
Lender to the Borrower in connection with any draft presented for payment under
any Letter of Credit shall, in addition to any payment obligation expressly
provided for in such Letter of Credit, be limited to determining that the
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
3.8 Applications. To the extent that any provision of any Application
------------
related to any Letter of Credit is inconsistent with the provisions of this
Section 3, the provisions of this Section 3 shall apply.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, Holdings and the Borrower hereby jointly and severally represent and
warrant to the Administrative Agent and each Lender that:
4.1 Financial Condition. (a) The unaudited pro forma consolidated
------------------- --- -----
balance sheet of the Borrower and its consolidated Subsidiaries as at December
31, 1998 (including the notes thereto) (the "Pro Forma Balance Sheet"), copies
-----------------------
of which have heretofore been furnished to each Lender, has been prepared giving
effect (as if such events had occurred on such date) to the consummation of the
Transaction and the financings contemplated hereby. The Pro Forma Balance Sheet
has been prepared based on good faith assumptions and on the best information
available to the Borrower as of the date of delivery thereof, and reflects on a
pro forma basis the estimated financial position of Borrower and its
- --- -----
consolidated Subsidiaries as at December 31, 1998, assuming that the events
specified in the preceding sentence had actually occurred at such date.
(b) The audited consolidated balance sheets of the Borrower as at
December 31, 1998, and December 31, 1997, and the related consolidated
statements of income and of cash flows for the fiscal years ended on such dates,
reported on by and accompanied by an unqualified report from Pricewaterhouse
Coopers LLP, present fairly the consolidated financial condition of the Borrower
as at such date, and the consolidated results of its operations and its
consolidated cash flows for the respective fiscal years then ended. The audited
consolidated balance sheets of QDSP as at December 31, 1998, and the related
consolidated statements of income and of cash flows for the period from July 28,
1998 to December 31, 1998, reported on by and accompanied by an unqualified
report from Ernst & Young LLP, present fairly the consolidated financial
condition of QDSP as at such date, and the consolidated results of its
operations and its consolidated cash flows for such period then ended. The
unaudited consolidated balance sheet of the Borrower and QDSP, respectively, as
at June 30, 1999, and the related unaudited consolidated statements of income
and cash flows for the three-month period ended on such date, present fairly the
consolidated financial condition of the Borrower and QDSP, respectively, as at
such date, and the consolidated results of its operations and its consolidated
cash flows for the three-month period then ended (subject to normal year-end
audit adjustments). All such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by the
aforementioned firm of accountants and
<PAGE>
33
disclosed therein and except for the absence of notes in the June 30, 1999
financial statements). As of the date hereof Holdings, the Borrower and its
Subsidiaries do not have any material Guarantee Obligations, contingent
liabilities and liabilities for taxes, or any long-term leases or unusual
forward or long-term commitments, including any interest rate or foreign
currency swap or exchange transaction or other obligation in respect of
derivatives, that are not reflected in the most recent financial statements
referred to in this paragraph. During the period from December 31, 1998 to and
including the date hereof there has been no Disposition by the Borrower or QDSP
of any material part of its business or property.
(c) The balance sheets, and the related consolidated statements of
income and of cash flows, delivered pursuant to Section 6.1, present fairly the
consolidated financial condition as at the date of such financial statements,
and the consolidated results of its operations and its consolidated cash flows
for the respective period then ended (subject to, in the case of unaudited
quarterly financial statements, to normal year-end audit adjustments). All such
financial statements, including the related schedules and notes thereto, have
been prepared in accordance with GAAP applied consistently throughout the
periods involved (except to the extent approved by the applicable firm of
accountants and disclosed therein).
4.2 No Change. Since December 31, 1998 there has been no development
---------
or event that has had or could reasonably be expected to have a Material Adverse
Effect.
4.3 Corporate Existence; Compliance with Law. Each of the Borrower
----------------------------------------
and its Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, except with
respect to the good standing of its Subsidiaries that do not constitute a
material portion of the Business and where such failure to be in good standing
could not, in the aggregate, reasonably be expected to have a Material Adverse
Effect, (b) has the corporate power and authority, and the legal right, to own
and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged, (c) is duly qualified as
a foreign corporation and in good standing under the laws of each jurisdiction
where the failure to be so qualified could reasonably be expected to have a
Material Adverse Effect and (d) is in compliance with all Requirements of Law
except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
4.4 Corporate Power; Authorization; Enforceable Obligations. Each
-------------------------------------------------------
Loan Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the Transaction and the borrowings hereunder or with the
execution, delivery, performance, validity or enforceability of this Agreement
or any of the Loan Documents, except (i) consents, authorizations, filings and
notices described in Schedule 4.4, which consents, authorizations, filings and
notices have been obtained or made and are in full force and effect except as
otherwise stated on such Schedule and (ii) the filings referred to in Section
4.19. Each Loan Document has been duly executed and delivered on behalf of each
Loan Party party thereto. This Agreement constitutes, and each other Loan
Document upon execution will constitute, a legal, valid and binding obligation
of each Loan Party party thereto, enforceable against each such Loan Party in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law).
4.5 No Legal Bar. The execution, delivery and performance of this
------------
Agreement and the other Loan Documents, the issuance of Letters of Credit, the
borrowings hereunder and the use of the
<PAGE>
34
proceeds thereof will not violate any Requirement of Law or any Contractual
Obligation of Holdings, the Borrower or any of its Subsidiaries, except, in the
case of Contractual Obligations, for such violations that would not,
individually or in the aggregate, have a Material Adverse Effect and will not
result in, or require, the creation or imposition of any Lien on any of their
respective properties or revenues pursuant to any Requirement of Law or any such
Contractual Obligation (other than the Liens created by the Security Documents).
No Requirement of Law or Contractual Obligation applicable to the Borrower or
any of its Subsidiaries could reasonably be expected to have a Material Adverse
Effect.
4.6 Litigation. No litigation, investigation or proceeding of or
----------
before any arbitrator or Governmental Authority is pending or, to the knowledge
of Holdings, the Borrower, threatened by or against Holdings, the Borrower or
any of its Subsidiaries or against any of their respective properties or
revenues (a) with respect to any of the Loan Documents or any of the
transactions contemplated hereby or thereby, or (b) that could reasonably be
expected to have a Material Adverse Effect.
4.7 No Default. Neither Holdings, the Borrower nor any of its
----------
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect that could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
4.8 Ownership of Property; Liens. Each of Holdings, the Borrower and
----------------------------
its Subsidiaries has title in fee simple to, or a valid leasehold interest in,
all its real property, and good title to, or a valid leasehold interest in, all
its other material property (and to its best knowledge all its other property),
and none of such property is subject to any Lien except as permitted by Section
7.3.
4.9 Intellectual Property. Holdings, the Borrower and each of its
---------------------
Subsidiaries owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted. No claim which could
reasonably be expected to have a Material Adverse Effect has been asserted and
is pending by any Person challenging or questioning the use of any Intellectual
Property or the validity or effectiveness of any Intellectual Property, nor does
Holdings or the Borrower know of any valid basis for any such claim. The use of
Intellectual Property by Holdings, the Borrower and its Subsidiaries does not
infringe on the rights of any Person except for such claims and infringements
that, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
4.10 Taxes. Each of Holdings, the Borrower and its Subsidiaries has
-----
filed or caused to be filed all Federal, state and other material tax returns
that are required to be filed and has paid all taxes shown to be due and payable
on said returns or on any assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of Holdings, the Borrower or its Subsidiaries, as the case may be); no tax
Lien has been filed, and, to the knowledge of the Borrower, no claim is being
asserted (other than any the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of the Borrower
or its Subsidiaries, as the case may be), with respect to any such tax, fee or
other charge.
4.11 Federal Regulations. No part of the proceeds of any Loans will be
-------------------
used for "buying" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect or for any purpose that violates the provisions of the
Regulations of the Board. If requested by any Lender or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
G-3 or FR Form U-1, as applicable, referred to in Regulation U.
<PAGE>
35
4.12 Labor Matters. Except as, in the aggregate, could not reasonably
-------------
be expected to have a Material Adverse Effect: (a) there are no strikes or other
labor disputes against Holdings, the Borrower or any of its Subsidiaries pending
or, to the knowledge of Holdings or the Borrower, threatened; (b) hours worked
by and payment made to employees of Holdings, the Borrower and its Subsidiaries
have not been in violation of the Fair Labor Standards Act or any other
applicable Requirement of Law dealing with such matters; and (c) all payments
due from Holdings, the Borrower or any of its Subsidiaries on account of
employee health and welfare insurance have been paid or accrued as a liability
on the books of Holdings, the Borrower or the relevant Subsidiary.
4.13 ERISA. Neither a Reportable Event nor an "accumulated funding
-----
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any applicable Plan that
is not a Multiemployer Plan , and each Plan that is not a Multiemployer Plan has
complied in all material respects with the applicable provisions of ERISA and
the Code. No termination of a Single Employer Plan has occurred other than
pursuant to a standard termination under Title IV of ERISA, and no Lien in favor
of the PBGC or a Plan has arisen on the assets of the Borrower and remains in
force, during such five-year period. The present value of all accrued benefits
under each Single Employer Plan (based on those assumptions used to fund such
Plan) did not, as of the last annual valuation date prior to the date on which
this representation is made or deemed made for which an actuarial report is
available, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan that
has resulted or could reasonably be expected to result in a liability under
ERISA that would reasonably be expected to have a Material Adverse Effect, and
neither the Borrower nor any Commonly Controlled Entity would become subject to
any liability under ERISA that would reasonably be expected to have a Material
Adverse Effect if the Borrower or any such Commonly Controlled Entity were to
withdraw completely from all Multiemployer Plans as of the valuation date most
closely preceding the date on which this representation is made or deemed made.
No such Multiemployer Plan is in Reorganization or Insolvent.
4.14 Investment Company Act; Other Regulations. No Loan Party is an
-----------------------------------------
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) that limits its ability to incur Indebtedness.
4.15 Subsidiaries. Except as disclosed to the Administrative Agent by
------------
the Borrower in writing from time to time after the Closing Date, (a) Schedule
4.15 sets forth the name and jurisdiction of incorporation of each Subsidiary
and, as to each such Subsidiary, the percentage of each class of Capital Stock
owned by any Loan Party and (b) there are no outstanding subscriptions, options,
warrants, calls, rights or other agreements or commitments (other than stock
granted to employees or directors and directors' qualifying shares) of nature
relating to any Capital Stock of the Borrower or any Subsidiary, except as
created by the Loan Documents.
4.16 Use of Proceeds. The proceeds of the Term Loans shall be used to
---------------
refinance existing Indebtedness of the Borrower and QDSP and to pay fees and
expenses related to the Transaction. The proceeds of the Revolving Loans and the
Letters of Credit shall be used for Permitted Acquisitions and for general
corporate purposes of the Borrower and its Subsidiaries in the ordinary course
of business. The proceeds of the Facilities shall be used in a manner reasonably
consistent with the sources and uses attached as Annex B hereto.
<PAGE>
36
4.17 Environmental Matters. Except to the extent of liabilities
---------------------
specified in the financial statements referred to in Section 4.1(b) or set forth
on Schedule 4.17 (which liabilities could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect), and except as, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect:
(a) the facilities and properties owned, leased or operated by the
Borrower or any of its Subsidiaries (the "Properties") do not contain, and
----------
have not previously contained, any Materials of Environmental Concern in
amounts or concentrations or under circumstances that constitute or
constituted a violation of, or could give rise to liability under, any
Environmental Law;
(b) neither Holdings, the Borrower nor any of its Subsidiaries has
received or is aware of any written notice of violation, alleged violation,
non-compliance, liability or potential liability regarding environmental
matters or compliance with Environmental Laws with regard to any of the
Properties or the business operated by Holdings, the Borrower or any of its
Subsidiaries (the "Business"), nor does Holdings or the Borrower have
--------
knowledge or reason to believe that any such notice will be received or is
being threatened;
(c) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a
location that could give rise to liability under, any Environmental Law,
nor have any Materials of Environmental Concern been generated, treated,
stored or disposed of at, on or under any of the Properties in violation
of, or in a manner that could give rise to liability under, any applicable
Environmental Law;
(d) no judicial proceeding or governmental or administrative action
is pending or, to the knowledge of Holdings and the Borrower, threatened,
under any Environmental Law to which Holdings, the Borrower or any
Subsidiary is, or to the knowledge of either Holdings or the Borrower will
be, named as a party with respect to the Properties or the Business, nor
are there any consent decrees or other decrees, consent orders,
administrative orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to the
Properties or the Business;
(e) there has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related
to the operations of the Borrower or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation of or
in amounts or in a manner that could give rise to liability under
Environmental Laws;
(f) the Properties and all operations at the Properties are in
compliance, and have in the last five years been in compliance, with all
applicable Environmental Laws, and there is no contamination at, under or
about the Properties or violation of any Environmental Law with respect to
the Properties or the Business; and
(g) neither Holdings, the Borrower nor any of its Subsidiaries has
assumed any liability of any other Person under Environmental Laws.
4.18 Accuracy of Information, etc. No statement or information
----------------------------
contained in this Agreement, any other Loan Document, the Confidential
Information Memorandum or any other document, certificate or statement furnished
by or on behalf of any Loan Party to the Administrative Agent or the Lenders, or
any of them, for use in connection with the transactions contemplated by this
Agreement or the other Loan Documents, contained as of the date such statement,
information, document or certificate was so furnished (or, in the case of the
Confidential Information Memorandum, as of the date of this Agreement), any
untrue statement of a material fact or when considered as a whole omitted to
<PAGE>
37
state a material fact necessary to make the statements contained herein or
therein not misleading. The projections and pro forma financial information
--- -----
contained in the materials referenced above are based upon good faith estimates
and assumptions believed by management of the Borrower to be reasonable at the
time made, it being recognized by the Lenders that such financial information as
it relates to future events is not to be viewed as fact and that actual results
during the period or periods covered by such financial information may differ
from the projected results set forth therein by a material amount. As of the
date hereof, the representations and warranties contained in the Acquisition
Documentation are true and correct in all material respects. As of the date
hereof there is no fact known to any Loan Party that could reasonably be
expected to have a Material Adverse Effect that has not been expressly disclosed
herein, in the other Loan Documents, in the Confidential Information Memorandum
or in any other documents, certificates and statements furnished to the
Administrative Agent and the Lenders for use in connection with the transactions
contemplated hereby and by the other Loan Documents.
4.19 Security Documents. (a) The Guarantee and Collateral Agreement is
------------------
effective to create in favor of the Administrative Agent, for the benefit of the
Lenders, a legal, valid and enforceable security interest in the Collateral
described therein and proceeds thereof. In the case of the Pledged Stock
described in the Guarantee and Collateral Agreement, when stock certificates
representing such Pledged Stock are delivered to the Administrative Agent, and
in the case of the other Collateral described in the Guarantee and Collateral
Agreement, when financing statements and other filings specified on Schedule
4.19(a) in appropriate form are filed in the offices specified on Schedule
4.19(a), the Guarantee and Collateral Agreement shall constitute a fully
perfected Lien on, and security interest in, all right, title and interest of
the Loan Parties in such Collateral and the proceeds thereof, as security for
the Obligations (as defined in the Guarantee and Collateral Agreement), in each
case prior and superior in right to any other Person (except, in the case of
Collateral other than Pledged Stock, Liens permitted by Section 7.3).
(b) Each of the Mortgages is effective to create in favor of the
Administrative Agent, for the benefit of the Lenders, a legal, valid and
enforceable Lien on the Mortgaged Properties described therein and proceeds
thereof, and when the Mortgages are filed in the offices specified on Schedule
4.19(b), each such Mortgage shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the Loan Parties in the
Mortgaged Properties and the proceeds thereof, as security for the Obligations
(as defined in the relevant Mortgage), in each case prior and superior in right
to any other Person (except Liens permitted by Section 7.3(b), (e), (f) and
(i)). As of the Closing Date, Schedule 1.1B lists each of the real properties in
the United States owned in fee simple by the Borrower or any of its Subsidiaries
having a value, in the reasonable opinion of the Borrower, in excess of
$5,000,000.
4.20 Solvency. As of the Closing Date, each Loan Party is, and after
--------
giving effect to the Acquisition and the incurrence of all Indebtedness and
obligations being incurred in connection herewith and therewith will be and will
continue to be, Solvent.
4.21 Year 2000 Matters. Any reprogramming required to permit the
-----------------
proper functioning (but only to the extent that such proper functioning would
otherwise be impaired by the occurrence of the year 2000) in and following the
year 2000 of computer systems and other equipment containing embedded
microchips, in either case owned or operated by Holdings, the Borrower or any of
its Subsidiaries or used in the conduct of their business, and the testing of
all such systems and other equipment as so reprogrammed, will be completed by
December 31, 1999. The costs to Holdings, the Borrower and its Subsidiaries that
have not been incurred as of the date hereof for such reprogramming and testing
and for the other reasonably foreseeable consequences to them of any improper
functioning of other computer systems and equipment containing embedded
microchips due to the occurrence of the year 2000 could not reasonably be
expected to result in a Default or Event of Default or to have a Material
Adverse Effect. Except for any reprogramming referred to above, the computer
systems of
<PAGE>
38
Holdings, the Borrower and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement to be,
sufficient for the conduct of their business as currently conducted.
4.22 Senior Indebtedness. The Obligations constitute "Senior Debt" of
-------------------
the Borrower under and as defined in the Senior Subordinated Note Indenture. The
obligations of each Subsidiary Guarantor under the Guarantee and Collateral
Agreement constitute "Senior Debt" of such Subsidiary Guarantor under and as
defined in the Senior Subordinated Note Indenture.
4.23 Regulation H. No Mortgage encumbers improved real property that
------------
is located in an area that has been identified by the Secretary of Housing and
Urban Development as an area having special flood hazards and in which flood
insurance has been made available under the National Flood Insurance Act of
1968.
4.24 Certain Documents. The Borrower has delivered to the
-----------------
Administrative Agent a complete and correct copy of the Acquisition
Documentation and the Senior Subordinated Note Indenture, including any
amendments, supplements or modifications with respect to any of the foregoing.
SECTION 5. CONDITIONS PRECEDENT
5.1 Conditions to Initial Extension of Credit. The agreement of each
-----------------------------------------
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, prior to or concurrently with the making of such
extension of credit on the Closing Date (but in any event no later than October
31, 1999), of the following conditions precedent:
(a) Credit Agreement; Guarantee and Collateral Agreement. The
----------------------------------------------------
Administrative Agent shall have received (i) this Agreement, executed and
delivered by the Administrative Agent, Holdings, the Borrower and each
Person listed on Schedule 1.1A, (ii) the Guarantee and Collateral
Agreement, executed and delivered by Holdings, the Borrower and each
Subsidiary Guarantor and (iii) an Acknowledgment and Consent in the form
attached to the Guarantee and Collateral Agreement, executed and delivered
by each Issuer (as defined therein), if any, that is not a Loan Party.
(b) Acquisition, etc. The following transactions shall have been
----------------
completed, in each case on terms and conditions reasonably satisfactory to
the Lenders:
(i) the Administrative Agent shall have received (in a form
reasonably satisfactory to the Administration Agent), with a copy for
each Lender, true and correct copies, certified as to authenticity by
the Borrower, of the Acquisition Documentation and such other
documents or instruments as may be reasonably requested by the
Administrative Agent;
(ii) the Borrower shall have acquired the capital stock of
QDSP for an aggregate purchase price of approximately $72,500,000
pursuant to and in accordance with the Acquisition Documentation, and
no provision thereof shall have been waived, amended, supplemented or
otherwise modified unless the Administrative Agent has otherwise
agreed (the "Acquisition");
-----------
(iii) Holdings shall have received at least $40,000,000 in
cash from the proceeds of equity issued to the Sponsors and their
Control Investment Affiliates, and such proceeds shall have been
contributed to the Borrower;
<PAGE>
39
(iv) Aurora Capital Group shall have contributed its
existing shares in QDSP into Holdings in exchange for new shares of
Holdings (the "Sponsor Contribution");
--------------------
(v) the Administrative Agent shall have received
satisfactory evidence that the fees and expenses to be incurred in
connection with the Transaction and the financing thereof shall not
exceed $10,500,000; and
(vi) (i) The Administrative Agent shall have received
satisfactory evidence that all existing Indebtedness of the Loan
Parties (except for Indebtedness permitted pursuant to Section 7.2(f))
shall have been terminated and all amounts thereunder shall have been
paid in full and (ii) satisfactory arrangements shall have been made
for the termination of all Liens granted in connection therewith
(collectively, the "Refinancing").
-----------
(c) Pro Forma Balance Sheet; Financial Statements. The Lenders shall
---------------------------------------------
have received (i) the Pro Forma Consolidated Balance Sheet and the Pro
Forma Consolidated Income Statement, (ii) audited consolidated financial
statements of the Borrower and audited consolidated financial statements of
QDSP, respectively, for the 1998 fiscal year and (iii) unaudited interim
consolidated financial statements of the Borrower and unaudited interim
consolidated financial statements of QDSP, respectively, for the quarterly
period ended June 30, 1999 and for the fiscal months ended July 31 and
August 31, 1999, and such financial statements shall not, in the reasonable
judgment of the Lenders, reflect any material adverse change in the
consolidated financial condition of the Borrower, as reflected in the
financial statements or projections contained in the Confidential
Information Memorandum.
(d) Approvals. All governmental and third party approvals (including
---------
landlords' and other consents) necessary or, in the discretion of the
Administrative Agent, advisable in connection with the Transaction, the
continuing operations of Holdings, the Borrower and its Subsidiaries and
the transactions contemplated hereby shall have been obtained and be in
full force and effect, and all applicable waiting periods shall have
expired without any action being taken or threatened by any competent
authority that would restrain, prevent or otherwise impose adverse
conditions on the Transaction or the financing contemplated hereby.
(e) Lien Searches. The Administrative Agent shall have received the
-------------
results of a recent lien search in each of the jurisdictions where assets
of the Loan Parties are located, and such search shall reveal no liens on
any of the assets of the Borrower or its Subsidiaries except for liens
permitted by Section 7.3 or discharged on or prior to the Closing Date
pursuant to documentation satisfactory to the Administrative Agent.
(f) Environmental Audit. The Administrative Agent shall have or
-------------------
leased by the Borrower and its Subsidiaries as specified by the
Administrative Agent from a firm satisfactory to the Administrative Agent.
(g) Projections. The Lenders shall have received satisfactory
-----------
projections for the period from the Closing Date through September 30, 2004
and a satisfactory written analysis of the business and prospects of the
Borrower and its subsidiaries.
(h) Fees. The Lenders and the Administrative Agent shall have
----
received all fees required to be paid, and all expenses for which invoices
have been presented (including the reasonable fees and expenses of legal
counsel for which the Borrower has received an invoice), on or before the
Closing Date. All such amounts will be paid with proceeds of Loans made on
<PAGE>
40
the Closing Date and will be reflected in the funding instructions given by
the Borrower to the Administrative Agent on or before the Closing Date.
(i) Closing Certificate. The Administrative Agent shall have
-------------------
received, with a counterpart for each Lender, a certificate of each Loan
Party, dated the Closing Date, substantially in the form of Exhibit C, with
appropriate insertions and attachments.
(j) Legal Opinions. The Administrative Agent shall have received the
--------------
following executed legal opinions:
(i) the legal opinion of Jones, Day, Reavis & Pogue,
special counsel to the Borrower and its Subsidiaries, substantially in
the form of Exhibit E-1;
(ii) the legal opinion of Bradley Arant Rose & White LLP,
special Alabama counsel of the Borrower and its Subsidiaries,
substantially in the form of Exhibit E-2;
(iii) to the extent consented to by the relevant counsel,
each legal opinion, if any, delivered in connection with the
Acquisition Agreement, accompanied by a reliance letter in favor of
the Lenders; and
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(k) Pledged Stock; Stock Powers; Pledged Notes. The Administrative
------------------------------------------
Agent shall have received (i) the certificates representing the shares of
Capital Stock pledged pursuant to the Guarantee and Collateral Agreement,
together with an undated stock power for each such certificate executed in
blank by a duly authorized officer of the pledgor thereof and (ii) each
promissory note (if any) pledged to the Administrative Agent pursuant to
the Guarantee and Collateral Agreement endorsed (without recourse) in blank
(or accompanied by an executed transfer form in blank) by the pledgor
thereof.
(l) Litigation. There shall be no pending or, to the Borrower's
----------
knowledge, threatened litigation or proceedings relating to the Facilities
or that could reasonably be expected to have a material adverse effect on
(a) the Transaction and the transactions contemplated hereby, (b) the
business, property, operations, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole or (c) the
validity or enforceability of any of the Loan Documents or the rights and
remedies of the Administrative Agent and the Lenders thereunder.
(m) Filings, Registrations and Recordings. Each document (including
-------------------------------------
any Uniform Commercial Code financing statement) required by the Security
Documents or under law or reasonably requested by the Administrative Agent
to be filed, registered or recorded in order to create in favor of the
Administrative Agent, for the benefit of the Lenders, a perfected Lien on
the Collateral described therein, prior and superior in right to any other
Person (other than with respect to Liens expressly permitted by Section
7.3), shall be in proper form for filing, registration or recordation.
(n) Solvency Certificate. The Lenders shall have received a
--------------------
certificate from the chief financial officer of the Borrower that shall
document the solvency of the Borrower and its subsidiaries after giving
effect to the Transaction and the other transactions contemplated hereby.
(o) Insurance. The Administrative Agent shall have received insurance
---------
certificates satisfying the requirements of Section 5.2(b) of the Guarantee
and Collateral Agreement.
<PAGE>
41
(p) Debt Ratings. The Borrower's senior secured long-term debt
------------
ratings of B+ and B1 shall have been affirmed by S&P and Moody's,
respectively, on a pro forma basis giving effect to the consummation of the
--- -----
Transaction and the financings contemplated hereby.
(q) Bond Consents. The requisite holders of the Senior Subordinated
-------------
Notes shall have consented to the Transaction and the financings
contemplated hereby to the extent necessary or advisable in the reasonable
judgment of the Lenders.
5.2 Conditions to Each Extension of Credit. The agreement of each
--------------------------------------
Lender to make any extension of credit requested to be made by it on any date
(including its initial extension of credit) is subject to the satisfaction of
the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct on and as of such date as if made on and as of
such date (except to the extent such representations and warranties were
expressly made only as of a specific date).
(b) No Default. No Default or Event of Default shall have occurred
----------
and be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
(c) Compliance with Senior Subordinated Note Indenture. In the case
--------------------------------------------------
of any requested extension of credit after giving effect to which the
aggregate Revolving Extensions of Credit of all Lenders exceed
$120,000,000, the Administrative Agent shall have received, with a copy for
each Lender, calculations or other information demonstrating in reasonable
detail the Borrower's compliance with Section 4.11 of the Senior
Subordinated Note Indenture with respect thereto, and the Required Lenders
shall not have notified the Administrative Agent of their disagreement with
such calculations or other information, in which case such extension of
credit will be made upon the Borrower reasonably establishing that such
extension of credit would so comply with such Section 4.11.
Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the conditions contained in this
Section 5.2 have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each of Holdings and the Borrower shall and
shall cause each of its Subsidiaries to:
6.1 Financial Statements. Furnish to the Administrative Agent and
--------------------
each Lender:
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the audited consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at the
end of such year and the related audited consolidated statements of income
and of cash flows for such year, setting forth in each case in comparative
form the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out
of the scope of the audit, by Pricewaterhouse Coopers LLP or other
independent certified public accountants of nationally recognized standing;
<PAGE>
42
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, commencing with the quarter ending September 30,
1999, the unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of income and of cash flows for such
quarter and the portion of the fiscal year through the end of such quarter,
setting forth in each case in comparative form the figures for the previous
year, certified by a Responsible Officer as being fairly stated in all
material respects (subject to normal year-end audit adjustments); and
(c) as soon as available, but in any event not later than 45 days
after the end of each month occurring during each fiscal year of the
Borrower (other than the third, sixth, ninth and twelfth such month),
commencing October, 1999 the unaudited consolidated balance sheets of the
Borrower and its Subsidiaries as at the end of such month and the related
unaudited consolidated statements of income and of cash flows for such
month and the portion of the fiscal year through the end of such month.
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
6.2 Certificates; Other Information. Furnish to the Administrative
-------------------------------
Agent and each Lender (or, in the case of clause (g), to the relevant Lender):
(a) concurrently with the delivery of the financial statements
referred to in Section 6.1(a), (i) a certificate of the independent
certified public accountants reporting on such financial statements stating
that in making the examination necessary therefor no knowledge was obtained
of any Default or Event of Default, except as specified in such certificate
and (ii) a reasonably detailed report with respect to insurance required to
be maintained pursuant to Section 5.2 of the Guarantee and Collateral
Agreement;
(b) concurrently with the delivery of any financial statements
pursuant to Section 6.1(a) and (b), (i) a certificate of a Responsible
Officer stating that, to the best of each such Responsible Officer's
knowledge, each Loan Party during such period has observed or performed all
of its covenants and other agreements, and satisfied every condition,
contained in this Agreement and the other Loan Documents to which it is a
party to be observed, performed or satisfied by it, and that such
Responsible Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate and (ii) in the case of
quarterly or annual financial statements, (x) a Compliance Certificate
containing all information and calculations necessary for determining
compliance by Holdings, the Borrower and its Subsidiaries with the
provisions of this Agreement referred to therein as of the last day of the
fiscal quarter or fiscal year of the Borrower, as the case may be, and (y)
to the extent not previously disclosed to the Administrative Agent, a
listing of any county or state within the United States where any Loan
Party keeps inventory or equipment and of any Intellectual Property
acquired by any Loan Party since the date of the most recent list delivered
pursuant to this clause (y) (or, in the case of the first such list so
delivered, since the Closing Date);
(c) as soon as available, and in any event no later than 45 days
after the end of each fiscal year of the Borrower, a copy of the
projections by the Borrower of the operating budget and cash flow budget of
the Borrower and its Subsidiaries for the succeeding fiscal year
(collectively, the "Projections"), which Projections shall in each case be
-----------
accompanied by a certificate of a Responsible Officer stating that such
Projections are based on reasonable
<PAGE>
43
estimates, information and assumptions and that such Responsible Officer
has no reason to believe that such Projections are incorrect or misleading
in any material respect;
(d) within 45 days after the end of each fiscal quarter of the
Borrower, a narrative discussion and analysis of the financial condition
and results of operations of the Borrower and its Subsidiaries for such
fiscal quarter and for the period from the beginning of the then current
fiscal year to the end of such fiscal quarter, as compared to the portion
of the Projections covering such periods and to the comparable periods of
the previous year;
(e) no later than 5 Business Days prior to the effectiveness thereof,
copies of substantially final drafts of any proposed amendment, supplement,
waiver or other modification with respect to the Senior Subordinated Note
Indenture and Acquisition Documentation;
(f) substantially concurrently with each extension of credit under
this Agreement, a certificate of a Responsible Officer as to the provision
under Section 4.11 of the Senior Subordinated Note Indenture under which
such extension of credit was incurred;
(g) within five days after the same are sent, copies of all financial
statements and reports that Holdings or the Borrower sends to the holders
of any class of its debt securities or public equity securities and, within
five days after the same are filed, copies of all financial statements and
reports that Holdings or the Borrower may make to, or file with, the SEC;
and
(h) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
----------------------
before maturity or before they become delinquent, as the case may be, all its
material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of Holdings, the Borrower or its Subsidiaries, as the case may be,
except to the extent that the aggregate amount of such past due unpaid
obligations does not exceed $2,500,000.
6.4 Maintenance of Existence; Compliance. (a)(i) Preserve, renew and
------------------------------------
keep in full force and effect its corporate existence and (ii) take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business, except, in each case, as
otherwise permitted by Section 7.4 and except, in the case of clause (ii) above,
to the extent that failure to do so could not reasonably be expected to have a
Material Adverse Effect; and (b) comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith could
not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
6.5 Maintenance of Property; Insurance. (a) Keep all property useful
----------------------------------
and necessary in its business in good working order and condition, ordinary wear
and tear excepted and (b) maintain with financially sound and reputable
insurance companies insurance on all its property in at least such amounts and
against at least such risks (but including in any event public liability,
product liability and business interruption) as are usually insured against in
the same general area by companies engaged in the same or a similar business.
6.6 Inspection of Property; Books and Records; Discussions. (a) Keep
------------------------------------------------------
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities and (b) permit
representatives of the Administrative Agent or any Lender to visit and inspect
any of its properties and examine and make abstracts from any of its books and
records at any reasonable
<PAGE>
44
time and as often as may reasonably be desired (provided that such visits or
inspections shall be coordinated by the Administrative Agent and, in no event
shall there be more often than two such visits or inspections per year except
during the continuance of a Default or an Event of Default), upon reasonable
notice, and to discuss the business, operations, properties and financial and
other condition of Holdings, the Borrower and its Subsidiaries with officers and
employees of Holdings, the Borrower and its Subsidiaries and with its
independent certified public accountants.
6.7 Notices. Promptly give notice to the Administrative Agent and
-------
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii) litigation,
investigation or proceeding that may exist at any time between Holdings,
the Borrower or any of its Subsidiaries and any Governmental Authority,
that in either case, if not cured or if adversely determined, as the case
may be, could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting Holdings, the Borrower or
any of its Subsidiaries in which the amount involved is $1,000,000 or more
and not covered by insurance or in which injunctive or similar relief is
sought;
(d) any of the following events, as soon as possible and in any event
within 30 days after the Borrower knows or has reason to know thereof: (i)
the occurrence of any Reportable Event with respect to any Plan that is a
Single Employer Plan, a failure to make any required contribution to a
Plan, the creation of any Lien in favor of the PBGC or a Plan on the assets
of the Borrower or any withdrawal by the Borrower or any Commonly
Controlled Entity from, or the termination, Reorganization or Insolvency
of, any Multiemployer Plan or (ii) the institution of proceedings or the
taking of any other action by the PBGC or the Borrower or any Commonly
Controlled Entity or any Multiemployer Plan with respect to the withdrawal
from, or the termination, Reorganization or Insolvency of, any Plan subject
to Title IV of ERISA; and
(e) any development or event that has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action Holdings, the Borrower or the relevant
Subsidiary proposes to take with respect thereto.
6.8 Environmental Laws. (a) Comply in all material respects with, and
------------------
ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws, and obtain and comply in all
material respects with and maintain, and ensure that all tenants and subtenants
obtain and comply in all material respects with and maintain, any and all
licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws. Noncompliance by the Borrower or any of its
Subsidiaries with any applicable Environmental Law or Environmental Permit shall
be deemed not to constitute a breach of this 6.8(a); if, and only if, (i) upon
learning of any such noncompliance, the Borrower and its Subsidiaries shall
promptly undertake reasonable efforts to achieve compliance, and (ii) in any
case, such noncompliance, and any other noncompliance with Environmental Law,
individually or in the aggregate, could not reasonably be expected to give rise
to a Material Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all
<PAGE>
45
material respects with all lawful orders and directives of all Governmental
Authorities regarding Environmental Laws, other than such orders and directives
as to which an appeal or other challenge has been timely and properly taken in
good faith.
6.9 Interest Rate Protection. In the case of the Borrower, within 90
------------------------
days after the Closing Date, enter into Hedge Agreements to the extent necessary
to provide that at least 50% of the aggregate principal amount of the Senior
Subordinated Notes and the Term Loans is subject to either a fixed interest rate
or interest rate protection for a period of not less than three years, which
Hedge Agreements shall have terms and conditions reasonably satisfactory to the
Administrative Agent.
6.10 Additional Collateral, etc. (a) With respect to any property
--------------------------
acquired after the Closing Date by Holdings, the Borrower or any of its
Subsidiaries (other than (x) any property described in paragraph (b), (c) or (d)
below, (y) any property subject to a Lien expressly permitted by Section 7.3(g)
and (z) property acquired by any Excluded Foreign Subsidiary) as to which the
Administrative Agent, for the benefit of the Lenders, does not have a perfected
Lien, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement or such other documents as
the Administrative Agent deems necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a security interest in
such property and (ii) take all actions necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest in such property, including the filing of Uniform Commercial
Code financing statements in such jurisdictions as may be required by the
Guarantee and Collateral Agreement or by law or as may be requested by the
Administrative Agent.
(b) With respect to any fee interest in any real property having a
value (together with improvements thereof) of at least $2,500,000 acquired after
the Closing Date by Holdings, the Borrower or any of its Subsidiaries (other
than (x) any such real property subject to a Lien expressly permitted by Section
7.3(g) and (z) real property acquired by any Excluded Foreign Subsidiary),
promptly (i) execute and deliver a first priority Mortgage, in favor of the
Administrative Agent, for the benefit of the Lenders, covering such real
property, (ii) if requested by the Administrative Agent, provide the Lenders
with (x) title and extended coverage insurance covering such real property in an
amount at least equal to the purchase price of such real property (or such other
amount as shall be reasonably specified by the Administrative Agent) as well as
a current ALTA survey thereof, together with a surveyor's certificate and (y)
any consents or estoppels reasonably deemed necessary or advisable by the
Administrative Agent in connection with such mortgage or deed of trust, each of
the foregoing in form and substance reasonably satisfactory to the
Administrative Agent and (iii) if requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described
above, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent.
(c) With respect to any new Subsidiary (other than an Excluded
Foreign Subsidiary) created or acquired after the Closing Date by Holdings, the
Borrower or any of its Subsidiaries (which, for the purposes of this paragraph
(c), shall include any existing Subsidiary that ceases to be an Excluded Foreign
Subsidiary), promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary that is owned by Holdings, the Borrower or
any of its Subsidiaries, (ii) deliver to the Administrative Agent the
certificates representing such Capital Stock, together with undated stock
powers, in blank, executed and delivered by a duly authorized officer of
Holdings, the Borrower or such Subsidiary, as the case may be, (iii) cause such
new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement,
(B) to take such actions necessary or advisable to grant to the Administrative
Agent for the benefit of the Lenders a perfected first priority security
interest in the Collateral described in the Guarantee and Collateral Agreement
with respect to
<PAGE>
46
such new Subsidiary, including the filing of Uniform Commercial Code financing
statements in such jurisdictions as may be required by the Guarantee and
Collateral Agreement or by law or as may be requested by the Administrative
Agent and (C) to deliver to the Administrative Agent a certificate of such
Subsidiary, substantially in the form of Exhibit C, with appropriate insertions
and attachments, and (iv) if requested by the Administrative Agent, deliver to
the Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by Holdings, the Borrower or any of its
Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary that is owned by Holdings, the Borrower or
any of its Subsidiaries that are not Excluded Foreign Subsidiaries (provided
that in no event shall more than 65% of the total outstanding Capital Stock of
any such new Subsidiary be required to be so pledged), (ii) deliver to the
Administrative Agent the certificates representing such Capital Stock, together
with undated stock powers, in blank, executed and delivered by a duly authorized
officer of the Holdings, Borrower or such Subsidiary, as the case may be, and
take such other action as may be necessary or, in the opinion of the
Administrative Agent, desirable to perfect the Administrative Agent's security
interest therein, and (iii) if requested by the Administrative Agent, deliver to
the Administrative Agent legal opinions relating to the matters described above,
which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
6.11 Landlord Waivers. Within 60 days after the Closing Date, the
----------------
Borrower shall have received executed waivers and consents, in form and
substance satisfactory to the Administrative Agent, from the lessors of real
property leased to the Borrower or any of its Subsidiaries on which is located
at least 40% of the aggregate amount of inventory owned by the Borrower and its
Subsidiaries.
6.12 Mortgages. (a) Within 60 days after the Closing Date, the
---------
Administrative Agent shall have received a Mortgage with respect to each
Mortgaged Property, executed and delivered by a duly authorized officer of each
party thereto.
(b) Within 60 days after the Closing Date, the Administrative Agent
shall have received, and the title insurance company issuing the policy referred
to in paragraph (c) below (the "Title Insurance Company") shall have received,
-----------------------
maps or plats of an as-built survey of the sites of the Mortgaged Properties
certified to the Administrative Agent and the Title Insurance Company in a
manner satisfactory to them, dated a date satisfactory to the Administrative
Agent and the Title Insurance Company by an independent professional licensed
land surveyor satisfactory to the Administrative Agent and the Title Insurance
Company, which maps or plats and the surveys on which they are based shall be
made in accordance with the Minimum Standard Detail Requirements for Land Title
Surveys jointly established and adopted by the American Land Title Association
and the American Congress on Surveying and Mapping in 1992, and, without
limiting the generality of the foregoing, there shall be surveyed and shown on
such maps, plats or surveys the following: (i) the locations on such sites of
all the buildings, structures and other improvements and the established
building setback lines; (ii) the lines of streets abutting the sites and width
thereof; (iii) all access and other easements appurtenant to the sites; (iv) all
roadways, paths, driveways, easements, encroachments and overhanging projections
and similar encumbrances affecting the site, whether recorded, apparent from a
physical inspection of the sites or otherwise known to the surveyor; (v) any
encroachments on any adjoining property by the building structures and
improvements on the sites; (vi) if the site is described as being on a filed
map, a legend relating the survey to said map; and (vii) the flood zone
designations, if any, in which the Mortgaged Properties are located.
<PAGE>
47
(c) Within 60 days after the Closing Date, the Administrative Agent
shall have received in respect of each Mortgaged Property a mortgagee's title
insurance policy (or policies) or marked up unconditional binder for such
insurance. Each such policy shall (A) be in an amount satisfactory to the
Administrative Agent; (B) be issued at ordinary rates; (C) insure that the
Mortgage insured thereby creates a valid first Lien on such Mortgaged Property
free and clear of all defects and encumbrances, except as disclosed therein; (D)
name the Administrative Agent for the benefit of the Lenders as the insured
thereunder; (E) be in the form of ALTA Loan Policy - 1970 (Amended 10/17/70 and
10/17/84) (or equivalent policies); (F) contain such endorsements and
affirmative coverage as the Administrative Agent may reasonably request and (G)
be issued by title companies satisfactory to the Administrative Agent (including
any such title companies acting as co-insurers or reinsurers, at the option of
the Administrative Agent). The Administrative Agent shall have received evidence
satisfactory to it that all premiums in respect of each such policy, all charges
for mortgage recording tax, and all related expenses, if any, have been paid.
(d) If requested by the Administrative Agent, within 60 days after
such request, the Administrative Agent shall have received (i) a policy of flood
insurance that (A) covers any parcel of improved real property that is
encumbered by any Mortgage, (B) is written in an amount not less than the
outstanding principal amount of the indebtedness secured by such Mortgage that
is reasonably allocable to such real property or the maximum limit of coverage
made available with respect to the particular type of property under the
National Flood Insurance Act of 1968, whichever is less, and (C) has a term
ending not later than the maturity of the Indebtedness secured by such Mortgage
and (ii) confirmation that the Borrower has received the notice required
pursuant to Section 208(e)(3) of Regulation H of the Board.
(e) The Administrative Agent shall have received a copy of all
recorded documents referred to, or listed as exceptions to title in, the title
policy or policies referred to in paragraph (c) above and a copy of all other
material documents affecting the Mortgaged Properties.
SECTION 7. NEGATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect, any Letter of Credit remains
outstanding or any Loan or other amount is owing to any Lender or the
Administrative Agent hereunder, each of Holdings and the Borrower shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly:
7.1 Financial Condition Covenants.
-----------------------------
(a) Consolidated Leverage Ratio. Permit the Consolidated Leverage
---------------------------
Ratio as at the last day of any period of four consecutive fiscal quarters of
the Borrower ending with any fiscal quarter ending on or near the respective
dates set forth below to exceed the ratio set forth below opposite such fiscal
quarter:
Consolidated
Fiscal Quarter Leverage Ratio
-------------- --------------
December 31, 1999 5.50 : 1.00
March 31, 2000 5.25 : 1.00
June 30, 2000 5.00 : 1.00
September 30, 2000 4.75 : 1.00
December 31, 2000 4.75 : 1.00
March 31, 2001 4.50 : 1.00
June 30, 2001 4.50 : 1.00
September 30, 2001 4.25 : 1.00
<PAGE>
48
December 31, 2001 4.25 : 1.00
March 31, 2002 4.00 : 1.00
June 30, 2002 4.00 : 1.00
September 30, 2002 3.75 : 1.00
December 31, 2002 3.75 : 1.00
March 31, 2003 3.50 : 1.00
June 30, 2003 3.50 : 1.00
September 30, 2003 3.25 : 1.00
December 31, 2003 3.25 : 1.00
March 31, 2004 3.00 : 1.00
June 30, 2004 3.00 : 1.00
September 30, 2004 3.00 : 1.00
(b) Consolidated Senior Leverage Ratio. Permit the Consolidated
----------------------------------
Senior Leverage Ratio for any period of four consecutive fiscal quarters of the
Borrower ending with any fiscal quarter ending on or near the respective dates
set forth below to exceed the ratio set forth below opposite such fiscal
quarter:
Consolidated Senior
Fiscal Quarter Leverage Ratio
-------------- --------------
December 31, 1999 3.75 : 1.00
March 31, 2000 3.50 : 1.00
June 30, 2000 3.50 : 1.00
September 30, 2000 3.25 : 1.00
December 31, 2000 3.25 : 1.00
March 31, 2001 3.00 : 1.00
June 30, 2001 3.00 : 1.00
September 30, 2001 2.75 : 1.00
December 31, 2001 2.75 : 1.00
March 31, 2002 2.50 : 1.00
June 30, 2002 2.50 : 1.00
September 30, 2002 2.25 : 1.00
December 31, 2002 2.25 : 1.00
March 31, 2003 2.00 : 1.00
June 30, 2003 2.00 : 1.00
September 30, 2003 1.75 : 1.00
December 31, 2003 1.75 : 1.00
March 31, 2004 1.50 : 1.00
June 30, 2004 1.50 : 1.00
September 30, 2004 1.50 : 1.00
(c) Consolidated Interest Coverage Ratio. Permit the Consolidated
------------------------------------
Interest Coverage Ratio for any period of four consecutive fiscal quarters of
the Borrower ending with any fiscal quarter ending on or near the respective
dates set forth below to be less than the ratio set forth below opposite such
fiscal quarter:
Consolidated Interest
Fiscal Quarter Coverage Ratio
-------------- --------------
December 31, 1999 1.75 : 1.00
March 31, 2000 2.00 : 1.00
<PAGE>
49
June 30, 2000 2.00 : 1.00
September 30, 2000 2.25 : 1.00
December 31, 2000 2.25 : 1.00
March 31, 2001 2.25 : 1.00
June 30, 2001 2.50 : 1.00
September 30, 2001 2.50 : 1.00
December 31, 2001 2.50 : 1.00
March 31, 2002 2.75 : 1.00
June 30, 2002 2.75 : 1.00
September 30, 2002 3.00 : 1.00
December 31, 2002 3.00 : 1.00
March 31, 2003 3.25 : 1.00
June 30, 2003 3.25 : 1.00
September 30, 2003 3.50 : 1.00
December 31, 2003 3.50 : 1.00
March 31, 2004 3.50 : 1.00
June 30, 2004 3.50 : 1.00
September 30, 2004 3.50 : 1.00
(d) Maintenance of Current Ratio. Permit the ratio of Consolidated
----------------------------
Current Accounts to Consolidated Senior Debt at any time to be less than 1.25 to
1.00.
7.2 Indebtedness. Create, issue, incur, assume, become liable in
------------
respect of or suffer to exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any Wholly
Owned Subsidiary Guarantor to the Borrower or any other Subsidiary;
(c) Guarantee Obligations incurred in the ordinary course of business
by the Borrower or any of its Subsidiaries of obligations of any Wholly
Owned Subsidiary Guarantor;
(d) Indebtedness of Foreign Subsidiaries and Guarantee Obligations
incurred in the ordinary course of business by the Borrower or any of its
Subsidiaries of obligations of any Foreign Subsidiary in an aggregate
principal amount as to such Indebtedness and Guarantee Obligations not to
exceed $10,000,000 at any one time outstanding;
(e) Indebtedness of any Foreign Subsidiary to the Borrower or any
Subsidiary Guarantor to the extent constituting Investments in such Foreign
Subsidiary pursuant to Section 7.8(i);
(f) Indebtedness outstanding on the date hereof and listed on
Schedule 7.2(f) and any refinancings, refundings, renewals or extensions
thereof (without increasing, or shortening the maturity of, the principal
amount thereof);
(g) Indebtedness (including, without limitation, Capital Lease
Obligations) secured by Liens permitted by Section 7.3(g) in an aggregate
principal amount not to exceed $2,500,000 at any one time outstanding;
(h) (i) Indebtedness of the Borrower in respect of the Senior
Subordinated Notes in an aggregate principal amount not to exceed
$100,000,000 and (ii) Guarantee Obligations of any Subsidiary Guarantor in
respect of such Indebtedness, provided that such Guarantee Obligations
<PAGE>
50
are subordinated to the same extent as the obligations of the Borrower in
respect of the Senior Subordinated Notes;
(i) Hedge Agreements in respect of Indebtedness otherwise permitted
hereby that bears interest at a floating rate, so long as such agreements
are not entered into for speculative purposes; and
(j) additional Indebtedness of the Borrower or any of its
Subsidiaries in an aggregate principal amount (for the Borrower and all
Subsidiaries) not to exceed $5,000,000 at any one time outstanding.
7.3 Liens. Create, incur, assume or suffer to exist any Lien upon
-----
any of its property, whether now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or that are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
--------
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business that are not
overdue for a period of more than 30 days or that are being contested in
good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business that, in the
aggregate, are not substantial in amount and that do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule 7.3(f)
(i) on account of trade credit extended by suppliers, provided that such
--------
Liens are on account of trade credit in an aggregate amount not to exceed
$3,000,000, which amount may be permanently reduced from time to time upon
receipt by the Administrative Agent of a certificate from a Responsible
Officer, certifying as to the lesser amount of trade credit secured by such
Liens (which reduction shall become immediately effective without any
further action by the Administrative Agent or any Lender) and (ii) securing
Indebtedness permitted by Section 7.2(f), provided that the scope of any
--------
such Lien is not expanded after the Closing Date and the amount of
Indebtedness secured thereby is not increased;
(g) Liens securing Indebtedness of the Borrower or any other
Subsidiary incurred pursuant to Section 7.2(g) to finance the acquisition
of fixed or capital assets, provided that (i) such Liens shall be created
--------
substantially simultaneously with the acquisition of such fixed or capital
assets, (ii) such Liens do not at any time encumber any property other than
the property financed by such Indebtedness and (iii) the amount of
Indebtedness secured thereby is not increased;
(h) Liens created pursuant to the Security Documents;
<PAGE>
51
(i) any interest or title of a lessor under any lease entered into by
the Borrower or any other Subsidiary in the ordinary course of its business
and covering only the assets so leased;
(j) Liens not otherwise permitted by this Section so long as neither
(i) the aggregate outstanding principal amount of the obligations secured
thereby nor (ii) the aggregate fair market value (determined as of the date
such Lien is incurred) of the assets subject thereto exceeds (as to the
Borrower and all Subsidiaries) $1,000,000 at any one time; and
(k) Liens on inventory consigned by the Borrower or any of its
Subsidiaries in the aggregate amount not to exceed $2,000,000 at any one
time.
7.4 Fundamental Changes. Enter into any merger, consolidation or
-------------------
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or Dispose of, all or substantially all of its
property or business, except that:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (provided that the Borrower shall be the continuing or
--------
surviving corporation) or with or into any Wholly Owned Subsidiary
Guarantor (provided that the Wholly Owned Subsidiary Guarantor shall be the
--------
continuing or surviving corporation);
(b) any Subsidiary of the Borrower may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any
Wholly Owned Subsidiary Guarantor; and
(c) any Permitted Acquisition may be structured as a merger with or
into the Borrower (provided that the Borrower shall be the continuing or
--------
surviving corporation) or with or into any Wholly Owned Subsidiary
Guarantor (provided that the surviving corporation of any such merger shall
--------
be a Wholly Owned Subsidiary Guarantor).
7.5 Disposition of Property. Dispose of any of its property, whether
-----------------------
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to any Person, except:
(a) the Disposition of obsolete or worn out property in the ordinary
course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 7.4(b);
(d) the sale or issuance of any Subsidiary's Capital Stock to the
Borrower or any Wholly Owned Subsidiary Guarantor;
(e) Dispositions, by means of trade-in, of equipment owned by it and
used or previously used in the ordinary course of its business, so long as
such equipment is replaced, substantially concurrently, by like-kind
equipment in an effort to upgrade the Borrower's or such Subsidiaries
facilities; and
(f) the Disposition of other property; provided that at the time of
--------
(immediately after giving effect to) any such Disposition, the aggregate
consideration of all assets so sold or disposed of shall not exceed in any
fiscal year of the Borrower an amount equal to 10% of the amount of the
Borrower's net plant, property and equipment reflected in, prior to March
31,
<PAGE>
52
2000, the unaudited balance sheet most recently delivered hereunder and
thereafter the audited balance sheet delivered pursuant to Section 6.1(a)
for the most recent fiscal year then ended.
7.6 Restricted Payments. Declare or pay any dividend (other than
-------------------
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any Capital Stock of Holdings, the Borrower or any Subsidiary,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of Holdings, the Borrower or any Subsidiary (collectively,
"Restricted Payments"), except that, the foregoing provisions will not prohibit
- --------------------
dividends or distributions payable to the Borrower or any wholly owned
Subsidiary or, so long as no Default or Event of Default exists or could result
therefrom, (i) dividends or distributions payable by any Subsidiary that is not
wholly owned and (if such Subsidiary has shareholders other than the Borrower or
another Subsidiary), to its other shareholders on a pro rata basis to such other
shareholders, and (ii) amounts required for any repurchase, redemption or other
acquisition for value of any Capital Stock of the Borrower held by any member of
the Borrower's management pursuant to any management equity subscription
agreement or stock option agreement or similar agreement, or otherwise upon
their death, disability, retirement or termination of employment or departure
from the Board of Directors of the Borrower (provided that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Capital Stock shall
not exceed (A) $500,000 in any twelve-month period or (B) $2,000,000 in the
aggregate from and after the Closing Date).
7.7 Capital Expenditures. Make or commit to make any Capital
--------------------
Expenditure, except Capital Expenditures of the Borrower and its Subsidiaries in
the ordinary course of business not exceeding $12,500,000 in any fiscal year of
the Borrower; provided that up to 50% of the portion, if any, of any such amount
--------
referred to above, that is not so expended in the fiscal year for which it is
permitted, may be carried over for expenditure in the next succeeding fiscal
year.
7.8 Investments. Make any advance, loan, extension of credit (by way
-----------
of guaranty or otherwise) or capital contribution to, or purchase any Capital
Stock, bonds, notes, debentures or other debt securities of, or any assets
constituting a business unit of, or make any other investment in, any Person
(all of the foregoing, "Investments"), except:
-----------
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 7.2;
(d) loans and advances to employees of Holdings, the Borrower or any
Subsidiary of the Borrower in the ordinary course of business (including
for travel, entertainment and relocation expenses) in an aggregate amount
for Holdings, the Borrower or any Subsidiary of the Borrower not to exceed
$500,000 at any one time outstanding;
(e) the Acquisition;
(f) Investments in assets useful in the business of the Borrower and
its Subsidiaries made by the Borrower or any of its Subsidiaries with the
proceeds of any Reinvestment Deferred Amount;
(g) intercompany Investments by the Borrower or any of its
Subsidiaries in the Borrower or any Person that, prior to such investment,
is a Wholly Owned Subsidiary Guarantor;
<PAGE>
53
(h) the Borrower or any Subsidiary may make Permitted Acquisitions,
and may create Subsidiaries to own, directly or indirectly, the property
acquired thereby; provided that (i) such Permitted Acquisition is in a
--------
similar line of business to the line of business of the Borrower, (ii) any
acquisition of Capital Stock results in the issuer thereof becoming a
Subsidiary, (iii) any Subsidiary created or acquired in connection
therewith shall become a Subsidiary Guarantor and the requirements of
Section 6.10 shall be satisfied prior to or concurrently with the
consummation of such Permitted Acquisition, (iv) no Permitted Acquisition
shall be consummated unless, after giving pro forma effect thereto as if
--- -----
such Permitted Acquisition had been made (and the related Indebtedness
incurred or assumed) on the first day of the most recent period of four
consecutive fiscal quarters ending prior thereto for which financial
statements have been delivered pursuant to Section 6.1(a) or (b), the
Borrower and its Subsidiaries would be in compliance with the covenants
contained in this Agreement during such period and the Consolidated Senior
Leverage Ratio would not exceed the Acquisition Ratio (as demonstrated, in
the case of any Permitted Acquisition the aggregate consideration for which
exceeds $1,000,000, by delivery to the Administrative Agent of a
certificate to such effect showing such calculations in reasonable detail),
(v) no Default or Event of Default exists at the time thereof or would
result therefrom, (vi) after giving effect thereto, the sum of the
aggregate Available Revolving Commitments plus the amount of cash and Cash
Equivalents of the Borrower at the time thereof shall be at least
$17,500,000; (vii) immediately prior to and after giving effect to any such
Permitted Acquisition, the Borrower and its Subsidiaries shall be in
compliance with the provisions of Section 7.14 hereof; (viii) each such
Permitted Acquisition shall be made on a fully consensual basis between the
Borrower and its Subsidiaries, on the one hand, and the Person or Persons
being so acquired and the seller or sellers of such assets or such
business, on the other hand (it being understood that such acquisition
shall not be considered consensual if it is not approved by a majority of
the board of directors (or their equivalent) of such Person or Persons to
be acquired as constituted prior to the effectiveness of any proxy
solicitation, offer to purchase or other commencement of such acquisition);
and (ix) the Borrower shall have obtained the written approval of the
Required Lenders for any Permitted Acquisition in an amount that is equal
to or exceeds $35,000,000;
(i) Investments by the Borrower and its Subsidiaries in Foreign
Subsidiaries in an aggregate amount (valued at cost) not to exceed
$2,500,000;
(j) any investment made as a result of the receipt of non-cash
consideration for an event described in Section 2.9(b) that was made
pursuant to and in compliance with Section 7.5;
(k) investments received as part of the settlement of litigation or
in satisfaction of extensions of credit to any Person otherwise permitted
under this Agreement pursuant to the reorganization, bankruptcy or
liquidation of such Person or a good faith settlement of debts with such
Person; and
(l) in addition to Investments otherwise expressly permitted by this
Section, Investments by the Borrower or any of its Subsidiaries in an
aggregate amount (valued at cost) not to exceed $5,000,000 during the term
of this Agreement.
7.9 Transactions with Affiliates. Enter into any transaction,
----------------------------
including any purchase, sale, lease or exchange of property, the rendering of
any service or the payment of any management, advisory or similar fees, with any
Affiliate (other than Holdings, the Borrower or any Wholly Owned Subsidiary
Guarantor) unless such transaction is (a) otherwise permitted under this
Agreement, (b) in the ordinary course of business of Holdings, the Borrower or
such Subsidiary, as the case may be, and (c) upon fair and reasonable terms no
less favorable to Holdings, the Borrower or such Subsidiary, as the case may be,
than it would obtain in a comparable arm's length transaction with a Person that
is not an
<PAGE>
54
Affiliate. Notwithstanding the foregoing, the Borrower and its Subsidiaries may
pay (i) to the Aurora Management Partners LLC fees and expenses pursuant to the
Management Services Agreement as in effect on the Closing Date and (ii) transfer
to any Subsidiary non-exclusive rights to use proprietary product formulations.
7.10 Sales and Leasebacks. Enter into any arrangement with any
--------------------
Person providing for the leasing by Holdings, the Borrower or any Subsidiary of
real or personal property that has been or is to be sold or transferred by
Holdings, the Borrower or such Subsidiary to such Person or to any other Person
to whom funds have been or are to be advanced by such Person on the security of
such property or rental obligations of Holdings, the Borrower or such
Subsidiary.
7.11 Changes in Fiscal Periods. Permit the fiscal year of the
-------------------------
Borrower to end on a day other than December 31 or change the Borrower's method
of determining fiscal quarters.
7.12 Negative Pledge Clauses. Enter into or suffer to exist or
-----------------------
become effective any agreement that prohibits or limits the ability of Holdings,
the Borrower or any of its Subsidiaries to create, incur, assume or suffer to
exist any Lien upon any of its property or revenues, whether now owned or
hereafter acquired, to secure its obligations under the Loan Documents to which
it is a party other than (a) this Agreement and the other Loan Documents and (b)
any agreements governing any purchase money Liens, Liens in existence of the
date hereof in favor of suppliers or Capital Lease Obligations (on refinancings
that impose no more restrictive restrictions) otherwise permitted hereby (in
which case, any prohibition or limitation shall only be effective against the
assets financed thereby).
7.13 Clauses Restricting Subsidiary Distributions. Enter into or
--------------------------------------------
suffer to exist or become effective any consensual encumbrance or restriction on
the ability of any Subsidiary of the Borrower to (a) make Restricted Payments in
respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness
owed to, the Borrower or any other Subsidiary of the Borrower, (b) make loans or
advances to, or other Investments in, the Borrower or any other Subsidiary of
the Borrower or (c) transfer any of its assets to the Borrower or any other
Subsidiary of the Borrower, except for such encumbrances or restrictions
existing under or by reason of (i) any restrictions existing under the Loan
Documents and (ii) any restrictions with respect to a Subsidiary imposed
pursuant to an agreement that has been entered into in connection with the
Disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary, provided that this Section shall not apply to (A) restrictions
--------
existing on the date hereof applicable to Indebtedness permitted under Section
7.2 that impose restrictions analogous to those described in clause (B) below,
(B) restrictions applicable to Indebtedness or Capital Stock of a Person
acquired by the Borrower or any Subsidiary as in effect at the time of
acquisition, except if such restriction was incurred in connection with, or in
contemplation of such acquisition or such restriction applies to the Borrower,
any Subsidiary (other than the Person acquired) or the assets thereof (other
than the assets of the Person so acquired) or any after-acquired property, (C)
restrictions arising by reason of customary non-assignment or no-subletting
clauses in leases or other contracts entered into in the ordinary course of
business and consistent with past practices, (D) purchase money obligations or
Capital Lease Obligations (or refinancings thereof that impose no more
restrictive restrictions) for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (B) above
solely on the property so acquired; (E) Permitted Liens on assets securing
Indebtedness permitted hereunder.
7.14 Lines of Business. Enter into any business, either directly or
-----------------
through any Subsidiary, except for those businesses in which the Borrower and
its Subsidiaries are engaged on the date of this Agreement (after giving effect
to the Acquisition) or that are reasonably related thereto.
7.15 Amendments to Acquisition Documents. (a) Amend, supplement or
-----------------------------------
otherwise modify (pursuant to a waiver or otherwise) the terms and conditions of
the indemnities and licenses
<PAGE>
55
furnished to the Borrower or any of its Subsidiaries pursuant to the Acquisition
Documentation such that after giving effect thereto such indemnities or licenses
shall be materially less favorable to the interests of the Loan Parties or the
Lenders with respect thereto or (b) otherwise amend, supplement or modify the
terms and conditions of the Acquisition Documentation or any such other
documents except for any such amendment, supplement or modification that (i)
becomes effective after the Closing Date and (ii) could not reasonably be
expected to have a Material Adverse Effect.
7.16 Optional Payments and Modifications of Certain Debt Instruments.
---------------------------------------------------------------
(a) Make or offer to make any optional or voluntary payment, prepayment,
repurchase or redemption of or otherwise optionally or voluntarily defease or
segregate funds with respect to the Senior Subordinated Notes, (b) amend,
modify, waive or otherwise change, or consent or agree to any amendment,
modification, waiver or other change to, any of the terms of the Senior
Subordinated Notes (other than any such amendment, modification, waiver or other
change that (i) would extend the maturity or reduce the amount of any payment of
principal thereof or reduce the rate or extend any date for payment of interest
thereon and (ii) does not involve the payment of a consent fee), or (c)
designate any Indebtedness (other than obligations of the Loan Parties pursuant
to the Loan Documents) as "Designated Senior Debt" for the purposes of the
Senior Subordinated Note Indenture.
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation or any other amount payable hereunder or under any other Loan
Document within five days after any such interest or other amount becomes
due in accordance with the terms hereof; or
(b) any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or that is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or
as of the date made or deemed made; or
(c) (i) any Loan Party shall default in the observance or
performance of any agreement contained in clause (i) of Section 6.4(a)
(with respect to Holdings and the Borrower only), Section 6.7(a) or Section
7 of this Agreement or Sections 5.5 and 5.7(b) of the Guarantee and
Collateral Agreement or (ii) an "Event of Default" under and as defined in
any Mortgage shall have occurred and be continuing; or
(d) any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in paragraphs (a) through (c) of this Section), and
such default shall continue unremedied for a period of 30 days after the
earlier of (i) the date on which a Responsible Officer of the Borrower
first learns of such default and (ii) the date on which written notice
thereof shall have been made to the Borrower by the Administrative Agent or
any Lender; or
(e) Holdings, the Borrower or any of its Subsidiaries shall (i)
default in making any payment of any principal of any Indebtedness
(including any Guarantee Obligation, but excluding the Loans) on the
scheduled or original due date with respect thereto; or (ii) default in
making any payment of any interest on any such Indebtedness beyond the
period of grace, if any,
<PAGE>
56
provided in the instrument or agreement under which such Indebtedness was
created; or (iii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating thereto, or
any other event shall occur or condition exist, the effect of which default
or other event or condition is to cause, or to permit the holder or
beneficiary of such Indebtedness (or a trustee or agent on behalf of such
holder or beneficiary) to cause, with the giving of notice if required,
such Indebtedness to become due prior to its stated maturity or (in the
case of any such Indebtedness constituting a Guarantee Obligation) to
become payable; provided, that a default, event or condition described in
--------
clause (i), (ii) or (iii) of this paragraph (e) shall not at any time
constitute an Event of Default unless, at such time, one or more defaults,
events or conditions of the type described in clauses (i), (ii) and (iii)
of this paragraph (e) shall have occurred and be continuing with respect to
Indebtedness the outstanding principal amount of which exceeds in the
aggregate $5,000,000; or
(f) (i) Holdings, the Borrower or any of its Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or Holdings, the
Borrower or any of its Subsidiaries shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against
Holdings, the Borrower or any of its Subsidiaries any case, proceeding or
other action of a nature referred to in clause (i) above that (A) results
in the entry of an order for relief or any such adjudication or appointment
or (B) remains undismissed, undischarged or unbonded for a period of 60
days; or (iii) there shall be commenced against Holdings, the Borrower or
any of its Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets that results in
the entry of an order for any such relief that shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the
entry thereof; or (iv) Holdings, the Borrower or any of its Subsidiaries
shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (i),
(ii), or (iii) above; or (v) Holdings, the Borrower or any of its
Subsidiaries shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(g) (i) any Person shall engage in any non-exempt "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the
Code) involving any Plan, (ii) any "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, shall exist with
respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise
on the assets of the Borrower or any Commonly Controlled Entity, (iii) a
Reportable Event shall occur with respect to, or proceedings under Title IV
of ERISA shall commence to have a trustee appointed under Title IV of
ERISA, or a trustee shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or commencement of proceedings
or appointment of a trustee is, in the reasonable opinion of the Required
Lenders, likely to result in the termination of such Plan for purposes of
Title IV of ERISA, (iv) any Single Employer Plan shall terminate for
purposes of Title IV of ERISA or (v) the Borrower or any Commonly
Controlled Entity shall, or in the reasonable opinion of the Required
Lenders is likely to, incur any liability in connection with a withdrawal
from, or the Insolvency or Reorganization of, a Multiemployer Plan; and in
each case in clauses (i) through (v) above, such event or condition,
together with all other such events or conditions, if any, could, in the
good faith judgment of the Required Lenders, reasonably be expected to have
a Material Adverse Effect; or
<PAGE>
57
(h) one or more judgments or decrees shall be entered against
Holdings, the Borrower or any of its Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance as to which
the relevant insurance company has acknowledged coverage) of $5,000,000 or
more, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 30 days from the entry
thereof; or
(i) any of the Security Documents shall cease, for any reason, to be
in full force and effect, or any Loan Party or any Affiliate of any Loan
Party shall so assert, or any Lien created by any of the Security Documents
shall cease to be enforceable and of the same effect and priority purported
to be created thereby (other than release or termination in accordance with
its terms); or
(j) the guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason (other than release or
termination in accordance with its terms), to be in full force and effect
or any Loan Party or any Affiliate of any Loan Party shall so assert;
(k) the Permitted Investors shall cease to have the power to vote or
direct the voting of securities having a majority of the ordinary voting
power for the election of directors of Holdings (determined on a fully
diluted basis), unless (A) the Permitted Investors own, beneficially and of
record, at least 35% of the common stock of Holdings (determined on a fully
diluted basis), (B) the Permitted Investors own, of record and
beneficially, an amount of common stock of Holdings equal to at least 51%
(on a fully diluted basis) of the common stock of Holdings owned by the
Permitted Investors of record and beneficially as of the Closing Date, (C)
the Permitted Investors have the power (pursuant to stockholder agreements,
proxies or other contractual arrangement) to elect a majority of the board
of directors of Holdings and (D) no "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), has become, or has obtained rights (whether
by means of warrants, options or otherwise) to become, the "beneficial
owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act),
directly or indirectly, of more of the outstanding common stock of Holdings
than that so held by the Permitted Investors;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) shall immediately
become due and payable, and (B) if such event is any other Event of Default,
either or both of the following actions may be taken: (i) with the consent of
the Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice to the Borrower
declare the Revolving Commitments to be terminated forthwith, whereupon the
Revolving Commitments shall immediately terminate; and (ii) with the consent of
the Required Lenders, the Administrative Agent may, or upon the request of the
Required Lenders, the Administrative Agent shall, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the other Loan Documents (including all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) to be due and payable forthwith, whereupon the same shall
immediately become due and payable. With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time of an
acceleration pursuant to this paragraph, the Borrower shall at such time deposit
in a cash collateral account opened by the Administrative Agent an amount equal
to the aggregate then undrawn and unexpired amount of such Letters of Credit.
Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after
<PAGE>
58
all such Letters of Credit shall have expired or been fully drawn upon, if any,
shall be applied to repay other obligations of the Borrower hereunder and under
the other Loan Documents. After all such Letters of Credit shall have expired or
been fully drawn upon, all Reimbursement Obligations shall have been satisfied
and all other obligations of the Borrower hereunder and under the other Loan
Documents shall have been paid in full, the balance, if any, in such cash
collateral account shall be returned to the Borrower (or such other Person as
may be lawfully entitled thereto). Except as expressly provided above in this
Section, presentment, demand, protest and all other notices of any kind are
hereby expressly waived by the Borrower.
SECTION 9. THE ADMINISTRATIVE AGENT
9.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, 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 the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
9.2 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.
9.3 Exculpatory Provisions. Neither the Administrative Agent nor any
----------------------
of its respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in this Agreement or any other Loan Document 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 any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of any Loan Party a party thereto to perform its
obligations hereunder or thereunder. The Administrative Agent shall 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 any other Loan Document, or to inspect the properties,
books or records of any Loan Party.
9.4 Reliance by Administrative Agent. The Administrative Agent shall
--------------------------------
be entitled to rely, and shall be fully protected in relying, upon any
instrument, writing, resolution, notice, consent, certificate, affidavit,
letter, 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 counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative
<PAGE>
59
Agent may deem and treat the payee of any Note as the owner thereof for all
purposes unless a written notice of assignment, negotiation or transfer thereof
shall have been filed with the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders (or, if so specified by this Agreement,
all Lenders) as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense that 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 other Loan Documents in
accordance with a request of the Required Lenders (or, if so specified by this
Agreement, all Lenders), 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 Loans.
9.5 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 Borrower 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 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
reasonably directed by the Required Lenders (or, if so specified by this
Agreement, all Lenders); provided that unless and until the Administrative Agent
--------
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
9.6 Non-Reliance on the Administrative Agent and Other Lenders.
-----------------------------------------------------------
Each Lender expressly acknowledges that neither the Administrative Agent nor any
of its respective officers, directors, employees, agents, attorneys-in-fact or
affiliates have made any representations or warranties to it and that no act by
the Administrative Agent hereinafter taken, including any review of the affairs
of a Loan Party or any affiliate of a Loan Party, shall be deemed to constitute
any representation or warranty by the Administrative Agent to any Lender. Each
Lender represents to the Administrative Agent that it has, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates 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 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
Loan Parties and their affiliates. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of any Loan Party or any affiliate of
a Loan Party that may come into the possession of the Administrative Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
9.7 Indemnification. The Lenders agree to indemnify the
---------------
Administrative Agent in its capacity as such (to the extent not reimbursed by
Holdings or the Borrower and without limiting the obligation of Holdings or the
Borrower to do so), ratably according to their respective Aggregate Exposure
Percentages in effect on the date on which indemnification is sought under this
Section (or, if indemnification is sought after the date upon which the
Commitments shall have terminated and the
<PAGE>
60
Loans shall have been paid in full, ratably in accordance with such Aggregate
Exposure Percentages immediately prior to such date), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever that may at any
time (whether before or after the payment of the Loans) be imposed on, incurred
by or asserted against the Administrative Agent in any way relating to or
arising out of, the Commitments, this Agreement, any of 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,
costs, expenses or disbursements that are found to have resulted from the
Administrative Agent's gross negligence or willful misconduct. The agreements in
this Section shall survive the payment of the Loans and all other amounts
payable hereunder.
9.8 Administrative Agent in Its Individual Capacity. The
-----------------------------------------------
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with any Loan Party as though the
Administrative Agent was not an Administrative Agent. With respect to its Loans
made or renewed by it and with respect to any Letter of Credit issued or
participated in by it, the Administrative Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not an Administrative Agent, and the terms
"Lender" and "Lenders" shall include the Administrative Agent in its individual
capacity.
9.9 Successor Administrative Agent. The Administrative Agent may
------------------------------
resign as Administrative Agent upon 15 days' notice to the Lenders and the
Borrower. If the Administrative Agent shall resign as Administrative Agent
under this Agreement and the other Loan Documents, then the Required Lenders
shall appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall (unless an Event of Default under Section 8(a) or Section
8(f) with respect to the Borrower shall have occurred and be continuing) be
subject to approval by the Borrower (which approval shall not be unreasonably
withheld or delayed), 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 such
appointment and approval, 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 Loans. If no successor
agent has accepted appointment as Administrative Agent by the date that is 15
days following a retiring Administrative Agent's notice of resignation, the
retiring Administrative Agent's resignation shall nevertheless thereupon become
effective and the Lenders shall assume and perform all of the duties of the
Administrative Agent hereunder until such time, if any, as the Required Lenders
appoint a successor agent as provided for above. After any retiring
Administrative Agent's resignation as Administrative Agent, the provisions of
this Section 9 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 and the
other Loan Documents.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, any other Loan
----------------------
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 10.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may,
or, with the written consent of the Required Lenders, the Administrative Agent
and each Loan Party party to the relevant Loan Document may, from time to time,
(a) enter into written amendments, supplements or modifications hereto and to
the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such
terms and
<PAGE>
61
conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
-------- -------
supplement or modification shall (i) eliminate or reduce any voting rights under
this Section 10.1, forgive the principal amount or extend the final scheduled
date of maturity of any Loan, extend the scheduled date of any amortization
payment in respect of any Term Loan, reduce the stated rate of any interest or
fee payable hereunder or extend the scheduled date of any payment thereof, or
increase the amount or extend the expiration date of any Lender's Revolving
Commitment, in each case without the consent of each Lender directly affected
thereby; (ii) reduce any percentage specified in the definition of Required
Lenders, consent to the assignment or transfer by the Borrower of any of its
rights and obligations under this Agreement and the other Loan Documents,
release all or substantially all of the Collateral (it being agreed that the
sharing of Collateral pursuant to the addition of credit facilities or
extensions of credit described in the next succeeding sentence shall not be
deemed to be such a release), release all or substantially all of the Subsidiary
Guarantors from their obligations under the Guarantee and Collateral Agreement,
or subordinate the Loans to any other Indebtedness, in each case without the
consent of all Lenders; (iii) amend, modify or waive any condition precedent to
any extension of credit under the Revolving Facility set forth in Section 5.2
(including in connection with any waiver of an existing Default or Event of
Default) without the consent of the Majority Facility Lenders in respect of the
Revolving Facility; (iv) amend, modify or waive any provision of Section 2.15
without the consent of the Majority Facility Lenders in respect of each Facility
adversely affected thereby; (v) reduce the percentage specified in the
definition of Majority Facility Lenders with respect to any Facility without the
consent of all Lenders under such Facility; (vi) amend, modify or waive any
provision of Section 9 without the consent of the Administrative Agent; or (vii)
amend, modify or waive any provision of Section 3 without the consent of the
Issuing Lender. For the avoidance of doubt, this Agreement may be amended with
the written consent of the Required Lenders, the Administrative Agent and each
Loan Party to each relevant Loan Document (x) to add one or more additional
credit facilities to this Agreement and to permit the extensions of credit from
time to time outstanding thereunder and the accrued interest and fees in respect
thereof (collectively, the "Additional Extensions of Credit") to share ratably
-------------------------------
in the benefits of this Agreement and the other Loan Documents with the Term
Loans and Revolving Extensions of Credit, (y) to include appropriately the
Lenders holding such credit facilities in any determination of the Required
Lenders and Majority Facility Lenders and (z) to permit the Additional
Extensions of Credit to share ratably with the Loans in the application of
mandatory prepayments pursuant to the applicable provisions of this Agreement;
provided, further, that increases in the Revolving Commitment or the borrowing
- -------- -------
of additional Term Loans in an aggregate amount not to exceed $50,000,000
pursuant to Section 2.21 shall not require the consent of any Lender other than
each Lender agreeing, in its sole discretion, to participate in any such
increase or to make such additional Term Loans, as the case may be. Any such
waiver and any such amendment, supplement or modification shall apply equally to
each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the
Administrative Agent and all future holders of the Loans. In the case of any
waiver, the Loan Parties, the Lenders and the Administrative Agent shall be
restored to their former position and rights hereunder and under the other Loan
Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other Default or Event of Default, or impair any right consequent thereon.
10.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or, in the case of mail or telecopy
notice, when received, addressed as follows in the case of Holdings, the
Borrower and the Administrative Agent, and as set forth in an administrative
questionnaire delivered to the Administrative Agent in the case of the Lenders,
or to such other address as may be hereafter notified by the respective parties
hereto:
<PAGE>
62
The Borrower: HDA Parts System, Inc.
520 Lake Cook Road
Deerfield, Illinois 60015
Attention: John P. Miller
Telecopy: 847-444-1096
Telephone: 847-444-1095
Holdings: City Truck Holdings, Inc.
520 Lake Cook Road
Deerfield, Illinois 60015
Attention: John P. Miller
Telecopy: 847-444-1096
Telephone: 847-444-1095
The Administrative Agent: The Chase Manhattan Bank
270 Park Avenue
38th Floor
New York, New York 10017
Attention: Charles D. Smith
Telecopy: 212-270-1063
Telephone: 212-270-3342
with a copy to: The Chase Manhattan Bank
One Chase Manhattan Plaza
New York, New York 10081
Attention: Joselin Fernandes
Telecopy: 212-552-7414
Telephone: 212-552-5777
The Issuing Lender: Chase Manhattan Bank Delaware
Letter of Credit Department C 8th Floor
1201 Market Street
Wilmington, Delaware 19801
Attention: Michael Handago
Telecopy: 302-428-3390
302-984-4904
Telephone: 302-428-3311
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under the other Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
10.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans and other extensions of credit hereunder.
<PAGE>
63
10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay
-----------------------------
or reimburse the Administrative Agent for all its out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification to, this Agreement and the
other Loan Documents and any other documents prepared in connection herewith or
therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including the reasonable fees and disbursements
of counsel to the Administrative Agent and filing and recording fees and
expenses, with statements with respect to the foregoing to be submitted to the
Borrower prior to the Closing Date (in the case of amounts to be paid on the
Closing Date) and from time to time thereafter on a quarterly basis or such
other periodic basis as the Administrative Agent shall deem appropriate, (b) to
pay or reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the other Loan Documents and any such other
documents, including the fees and disbursements of counsel (including the
allocated fees and expenses of in-house counsel) to each Lender and of counsel
to the Administrative Agent, (c) to pay, indemnify, and hold each Lender and the
Administrative Agent harmless from, any and all recording and filing fees and
any and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other taxes, if any, that may be payable or determined to be
payable in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents, and (d)
to pay, indemnify, and hold each Lender and the Administrative Agent and their
respective officers, directors, employees, affiliates, agents and controlling
persons (each, an "Indemnitee") harmless from and against any and all other
----------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents and any such other documents, including any
of the foregoing relating to the use of proceeds of the Loans or the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of Holdings, the Borrower any of its Subsidiaries or any of the
Properties and the reasonable fees and expenses of legal counsel in connection
with claims, actions or proceedings by any Indemnitee against any Loan Party
under any Loan Document (all the foregoing in this clause (d), collectively, the
"Indemnified" Liabilities"), provided, that the Borrower shall have no
------------------------ --------
obligation hereunder to any Indemnitee with respect to Indemnified Liabilities
to the extent such Indemnified Liabilities to have resulted from the gross
negligence or willful misconduct of such Indemnitee. Without limiting the
foregoing, and to the extent permitted by applicable law, the Borrower agrees
not to assert and to cause its Subsidiaries not to assert, and hereby waives and
agrees to cause its Subsidiaries to so waive, all rights for contribution or any
other rights of recovery with respect to all claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses of whatever kind or
nature, under or related to Environmental Laws, that any of them might have by
statute or otherwise against any Indemnitee. All amounts due under this Section
10.5 shall be payable promptly after written demand therefor. Statements payable
by the Borrower pursuant to this Section 10.5 shall be submitted to John P.
Miller (Telephone No. 847-444-1095) (Telecopy No. 847-444-1096), at the address
of the Borrower set forth in Section 10.2, or to such other Person or address as
may be hereafter designated by the Borrower in a written notice to the
Administrative Agent. The agreements in this Section 10.5 shall survive
repayment of the Loans and all other amounts payable hereunder.
10.6 Successors and Assigns; Participations and Assignments. (a) This
------------------------------------------------------
Agreement shall be binding upon and inure to the benefit of Holdings, the
Borrower, the Lenders, the Administrative Agent, all future holders of the Loans
and their respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights or obligations under this Agreement without
the prior written consent of each Lender.
(b) Any Lender may, without the consent of the Borrower, in accordance
with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a
<PAGE>
64
"Participant") participating interests in any Loan owing to such Lender, any
-----------
Commitment of such Lender or any other interest of such Lender hereunder and
under the other Loan Documents. In the event of any such sale by a Lender of a
participating interest to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan for all purposes under this Agreement
and the other Loan Documents, and the Borrower and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other Loan
Documents. In no event shall any Participant under any such participation have
any right to approve any amendment or waiver of any provision of any Loan
Document, or any consent to any departure by any Loan Party therefrom, except to
the extent that such amendment, waiver or consent would reduce the principal of,
or interest on, the Loans or any fees payable hereunder, or postpone the date of
the final maturity of the Loans, in each case to the extent subject to such
participation. The Borrower agrees that if amounts outstanding under this
Agreement and the Loans are due or unpaid, or shall have been declared or shall
have become due and payable upon the occurrence of an Event of Default, each
Participant shall, to the maximum extent permitted by applicable law, be deemed
to have the right of setoff in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
--------
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 10.7(a) as fully as if it were a Lender
hereunder. The Borrower also agrees that each Participant shall be entitled to
the benefits of Sections 2.16, 2.17 and 2.18 with respect to its participation
in the Commitments and the Loans outstanding from time to time as if it was a
Lender; provided that, in the case of Section 2.17, such Participant shall have
--------
complied with the requirements of said Section and provided, further, that no
-------- -------
Participant shall be entitled to receive any greater amount pursuant to any such
Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Lender
to such Participant had no such transfer occurred.
(c) Any Lender (an "Assignor") may, in accordance with applicable
--------
law, at any time and from time to time assign to any Lender, any affiliate of
any Lender or any Approved Fund or, with the consent of the Borrower and the
Administrative Agent (which, in each case, shall not be unreasonably withheld or
delayed), to an additional bank, financial institution or other entity (an
"Assignee") all or any part of its rights and obligations under this Agreement
--------
pursuant to an Assignment and Acceptance, executed by such Assignee, such
Assignor and any other Person whose consent is required pursuant to this
paragraph, and delivered to the Administrative Agent for its acceptance and
recording in the Register; provided that no such assignment to an Assignee
--------
(other than any Lender, any affiliate of any Lender or any Approved Fund) shall
be in an aggregate principal amount of less than $500,000 (other than in the
case of an assignment of all of a Lender's interests under this Agreement),
unless otherwise agreed by the Borrower and the Administrative Agent; provided,
--------
further, that in the case of partial assignments (other than to any Lender, any
- -------
affiliate of any Lender), after giving effect to such assignment, the Assignor's
Commitment shall be at least $1,000,000, unless otherwise agreed by the Borrower
and the Administrative Agent. For purposes of the proviso contained in the
preceding sentence, the amount described therein shall be aggregated in respect
of each Lender and its related Approved Funds, if any. Any such assignment need
not be ratable as among the Facilities. Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) 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 with a Commitment and/or Loans as
set forth therein, and (y) the Assignor thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of an
Assignor's rights and obligations under this Agreement, such Assignor shall
cease to be a party hereto). Notwithstanding any provision of
<PAGE>
65
this Section 10.6, the consent of the Borrower shall not be required for any
assignment that occurs when an Event of Default shall have occurred and be
continuing with respect to the Borrower.
(d) The Administrative Agent shall, on behalf of the Borrower,
maintain at its address referred to in Section 10.2 a copy of each Assignment
and Acceptance delivered to it and a register (the "Register") for the
--------
recordation of the names and addresses of the Lenders and the Commitment of, and
the principal amount of the Loans owing to, each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, each other Loan Party, the Administrative Agent and the
Lenders shall treat each Person whose name is recorded in the Register as the
owner of the Loans and any Notes evidencing the Loans recorded therein for all
purposes of this Agreement. Any assignment of any Loan, whether or not
evidenced by a Note, shall be effective only upon appropriate entries with
respect thereto being made in the Register (and each Note shall expressly so
provide). Any assignment or transfer of all or part of a Loan evidenced by a
Note shall be registered on the Register only upon surrender for registration of
assignment or transfer of the Note evidencing such Loan, accompanied by a duly
executed Assignment and Acceptance, and thereupon one or more new Notes shall be
issued to the designated Assignee.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor, an Assignee and any other Person whose consent is required by Section
10.6(c), together with payment to the Administrative Agent of a registration and
processing fee of $4,000 (except in the case where the Assignee is an Affiliate
of the Assignor), the Administrative Agent shall (i) promptly accept such
Assignment and Acceptance and (ii) record the information contained therein in
the Register on the effective date determined pursuant thereto.
(f) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section 10.6 concerning assignments of Loans and
Notes relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests, including any pledge or
assignment by a Lender of any Loan or Note to any Federal Reserve Bank in
accordance with applicable law.
(g) The Borrower, upon receipt of written notice from the relevant
Lender, agrees to issue Notes to any Lender requiring Notes to facilitate
transactions of the type described in paragraph (f) above.
(h) Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Lender") may grant to a special purpose funding vehicle that
---------------
is an Affiliate of such Lender (an "SPC"), identified as such in writing from
---
time to time by the Granting Lender to the Administrative Agent and the
Borrower, the option to provide to the Borrower all or any part of any Loan that
such Granting Bank would otherwise be obligated to make to the Borrower pursuant
to this Agreement; provided that (i) nothing herein shall constitute a
--------
commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise
such option or otherwise fails to provide all or any part of such Loan, the
Granting Lender shall be obligated to make such Loan pursuant to the terms of
this Agreement. The making of a Loan by an SPC hereunder shall utilize the
Commitment of the Granting Lender to the same extent and as if, such Loan were
made by such Granting Lender. The liability for any indemnity of similar
payment obligations under this Agreement shall at all times remain with the
Granting Lender. In furtherance of the foregoing, each party hereto hereby
agrees (which agreement shall survive the termination of this Agreement) that,
prior to the date that is one year and one day after the payment in full of all
outstanding commercial paper or other senior indebtedness of any SPC, it will
not institute against, or join any other Person in instituting against, such SPC
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings under the laws of the United States or any State thereof. In
addition, notwithstanding anything to the contrary contained in this Section
10.6, any SPC may (i) with notice to, but without the prior written consent of,
the Borrower and the Administrative Agent and without paying
<PAGE>
66
any processing fee thereof, assign all or a portion of its interests in any
Loans to its Granting Lender or to any other financial institutions (consented
to by the Borrower and the Administrative Agent) providing liquidity and/or
credit support to or for the account of such SPC to support the funding or
maintenance of Loans and (ii) disclose on a confidential basis any non-public
information relating to its Loans to any rating agency, commercial paper dealer
of provider of any surety, guarantee or credit or liquidity enhancement to such
SPC.
10.7 Adjustments; Set-off. (a) Except to the extent that this
---------------------
Agreement expressly provides for payments to be allocated to a particular Lender
or to the Lenders under a particular Facility, if any Lender (a "Benefitted
----------
Lender) shall receive any payment of all or part of the Obligations owing to
- ------
it, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 8(f), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of the Obligations owing to such other Lender, such Benefitted Lender shall
purchase for cash from the other Lenders a participating interest in such
portion of the Obligations owing to each such other Lender, or shall provide
such other Lenders with the benefits of any such collateral, as shall be
necessary to cause such Benefitted Lender to share the excess payment or
benefits of such collateral ratably with each of the Lenders; provided, however,
-------- -------
that if all or any portion of such excess payment or benefits is thereafter
recovered from such Benefitted Lender, such purchase shall be rescinded, and the
purchase price and benefits returned, to the extent of such recovery, but
without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to Holdings or the
Borrower, any such notice being expressly waived by Holdings and the Borrower to
the extent permitted by applicable law, upon any amount becoming due and payable
by Holdings or the Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise), to set off and appropriate and apply against such
amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by such Lender or any branch or
agency thereof to or for the credit or the account of Holdings or the Borrower,
as the case may be. Each Lender agrees promptly to notify the Borrower and the
Administrative Agent after any such setoff and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
- --------
such setoff and application.
10.8 Counterparts. This Agreement may be executed by one or more of
------------
the parties to this Agreement on any number of separate counterparts, and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and the Administrative Agent.
10.9 Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of Holdings, the Borrower, the Administrative Agent and
the Lenders with respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof not expressly set forth or
referred to herein or in the other Loan Documents.
<PAGE>
67
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
-------------
OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 Submission To Jurisdiction; Waivers. Each of Holdings and the
-----------------------------------
Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of New York, the courts of the United States for the Southern
District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to Holdings
or the Borrower, as the case may be at its address set forth in Section
10.2 or at such other address of which the Administrative Agent shall have
been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
10.13 Acknowledgements. Each of Holdings and the Borrower hereby
----------------
acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to Holdings or the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between Administrative Agent and Lenders, on one hand, and
Holdings and the Borrower, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Borrower and the Lenders.
10.14 Releases of Guarantees and Liens. (a) Notwithstanding
--------------------------------
anything to the contrary contained herein or in any other Loan Document, the
Administrative Agent is hereby irrevocably authorized by each Lender (without
requirement of notice to or consent of any Lender except as expressly required
by Section 10.1) to take any action requested by the Borrower having the effect
of
<PAGE>
68
releasing any Collateral or guarantee obligations (i) to the extent necessary
to permit consummation of any transaction not prohibited by any Loan Document or
that has been consented to in accordance with Section 10.1 or (ii) under the
circumstances described in paragraph (b) below.
(b) At such time as the Loans, the Reimbursement Obligations and the
other obligations under the Loan Documents (other than obligations under or in
respect of Hedge Agreements) shall have been paid in full, the Commitments have
been terminated and no Letters of Credit shall be outstanding, the Collateral
shall be released from the Liens created by the Security Documents, and the
Security Documents and all obligations (other than those expressly stated to
survive such termination) of the Administrative Agent and each Loan Party under
the Security Documents shall terminate, all without delivery of any instrument
or performance of any act by any Person.
10.15 Confidentiality. Each of the Administrative Agent and each
---------------
Lender agrees to keep confidential all non-public information provided to it by
any Loan Party pursuant to this Agreement; provided that nothing herein shall
--------
prevent the Administrative Agent or any Lender from disclosing any such
information (a) to the Administrative Agent, any other Lender, any affiliate of
any Lender or any Approved Fund, (b) to any Transferee or prospective Transferee
that agrees to comply with the provisions of this Section, (c) to its employees,
directors, agents, attorneys, accountants and other professional advisors or
those of any of its affiliates, (d) upon the request or demand of any
Governmental Authority, (e) in response to any order of any court or other
Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (f) if requested or required to do so in connection with any
litigation or similar proceeding, (g) that has been publicly disclosed through
no violation of this Agreement, or to the knowledge of the Administrative Agent
or such Lender, as the case may be, in violation of any other agreement , (h) to
the National Association of Insurance Commissioners or any similar organization
or any nationally recognized rating agency that requires access to information
about a Lender's investment portfolio in connection with ratings issued with
respect to such Lender, or (i) in connection with the exercise of any remedy
hereunder or under any other Loan Document.
10.16 WAIVERS OF JURY TRIAL. HOLDINGS, THE BORROWER, THE
---------------------
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
HDA PARTS SYSTEM, INC.
By:_____________________________
Name:
Title:
CITY TRUCK HOLDINGS, INC.
By:______________________________
Name:
Title:
<PAGE>
THE CHASE MANHATTAN BANK, as Administrative Agent
and as a Lender
By:_________________________
Name:
Title:
<PAGE>
FIRST UNION NATIONAL BANK, as Documentation Agent
and as a Lender
By:___________________________
Name:
Title:
<PAGE>
CREDIT SUISSE FIRST BOSTON, as Syndication Agent
and as a Lender
By:______________________________________________
Name:
Title:
<PAGE>
HELLER FINANCIAL, INC.
By:______________________________________________
Name:
Title:
<PAGE>
BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC.
By:______________________________________________
Name:
Title:
By:______________________________________________
Name:
Title:
<PAGE>
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:_____________________________________________
Name:
Title:
<PAGE>
DEBIS FINANCIAL SERVICES, INC.
By:_____________________________________________
Name:
Title:
<PAGE>
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN
BRANCHES
By:_____________________________________________
Name:
Title:
By:_____________________________________________
Name:
Title:
<PAGE>
BANKBOSTON, N.A.
By:_____________________________________________
Name:
Title:
<PAGE>
KEY CORPORATE CAPITAL, INC.
By:_____________________________________________
Name:
Title:
<PAGE>
BHF [USA] CAPITAL CORPORATION
By:_____________________________________________
Name:
Title:
By:_____________________________________________
Name:
Title:
<PAGE>
FLEET NATIONAL BANK
By:_____________________________________________
Name:
Title:
<PAGE>
THE BANK OF NOVA SCOTIA
By:_____________________________________________
Name:
Title:
<PAGE>
BANK UNITED
By:_____________________________________________
Name:
Title:
<PAGE>
NATIONAL CITY BANK
By:_____________________________________________
Name:
Title:
<PAGE>
COMERICA BANK
By:_____________________________________________
Name:
Title:
<PAGE>
ALLFIRST BANK
By:_____________________________________________
Name:
Title:
<PAGE>
THE PROVIDENT BANK
By:_____________________________________________
Name:
Title:
<PAGE>
BANK LEUMI USA CHICAGO BRANCH
By:_____________________________________________
Name:
Title:
<PAGE>
Annex A
-------
PRICING GRID FOR REVOLVING LOANS AND COMMITMENT FEES
<TABLE>
=========================================================================================================
Consolidated Applicable Applicable Applicable Applicable Commitment
Leverage Ratio Margin for Margin for ABR Margin for Margin for Fee Rate
Eurodollar Revolving Loans Eurodollar ABR Term
Revolving Term Loans
Loans Loans
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
**5.00x 3.25% 2.25% 3.75% 2.75% 0.500%
---------------------------------------------------------------------------------------------------------------
**4.50x 3.00% 2.00% 3.50% 2.50% 0.500%
--------------------------------------------------------------------------------------------------------------
**4.00x 2.75% 1.75% 3.25% 2.25% 0.500%
--------------------------------------------------------------------------------------------------------------
**3.50x 2.50% 1.50% 3.25% 2.25% 0.500%
--------------------------------------------------------------------------------------------------------------
**3.00x 2.25% 1.25% 3.25% 2.25% 0.500%
--------------------------------------------------------------------------------------------------------------
*3.00x 2.00% 1.00% 3.25% 2.25% 0.375%
==============================================================================================================
</TABLE>
* less than.
** Greater than or equal to.
Notwithstanding the foregoing, prior to delivery of the financial statements in
accordance with Section 6.1(c) for the fiscal period ending December 31, 1999,
the Consolidated Leverage Ratio in effect shall be deemed for the purposes of
this definition to be greater than or equal to 4.00 to 1.0 and less than 4.50 to
1.0. Changes in the Applicable Margin with respect to or in the Commitment Fee
Rate resulting from changes in the Consolidated Leverage Ratio shall become
effective on the date (the "Adjustment Date") on which financial statements are
---------------
delivered to the Lenders pursuant to Section 6.1 (but in any event not later
than the 45th day after the end of each of the first three quarterly periods of
each fiscal year or the 90th day after the end of each fiscal year, as the case
may be) and shall remain in effect until the next change to be effected pursuant
to this paragraph. If any financial statements referred to above are not
delivered within the time periods specified above, then, until such financial
statements are delivered, the Consolidated Leverage Ratio as at the end of the
fiscal period that would have been covered thereby shall for the purposes of
this definition be deemed to be greater than 5.00 to 1.0. In addition, at all
times while an Event of Default shall have occurred and be continuing, the
Consolidated Leverage Ratio shall for the purposes of this definition be deemed
to be greater than 5.00 to 1.0. Except as expressly provided in the definition
of Consolidated EBITDA, each determination of the Consolidated Leverage Ratio
pursuant to this pricing grid shall be made with respect to (or, in the case of
Consolidated Total Debt, as at the end of) the period of four consecutive fiscal
quarters of the Borrower ending at the end of the period covered by the relevant
financial statements.
<PAGE>
Annex B
-------
SOURCES AND USES
----------------
<TABLE>
<CAPTION>
Sources Uses
- --------- ----
<S> <C> <C> <C>
Cash on balance sheet $ 900,000 Cash $ 20,000,000
Refinance Borrower's
Revolving Facility $ 52,100,000 Indebtedness $ 78,200,000
Refinance QDSP's
Term Facility $ 75,000,000 Indebtedness $ 59,300,000
Equity Investment $ 40,000,000 Fees and expenses $ 10,500,000
------------ ------------
$168,000,000 $168,000,000
============ ============
</TABLE>
<PAGE>
Schedule 1.1 A
--------------
COMMITMENT SCHEDULE
<PAGE>
Schedule 1.1B
-------------
MORTGAGED PROPERTY
<PAGE>
Schedule 4.4
------------
CONSENTS, AUTHORIZATIONS, FILINGS AND NOTICES
<PAGE>
Schedule 4.15
-------------
SUBSIDIARIES
Grantor Location
------- --------
<PAGE>
Schedule 4.17
-------------
ENVIRONMENTAL MATTERS
<PAGE>
Schedule 4.19(a)
----------------
UCC FILING JURISDICTIONS
Central Filings:
---------------
County Filings:
--------------
<PAGE>
Schedule 4.19(b)
----------------
MORTGAGE FILING JURISDICTIONS
<PAGE>
Schedule 7.2(d)
---------------
EXISTING INDEBTEDNESS
<PAGE>
Schedule 7.2(f)
---------------
EXISTING LIENS
<PAGE>
Exhibit 10.11
MANAGEMENT SERVICES AGREEMENT
-----------------------------
THIS MANAGEMENT SERVICES AGREEMENT (this "Agreement") is made and entered
into as of September 30, 1999 by and among City Truck Holdings, Inc., a Delaware
corporation (the "Company"), Brentwood Private Equity Management LLC, a Delaware
limited liability company ("BPEM"), and Aurora Management Partners LLC, a
Delaware limited liability company ("AMP").
WHEREAS, the Company wishes to assure itself of the services of BPEM and
AMP as financial consultants upon the terms and conditions set forth in this
Agreement, and BPEM and AMP are willing to accept such consultancies;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. Scope of Services. BPEM and AMP, through their respective employees,
-----------------
affiliates and employees of affiliates, shall provide the Company with
consultation and advice in such fields as financial services, accounting,
general business management, acquisitions, dispositions, banking and other
matters (the "Services"). BPEM and AMP shall, in their reasonable discretion,
determine the amount of time to be expended by their respective affiliates and
employees in performing such Services. BPEM and AMP shall perform their
respective duties hereunder at such times and places as are reasonable, in the
reasonable discretion of BPEM or AMP, as the case may be, in the light of the
tasks involved. Neither BPEM nor AMP shall be required to comply with any
established work schedule, and neither BPEM nor AMP shall be assigned regularly
scheduled duties by the Company. The Company shall, in soliciting BPEM's or
AMP's advice and requesting BPEM's or AMP's performance of its duties hereunder,
give BPEM or AMP, as the case may be, reasonable advance notice of the same in
consideration of BPEM's and AMP's other business obligations.
2. Compensation.
------------
(a) In consideration of the Services to be rendered hereunder, the Company
hereby agrees to pay each of BPEM and AMP a fee of $375,000 per annum, to be
paid semiannually in advance.
(b) In addition to the semi-annual fees payable to each of BPEM and AMP
under Section 2(a) above, the Company shall (i) pay to each of BPEM and AMP a
transaction fee for merger and acquisition Services rendered in connection with
acquisitions, sales or dispositions made by or of the Company or any of its
affiliates in which the Company has a direct or indirect ownership interest,
except for any such transactions effected in the ordinary course of the
Company's and its subsidiaries' business for consideration not exceeding
$100,000 in any individual or series of related transactions, such fee to equal
0.75% of the aggregate transaction consideration (including debt assumed by the
purchaser and current assets retained by the seller
<PAGE>
and including amounts paid or to be paid under noncompete agreements and
management, consulting or similar agreements with sellers or personnel of
sellers that do not require the individual or entity party thereto to devote
more than 20 hours per week to the performance of the contract services) and
(ii) promptly reimburse each of BPEM and AMP for all reasonable out-of-pocket
costs and expenses incurred in connection with the performance of their
respective obligations under this Agreement. Such costs and expenses include but
are not limited to travel, legal fees and costs and accountants' fees and costs.
In addition, in recognition of the substantial investment of affiliates of BPEM
and AMP in the Company, the Company agrees to reimburse each of BPEM and AMP for
all reasonable fees and expenses incurred in connection with their investments
(and those of their affiliates) in the Company, including without limitation (A)
any requested waivers of any rights of BPEM or any of its affiliates or
investors (solely in their capacity as limited partner investors) (collectively,
the "BPEM Entities") or AMP or their respective affiliates (collectively, the
"AMP Entities") relating to, or the consent of any BPEM Entity or AMP Entity to,
contemplated acts of the Company (whether or not granted or obtained); (B)
preparation and distribution to BPEM Entities and AMP Entities of financial
statements, tax returns and other information or reports relating to such BPEM
Entity's or AMP Entity's interest in the Company (including the reasonable fees
and costs of accountants and other experts incurred in connection therewith);
(C) customary maintenance and monitoring activities associated with their
respective interests in the Company; (D) any sale or other disposition or
distribution of any interest in the Company by any BPEM Entity or AMP Entity,
including without limitation the sale, reorganization, or recapitalization of
the Company itself; and (E) compliance with applicable laws, rules and
regulations with respect to the matters in clauses (A) through (D) of this
paragraph.
3. Term. Unless earlier terminated as provided in Section 4 below, the
----
term of this Agreement shall commence on the date hereof and shall automatically
terminate (a) with respect to BPEM, on the date that Brentwood Associates Buyout
Fund II, L.P. ("BABF") and its affiliates no longer retain the voting and
dispositive power with respect to at least 45% of the total number of shares of
Common Stock, par value $.01 per share, of the Company ("Common Stock")
(adjusted to reflect any reverse or forward stock split, stock dividend,
recapitalization or similar event occurring following the consummation of the
transactions contemplated by the Agreement and Plan of Merger, dated as of
September 3, 1999 (the "Merger Agreement"), by and among QDSP Holdings, Inc., a
Delaware corporation, the Company and Fleetpride Acquisition Corporation, a
Delaware corporation and a wholly owned subsidiary of the Company), that are
held by BABF immediately following the consummation of the transactions
contemplated by the Merger Agreement and (b) with respect to AMP, on the date
that Aurora Equity Partners II, L.P. and Aurora Overseas Equity Partners II,
L.P. (collectively, the "Aurora Funds") and their affiliates no longer retain
the voting and dispositive power with respect to at least 45% of the total
number of shares of Common Stock (adjusted to reflect any reverse or forward
stock split, stock dividend, recapitalization or similar event occurring
following the consummation of the transactions contemplated by the Merger
Agreement) that are held by the Aurora Funds immediately following the
consummation of the transactions contemplated by the Merger Agreement. Any
transfer or distribution by BABF or the Aurora Funds or any of their affiliates
to any of their other affiliates (other than limited partners) will be ignored
for purposes of calculating the 45% referred to in the previous sentence. The
expiration of the term of this Agreement with respect to BPEM or AMP, as the
case may be, shall not adversely affect
<PAGE>
BPEM's or AMP's right to receive any compensation accrued prior to the date of
such termination or any rights to receive reimbursement of any out-of-pocket
expenses incurred by BPEM or AMP, as the case may be, prior to the date of such
termination. The provisions of Sections 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15
shall survive the expiration of the term of this Agreement or any termination of
this Agreement.
4. Termination for Cause.
---------------------
(a) The Company, by written notice to BPEM authorized by a majority of the
directors other than those appointed by BPEM, may terminate this Agreement with
respect to BPEM for justifiable cause, which shall mean any of the following
events: (i) misappropriation by BPEM of funds or property of the Company; (ii)
gross neglect or willful misconduct by BPEM in the fulfillment of its
obligations hereunder; or (iii) the conviction of BPEM or any person who is then
a managing director (or similar position holder) of BPEM of a felony involving
moral turpitude that has become final and not subject to further appeal. The
termination of this Agreement with respect to BPEM shall not adversely affect
any of AMP's rights under this Agreement.
(b) The Company, by written notice to AMP authorized by a majority of the
directors other than those appointed by AMP, may terminate this Agreement with
respect to AMP for justifiable cause, which shall mean any of the following
events: (i) misappropriation by AMP of funds or property of the Company; (ii)
gross neglect or willful misconduct by AMP in the fulfillment of its obligations
hereunder; or (iii) the conviction of AMP or any person who is then a managing
director (or similar position holder) of AMP of a felony involving moral
turpitude that has become final and not subject to further appeal. The
termination of this Agreement with respect to AMP shall not adversely affect any
of BPEM's rights under this Agreement.
5. Confidential Information. During the term of this Agreement, BPEM and
------------------------
AMP will have access to and become acquainted with confidential information of
the Company, including, among other things, customer relationships, processes
and compilations of information, records and specifications that are owned by
the Company. Neither BPEM nor AMP shall use any of the Company's confidential
information in any way that is detrimental to the interests of the Company,
directly or indirectly, either during or within one year after a termination of
this Agreement with respect to BPEM or AMP, as the case may be. It is agreed
that "confidential information" does not include (i) information that is or
becomes generally available to the public other than (A) in the case of BPEM,
through breach by BPEM of this paragraph 5 and (B) in the case of AMP, through
breach of AMP of this paragraph 5, or (ii) information that becomes known to
BPEM or AMP from a source not known to BPEM or AMP, as the case may be, to be
bound by an obligation of confidentiality with respect thereto.
6. Notices. All notices, demands and requests required under this
-------
Agreement shall be in writing and shall be deemed to have been given if served
personally or sent by registered or certified mail, postage prepaid, or by
telegraph or telex addressed to the addressee set forth or such other addresses
as either party may designate by notice to the other:
<PAGE>
If to the Company: City Truck Holdings, Inc.
520 Lake Cook Road
Deerfield, Illinois 60015
Telecopier No: (847) 444-1097
Attn: John J. Greisch
If to BPEM: Brentwood Private Equity LLC
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Telecopier No: (310) 477-1011
Attn: Christopher A. Laurence
If to AMP: Aurora Management Partners LLC
1800 Century Park East
Suite 1000
Los Angeles, California 90067
Telecopier No: (310) 227-5591
Attn: Richard K. Roeder
Notices delivered in person shall be effective when so delivered. Notices
delivered by courier shall be effective three business days after delivery by
the sender to an air courier of national reputation who guarantees delivery
within such three business day period. Telecopied notices shall be effective
when receipt is acknowledged telephonically by the addressee or its agent or
employee. Notices sent by mail shall be effective five business days after the
sender's deposit of such notice in the United States mails, first class postage
prepaid.
7. Assigns and Successors. The rights and obligations of the Company
----------------------
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. The rights and obligations of BPEM under
this Agreement may be assigned by BPEM in its sole discretion to an affiliate of
BPEM, and the rights and obligations of AMP under this Agreement may be assigned
by AMP in its sole discretion to an affiliate of AMP.
8. Attorneys' Fees. If any legal proceeding is necessary to enforce or
---------------
interpret the terms of this Agreement, or to recover damages for breach thereof,
the prevailing party shall be entitled to reasonable attorneys' fees, as well as
costs and disbursements, in addition to any other relief to which such party is
entitled.
9. Indemnity. The Company shall indemnify and hold each of BPEM and AMP
---------
and their respective members, officers, employees, agents and affiliates and the
controlling persons, stockholders, affiliates, directors, officers and employees
of any of the foregoing (and representatives and agents of any of the foregoing
designated by BPEM or AMP from time to time whether before or after the
occurrence of the event giving rise to the claim for indemnity) (each such
person entitled to indemnity hereunder being referred to as an "Indemnitee")
harmless from any and all losses, costs, liabilities and damages (including
reasonable attorneys' fees) (collectively, "Expenses") arising out of or
connected with, or claimed to arise out of or to be connected with, any act
performed or omitted to be performed under this Agreement or otherwise relating
to the business or affairs of the Company or its affiliates; provided that the
Company will not be required to provide such indemnification if a court of
competent jurisdiction has rendered a judgment that is no longer subject to
appeal or further review that such Expenses have resulted solely from
Indemnitee's gross negligence or willful misconduct. An adverse judgment or
plea of nolo contendere shall not, of itself, create a presumption that the
Indemnitee was grossly negligent or committed willful misconduct. Expenses
incurred in defending any civil or criminal action arising out of or relating to
any event or circumstance to which this Section 9
<PAGE>
shall apply shall be paid by the Company upon receipt of an undertaking by or on
behalf of the Indemnitee to repay such amount if it be later shown that such
Indemnitee was not entitled to indemnification. No Indemnitee shall be liable to
the Company or any of its affiliates, stockholders, directors, officers or
employees or any affiliates, stockholders, partners, directors, officers,
employees, representatives or agents of any of the foregoing or any other person
claiming through any of the foregoing for any act or omission by BPEM or AMP, as
the case may be, in the performance of its duties hereunder or otherwise in
relation hereto unless it has been determined by judgment of a court of
competent jurisdiction that is no longer subject to appeal or further review
that such act or omission constituted gross negligence or willful misconduct on
the part of such Indemnitee.
10. Outside Activities of BPEM and AMP. Each of BPEM and AMP shall be
----------------------------------
entitled to and may have business interests and engage in business activities in
addition to the activities contemplated by this Agreement. None of BPEM, AMP,
any member, officer, employee or affiliate of BPEM or AMP or any stockholder,
director, officer or employee of the foregoing shall have any obligation or duty
to offer any investment or business opportunity (other than an opportunity
directly involving heavy duty truck parts distribution or service) of any kind
to the Company or any of its respective stockholders, directors, officers or
employees (under any doctrine of "corporate opportunity" or otherwise), it being
expressly understood that BPEM and AMP and their respective members, officers,
employees and affiliates and the controlling persons, stockholders, directors,
officers and employees of any of the foregoing may make investments in, acquire,
or provide management, advisory or consulting services to, entities engaged in
businesses similar to the business of the Company without any duty, obligation
or liability to the Company or its respective stockholders, directors, officers
or employees.
11. Amendment; Waiver. This Agreement may be amended, and any right or
-----------------
claim hereunder waived, only by a written instrument signed by BPEM, AMP and the
Company. Except as provided in Section 9 hereof, nothing in this Agreement,
express or implied, is intended to confer upon any third person any rights or
remedies under or by reason of this Agreement. No amendment or waiver of this
Agreement requires the consent of any individual, partnership, corporation or
other entity not a party to this Agreement, except that any amendment of Section
9 shall only operate prospectively as to any Indemnitee provided therein unless
such Indemnitee shall have agreed in writing to such amendment.
12. Construction. All Section and paragraph titles or captions contained
-------------
in this Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of any provision. All terms used in this Agreement
include, where appropriate, the singular as well as the plural and the
masculine, feminine and neuter genders. The words "herein," "hereof" and
"hereunder," and other words of similar import, refer to this Agreement as a
whole and not to any particular Section, paragraph or other subdivision; and all
Section, paragraph and other subdivision references contained herein refer to
Sections, paragraphs and other subdivisions hereof unless another agreement or
instrument is specifically referenced. Use herein of the term "or" is not
intended to be exclusive, unless the context clearly requires. All
<PAGE>
provisions hereof apply to successive events and transactions. Time is of the
essence for each and every term and condition of this Agreement in which time is
a factor.
13. Severability. If any term or provision of this Agreement or the
------------
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or enforceable.
14. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be considered an original but all of which
together shall constitute the same instrument.
15. Governing Law. This Agreement shall in all respects be interpreted,
-------------
construed and governed by and in accordance with the laws of the State of
Delaware, disregarding any conflict of laws provisions that may require the
application of the law of another jurisdiction.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
CITY TRUCK HOLDINGS, INC.
By: /s/ John J. Greisch
----------------------------------
Name: John J. Greisch
Title: President
BRENTWOOD PRIVATE EQUITY MANAGEMENT LLC
By: /s/ Christopher A. Laurence
----------------------------------
Name: Christopher A. Laurence
Title: Managing Member
AURORA MANAGEMENT PARTNERS LLC.
By: /s/ Richard K. Roeder
----------------------------------
Name: Richard K. Roeder
Title: Vice President and Secretary
<PAGE>
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
This Amended and Restated Stockholders' Agreement (this "Agreement")
is made and entered into as of September 30, 1999, by and among the parties
listed on the signature pages attached hereto (the "Stockholders") and City
Truck Holdings, Inc., a Delaware corporation (the "Company").
RECITALS
--------
WHEREAS, the Stockholders, owning 97.95% of the outstanding shares of
Common Stock of the Company, par value $.01 per share ("Company Common Stock"),
95% of the outstanding shares of Series A Preferred Stock of the Company, par
value $.01 per share ("Series A Preferred"), and 100% of the outstanding shares
of Series B Preferred Stock of the Company, par value $.01 per share (together
with Series A Preferred, "Company Preferred Stock," and Company Preferred Stock
and Company Common Stock being referred to collectively as "Company Stock"), and
100% of the outstanding options to acquire Company Stock (the "Options"), desire
to enter into this Agreement for the purposes of amending and restating that
certain Stockholders' Agreement among the Company and certain of its
stockholders dated as of September 30, 1998, and regulating certain aspects of
their relationship on and after the date hereof;
NOW THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
Section I. Authorization.
-------------
Each Stockholder hereby represents and warrants to the Company and to
each other that (i) such Stockholder has full power and authority to execute and
deliver this Agreement and perform such Stockholder's obligations hereunder,
(ii) the execution and delivery of this Agreement has been duly and validly
authorized, and all necessary action has been taken, to make this Agreement a
valid and binding obligation of such Stockholder, enforceable in accordance with
its terms, except that the enforcement hereof may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and to general principles of
equity (regardless of whether such enforcement is considered in a proceeding in
equity or at law), and (iii) the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby in accordance with the
terms of this Agreement and the performance of such Stockholder's obligations
hereunder will not conflict with, or result in any violation of or default
under, any provision of any governing instrument applicable to such Stockholder
or any agreement or other instrument to which such Stockholder is a party or by
which such Stockholder or any of such Stockholder's properties are bound or any
permit, franchise, judgment, decree, statute, rule or regulation applicable to
such Stockholder or such Stockholder's properties or assets.
Section II. Certain Covenants of the Company.
--------------------------------
<PAGE>
When it is first legally required to do so, the Company will register
the Company Common Stock under Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), will keep such registration effective and
will timely file such information, documents and reports as the Securities and
Exchange Commission (the "Commission") may require or prescribe under Section 13
of the Exchange Act, including the rules of the Commission promulgated
thereunder. From and after the effective date of any registration statement
filed by the Company under the Securities Act of 1933, as amended (the
"Securities Act"), the Company will timely file such information, documents and
reports as the Commission may require under Section 13 or 15(d) (whichever is
applicable) of the Exchange Act, including the rules of the Commission
promulgated thereunder. Immediately upon becoming subject to the reporting
requirements of either Section 13 or 15(d) of the Exchange Act, the Company will
forthwith upon request furnish any Stockholder (i) a written statement by the
Company that it has complied with such reporting requirements, (ii) a copy of
the most recent annual or quarterly report of the Company filed by the Company
with the Commission, and (iii) such other reports and documents filed by the
Company with the Commission as such Stockholder may reasonably request. The
Company acknowledges and agrees that the purpose of the requirements contained
in this Section II is to enable any such Stockholder to comply with the current
public information requirements contained in Commission Rule 144 and Rule 144A
under the Securities Act should such Stockholder ever wish to dispose of any
Company Stock without registration under the Securities Act in reliance upon
Rule 144 or Rule 144A (or any other similar exemptive provision) and such
disposition is permitted by the terms of this Agreement. In addition, the
Company will take such other measures and file such other information, documents
and reports, as shall hereafter be required by the Commission as a condition to
the availability of Rule 144 and Rule 144A under the Securities Act (or any
similar exemptive provision hereafter in effect).
Section III. Rights of First Refusal.
-----------------------
A. Except as set forth in Section VII or the immediately following
sentence, before any shares of Company Stock, or any beneficial interest
therein, may be sold, transferred or assigned (including transfer by operation
of law) or pledged, hypothecated or encumbered by any Stockholder (a "Selling
Stockholder") such shares shall first be offered to the Company and other
Stockholders owning the same class or series of Company Stock (the "Applicable
Class Stockholders") in the manner set forth in this Section III. The
provisions of the immediately preceding sentence shall not apply to a transfer,
assignment or pledge to a bank or other lending institution to secure loans
extended by such bank or other lending institution for any purpose, provided
that, prior to such transfer, assignment or pledge, such bank or other lending
institution agrees in writing to be bound by the provisions of this Agreement
and delivers written notice of such agreement to the Company. Any purported
transfer in violation of the provisions of this Section III shall be void and
ineffective and shall not operate to transfer any interest in or title to the
shares of Company Stock to the purported transferee.
B. The Selling Stockholder shall deliver a notice (the "Selling
Stockholder Notice") to the Company stating (i) the Selling Stockholder's bona
fide intention to sell or transfer such shares, (ii) the number of shares
proposed to be sold or transferred (the "Noticed Shares"), (iii) the price for
which it is proposed to sell or transfer the Noticed Shares (in the case of a
transfer not involving a sale, such price shall be deemed to be the fair market
value of the
<PAGE>
Noticed Shares as determined pursuant to Section III.D hereof), the terms of
payment of that price and the other terms and conditions of sale, and (iv) the
name and address of the proposed purchaser or transferee. Other than as
permitted by Section VII or as a bona fide gift, a Selling Stockholder shall not
effect, or attempt to effect, any sale or other transfer for value of the
Company Stock other than for money or an obligation to pay money.
C. For a period of thirty (30) days after receipt of the Selling
Stockholder Notice, the Company or its assignee or assignees (other than Aurora,
Aurora Overseas, BABF, HDA, QDEP or an Affiliate of Aurora, Aurora Overseas,
BABF, HDA or QDEP) (any such assignee being hereinafter referred to as
"Permitted Assignee") shall have the option, but not the obligation, to purchase
all, but not less than all, of the Noticed Shares. If the Company (including
its Permitted Assignee or Permitted Assignees) elects not to purchase all of the
Noticed Shares, it shall give written notice (the "Company Notice") to the other
Applicable Class Stockholders within the thirty (30) day period following
receipt of the Selling Stockholder Notice, and for a period of twenty (20) days
after receipt of the Company Notice, the other Applicable Class Stockholders
shall have the option, but not the obligation, to purchase all, but not less
than all, of the Noticed Shares not elected for purchase by the Company
(including its Permitted Assignee or Permitted Assignees), and such purchase,
unless otherwise agreed among the Applicable Class Stockholders that elect to
purchase such Noticed Shares, shall be pro rata in proportion to the number of
--------
shares of such class or series held by each Applicable Class Stockholder that
elects to purchase such Noticed Shares relative to the aggregate number of
shares of such class or series held by all of the Applicable Class Stockholders
that elect to purchase such Noticed Shares) on the same terms and conditions as
set forth in the Selling Stockholder Notice. The price per share of the Noticed
Shares purchased pursuant to this Section III.C shall be, in the case of a sale,
the price per share as set forth in the Selling Stockholder Notice and, in the
case of a transfer not involving a sale, the fair market value of such shares
determined pursuant to Section III.D hereof, and the purchase shall be in all
other material respects on the same terms and subject to the same conditions as
those set forth in the Selling Stockholder Notice.
D. In the case of a transfer of shares of Company Stock not
involving a sale, the fair market value of the shares shall be determined in
good faith by the Board of Directors of the Company (the "Board"), and such
determination will be final and binding upon all parties and persons claiming
under or through them; provided, however, if a Selling Stockholder is not
-----------------
satisfied with such determination of fair market value, the Selling Stockholder
may elect not to proceed with the proposed transfer of shares of Company Stock
not involving a sale and retain such shares under this Agreement.
E. If the Company (including its Permitted Assignee or Permitted
Assignees) and the other Applicable Class Stockholders do not elect to purchase
all of the Noticed Shares, then none of such shares shall be purchased, unless
the Selling Stockholder elects otherwise, and the Selling Stockholder may sell
or transfer all (but not less than all) of such shares (less any shares that
such Selling Stockholder has otherwise elected to sell pursuant to the election
permitted in the first part of this compound sentence) to the purchaser or
transferee named in the Selling Stockholder Notice at, in the case of a sale, at
a price and on terms no less favorable than those set forth in the Selling
Stockholder Notice, provided that such sale or transfer is
<PAGE>
consummated within five (5) months following the date of the Selling Stockholder
Notice.
F. The provisions of this Section III shall terminate upon the
earlier of (i) the closing of an underwritten public offering of Company Common
Stock pursuant to a registration statement declared effective under the
Securities Act, following which the Company Common Stock is listed on a national
securities exchange or The Nasdaq Stock Market, provided that the net proceeds
of such offering are not less than $50,000,000 (such an offering being
hereinafter referred to as a "Qualified IPO"), or (ii) the transfer, by sale or
exchange of shares or merger, consolidation or other business combination
involving the Company or otherwise, of outstanding shares of the capital stock
of the Company representing more that 50% of the voting power in terms of the
election of directors of the Company; provided, however, that no such transfer
-----------------
shall be deemed to have occurred as the result of (1) any redemption by the
Company of all or any portion of any series of its outstanding preferred stock,
(2) any acquisition by the Company or an employee benefit plan (or related
trust) sponsored or maintained by the Company or any subsidiary of the Company,
or by the Brentwood Group or the Aurora Group or any of their respective
Affiliates, of shares of the capital stock of the Company or (3) a merger,
consolidation or other business combination involving the Company if,
immediately following such merger, consolidation or other business combination,
(a) all or substantially all of the individuals and entities that were the
beneficial owners (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of each class of the outstanding voting stock of the Company
immediately prior to such merger, consolidation or other business combination
directly or indirectly beneficially own more than 50% of the combined voting
power of each class of the then outstanding voting securities of the entity
resulting from such merger, consolidation or other business combination
(including but not limited to an entity that, as a result of such transaction,
owns the Company or all or substantially all of the Company's assets either
directly or indirectly or through one or more subsidiaries) in substantially the
same proportions, relative to each other, as their ownership of such class of
the voting stock of the Company immediately prior to such merger, consolidation
or other business combination, and (b) no individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (other than the
Company, the entity resulting from such merger, consolidation or other business
combination, any employee benefit plan (or related trust) sponsored or
maintained by the Company, a subsidiary of the Company or the entity resulting
from such merger, consolidation or other business combination or the Brentwood
Group, the Aurora Group or any of their respective Affiliates) directly or
indirectly beneficially owns 50% or more of the combined voting power of the
then outstanding voting securities of the entity resulting from such merger,
consolidation or other business combination.
G. (a) Each Stockholder shall notify the Company, Aurora and
Brentwood promptly upon the occurrence of an Involuntary Transfer of any shares
of Company Stock. If an Involuntary Transfer of any of the shares of Company
Stock owned by any Stockholder shall occur, the parties hereto shall have the
same rights of first refusal under this Section III with respect thereto (the
"Transferred Securities") as if the Involuntary Transfer had been a proposed
voluntary transfer by such Stockholder, the same procedures set forth above
shall apply, except that:
(i) the periods within which such rights must be exercised
shall run from the date that notice of the Involuntary Transfer is received
from the Stockholder or
<PAGE>
its legal representative; and
(ii) such rights shall be exercised by notice (an "Involuntary
Transfer Notice") to the transferee of the Involuntary Transfer rather than
to the Stockholder with respect to which such Involuntary Transfer has
occurred.
(b) In the event that the provisions of this Section III.G shall be
held to be unenforceable with respect to any particular Involuntary Transfer of
shares of Company Stock, the parties hereto shall have the rights of first
refusal set forth in this Section III if the transferee of the Involuntary
Transfer subsequently obtains a bona fide offer for and desires to transfer such
Transferred Securities.
Section IV. Tag-Along Rights.
----------------
A. If any Stockholder then owning 10% or more of the outstanding
shares of any class or series of Company Stock (in such capacity, a "Selling 10%
Stockholder") at any time or from time to time enter(s) into an oral or written
agreement to directly or indirectly transfer, sell or otherwise dispose of (a
"Tag-Along Sale") outstanding shares of any class or series of Company Stock or
any interest therein, then, in addition to the rights set forth in Section III,
each other Stockholder shall have the right, but not the obligation, to
participate in the Tag-Along Sale (and to displace the Selling 10% Stockholder
to the extent of such participation) by selling up to such Stockholder's pro
---
rata share (in proportion to the number of shares of such class or series held
- ----
by each other Stockholder so electing to participate) of the number of shares of
Company Stock (the "Stockholders' Allotment") equal to the product of (i) the
total number of shares of Company Stock proposed to be sold or otherwise
disposed of by the Selling 10% Stockholder in the Tag-Along Sale multiplied by
(ii) a fraction, the numerator of which shall equal the aggregate number of
shares of Company Stock owned immediately prior to the Tag-Along Sale by
Stockholders (other than the Selling 10% Stockholder) who have elected to
participate in the Tag-Along Sale, and the denominator of which shall equal the
sum of (1) the aggregate number of shares of Company Stock owned immediately
prior to the Tag-Along Sale by the Selling 10% Stockholder and (2) the aggregate
number of shares of such class of Company Stock owned immediately prior to the
Tag-Along Sale by Stockholders (other than the Selling 10% Stockholder) who have
elected to participate in such Tag-Along Sale. Each other Stockholder shall
only have the right to include shares of Company Stock of the same class or
classes as is or are being sold by the Selling 10% Stockholder. If the Selling
10% Stockholder is selling more than one class of Company Stock, the provisions
of this Section IV shall apply separately to each such class; provided, however,
------------------
that no Stockholder may elect to participate in a Tag-Along Sale with respect to
one class of stock unless such stockholder elects to participate, on a pro rata
--------
basis, with respect to all other classes of Company Stock being transferred by
the Selling 10% Stockholder as well.
Any such sale by any Stockholder shall be on the same terms and
conditions as the proposed Tag-Along Sale by the Selling 10% Stockholder;
provided, however, that all selling Stockholders shall share pro rata, based
- -------- ------- --------
upon the number of shares of each class or series of Company Stock being sold by
each such Stockholder (i) in any indemnity liabilities to the purchaser in the
Tag-Along Sale (other than liabilities for breaches of representations as to
<PAGE>
unencumbered ownership of and ability to transfer the shares being sold in the
Tag-Along Sale ("Title Representations"), which shall be the sole responsibility
of the selling Stockholder who breaches any of such Stockholder's Title
Representations) and (ii) in any escrow for the purpose of satisfying any such
indemnity liabilities; provided, however, if a Selling 10% Stockholder is
------------------
selling more than two-thirds of its total Company Preferred Stock or Company
Common Stock in the Tag-Along Sale, then the provisos in the second paragraph of
Section V.A shall apply to the Tag-Along Sale to limit the obligations of any
less than 10% Stockholder participating in the Tag-Along Sale.
B. The Selling 10% Stockholder shall promptly provide each
Stockholder with written notice (the "Tag-Along Sale Notice") not more than 60
days and not less than 20 days prior to the proposed date of the Tag-Along Sale
(the "Tag-Along Sale Date"). In order to facilitate the prompt delivery of the
Tag-Along Sale Notices, the Company hereby covenants to provide the Selling 10%
Stockholder access to the stock record books of the Company. Each Tag-Along
Sale Notice shall set forth (i) the name and address of each proposed transferee
or purchaser of shares of Company Stock in the Tag-Along Sale, (ii) the name and
address of the Selling 10% Stockholder and the number of shares of Company Stock
proposed to be transferred or sold by the Selling 10% Stockholder member, (iii)
the proposed amount and form of consideration to be paid for such shares and the
terms and conditions of payment offered by each proposed transferee or
purchaser, (iv) the aggregate number of shares of Company Stock held of record
as of the close of business on the date of the Tag-Along Sale Notice (the "Tag-
Along Notice Date") by the Stockholder to whom the notice is sent and the
aggregate number of such Stockholder's shares of Company Stock outstanding on
the Tag-Along Notice Date, (v) the aggregate number of shares of Company Stock
held of record as of the Tag-Along Notice Date by the Selling 10% Stockholder,
(vi) the maximum number of shares of Company Stock (the "Stockholder's
Allotment") that the Stockholder to whom the notice is sent is entitled to
include in the Tag-Along Sale assuming each Stockholder elected to participate
in the Tag-Along Sale and elected to sell the maximum number of shares owned by
each such Stockholder, (vii) the number of shares of each class of Company Stock
constituting the Stockholders' Allotment, (viii) confirmation that the proposed
purchaser or transferee has been informed of the "Tag-Along Rights" provided for
herein and has agreed to purchase shares of Company Stock in accordance with the
terms hereof, (ix) the estimated Tag-Along Sale Date and (x) confirmation that,
with respect to the shares of Company Stock to be acquired by the proposed
transferee or purchaser, the proposed transferee or purchaser agrees in writing
to be bound by, and covenants that each subsequent transferee of any such shares
shall be bound by, the provisions of this Agreement as if he or it were the
Selling 10% Stockholder.
Each Stockholder shall provide written notice (or oral notice
confirmed in writing within five (5) days) (the "Tag-Along Notice") of such
Stockholder's election to participate in the Tag-Along Sale to the Selling 10%
Stockholder no less than 10 days prior to the Tag-Along Sale Date. The Tag-
Along Notice shall set forth the number of shares of Company Stock, if any, that
such Stockholder desires to include in the Tag-Along Sale (which shall not
exceed such Stockholder's Allotment of each affected class of Company Stock).
The Tag-Along Notice shall
<PAGE>
also specify the aggregate number of additional shares, if any, of each affected
class of Company Stock owned of record as of the Tag-Along Notice Date by such
Stockholder that such Stockholder desires to also include in the Tag-Along Sale
("Additional Shares") in the event that all Stockholders do not elect to
participate in the Tag-Along Sale or do not elect to sell or dispose of the
entire amount of their respective Stockholder's Allotment of each affected class
of Company Stock. In such event, the Selling 10% Stockholder shall apportion the
aggregate number of Additional Shares to Stockholders whose Tag-Along Notices
specified an amount of Additional Shares, which apportionment shall be on a pro
---
rata basis among such Stockholders in accordance with the number of Additional
- ----
Shares of each affected class of Company Stock specified by all such
Stockholders in their Tag-Along Notices.
The Selling 10% Stockholder shall determine the aggregate number of
shares of Company Stock to be sold by each participating Stockholder in any
given Tag-Along Sale in accordance with the terms hereof, and the Tag-Along
Notices given by the Stockholders shall constitute their respective binding
agreements to sell such shares on the terms and conditions applicable to such
sale (including the requirements of this Section IV). Except as otherwise
provided herein, if the proposed transferee or purchaser does not purchase all
of such shares on the same terms and conditions as are applicable to the Selling
10% Stockholder, then none shall be purchased.
If a Tag-Along Notice is not received by the Selling 10% Stockholder
from at least one other Stockholder within the ten (10) day period specified
above, the Selling 10% Stockholder shall have the right to sell or otherwise
transfer the number of shares of Company Stock specified in the Tag-Along Sale
Notice to the proposed purchaser or transferee without any participation by any
other Stockholder, but only on terms and conditions no more favorable to the
purchaser or transferee than those stated in the Tag-Along Sale Notice and only
if such sale occurs on a date within twenty (20) Business Days of the Tag-Along
Sale Date.
C. The provisions of this Section IV shall apply regardless of the
form of consideration received in the Tag-Along Sale. The provisions of this
Section IV shall not apply to (i) any transfer permitted by Section VII or (ii)
any transfer, assignment or pledge to a bank or other lending institution to
secure loans extended by such bank or other lending institution for any purpose,
provided that, prior to such transfer, assignment or pledge, such bank or other
lending institution agrees in writing to be bound by the provisions of this
Agreement and delivers written notice of such agreement to the Company.
D. The provisions of this Section IV shall terminate on the earlier
of (i) the closing of a Qualified IPO or (ii) the transfer, by sale or exchange
of shares or merger, consolidation or other business combination involving the
Company or otherwise, of outstanding shares of the capital stock of the Company
representing more that 50% of the voting power in terms of the election of
directors of the Company; provided, however, that no such transfer shall be
-----------------
deemed to have occurred as the result of (1) any redemption by the Company of
all or any portion of any series of its outstanding preferred stock, (2) any
acquisition by the Company or an employee benefit plan (or related trust)
sponsored or maintained by the Company or any subsidiary of the Company, or by
the Brentwood Group or the Aurora Group or any of their respective Affiliates,
of shares of the capital stock of the Company or (3) a merger, consolidation
<PAGE>
or other business combination involving the Company if, immediately following
such merger, consolidation or other business combination, (a) all or
substantially all of the individuals and entities that were the beneficial
owners (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
the outstanding voting stock of the Company immediately prior to such merger,
consolidation or other business combination directly or indirectly beneficially
own more than 50% of the combined voting power of the then outstanding voting
securities of the entity resulting from such merger, consolidation or other
business combination (including but not limited to an entity that, as a result
of such transaction, owns the Company or all or substantially all of the
Company's assets either directly or indirectly or through one or more
subsidiaries) in substantially the same proportions, relative to each other, as
their ownership of the voting stock of the Company immediately prior to such
merger, consolidation or other business combination, and (b) no individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) (other than the Company, the entity resulting from such merger,
consolidation or other business combination, any employee benefit plan (or
related trust) sponsored or maintained by the Company, a subsidiary of the
Company or the entity resulting from such merger, consolidation or other
business combination or the Brentwood Group, the Aurora Group or any of their
respective Affiliates) directly or indirectly beneficially owns 50% or more of
the combined voting power of the then outstanding voting securities of the
entity resulting from such merger, consolidation or other business combination.
Section V. Drag-Along Rights.
-----------------
A. In the event the Brentwood Group and the Aurora Group (in such
capacity, the Brentwood Group and the Aurora Group being referred to
collectively as the "Drag-Along Group") determine in writing to accept an offer
from an unaffiliated third party (other than an Affiliate of any member of the
Drag-Along Group) to acquire 100% of the outstanding shares of Company Stock,
then, subject to Section V.C below, at the option of the Drag-Along Group, each
of the other Stockholders shall sell, and shall cause any Affiliate of such
other Stockholder to sell, all shares of Company Stock held by such Stockholder
or Affiliate pursuant to such offer to purchase (the "Drag-Along Sale"). All
holders of Company Stock (i) shall receive in the Drag-Along Sale the same
consideration per share of each class of Company Stock, shall be subject to the
same terms and conditions of sale and shall otherwise be treated equally or,
where appropriate, pro rata based upon the number of shares of such class of
--------
Company Stock held by each Stockholder, and (ii) shall execute such documents
and take such other actions, including the voting of shares or acting by written
consent, as may be reasonably required by the Drag-Along Group in order to
effect the Drag-Along Sale.
Any such sale by any Stockholder shall be on the same terms and
conditions as the proposed Drag-Along Sale by the Drag-Along Group; provided,
--------
however, that all selling Stockholders shall share pro rata, based upon the
- ------- --------
number of shares of each class of Company Stock being sold by each Stockholder,
in any escrow or holdback (which shall be limited to 20% of the cash
consideration received by all Stockholders with respect to the shares of Company
Stock) established for the purpose of satisfying indemnity liabilities to the
purchaser in the Drag-Along Sale (other than liabilities for breaches of Title
Representations, which shall be the sole responsibility of the selling
further provided, however, except for breaches of Title Representations, each
- ---------------- --------
<PAGE>
selling Stockholder's sharing obligation hereunder with respect to such
indemnity or other liabilities shall be limited to such escrow or holdback. In
no circumstance whatsoever, except breaches of Title Representations, shall any
recourse be had against any selling Stockholder, whether by levy or execution or
under any law or by the enforcement of any assessment or penalty or otherwise
(it being understood that, except with respect to breaches of Title
Representations, the sole source for enforcing a selling Stockholder's sharing
obligation hereunder shall be such escrow or holdback). Any amount returned to
selling Stockholders from such escrow or holdback shall be returned pro rata in
--------
proportion to the number of shares of Company Stock held by each of them.
The consideration for the Drag-Along Sale may be in any form;
provided, however, that such consideration must include cash (exclusive of cash
- -------- -------
deposited in escrow or holdback) in an amount sufficient to allow each
participant in the Drag-Along Sale to pay its federal and state taxes on the
transaction at assumed rates equal to the highest applicable federal and state
rates.
B. The Drag-Along Group members participating in a Drag-Along Sale
shall promptly provide each Stockholder with written notice (the "Drag-Along
Sale Notice") not more than sixty (60) days and not less than twenty (20) days
prior to the date of the Drag-Along Sale (the "Drag-Along Sale Date"). Each
Drag-Along Sale Notice shall set forth (i) the name and address of each proposed
transferee or purchaser of shares of Company Stock in the Drag-Along Sale, (ii)
the proposed amount and form of consideration to be paid for such shares and the
terms and conditions of payment offered by each proposed transferee or
purchaser, (iii) confirmation that the proposed purchaser or transferee has been
informed of the "Drag-Along Rights" provided for herein and has agreed to
purchase shares of Company Stock in accordance with the terms hereof, and (iv)
the estimated Drag-Along Sale Date.
C. The provisions of this Section V shall apply regardless of the
form of consideration received in the Drag-Along Sale, and if any non-cash
consideration is proposed in the Drag-Along Sale to each member of the Drag-
Along Group, each Stockholder shall accept such Stockholder's pro rata share of
--------
such non-cash consideration for Company Stock based upon such Stockholder's
proportional ownership of shares of each class of Company Stock. The provisions
of this Section V shall also apply to any exchange of Company Preferred Stock
for, or reclassification of Company Preferred Stock into, Company Common Stock,
as if such transaction were a sale subject to this Section V.
D. The provisions of this Section V shall terminate on the earlier
of (i) the closing of a Qualified IPO or (ii) the transfer, by sale or exchange
of shares or merger, consolidation or other business combination involving the
Company or otherwise, of outstanding shares of the capital stock of the Company
representing more that 50% of the voting power in terms of the election of
directors of the Company; provided, however, that no such transfer shall be
-----------------
deemed to have occurred as the result of (1) any redemption by the Company of
all or any portion of any series of its outstanding preferred stock, (2) any
acquisition by the Company or an employee benefit plan (or related trust)
sponsored or maintained by the Company or any subsidiary of the Company, or by
the Brentwood Group or the Aurora Group or any of their respective Affiliates,
of shares of the capital stock of the Company or (3) a merger, consolidation or
other business combination involving the Company if, immediately following such
merger,
<PAGE>
consolidation or other business combination, (a) all or substantially all of the
individuals and entities that were the beneficial owners (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of the outstanding voting stock
of the Company immediately prior to such merger, consolidation or other business
combination directly or indirectly beneficially own more than 50% of the
combined voting power of the then outstanding voting securities of the entity
resulting from such merger, consolidation or other business combination
(including but not limited to an entity that, as a result of such transaction,
owns the Company or all or substantially all of the Company's assets either
directly or indirectly or through one or more subsidiaries) in substantially the
same proportions, relative to each other, as their ownership of the voting stock
of the Company immediately prior to such merger, consolidation or other business
combination, and (b) no individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (other than the Company, the
entity resulting from such merger, consolidation or other business combination,
any employee benefit plan (or related trust) sponsored or maintained by the
Company, a subsidiary of the Company or the entity resulting from such merger,
consolidation or other business combination or the Brentwood Group, the Aurora
Group or any of their respective Affiliates) directly or indirectly beneficially
owns 50% or more of the combined voting power of the then outstanding voting
securities of the entity resulting from such merger, consolidation or other
business combination.
Section VI. Registration Rights.
-------------------
The Stockholders shall have the registration rights ("Registration
Rights",) set forth in Exhibit A hereto, which is hereby incorporated herein as
if set forth in full in this Agreement.
Section VII. Exempt Transfers.
----------------
The provisions of Section III and Section IV shall not apply to a
transfer by a Stockholder, either during such Stockholder's lifetime or by will
or intestacy upon his death, to (i) the Company or any subsidiary thereof; (ii)
such Stockholder's ancestors, descendants, spouse, brothers, sisters, nephews or
nieces; (iii) any custodian, guardian, trust or trustee for the account or
benefit of such Stockholder or such Stockholder's ancestors, descendants,
spouse, brothers, sisters, nephews or nieces; (iv) any organization which is
exempt from federal income taxation under the provisions of Section 501(c)(3) of
the Internal Revenue Code; provided, however, that the aggregate number of
-------- -------
shares of Company Stock transferred by such Stockholder pursuant to the
provisions of this clause (iv) shall not exceed 10% of the shares of Company
Stock owned by such Stockholder as of the date of this Agreement; (v) a trustee
or custodian of a trust described in Section 401(a) or (h) of the Internal
Revenue Code, or an Individual Retirement Account or custodial account within
the meaning of Section 408(a) or (h) of the Internal Revenue Code, for the
benefit of such Stockholder; (vi) as to any Stockholder that is a trust, all the
beneficiaries of which are natural persons, such beneficiaries or the grantor of
the trust; (vii) as to any Stockholder that is a limited partnership or limited
liability company, (a) any limited or general partner, member, officer, employee
or Affiliate of such Stockholder or (b) any
<PAGE>
Affiliate of any limited or general partner or member of such Stockholder;
(viii) as to any member of the Aurora Group, any other member of the Aurora
Group; (ix) as to any member of the Brentwood Group, any other member of the
Brentwood Group; (x) any transferee under an effective registration statement;
or (xi) in the case of a Stockholder that is an entity, to any Person(s)
controlling, controlled by or under common control with such Stockholder and, if
such transfer is to a controlling Stockholder or controlling Stockholders, any
further transfer by any such Stockholder to an entity controlled by it (and, for
the purposes of this clause (xi) only, "control" and correlative terms mean
direct or indirect ownership of at least 66*% of the voting securities of the
applicable entity) or, in the case of a partnership, to another partnership with
the same general partner or under common control with the general partner of the
transferor partnership, so long as the transferee partnership was not formed for
the purpose of acquiring or holding the transferred securities); provided,
--------
however, that the transferee pursuant to all of the foregoing clauses (except
- -------
clauses (i) and (x)) shall receive and hold such shares subject to the
provisions of this Agreement and there shall be no further transfer of such
shares except in accordance herewith; further provided, however, that the
--------------------------
transferee shall acknowledge and agree, in a writing satisfactory to the
Company, to be bound by the terms of this Agreement and shall execute and
deliver to the Company a letter to such effect. Furthermore, the provisions of
Section IV shall not apply to any sales or other transfers by any Stockholder
aggregating less than 1% of the outstanding shares of Company Common Stock or
Company Preferred Stock, as the case may be, in any six-month period.
Section VIII. Restriction on Public Sale.
--------------------------
Anything to the contrary herein notwithstanding, in the event that the
Company files a registration statement with respect to an underwritten public
offering under the Securities Act in which any class of the Company's equity
securities is offered, no Stockholder shall effect any public sale or
distribution (except pursuant to said registration statement) of any of the
shares of Company Stock (which shares, for the purposes of this Section VIII,
shall include any and all voting securities received by such Stockholder as a
stock dividend, stock split or other recapitalization or similar distribution on
or in respect of the shares of Company Stock) or any of the Company's other
equity securities, or of any securities convertible into or exchangeable for
such securities, during the period beginning ten (10) days before the filing of
such registration statement with the Commission and ending on the later of
ninety (90) days after such registration statement has become effective or ten
(10) days after it has been withdrawn. After the completion of two (2)
underwritten public offerings of the Company's equity securities, this Section
VIII shall cease to apply to any Stockholder who, at the time of any subsequent
registration, is not an Affiliate of the Company.
Section IX. Register of Securities: Removal of Restrictions on Transfer;
------------------------------------------------------------
Legends.
-------
A. Register of Securities. The Company or its duly appointed agent
----------------------
shall maintain separate registers for the shares of Preferred Stock and the
shares of Common Stock, in which it shall register the issuance and sale of all
such respective shares. The Company may issue stop transfer instructions to
such agent and make similar notations in such register to ensure that all
transfers of such securities are made in accordance with the provisions of this
Agreement. All transfers of such securities shall be recorded on the register
maintained by the Company or its agent, and the Company shall be entitled to
regard the registered holder of such securities as the
<PAGE>
actual holder thereof until the Company or its agent is required to record a
transfer of such securities on its register.
B. Removal of Transfer Restrictions. Any legend endorsed on a
--------------------------------
certificate evidencing shares of Company Stock and the stop transfer
instructions and record notations with respect to such shares shall be removed,
and the Company shall issue a certificate without such legend to the holder of
such shares in the event that (i) such shares have been sold pursuant to an
effective registration statement under the Securities Act, (ii) a notification
under Regulation A under the Securities Act is in effect with respect thereto,
or (iii) such shares have been sold under Rule 144 or Rule 144A under the
Securities Act.
C. Legends. Subject to Section IX.B, all certificates evidencing
-------
the shares of Company Stock subject to this Agreement shall bear substantially
the following legends:
(i) "The securities represented by this certificate have not
been registered under the Securities Act of 1933, as amended (the "Act").
These securities have been acquired for investment and not with a view to
distribution or resale, and may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement for such
shares under the Act or an opinion of counsel satisfactory in form and
content to the issuer that such registration is not required under such
Act."
(ii) "The securities represented by this certificate are subject
to restrictions on transfer, including, but not limited to, a right of
first refusal, tag-along rights, drag-along rights and certain other rights
in favor of certain stockholders, all as set forth in a Stockholders'
Agreement, as amended from time to time, between the issuer corporation and
the registered holder, or its predecessor in interest, a copy of which is
on file at the principal office of the issuer corporation and will be
furnished upon request to the holder of record of the shares represented by
this certificate."
(iii) Any legend required to be placed thereon by any applicable
state securities law.
Section X. Enforcement.
-----------
The parties acknowledge that the remedy at law for any breach or
violation of the provisions of this Agreement shall be inadequate and that, in
the event of any such breach or violation, the Company and the Stockholders (or
any one or more of them) shall be entitled to injunctive relief in addition to
any other remedy, at law or in equity, to which any such party may be entitled.
Section XI. Violation of Transfer Provisions.
--------------------------------
The Company shall not be required (i) to transfer on its books any
shares of Company Stock which shall have been sold, transferred, assigned or
pledged in violation of any of the provisions set forth in this Agreement, or
(ii) to treat as owner of such shares of Company Stock or to accord the right to
vote as such owner or to pay dividends to any transferee to whom such shares
shall have been so transferred in violation of this Agreement.
<PAGE>
Section XII. Governance; Board of Directors.
------------------------------
A. Board of Directors. Larry Clayton ("Clayton") or, in the event
------------------
of Clayton's death or disability rendering him incapable of performing his
duties as a director, Delton Clayton (together with Clayton, the "Clayton
Director") shall be entitled to be a member of the Board as long as Clayton and
his Affiliates own in the aggregate at least 45% of the 11,445 shares of Company
Common Stock held by Clayton and his Affiliates as of September 30, 1998, as
adjusted to reflect stock dividends, stock splits and other changes in the
capital structure of the Company. As long as the Company's Series C Special
Voting Preferred Stock (the "Series C Preferred") remains outstanding and the
Clayton Director is entitled to be a member of the Board pursuant to the
immediately preceding sentence, the Aurora Group shall be entitled to nominate a
member of the Board who is not an employee of any member of the Aurora Group or
any of their respective Affiliates (the "Aurora Nonemployee Director").
B. Elections to Board. The Stockholders shall take appropriate
------------------
actions, including the voting of shares of Company Stock or the acting by
written consent, to cause the election of the Clayton Director and the Aurora
Nonemployee Director to become effective on the date of this Agreement. The
Stockholders shall vote all of the shares owned or held of record by them at all
annual and special meetings of the stockholders of the Company called or held
for the purpose of filling positions on the Board, and in each written consent
executed in lieu of such a meeting of stockholders, and each party hereto shall
take all actions otherwise necessary, to ensure (to the extent within the
parties' collective control) the election of (i) the Clayton Director and the
Aurora Nonemployee Director to the Board for the applicable periods set forth in
Section XII.A and (ii) the members of the Board as the directors of each of the
Company's subsidiaries.
C. Initial Public Offering. Notwithstanding the foregoing, the
-----------------------
parties agree to reconsider the composition of the Board as a whole and the
desirability of any voting arrangements at the time of a Qualified IPO;
provided, however, that no party will have any liability for failure to reach an
- -------- --------
agreement as a result of such reconsideration.
Section XIII. Affiliate Transactions.
----------------------
From the date of this Agreement until the closing of a Qualified IPO,
the Company shall not enter into or engage in an Affiliate Transaction without
Requisite Board Approval (as defined in Section 1(d) of Article III of the
Amended and Restated Bylaws of the Company; provided, however, that no such
-----------------
approval or further such approval shall be required for the Company to enter
into or engage in, or continue to engage in, an Affiliate Transaction that (a)
prior to the date of this Agreement, the Company was contractually obligated to
enter into or engage in or (b) is expressly contemplated by the Agreement and
Plan of Merger dated as of September 3, 1999, among QDSP Holdings, Inc., the
Company and Fleetpride Acquisition Corporation (the "Merger Agreement"), and any
Affiliate Transaction referred to in clause (a) or (b) of this sentence shall be
permitted. Notwithstanding the definition of "Affiliate" in Section
<PAGE>
XV, for the purposes of this Section XIII and the definition of "Affiliate
Transaction" in Section XV, each member of the Aurora Group shall be deemed to
be an Affiliate of the Company as long as the Aurora Group retains at least 45
percent of the total combined voting power represented by the shares of capital
stock of the Company held by Aurora, Aurora Overseas and QDEP, collectively,
immediately following the consummation of the transactions contemplated by the
Merger Agreement, and each member of the Brentwood Group shall be deemed to be
an Affiliate of the Company as long as the Brentwood Group retains at least 45
percent of the total combined voting power represented by the shares of capital
stock of the Company held by BABF immediately following the consummation of the
transactions contemplated by the Merger Agreement.
Section XIV. General Provisions.
------------------
A. After-Acquired Shares. All of the provisions of this Agreement
---------------------
shall apply to (i) all of the shares of Company Stock now owned or which may be
transferred hereafter to, or owned by, any Stockholder and (ii) all securities
and instruments (1) received by a Stockholder as a dividend on or other payment
made to holders of Company Stock, or (2) issued in connection with a split of
Company Stock or as a result of any exchange for or reclassification of Company
Stock or a reorganization, recapitalization, consolidation or merger. In
addition, any person or entity who does not presently own but subsequently
acquires newly-issued shares of Company Stock or securities convertible into or
exercisable or exchangeable for Company Stock may become a party to and be bound
by this Agreement to such extent as the Company and such person or entity may
agree.
B. Rights and Obligations of Transferees. If a Stockholder
-------------------------------------
transfers any or all of its shares of Company Stock to any Person, that Person
and each subsequent transferee thereof shall have the same rights hereunder as
are given to such Stockholder, and shall be subject to the same obligations as
are imposed upon such Stockholder by the terms hereof (and all references herein
to a Stockholder shall include such transferee), unless otherwise provided
herein. The Company will not record any transfer of Company Stock that was made
in violation of any provision of this Agreement.
C. Owner of Stockholder Shares. The person in whose name shares of
---------------------------
Company Stock are registered in the stock books of the Company may be treated as
the owner thereof for all purposes, including without limitation, the giving of
notices under this Agreement.
D. Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given and made and served either by personal delivery
to the person for whom it is intended or if deposited, postage prepaid,
registered or certified mail, return receipt requested, in the United States
mail:
(i) if to any Stockholder, addressed to such Stockholder at its
address shown on the stock register maintained by the Company or at such
other address as such Stockholder may specify by written notice to the
Company, with copies to such other Person(s) as such Stockholder may
designate, or
<PAGE>
(ii) if to the Company, c/o HDA Parts System, Inc., 520 Lake
Cook Road, Deerfield, Illinois 60015, Attention: John J. Greisch, or to
such other address as the Company may specify by written notice to the
Stockholders, with copies to (1) Brentwood City Corp., c/o Brentwood
Associates, 11150 Santa Monica Boulevard, Suite 1200, Los Angeles, CA
90025, Attention: Christopher A. Laurence, and (2) Aurora Equity Partners
II, L.P., c/o Aurora Capital Group, 10877 Wilshire Boulevard, Suite 2100,
Los Angeles, California 90024, Attention: Richard K. Roeder, with a copy to
Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071
(telecopier: 213-229-7520), Attention: Bruce D. Meyer.
Each such notice, request, consent or other communication shall be deemed to
have been given upon receipt thereof or, if sooner, five (5) days after such has
been deposited as described above. The addresses for the purposes of this
Section XIV.D. may be changed by giving written notice of such change in the
manner provided herein for giving notice. Unless and until such written notice
is received, the address provided herein shall be deemed to continue in effect
for all purposes hereunder.
E. Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws, and not the laws of conflicts of laws, of
the State of Delaware. Each of the parties to this Agreement hereby irrevocably
and unconditionally (i) agrees to be subject to, and hereby consents and submits
to, the jurisdiction of the courts of the State of Delaware and of the federal
courts sitting in the State of Delaware for the limited purpose of enforcing
this Agreement, (ii) to the extent such party is not otherwise subject to
service of process in the State of Delaware, hereby appoints The Corporation
Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, as such parry's
agent in the State of Delaware for acceptance of legal process and (iii) agrees
that service made on such agent shall have the same legal force and effect as if
served upon such party personally within the State of Delaware.
F. Severability. The parties hereto agree that the terms and
------------
provisions in this Agreement are reasonable and shall be binding and enforceable
in accordance with the terms hereof and that, in any event, the terms and
provisions of this Agreement shall be enforced to the fullest extent permissible
under law. In the event that any term or provision of this Agreement shall for
any reason be adjudged to be unenforceable or invalid, then such unenforceable
or invalid term or provision shall not affect the enforceability or validity of
the remaining terms and provisions of this Agreement, and the parties hereto
hereby agree to replace such unenforceable or invalid term or provision with an
enforceable and valid term or provision that, in its economic effect, shall be
as close as possible to the unenforceable or invalid term or provision.
G Parties in Interest. All the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not.
H Modification, Amendment and Waiver. Except as expressly
----------------------------------
provided below, this Agreement may be modified, amended or waived only by a
written agreement signed by (i) the Company, (ii) Aurora, so long as the Series
C Preferred remains outstanding, (iii)
<PAGE>
Brentwood, so long as the Company's Series D Special Voting Preferred Stock
remains outstanding, and (iv) the holders of at least a majority of the
outstanding Company Stock; provided, however, that any modification or amendment
-----------------
that would materially increase any Stockholder's obligations hereunder, or would
deprive any Stockholder of the realization in all material respects of any
material benefit granted herein to such Stockholder by name, or would grant a
benefit to any Stockholder by name, or would not be applicable pro rata to all
--------
Stockholders, shall not be effective against any adversely affected Stockholder
without such Stockholder's written consent. Modifications or amendments that
make only clarifying changes may be made by the Company acting alone. Each
Stockholder will receive prompt notice of any amendment to the Agreement with
respect which the Stockholder has not already consented in writing. The failure
at any time to enforce any of the provisions of this Agreement shall in no way
be construed as a waiver of such provisions and shall not affect the right of
any of the parties thereafter to enforce each and every provision hereof in
accordance with its terms. Notwithstanding the foregoing, the Company shall have
the right, in the sole discretion of the Board, to issue shares of Company Stock
(or options or warrants to purchase, or securities convertible into, such
shares), to any Person, regardless of whether such Person is already party to
this Agreement, and to cause such securities and such Persons (to the extent not
already subject to this Agreement) to become subject to this Agreement as shares
of Company Stock and as a Stockholder, respectively.
I Integration. This Agreement (together with Exhibit A hereto; the
-----------
letter agreement dated June 19, 1998, among City Truck and Trailer Parts, Inc.,
William L. Clayton, The Delton Lane Clayton Trust dated November 1, 1990, The
Deidra Elaine Clayton Trust dated November 1, 1990, The William Larry Clayton
Grandchildren's Trust dated April 30, 1997, and Charles Roy Johnson; the letter
agreement dated June 19, 1998, between City Truck and Trailer Parts, Inc. and
Stone Heavy Duty, Inc.; the confirmation letter dated August 27, 1998, from HDA
Parts System, Inc. and the Company to Larry Clayton; the confirmation letter
dated August 27, 1998, from HDA Parts System, Inc. and the Company to James T.
Stone and Fred A. Stone, Jr.; and the letter agreement dated January 11, 1999,
from the Company to Davis S. Seewack and Robin E. Seewack, as Trustees of The
Seewack Family Trust dated November 19, 1997, and Scott Spiwak and Jill Spiwak,
as Trustees of the Spiwak Family Trust dated May 4, 1990) constitutes the entire
agreement of the parties with respect to the subject matter hereof and thereof
and supersedes all prior agreements and negotiations with respect thereto.
J Headings. The headings of the sections and paragraphs of this
--------
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
K Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
Section XV. Definitions.
-----------
As used in this Agreement, the following terms have the following
meanings:
<PAGE>
An "Affiliate" of a specified Person means a Person that controls, is
controlled by, or is under common control with, the specified Person, and
in this context, "control", "controls" and "controlled" mean the direct or
indirect power to direct the management and policies or affairs of a Person
through the ownership of voting securities or by contract or otherwise and,
in the case of a limited partnership, shall include, but shall not be
limited to, all of the limited partnership's general partners and their
respective Affiliates.
"Affiliate Transaction" means (i) any sale, lease, transfer or other
disposition by the Company or any of its subsidiaries (which, for the
purposes of this definition, shall include all partnerships, corporations,
joint ventures, limited liability companies or other entities in which the
Company has an equity interest, regardless of whether such interest is a
controlling interest) of any of their respective properties or assets to,
(ii) any purchase of property or assets by the Company or any of its
subsidiaries from, (iii) any investment by the Company or any of its
subsidiaries directly or indirectly (including by way of a purchase of
capital stock of any Person from another Person) in, (iv) any agreement by
the Company or any of its subsidiaries with or for the benefit of, or (v)
any other transaction between the Company or any of its subsidiaries and
any of the following: (1) an Affiliate of the Company or any subsidiary of
the Company, (2) any Associate of any Affiliate described in the preceding
clause (1), or (3) any Person that is either an Affiliate of any Associate
described in the preceding clause (2) or is individually or collectively
under the control of any Associate described in the preceding clause (2).
An "Associate" of a specified Person means (i) a Person of which the
specified Person is a director, officer, general or managing partner or
member or is the direct or indirect beneficial owner of 10 percent or more
of any class of equity securities issued by such Person, (ii) a trust or
estate in which the specified Person has a substantial beneficial interest
or as to which the specified Person serves as a trustee or in a similar
fiduciary capacity, and (iii) a relative or spouse of, who shares the same
residence as, the specified Person.
"Aurora" means Aurora Equity Partners II, L.P.
"Aurora Group" means Aurora, Aurora Overseas and QDEP and any of their
respective Affiliates.
"Aurora Overseas" means Aurora Overseas Equity Partners II, L.P.
"BABF" means BABF City Corp.
"Brentwood Group" means BABF and its Affiliates.
"Brentwood" means Brentwood Associates Buyout Fund II, L.P.
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or legal
holiday.
"Involuntary Transfer" means any transfer, proceeding or action (other
than as set forth in Section VII) by or in which a Stockholder shall be
deprived or divested of any right, title or interest in or to any shares of
Company Stock, including, without limitation, (i) any seizure under levy of
attachment or execution, (ii) any foreclosure upon a pledge of such shares
of Company Stock, (iii) any transfer in connection with bankruptcy (whether
pursuant to the filing of a voluntary or an involuntary petition under the
Federal Bankruptcy Code of 1978, or any modifications or revisions thereto
or any similar state laws) or other court proceeding to a debtor in
possession, trustee in bankruptcy or receiver or other officer or agency,
(iv) any transfer to a state or to a public officer or agency pursuant to
any statute pertaining to escheat or abandoned property, (v) any transfer
to such Stockholder, with respect to the disposition of the community
property interest of such Stockholder's spouse in all or any part of the
shares of Company Stock upon the death of such spouse, and any transfer
occasioned by the incompetence of such Stockholder, or (vi) any transfer to
a Stockholder's spouse as a result of the termination of the marital
relationship of the Stockholder and the Stockholder's spouse.
"Person" means any individual, corporation, joint venture, limited
liability company, partnership, trust, unincorporated organization or other
entity.
"QDEP" means Quality Distribution Equity Partners, L.P.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CITY TRUCK HOLDINGS, INC.
By: /s/ John J. Greisch
------------------------------------
John J. Greisch
President and Chief Executive Officer
BABF CITY CORP.
By: /s/ Christopher A. Laurence
--------------------------------------
Christopher A. Laurence
President
<PAGE>
AURORA EQUITY PARTNERS II L.P.
By: Aurora Capital Partners II L.P.,
general partner
By: Aurora Advisors II LLC,
general partner
By: /s/ Richard K. Roeder
----------------------------------------------
Name: Richard K. Roeder
Title: Vice President
AURORA OVERSEAS EQUITY PARTNERS II, L.P.
By: Aurora Capital Overseas Partners II L.P.,
general partner
By: Aurora Overseas Advisors II LDC,
general partner
By: /s/ Richard K. Roeder
----------------------------------------------
Name: Richard K. Roeder
Title: Vice President
HDA PARTNERS I, L.P.
By: Brentwood Associates Buyout Fund II, L.P.,
general partner
By: Brentwood Private Equity LLC,
general partner
By: /s/ Christopher A. Laurence
---------------------------------------------
Name: Christopher A. Laurence
Title: Managing Member
QUALITY DISTRIBUTION EQUITY PARTNERS L.P.
By: Aurora Advisors II LLC,
general partner
By: /s/ Richard K. Roeder
---------------------------------------------
Name: Richard K. Roeder
Title: Vice President
<PAGE>
THE DELTON LANE CLAYTON TRUST
dated November 1, 1990
By: /s/ Neil Bailey
_____________________________
Neil Bailey as Trustee
THE DIEDRA ELAINE CLAYTON TRUST
dated November 1, 1990
By: /s/ Neil Bailey
_____________________________
Neil Bailey as Trustee
THE WILLIAM LARRY CLAYTON
GRANDCHILDREN'S TRUST
dated April 30, 1997
By: /s/ Neil Bailey
_____________________________
Neil Bailey as Trustee
/s/ William L. Clayton
_____________________________
WILLIAM L. CLAYTON
/s/ Charles Roy Johnson
_____________________________
CHARLES ROY JOHNSON
/s/ James T. Stone
_____________________________
JAMES T. STONE
/s/ Fred A. Stone, Jr.
_____________________________
FRED A. STONE, JR.
<PAGE>
/s/ A. KEITH MCLEMORE
______________________________
A. KEITH MCLEMORE
/s/ JOHN J. GREISCH
______________________________
JOHN J. GREISCH
/s/ JOHN P. MILLER
______________________________
JOHN P. MILLER
<PAGE>
/s/ MARTIN R. REID
______________________________
MARTIN R. REID
/s/ DON PURCELL
______________________________
DON PURCELL
/s/ HAROLD JOHNSON
______________________________
HAROLD JOHNSON
/s/ KEN MCKEE
______________________________
KEN MCKEE
/s/ CHARLES R. TURNER
______________________________
CHARLES R. TURNER
/s/ ANTHONY WILLIAM CAVALLE
______________________________
ANTHONY WILLIAM CAVALLE
/s/ KENNETH J. GERTZ
______________________________
KENNETH J. GERTZ
/s/ GREGORY R. WOODS
______________________________
GREGORY R. WOODS
/s/ TIMOTHY GADUS
______________________________
TIMOTHY GADUS
<PAGE>
/s/ PATRICK GAUGHAN
_____________________________
PATRICK GAUGHAN
/s/ VINCE LOMBARDO
_____________________________
VINCE LOMBARDO
THE VINGIANO FAMILY LIMITED
PARTNERSHIP
By:/s/ Anthony N. Vingiano
_____________________________
Name: Anthony N. Vingiano
Title: General Partner
ANTHONY N. VINGIANO SPRAY TRUST
By:/s/ Theresa F. Vingiano
_____________________________
Theresa F. Vingiano, as
Trustee
GARY D. VINGIANO SPRAY TRUST
By:/s/ Theresa F. Vingiano
_____________________________
Theresa F. Vingiano, as
Trustee
TRACEY A. VINGIANO SPRAY TRUST
By:/s/ Theresa F. Vingiano
_____________________________
Theresa F. Vingiano, as
Trustee
<PAGE>
/s/ ANTHONY N. VINGIANO
______________________________
ANTHONY N. VINGIANO
/s/ GARY D. VINGIANO
______________________________
GARY D. VINGIANO
THE SEEWACK FAMILY TRUST
dated November 19, 1997
By: /s/ David S. Seewack
-----------------------------
David S. Seewack, as Trustee
By: /s/ Robin E. Seewack
-----------------------------
Robin E. Seewack, as Trustee
THE SPIWAK FAMILY TRUST
dated May 4, 1990
By: /s/ Scott Spiwak
-----------------------------
Scott Spiwak, as Trustee
By: /s/ Jill Beth Spiwak
-----------------------------
Jill Beth Spiwak, as Trustee
THE MATHIS FAMILY REVOCABLE
LIVING TRUST
By: /s/ Gregory D. Mathis
-----------------------------
Gregory D. Mathis, as Trustee
By: /s/ Susan M. Mathis
-----------------------------
Susan M. Mathis, as Trustee
<PAGE>
/s/ GENE L. CURTIN
_____________________________
GENE L. CURTIN
/s/ PAUL H. ETSEKSON
_____________________________
PAUL H. ETSEKSON
/s/ L. SCOTT ESPOSITO
_____________________________
L. SCOTT ESPOSITO
<PAGE>
TAG INVESTMENT L.L.C.
By: /s/ Anthony N. Vingiano
---------------------------
Name: Anthony N. Vingiano
Title: Managing Member
/s/ Todd A. Dunn
---------------------------
TODD A. DUNN
/s/ Gregory T. Wagner
---------------------------
GREGORY T. WAGNER
/s/ Stephen Crowley
---------------------------
STEPHEN CROWLEY
/s/ Thomas Gildea
---------------------------
THOMAS GILDEA
/s/ Charles Vollman
---------------------------
CHARLES VOLLMAN
CTH/WADE L.P.
By: Aurora Advisors II LLC
By: /s/ Richard K. Roeder
----------------------------
Richard K. Roeder, Vice
President
ROBERT ANDERSON REVOCABLE TRUST
By: /s/ Robert Anderson
----------------------------
Name: Robert Anderson
Title: Trustee
<PAGE>
JAMES D. AND MARIA D. HODGSON
INTER VIVOS PERSONAL TRUST
By: /s/ James D. Hodgson
-----------------------------
James D. Hodgson, Advisory
Board
ALLENWOOD VENTURES, INC.
By: /s/ James Ramo
-----------------------------
Name: James Ramo
Title: President
THE COOK FAMILY TRUST U/A DTD
9/6/91
/s/ Lodwrick M. Cook
By: ______________________________
Lodwrick M. Cook, Trustee
/s/ John E. Anderson
__________________________________
John E. Anderson
DALE FREY FAMILY LIMITED
PARTNERSHIP
By: /s/ Dale Frey
_______________________________
Name: Dale Frey
Title: General Partner
<PAGE>
Exhibit 10.29
STOCK PURCHASE AGREEMENT
BY AND AMONG
HDA PARTS SYSTEM, INC.
AND
THE SHAREHOLDERS OF
WHEELS AND BRAKES, INC.
OCTOBER 8, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. PURCHASE AND SALE................................................... 1
1.1 Purchase Price...................................................... 1
--------------
1.2 Post-Closing Purchase Price Adjustment.............................. 1
--------------------------------------
ARTICLE II. CLOSING............................................................. 2
2.1 Closing............................................................. 3
-------
2.2 Sale of Capital Stock of Wheels and Brakes.......................... 3
------------------------------------------
2.3 Payment of Purchase Price........................................... 3
-------------------------
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE EXISTING SHAREHOLDERS......... 3
3.1 Corporate Organization and Standing................................. 3
-----------------------------------
3.2 Authorization....................................................... 3
-------------
3.3 No Conflict or Violation............................................ 3
------------------------
3.4 Capitalization of Wheels and Brakes................................. 4
-----------------------------------
3.5 Subsidiaries........................................................ 4
------------
3.6 Title to Shares..................................................... 4
---------------
3.7 Facilities.......................................................... 5
----------
3.8 Financial Statements................................................ 6
--------------------
3.9 Books and Records................................................... 7
-----------------
3.10 Litigation.......................................................... 7
----------
3.11 Licenses and Permits; Compliance with Laws.......................... 7
------------------------------------------
3.12 Tax Matters......................................................... 7
-----------
3.13 Brokers, Finders.................................................... 9
----------------
3.14 Absence of Certain Changes.......................................... 9
--------------------------
3.15 Material Contracts.................................................. 11
------------------
3.16 Proprietary Rights.................................................. 12
------------------
3.17 Labor Matters....................................................... 13
-------------
3.18 Consents............................................................ 13
--------
3.19 Employee Benefit Plans; Employment Agreements....................... 13
---------------------------------------------
3.20 Compliance with Environmental Laws.................................. 16
----------------------------------
3.21 Certain Business Relationships with Wheels and Brakes............... 19
-----------------------------------------------------
3.22 Undisclosed Liabilities............................................. 19
-----------------------
3.23 Insurance........................................................... 19
---------
3.24 Accounts Receivable................................................. 19
-------------------
3.25 Inventory........................................................... 20
---------
3.26 Payments............................................................ 20
--------
3.27 Customers, Distributors and Suppliers............................... 20
-------------------------------------
3.28 Computer Systems.................................................... 20
----------------
3.29 Material Misstatements Or Omissions................................. 21
-----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF HDA....................................... 21
4.1 Corporate Organization and Standing......................................... 21
-----------------------------------
4.2 Authorization............................................................... 21
-------------
4.3 No Conflict or Violation.................................................... 21
------------------------
ARTICLE V. POST-CLOSING COVENANTS...................................................... 22
5.1 Further Assurances.......................................................... 22
------------------
5.2 Tax Matters................................................................. 22
-----------
ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY HDA....................... 25
6.1 No Injunctive Proceedings................................................... 25
-------------------------
6.2 Representations and Warranties.............................................. 25
------------------------------
6.3 Performance of Agreements................................................... 25
-------------------------
6.4 Compliance Certificate...................................................... 25
----------------------
6.5 Stock Certificates.......................................................... 25
------------------
6.6 Stock Books................................................................. 25
-----------
6.7 Officers and Directors...................................................... 25
----------------------
6.8 Opinion of Counsel.......................................................... 25
------------------
6.9 Consents, Etc............................................................... 25
-------------
6.10 Ancillary Agreements........................................................ 26
--------------------
6.11 Nonforeign Affidavit........................................................ 26
--------------------
ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS BY THE EXISTING SHAREHOLDERS. 26
7.1 No Injunctive Proceedings................................................... 26
-------------------------
7.2 Representations and Warranties.............................................. 26
------------------------------
7.3 Performance of Agreements; Instruments of Transfer.......................... 26
--------------------------------------------------
7.4 Compliance Certificates..................................................... 26
-----------------------
7.5 Ancillary Agreements........................................................ 26
--------------------
7.6 Consents; Etc............................................................... 27
-------------
ARTICLE VIII. ACTIONS BY THE PARTIES AFTER THE CLOSING.................................... 27
8.1 Indemnification by the Existing Shareholders................................ 27
--------------------------------------------
8.2 Indemnification by HDA...................................................... 27
----------------------
8.3 Survival of Representations, Warranties and Covenants....................... 27
-----------------------------------------------------
8.4 Threshold................................................................... 28
---------
8.5 Notice and Opportunity to Defend............................................ 28
--------------------------------
8.6 Indemnification Payments.................................................... 28
------------------------
ARTICLE IX. MISCELLANEOUS............................................................... 29
9.1 Expenses.................................................................... 29
--------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9.2 Notices..................................................................... 29
-------
9.3 Counterparts................................................................ 30
------------
9.4 Entire Agreement............................................................ 30
----------------
9.5 Headings.................................................................... 30
--------
9.6 Assignment; Amendment of Agreement.......................................... 30
----------------------------------
9.7 Governing Law............................................................... 30
-------------
9.8 Further Assurances.......................................................... 31
------------------
9.9 No Third-Party Rights....................................................... 31
---------------------
9.10 Non-Waiver.................................................................. 31
----------
9.11 Severability................................................................ 31
------------
9.12 Incorporation of Exhibits and Schedules..................................... 31
---------------------------------------
9.13 Knowledge................................................................... 31
---------
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of October
8, 1999, is entered into by and among HDA Parts System, Inc., an Alabama
corporation ("HDA"), and the shareholders of Wheels and Brakes, Inc., a Georgia
corporation ("Wheels and Brakes"), identified on Annex A hereto (the "Existing
Shareholders"). HDA and the Existing Shareholders are referred to herein as each
a "Party" and collectively, the "Parties."
RECITALS
WHEREAS, the Existing Shareholders own all of the capital stock of
Wheels and Brakes;
WHEREAS, HDA desires to acquire all of the capital stock of Wheels and
Brakes;
ARTICLE I.
PURCHASE AND SALE
1.1 Purchase Price. Upon the terms and subject to the conditions
--------------
set forth herein, HDA will purchase from the Existing Shareholders all of the
capital stock of Wheels and Brakes for $8,266,120.95 in cash payable by wire
transfer of immediately available funds to the Existing Shareholders (the
"Estimated Purchase Price").
1.2 Post-Closing Purchase Price Adjustment.
--------------------------------------
(a) Closing Balance Sheet. The Existing Shareholders will prepare at
---------------------
their expense a balance sheet of Wheels and Brakes dated the Closing Date (as
defined in Section 2.1) (the "Closing Balance Sheet"), prepared from the books
and records of Wheels and Brakes and prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied. The Existing
Shareholders will also prepare a calculation, as of the Closing Date based on
the Closing Balance Sheet, of Net Assets (as defined on Schedule 1.2 hereto)
("Closing Net Assets"), which calculation shall be prepared on a basis
consistent with the Net Assets calculations reflected on Schedule 1.2 hereto.
The Existing Shareholders will deliver such Closing Balance Sheet and such
calculation to HDA as soon as possible but in any event within 30 days after the
Closing.
(b) Closing Balance Sheet Notice.
----------------------------
(i) Within 15 days of the receipt of the Closing Balance Sheet
and the calculation of Closing Net Assets, HDA will deliver to the Existing
Shareholders a written notice certifying that either (A) it agrees with
such Closing Balance Sheet and calculation or (B) it disagrees with such
Closing Balance Sheet and calculation, in which case it will also provide
therewith a reasonably detailed written report stating the basis for
disagreement with such Closing Balance Sheet and such calculation (the
"Closing
<PAGE>
Balance Sheet Notice"). The Parties shall provide reasonable access to
their and their respective accountants' work papers and personnel and to
such historical financial information as the Existing Shareholders shall
reasonably request in order to review such Closing Balance Sheet and
prepare such calculation.
(ii) If the Closing Balance Sheet Notice is not timely given
as described in Section 1.2(b)(I), the Closing Balance Sheet and the
calculation of Closing Net Assets shall be final, binding and conclusive
upon the Parties. If HDA disagrees with the Closing Balance Sheet Notice as
described in Section 1.2(b)(I)(B), and if the disagreement is not resolved
by mutual agreement among the Parties within 30 days following delivery of
the Closing Balance Sheet Notice, such dispute will be resolved by a "Big
5" accounting firm ("BFAF"), other than PricewaterhouseCoopers LLP,
selected by mutual agreement of HDA and the Existing Shareholders. The
costs of resolving such a dispute shall be borne equally by HDA and the
Existing Shareholders.
(iii) Upon appointment of a BFAF, such BFAF in consultation
with the Parties shall establish a schedule for resolution of the dispute
that is reasonably calculated to result in a resolution as expeditiously as
practicable, and in any event, no later than six months after the Closing
Date. In resolving such dispute, the BFAF shall revise the Closing Balance
Sheet and the calculation of Closing Net Assets only with respect to the
issues raised in the Closing Balance Sheet Notice and only to the extent
necessary to make it conform to the practices, procedures and methods
described in Section 1.2(a) above. The decision of the BFAF shall be final
and binding on HDA and the Existing Shareholders in the absence of manifest
error.
(c) Post-Closing Adjustment. Within two business days after a final
-----------------------
resolution by the BFAF of such disagreements as may arise out of the review of
the Closing Balance Sheet in accordance with Section 1.2(b) above, and an
appropriate adjustment to the Closing Balance Sheet and the calculation of
Closing Net Assets to reflect such resolution, or, if Section 1.2(b)(I)(A) or
the first sentence of Section 1.2(b)(ii) applies, two business days after
delivery of, or expiration of the period for delivering, the Closing Balance
Sheet Notice (as applicable), the actual Purchase Price will be determined. If
the Closing Net Assets are less than $5,842,423, the difference and interest
thereon will be due and payable to HDA by the Existing Shareholders; however, to
the extent the Closing Net Assets are more than $5,842,423, the excess and
interest thereon will be due and payable to the Existing Shareholders by HDA.
Any adjustment to the Estimated Purchase Price pursuant to the preceding
sentence shall be promptly paid to the Existing Shareholders by HDA, or to HDA
by the Existing Shareholders (as the case may be). Any amounts payable pursuant
to this paragraph shall bear interest from the Closing Date through the date of
payment at an annual rate equal to LIBOR as reported in The Wall Street Journal
on the Closing Date.
ARTICLE II.
CLOSING
<PAGE>
2.1 Closing. The Closing of the transactions contemplated herein
-------
(the "Closing") shall be held at 10:00 a.m. local time on October 8, 1999 (the
"Closing Date") at the offices of Jones, Day, Reavis & Pogue, 77 West Wacker,
Chicago, Illinois 60601. The place of the Closing and the Closing Date may be
varied by agreement among the Parties.
2.2 Sale of Capital Stock of Wheels and Brakes. On the terms and
------------------------------------------
subject to the conditions of this Agreement, on the Closing Date, the Existing
Shareholders shall sell, transfer and assign to HDA, and HDA shall purchase and
acquire from the Existing Shareholders, all of the capital stock of Wheels and
Brakes.
2.3 Payment of Purchase Price. At the Closing, HDA shall wire
-------------------------
transfer the Purchase Price in immediately available funds in the amounts and to
the bank accounts designated by the Existing Shareholders on Annex B hereto
(less $500,000 (Five Hundred Thousand Dollars) to be delivered to the Escrow
Agent (as defined in Section 6.10) pursuant to Section 8.6 hereof.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF
THE EXISTING SHAREHOLDERS
The Existing Shareholders, jointly and severally, represent and
warrant to HDA as follows, except as set forth in a disclosure schedule
("Schedule") attached hereto and made a part hereof, the number of each Schedule
corresponding to the Section number to which it refers:
3.1 Corporate Organization and Standing. Wheels and Brakes is a
-----------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia and has all requisite corporate power and authority to
own or lease its properties and to carry on its business as presently conducted.
Wheels and Brakes has delivered to HDA or its representatives complete and
correct copies of its Articles of Incorporation and Bylaws (or other charter
documents) and all amendments thereto. Wheels and Brakes is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business as now being conducted by it or
the property owned or leased by it makes such qualification necessary, all of
which are listed on Schedule 3.1.
3.2 Authorization. This Agreement, the Ancillary Agreements (as
-------------
defined in Section 6.10) and the transactions contemplated hereby and thereby
have been duly authorized (in the case of non-natural persons). This Agreement
and the Ancillary Agreements have been duly executed and delivered by the
Existing Shareholders party thereto and are the legal, valid and binding
obligations of the Existing Shareholders party thereto, enforceable against them
in accordance with their terms.
3.3 No Conflict or Violation. Neither the execution and delivery
------------------------
of this Agreement or the Ancillary Agreements nor the consummation of the
transactions contemplated hereby or thereby will (a) violate, conflict with or
result in or constitute a default under or result in the termination or the
acceleration of, or the creation in any party of any right (whether or not
<PAGE>
with notice or lapse of time or both) to declare a default, accelerate,
terminate or cancel any indenture, contract, lease, sublease, loan agreement,
note or other agreement, obligation or liability ("Contractual Obligation") to
which Wheels and Brakes or any Existing Shareholder is a party or by which it,
he or she is bound or to which its, his or her assets are subject or result in
the creation of any lien or encumbrance upon any of said assets, (b) violate,
conflict with or result in a breach of or constitute a default under any
provision of the Articles of Incorporation or Bylaws (or other organizational
documents) of Wheels and Brakes, (c) violate, conflict with or result in a
breach of or constitute a default under any judgment, order, decree, rule or
regulation of any court or governmental agency to which Wheels and Brakes or any
Existing Shareholder is subject or (d) violate, conflict with or result in a
breach of any applicable rule or regulation of any federal, state, local or
other governmental authority.
3.4 Capitalization of Wheels and Brakes. The authorized capital
-----------------------------------
stock of Wheels and Brakes consists of 100,000 shares of common stock, $.04 par
value per share (the "Common Stock"). As of the date of this Agreement, 68,934
shares of Common Stock are outstanding, all of which shares have been duly
authorized, validly issued and are fully paid and non-assessable and are owned
in the aggregate by the Existing Shareholders, and individually by the persons
in the amount specified on Annex A hereto (the "Shares"). There are (a) no
preemptive or similar rights on the part of any holder of any class of
securities of Wheels and Brakes and (b) no options, warrants, conversion or
other rights, agreements or commitments of any kind obligating Wheels and
Brakes, contingently or otherwise, to issue, sell or otherwise cause to be
outstanding any shares of its capital stock of any class or any securities
convertible into or exchangeable for any such shares.
3.5 Subsidiaries. Except for the capital stock of the subsidiaries
------------
of Wheels and Brakes listed on Schedule 3.5, Wheels and Brakes does not own any
capital stock of, or other securities evidencing an equity interest in, any
corporation, partnership or other entity. All of the issued and outstanding
shares of capital stock of such subsidiaries of Wheels and Brakes have been duly
authorized and validly issued, are fully paid and nonassessable and are owned by
Wheels an Brakes, free and clear of any claims, liens, security interests,
options, charges, restrictions and interests of others whatsoever. There are no
options, warrants, conversions or other rights, agreements or commitments of any
kind obligation any subsidiary of Wheels and Brakes, contingently or otherwise,
to issue, sell or otherwise cause to be outstanding any shares of its capital
stock of any class or any securities convertible into or exchangeable for any
such shares. Wheels and Brakes has not, at any time within the past five years,
repurchased, redeemed or otherwise acquired any shares of capital stock of any
subsidiary of Wheels and Brakes.
3.6 Title to Shares. The Existing Shareholders have, and at
---------------
Closing will have, good and valid title to the Shares owned by them, free and
clear of any claims, liens, security interests, options, charges, restrictions
and interests of others whatsoever. Upon delivery to HDA at the Closing of
certificates representing the Shares owned by the Existing Shareholders, duly
endorsed by them for transfer to HDA, HDA will obtain good and valid title to
such Shares, free and clear of any claims, liens, security interests, options,
charges, restrictions and interests of
<PAGE>
others whatsoever except for any restrictions created by HDA. There are no
voting trusts, proxies, or other agreements or understandings to which Wheels
and Brakes or any Existing Shareholder is a party with respect to the voting,
dividend rights or disposition of any of the Shares. The Existing Shareholders
have no obligation, absolute or contingent, to any other person or entity to
issue, sell or otherwise dispose of any capital stock of Wheels and Brakes or to
effect any merger, consolidation, reorganization or other business combination
of Wheels and Brakes or to enter into any agreement with respect thereto.
3.7 Facilities. Schedule 3.7 contains a complete and accurate list
----------
of all real property used in connection with the business of Wheels and Brakes
(the "Real Property"), identifying which are owned ("Owned Real Property") and
which are leased or subleased ("Leased Real Property"), and accurate and
complete copies of preliminary title reports covering all of the Owned Real
Property. The Owned Real Property and the Leased Real Property are sometimes
hereinafter referred to collectively as the "Facilities" and individually as a
"Facility."
(a) Owned Real Property. Wheels and Brakes has good and marketable
-------------------
fee simple title to all Owned Real property, free and clear of all encumbrances,
except for taxes and assessments that are not yet due and payable, building
codes and zoning ordinances and easements, restrictions, covenants, rights-of-
way and reservations of record, which do not interfere with the present use of
the property and have not arisen other than in the ordinary course of business
("Permitted Encumbrances"). Wheels and Brakes enjoys peaceful and undisturbed
possession of all Owned Real Property.
(b) Actions. There are no pending or, to the best knowledge of
-------
Wheels and Brakes, threatened, condemnation proceedings or other actions,
claims, suits, litigation, proceedings, notices of violation, inquiry or
investigations (collectively, "Actions") relating to any of the Facilities or to
any improvements constructed thereon.
(c) Leases or Other Agreements. There are no leases, subleases,
--------------------------
licenses, occupancy agreements, options, rights, concessions or other agreements
or arrangements, written or oral, granting to any person the right to purchase,
use or occupy any Owned Real Property or any portion thereof, or interest in any
such Owned Real Property.
(d) Facility Leases and Leased Real Property. With respect to each of
----------------------------------------
its Leased Real Property, Wheels and Brakes is the sole lessee or sublessee and
has an unencumbered interest in the leasehold estate related thereto. Wheels and
Brakes enjoys peaceful and undisturbed possession of all of its Leased Real
Property. To the best knowledge of Wheels and Brakes, each Facility lease or
sublease is valid, binding and enforceable in accordance with its terms. Wheels
and Brakes is not in default in any material respect under any Facility lease or
sublease, and, to the best knowledge of Wheels and Brakes, no event or condition
exists that with notice or lapse of time or both would constitute a default in
any material respect by Wheels and Brakes under any Facility lease or sublease.
True, correct and complete copies of all leases and subleases listed on Schedule
3.7, including all amendments, modifications, written waivers or supplemental
agreements thereto, have been delivered to, or made available for inspection by,
HDA or its representatives.
<PAGE>
(e) Certificate of Occupancy. All Facilities have received all
------------------------
required approvals of governmental authorities (including, without limitation,
permits and a certificate of occupancy or similar certificate permitting lawful
occupancy of the Facilities) required in connection with the operation thereof
and are and have been operated and maintained in accordance with applicable
regulations.
(f) Utilities. All Facilities are supplied with utilities (including,
---------
without limitation, water, sewage, disposal, electricity, gas and telephone) and
other services necessary for the operation of such Facilities as currently
operated, and there is no condition which would reasonably be expected to result
in the termination of the present access from any Facility to such utility
services.
(g) Improvements, Fixtures and Equipment. The improvements
------------------------------------
constructed on the Facilities, including, without limitation, all leasehold
improvements, and all fixtures and equipment and other tangible assets owned,
leased or used by Wheels and Brakes at the Facilities are (i) insured to the
extent and in a manner customary in the industry, (ii) structurally sound with
no known material defects, (iii) in good operating condition and repair, subject
to ordinary wear and tear, (iv) not in need of maintenance, repair or correction
except for ordinary routine maintenance and repair, the cost of which would not
be material, (v) sufficient for the operation of Wheels and Brakes' business as
presently conducted and (vi) in conformity with all applicable regulations.
(h) No Special Assessment. Wheels and Brakes has not received notice
---------------------
of any special assessment relating to any Facility or any portion thereof, and
there is no pending or threatened special assessment.
3.8 Financial Statements.
--------------------
(a) The audited balance sheets and statements of income,
stockholders' equity and cash flows of Wheels and Brakes at and for the fiscal
years ended January 31, 1999 and 1998 were prepared in accordance with GAAP
consistently applied and fairly present the financial condition and results of
operations of Wheels and Brakes as of their respective dates and for each such
period. Wheels and Brakes has no liabilities of any nature, whether absolute,
accrued, asserted or unasserted or contingent or whether due or to become due
that should have been recorded or reserved for on any such balance sheet and
were not so recorded or reserved. The audited balance sheet of Wheels and Brakes
at January 31, 1999 is referred to herein as the "Balance Sheet."
(b) The unaudited balance sheet and statements of income,
stockholders' equity and cash flows of Wheels and Brakes at and for the six
months ended July 31, 1999 were prepared in accordance with GAAP consistently
applied and fairly present the financial condition and results of operations of
Wheels and Brakes as of its date and for such period and are consistent with the
financial statements described in Section 3.8(a).
(c) Copies of the financial statements described in Section 3.8(a)-
(b) have been provided to HDA or its representatives.
<PAGE>
3.9 Books and Records. Wheels and Brakes has made and kept and
-----------------
given HDA and its representatives access to books and records and accounts,
which, in reasonable detail, accurately and fairly reflect the activities of
Wheels and Brakes. The minute books of Wheels and Brakes accurately and
adequately reflect all action taken by the shareholders, board of directors and
committees of the board of directors of Wheels and Brakes. The copies of the
stock book records of Wheels and Brakes are true, correct and complete, and
accurately reflect all transactions effected in Wheels and Brakes' equity
interests through and including the date hereof. Wheels and Brakes has not
engaged in any transaction, maintained any bank account or used any corporate
funds except for the transactions, bank accounts and funds which have been and
are reflected in the normally maintained books and records of Wheels and Brakes,
all of which have been provided or made available to HDA and its
representatives.
3.10 Litigation. There is no claim, action, suit, proceeding, or
----------
investigation pending or, to the best knowledge of Wheels and Brakes, threatened
against Wheels and Brakes or the directors, officers, agents or employees of
Wheels and Brakes (in their capacity as such), or any properties or rights of
Wheels and Brakes. There are no orders, writs, injunctions or decrees currently
in force against Wheels and Brakes or the directors, officers, agents or
employees of Wheels and Brakes (in their capacity as such) with respect to the
conduct of Wheels and Brakes' business.
3.11 Licenses and Permits; Compliance with Laws. Schedule 3.11
------------------------------------------
sets forth a complete list of all licenses, franchises, permits, approvals and
other governmental authorizations (collectively, "Licenses and Permits") held by
Wheels and Brakes. Wheels and Brakes owns, holds or possesses all Licenses and
Permits necessary or appropriate to entitle it to use its corporate name, to own
or lease, operate and use its assets and properties and to carry on and conduct
its business and operations as presently conducted. Wheels and Brakes is not in
violation of or default under any Licenses or Permits or any judgment, order,
writ, injunction or decree of any court or administrative agency issued against
it or any law, ordinance, rule or regulation applicable to it. Wheels and
Brakes' conduct of its business has been and is in compliance with all
applicable laws, statutes, ordinances and regulations. Wheels and Brakes has not
received any notice asserting a failure to comply with any law, statute,
ordinance, regulation, rule or order of any foreign, federal, state or local
government or any other governmental department or agency.
3.12 Tax Matters.
-----------
(a) For purposes of this Agreement, (i) "Tax" means any federal,
state, local or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental,
customs duties, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or
addition thereto, whether disputed or not, and (ii) "Tax Return" means any
return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
<PAGE>
(b) Wheels and Brakes has timely filed, or caused to be timely filed,
all Tax Returns that it was required to file. All such Tax Returns were correct
and complete in all respects. All Taxes owed by Wheels and Brakes (whether or
not shown on any Tax Return) have been paid. Wheels and Brakes is not currently
the beneficiary of any extension of time within which to file any Tax Return.
No claim has ever been made by an authority in a jurisdiction where Wheels and
Brakes does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no liens on any of the assets of Wheels and Brakes
that arose in connection with any failure (or alleged failure) to pay any Tax.
(c) Wheels and Brakes withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party.
(d) There is no dispute or claim concerning any Tax Liability of
Wheels and Brakes either (i) claimed or raised by any authority in writing or
(ii) of which Wheels and Brakes has knowledge. To the knowledge of Wheels and
Brakes and each Existing Shareholder, no audit or examination of any Tax Return
is currently in progress, and Wheels and Brakes has not received notice of any
proposed audit or examination. Wheels and Brakes has furnished to HDA or its
representatives correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by Wheels and Brakes with respect to years ended on or before December 31,
1998. Wheels and Brakes has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) Wheels and Brakes has not filed a consent under Section 341(f) of
the Code concerning collapsible corporations (or any comparable state income tax
provision). Wheels and Brakes has not made any payments, is not obligated to
make any payments, and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Section 280G of the Code. Wheels and Brakes is not a party to any Tax
allocation, sharing or indemnity agreement. Wheels and Brakes (i) has not been
a member of an affiliated group of corporations filing a consolidated federal
income Tax Return and (ii) is not liable for the Taxes of any person under Reg.
Sec. 1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise. Schedule 3.12 hereto sets
forth all material elections (e.g., accelerated depreciation, Sec. 263(a)
regarding the allocation of overhead to inventory, and LIFO election for
inventory accounting) in effect as of the date hereof with respect to Taxes
affecting Wheels and Brakes.
(f) The unpaid Taxes of Wheels and Brakes did not exceed the reserve
for Tax Liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the face of
the most recent balance sheet of Wheels and Brakes. Wheels and Brakes has made
provision, in conformity with GAAP consistently applied, on the Balance Sheet
and the interim financial statements for the payment of all Taxes
<PAGE>
which may subsequently become due.
3.13 Brokers, Finders. Wheels and Brakes has not retained any
----------------
broker or finder in connection with the transactions contemplated herein, and is
not obligated and has not agreed to pay any brokerage or finder's commission,
fee or similar compensation.
3.14 Absence of Certain Changes.
--------------------------
Since January 31, 1999, Wheels and Brakes has conducted its business
in the ordinary course and there has not occurred with respect to Wheels and
Brakes:
(a) any material adverse effect on the business, operations, assets,
results of operations, financial condition or prospects of Wheels and
Brakes ("Material Adverse Effect");
(b) any revaluation of assets, including, without limitation, writing
down the value of inventory or writing off notes or accounts receivable;
(c) any payment, discharge or satisfaction of any liabilities or
obligations, other than in the ordinary course of business;
(d) any incurrence of liabilities, except liabilities incurred in the
ordinary course of business, or increase or change in any assumptions
underlying or methods of calculating, any doubtful account contingency or
other reserves;
(e) any capital expenditure exceeding $10,000, the execution of any
lease or the incurring of any obligation to make any capital expenditure or
execute any lease other than in the ordinary course of business;
(f) the failure to pay or satisfy when due any liability, except
where the failure would not have a Material Adverse Effect;
(g) any assets (whether real, personal or mixed, tangible or
intangible) of Wheels and Brakes becoming subject to any mortgage, pledge,
lien, security interest, encumbrance, restriction or charge of any kind,
except in the ordinary course of business;
(h) the failure to carry on diligently the business in the ordinary
course so as to preserve for HDA the assets, business and goodwill of
Wheels and Brakes' suppliers, customers, distributors and others having
business relations with it;
(i) the disposition or lapsing of any Proprietary Rights (as defined
in Section 3.16) or any disposition or disclosure to any person of any
Proprietary Rights not heretofore a matter of public knowledge;
(j) any cancellation or waiver of any material claims or rights of
value, or any sale, lease, transfer, assignment, distribution or other
disposition of any assets, except for
<PAGE>
sales of inventory in the ordinary course of business, or any disposal of
any material assets for any amount;
(k) an amendment, cancellation or termination of any contract,
commitment, agreement, lease, transaction or permit relating to assets or
the business or entry into any contract, commitment, agreement, lease,
transaction or permit which is not in the ordinary course of business,
including, without limitation, any employment or consulting agreements;
(l) any amendment or change to any Employee Benefit Plan (as
hereinafter defined) or any actuarial or accounting standards applicable to
any such Employee Benefit Plan, or the establishment of or commitment to
establish any employee benefit plan (as defined in ERISA);
(m) any bonus paid or promised, an increase in the base compensation,
or other payment or loan to any director, officer or employee, whether now
or hereafter payable or granted (other than increases in base compensation
not to exceed 5% per annum in the ordinary course consistent in timing and
amount with past practices), or entry into or variation of the terms of any
employment or incentive agreement with any such person;
(n) an adverse change in employee relations which has or is
reasonably likely to have an adverse effect on the productivity, the
financial condition, results of operations or business of Wheels and Brakes
or the relationships between the employees of Wheels and Brakes and the
management of Wheels and Brakes;
(o) any change in any method of accounting or keeping books of
account or accounting practices other than changes necessary to conform to
changes in GAAP;
(p) any material damage, destruction or loss of any asset, whether or
not covered by insurance;
(q) the issuance, delivery or sale of any equity securities, or
alteration in terms of any outstanding securities issued by it or any
increase in its indebtedness for borrowed money;
(r) the declaration, payment or setting aside for payment of any
dividend or other distribution (whether in cash, stock or property or
otherwise), the redemption, purchase or other acquisition of any shares of
Common Stock, or the creation of any securities convertible into or
exchangeable for any shares of Common Stock or any options, warrants or
other rights to purchase or subscribe to any of the foregoing;
(s) the consummation or adoption of any plan of liquidation or
resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of Wheels and Brakes;
(t) the existence of any other event or condition which, in any one
case or in
<PAGE>
the aggregate, has been or might reasonably be expected to have a Material
Adverse Effect; or
(u) an agreement to do any of the things described in the preceding
clauses (a) - (t) other than as expressly provided for herein.
3.15 Material Contracts. Schedule 3.15 attached hereto sets forth
------------------
a complete and correct list of all the Material Contracts to which Wheels and
Brakes or, in the case of Section 3.15(g), any Existing Shareholder, is a party.
As used in this Agreement, "Material Contracts" means:
(a) all such contracts not made in the ordinary course of business;
(b) all such leases or other agreements under which Wheels and Brakes
is a lessor or lessee of any real property or any machinery, equipment, vehicle
or other tangible personal property owned by a third party and used in the
business of Wheels and Brakes, which entails annual payments, in the case of any
such lease or agreement, in excess of $10,000;
(c) all such options with respect to any property, real or personal,
whether Wheels and Brakes is the grantor or grantee thereunder;
(d) all such distribution, franchise, license, technical assistance,
sales, commission, consulting, agency or advertising contracts related to Wheels
and Brakes' assets or business and that are not cancelable on not more than 30
days notice and without cancellation penalties or severance payments, in the
case of any such contract or group of contracts, in excess of $10,000;
(e) all such mortgages, indentures, security agreements, pledges,
notes, loan agreements or guaranties relating to Wheels and Brakes;
(f) all such contracts and agreements to which Wheels and Brakes is a
party and which are (i) outstanding contracts with its officers, employees,
agents, consultants, advisors, salespeople, sales representatives, distributors,
sales agents or dealers of Wheels and Brakes other than contracts which by their
terms are cancelable by Wheels and Brakes with notice of not more than 30 days
and without cancellation penalties or severance payments, in the case of any
such contract or group of contracts, in excess of $10,000, (ii) collective
bargaining agreements and (iii) pension, profit-sharing, bonus, retirement,
stock option or employee benefit plans or other similar plans or arrangements of
Wheels and Brakes;
(g) any covenant not to compete or similar restriction on Wheels and
Brakes or any Existing Shareholder;
(h) any contract with the United States, state or local government or
any agency or department thereof, involving expenditures or liabilities in
excess of $10,000; or
<PAGE>
(i) any contract or agreement providing for the receipt or payment
(whether the obligations are fixed or contingent) of $10,000 or more after the
date of this Agreement, including, without limitation, agreements calling for
penalties or payments upon voluntary termination or withdrawal by Wheels and
Brakes.
The Existing Shareholders have furnished to HDA or its representatives true and
correct copies of all Material Contracts, including all amendments and
supplements thereto.
3.16 Proprietary Rights.
------------------
(a) Schedule 3.16(a) lists the material patents, trademarks (whether
registered or unregistered), service marks, trade names, service names, brand
names, logos and copyrights (collectively, the "Proprietary Rights") for Wheels
and Brakes. Schedule 3.16(a) also sets forth: (i) for each patent, the number,
normal expiration date and subject matter for each country in which such patent
has been issued, or, if applicable, the application number, date of filing and
subject matter for each country, (ii) for each trademark, the application serial
number or registration number, the class of goods covered and the expiration
date for each country in which a trademark has been registered and (iii) for
each copyright, the number and date of filing for each country in which a
copyright has been filed. The Proprietary Rights listed in Schedule 3.16(a) are
all those used by Wheels and Brakes in connection with its businesses. True and
correct copies of all patents (including all pending applications) owned,
controlled, created or used by or on behalf of Wheels and Brakes or in which
Wheels and Brakes has any interest whatsoever have been provided to HDA or its
representatives.
(b) Wheels and Brakes has no obligation to compensate any person for
the use of any such Proprietary Rights nor has Wheels and Brakes granted to any
person any license, option or other rights to use in any manner any of its
Proprietary Rights, whether requiring the payment of royalties or not.
(c) Wheels and Brakes owns or has a valid right to use each of the
Proprietary Rights, and the Proprietary Rights will not cease to be valid rights
of Wheels and Brakes by reason of the execution, delivery and performance of
this Agreement, the Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby. All of the pending patent applications have
been duly filed. Wheels and Brakes has not received any notice of invalidity or
infringement of any rights of others with respect to such trademarks. Wheels and
Brakes has taken all reasonable and prudent steps to protect the Proprietary
Rights from infringement by any other person. No other person (i) has the right
to use any Proprietary Rights, (ii) has notified Wheels and Brakes that it is
claiming any ownership of or right to use such Proprietary Rights or (iii) to
the best knowledge of Wheels and Brakes, is infringing upon any such Proprietary
Rights in any way. Wheels and Brakes' use of any Proprietary Rights does not and
will not conflict with, infringe upon or otherwise violate the valid rights of
any third party in or to such Proprietary Rights, and no action has been
instituted against or notices received by Wheels and Brakes that are presently
outstanding, alleging that Wheels and Brakes' use of the Wheels and Brakes name
and its variations used in the Wheels and Brakes business infringes upon or
otherwise violates any rights of a third party in or to such Proprietary Rights.
<PAGE>
There are not, and it is reasonably expected that after the Closing there will
not be, any restrictions on the right of Wheels and Brakes to sell products
manufactured or remanufactured by Wheels and Brakes in connection with the
operation of its business.
3.17 Labor Matters. Wheels and Brakes is not a party to any labor
-------------
agreement with respect to its employees with any labor organization, union,
group or association, and there are no employee unions (nor any other similar
labor or employee organizations) under local statutes, custom or practice.
Wheels and Brakes has not experienced any attempt by organized labor or its
representatives to make it conform to demands of organized labor relating to its
employees or to enter into a binding agreement with organized labor that would
cover the employees of Wheels and Brakes. There is no labor strike or labor
disturbance pending or, to the best knowledge of Wheels and Brakes, threatened
against Wheels and Brakes, nor is any grievance currently being asserted, and
Wheels and Brakes has not experienced a work stoppage or other labor difficulty,
and is not and has not engaged in any unfair labor practice. Without limiting
the foregoing, Wheels and Brakes is in compliance with the Immigration Reform
and Control Act of 1986 and maintains a current Form I-9, as required by such
Act, in the personnel file of each employee hired after November 9, 1986.
3.18 Consents. No consent, approval, authorization, order, filing,
--------
registration or qualification (each a "Consent") of or with any court,
governmental authority or third person is required to be made or obtained by
Wheels and Brakes or any Existing Shareholder in connection with the execution
and delivery of this Agreement, the Ancillary Agreements or the consummation by
Wheels and Brakes and the Existing Shareholders of the transactions contemplated
herein and therein, except for (a) consents required under the Facility leases
and subleases as set forth on Schedule 3.18, (b) consents listed on Schedule
3.18 that are required to be made or obtained after the Closing under Licenses
and Permits and (c) filings, registrations, licenses and permits listed on
Schedule 3.18 generally applicable to businesses similar to those of Wheels and
Brakes required to be obtained or made by Wheels and Brakes after the Closing in
the ordinary course of business as a result of the consummation of the
transactions contemplated hereby.
3.19 Employee Benefit Plans; Employment Agreements.
---------------------------------------------
(a) Plans. Schedule 3.19(a) sets forth a true, complete and accurate
-----
list of: (i) any and all severance or employment agreements with any current or
former director, officer, independent contractor or employee of Wheels and
Brakes; (ii) any and all severance plans, programs or policies; (iii) any and
all plans, agreements or arrangements relating to current or former directors,
officers, independent contractors or employees of Wheels and Brakes containing
change in control provisions or currently established, maintained or contributed
to by Wheels and Brakes, including bonus, incentive compensation, stock
ownership, stock option, stock appreciation, stock purchase, phantom stock,
vacation, retirement, insurance, severance, supplemental unemployment,
disability, death benefit, hospitalization, medical, workers compensation,
pension, employee stock ownership, profit-sharing or deferred compensation
<PAGE>
plans; (iv) collective bargaining agreements; (v) any employee welfare and
employee pension benefit plans (as such terms are defined in Sections 3(1) and
3(2), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), which are currently established, maintained or contributed
to by Wheels and Brakes and are applicable to Wheels and Brakes' former or
current employees (singularly, "Employee Benefit Plan" and collectively,
"Employee Benefit Plans"); and (vi) all Employee Benefit Plans, except those
disclosed above, previously established, maintained or contributed to by Wheels
and Brakes, or any one of them acting alone ("Terminated Employee Benefit
Plans").
(b) Pension and Welfare Benefit Plans. With respect to the Employee
---------------------------------
Benefit Plans and Terminated Employee Benefit Plans, each as described on
Schedule 3.19(a):
(i) each Employee Benefit Plan is in compliance with the
requirements provided by any and all statutes, orders or governmental rules
or regulations currently in effect and applicable to such Employee Benefit
Plans, including but not limited to ERISA and the Code, and each Employee
Benefit Plan has been administered in accordance with its terms;
(ii) with respect to any Employee Benefit Plan which is an
employee welfare benefit plan (which term shall have the meaning set forth
in Section 3(3) of the ERISA), any trust related thereto has been
determined to be tax-exempt by the IRS pursuant to Code (S) 501(c)(9) and
nothing has occurred since the time of such determination to cause the loss
of such trust's tax-exempt status. Each Employee Benefit Plan intended to
be qualified pursuant to Code (S) 401(a) and Code (S) 501(a) is qualified
under Code (S) 401(a) and Code (S) 501(a) and has received a favorable
determination letter from the IRS covering the Tax Reform Act of 1986, as
amended, that such ERISA Plans are so qualified and each trust established
in connection with any such plan is exempt from federal income taxation and
nothing (either in form or operation) has since occurred from the date of
the last favorable determination letter to cause the loss of such
qualification;
(iii) all required reports and disclosures (including without
limitation the IRS Form 5500 Annual Return/Report, summary annual report
and summary plan description) with respect to each Employee Benefit Plan
have been timely filed and distributed;
(iv) any notices required by ERISA or the Code or any other
state or federal law or any ruling or regulation of any state or federal
administrative agency with respect to such Employee Benefit Plans have been
appropriately given;
(v) all required contributions for all periods ending prior to
Closing (including periods from the first day of the current plan year to
Closing) will be made to such Employee Benefit Plans prior to the Closing
Date by Wheels and Brakes;
(vi) Wheels and Brakes has not taken any action directly or
indirectly that obligates Wheels and Brakes to institute, modify or change
any Employee Benefit
<PAGE>
Plan, any change in the manner in which contributions are made or the basis
on which such contributions are determined;
(vii) all insurance premiums have been paid in full, subject
only to normal retrospective adjustments in the ordinary course, with
regard to such Employee Benefit Plans for policy years or other applicable
policy periods ending on or before Closing;
(viii) with respect to each such Employee Benefit Plan, neither
Wheels and Brakes, its affiliates, nor any fiduciary (as defined in ERISA
(S) 3(21)) of any Employee Benefit Plan have engaged in any prohibited
transactions (as defined in ERISA (S) 406 or Code (S) 4975); no penalty,
fine, tax, action, suit, grievance, arbitration, investigation, audit,
litigation or claim (other than routine claims for benefits made in the
ordinary course of plan administration for which plan administrative review
procedures have not been exhausted) are pending, threatened or imminent
against or with respect to any Employee Benefit Plans, Wheels and Brakes,
or any fiduciary (as defined in ERISA (S) 3(21)) of any such Employee
Benefit Plan (including without limitation any action, suit, grievance,
arbitration or other manner of litigation, or claim regarding conduct which
allegedly interferes with the attainment of rights under such plans);
neither Wheels and Brakes, nor any fiduciary with respect to any Employee
Benefit Plan has any knowledge of any facts that would give rise to or
could give rise to any penalty, fine, tax, action, suit, grievance,
arbitration or other manner of litigation, or claim; and Wheels and Brakes
has not incurred any lien under Section 401(a)(29) or any liability for any
tax or civil penalty imposed by Section 4971 or 4976 of the Code or Section
502 of ERISA and no condition or set of circumstances exists that presents
a risk to Wheels and Brakes of incurring any such lien or liability;
(ix) no Employee Benefit Plan is (A) a "defined benefit" plan
(as defined in Section 3(35) of ERISA, (B) a "multiemployer plan" within
the meaning of Section 3(37) of ERISA, (C) a "multiple employer" or a
"multiple employer welfare arrangement" within the meaning of Section
413(c) of the Code or Section 514(b)(6) of ERISA, respectively, or (D) a
"welfare benefit fund" as defined in Section 419(e) of the Code;
(x) neither Wheels and Brakes nor any of its affiliates is
subject to any liability under Title IV of ERISA, including without
limitation any withdrawal liability on behalf of a multiemployer plan;
(xi) none of Wheels and Brakes or any of its directors,
officers, employees or any fiduciary of any Employee Benefit Plan has any
liability for a breach of fiduciary responsibility imposed by ERISA for
failure to comply with ERISA or the Code for any action or failure to act
in connection with the administration or investment of such Employee
Benefit Plans;
(xii) except as disclosed on Schedule 3.19(a), none of such
Employee Benefit Plans has been completely or partially terminated, except
that the Wheels and
<PAGE>
Brakes, Inc. Employee Stock Ownership Plan ("ESOP") has been validly
terminated prior to Closing, and such termination, and all actions taken to
effectuate or otherwise related to such termination, comply in all respects
with the terms of the ESOP and with ERISA, the Code and other applicable
law;
(xiii) no current or former employee of Wheels and Brakes will be
entitled to any payment, additional benefits or any acceleration of the
time of payment or vesting of any benefits under any Employee Benefit Plan
as a result of the transactions contemplated by this Agreement (either
alone or in conjunction with any other event such as a termination of
employment) and no trustee under any "rabbi trust" or similar arrangement
in connection with any Employee Benefit Plan will be entitled to payment as
a result of the transactions contemplated by this Agreement; and
(xiv) no Employee Benefit Plan provides medical, life or other
welfare benefits (whether or not insured), with respect to current or
former employees after retirement or other termination of service (other
than coverage mandated by applicable law). With respect to any contract or
arrangement with an insurance company providing funding under any Employee
Benefit Plan, there is no material liability for any retroactive rate
adjustment. Except as disclosed on Schedule 3.19(a), Wheels and Brakes has
the right to amend or to terminate its participation with respect to each
Employee Benefit Plan. Each Employee Benefit Plan that is a "group health
plan," as defined in Section 5000 of the Code has been operated in
accordance with Section 4980B of the Code, Section 9801 and the secondary
payor requirements of Section 1862(b) of the Social Security Act.
3.20 Compliance with Environmental Laws.
----------------------------------
(a) Definitions. The following terms, when used in this Section 3.20,
-----------
shall have the following meanings. Any of these terms may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference.
(i) "Wheels and Brakes" for the purposes of this Section, shall
include (A) Wheels and Brakes, (B) all partnerships, joint ventures and
other entities or organizations in which Wheels and Brakes was at any time
or is a partner, joint venturer, member or participant and (C) all
predecessor or former corporations, partnerships, joint ventures,
organizations, businesses or other entities, whether in existence as of the
date hereof or at any time prior to the date hereof, the assets or
obligations of which have been acquired or assumed by Wheels and Brakes or
to which Wheels and Brakes has succeeded.
(ii) "Release" shall mean and include any existing or previously
existing spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping or disposing into the
environment or the workplace of any hazardous substance, and/or otherwise
as defined in any Environmental Law.
(iii) "Hazardous Substance" shall mean any pollutant,
contaminant,
<PAGE>
chemical, waste and any toxic, infectious, carcinogenic, reactive,
corrosive, ignitable or flammable chemical or chemical compound or
hazardous substance, material or waste, whether solid, liquid or gas,
including, without limitation, any quantity of asbestos in any form, urea
formaldehyde, PCB's, radon gas, crude oil or any fraction thereof, all
forms of natural gas, petroleum products or by-products or derivatives,
radioactive substance or material, pesticide waste waters, sludges, slag
and any other substance, material or waste that is subject to regulation,
control or remediation under any Environmental Laws.
(iv) "Environmental Laws" shall mean all laws, statutes,
regulations, rules, ordinances, by-laws, orders or determinations of any
governmental or judicial authority at the federal, state or local level,
whether existing as of the date hereof, previously enforced, or
subsequently enacted which regulate or relate to the protection or clean-up
of the environment, the use, treatment, storage, transportation,
generation, manufacture, processing, distribution, handling or disposal of,
or emission, discharge or other release or threatened release of Hazardous
Substances or otherwise dangerous substances, wastes, pollution or
materials (whether, gas, liquid or solid), the preservation or protection
of waterways, groundwater, drinking water, air, wildlife, plants or other
natural resources, or the health and safety of persons or property,
including, without limitation, protection of the health and safety of
employees. Environmental Laws shall include, without limitation, the
Federal Insecticide, Fungicide, Rodenticide Act, Resource Conservation &
Recovery Act, Clean Water Act, Safe Drinking Water Act, Atomic Energy Act,
Occupational Safety and Health Act, Toxic Substances Control Act, Clean Air
Act, Comprehensive Environmental Response, Compensation and Liability Act,
Emergency Planning and Community Right-to-Know Act and the Hazardous
Materials Transportation Act.
(v) "Environmental Conditions" means the introduction into the
environment, whether or not yet discovered, of any pollution, including,
without limitation, any contaminant, irritant or pollutant or other
Hazardous Substance (whether or not upon any Facility or former Facility or
other property and whether or not such pollution constituted at the time
thereof a violation of any Environmental Law as a result of any Release of
any kind whatsoever of any Hazardous Substance) as a result of which has or
may become liable to any person or by reason of which any Facility, former
Facility or any of the assets of Wheels and Brakes may suffer or be
subjected to any lien or as a result of which Wheels and Brakes or HDA
could incur any damage, loss, cost, expense, claim, demand, order or
liability to a third party (including, without limitation, any governmental
authority).
(b) Notice of Violation. Wheels and Brakes has not received a notice
-------------------
of alleged, actual or potential responsibility for, or any inquiry or
investigation regarding, (i) any Release or threatened Release of any Hazardous
Substance at any location, whether at the Facilities, the former Facilities or
otherwise or (ii) an alleged violation of or non-compliance with the conditions
of any permit required under any Environmental Law or the provisions of
<PAGE>
any Environmental Law. Wheels and Brakes has not received notice of any other
claim, demand or action by any individual or entity alleging any actual or
threatened injury or damage to any person, property, natural resource or the
environment arising from or relating to any Release or threatened Release of any
Hazardous Substances at, on, under, in, to or from any Facilities or former
Facilities, or in connection with any operations or activities of Wheels and
Brakes.
(c) Environmental Conditions. There are no present or past
------------------------
Environmental Conditions.
(d) Environmental Audits or Assessments. True, complete and correct
-----------------------------------
copies of the written reports, and all parts thereof, including any drafts of
such reports if such drafts are in the possession or control of Wheels and
Brakes, of all environmental audits or assessments which have been conducted at
any Facility or former Facility within the past five years, either by Wheels and
Brakes or any attorney, environmental consultant or engineer engaged for such
purpose, have been delivered to HDA or its representatives and a list of all
such reports, audits and assessments and any other similar report, audit or
assessment of which Wheels and Brakes has knowledge is included in Schedule
3.20(d) hereto.
(e) Indemnification Agreements. Wheels and Brakes is not a party,
--------------------------
whether as a direct signatory or as successor, assign or third party
beneficiary, or otherwise bound, to any lease or other contract (excluding
insurance policies disclosed on Schedule 3.23) under which Wheels and Brakes is
obligated by or entitled to the benefits of directly or indirectly, any
representation, warranty, indemnification, covenant, restriction or other
undertaking concerning environmental conditions.
(f) Releases or Waivers. Wheels and Brakes has not released any
-------------------
other person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition.
(g) Notices, Warnings and Records. Wheels and Brakes has given all
-----------------------------
notices and warnings, made all reports, and has kept and maintained all records
required by and in compliance with all Environmental Laws.
(h) Compliance. Wheels and Brakes has never violated and is
----------
presently in compliance with all Environmental Laws.
(i) Hazardous Material. Wheels and Brakes has not generated,
------------------
manufactured, refined, transported, treated, disposed of, stored, handled,
transferred, produced or processed any Hazardous Material.
(j) Underground Storage Tanks. There are no underground storage
-------------------------
tanks at any Facility owned or operated by Wheels and Brakes. Wheels and Brakes
does not own or operate any underground storage tanks, whether currently in use
or formerly used.
(k) Asbestos Containing Material. There is no asbestos containing
----------------------------
material at any Facility owned or operated by Wheels and Brakes.
<PAGE>
(l) Liens. No lien has been imposed on any Facility pursuant to any
-----
Environmental Law.
3.21 Certain Business Relationships with Wheels and Brakes. Except
-----------------------------------------------------
as disclosed on Schedule 3.21, none of the Existing Shareholders has been
involved in any business arrangement or relationship with Wheels and Brakes
within the past 12 months, and none of such Existing Shareholders owns any
assets, tangible or intangible, that are used in the business of Wheels and
Brakes.
3.22 Undisclosed Liabilities. Wheels and Brakes has no liabilities
-----------------------
or obligations, whether accrued, absolute, contingent or otherwise except (a) to
the extent reflected or reserved for on the Balance Sheet, (b) liabilities or
obligations incurred in the normal and ordinary course of business of Wheels and
Brakes since January 31, 1999, (c) liabilities or obligations disclosed in
Schedule 3.22 hereto and in the other Schedules attached hereto or (d)
liabilities or obligations disclosed elsewhere in this Agreement.
3.23 Insurance. Schedule 3.23 contains a complete and accurate
---------
list of all policies or binders of fire, liability, title, worker's
compensation, product liability and other forms of insurance (showing as to each
policy or binder the carrier, policy number, coverage limits, expiration dates,
annual premiums, a general description of the type of coverage provided, loss
experience history by line of coverage) maintained by Wheels and Brakes on its
(a) business, (b) assets or (c) employees at any time since December 31, 1992.
All insurance coverage applicable to Wheels and Brakes, or its business or
assets is in full force and effect, insures Wheels and Brakes in reasonably
sufficient amounts against all risks usually insured against by persons
operating similar business or properties of similar size in the localities where
such business or properties are located, provides coverage as may be required by
applicable regulation and by any and all contracts to which Wheels and Brakes is
a party and has been issued by insurers of recognized responsibility. There is
no default under any such coverage nor has there been any failure to give notice
or present any claim under any such coverage in a due and timely fashion. There
are no premiums for any such insurance that are due or past due and no notice of
cancellation or nonrenewal of any such coverage has been received. There are no
provisions in such insurance policies for retroactive or retrospective premium
adjustments. All products liability, general liability and workers' compensation
insurance policies maintained by Wheels and Brakes have been occurrence policies
and not claims made policies. There are no outstanding performance bonds
covering or issued for the benefit of Wheels and Brakes. There are no facts upon
which an insurer might be justified in reducing coverage or increasing premiums
on existing policies or binders. No insurer has advised Wheels and Brakes that
it intends to reduce coverage, increase premiums or fail to renew any existing
policy or binder.
3.24 Accounts Receivable. The accounts receivable set forth on the
-------------------
Balance Sheet, and all accounts receivable arising since the date of the Balance
Sheet, represent bona fide claims of Wheels and Brakes against debtors for
sales, services performed or other charges arising on or before the date hereof,
and all the goods delivered and services performed which gave rise to said
accounts were delivered or performed in accordance with the applicable orders,
contracts or customer requirements. Said accounts receivable are subject to no
defenses, counterclaims or rights of setoff and are fully collectible in the
ordinary course of business
<PAGE>
without cost in collection efforts therefor, except to the extent of the
appropriate reserves for bad debts on accounts receivable as set forth on the
Balance Sheet and, in the case of accounts receivable arising since the date of
the Balance Sheet, to the extent of a reasonable reserve rate for bad debts on
accounts receivable which is not greater than the rate reflected by the reserve
for bad debts on the Balance Sheet.
3.25 Inventory. Schedule 3.25 contains a complete and accurate
---------
list of the addresses at which all inventory as set forth on the Balance Sheet,
and all inventory acquired since the date of the Balance Sheet, is located. The
inventory as set forth on the Balance Sheet or arising since the date of the
Balance Sheet was acquired and has been maintained in accordance with the
regular business practices of Wheels and Brakes consists of new and unused items
of a quality and quantity usable or saleable in the ordinary course of business,
and is valued using average cost at the lower of cost or market on a LIFO basis.
None of such inventory is obsolete, unusable, slow-moving, damaged or unsaleable
in the ordinary course of business, except for such items of inventory which
have been written down to realizable market value, or for which adequate
reserves have been provided in the Balance Sheet.
3.26 Payments. Wheels and Brakes has not, directly or indirectly,
--------
paid or delivered any fee, commission or other sum of money or item or property,
however characterized, to any finder, agent, client, customer, supplier,
government official or other party, in the United States or any other country,
which is in any manner related to the business, assets or operations of Wheels
and Brakes, that is, or may be with the passage of time or discovery, illegal
under any federal, state or local laws of the United States (including, without
limitation, the U.S. Foreign Corrupt Practices' Act) or any other country having
jurisdiction. Wheels and Brakes has not participated, directly or indirectly, in
any boycotts or other similar practices affecting any of its actual or potential
customers and has at all times done business in an open and ethical manner.
3.27 Customers, Distributors and Suppliers. Schedule 3.27 sets
-------------------------------------
forth a complete and accurate list of the names and addresses of Wheels and
Brakes' ten largest (in terms of dollar volume) (a) customers, distributors and
other agents and representatives during Wheels and Brakes' last fiscal year,
showing the approximate total sales in dollars by Wheels and Brakes to such
customer during such fiscal year; and (b) suppliers during Wheels and Brakes'
last fiscal year, showing the approximate total purchases in dollars by Wheels
and Brakes from such supplier during such fiscal year. Since January 31, 1999,
there has been no adverse change in the business relationship of Wheels and
Brakes with any customer, distributor or supplier named on Schedule 3.27. Wheels
and Brakes has not received any communication from any customer, distributor or
supplier named on Schedule 3.27 of any intention to terminate or materially
reduce purchases from or supplies to Wheels and Brakes.
3.28 Computer Systems. The computer systems used in Wheels and
----------------
Brakes' business are capable of the following before, during or after January 1,
2000 ("Year 2000 Compliant"): (a) handling date information involving all and
any dates before, during or after January 1, 2000, including accepting input,
providing output and performing date calculations in whole or in part; (b)
operating, accurately without interruption on and in respect of any and all
dates before, during or after January 1, 2000 and without any change in
performance;
<PAGE>
(c) responding to and processing two digit year input without creating any
ambiguity as to the century; and (d) storing and providing date input
information without creating any ambiguity as to the century. Wheels and Brakes
has made appropriate inquiries of its material vendors or suppliers and has been
assured that such persons' computer systems are Year 2000 Compliant.
3.29 Material Misstatements Or Omissions. No representations or
-----------------------------------
warranties by any Existing Shareholder in this Agreement, nor any document,
exhibit, statement, certificate or Schedule heretofore or hereinafter furnished
to HDA or its representatives pursuant hereto, or in connection with the
transactions contemplated hereby, including, without limitation, the Schedules,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact necessary to make the statements or facts
contained therein not misleading. The Existing Shareholders have disclosed all
events, conditions and facts materially affecting the business, prospects and
financial condition of Wheels and Brakes, taken as a whole.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HDA
HDA represents and warrants to the Existing Shareholders as follows:
4.1 Corporate Organization and Standing. HDA is a corporation,
-----------------------------------
duly incorporated and validly existing under the laws of its jurisdiction of
incorporation, with all requisite corporate power and authority to execute and
deliver this Agreement, the Ancillary Agreements and to consummate the
transactions contemplated hereby and thereby.
4.2 Authorization. This Agreement and the Ancillary Agreements
-------------
have been duly authorized. This Agreement and the Ancillary Agreements have been
duly executed and delivered by HDA, and are the legal, valid and binding
obligations of HDA, enforceable against it in accordance with their terms.
4.3 No Conflict or Violation. Neither the execution and delivery
------------------------
of this Agreement, the Ancillary Agreements, nor the consummation of the
transactions contemplated hereby or thereby, will (a) result in the acceleration
of, or the creation in any party of any right to accelerate, terminate, modify
or cancel any indenture, contract, lease, sublease, loan agreement, note or
other obligation or liability to which HDA is a party or by which it is bound or
to which any of its assets is subject, (b) conflict with or result in a breach
of or constitute a default under any provision of HDA's Articles of
Incorporation or Bylaws (or other charter documents), or a default under or
violation of any material restriction, lien, encumbrance or any contract to
which HDA is a party or by which it is bound or to which any of its assets is
subject or result in the creation of any lien or encumbrance upon any of said
assets, (c) violate or result in a breach of or constitute a default under any
judgment, order, decree, rule or regulation of any court or governmental agency
to which HDA is subject or (d) violate, conflict with or result in a breach of
any applicable federal or state rule or regulation.
<PAGE>
ARTICLE V.
POST-CLOSING COVENANTS
The Existing Shareholders and HDA each covenant with the others as
follows:
5.1 Further Assurances. Upon the terms and subject to the
------------------
conditions contained herein, the Parties agree, after the Closing, (a) to use
all reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement or the Ancillary
Agreements, (b) to execute any documents, instruments or conveyances of any kind
which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (c) to cooperate with each other in
connection with the foregoing. Without limiting the foregoing, the Parties agree
to use their respective best efforts (i) to obtain all necessary waivers,
consents and approvals from other parties (including, without limitation,
governmental entities) to the consummation of the transactions contemplated by
this Agreement; (ii) to obtain all necessary Licenses and Permits as are
required to be obtained under any regulations; (iii) to defend all Actions
challenging this Agreement or the consummation of the transactions contemplated
hereby; (iv) to lift or rescind any injunction or restraining order or other
court order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby; (v) to give all notices to, and make all
registrations and filings with third parties, including, without limitation,
submissions of information requested by governmental authorities; and (vi) to
fulfill all conditions to this Agreement.
5.2 Tax Matters.
-----------
(a) HDA shall prepare or complete, or cause to be prepared or
completed, and timely file, or cause to be timely filed, all Tax Returns of
Wheels and Brakes required to be filed after the Closing Date and, subject to
Section 5.2(b) hereof, shall timely pay, or cause to be timely paid, when due,
all Taxes relating to such Tax Returns. With respect to Tax Returns of Wheels
and Brakes not filed prior to the Closing Date that relate to a taxable period
that ends on or prior to or includes the Closing Date, such Tax Returns shall be
prepared or completed by HDA in a manner consistent with the prior practice of
Wheels and Brakes.
(b) Although Wheels and Brakes, as the taxpayer or in connection with
filing the Tax Returns specified in Section 5.2(a) above, may be required to pay
(i) Taxes relating to time periods ending on or before the Closing Date (the
"Pre-Closing Period"), and (ii) Taxes for any Straddle Period (as hereinafter
defined) that is allocated pursuant to this Section 5.2(b) to the Pre-Closing
Period (such liabilities collectively, the "Pre-Closing Taxes) it is the
intention of the Parties that, to the extent such Pre-Closing Taxes (including
any penalties, interest or additions to Tax) were not fully accrued on the
Balance Sheet, the Existing Shareholders will be responsible for such Pre-
Closing Taxes. In the case of any Tax period that includes but does not end on
the Closing Date (a "Straddle Period"), Taxes of Wheels and Brakes shall be
allocated to the Pre-Closing Period using an interim closing of the books method
assuming that such Tax period ended at the close of the Closing Date, except
that (i) exceptions, allowances or deductions that
<PAGE>
are calculated on an annual basis shall be apportioned on a per diem basis and
(ii) real property, personal property and intangibles and other similar Taxes
shall be allocated in accordance with the principals of Section 164(d) of the
Code. The Existing Shareholders shall indemnify, defend and hold HDA and Wheels
and Brakes harmless from and against any and all liability for Pre-Closing Taxes
to the extent such Pre-Closing Taxes were not fully accrued on the Balance
Sheet. HDA shall provide the Existing Shareholders with a copy of any Tax Return
with respect to which the Existing Shareholders have agreed to indemnify HDA
pursuant to this Section 5.2(b), accompanied by a statement calculating in
reasonable detail the Existing Shareholders' indemnification obligation. The
Existing Shareholders shall pay to HDA the amount of such indemnification
obligation within 15 days of receipt of any such Tax Return and the accompanying
statement.
(c) The Existing Shareholders shall be liable for, and shall timely
pay, any and all gains, transfer, sales, use, bulk sales, recording,
registration, documentary, stamp and other Taxes that may result form, or be
incurred in connection with, the transactions contemplated by this Agreement
("Conveyance Taxes"). The Existing Shareholders shall, at their own expense,
properly complete, sign and timely file any and all required Tax Returns with
respect to Conveyance Taxes. The Existing Shareholders shall indemnify, defend
and hold HDA and Wheels and Brakes harmless from and against all liability for
Conveyance Taxes. HDA shall provide the Existing Shareholders with a copy of any
Tax Return with respect to which the Existing Shareholders have agreed to
indemnify HDA, accompanied by a statement calculating in reasonable detail the
Existing Shareholders' indemnification obligation pursuant to this Section
5.2(c). The Existing Shareholders shall pay to HDA the amount of such
indemnification obligation within 15 days of receipt of any such Tax Return and
the accompanying statement.
(d) The Existing Shareholders shall indemnify, defend and hold HDA
and Wheels and Brakes harmless from and against any and all liability for Taxes
or other Losses arising out of a breach or inaccuracy of any representation or
warranty contained in Section 3.12 and any and all liability for reasonable
legal, accounting and apprisal fees and expenses with respect to any liability
for Taxes described above in Section 5.2. HDA shall provide the Existing
Shareholders with a statement calculating in reasonable detail the Existing
Shareholders' indemnification obligation pursuant to this Section 5.2(d). The
Existing Shareholders shall pay to HDA the amount of such indemnification
obligation within 15 days of receipt of any such statement.
(e) HDA shall promptly notify the Existing Shareholders in writing
upon receipt by HDA or any affiliate of HDA of notice of any pending or
threatened proceeding relating to Taxes for which the Existing Shareholders may
be liable under a Tax proceeding ("Tax Proceeding"). The Existing Shareholders
shall have the sole right to control, conduct, and otherwise represent the
interests of Wheels and Brakes in any such Tax Proceeding; provided, however,
-------- -------
that without the prior written approval of HDA, which approval shall not be
unreasonably withheld or delayed, the Existing Shareholders shall not agree or
consent to compromise or settle any issue or claim arising in any such Tax
Proceeding to the extent that any such compromise, settlement, consent or
agreement could have an adverse effect on HDA for any period ending after the
Closing Date.
<PAGE>
(f) Neither HDA nor any affiliate of HDA shall, without the prior
written consent of the Existing Shareholders, which consent shall not be
unreasonably withheld or delayed, file or cause to be filed, any amended Tax
Return or claim for Tax refund with respect to Wheels and Brakes relating to
Taxes for which the Existing Shareholders may be liable hereunder. Promptly
after the reasonable request of the Existing Shareholders, at the sole expense
of the Existing Shareholders, HDA shall, or cause Wheels and Brakes, to file any
amended Tax Return or claim for Tax refund relating to Taxes for which the
Existing Shareholders may be liable hereunder, provided that such amended Tax
--------
Returns or claims shall be prepared in a manner consistent with the prior
practice of Wheels and Brakes (including elections and accounting methods and
conventions) and, in the reasonable determination of HDA, shall conform to
applicable laws and regulations. If HDA or any affiliate of HDA shall receive a
Tax refund relating to a period or transaction for which the Existing
Shareholders are liable hereunder, HDA shall, within 30 days after receipt of
such Tax refund, remit such Tax refund (including any interest received on such
Tax refund and net of (i) any Tax cost relating to the receipt of such Tax
refund and (ii) any unreimbursed cost or expense incurred in obtaining such Tax
refund), to the Existing Shareholders. For purposes of this Section 5.2, the
term "Tax refund" shall include a reduction in Tax or the use of an overpayment
as a credit or other Tax offset, and the receipt of a refund shall be deemed to
be realized upon the earliest to occur of (i) the date on which HDA has actual
knowledge that a payment due to the relevant taxing authority (for which HDA
would be responsible under this Agreement) has been offset by such a refund and
(ii) the receipt of cash.
(g) After the date hereof, HDA and Wheels and Brakes shall provide
each other and the Existing Shareholders, with such cooperation and information
relating to Wheels and Brakes as either party reasonably may request in (i)
filing any Tax Return, amended Tax Return or claim for Tax refund, (ii)
determining any Tax liability or a right to a Tax refund, (iii) conducting or
defending any proceeding in respect of Taxes or (iv) effectuating the terms of
this Agreement. The Parties and Wheels and Brakes shall retain all Tax Returns,
schedules and work papers, and all material records and other documents relating
thereto, until the expiration of the statute of limitations (and, to the extent
notified by any party, any extensions thereof) of the taxable years to which
such Tax Returns and other documents relate and until the final determination of
any Tax in respect of such years. Any information obtained under this Section
5.2 shall be kept confidential, except as may be otherwise necessary in
connection with filing any Tax Return, amended Tax Return, or claim for Tax
refund, determining any Tax liability or right to a Tax refund, or in conducting
or defending any proceedings in respect of Taxes.
(h) The obligations of the parties set forth in this Section 5.2
shall be unconditional and absolute and shall remain in effect until the date
that is 90 days after the expiration of the relevant statute of limitations
applicable to the Taxes at issue, giving effect to all valid waivers or
extensions thereof. Claims for indemnification arising under or with respect to
Section 3.11 or this Section 5.2 may not be made unless notice of such claims
has been given on or prior to the date that is 90 days after the expiration of
the relevant statute of limitations applicable to the Taxes at issue, giving
effect to all valid waivers or extensions thereof.
(i) All rights and obligations of the parties hereto with respect to
Taxes, including all rights or either party to indemnification with respect to
Taxes, shall be governed
<PAGE>
exclusively by the provisions of this Section 5.2 and 3.12, and in particular,
the provisions of Article VIII shall not apply to obligations arising under this
Section 5.2.
ARTICLE VI.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY HDA
The obligations of HDA under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions, any
one or more of which may be waived by HDA.
6.1 No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) of any state
or federal court or other governmental agency which prevents the consummation of
the transactions that are the subject of this Agreement shall have been issued
and remain in effect.
6.2 Representations and Warranties. Except as otherwise
------------------------------
contemplated by this Agreement, all representations and warranties of the
Existing Shareholders contained in this Agreement shall be true and correct as
of the Closing Date.
6.3 Performance of Agreements. The Existing Shareholders shall
-------------------------
have performed in all material respects all obligations, agreements and
commitments required to be fulfilled by them pursuant to the terms hereof on or
prior to the Closing Date.
6.4 Compliance Certificate. The Existing Shareholders shall have
----------------------
delivered to HDA or its representatives, their respective certificates, dated
the Closing Date, as to the fulfillment of the conditions set forth in Sections
6.2 and 6.3 hereof.
6.5 Stock Certificates. The Existing Stockholders shall deliver to
------------------
HDA certificates representing all of the Shares, together with duly executed
transfer powers in favor of HDA.
6.6 Stock Books. HDA shall have received the stock books, stock
-----------
ledgers, minute books and corporate seals (if any) of Wheels and Brakes.
6.7 Officers and Directors. HDA shall have received the written
----------------------
resignation of all officers and directors of Wheels and Brakes in office
immediately prior to the Closing.
6.8 Opinion of Counsel. HDA shall have received the opinion of
------------------
Chambers, Mabry, McClelland & Brooks, LLP, counsel for Wheels and Brakes and the
Existing Shareholders, in the form set forth in Schedule 6.8 hereto.
6.9 Consents, Etc. All authorizations, consents or approvals of
--------------
any and all third parties and governmental regulatory authorities necessary in
connection with the consummation of the Closing shall have been obtained and be
in full force and effect. Copies of
<PAGE>
all such authorizations, consents or approvals shall have been delivered to HDA
or its representatives.
6.10 Ancillary Agreements. The following agreements (the
--------------------
"Ancillary Agreements") shall have been duly executed and delivered by all
parties thereto other than HDA: (a) an escrow agreement (the "Escrow
Agreement") by and among HDA, the Existing Shareholders and Chase Manhattan Bank
and Trust Company, National Association, as "Escrow Agent," substantially in the
form attached hereto as Exhibit C; and (b) noncompetition agreements, by and
between HDA and George W. Foote, III and HDA and Dennis J. Bailey.
6.11 Nonforeign Affidavit. Each Existing Shareholder shall furnish
--------------------
to HDA an affidavit, stating, under penalty of perjury, its United States
taxpayer identification number and that it is not a foreign person, pursuant to
Section 1445(b)(2) of the Code.
ARTICLE VII.
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY THE EXISTING SHAREHOLDERS
The obligations of the Existing Shareholders under this Agreement are
subject to the fulfillment prior to the Closing of each of the following
conditions, any one or more of which may be waived by the Existing Shareholders:
7.1 No Injunctive Proceedings. No preliminary or permanent
-------------------------
injunction or other order (including a temporary restraining order) of any state
or federal court or other governmental agency which prevents the consummation of
the transactions which are the subject of this Agreement shall have been issued
and remain in effect.
7.2 Representations and Warranties. Except as otherwise
------------------------------
contemplated by this Agreement, all representations and warranties of HDA
contained in this Agreement shall be true and correct as of the Closing Date.
7.3 Performance of Agreements; Instruments of Transfer. HDA shall
--------------------------------------------------
have performed in all material respects all obligations, agreements and
commitments required to be fulfilled by HDA pursuant to the terms hereof on or
prior to the Closing Date.
7.4 Compliance Certificates. HDA shall have delivered to the
-----------------------
Existing Shareholders a certificate, dated the Closing Date, executed on its
behalf by its President or a Vice President, as to the fulfillment of the
conditions set forth in Sections 7.2 and 7.3 hereof.
7.5 Ancillary Agreements. The condition set forth in Section 6.10
--------------------
shall be satisfied.
<PAGE>
7.6 Consents; Etc. All authorizations, consents or approvals of
-------------
any and all third parties and governmental regulatory authorities necessary to
be obtained prior to the Closing in connection with the consummation by HDA of
the Closing shall have been obtained and be in full force and effect, except
where a failure to obtain an authorization, consent or approval is a result of a
breach by Wheels and Brakes or the Existing Shareholders.
ARTICLE VIII.
ACTIONS BY THE PARTIES AFTER THE CLOSING
8.1 Indemnification by the Existing Shareholders. Subject to the
--------------------------------------------
provisions of this Article VIII, the Existing Shareholders will jointly and
severally indemnify, defend and hold harmless HDA and its stockholders,
subsidiaries, affiliates, officers, directors, employees, agents, successors and
assigns, (such indemnified persons are collectively hereinafter referred to as
"HDA's Indemnified Persons") from and against any and all loss, liability,
damage (excluding consequential, indirect special, exemplary and punitive
damages) or deficiency (including interest, penalties, judgments, costs of
preparation and investigation, and reasonable attorneys' fees) (collectively,
"Losses") that HDA's Indemnified Persons may suffer, sustain, incur or become
subject to arising out of or due to: (a) any inaccuracy of any representation of
any Existing Shareholder in this Agreement or in any Schedule hereto; (b) the
breach of any warranty of any Existing Shareholder in this Agreement or any
Schedule hereto; (c) environmental liabilities; or (d) the nonfulfillment of any
covenant, undertaking, agreement or other obligation of any Existing Shareholder
under this Agreement or any Schedule hereto, not otherwise waived by HDA.
"Losses" as used herein is not limited to matters asserted by third parties, but
includes Losses incurred or sustained in the absence of third party claims.
Payment is not a condition precedent to recovery of indemnification for Losses.
8.2 Indemnification by HDA. Subject to the provisions of this
----------------------
Article VIII, HDA agrees to indemnify, defend and hold the Existing Shareholders
and their respective heirs, representatives, successors and assigns (such
persons are hereinafter collectively referred to as the "Existing Shareholders'
Indemnified Persons"), harmless from and against any and all Losses that the
Existing Shareholders' Indemnified Persons may suffer, sustain, incur or become
subject to arising out of or due to: (a) any inaccuracy of any representation of
HDA in this Agreement or in any Schedule hereto; (b) the breach of any warranty
of HDA in this Agreement or any Schedule hereto; and (c) the nonfulfillment of
any covenant, undertaking, agreement or other obligation of HDA under this
Agreement or any Schedule hereto, not otherwise waived by the Existing
Shareholders.
8.3 Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
several representations, warranties, covenants of the Parties contained in this
Agreement or in any document delivered pursuant hereto and the Parties' right to
indemnity in accordance with this Article VIII shall survive the Closing Date
and shall remain in full force and effect for three years thereafter; provided,
however, that the representations and warranties set forth in Section 3.12
relating to tax matters, Section 3.19 relating to employee benefits matters and
Section 3.20 relating to environmental matters shall survive for the length of
the applicable statute of limitations; provided further that the representations
-------- -------
and warranties set forth in Sections 3.4, 3.5
<PAGE>
and 3.6 shall survive indefinitely.
8.4 Threshold. No HDA's Indemnified Person or Existing Shareholders'
---------
Indemnified Person shall be entitled to any recovery in accordance with this
Article VIII unless and until the amount of such Losses suffered, sustained or
incurred by such party, or to which such party becomes subject, by reason of
such inaccuracy, breach or nonfulfillment exceeds $50,000 and then only to the
extent of such excess.
8.5 Notice and Opportunity to Defend. If a claim for Losses (a
--------------------------------
"Claim") is to be made by a Party seeking indemnification hereunder, such Party
seeking indemnification (the "Indemnitee") shall notify the Party obligated to
provide indemnification (the "Indemnitor") promptly. If such event involves (a)
any claim or (b) the commencement of any action or proceeding by a third person,
the Indemnitee shall give the Indemnitor written notice of such claim or the
commencement of such action or proceeding. Delay or failure to so notify the
Indemnitor shall only relieve the Indemnitor of its obligations to the extent,
if at all, that it is prejudiced by reasons of such delay or failure. The
Indemnitor shall have a period of 30 days within which to respond thereto. If
the Indemnitor accepts responsibility or does not respond within such 30-day
period, then the Indemnitor shall be obligated to compromise or defend, at its
own expense and by counsel chosen by the Indemnitor, such matter, and the
Indemnitor shall provide the Indemnitee with such assurances as may be
reasonably required by the Indemnitee to assure that the Indemnitor will assume
and be responsible for the entire liability at issue, subject to the limitations
set forth in Sections 8.3 and 8.4 hereof. If the Indemnitor fails to assume the
defense of such matter within said 30-day period, the Indemnitee against which
such matter has been asserted will (upon delivering notice to such effect to the
Indemnitor) have the right to undertake, at the Indemnitor's cost and expense,
the defense, compromise or settlement of such matter on behalf of the
Indemnitee. The Indemnitee agrees to cooperate fully with the Indemnitor and
its counsel in the defense against any such asserted liability. In any event,
the Indemnitee shall have the right to participate at its own expense in the
defense of such asserted liability. Any compromise of such asserted liability
by the Indemnitor shall require the prior written consent of the Indemnitee,
which consent will not be unreasonably withheld and in the event the Indemnitee
defends any such asserted liability, then any compromise of such asserted
liability by the Indemnitee shall require the prior written consent of the
Indemnitor, which consent shall not be unreasonably withheld.
8.6 Indemnification Payments. At the Closing, HDA will deliver by
------------------------
wire transfer of immediately available funds $500,000 (Five Hundred Thousand
Dollars) of the Purchase Price to the Escrow Agent to be held by the Escrow
Agent for one year pursuant to the terms of the Escrow Agreement and to serve as
partial security for the indemnification obligations of the Existing
Shareholders under this Agreement. Any indemnification obligations of the
Existing Shareholders under this Article VIII shall be first satisfied by
amounts held by the Escrow Agent pursuant to the terms of the Escrow Agreement.
<PAGE>
ARTICLE IX.
MISCELLANEOUS
9.1 Expenses. Except as otherwise set forth in this Agreement, HDA
--------
shall pay all costs and expenses incurred by it or on its behalf, and the
Existing Shareholders shall pay all costs and expenses incurred by any Existing
Shareholder or Wheels and Brakes on such Existing Shareholder's or Wheels and
Brakes' behalf, in connection with this Agreement and the transactions
contemplated hereby, including fees and expenses of their financial consultants,
accountants and legal counsel.
9.2 Notices. All notices, requests, demands and other
-------
communications given hereunder (collectively, "Notices") shall be in writing and
delivered personally or by overnight courier to the Parties at the following
addresses or sent by telecopier or telex, with confirmation received, to the
telecopy specified below:
If to any Existing Shareholder, at the address or telecopier number of
such Existing Shareholder set forth on Annex B hereto.
With a Copy to:
Chambers, Mabry, McClelland & Brooks, LLP
2200 Century Parkway, N.E.
Tenth Floor
Atlanta, Georgia 30345
Attn.: H.A. Stephens, Jr.
Telecopy No.: (404) 325-0596
And:
George W. Foote, III
2219 Bright Water Drive
Snellville, Georgia 30078
And:
Dennis J. Bailey
2780 Tucker Mill Road S.W.
Conyers, Georgia 30094
If to HDA:
HDA Parts System, Inc.
520 Lake Cook Road
Deerfield, Illinois 60015
Attn.: John J. Greisch
Telecopy No.: (847) 444-1096
<PAGE>
With a Copy to:
Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attn.: Christopher A. Laurence
Telecopy No.: (310) 477-1011
And:
Jones, Day, Reavis & Pogue
77 West Wacker
Chicago, Illinois 60601-1692
Attn.: Timothy J. Melton
Telecopy No.: (312) 782-8585
All Notices shall be deemed delivered when actually received if
delivered personally or by overnight courier, sent by telecopier or telex
(promptly confirmed in writing), addressed as set forth above. Each of the
Parties shall hereafter notify the other in accordance with this Section 9.2 of
any change of address or telecopy number to which notice is required to be
mailed.
9.3 Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, and by different parties hereto in separate
counterparts, each of which when executed shall be deemed an original, but all
of which taken together shall constitute one and the same instrument.
9.4 Entire Agreement. This Agreement and the other written agreements
----------------
entered into on the date hereof constitute the entire agreement of the Parties
with respect to the subject matter hereof and thereof and supersede all prior
negotiations, agreements and understandings, whether written or oral, of the
Parties.
9.5 Headings. The headings contained in this Agreement and in the
--------
Schedules and Exhibits hereto are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
9.6 Assignment; Amendment of Agreement. This Agreement shall be
----------------------------------
binding upon the respective successors and assigns of the Parties hereto. This
Agreement may not be assigned by any Party hereto without the prior written
consent of all other Parties hereto. This Agreement may be amended only by
written agreement of the Parties hereto, duly executed and delivered by an
authorized representative of each of the Parties hereto.
9.7 Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal laws of the State of Georgia
applicable to contracts made in that State, without giving effect to the
conflicts of laws principles thereof.
<PAGE>
9.8 Further Assurances. Each Party agrees that it will execute and
------------------
deliver, or cause to be executed and delivered, on or after the date of this
Agreement, all such other instruments and will take all reasonable actions as
may be necessary in order to consummate the transactions contemplated hereby,
and to effectuate the provisions and purposes hereof.
9.9 No Third-Party Rights. This Agreement is not intended, and shall
---------------------
not be construed, to create any rights in any parties other than HDA, Wheels and
Brakes and the Existing Shareholders, and no person shall assert any rights as
third-party beneficiary hereunder.
9.10 Non-Waiver. The failure in any one or more instances of a Party
----------
hereto to insist upon performance of any of the terms, covenants or conditions
of this Agreement, to exercise any right or privilege in this Agreement
conferred, or the waiver by said Party of any breach of any of the terms,
covenants or conditions of this Agreement shall not be construed as a subsequent
waiver of any such terms, covenants, conditions, rights or privileges, but the
same shall continue and remain in full force and effect as if no such
forbearance or waiver had occurred.
9.11 Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties hereto shall negotiate in
good faith to modify this Agreement so as to affect the original intent of the
Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
9.12 Incorporation of Exhibits and Schedules. The Exhibits and
---------------------------------------
Schedules hereto are incorporated into this Agreement and shall be deemed a part
hereof as if set forth herein in full. References herein to "this Agreement" and
the words "herein," "hereof" and words of similar import refer to this Agreement
(including its Exhibits and Schedules) as an entirety. In the event of any
conflict between the provisions of this Agreement and any such Exhibit or
Schedule, the provisions of this Agreement shall control.
9.13 Knowledge. As used herein, to the "knowledge" or "best knowledge"
---------
or similar phrase includes actual knowledge, after reasonable inquiry, of any
officer, director or shareholder of Wheels and Brakes and any employee of Wheels
and Brakes, whose job duties include the subject matter in question.
(Signature Page Follows)
<PAGE>
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the day and year first above written.
HDA PARTS SYSTEM, INC.
By:
Name: John P. Miller
Title: Vice President, Chief Financial Officer
and Secretary
George W. Foote, III
Dennis J. Bailey
WHEELS AND BRAKES, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
By:
Name: George W. Foote, III
Title: Trustee
<PAGE>
ANNEX A
THE EXISTING SHAREHOLDERS
<TABLE>
<CAPTION>
Name Shares
---- ------
<S> <C>
George W. Foote, III 33,175
Dennis J. Bailey 12,975
Wheels and Brakes, Inc.
Employee Stock Ownership Plan 22,784
</TABLE>
<PAGE>
ANNEX B
PAYMENT OF PURCHASE PRICE
(See Attached Funds Flow Memorandum)
<PAGE>
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(amounts in thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------ ----------------------
1998 1999
Pro Pro
1994 1995 1996 1997 1998 Forma 1998 1999 Forma
------ ------ ------ ------ ------ ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pre-tax income (loss)
from continuing
operations............. $4,029 $4,455 $4,348 $4,365 $ 601 $12,298 $3,098 $ 4,457 $ 8,782
Rental expense--20% of
total................ 156 209 223 226 326 1,508 124 612 754
Interest expense...... 77 106 722 841 6,519 20,692 653 8,283 10,345
------ ------ ------ ------ ------ ------- ------ ------- -------
Adjusted income......... $4,262 $4,770 $5,293 $5,432 $7,446 $34,498 $3,875 $13,352 $19,881
====== ====== ====== ====== ====== ======= ====== ======= =======
Fixed Charges:
Interest expense and
amortization of debt
discount/premium..... $ 77 $ 106 $ 722 $ 841 $6,519 $20,692 $ 653 $ 8,283 $10,345
Rental expense--20% of
total................ 156 209 223 226 326 1,508 124 612 754
------ ------ ------ ------ ------ ------- ------ ------- -------
Total applicable
fixed charges....... $ 233 $ 315 $ 945 $1,067 $6,845 $22,200 $ 777 $ 8,895 $11,099
====== ====== ====== ====== ====== ======= ====== ======= =======
Ratio of earnings to
fixed charges.......... 18.29 15.14 5.60 5.09 1.09 1.55 4.99 1.50 1.79
====== ====== ====== ====== ====== ======= ====== ======= =======
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES
------------
City Truck and Trailer Parts of Alabama, Inc., an Alabama Corporation
City Truck and Trailer Parts of Alabama, L.L.C., an Alabama Limited Liability
Company
City Truck and Trailer Parts of Tennessee, Inc., a Tennessee Corporation
City Friction, Inc., an Alabama Corporation
Truck & Trailer Parts, Inc., a Georgia Corporation
Truckparts, Inc., a Connecticut Corporation
Associated Brake Supply, Inc., a California Corporation
Associated Truck Center, Inc., a California Corporation
Onyx Distribution, Inc., a California Corporation
Associated Truck Parts of Nevada, Inc., a Nevada Corporation
Freeway Truck Parts of Washington, Inc., a Washington Corporation
Tisco, Inc., a California Corporation
Tisco of Redding, Inc., a California Corporation
Active Gear, L.L.C., a Washington Limited Liability Company
Superior Truck & Auto Supply, Inc., a Massachusetts Corporation
QDSP Holdings, Inc., a Delaware corporation
Quality Distribution Service Partners, Inc., a Delaware corporation
Automotive Sales Company, Inc., a Delaware corporation
City Spring Works, Inc., a Delaware corporation
Fleetpride, Inc., a Delaware corporation
Holt, Incorporated a Delaware corporation
SLM Power Group, Inc., a Delaware corporation
Truck City Parts, Inc., a Delaware corporation
Universal Joint Sales Company, Inc., a Delaware corporation
Wheatley Truck Parts, Inc., a Delaware corporation
CB Acquisition Sub, Inc., a Delaware corporation
New England Truck & Auto Service, Inc., a Massachusetts corporation
TBS, Incorporation, an Arizona corporation
Four-T Sales & Service, Inc., a Nebraska corporation
Stats Remanufacturing Center, Inc., a Nebraska corporation
Power Export Distributing Company, a Texas corporation
Power Equipment International, Inc., a Texas corporation
Parts Management Company, a Texas corporation
Parts Holding Company, a Nevada corporation
Specialized Sales & Service, Inc., and Oregon corporation
Parts Distributing Company, Ltd., a Texas Limited partnership
Wheels and Brakes, Inc., a Georgia corporation
Specrite Brake Company, a Georgia corporation.
Parts Distribution Company (U.K.) Limited, a United Kingdom corporation
Power Equipment de Mexico, S.A. de C.V., a Mexico corporation
Avon Exports Limited, a United Kingdom corporation
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our reports dated March 31, 1999, March 12, 1999, March 12, 1999, April 27,
1999, December 30, 1998, September 10, 1999, September 3, 1999, September 16,
1999, September 15, 1999, September 10, 1999, and September 10, 1999, on our
audits of the financial statements and financial statement schedule of City
Truck Holdings, Inc. and Subsidiaries, Stone Heavy Duty, Inc., Associated Brake
Supply, Inc. and Affiliates, Vantage Parts, Truck and Trailer Parts, Inc. and
Affiliate, Active Gear, L.L.C., California Equipment Company and California
Equipment Company of Sacramento, Superior Truck & Auto Supply, Inc., Wheels and
Brakes, Inc. and Subsidiaries, TBS Incorporated, and New England Truck and Auto
Service, Inc., respectively. We also consent to the references to our firm
under the caption "Experts" and "Selected Historical Financial and Operating
Data."
PricewaterhouseCoopers LLP
Chicago, IL
November 8, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Prospectus and Registration Statement
on Form S-4 (No. 333-75887) Pre-Effective Amendment No. 2 of our three reports,
the first dated November 4, 1998, relating to the September 30, 1998 financial
statements of Connecticut Driveshaft, Inc.; the second dated December 12, 1998
relating to the September 30, 1998 combined financial statements of Tisco, Inc.
and Tisco of Redding, Inc.; and the third dated December 18, 1998 related to the
September 30, 1997 and 1998 financial statements of Truckparts, Inc. We also
consent to the reference to our firm under the caption "Experts" in the
aforementioned Prospectus and Registration Statement.
McGladrey & Pullen, LLP
Minneapolis, Minnesota
November 8, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our reports dated (i) September 3, 1999 for CSW
Enterprises, Inc. and Subsidiary, (ii) September 3, 1999 for Fleetpride, Inc.,
(iii) August 27, 1999 for Automotive Sales Company, Inc., (iv) August 27, 1999
for Wheatley Truck Parts, Inc., (v) April 23, 1999 for QDSP Holdings, Inc. and
Subsidiaries, (vi) December 18, 1998 for SLM Group, Inc. and Subsidiaries, (vii)
December 18, 1998 for Truck City Parts, Inc., (viii) December 18, 1998 for
Sharkey Family Holdings, Inc. (d/b/a) Universal Joint Sales Company and (ix)
December 11, 1998 for Holt Incorporated and Subsidiaries, included in the
Registration Statement (Form S-4 No. 333-75887) and related Prospectus of HDA
Parts System, Inc. for the registration of 12% Senior Subordinated Notes due
2005. We also consent to the reference of our firm under the caption "Experts"
in the aforementioned Registration Statement.
/s/ Ernst & Young LLP
Chicago, Illinois
November 9, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our report dated June 4, 1998, with respect to the
combined financial statements of SLM Group, Inc. and subsidiaries as of March
31, 1998 and 1997 and the related combined statements of income and retained
earnings, and cash flows included herein and to the reference to our firm under
the heading "Experts" in the registration statement.
KPMG LLP
San Antonio, Texas
November 8, 1999
<PAGE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
--------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)_____
--------------------------
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
95-4311476
(I.R.S. employer
Identification No.)
515 South Flower Street, Suite 2700
Los Angeles, CA 90071
(Address of principal (Zip Code)
executive offices)
KAREN YAMAMOTO
515 South Flower Street, Suite 2700
Los Angeles, California 90071
(213) 861-5000
(Name, address, including zip code and telephone number of agent for service)
---------------------------------------------------
HDA PARTS SYSTEM, INC.
(Exact name of obligor as specified in its charter)
ALABAMA 63-0681070
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
<PAGE>
EXHIBIT 25
520 Lake Cooke Road
Deerfield, Illinois 60015
(Address of principal chief executive offices)
12% Senior Subordinated Notes due 2005
(Title of indenture securities)
GENERAL
- -------
1. General Information.
--------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
490 L'Enfant Plaza East, S.W.
Washington, D.C. 20219
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Federal Reserve Bank (12th District)
San Francisco, California
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15.
<PAGE>
EXHIBIT 25
The obligor currently is not in default under any of its outstanding
securities for which U.S. Trust Company, National Association is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15
of Form T-1 are not required under General Instruction B.
16. List of Exhibits
----------------
T-1.1 - A copy of the Articles of Association of U.S. Trust Company,
National Association currently in effect; incorporated herein by reference to
Exhibit T-1.1 filed with Form T-1 Statement, Registration No. 333-59485.
T-1.2 - A copy of the certificate of authority of the trustee to
commence business, if not contained in the articles of association, incorporated
herein by reference to Exhibit T-1.1 filed with Form T-1 Statement, Registration
No. 33-33031.
T-1.3 -A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents specified in
paragraph (1) or (2) above, incorporated herein by reference to Exhibit T-1.1
filed with Form T-1 Statement, Registration No. 33-33031.
T-1.4 - A copy of the By-Laws of U.S. Trust Company, National
Association, as amended to date; incorporated by reference to Exhibit T-1.4
filed with Form T-1 Statement, Registration No. 33-54136.
T-1.6 - The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939; incorporated herein by reference to Exhibit T-1.6
filed with Form T-1 Statement, Registration No. 33-33031.
T-1.7 - A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising or examining
authority
T-1.8 - Not applicable.
T-1.9 - Not applicable.
NOTE
- ----
As of April 29, 1999, the Trustee had 20,000 shares of Capital Stock
outstanding, all of which are owned by U.S. Trust Corporation.
The responses to Items 2, 5, 6, 7, 8, 9, 10, 11 and 14 set forth the information
requested as though U. S. Trust Company, National Association and U.S. Trust
Corporation were the "trustee."
<PAGE>
EXHIBIT 25
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
-----------------------------
Pursuant to the requirements of the Trust Indenture of Act of 1939, the trustee,
U.S. Trust Company, National Association, a corporation organized and existing
under the laws of the State of California, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Los Angeles, and State of
California, on the 29th day of April 1999.
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
Trustee
By: /s/ Garrett P. Smith
-------------------------------
Garrett P. Smith
Authorized Signatory
<PAGE>
EXHIBIT 25
<TABLE>
<S> <C> <C> <C> <C>
U.S. Trust Company, N.A. Call Date: 12/31/98 ST-BK: 06-0784 FFIEC 033
515 South Flower Street, Suite 2700 Vendor ID: D Cert #: 33332 Page RC-1
Los Angeles, CA 90071 Transit #: 12204024 ---------
9
---------
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated.
report the amount outstanding as of the last business day of the quarter.
Schedule RC - Balance Sheet
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A) RCON
----
a. Noninterest-bearing balances and currency and coin (1)______________ _____ _______ 0081 10,239 1.a
b. Interest bearing balances (2)_______________________________________ _____ _______ 0071 199 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)__________ _____ _______ 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)________ _____ _______ 1773 167,359 2.b
3. Federal funds sold and securities purchased under agreements to resell__ _____ _______ 1350 65,000 3.
4. Loans and lease financing receivables: RCON
----
a. Loans and leases, net of unearned income (from Schedule RC-C)_______ 2122 60,536 4.a
b. LESS: Allowance for loan and lease losses__________________________ 3123 979 4.b
c. LESS: Allocated transfer risk reserve______________________________ 3128 0 4.c
d. Loans and leases, net of unearned income, allowance, and reserve RCON 59,557
_____ _______ ---- 4.d
(item 4.a minus 4.b and 4.c)____________________________________________ 2125
5. Trading assets__________________________________________________________ _____ _______ 3545 0 5.
6. Premises and fixed assets (including capitalized leases)________________ _____ _______ 2145 9,041 6.
7. Other real estate owned (from Schedule RC-M)____________________________ _____ _______ 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)____________________________________________________ _____ _______ 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding____________ _____ _______ 2155 0 9.
10. Intangible assets (from Schedule RC-M)__________________________________ _____ _______ 2143 30,166 10.
11. Other assets (from Schedule RC-F)_______________________________________ _____ _______ 2160 6,802 11.
12. Total assets (sum of items 1 through 11)________________________________ _____ _______ 2170 348,363 12.
</TABLE>
_____________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE>
EXHIBIT 25
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
U.S. Trust Company, N.A. Call Date: 12/31/98 ST-BK: 06-0784 FFIEC 033
515 South Flower Street, Suite 2700 Vendor ID: D Cert #: 33332 Page RC-2
Los Angeles, CA 90071 Transit #: 12204024
----------
10
----------
</TABLE>
Schedule RC - Continued
Dollar Amounts in Thousands
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of RCON
----
columns A and C from Schedule RC-E)__________________________________ 2200 291235 13.a
RCON
(1) Noninterest-bearing (1)____________________________________________ ---- 84,867 13.a.1
6631
(2) Interest-bearing __________________________________________________ 6636 206,368
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing______________________________________________
(2) Interest-bearing__________________________________________________
14. Federal funds purchased(2) and securities sold under agreements to repurchase: RCON 0 14
----
2800
15. a. Demand notes issued to the U.S. Treasury______________________________ ___ ______ 2840 0 15.a
b. Trading liabilities_____________________________________________________ ___ ______ 3548 0 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. With a remaining maturity of one year or less______________________ ___ ______ 2332 0 16.a
b. With a remaining maturity of more than one year through three years__________ 0
___ ______ A547 16.b
c. With a remaining maturity of more than three years________________ ___ ______ A548 0 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding____________________ ___ ______ 2920 0 18.
19. Subordinated notes and debentures_______________________________________ ___ ______ 3200 0 19.
20. Other liabilities (from Schedule RC-G)_____________________________________ ___ ______ 2930 9,492 20.
21. Total liabilities (sum of items 13 through 20)_______________________________ ___ ______ 2948 300,727 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus______________________________ ___ ______ 3838 5,000 23.
24. Common stock__________________________________________________________ ___ ______ 3230 2,000 24.
25. Surplus (exclude all surplus related to preferred stock)______________________ ___ ______ 3839 25,004 25.
26. a. Undivided profits and capital reserves__________________________________ ___ ______ 3632 14,703 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities_______ ___ ______ 8434 929 26.b
27. Cumulative foreign currency translation adjustments_______________________
28. a. Total equity capital (sum of items 23 through 27)________________________ ___ ______ 3210 47,636 28.
29. Total liabilities and equity capital (sum of items 21and 28)__________________ ___ ______ 3300 348,363 29.
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
<TABLE>
<S> <C>
1. Indicate in the box at the right the number of the statement below that best describes the most
comprehensive level of auditing work performed for the bank by independent external auditors as RCON N/A M.1
of any date during 1997______________________________________________________________________ 6724
</TABLE>
<TABLE>
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately) 7 = Other audit procedures (excluding tax preparation
3 = Directors' examination of the bank conducted in accordance work)
with generally accepted auditing standards by a certified 8 = No external audit work
public accounting firm (may be required by state chartering
authority)
</TABLE>
_________
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited life preferred stock and related surplus.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001083317
<NAME> HDA PARTS SYSTEM, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 8,328 7,771
<SECURITIES> 0 0
<RECEIVABLES> 18,099 37,744
<ALLOWANCES> 1,149 770
<INVENTORY> 41,453 71,318
<CURRENT-ASSETS> 72,637 124,033
<PP&E> 20,441 29,188
<DEPRECIATION> 6,828 9,997
<TOTAL-ASSETS> 163,924 288,236
<CURRENT-LIABILITIES> 29,250 42,663
<BONDS> 100,000 100,000
0 0
43,575 88,142
<COMMON> 1 2
<OTHER-SE> (27,102) (9,321)
<TOTAL-LIABILITY-AND-EQUITY> 163,924 288,236
<SALES> 103,295 141,530
<TOTAL-REVENUES> 103,295 141,530
<CGS> 65,855 91,891
<TOTAL-COSTS> 96,885 128,966
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,519 8,283
<INCOME-PRETAX> 601 4,457
<INCOME-TAX> (687) 1,774
<INCOME-CONTINUING> 1,288 2,683
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,288 2,683
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
EXHIBIT 99.1
Letter Of Transmittal
To Tender for Exchange
12% Senior Subordinated Notes Due 2005
of
HDA PARTS SYSTEM, INC.
Pursuant to the Prospectus dated November , 1999
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (SUCH TIME AND DATE, AS THE SAME MAY BE
EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
AT ANY TIME PRIOR THE EXPIRATION DATE.
The Exchange Agent is:
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand Delivery:
c/o United States Trust Company c/o United States Trust Company
of New York of New York
P.O. Box 841 Peter Cooper Station 111 Broadway, Lower Level
New York, New York 10276-0841 New York, New York 10006-1906
Attn: Corporate Trust Operations Attn: Corporate Trust Operations
By Overnight Delivery: By Facsimile:
c/o United States Trust Company 212-420-6211
of New York Attn: Customer Service
770 Broadway, 13th Floor
New York, New York 10003 Confirm by Telephone:
Attn: Corporate Trust Operations 800-225-2398
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION TO A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated November ,
1999 (the "Prospectus"), of HDA Parts System, Inc., an Alabama corporation
(the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"),
which together with the Prospectus constitutes the Company's offer (the
"Exchange Offer") to exchange $1,000 principal amount of its 12% Senior
Subordinated Notes due 2005 (the "Exchange Notes") for each $1,000 principal
amount of its outstanding 12% Senior Subordinated Notes due 2005 (the "Private
Notes"). Recipients of the Prospectus should read the requirements described
in such Prospectus with respect to eligibility to participate in the Exchange
Offer. Capitalized terms used but not defined herein have the meaning given to
them in the Prospectus.
The undersigned hereby tenders the Private Notes described in the box
entitled "Description of Private Notes" below pursuant to the terms and
conditions described in the Prospectus and this Letter of Transmittal. The
undersigned is the registered holder of all the Private Notes (the "Holder")
and the undersigned represents that it has received from each beneficial owner
of Private Notes (the "Beneficial Owners") a duly completed and executed form
of "Instruction to Registered Holder from Beneficial Owner" accompanying this
Letter of Transmittal, instructing the undersigned to take the action
described in this Letter of Transmittal.
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING
ANY BOX BELOW.
This Letter of Transmittal is to be used by a Holder (i) if certificates
representing Private Notes are to be forwarded herewith and (ii) if a tender
is made pursuant to the guaranteed delivery procedures in the section of the
Prospectus entitled "The Exchange Offer -- Guaranteed Delivery Procedures."
Holders that are tendering by book-entry transfer to the Exchange Agent's
account at DTC can execute the tender through ATOP for which the Exchange
Offer will be eligible. DTC participants that are accepting the Exchange Offer
must transmit their acceptance to DTC which will verify the acceptance and
execute a book-entry delivery to the Exchange Agent's account at DTC. DTC will
then send an agent's message forming part of a book-entry transfer in which
the participant agrees to be bound by the terms of the Letter of Transmittal
(an "Agent's Message") to the Exchange Agent for its acceptance. Transmission
of the Agent's Message by DTC will satisfy the terms of the Exchange Offer as
to execution and delivery of a Letter of Transmittal by the participant
identified in the Agent's Message.
Any Beneficial Owner whose Private Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such Holder promptly and instruct such Holder to
tender on behalf of the Beneficial Owner. If such Beneficial Owner wishes to
tender on its own behalf, such Beneficial Owner must, prior to completing and
executing this Letter of Transmittal and delivering its Private Notes, either
make appropriate arrangements to register ownership of the Private Notes in
such Beneficial Owner's name or obtain a properly completed bond power from
the Holder. The transfer of record ownership may take considerable time.
In order to properly complete this Letter of Transmittal, a Holder must (i)
complete the box entitled "Description of Private Notes," (ii) if appropriate,
check and complete the boxes relating to book-entry transfer, guaranteed
delivery, Special Issuance Instructions and Special Delivery Instructions,
(iii) sign the Letter of Transmittal by completing the box entitled "Sign Here
To Tender Your Notes" and (iv) complete the Substitute Form W-9. Each Holder
should carefully read the detailed instructions below prior to completing the
Letter of Transmittal.
Holders of Private Notes who desire to tender their Private Notes for
exchange and (i) whose Private Notes are not immediately available or (ii) who
cannot deliver their Private Notes, this Letter of Transmittal and all other
documents required hereby to the Exchange Agent on or prior to the Expiration
Date, must tender the Private Notes pursuant to the guaranteed delivery
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2.
Holders of Private Notes who wish to tender their Private Notes for exchange
must complete columns (1) through (3) in the box below entitled "Description
of Private Notes," and sign the box below entitled "Sign Here To Tender Your
Notes." If only those columns are completed, such Holder will have tendered
for exchange all Private Notes listed in column (3) below. If the Holder
wishes to tender for exchange less than all of such Private Notes, column (4)
must be completed in full. In such case, such Holder should refer to
Instruction 5.
The Exchange Offer may be extended, terminated or amended, as provided in
the Prospectus. During any such extension of the Exchange Offer, all Private
Notes previously tendered and not withdrawn pursuant to the Exchange Offer
will remain subject to such Exchange Offer.
The undersigned hereby tenders for exchange the Private Notes described in
the box entitled "Description of Private Notes" below pursuant to the terms
and conditions described in the Prospectus and this Letter of Transmittal.
2
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF PRIVATE NOTES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) (2) (3) (4)
Aggregate Principal Principal Amount
Name(s) and Address(es of Registered Holder(s) Amount Represented by Tendered For
(Please fill in, if blank) Holder(s) Certificate Numbers Certificate(s)(A) Exchange (B)
- ------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total Principal
Amount Tendered
- ------------------------------------------------------------------------------------------------------------------------------------
(A) Unless indicated in this column, any tendering Holder will be deemed to
have tendered the entire aggregate principal amount represented by the
Private notes indicated in the column labeled "Aggregate Principal
Amount Represented by Certificate(s)." See instruction 5.
(B) The minimum permitted tender is $1,000 in principal amount of Private
Notes. All other tenders must be in integral multiples of $1,000.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
[_]CHECK HERE IF TENDERED PRIVATE NOTES ARE ENCLOSED HEREWITH.
[_]CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: __________________________
Window Ticket Number (if any): _______________________________________________
Name of Institution that Guaranteed Delivery: ________________________________
Only Holders are entitled to tender their Private Notes for exchange in the
Exchange Offer. Any financial institution that is a participant in DTC's
system and whose name appears on a security position listing as the record
owner of the Private Notes and who wishes to make book-entry delivery of
Private Notes as described above must complete and execute a participant's
letter (which will be distributed to participants by DTC) instructing DTC's
nominee to tender such Private Notes for exchange. Persons who are Beneficial
Owners of Private Notes but are not Holders and who seek to tender Private
Notes should (i) contact the Holder and instruct such Holder to tender on his
or her behalf, (ii) obtain and include with this Letter of Transmittal,
Private Notes properly endorsed for transfer by the Holder or accompanied by a
properly completed bond power from the Holder, with signatures on the
endorsement or bond power guaranteed by a firm that is an eligible guarantor
institution within the meaning of Rule 17Ad-5 under the Exchange Act,
including a firm that is a member of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc., a
commercial bank or trading company having an office in the United States or
certain other eligible guarantors (each, an "Eligible Institution"), or (iii)
effect a record transfer of such Private Notes from the Holder to such
Beneficial Owner and comply with the requirements applicable to Holders for
tendering Private Notes prior to the Expiration Date. See the section of the
Prospectus entitled "The Exchange Offer--Procedures for Tendering."
SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
4
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 6, 7 and 8) (See Instructions 1, 6, 7 and 8)
To be completed ONLY (i) if the To be completed ONLY (i) if the
Exchange Notes issued in exchange Exchange Notes issued in exchange
for the Private Notes, certifi- for Private Notes, certificates
cates for Private Notes in a for Private Notes in a principal
principal amount not exchanged amount not exchanged for Exchange
for Exchange Notes, or Private Notes, or Private Notes (if any)
Notes (if any) not tendered for not tendered for exchange, are to
exchange, are to be issued in the be mailed or delivered (i) to
name of someone other than the someone other than the under-
undersigned or (ii) if Private signed or (ii) to the undersigned
Notes tendered by book-entry at an address other than the ad-
transfer which are not exchanged dress shown below the
are to be returned by credit to undersigned's signature.
an account maintained at DTC.
Mail or deliver to:
Issue to:
Name: ____________________________
Name: ____________________________ (Please Type or Print)
(Please Type or Print) Address: _________________________
Address: _________________________ __________________________________
__________________________________ (Include Zip Code)
(Include Zip Code)
__________________________________ __________________________________
(Tax Identification or Social (Taxpayer Identification or
Security No.) Social Security No.)
Credit Private Notes not ex-
changed and delivered by book-en-
try transfer to DTC account set
forth below:
__________________________________
(Account Number)
5
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company for exchange the Private Notes
indicated above. Subject to, and effective upon, acceptance for exchange of
the Private Notes tendered for exchange herewith, the undersigned will have
irrevocably sold, assigned, transferred and exchanged, to the Company, all
right, title and interest in, to and under all of the Private Notes tendered
for exchange hereby, and hereby will have appointed the Exchange Agent as the
true and lawful agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as agent of the Company) of such Holder with respect
to such Private Notes, with full power of substitution to (i) deliver
certificates representing such Private Notes, or transfer ownership of such
Private Notes on the account books maintained by DTC (together, in any such
case, with all accompanying evidences of transfer and authenticity), to the
Company, (ii) present and deliver such Private Notes for transfer on the books
of the Company and (iii) receive all benefits and otherwise exercise all
rights and incidents of beneficial ownership with respect to such Private
Notes, all in accordance with the terms of the Exchange Offer. The power of
attorney granted in this paragraph shall be deemed to be irrevocable and
coupled with an interest.
The undersigned hereby represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Private Notes; and that
when such Private Notes are accepted for exchange by the Company, the Company
will acquire good and marketable title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claims.
The undersigned further warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company
to be necessary or desirable to complete the exchange, assignment and transfer
of the Private Notes tendered for exchange hereby. The undersigned further
agrees that acceptance of any and all validly tendered Private Notes by the
Company and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement.
By tendering, the undersigned hereby further represents to the Company that
(i) the Exchange Notes to be acquired by the undersigned in exchange for the
Private Notes tendered hereby and any Beneficial Owner(s) of such Private
Notes in connection with the Exchange Offer will be acquired by the
undersigned and such Beneficial Owner(s) in the ordinary course of their
respective businesses, (ii) the undersigned is not engaged in, and does not
intend to engage in, a distribution of the Exchange Notes, (iii) the
undersigned and each Beneficial Owner acknowledge and agree that any person
who is a broker-dealer registered under the Exchange Act or is participating
in the Exchange Offer for the purpose of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of Section
10 of the Securities Act in connection with a secondary resale transaction of
the Exchange Notes acquired by such person and cannot rely on the position of
the staff of the Commission set forth in certain no-action letters, (iv) the
undersigned and each Beneficial Owner understand that a secondary resale
transaction described in clause (iii) above and any resales of Exchange Notes
obtained by the undersigned in exchange for the Private Notes acquired by the
undersigned directly from the Company should be covered by an effective
registration statement containing the selling securityholder information
required by Item 507 or Item 508, as applicable, of Regulation S-K of the
Commission and (v) neither the undersigned nor any Beneficial Owner is an
"affiliate," as defined under Rule 405 under the Securities Act, of the
Company.
If the undersigned is a broker-dealer that will receive Exchange Notes for
its own account in exchange for Private Notes that were acquired as a result
of market-making activities or other trading activities, it acknowledges that
it will deliver a prospectus meeting the requirements of Section 10 of the
Securities Act in connection with any resale of such Exchange Notes; however,
by so acknowledging and by delivering such prospectus, the undersigned will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. A broker-dealer may not participate in the Exchange Offer with
respect to the Private Notes acquired other than as a result of market-making
activities or other trading activities.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted for exchange, and to have exchanged, validly tendered Private Notes,
if, as and when the Company gives oral or written notice thereof to the
Exchange Agent. Tenders of Private Notes for exchange may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders" in the Prospectus. Any Private Notes
tendered by the undersigned and not accepted for exchange will be returned to
the undersigned at the address set forth above unless otherwise indicated in
the box above entitled "Special Delivery Instructions" as promptly as
practicable after the Expiration Date.
6
<PAGE>
The undersigned acknowledges that the Company's acceptance of Private Notes
validly tendered for exchange pursuant to any one of the procedures described
in the section of the Prospectus entitled "The Exchange Offer" and in the
instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of
the Exchange Offer.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions," please return any Private Notes not tendered for exchange in
the name(s) of the undersigned. Similarly, unless otherwise indicated in the
box entitled "Special Delivery Instructions," please mail any certificates for
Private Notes not tendered or exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Issuance Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the Exchange Notes issued in exchange for the Private Notes
accepted for exchange in the name(s) of, and return any Private Notes not
tendered for exchange or not exchanged to, the person(s) so indicated. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Issuance Instructions" and "Special Delivery Instructions" to
transfer any Private Notes from the name of the Holder(s) thereof if the
Company does not accept for exchange any of the Private Notes so tendered for
exchange or if such transfer would not be in compliance with any transfer
restrictions applicable to such Private Note(s).
In order to validly tender Private Notes for exchange, Holders must
complete, execute, and deliver this Letter of Transmittal.
Except as stated in the Prospectus, all authority herein conferred or agreed
to be conferred shall survive the death, incapacity or dissolution of the
undersigned, and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned. Except as otherwise stated in the Prospectus, this tender for
exchange of Private Notes is irrevocable.
7
<PAGE>
SIGN HERE TO TENDER YOUR PRIVATE NOTES
____________________________________________________________________________
____________________________________________________________________________
Signature(s) of Owner(s)
Dated: _______________________________________________________________, 1999
Must be signed by the Holders(s) exactly as name(s) appear(s) on
certificate(s) representing the Private Notes or on a security position
listing or by person(s) authorized to become registered Private Note
holder(s) by certificates and documents transmitted herewith. If signature
is by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, please provide the following information. (See Instruction 6.)
Name(s): __________________________________________________________________
____________________________________________________________________________
(Please Type or Print)
Capacity (full title): _____________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
(Include Zip Code)
Principal place of business (if different from address listed above): ______
____________________________________________________________________________
____________________________________________________________________________
Area code and Telephone No.: ( ) _________________________________________
Tax Identification or Social Security Nos.: ________________________________
GUARANTEE OF SIGNATURE(S)
(Signature(s) must be guaranteed if required by instruction 1)
Authorized Signature: ______________________________________________________
Name and Title: ____________________________________________________________
____________________________________________________________________________
(Please Type or Print)
Name of Firm: ______________________________________________________________
Address: ___________________________________________________________________
Area code and Telephone No.: _______________________________________________
Dated: _____________________________________________________________________
IMPORTANT: COMPLETE AND SIGN THE SUBSTITUTE FORM W-9 IN THIS LETTER OF
TRANSMITTAL.
8
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Guarantee of Signatures. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by an institution
which is (1) a member of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., (2) a commercial bank or
trust company having an office or correspondent in the United States, or (3)
an Eligible Institution that is a member of one of the following recognized
Signature Guarantee Programs:
(a) The Securities Transfer Agents Medallion Program (STAMP);
(b) The New York Stock Exchange Medallion Signature Program (MSP); or
(c) The Stock Exchange Medallion Program (SEMP).
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the Holder(s) of the Private Notes tendered
herewith and such Holder(s) have not completed the box entitled "Special
Issuance Instructions" or the box entitled "Special Delivery Instructions" on
this Letter of Transmittal or (ii) if such Private Notes are tendered for the
account of an Eligible Institution. In all other cases, all signatures must be
guaranteed by an Eligible Institution.
2. Delivery of this Letter of Transmittal and Private Notes; Guaranteed
Delivery Procedures. This Letter of Transmittal is to be completed by Holders
if certificates representing Private Notes are to be forwarded herewith. All
physically delivered Private Notes, as well as a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) and any
other required documents, must be received by the Exchange Agent at its
address set forth herein prior to the Expiration Date or the tendering holder
must comply with the guaranteed delivery procedures set forth below. Delivery
of the documents to DTC does not constitute delivery to the Exchange Agent.
The method of delivery of Private Notes, this Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Holder. Except as otherwise provided below, the delivery will be deemed
made only when actually received or confirmed by the Exchange Agent. Instead
of delivery by mail, it is recommended that Holders use an overnight or hand
delivery service, properly insured. In all cases, sufficient time should be
allowed to assure delivery to the Exchange Agent before the Expiration Date.
Neither this Letter of Transmittal nor any Private Notes should be sent to the
Company. Holders may request their respective brokers, dealers, commercial
banks, trust companies or nominees to effect the above transactions for such
Holders.
Holders of Private Notes who elect to tender Private Notes and (i) whose
Private Notes are not immediately available or (ii) who cannot deliver the
Private Notes, this Letter of Transmittal or other required documents to the
Exchange Agent prior the Expiration Date must tender their Private Notes
according to the guaranteed delivery procedures set forth in the Prospectus.
Holders may have such tender effected if:
(a) such tender is made through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time, on the Expiration Date, the
Exchange Agent has received from such Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery, setting forth
the name and address of the Holder, the certificate number(s) of such
Private Notes and the principal amount of Private Notes tendered for
exchange, stating that tender is being made thereby and guaranteeing that,
within three New York Stock Exchange trading days after the Expiration
Date, this Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing such Private Notes (or a Book-Entry
Confirmation), in proper form for transfer, and any other documents
required by this Letter of Transmittal, will be deposited by such Eligible
Institution with the Exchange Agent; and
(c) a properly executed Letter of Transmittal (or facsimile thereof), as
well as the certificate(s) for all tendered Private Notes in proper form
for transfer or a Book-Entry Confirmation, together with any other
documents required by this Letter of Transmittal, are received by the
Exchange Agent within five New York Stock Exchange trading days after the
Expiration Date.
9
<PAGE>
No alternative, conditional or contingent tenders will be accepted. All
tendering Holders, by execution of this Letter of Transmittal (or facsimile
thereof), waive any right to receive notice of the acceptance of their Private
Notes for exchange.
3. Inadequate Space. If the space provided in the box entitled "Description
of Private Notes" above is inadequate, the certificate numbers and principal
amounts of the Private Notes being tendered should be listed on a separate
signed schedule affixed hereto.
4. Withdrawals. A tender of Private Notes may be withdrawn at any time prior
to the Expiration Date by delivery of written notice of withdrawal (or
facsimile thereof) to the Exchange Agent at the address set forth on the cover
of this Letter of Transmittal. To be effective, a notice of withdrawal of
Private Notes must (i) specify the name of the person who tendered the Private
Notes to be withdrawn (the "Depositor"), (ii) identify the Private Notes to be
withdrawn (including the certificate number(s) and aggregate principal amount
of such Private Notes), and (iii) be signed by the Holder in the same manner
as the original signature on the Letter of Transmittal by which such Private
Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion,
whose determination shall be final and binding on all parties. Any Private
Notes so withdrawn will thereafter be deemed not validly tendered for purposes
of the Exchange Offer and no Exchange Notes will be issued with respect
thereto unless the Private Notes so withdrawn are validly retendered. Properly
withdrawn Private Notes may be retendered by following one of the procedures
described in the section of the Prospectus entitled "The Exchange Offer--
Procedures for Tendering" at any time prior to the Expiration Date.
5. Partial Tenders. Tenders of Private Notes will be accepted only in
integral multiples of $1,000 principal amount. If a tender for exchange is to
be made with respect to less than the entire principal amount of any Private
Notes, fill in the principal amount of Private Notes which are tendered for
exchange in column (4) of the box entitled "Description of Private Notes," as
more fully described in the footnotes thereto. In the case of a partial tender
for exchange, a new certificate, in fully registered form, for the remainder
of the principal amount of the Private Notes, will be sent to the Holders
unless otherwise indicated in the appropriate box on this Letter of
Transmittal as promptly as practicable after the expiration or termination of
the Exchange Offer.
6. Signatures on this Letter of Transmittal, Powers of Attorney and
Endorsements.
(a) The signature(s) of the Holder on this Letter of Transmittal must
correspond with the name(s) as written on the face of the Private Notes
without alternation, enlargement or any change whatsoever.
(b) If tendered Private Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
(c) If any tendered Private Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Letter of Transmittal and any necessary or
required documents as there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the Holder listed and
transmitted hereby, no endorsements of Private Notes or bond powers are
required. If, however, Private Notes not tendered or not accepted, are to be
issued or returned in the name of a person other than the Holder, then the
Private Notes transmitted hereby must be endorsed or accompanied by a properly
completed bond power, in a form satisfactory to the Company, in either case
signed exactly as the name(s) of the Holder(s) appear(s) on the Private Notes.
Signatures on such Private Notes or bond powers must be guaranteed by an
Eligible Institution (unless signed by an Eligible Institution).
(e) If this Letter of Transmittal or Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with this Letter of Transmittal.
(f) If this Letter of Transmittal is signed by a person other than the
Holder listed, the Private Notes must be endorsed or accompanied by a properly
completed bond power, in either case signed by such Holder exactly as the
name(s) of the Holder appear(s) on the certificates. Signatures on such
Private Notes or bond powers must be guaranteed by an Eligible Institution
(unless signed by an Eligible Institution).
10
<PAGE>
7. Transfer Taxes. Except as set forth in this Instruction 7, the Company
will pay all transfer taxes, if any, applicable to the exchange of Private
Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed
for any reason other than the exchange of Private Notes pursuant to the
Exchange Offer, then the amount of such transfer taxes (whether imposed on the
Holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemptions therefrom is not
submitted with this Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
8. Special Issuance and Delivery Instructions. If the Exchange Notes are to
be issued, or if any Private Notes not tendered for exchange are to be issued
or sent to someone other than the Holder or to an address other than that
shown above, the appropriate boxes on this Letter of Transmittal should be
completed. Holders of Private Notes tendering Private Notes by book-entry
transfer may request that Private Notes not accepted be credited to such
account maintained at DTC as such Holder may designate.
9. Irregularities. All questions as to the validity, form, eligibility
(including time of receipt), compliance with conditions, acceptance and
withdrawal of tendered Private Notes will be determined by the Company in its
sole discretion, which determination shall be final and binding. The Company
reserves the absolute right to reject any and all Private Notes not properly
tendered or any Private Notes the Company's acceptance of which would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
right to waive any defects, irregularities or conditions of tender as to
particular Private Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify Holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Private Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in this Letter of
Transmittal, as soon as practicable following the Expiration Date.
10. Waiver of Conditions. The Company reserves the absolute right to waive,
amend or modify certain of the specified conditions as described under "The
Exchange Offer--Conditions" in the Prospectus in the case of any Private Notes
tendered (except as otherwise provided in the Prospectus).
11. Mutilated, Lost, Stolen or Destroyed Private Notes. Any tendering Holder
whose Private Notes have been mutilated, lost, stolen or destroyed, should
contact the Exchange Agent at the address indicated herein for further
instructions.
12. Requests for Information or Additional Copies. Requests for information
or for additional copies of the Prospectus and this Letter of Transmittal may
be directed to the Exchange Agent at the address or telephone number set forth
on the cover of this Letter of Transmittal.
IMPORTANT: This Letter of Transmittal (or a facsimile thereof) together with
certificates, or confirmation of book-entry or the Notice of Guaranteed
Delivery, and all other required documents must be received by the Exchange
Agent prior the Expiration Date.
11
<PAGE>
IMPORTANT INFORMATION
Under current federal income tax law, a Holder whose tendered Private Notes
are accepted for exchange may be subject to backup withholding unless the
Holder provides the Company (as payor), through the Exchange Agent, with
either (i) such Holder's correct taxpayer identification number ("TIN") on
Substitute Form W-9 attached hereto, certifying that the TIN provided on
Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and
that (A) the Holder has not been notified by the Internal Revenue Service that
he or she is subject to backup withholding as a result of a failure to report
all interest or dividends or (B) the Internal Revenue Service has notified the
Holder that he or she is no longer subject to backup withholding; or (ii) an
adequate basis for exemption from backup withholding. If such Holder is an
individual, the TIN is such Holder's social security number. If the Exchange
Agent is not provided with the correct taxpayer identification number, the
Holder may be subject to certain penalties imposed by the Internal Revenue
Service.
Certain Holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. Exempt Holders should indicate their exempt status on Substitute
Form W-9. A foreign individual may qualify as an exempt recipient by
submitting to the Exchange Agent a properly completed Internal Revenue Service
Form W-8 (which the Exchange Agent will provide upon request) signed under
penalty of perjury, attesting to the Holder's exempt status. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 (the "Guidelines") for additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the Holder or other payee. Backup withholding is not an
additional federal income tax. Rather, the federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the record owner of the
Private Notes. If the Private Notes are held in more than one name or are not
held in the name of the actual owner, consult the enclosed Guidelines for
additional guidance regarding which number to report.
12
<PAGE>
PAYOR'S NAME: U.S. TRUST COMPANY, NATIONAL ASSOCIATION
Part 1--PLEASE PROVIDE YOUR
TIN IN THE BOX AT RIGHT AND -------------------------
CERTIFY BY SIGNING AND Social Security Number
DATING BELOW. OR
SUBSTITUTE
Form W-9 -------------------------
Department of Employer Identification
Treasury Number
Internal Revenue Service -------------------------
Part 3--
Awaiting TIN [_]
------------------------
Payer's Request Part 2--Certification Under Penalties of Perjury, I
for Taxpayer certify that:
Identification
Number (TIN)
and Certification (1) The number shown on this form is my current
taxpayer identification number (or I am waiting
for a number to be issued to me) and
(2) I am not subject to backup withholding either
because I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to
backup withholding as a result of failure to
report all interest or dividends, or the IRS has
notified me that I am no longer subject to backup
withholding.
--------------------------------------------------------
Certification instructions--You must cross out item
(2) in Part 2 above if you have been notified by the
IRS that you are subject to backup withholding
because of underreporting interest or dividends on
your tax return. However, if after being notified by
the IRS that you are subject to backup withholding
you receive another notification from the IRS stating
that you are no longer subject to backup withholding,
do not cross out item (2).
SIGNATURE _______________________ DATE ______________
NAME __________________________________________________
ADDRESS _______________________________________________
CITY _______________ STATE _____ ZIP CODE _____________
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECK THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9
PAYOR'S NAME: U.S. TRUST COMPANY, NATIONAL ASSOCIATION
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me and either (a) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number within sixty (60) days, 31% of all reportable
payments made to me thereafter will be withheld until I provide such a
number.
SIGNATURE __________________________________________________ DATE: __________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
13
<PAGE>
EXHIBIT 99.2
Notice of Guaranteed Delivery
With Respect to Tender of
Any and All Outstanding 12% Senior Subordinated Notes due 2005
In Exchange For
12% Senior Subordinated Notes Due 2005
of
HDA PARTS SYSTEM, INC.
Pursuant to the Prospectus dated November , 1999
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (SUCH TIME AND DATE, AS THE SAME MAY BE
EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN
AT ANY TIME PRIOR THE EXPIRATION DATE.
The Exchange Agent is:
U.S. TRUST COMPANY, NATIONAL ASSOCIATION
By registered or Certified Mail: By Hand Delivery:
c/o United States Trust Company of c/o United States Trust Company of
New York P.O. Box 841 Peter Cooper New York 111 Broadway, Lower Level
Station New York, New York 10276- New York, New York 10006-1906
0841 Attn: Corporate Trust Attn: Corporate Trust Operations
Operations
By Overnight Delivery: By Facsimile:
c/o United States Trust Company of (212) 420-6211
New York Attn: Customer Service
770 Broadway, 13th Floor
New York, New York 10003 Confirm by Telephone:
Attn: Corporate Trust Operations
(800) 225-2398
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION TO A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
As set forth in the prospectus (the "Prospectus") dated November , 1999
of HDA Parts System, Inc. (the "Company") and in the accompanying Letter of
Transmittal and instructions thereto (the "Letter of Transmittal"), this form
or one substantially equivalent thereto must be used to accept the Company's
offer (the "Exchange Offer") to exchange new 12% Senior Subordinated Notes due
2005 (the "Exchange Notes") that have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), for all of its outstanding 12%
Senior Subordinated Notes due 2005 (the "Private Notes") if the Letter of
Transmittal or any other documents required thereby cannot be delivered to the
Exchange Agent, or Private Notes cannot be delivered or if the procedures for
book-entry transfer cannot be completed prior to the Expiration Date. This
form may be delivered by an Eligible Institution (as defined in the
Prospectus) by mail or hand delivery or transmitted via facsimile to the
Exchange Agent as set forth above. Capitalized terms used but not defined
herein shall have the meaning given to them in the Prospectus.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the Letter of Transmittal.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to the Company upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Private Notes specified below pursuant to the guaranteed delivery procedures
set forth in the section of the Prospectus entitled "The Exchange Offer--
Guaranteed Delivery Procedures." By so tendering, the undersigned does hereby
make, at and as of the date hereof, the representations and warranties of a
tendering Holder of Private Notes set forth in the Letter of Transmittal.
The undersigned understands that tenders of Private Notes may be withdrawn
if the Exchange Agent receives at one of its addresses specified on the cover
of this Notice of Guaranteed Delivery, prior to the Expiration Date, a
facsimile transmission or letter which specifies the name of the person who
deposited the Private Notes to be withdrawn and the aggregate principal amount
of Private Notes delivered for exchange, including the certificate number(s)
(if any) of the Private Notes, and which is signed in the same manner as the
original signature on the Letter of Transmittal by which the Private Notes
were tendered, including any signature guarantees, all in accordance with the
procedures set forth in the Prospectus.
All authority herein conferred or agreed to be conferred shall survive the
death, incapacity, or dissolution of the undersigned and every obligation of
the undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned.
2
<PAGE>
The undersigned hereby tenders the Private Notes listed below:
PLEASE SIGN AND COMPLETE
<TABLE>
<CAPTION>
Certificate Numbers of Private Notes
(if Available) Principal Amount of Private Notes Tendered
- ------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
___________________________________________________________________________
Signature(s) of registered holder(s) or Authorized Signatory
Name(s)____________________________________________________________________
(Please Type or Print)
Title _____________________________________________________________________
Address____________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
Area Code and Telephone No. _______________________________________________
Date ______________________________________________________________________
If Private Notes will be tendered by book-entry transfer, check the trust
company below:
[_] The Depository Trust Company
Depository Account No.: ___________________________________________________
3
<PAGE>
GUARANTEE
(Not To Be Used For Signature Guarantee)
The undersigned, a participant in a recognized Signature Guarantee
Medallion Program, guarantees deposit with the Exchange Agent of the
Letter of Transmittal (or facsimile thereof), together with the Private
Notes tendered hereby in proper form for transfer, or confirmation of the
book-entry transfer of such Private Notes into the Exchange Agent's
account at The Depository Trust Company, pursuant to the procedure for
book-entry transfer set forth in the Prospectus, and any other required
documents, all by 5:00 p.m., New York City time, on the third New York
Stock Exchange trading day following the Expiration Date (as defined in
the Prospectus).
SIGN HERE
Name of Firm: _____________________________________________________________
Authorized Signature: _____________________________________________________
Name (please type or print): ______________________________________________
Address: __________________________________________________________________
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Area Code and Telephone No.: ______________________________________________
Date: _____________________________________________________________________
DO NOT SEND CERTIFICATES FOR PRIVATE NOTES WITH THIS FORM. ACTUAL
SURRENDER OF CERTIFICATES FOR PRIVATE NOTES MUST BE MADE PURSUANT TO, AND
BE ACCOMPANIED BY, A COPY OF THE PREVIOUSLY EXECUTED LETTER OF
TRANSMITTAL.
4
<PAGE>
INSTRUCTIONS
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at one of its addresses set forth on the cover hereof prior
to the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and all other required documents to the Exchange Agent is at the
election and risk of the Holder but, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange
Agent. Instead of delivery by mail, it is recommended that Holders use an
overnight or hand delivery service, properly insured. If such delivery is by
mail, it is recommended that the Holder use properly insured, registered mail
with return receipt requested. For a full description of the guaranteed
delivery procedures, see the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures." In all cases, sufficient time should
be allowed to assure timely delivery. No Notice of Guaranteed Delivery should
be sent to the Company.
2. Signature on this Notice of Guaranteed Delivery; Guarantee of
Signatures. If this Notice of Guaranteed Delivery is signed by the Holder(s)
referred to herein, then the signature must correspond with the name(s) as
written on the face of the Private Notes without alteration, enlargement or
any change whatsoever. If this Notice of Guaranteed Delivery is signed by a
person other than the Holder(s) listed, this Notice of Guaranteed Delivery
must be accompanied by a properly completed bond power signed as the name of
the Holder(s) appear(s) on the face of the Private Notes without alteration,
enlargement or any change whatsoever. If this Notice of Guaranteed Delivery is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and,
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Notice of Guaranteed Delivery.
3. Requests for Assistance or Additional Copies. Questions relating to the
Exchange Offer or the procedure for consenting and tendering as well as
requests for assistance or for additional copies of the Prospectus, the Letter
of Transmittal and this Notice of Guaranteed Delivery, may be directed to the
Exchange Agent at the address set forth on the cover hereof or to your broker,
dealer, commercial bank or trust company.
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