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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended October 25, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-22318
APS HOLDING CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 76-0306940
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
15710 JOHN F. KENNEDY BLVD., SUITE 700
HOUSTON, TEXAS 77032-2347
(Address of Principal Executive Offices)
(713) 507-1100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
There were 13,790,110 shares of the Registrant's Class A Common Stock
outstanding as of the close of business on November 24, 1997. There were no
shares outstanding of the Registrant's Class B Common Stock.
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APS HOLDING CORPORATION
<TABLE>
<CAPTION>
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
- ------------------------------
<S> <C>
Item 1. Consolidated Financial Statements and Notes 3
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
APS HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 25, JANUARY 25,
1997 1997
--------- ---------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents .............................. $ 27,972 $ 13,370
Accounts and notes receivable, less allowance of $14,475
and $11,164 ............................................ 105,819 103,168
Inventories ............................................ 277,329 294,816
Deferred tax asset ..................................... 28,862 19,789
Prepaid expenses and other current assets .............. 22,269 35,543
--------- ---------
Total current assets ................... 462,251 466,686
Property and equipment, less accumulated depreciation of
$30,084 and $23,949 .................................. 44,611 44,483
Notes receivable, less current portion ................. 21,483 21,615
Intangible assets, net ................................. 45,546 47,073
Investment in available-for-sale-securities ............ 795 3,977
Deferred costs and other assets ........................ 14,305 14,371
--------- ---------
$ 588,991 $ 598,205
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Book overdrafts ........................................ $ 4,829 $ 6,306
Current maturities of long-term debt (Note 4) .......... 241,541 15,471
Accounts payable ....................................... 97,102 106,927
Accrued liabilities .................................... 42,940 44,359
--------- ---------
Total current liabilities .............. 386,412 173,063
Long-term debt, less current maturities (Note 4) .......... 101,258 305,941
Deferred tax liability .................................... 638 1,339
Deferred income and other liabilities ..................... 3,696 3,293
--------- ---------
Total liabilities ...................... 492,004 483,636
Commitments and contingencies (Note 5) .................... -- --
Redeemable preferred stock ................................ -- --
Stockholders' equity
Class A common stock ................................... 138 137
Class B common stock ................................... -- --
Additional paid-in capital ............................. 155,601 155,363
Accumulated deficit .................................... (57,564) (41,712)
Treasury stock ......................................... (120) (120)
Unrealized (loss) gain ................................. (1,068) 901
--------- ---------
Total stockholders' equity ............. 96,987 114,569
--------- ---------
$ 588,991 $ 598,205
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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APS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
OCTOBER 25, OCTOBER 25, OCTOBER 25, OCTOBER 25,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .................................... $ 201,594 $ 217,592 $ 633,728 $ 669,463
Cost of goods sold ........................... 136,773 141,642 427,528 441,081
--------- --------- --------- ---------
Gross profit ............................ 64,821 75,950 206,200 228,382
Selling, general and administrative expenses . 66,649 61,941 202,542 192,195
Asset impairment and restructuring charge .... -- -- 8,726 --
--------- --------- --------- ---------
Operating income (loss) ................. (1,828) 14,009 (5,068) 36,187
Interest income .............................. 1,242 1,441 3,765 4,253
Other income ................................. 50 1,085 150 1,408
--------- --------- --------- ---------
Income (loss) before interest expense and
income taxes ........................... (536) 16,535 (1,153) 41,848
Interest expense ............................. 8,090 6,846 23,154 20,529
--------- --------- --------- ---------
Income (loss) before income taxes ....... (8,626) 9,689 (24,307) 21,319
Income tax provision (benefit) ............... (3,360) 3,589 (8,455) 7,901
--------- --------- --------- ---------
Net income (loss) ....................... ($ 5,266) $ 6,100 ($ 15,852) $ 13,418
========= ========= ========= =========
Net income (loss) per share .................. ($ 0.38) $ .44 ($ 1.15) $ .97
========= ========= ========= =========
Weighted average common shares outstanding ... 13,790 13,941 13,780 13,904
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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APS HOLDING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 25, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CLASS A ADDITIONAL TREASURY UNREALIZED TOTAL
COMMON STOCK PAID-IN ACCUMULATED STOCK, GAIN STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT AT COST (LOSS) EQUITY
------ ------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period .. 13,764 $ 137 $155,363 ($ 41,712) ($120) $ 901 $ 114,569
Exercise of stock options ....... 25 1 238 -- -- -- 239
Unrealized (loss) .............. -- -- -- -- -- (1,969) (1,969)
Net loss for the period ......... -- -- -- (15,852) -- -- (15,852)
------ ------ -------- --------- -------- --------- ---------
Balance at October 25, 1997 ... 13,789 $ 138 $155,601 ($ 57,564) ($120) ($1,068) $ 96,987
====== ====== ======== ========= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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APS HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 25, OCTOBER 25,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ....................................... $(15,852) $ 13,418
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Provision for asset impairment and restructuring charge . 8,726 --
Depreciation and amortization ........................... 9,712 8,623
Amortization of debt issue costs ........................ 887 590
Gain on sale of stores .................................. -- (1,035)
Provision for bad debt .................................. 6,715 4,000
Inventory write-off in connection with closures ......... 1,268 --
Income from supply agreement ............................ (150) (373)
Deferred income taxes ................................... (8,561) 1,149
Change in operating assets and liabilities:
Accounts receivable ................................ (8,007) 965
Inventories ........................................ 21,487 (4,078)
Prepaid expenses and other current assets .......... 13,288 7,731
Accounts payable ................................... (9,825) 5,146
Accrued liabilities ................................ (10,508) (1,142)
Other assets and liabilities ....................... (4,113) (8,806)
-------- --------
Net cash provided by operating activities .......... 5,067 26,188
-------- --------
Cash flows from investing activities:
Investment in notes receivable .......................... (9,696) (5,365)
Proceeds from repayment of notes receivable ............. 8,479 6,819
Investment in available for sale securities ............. -- (2,500)
Business acquisitions, net of cash acquired ............. (2,200) (7,035)
Capital expenditures .................................... (7,198) (7,668)
Proceeds from disposition of assets ..................... -- 4,535
-------- --------
Net cash used in investing activities .............. (10,615) (11,214)
-------- --------
Cash flows from financing activities:
Retirement of long-term debt ............................ (11,661) (10,138)
Net borrowings under revolving credit agreement ......... 33,050 800
Change in book overdrafts ............................... (1,477) (1,085)
Exercise of stock options ............................... 238 119
-------- --------
Net cash provided by (used in) financing activities 20,150 (10,304)
-------- --------
Net increase in cash and cash equivalents .................... 14,602 4,670
-------- --------
Cash and cash equivalents at beginning of period ............. 13,370 7,886
-------- --------
Cash and cash equivalents at end of period ................... $ 27,972 $ 12,556
======== ========
Supplemental disclosures:
Cash paid for interest .................................. $ 19,674 $ 15,477
======== ========
Cash paid (received) for income taxes ................... $ (4,248) $ 2,547
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
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APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The consolidated balance sheet of APS Holding Corporation and
subsidiaries (collectively, unless the context otherwise requires, the
"Company") at January 25, 1997 has been condensed from the Company's audited
consolidated financial statements at that date. The consolidated balance sheet
at October 25, 1997, the consolidated statements of operations for the three
months and nine months ended October 25, 1997 and 1996, the consolidated
statement of changes in stockholders' equity for the nine months ended October
25, 1997 and the consolidated statements of cash flows for the nine months
ended October 25, 1997 and 1996 have been prepared by the Company, without
audit. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary to present fairly the consolidated financial
position, results of operations and cash flows have been made. The results of
operations for the three months and nine months ended October 25, 1997 are not
necessarily indicative of the operating results for a full year or of future
operations.
Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been omitted. The accompanying consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto contained in the Company's Annual Report on Form 10-K for the
year ended January 25, 1997.
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. Such reclassifications
did not affect net income or loss, stockholders' equity or cash flows for any
period.
2. NEW ACCOUNTING STANDARDS:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, entitled "Earnings per Share" in
February 1997. SFAS No. 128 requires standards to replace the presentation of
primary earnings per share ("EPS") with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures. The Company is
required to adopt the computation, presentation and disclosure requirements of
SFAS No. 128 for the fiscal year ending January 31, 1998. The Company's basic
loss per share and diluted loss per share under SFAS No. 128 would have each
been $0.38 for the three months and $1.15 for the nine months ended October 25,
1997, respectively.
The Company is currently reviewing SFAS No. 130, entitled "Reporting
Comprehensive Income" and SFAS No. 131, entitled "Disclosures About Segments of
an Enterprise and Related Information", but has not yet determined when it will
adopt the provisions of these statements. SFAS No. 130 establishes standards
for reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 131 requires that disclosure be
made with respect to and establishes standards for the manner in which public
business enterprises report selected information about operating segments in
interim financial reports issued to shareholders.
3. ASSET IMPAIRMENT AND RESTRUCTURING CHARGES:
During the quarter ended July 25, 1997, the Company commenced
implementation of a comprehensive program for reducing costs and achieving
profitability. As part of such program, and in order to position the Company to
achieve improved operating performance, the Company has been consolidating
redundant administrative functions and has closed certain under-performing
facilities. Upon completion, which is expected by the end of the fiscal year
ending January 31, 1998, the program is expected to result in the closure of an
estimated
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APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
50 Installers' Service Warehouse units ("ISW") and 15 Company-owned stores, of
which 50 and 9, respectively, have been closed as of October 25, 1997. Aggregate
revenue from such facilities was approximately $2.2 million and approximately
$15.0 million during the three and nine months ended October 25, 1997,
respectively, compared to approximately $5.6 million and approximately $18.3
million, for the corresponding periods of the prior fiscal year. Aggregate
losses before income taxes and after overhead allocations from such facilities
were approximately $0.7 million and approximately $2.2 million for the three and
nine months ended October 25, 1997, respectively, compared to approximately $0.5
million and approximately $1.1 million for the corresponding periods of the
prior fiscal year. As a result of such program, during the three months ended
July 25, 1997, the Company recorded a restructuring charge of approximately $8.7
million. Such charge consisted of approximately $2.2 million for estimated costs
to close facilities, approximately $1.4 million of employee severance benefits
related to personnel reductions of approximately 570 employees, approximately
$3.2 million for future lease and related obligations and approximately $1.9
million of asset impairments. In addition, in connection with such
restructuring program, approximately $1.3 million was charged to cost of goods
sold during the quarter ended July 25, 1997 for inventory write-offs expected in
connection with facility closures, and approximately $1.8 million was charged to
selling, general and administrative expenses for incremental bad debt expected
in connection with such closures. During the three months ended October 25,
1997, approximately $2.5 million of costs were charged to the liabilities and
reserves established at July 25, 1997 for such restructuring and related
charges (including approximately $0.3 million of employee severance to
approximately 100 employees) and approximately $4.2 million of such charges were
recorded as liabilities at October 25, 1997.
The Company's financial statements at October 25, 1997 also included
liabilities and reserves in the aggregate amount of $3.5 million for costs
related to the closure and consolidation of certain facilities and
administrative functions pursuant to programs of rationalization implemented by
the Company during the fiscal year ended January 27, 1996 in connection with its
acquisition of Parts, Inc. The Company attained a majority of the program's
objectives during the year ended January 25, 1997 and expects final completion
of such programs during the fiscal year ending January 30, 1999. During the
three and nine months ended October 25, 1997, the Company charged approximately
$0.7 million and approximately $2.1 million, respectively, against such
liability and reserves, including approximately $0.2 million of employee
termination and relocation costs during the nine months ended October 25, 1997.
4. CREDIT AGREEMENT COVENANTS:
Effective as of October 24, 1997, the Company obtained a waiver of its
Consolidated Leverage Ratio, Fixed Charge Coverage Ratio and Minimum Net Worth
covenant requirements (the "Financial Covenants") under its amended and restated
senior bank credit agreement (the "Credit Agreement") with a syndicate of
lenders led by The Chase Manhattan Bank (the "Senior Lenders"). Pursuant to such
waiver, aggregate borrowings under the revolving credit facility of the Credit
Agreement were limited to $204.7 million until December 31, 1997. Such waiver
will be effective until December 31, 1997. The Company has been discussing with
the Senior Lenders and other lenders a possible new financing (the "Proposed
Financing"). Effective as of December 8, 1997, the Senior Lenders have agreed,
during the period from December 31, 1997 to the earliest of (i) February 10,
1998, (ii) the date on which a default or event of default under the Credit
Agreement (other than as a result of the Company's failure to comply with the
Financial Covenants at October 25, 1997 or January 31, 1998) occurs and (iii)
the effective date of the Proposed Financing, to allow the Company to continue
to borrow under the Credit Agreement (notwithstanding the expiration after
December 31, 1997 of the waiver of the Financial Covenants) and to forebear from
exercising any of their rights or remedies against the Company under the Credit
Agreement and related documents as a result of the Company's failure to comply
with the Financial Covenants at October 25, 1997 or January 31, 1998. The Senior
Lenders have expressly reserved their right to exercise any rights or remedies
they may have against any other person or entity under any other document or
instrument. If the Company does not obtain the Proposed Financing or otherwise
obtain an amendment to the Credit Agreement to cure its failure to comply with
the Financial Covenants prior to February 10, 1998, at any time thereafter the
Senior Lenders could accelerate the maturity of the outstanding loans under the
Credit Agreement. Accordingly, the entire amount outstanding under the Credit
Agreement has been classified as a current liability at October 25, 1997.
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APS HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LITIGATION:
The Company is involved in various claims and disputes arising in the
normal course of business, including the matter of Barry S. Lamm and Lamm Auto
Stores, Inc. v. Parts, Inc., et al, which was filed in The Circuit Court of
Mobile County, Alabama on June 21, 1996. The plaintiff in such case seeks both
compensatory and punitive damages in making a number of claims, including both
willful and reckless misrepresentation, suppression of material fact,
promissory fraud (all in violation of the Code of Alabama), and conspiracy,
breach of contract and intentional interference with contractual or business
relationships, all in connection with the operation of an automotive parts
business by the plaintiff while a customer of Parts, Inc. The trial with
respect to such action began on December 8, 1997. The Company believes that
the costs of defending such action as well as any loss that could be sustained
by the Company as a result of an adverse decision in such action, are the
subject of a contractual indemnification by GKN. The Company has made a claim
for indemnity to GKN, which GKN has denied.
6. NON-CASH INVESTING ACTIVITIES:
During the quarter ended October 25, 1997, the Company exercised its
rights as a secured creditor with respect to the assets of one its customers,
resulting in the non-cash acquisition of assets having a value of approximately
$3.5 million.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Presented below is a summary of unaudited financial operating
information for the three months and nine months ended October 25, 1997 and
1996 (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 25, NINE MONTHS ENDED OCTOBER 25,
---------------------------------------- ---------------------------------------
1997 % 1996 % 1997 % 1996 %
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $201,594 100.0 $217,592 100.0 $633,728 100.0 $669,463 100.0
Cost of goods sold 136,773 67.8 141,642 65.1 427,528 67.5 441,081 65.9
Gross Profit 64,821 32.2 75,950 34.9 206,200 32.5 228,382 34.1
Selling, general and
administrative expenses 66,649 33.1 61,941 28.5 202,542 32.0 192,195 28.7
Asset impairment &
restructuring charge -- -- -- -- 8,726 1.4 -- --
Operating income (loss) (1,828) (0.9) 14,009 6.4 (5,068) (0.8) 36,187 5.4
Net income (loss) (5,266) (2.6) 6,100 2.8 (15,852) (2.5) 13,418 2.0
</TABLE>
Fiscal Year 1998 Compared to Fiscal Year 1997
Net sales for the three months and nine months ended October 25, 1997
decreased $16.0 million (7.4%) and $35.7 million (5.3%), respectively, from the
corresponding periods of the prior fiscal year. Such decreases were primarily
due to facility closures, continuing general softness in demand for the
Company's products and increasing competitive pressures. Additionally, the
decrease in sales for the nine months ended October 25, 1997 was attributable in
part to the loss of sales to stores owned by independent automotive parts store
operators ("jobbers") that were formerly associated with Parts, Inc. ("PI") in
connection with the integration into the Company's operation of PI, which was
acquired by the Company on January 25, 1996 (the "PI Acquisition").
Cost of goods sold consists primarily of the purchase cost of products
sold. Cost of goods sold for the three months and nine months ended October 25,
1997, decreased $4.9 million (3.4%) and $13.6 million (3.1%), respectively,
from the corresponding periods of the prior fiscal year. The dollar decreases
in cost of goods sold principally resulted from the decrease in sales discussed
above. Cost of goods sold as a percentage of net sales for the three months and
nine months ended October 25, 1997 increased compared to that of the
corresponding periods of the prior year, principally as a result of lower gross
profit margins at the Company's traditional businesses (primarily resulting
from additional sales programs offering reduced selling prices and fewer
services). For the nine months ended October 25, 1997, such lower gross profit
margins at the Company's traditional businesses were offset in part by the
impact of the sales mix containing more ISW sales, which have higher gross
profit margins than the Company's traditional businesses. In addition, cost of
goods sold for the nine months ended October 25, 1997 includes a charge in the
amount of approximately $1.3 million which, was recorded during the three months
ended July 25, 1997, for inventory write-offs expected in connection with
facility closures. See "Business Initiatives", below. The Company expects
gross profit margins for the ISW business to continue to be somewhat higher (as
a percentage of sales) than for its traditional businesses, although no
assurance can be given in this regard. The Company also intends to continue
adding jobbers to sales programs offering reduced selling prices and fewer
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services and, consequently, gross profit margins at its traditional businesses
could continue to decrease in future periods. In the fourth quarter of the
fiscal year ending January 25, 1997 ("Fiscal Year 1997), the Company recorded a
charge of approximately $11.8 million for an inventory loss adjustment for the
ISW business, a portion of which may be attributable to earlier quarters of
Fiscal Year 1997. As a result, cost of goods sold for the three months and nine
months ended October 25, 1997 may not be comparable to cost of goods sold for
the corresponding periods of the prior year.
Selling, general and administrative expenses, which include
depreciation and amortization, for the three months and nine months ended
October 25, 1997 increased by $4.7 million (7.6%) and $10.3 million (5.4%),
respectively, compared to the corresponding periods of the prior year. The
dollar increases in selling, general and administrative expenses primarily
resulted from the absence in the current fiscal periods of one-time supplier
changeover incentives recognized in the three month and nine month periods ended
October 25, 1996 in the amount of approximately $5.7 million and $7.9 million,
respectively. Such one-time incentives were received in connection with the PI
Acquisition to offset the impact of one-time expenses related to the integration
of PI into the Company. In addition, selling, general and administrative
expenses for the nine months ended October 25, 1997 include a provision for
incremental bad debt in the amount of approximately $1.8 million, which was
recorded during the three months ended July 25, 1997 in connection with certain
future facility closures. See "Liquidity and Capital Resources - Business
Initiatives", below. Selling, general and administrative expenses for the three
and nine months ended October 25, 1997 as a percentage of sales also increased
over the corresponding periods of the prior year due to continuing performance
and execution issues in the ISW business (see "Business Initiatives - ISW and
Company-owned Stores" below) in addition to the absence of the one-time
supplier change-over incentives discussed above.
During the quarter ended July 25, 1997, the Company commenced
implementation of a comprehensive program for reducing costs and achieving
profitability. As part of such program, and in order to position the Company to
achieve improved operating performance, the Company has been consolidating
redundant administrative functions and has closed certain under-performing
facilities. Upon completion, which by the end of the Fiscal Year ending January
31, 1998 ("Fiscal Year 1998") the program is expected to result in the closure
of an estimated 50 ISW units and 15 Company-owned stores. See "Business
Initiatives", below. As a result of such program, during the three months ended
July 25, 1997, the Company recorded a restructuring charge of approximately $8.7
million. Such charge consisted of approximately $2.2 million for estimated costs
to close facilities, approximately $1.4 million of employee severance benefits
related to personnel reductions of approximately 570 employees, approximately
$3.2 million for future lease and related obligations and approximately $1.9
million of asset impairments.
Operating income for the three months and nine months ended October
25, 1997 decreased $15.8 million (113.1%) and $41.3 million (114.0%),
respectively, compared to the corresponding periods of the prior year,
primarily due to the factors discussed above.
Other income for the three months and nine months ended October 25,
1997 was $50,000 and $150,000, respectively, compared to $1.1 million and $1.4
million, respectively, for the corresponding periods of the prior year. Other
income for the three months and nine months ended October 25, 1996 included a
gain of approximately $1.0 million from the sale of certain Company-owned
stores in Mississippi and Florida. In addition, all four periods include the
portion allocable to such periods of a $6.0 million payment received from a
supplier for entering into a ten year supply agreement in April 1993 (the
"Supply Agreement"). Such payment was deferred and is being recognized as
income on an accelerated basis over the term of the Supply Agreement; thus,
when compared to previous periods, the amount of revenue recognized from such
payment has declined.
Interest expense for the three months and nine months ended October
25, 1997 was $8.0 million (4.0% of net sales) and $23.1 million (3.7% of net
sales), respectively, compared to $6.8 million (3.1% of net sales) and $20.5
million (3.1% of net sales), respectively, for the corresponding periods of the
prior year. The increase in interest expense was principally due to the
Company's higher average borrowings under the revolving credit facility during
the three and nine months ended October 25, 1997 and increased interest rates.
The increase in interest rates resulted in part from an increase in the margins
applicable to various types of loans under the Company's senior bank credit
agreement due to the decline of certain of the Company's financial ratios and
to a lesser extent, from an increase in the prime rate charged by the Company's
bank lenders. The extent of future increases in interest expense will depend on
a number of factors, including the magnitude of increases in borrowing levels,
changes in interest rates and the terms of any new financing agreements the
Company may enter into. See "Liquidity and Capital Resources--Credit Agreement",
below.
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Income taxes for the three months and nine months ended October 25,
1997 were a benefit of $3.4 million and $8.5 million, respectively, compared to
income tax expense of $3.6 million and $7.9 million, respectively, for the
corresponding periods of the prior year. The Company's combined applicable
federal and state tax rate is expected to approximate 34.8% during the fiscal
year ending January 31, 1998 ("Fiscal Year 1998"). Such combined rate differs
from the federal statutory tax rate of 35% due primarily to the Company's tax
paying status in certain states.
Net loss for the three months and nine months ended October 25, 1997
was $5.3 million (2.6% of net sales) and $15.9 million (2.5% of net sales),
respectively, compared to net income of $6.1 million (2.8% of net sales) and
$13.4 million (2.0% of net sales), respectively, for the corresponding periods
of the prior year. The decrease in net income was primarily a result of the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows. For the nine months ended October 25, 1997, operating
activities provided net cash of approximately $5.1 million, due primarily to
decreases in inventory resulting largely from such facility closures and working
capital initiatives. Such decreases in inventory were offset, in part, by
decreases in accounts payable resulting primarily from facility closures and the
Company's working capital initiatives as well as from payments to the Company's
suppliers pursuant to the expiration of deferred payment terms obtained in
connection with the PI Acquisition. Such deferred payment terms will require the
Company to make payments of approximately $0.8 million during the remainder of
Fiscal Year 1998 and $6.4 million and $16.8 million in the fiscal years ending
January 1999 and 2000, respectively. The decrease in accounts payable during the
nine months ended October 25, 1997 was offset in part by the additional deferral
of approximately $10.3 million of accounts payable pursuant to deferred payment
terms obtained from certain of the Company's vendors during the three months
ended October 25, 1997. Such deferred payment terms will require the Company to
make payments (in addition to those required pursuant to the deferred payment
terms obtained in connection with the PI Acquisition) of approximately $0.4
million during the remainder of Fiscal Year 1998 and approximately $9.9 million
during the fiscal year ending January 1999. Investing activities utilized
approximately $10.6 million of cash, principally consisting of capital
expenditures and investments in customer notes receivable. Financing activities
provided $20.1 million of cash, primarily from increased borrowings under the
Company's senior bank credit agreement.
For the nine months ended October 25, 1996, operating activities
provided net cash of approximately $26.2 million, resulting primarily from the
Company's net earnings adjusted for the impact of non-cash expenses. Investing
activities utilized $11.2 million of cash, primarily resulting from the
Company's investment in business acquisitions, capital expenditures and
available for sale securities. Such investments were offset by the proceeds
from the sale of assets, including the Company's interest in the "Parts Plus"
group of marks which had been acquired by the Company in the PI acquisition.
Financing activities utilized $10.3 million of cash, principally resulting from
the repayment of debt.
Working Capital. The Company's working capital decreased to $75.8
million at October 25, 1997, including $28.0 million in cash and cash
equivalents, from $293.6 million at January 25, 1997, including $13.4 million
of cash and cash equivalents. Such decrease in working capital is principally
due to the reclassification of the Company's outstanding debt under its senior
bank credit agreement from long-term to current liabilities as of October 25,
1997. See "Credit Agreement" below.
Looking forward, the Company's management is pursuing a number of
working capital management initiatives focused on seeking substantial inventory
reductions and improved liquidity. Such initiatives include (a) the return of
substantial amounts of excess and slow moving inventory to the Company's
suppliers, (b) the redistribution of excess and slow moving inventory from the
ISW division to the Company's distribution centers and Company-owned stores,
and (c) the sourcing of substantial amounts of ISW inventory from the Company's
distribution centers rather than from third party suppliers. The closure of
certain facilities will further reduce working capital requirements. See
"Business Initiatives", below. Such initiatives have resulted in inventory
reductions of approximately $18.0 million during the nine months ended October
25, 1997, primarily at the ISW division, and management currently expects
additional inventory reductions of approximately $10.0 million during the
remainder of Fiscal Year 1998. As a result of pursuing these initiatives,
management expects the Company's
12
<PAGE> 13
working capital to decrease during the remainder of Fiscal Year 1998 and future
periods, although no assurance can be given in this regard. Funds generated by
such reductions are expected to be used to reduce the Company's outstanding
indebtedness under its senior bank credit agreement.
Credit Agreement. Concurrently with the PI Acquisition, the Company
entered into an amended and restated senior bank credit agreement (the "Credit
Agreement") with a syndicate of bank lenders led by The Chase Manhattan Bank,
formerly known as Chemical Bank (the "Senior Lenders"). As of October 25, 1997,
the Company had aggregate borrowings under the Credit Agreement of $241.1
million, consisting of $200.3 million and $40.8 million in borrowings
outstanding under the revolving credit facility and term loan facility,
respectively, and approximately $4.1 million in outstanding letters of credit
under the Credit Agreement. Amounts outstanding under the revolving credit
facility mature on December 31, 2000, and installments of principal under the
term loan facility are required to be repaid on March 31, June 30, September 30
and December 31 of each year, with a final maturity on December 31, 1999.
Undrawn amounts under the revolving credit facility, net of the aggregate face
amount of letters of credit outstanding under the Credit Agreement, may be used
for working capital and other business needs, subject to compliance with a
borrowing base requirement and other customary borrowing conditions. Borrowing
availability under the Credit Agreement at October 25, 1997, after taking into
account borrowing base restrictions, outstanding letters of credit and the
waiver described in the following paragraph, was approximately $200,000,
however, the Company had cash on hand of approximately $23.1 million as of
October 25, 1997. Borrowings under the Credit Agreement bear interest at
variable rates based in part upon the Company attaining certain financial
ratios. Such rates are currently at the maximum levels provided for under the
interest rate pricing structure, as a result of the Company's current financial
ratios. The weighted average interest rate borne by the loans under the Credit
Agreement was 8.35% as of October 25, 1997. The obligations of A.P.S., Inc., APS
Holding Corporation's wholly owned subsidiary, under the Credit Agreement are
guaranteed by APS Holding Corporation and each of A.P.S., Inc.'s wholly owned
subsidiaries, and are secured by pledges of the capital stock of A.P.S., Inc.
and such subsidiaries, by security interests in substantially all of the
Company's personal property and by mortgages on certain of its owned real
property.
Effective as of October 24, 1997, the Company obtained a waiver of its
Consolidated Leverage Ratio, Fixed Charge Coverage Ratio and Minimum Net Worth
covenant requirements (the "Financial Covenants") under the Credit Agreement.
Such waiver will be effective until December 31, 1997. Pursuant to such waiver,
aggregate borrowings under the revolving credit facility of the Credit Agreement
were limited to $204.7 million until December 31, 1997. The Company has been
discussing with the Senior Lenders and other lenders a possible new financing
(the "Proposed Financing"). Effective as of December 8, 1997, the Senior Lenders
have agreed, during the period from December 31, 1997 to the earliest of (i)
February 10, 1998, (ii) the date on which a default or event of default under
the Credit Agreement (other than as a result of the Company's failure to comply
with the Financial Covenants at October 25, 1997 or January 31, 1998) occurs and
(iii) the effective date of the Proposed Financing, to allow the Company to
continue to borrow under the Credit Agreement (notwithstanding the expiration
after December 31, 1997 of the waiver of the Financial Covenants) and to
forebear from exercising any of their rights or remedies against the Company
under the Credit Agreement and related documents as a result of the Company's
failure to comply with the Financial Covenants at October 25, 1997 or January
31, 1998. The $204.7 million borrowing limit under the revolving credit
facility will continue to be in effect during this period. The Senior Lenders
have expressly reserved their right to exercise any rights or remedies they may
have against any other person or entity under any other document or instrument.
If the Company does not obtain the Proposed Financing or otherwise obtain an
amendment to the Credit Agreement to cure its failure to comply with the
Financial Covenants prior to February 10, 1998, at any time thereafter the
Senior Lenders could accelerate the maturity of the outstanding loans under the
Credit Agreement. Accordingly, the entire amount outstanding under the Credit
Agreement has been classified as a current liability at October 25, 1997.
Interest Rate Swap Agreements. The Company entered into an interest
rate swap agreement to hedge interest costs and risks associated with variable
interest rates. Such agreement, which covers a portion of the borrowings under
the Credit Agreement, effectively converts variable-rate debt to fixed-rate
debt with an effective per annum interest rate of approximately 5.8%. The
notional principal amount of this agreement is $25 million, which matures in
January 1998. The counterparty to such agreement is a major financial
institution and, therefore, credit losses from counterparty nonperformance are
not anticipated.
Capital Expenditures and Acquisitions. Capital expenditures, excluding
new business acquisitions, for the nine months ended October 25, 1997 and 1996
were approximately $7.2 and $7.7 million, respectively. The Company estimates
capital expenditures for the remainder of the Fiscal Year 1998 will be
approximately $2.8 million, primarily as a result of management information
system enhancements. In addition, the Company is
13
<PAGE> 14
preparing a plan of action to modify its internally developed software over the
next two years to accommodate the "Year 2000" dating changes necessary to permit
correct recording of year dates for 2000 and later years. The Company currently
expects to incur approximately $7.0 million of costs to develop and implement
such plan, which costs will be expensed as incurred. The actual amount of such
costs could vary materially from such estimate. The Company expects that such
costs will be financed through cash flows from operations and additional
borrowings. See "Sources of Liquidity" below. If the Company or any of its
significant suppliers or customers does not successfully and timely complete
such changes, the Company's business could be materially affected.
For the nine months ended October 25, 1997, the Company's cash
expenditures for business acquisitions totaled approximately $2.2 million. The
Company expects to continue to make occasional strategic acquisitions from time
to time (although it does not currently intend to make any significant
acquisitions) for cash and other consideration to the extent that its debt
service requirements, financing agreement covenants, financial performance and
funding availability permit. To meet the cash funding requirements for any such
business acquisition efforts, the Company expects to draw on internally
generated funds, borrowings under the Credit Agreement and other sources of
liquidity, to the extent available, as discussed below. See "Business
Initiatives", below.
Sources of Liquidity. Over the last four fiscal years, the Company
pursued aggressive acquisition and ISW expansion programs, resulting in
increased funding requirements. The principal sources of liquidity for the
Company's operating requirements and business expansion have been internally
generated funds from the operation of its traditional businesses, borrowings
under the Credit Agreement and the proceeds from the 1996 issuance of the
Company's 11.875% senior subordinated notes due 2006. The Company expects that
the principal sources of liquidity for its future operating requirements will be
cash flows from operations, ongoing working capital management initiatives (see
"Working Capital", above), revolving credit borrowings under the Credit
Agreement and the Proposed Financing. The Company will be required to obtain the
Proposed Financing in order to continue to fully meet its ongoing liquidity
needs. There can be no assurance, however, that the Company will obtain the
Proposed Financing. In addition, the Company currently does not expect to
generate cash flow sufficient to fund the repayment of borrowings due under the
revolving credit facility of the Credit Agreement upon its maturity on December
31, 2000 and, accordingly, expects that it will seek to refinance such amounts
prior to such maturity. No assurance can be given that such refinancing can be
successfully accomplished.
BUSINESS INITIATIVES
As indicated above, the Company has pursued aggressive acquisition and
ISW expansion programs over the last four years, since its initial public
offering in 1993. Such programs and, particularly with regard to Fiscal Year
1997, integrating PI into the Company's business have consumed significant
financial and operating resources and demanded extensive managerial focus and
attention. The Company has re-focused its efforts and resources from such
aggressive growth programs to improving both the execution of its business
strategy and its management information systems. In conjunction with such
efforts, the Company has commenced implementation of a comprehensive
restructuring program focused on the goals of reducing costs, improving cash
flow and achieving profitability. Such program includes the consolidation of its
ISW and Company-owned store operations, other operational changes in the ISW
business, the closure of approximately 100 Company-owned stores and ISW units,
implementation of Company-wide cost control and cost reduction programs
(including field and corporate level staff reductions) and implementation of new
management information systems pursuant to a multi-year plan developed with
outside consultants. During the quarter ended July 25, 1997, the Company
recognized a charge of approximately $8.7 million for restructuring costs
associated with such program. Additionally, charges for inventory write-offs and
incremental bad debt expense of $1.3 million and $1.8 million, respectively,
were recorded during such quarter to cost of goods sold and selling, general
and administrative expenses, respectively, in connection with facility closures
designated in such program.
ISW and Company-owned Stores
To date, operating margins for the ISW division have been below those
of the Company's traditional businesses and, thus far, the ISW division has
generally experienced operating losses. The Company's management currently
believes that the earnings and cash flow pressures historically experienced due
to the ISW business should decrease in future periods due primarily to the
restructuring program discussed above and other initiatives undertaken in prior
periods. During Fiscal Year 1998, the Company has shifted its focus from
aggressive growth of the ISW business to refining and improving both the
execution of this division's business strategy and its systems. To that end,
the Company has significantly reconfigured its ISW business as part of the
comprehensive restructuring program discussed above. During the quarter ended
October 25, 1997, the Company consolidated the operations,
14
<PAGE> 15
management and sales forces of the ISW and Company-owned store divisions. The
Company has also begun to broaden the product offerings at the ISW units and to
supply such units from the Company's distribution centers as it has
traditionally done for its Company-owned stores. Such consolidation of the
Company-owned store and ISW operations and other operational changes in the ISW
business are expected to reduce both inventory and selling, general and
administrative expenses. Further, management has implemented certain inventory
reduction initiatives that are expected to reduce the Company's inventory
approximately $10.0 million during the remainder of Fiscal Year 1998, primarily
at the ISW business. See "Liquidity and Capital Resources - Working Capital",
above.
In addition, the Company conducted a comprehensive review of its ISW
units, resulting in the planned closure of 50 under-performing units in Fiscal
Year 1998, all of which were closed as of October 25, 1997. In addition, 4 ISW
locations were sold during the quarter ended October 25, 1997. Such closures are
in addition to the 15 under-performing units closed in the quarter ended April
25, 1997 in connection with a performance review performed in Fiscal Year 1997.
As a result of such closures and sales, offset by the opening of 11 new ISWs,
the total number of ISW locations decreased from 272 to 214 during the nine
months ended October 25, 1997. The Company has also closed 29 Company-owned
stores during the nine months ended October 25, 1997 and currently intends to
close approximately six additional such stores during the remainder of Fiscal
Year 1998 in connection with performance reviews conducted in Fiscal Year 1997
and Fiscal Year 1998. Such closures of under-performing Company-owned stores and
ISW units are expected to allow management to focus its efforts and resources on
the Company's more productive units.
The Company's initiatives to improve its business systems and controls
include the development of a Centralized Management System (CMS) for the ISW
business, as well as for the Company's traditional businesses, with a particular
focus on inventory and expense controls and working capital management. The
Company began implementation of such system during the third quarter of Fiscal
Year 1998 and expects complete implementation in phases through the fourth
quarter of Fiscal Year 1999. In addition, the Company implemented a new Oracle
based accounts receivable system early in the fourth quarter of Fiscal Year 1998
for the ISW business. Such system will facilitate collection of accounts
receivable and improve working capital management in the ISW business. The
Company expects that such system will be installed for the Company's traditional
businesses during Fiscal Years 1999 and 2000.
Other Business Initiatives
As part of the restructuring program discussed above, the Company has
implemented company-wide cost controls and has taken steps to significantly
reduce selling, general and administrative expenses through field and corporate
level staff reductions. In April 1997, the Company commenced the consolidation
of its Columbus, Ohio distribution center into its Gallipolis, Ohio
distribution center. Such consolidation is expected to eliminate certain
redundant operations and improve operating efficiency. In addition, the
Company's efforts to improve its operating systems, including the completion of
the implementation of the new Oracle based accounts receivable and the CMS
systems, as discussed above, are expected to improve inventory and expense
control and working capital management at the Company's traditional businesses
as well as the ISW business.
SEASONALITY; INFLATION
Historically, the Company's net sales have been higher during April
through September of each year than during the other months of the year. In
addition, the demand for automotive products is somewhat affected by weather
conditions and, consequently, the Company's results of operations from period
to period may be affected by such conditions. Temperature extremes tend to
enhance sales by causing a higher incidence of parts failure and increasing
sales of seasonal products, while milder weather tends to depress sales. The
Company's management does not believe that its operations have been materially
affected by inflation. In general, the Company has been able to pass on to its
customers any increases in the cost of its inventory.
15
<PAGE> 16
NEW ACCOUNTING STANDARDS
The FASB issued Statement of Financial Accounting Standards No. 128,
entitled "Earnings per Share" ("SFAS No. 128"), in February 1997. SFAS No. 128
requires standards to replace the presentation of primary earnings per share
("EPS") with a presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures. The Company is required to adopt the computation,
presentation and disclosure requirements of SFAS No. 128 for the fiscal year
ending January 31, 1998. The Company's basic loss per share and diluted loss
per share under SFAS No. 128 would have each been $ .38 for the three months
and $1.15 for the nine months ended October 25, 1997.
The Company is currently reviewing SFAS No. 130, entitled "Reporting
Comprehensive Income" and SFAS No. 131, entitled "Disclosures About Segments of
an Enterprise and Related Information", but has not yet determined when it will
adopt the provisions of these statements. SFAS No. 130 establishes standards
for reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS No. 131 requires that disclosure be
made with respect to and establishes standards for the manner in which public
business enterprises report selected information about operating segments in
interim financial reports issued to shareholders.
FORWARD LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-Q
("Quarterly Report") that are not historical facts are forward-looking
statements that involve a number of risks and uncertainties. These
forward-looking statements include, without limitation, the statements as to
management's or the Company's expectations or beliefs found under the captions
"Results of Operations," "Liquidity and Capital Resources" and "Business
Initiatives" in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The actual results of the future events
described in such forward-looking statements in this Quarterly Report could
differ materially from those contemplated by such forward-looking statements.
Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management. The
following important factors, and those important factors described elsewhere in
this Quarterly Report (including, without limitation, those discussed under the
captions "Liquidity and Capital Resources--Sources of Liquidity" and "Business
Initiatives" in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations") or in other Securities and Exchange
Commission filings of the Company, could affect (and in some cases have
affected) the Company's actual results and could cause such results to differ
materially from estimates or expectations reflected in such forward-looking
statements made by, or on behalf of, the Company.
- - The Company is highly leveraged, with substantial existing indebtedness,
and consequently is subject to significant principal and interest payment
obligations. If the Company obtains the Proposed Financing, the Company
will become further leveraged. The Company's ability to make scheduled
payments of principal or interest on, or to refinance, its indebtedness
will depend on its future operating performance and cash flow, which are
subject to prevailing economic conditions, prevailing interest rate levels,
and financial, competitive, business and other factors beyond its control.
The degree to which the Company is leveraged could have important
consequences, including (i) the Company's future ability to obtain
additional financing for working capital or other purposes may be limited;
(ii) a substantial portion of the Company's cash flow from operations will
be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing funds available for operation; (iii) certain of the
Company's borrowings are at variable rates of interest, which could cause
the Company to be vulnerable to increases in interest rates; and (iv) the
Company may be more vulnerable to economic downturns and may be limited in
its ability to respond to competitive pressures.
- - If the Company cannot generate sufficient cash flow from operations to
meet its regularly scheduled debt service obligations, the Company might
be required to refinance its debt or to dispose of assets to obtain funds
for such purpose. There is no assurance that such refinancings or asset
dispositions could be effected on satisfactory terms or would be permitted
by the terms of the agreements or instruments covering the Company's
indebtedness.
16
<PAGE> 17
- - The Credit Agreement and the indenture governing the Company's 11.875%
senior subordinated notes due 2006 (the "Indenture") contain numerous
operating covenants that limit the discretion of the Company's management
with respect to certain business matters. These covenants place significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to make
certain dividends and other payments, to make certain investments, loans
and guarantees, or to sell or otherwise dispose of assets or merge or
consolidate with another entity. The Credit Agreement also contains the
Financial Covenants which require the Company to meet certain financial
ratios and tests, including maintenance of net worth, a consolidated fixed
charge to interest expense ratio and a consolidated leverage ratio. The
Company has obtained certain waivers and amendments of and agreement to
forebear, until February 10, 1998 or the occurence of certain events,
with respect to the Financial Covenants in part as a result of its recent
financial performance. There can be no assurance that, the Senior Lenders
will agree to permanent amendment of the Financial Covenants.
- - Failure to comply with the Company's payment, covenant or other
obligations under the Credit Agreement or the Indenture could result in a
default thereunder that, if not cured or waived, could result in
acceleration of the relevant indebtedness or of other indebtedness
governed by agreements or instruments containing cross-acceleration or
cross-default provisions.
- - The Company operates in a highly competitive environment. It competes
directly and indirectly with numerous distributors, retailers and
manufacturers of automotive aftermarket products, some of which distribute
in channels that may be expanding in terms of market share relative to the
channels in which the Company distributes its products. In addition, some
of the Company's current and potential competitors are larger, may have
greater financial resources and may be less leveraged than the Company.
Furthermore, particularly in light of the trend in the automotive parts
industry toward increasing consolidation at the warehouse and jobber
levels, the Company's financial performance may be significantly affected
by the Company's ability to compete successfully for associated jobber
customers, and otherwise take advantage of consolidation opportunities and
other industry trends.
- - The demand for automotive products is affected by a number of factors
beyond the Company's control, including economic conditions, vehicle
quality and maintenance, vehicle scrappage rates and weather conditions.
Weather conditions cause seasonal variations in the Company's results of
operations, and the occurrence of extreme weather or mild weather may
result in significant fluctuations in such results. Temperature extremes
tend to enhance sales by causing a higher incidence of parts failure and
increasing sales of seasonal products, while milder weather tends to
depress sales. In addition, in recent years there have been, and in the
future there are likely to continue to be, significant improvements in the
quality of new vehicles and vehicle parts and extensions of manufacturers'
warranties that may reduce demand for the Company's products.
While the Company periodically reassesses the material trends and uncertainties
affecting its operations and financial condition in connection with its
preparation of management's discussion and analysis of results of operations
and financial condition contained in its quarterly and annual reports, the
Company does not intend to review or revise any particular forward-looking
statement referenced in this report in light of future events.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
A. EXHIBITS
LOCATION OF EXHIBIT
EXHIBIT IN SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT NUMBERING SYSTEM
- ----- ----------------------- ----------------
<C> <C> <C>
10.1.25 Fifth Amendment and waiver, dated as of October 24, 1997,
to the Amended and Restated Credit Agreement dated as of
January 25, 1996 (the "Credit Agreement"), among A.P.S.,
Inc., the several banks and other financial institutions
from time to time parties thereto and The Chase Manhattan
Bank, as agent.
10.1.26 Sixth Amendment, Waiver and Agreement, dated as of December
8, 1997, to the Credit Agreement.
10.1.27 Security Agreement, dated as of December 8, 1997, made by
APS Holding Corporation in favor of The Chase Manhattan
Bank, as agent.
10.1.28 Pledge Agreement, dated as of December 8, 1997, made by
American Parts Systems, Inc. in favor of The Chase
Manhattan Bank, as agent.
10.1.29 Supplement, dated as of December 8, 1997, to the Trademark
Security Agreement, dated as of May 15, 1996, made by
A.P.S. Management Services, inc. in favor of The Chase
Manhattan Bank, as agent.
11.1 Statement re Computation of Income (Loss) Per Share
12.0 Statement re Computation of Earnings (Loss) to Fixed Charges
27 Financial Data Schedule
</TABLE>
B. REPORTS ON FORM 8-K
None
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APS HOLDING CORPORATION
Date: December 9, 1997 By: /S/ Hubbard C. Howe
---------------------------------------
Hubbard C. Howe, Chairman of the Board
and Chief Executive Officer
Date: December 9, 1997 By: /S/ John L. Hendrix
---------------------------------------
John L. Hendrix, Senior Vice President
and Chief Financial Officer
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.1.25 Fifth Amendment and waiver, dated as of October 24, 1997,
to the Amended and Restated Credit Agreement dated as of
January 25, 1996 (the "Credit Agreement"), among A.P.S.,
Inc., the several banks and other financial institutions
from time to time parties thereto and The Chase Manhattan
Bank, as agent.
10.1.26 Sixth Amendment, Waiver and Agreement, dated as of December
8, 1997, to the Credit Agreement.
10.1.27 Security Agreement, dated as of December 8, 1997, made by
APS Holding Corporation in favor of The Chase Manhattan
Bank, as agent.
10.1.28 Pledge Agreement, dated as of December 8, 1997, made by
American Parts Systems, Inc. in favor of The Chase
Manhattan Bank, as agent.
10.1.29 Supplement, dated as of December 8, 1997, to the Trademark
Security Agreement, dated as of May 15, 1996, made by
A.P.S. Management Services, inc. in favor of The Chase
Manhattan Bank, as agent.
11.1 Statement re Computation of Income (Loss) Per Share
12.0 Statement re Computation of Earnings (Loss) to Fixed Charges
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1.25
EXECUTION COPY
FIFTH AMENDMENT AND WAIVER, dated as of October 24, 1997 (this
"Amendment and Waiver"), to the Amended and Restated Credit Agreement dated as
of January 25, 1996 (as amended pursuant to the First Amendment thereto, dated
as of April 23, 1996, the Second Amendment, dated as of August 28, 1996, the
Third Amendment, dated as of January 25, 1997, and the Fourth Amendment, dated
as of July 15, 1997, and as further amended, supplemented, waived or otherwise
modified from time to time, (the "Credit Agreement") among A.P.S., INC., a
Delaware corporation (the "Borrower"), the several banks and other financial
institutions from time to time parties thereto (collectively, the "Lenders";
individually a "Lender") and THE CHASE MANHATTAN BANK (formerly known as
Chemical Bank), a New York banking corporation, as agent for the Lenders (in
such capacity, the "Agent").
W I T N E S S E T H :
---------------------
WHEREAS, the Borrower, the Lenders and the Agent are parties to the
Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders amend and waive
certain provisions of the Credit Agreement in the manner provided for herein;
and
WHEREAS, the Agent and the Lenders are willing to agree to the
requested amendment and waiver, but only upon the terms and conditions set
forth herein;
NOW THEREFORE, in consideration of the premises contained herein, the
parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
defined in the Credit Agreement and used herein are so used as so defined.
2. Waiver of Event of Default Under Subsection 8.1 of the Credit
Agreement. The Lenders hereby waive, until December 31, 1997 (the "Waiver
Period"), any Default or Event of Default arising out of the failure of the
Borrower to comply with the requirements of subsection 8.1 of the Credit
Agreement at the last day of the fiscal quarter ending October 25, 1997,
provided that the waiver in this Section shall cease to be effective if EBITDA
of Holding and its consolidated Subsidiaries for the third fiscal quarter
ending October 25, 1997, shall be less than $2,500,000.
<PAGE> 2
2
3. Additional Limitation on Borrowings. (a) The Borrower hereby
agrees that, notwithstanding anything to the contrary in the Credit Agreement,
the Borrower shall not have the right to, and shall not, request a borrowing of
Revolving Credit Loans or Swing Line Loans, or the issuance of a Letter of
Credit if, after giving effect to such borrowing or issuance, the Aggregate
Outstanding Revolving Credit of all the Revolving Credit Lenders would exceed
$204,750,000 at any time prior to December 31, 1997.
(b) Notwithstanding anything to the contrary in subsection 2.1(b), 2.6
or 4.2 of the Credit Agreement, during the Waiver Period, (i) all outstanding
Eurodollar Loans shall automatically be converted to ABR Loans at the end of the
current Interest Periods with respect thereto, (ii) no outstanding ABR Loans may
be converted to Eurodollar Loans at any time and (iii) all Loans made under the
Credit Agreement after the date hereof shall be made as ABR Loans.
(c) The Borrower hereby agrees that prior to November 30, 1997, it will
hold a meeting at which representatives of the Borrower and of Alvarez & Marsal
will provide a financial and strategic update to the Lenders.
4. Cash Flow Forecasts. During the Waiver Period, the Borrower shall
deliver to the Agent and each Lender on the Wednesday of every calender week,
commencing with the first Wednesday to occur after the date hereof, a forecast
of the cash flows, cash balances and line availability of the Borrower and its
Restricted Subsidiaries for the period of four consecutive calender weeks
beginning in the week in which the applicable Wednesday occurs together with a
comparison of the actual cash flows, cash balances and line availability of the
Borrower and its Subsidiaries for the immediately preceding week to the most
recently forecasted cash flows of the Borrower and its Subsidiaries for the week
in which such Wednesday occurs.
5. Amendment to Subsection 7.2(c). Subsection 7.2 of the Credit
Agreement is hereby amended by deleting paragraph (c) of such subsection in its
entirety and substituting in lieu thereof the following new paragraph:
"(c) on or prior to the fifteenth Business Day following the
tenth and twenty-fifth days of each calender month, a certificate in the
form of Exhibit K-1 hereto (a "Borrowing Base Certificate"), certified
by a Responsible Officer of the Borrower as true and correct, setting
forth the amount of Eligible Accounts Receivable, Eligible Inventory,
Eligible DC, Store and ISW Accounts Receivable, Eligible Special Terms
Accounts Receivable, Eligible DC Inventory and Eligible Slow Moving,
Store and ISW Inventory, in each case as of such tenth or twenty-fifth
day of such calender month, as applicable, including an aging schedule
of Eligible Accounts Receivable, provided that the
<PAGE> 3
3
determination required by clause (c) of the definition of Eligible
Accounts Receivable shall be made at the end of each fiscal quarter as
of the end of such fiscal quarter and at such other times (not more
frequently than once during each fiscal month) as the Agent may
reasonably request based upon a material increase in the
Accounts deemed ineligible pursuant to clause (b) of the definition of
Eligible Accounts Receivable. In addition, the Borrower shall furnish to
the Agent the information set forth in Exhibit K-2 hereto, with any
deviations therefrom to be approved by the Agent, which approval shall
not be unreasonably withheld;".
6. Amendment to Annex A. Annex A to the Credit Agreement is hereby
amended by deleting the amount "1.25%" from the first row of the column
entitled "Applicable Margin for ABR Loans" and inserting in lieu thereof the
amount "1.50%".
7. Representations and Warranties. On and as of the date hereof and
after giving effect to this Amendment and Waiver, the Borrower hereby confirms,
reaffirms and restates in all material respects the representations and
warranties set forth in Section 5 of the Credit Agreement mutatis mutandis,
except to the extent that such representations and warranties expressly relate
to a specific earlier date in which case the Borrower hereby confirms, reaffirms
and restates in all material respects such representations and warranties as of
such earlier date, provided that the references to the Credit Agreement in such
representations and warranties shall be deemed to refer to the Credit Agreement
as amended prior to the date hereof.
8. Effectiveness. This Amendment and Waiver shall become effective as
of the date hereof upon satisfaction of the following conditions:
(a) receipt by the Agent of counterparts of this Amendment and Waiver
duly executed and delivered by the Borrower and the Required Lenders; and
(b) the payment by the Borrower of all amounts owing under the Credit
Agreement the payment of which has been requested on or prior to the date
hereof, including amounts owing in respect of interest, fees and expenses.
9. Continuing Effect; No Other Amendments or Waivers. Except as
expressly waived hereby; all the terms and provisions of the Credit Agreement
are and shall remain in full force and effect. The amendment and waiver
provided for herein is limited to the specific subsection of the Credit
Agreement specified herein and shall not constitute an amendment or a waiver
of, or an indication of the Agent's or the Lenders' willingness to waive, any
other provisions of the Credit Agreement or the same subsection for any other
date or time period (whether or not such other provisions or compliance with
such subsection for another
<PAGE> 4
4
date or time period are affected by the circumstances addressed in this
Amendment and Waiver).
10. Expenses. The Borrower agrees to pay and reimburse the Agent for
all its reasonable costs and out-of-pocket expenses incurred in connection with
the preparation and delivery of this Amendment and Waiver, including, without
limitation, the reasonable fees and disbursements of counsel to the Agent.
11. Counterparts. This Amendment and Waiver may be executed by one or
more of the parties to this Amendment and Waiver on any number of separate
counterparts (including by telecopy), and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. A set of
the copies of this Amendment and Waiver signed by all the parties shall be
delivered to the Borrower and the Agent.
12. GOVERNING LAW. THIS AMENDMENT AND WAIVER AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT AND WAIVER SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be executed and delivered by their respective duly authorized
officers as of the date first above written.
A.P.S., INC.
By: /s/ E. EUGENE LAUVER
------------------------------------
Title: Senior Vice President
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), as
Agent and as a Lender
By: /s/ WILLIAM J. CAGGIANO
------------------------------------
Title: Managing Director
AMSOUTH BANK OF ALABAMA
By: /s/ SCOTT CORRIGAN
------------------------------------
Title: Vice President
BANK OF AMERICA NT&SA, as Successor to
BANK OF AMERICA ILLINOIS
By: /s/ M. DUNCAN McDUFFIE
------------------------------------
Title: Vice President
<PAGE> 5
5
THE BANK OF NEW YORK
By: /s/ J. V. YANCEY
------------------------------------
Title: Vice President
BANK ONE, COLUMBUS, N.A.
By: /s/ DOUGLAS H. KLAMFOTH
------------------------------------
Title: Vice President
BANQUE PARIBAS
By: /s/ ALBERT A. YOUNG JR.
------------------------------------
Title: Vice President
By: /s/ SEAN REDDINGTON
------------------------------------
Title: Vice President
FIRST AMERICAN NATIONAL BANK
By:
------------------------------------
Title:
FIRST INTERSTATE BANK OF TEXAS
By:
------------------------------------
Title:
FIRST BANK OF MASSACHUSETTS, N.A.
By:
------------------------------------
Title:
THE FUJI BANK, LIMITED, HOUSTON AGENCY
By:
------------------------------------
Title:
<PAGE> 6
6
THE MITSUBISHI TRUST AND BANKING
CORPORATION (U.S.A.)
By: /s/ GARY T. MACIAK
------------------------------------
Title: First Vice President
NATIONAL BANK OF CANADA
By: /s/ LARRY L. SEARS
------------------------------------
Title: Group Vice President
By: /s/ RANDALL K. WILHOIT
------------------------------------
Title: Vice President
NATIONSBANK OF TEXAS, NATIONAL
ASSOCIATION
By: /s/ WILLIAM LIVINGSTONE IV
------------------------------------
Title: Senior Vice President
NBD BANK
By: /s/ LARRY E. COOPER
------------------------------------
Title: First Vice President
SOCIETE GENERALE
By: /s/ RICHARD A. GOULD
------------------------------------
Title: Vice President
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By: /s/ ROGER FRUENDT
------------------------------------
Title: Vice President
<PAGE> 7
Each of the undersigned hereby consents to the foregoing Amendment and
Waiver and hereby confirms, reaffirms and restates that its obligations under or
in respect of the Credit Agreement and the documents related thereto to which it
is a party are and shall remain in full force and effect after giving effect to
the foregoing Amendment and Waiver.
APS HOLDING CORPORATION
By: /s/ E. EUGENE LAUVER
------------------------------------
Title: Senior Vice President
BIG A AUTO PARTS, INC.
By: /s/ E. EUGENE LAUVER
------------------------------------
Title: Senior Vice President
AUTOPARTS FINANCE COMPANY, INC.
By: /s/ E. EUGENE LAUVER
------------------------------------
Title: Senior Vice President
APS, SUPPLY, INC.
By: /s/ E. EUGENE LAUVER
------------------------------------
Title: Senior Vice President
AMERICAN PARTS SYSTEM, INC.
By: /s/ E. EUGENE LAUVER
------------------------------------
Title: Senior Vice President
A.P.S., MANAGEMENT SERVICES, INC.
By: /s/ E. EUGENE LAUVER
------------------------------------
Title: Senior Vice President
<PAGE> 8
PARTS, INC.
By: /s/ E. EUGENE LAUVER
------------------------------------
Title: Senior Vice President
PRESATT, INC.
By: /s/ E. EUGENE LAUVER
------------------------------------
Title: Senior Vice President
INSTALLERS' SERVICE WAREHOUSE, INC.
By: /s/ E. EUGENE LAUVER
------------------------------------
Title: Senior Vice President
<PAGE> 1
EXHIBIT 10.1.26
CONFORMED COPY
SIXTH AMENDMENT, WAIVER AND AGREEMENT, dated as of December 8,
1997 (this "Waiver and Amendment") to the Amended and Restated Credit Agreement
dated as of January 25, 1996 (as amended pursuant to the First Amendment, dated
as of April 23, 1996, the Second Amendment, dated as of August 28, 1996, the
Third Amendment, dated as of January 25, 1997, the Fourth Amendment, dated as
of July 15, 1997, and the Fifth Amendment and Waiver, dated as of October 24,
1997 (the "Fifth Amendment and Waiver"), and as further amended, supplemented,
waived or otherwise modified from time to time, the "Credit Agreement"), among
A.P.S., INC., a Delaware corporation (the "Borrower"), the several banks and
other financial institutions from time to time parties thereto (collectively,
the "Lenders"; individually a "Lender") and THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), a New York banking corporation, as agent for the
Lenders (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Lenders and the Agent are parties
to the Credit Agreement;
WHEREAS, pursuant to the Fifth Amendment and Waiver the
Lenders waived, until December 31, 1997 (the "Existing Waiver Expiration
Date"), any Default or Event of Default arising out of the failure of the
Borrower to comply with the requirements of subsection 8.1 of the Credit
Agreement at the last day of the fiscal quarter ending October 25, 1997 (the
"Existing Defaults");
WHEREAS, the Borrower has advised the Agent and the Lenders
that the Borrower is pursuing a financing transaction pursuant to which the
Borrower would propose that the Agent and the Lenders agree to amend the Credit
Agreement to, among other things, permit the incurrence of additional
Indebtedness under a new tranche of the Credit Agreement and adjust the
requirements of subsection 8.1 of the Credit Agreement in order to cure the
Existing Defaults;
WHEREAS, the Borrower acknowledges that, if the Credit
Agreement is not amended as set forth above on or before the Existing Waiver
Expiration Date on terms that are acceptable to the Required Lenders (or all of
the Lenders to the extent required under subsection 11.1 of the Credit
Agreement) (the "Proposed Credit Agreement Amendment"), the Existing Defaults
would be reinstated (i.e., Events of Default would then exist) and the Agent
and Lenders would be entitled to exercise all of their rights and remedies
under the Loan Documents and applicable law with respect to the Existing
Defaults;
<PAGE> 2
2
WHEREAS, the Borrower has requested that, even if the Existing
Waiver Expiration Date occurs prior to the consummation of the Proposed Credit
Agreement Amendment, the Lenders agree (a) to permit the Borrower to continue
to borrow under the Credit Agreement until February 10, 1998 by waiving the
failure of the Borrower to satisfy the conditions precedent to borrowing under
subsection 6.2 of the Credit Agreement (as a result of (i) the reinstatement
and continuance of the Existing Defaults or (ii) any Default or Event of
Default arising out of the failure of the Borrower to comply with the
requirements of subsection 8.1 of the Credit Agreement at the last day of the
fiscal quarter ending January 31, 1998 (together with the Existing Defaults,
the "Covenant Defaults") and (b) not to exercise their rights and remedies
under the Loan Documents and applicable law with respect to the Covenant
Defaults;
WHEREAS, in connection with the foregoing, the Borrower has
also requested that the Lenders agree to amend certain provisions of the Credit
Agreement; and
WHEREAS, the Agent and the Lenders are willing to agree to the
requested waiver, forbearance and amendments, but only upon the terms and
conditions set forth herein;
NOW THEREFORE, in consideration of the premises contained
herein, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms
which are defined in the Credit Agreement and used herein are so used as so
defined and the following term shall have the following meaning:
"Sixth Amendment Period": the period commencing on the
Existing Waiver Expiration Date and ending on the earliest to occur of
(a) February 10, 1998, (b) the date of the occurrence of any Default
or Event of Default (other than the Covenant Defaults) or (c) the
effective date of the Proposed Credit Agreement Amendment.
2. Waiver. The Agent and the Lenders hereby agree to waive,
during the Sixth Amendment Period, the conditions precedent to borrowing
contained in subsection 6.2 of the Credit Agreement, but only to the extent
that the Borrower is unable to satisfy the conditions set forth in said
subsection due to the reinstatement or occurrence and continuance of the
Covenant Defaults.
3. Agreement. The Agent and the Lenders hereby agree to
forbear, during the Sixth Amendment Period, from the exercise of any rights or
remedies under the Credit Agreement, the other Loan Documents and applicable
law in respect of the Covenant Defaults.
<PAGE> 3
3
4. Reservation of Rights. Notwithstanding anything contained
in this Waiver and Amendment, the Borrower acknowledges that the Agent and the
Lenders do not waive, and expressly reserve, the right to exercise, at any time
during the Sixth Amendment Period, any and all of their rights and remedies
under (a) the Credit Agreement, the other Loan Documents and applicable law in
respect of the Covenant Defaults against any Person other than the Borrower or
any other Loan Party and (b) any other document or instrument, including
without limitation, the right of the Agent to give a "Blockage Notice" as
defined in and in accordance with Article X of the Senior Subordinated Note
Indenture.
5. Additional Limitation on Borrowings. (a) Consistent
with the terms of the Fifth Amendment and Waiver, the Borrower hereby agrees
that, notwithstanding anything to the contrary in the Credit Agreement, the
Borrower shall not have the right to, and shall not, request a borrowing of
Revolving Credit Loans or Swing Line Loans, or the issuance of a Letter of
Credit if, after giving effect to such borrowing or issuance, the Aggregate
Outstanding Revolving Credit of all the Revolving Credit Lenders would exceed
$204,750,000 at any time during the Sixth Amendment Period.
(b) Consistent with the terms of the Fifth Amendment and
Waiver, notwithstanding anything to the contrary in subsection 2.1(b), 2.6 or
4.2 of the Credit Agreement, during the Sixth Amendment Period, (i) all
outstanding Eurodollar Loans shall automatically be converted to ABR Loans at
the end of the current Interest Periods with respect thereto, (ii) no
outstanding ABR Loans may be converted to Eurodollar Loans at any time and
(iii) all Loans made under the Credit Agreement shall be made as ABR Loans.
6. Cash Flow Forecasts. Consistent with the terms of
the Fifth Amendment and Waiver, during the Sixth Amendment Period, the Borrower
shall deliver to the Agent and each Lender on the Wednesday of every calendar
week, commencing with the first Wednesday to occur during the Sixth Amendment
Period, a forecast of the cash flows, cash balances and line availability of
the Borrower and its Restricted Subsidiaries for the period of four consecutive
calendar weeks beginning in the week in which the applicable Wednesday occurs
together with a comparison of the actual cash flows, cash balances and line
availability of the Borrower and its Restricted Subsidiaries for the
immediately preceding week to the most recently forecasted cash flows of the
Borrower and its Restricted Subsidiaries for the week in which such Wednesday
occurs.
7. Amendment to Subsection 1.1. Subsection 1.1 of the
Credit Agreement is hereby amended by (a) deleting the phrase "pursuant to
subsection 7.9(a)" from the definition of the term
<PAGE> 4
4
"Security Documents" and (b) inserting in said subsection in proper
alphabetical order the following definitions:
"'Sixth Amendment and Waiver": the Sixth Amendment,
Waiver and Agreement, dated as of December 8, 1997, to this
Agreement.
"Sixth Amendment Effective Date": as defined in the
Sixth Amendment and Waiver.
"Sixth Amendment Period": as defined in the Sixth
Amendment and Waiver.".
8. Amendment to Subsection 7.1. Subsection 7.1 of the
Credit Agreement is hereby amended by adding after the word "year" in the
twelfth line of paragraph (c) of said subsection, the phrase "(including
separate line items for trade payables and for other accounts payable for such
period)".
9. Amendment to Subsection 7.9. Subsection 7.9 of the
Credit Agreement is hereby amended by deleting paragraph (a) of said subsection
in its entirety and substituting therefor the following new paragraph (a):
"(a) Within five Business Days after the acquisition
by any Loan Party of an ownership interest in any material property
after the Sixth Amendment Effective Date (including, without
limitation, any real property or any leasehold interest therein, in
each case with a fair market value (as determined in good faith by the
Borrower) at the time of such acquisition greater than $500,000) that
is not subject to a Lien created pursuant to a Loan Document, the
Borrower shall, or shall cause such other Loan Party to, execute and
deliver to the Agent, for the benefit of the Lenders, appropriate
mortgages, pledge agreements and security agreements and the like
covering such property or leasehold interest, all in form and
substance reasonably satisfactory to the Agent. In connection with the
foregoing, the Borrower shall cause to be promptly and duly taken,
executed, acknowledged and delivered such further acts, documents and
assurances as may be necessary or as the Agent may reasonably request
in order to carry out the purpose of this subsection (including,
without limitation, the execution and delivery of UCC financing
statements, similar documents and title insurance policies). The
mortgages, pledge agreements and security agreements referred to above
shall be accompanied by a copy of such resolutions and such incumbency
certificates and legal opinions as are reasonably requested by the
Agent.
10. Amendment to Subsection 8.18. Subsection 8.18 of the
Credit Agreement is hereby amended by deleting paragraph (b) of said subsection
in its entirety and substituting therefor the following new paragraph (b):
<PAGE> 5
5
"(b) Form or create any Restricted Subsidiary or
designate any Jobber Subsidiary as a "Restricted Subsidiary" in
accordance with the definition of the term "Jobber Subsidiary", unless
(i) within five Business Days thereafter, (A) such newly formed,
created or designated Restricted Subsidiary becomes a Loan Party and
executes and delivers a guarantee in favor of the Agent, for the
benefit of the Lenders, substantially in the form of the Subsidiaries
Guarantee or otherwise becomes a party to the Subsidiaries Guarantee
pursuant to documentation reasonably satisfactory to the Agent, (B)
each Loan Party that is a stockholder of such newly formed, created or
designated Restricted Subsidiary pledges to the Agent, for the benefit
of the Lenders, 100% of the issued and outstanding stock of such
Restricted Subsidiary owned by such stockholder pursuant to a pledge
agreement substantially in the form of the Borrower Stock Pledge
Agreement or pursuant to documentation reasonably satisfactory to the
Agent and (C) such newly formed, created or designated Restricted
Subsidiary executes and delivers a security agreement in favor of the
Agent, for the benefit of the Lenders, substantially in the form of
the Subsidiaries Security Agreement or otherwise becomes a party to
the Subsidiaries Security Agreement pursuant to documentation
reasonably satisfactory to the Agent and (ii) within ten Business Days
thereafter, the Borrower causes to be promptly and duly taken,
executed, acknowledged and delivered all such further acts, documents
and assurances as may be necessary or as the Agent may reasonably
request in order to confirm the grant of the Lien on substantially all
of such newly formed, created or designated Restricted Subsidiary's
property in favor of the Agent, for the benefit of the Lenders,
pursuant to the documentation described in clause (C) above and
otherwise to carry out the purpose of this subsection (including,
without limitation, the execution and delivery of other security
documents, UCC financing statements, similar documents and title
insurance policies). The guarantees, pledge agreements, security
agreements and other documents referred to above shall be accompanied
by a copy of such resolutions and such incumbency certificates and
legal opinions as are reasonably requested by the Agent."
11. Amendment to Subsection 8.19 (a) Subsection 8.19 of
the Credit Agreement is hereby amended by deleting the phrase "(subject to the
Borrower's rights with respect to the General Fund Account pursuant to
subsection 3(f)(ii) of the Borrower Security Agreement)" contained in paragraph
(a) of said subsection.
(b) Subsection 8.19 of the Credit Agreement is hereby further
amended by (i) deleting the word "and" at the end of paragraph (a) of said
subsection, (ii) deleting the "." at the end of paragraph (b) of said
subsection and substituting therefor
<PAGE> 6
6
"; and", and (iii) adding the following new paragraph (c) to the end of said
subsection:
"(c) Notwithstanding anything to the contrary in this
Agreement, in the last two sentences of subsection 3(f)(ii) of the
Borrower Security Agreement or in the last two sentences of subsection
3(e)(ii) of the Subsidiaries Security Agreement:
(i) All funds on deposit in the General Fund Account
shall be transferred to the Concentration Account on the Sixth
Amendment Effective Date;
(ii) On each Business Day, commencing with the
Business Day following the Sixth Amendment Effective Date, the
Agent shall cause the amounts on deposit in the Concentration
Account to be applied in the following manner:
(A) first, an amount, not exceeding the
estimated daily disbursement needs of the Loan Parties (after
giving effect to amounts, if any, already on deposit in the
General Fund Account) in the conduct of their businesses in
the ordinary course, requested by the Borrower in a written
notice to the Agent delivered prior to 2:00 p.m., New York
City time, on such Business Day, shall be transferred from the
Concentration Account to the General Fund Account;
(B) second, any remaining amounts in excess
of $5,000,000 shall be applied to the prepayment of the Swing
Line Loans, Revolving Credit Loans and Reimbursement
Obligations in the manner specified in clause (ii) of the
fourth sentence of subsection 4.4(a) by transfer to the
Agent's loan clearing account designated by the Agent; and
(C) third, any remaining amounts shall be
held in the Concentration Account until such amounts are
applied or held as set forth in this subsection 8.19(c) on the
next Business Day;
(iii) The Borrower shall notify the Agent prior to
2:00 p.m., New York City time, of the amount to be transferred
to the Agent's loan clearing account in order for the Borrower
to comply with clause (ii)(B) of this subsection 8.19(c); and
(iv) Funds deposited in the General Fund Account may
not be directly withdrawn by the Borrower and may only be (A)
transferred to another disbursement account of the Borrower,
(B) transferred by wire transfer or (C) used to honor checks
and other drafts presented against the General Fund Account,
in each such case to
<PAGE> 7
7
pay obligations of the Loan Parties payable in the conduct of
their businesses in the ordinary course;
provided that nothing in this subsection 8.19(c), in subsection
3(f)(ii) of the Borrower Security Agreement or subsection 3(e)(ii) of
the Subsidiaries Security Agreement shall be deemed to limit or
otherwise impair the Agent's rights and remedies (including, without
limitation, rights of set-off and the rights of the Agent with respect
to the Concentration Account and the funds on deposit therein as
provided in the Borrower Security Agreement and the Subsidiaries
Security Agreement) upon the occurrence and during the continuance of
an Event of Default (other than the Covenant Defaults (as defined in
the Sixth Amendment and Waiver) prior to the end of the Sixth
Amendment Period) under this Agreement, the Borrower Security
Agreement, the other Loan Documents or applicable law in respect of
deposits in the Concentration Account, the General Fund Account or any
other account.".
12. Amendment to Subsection 11.6. Subsection 11.6 of the
Credit Agreement is hereby amended by (a) deleting the phrase "of the assigning
Lender" at the end of the second sentence of paragraph (c) of said subsection
and (b) substituting therefor the phrase:
"and/or Revolving Credit Loans of the assigning Lender;
provided that during the period from the Sixth Amendment
Effective Date until the end of the Sixth Amendment Period, no
Lender shall assign any of its Loans or Commitments unless
such Lender simultaneously assigns to the same assignee a like
percentage of such Lender's Term Loan Commitments and/or Term
Loans and Revolving Credit Commitments and/or Revolving Credit
Loans".
13. Limitation on Investments. Notwithstanding anything
to the contrary in subsection 8.11 of the Credit Agreement, during the period
from the Sixth Amendment Effective Date until the end of the Sixth Amendment
Period, investments otherwise permitted pursuant to said subsection shall be
limited to an amount not to exceed $28,500,000.
14. Limitation on Asset Sales and Acquisitions. During the
period from the Sixth Amendment Effective Date until the end of the Sixth
Amendment Period, the Borrower may not, without the prior written consent of
the Required Lenders, consummate (a) any Disposition otherwise permitted
pursuant to subsection 8.6(g) of the Credit Agreement or (b) any acquisitions
otherwise permitted pursuant to subsection 8.12 of the Credit Agreement for
aggregate consideration (calculated in accordance with said subsection 8.12)
for all such acquisitions in excess of $1,000,000.
<PAGE> 8
8
15. Inventory Report and Real Estate Appraisals. Pursuant to
subsection 7.2(h) of the Credit Agreement, the Borrower shall furnish copies to
the Agent and the Lenders, within three Business Days of the receipt thereof by
the Borrower, of (a) the inventory report and analysis prepared by BGA
Consulting, a division of Buxbaum, Ginsburg & Associates, Inc. and (b) all
appraisals or other material analyses of any real property or leasehold
interests therein of the Borrower or any other Loan Party, in each case with a
fair market value (as determined in good faith by the Borrower) greater than
$500,000.
16. Engagement of Alvarez & Marsal, Inc.. During the Sixth
Amendment Period, the Borrower and/or its affiliates shall continue their
engagement of Alvarez & Marsal, Inc. as financial consultants and review from
time to time with the Agent and the Lenders the scope and terms of such
engagement.
17. Information/Further Assurances. Pursuant to subsection
7.2(h) of the Credit Agreement, the Borrower shall (i) provide to the Agent all
information reasonably requested by the Agent concerning (A) the identity and
location of the assets and property of the Borrower and its Restricted
Subsidiaries and (B) the granting and perfection of Liens in favor of the Agent
under, and in connection with the transactions contemplated by, the Loan
Documents and (ii) cause to be promptly and duly taken, executed, acknowledged
and delivered all such further acts, documents and assurances as may be
necessary or as the Agent may reasonably request in order to evidence the
grant, and to effect the perfection of, Liens on any property of the Borrower
or any of its Subsidiaries as contemplated by the Loan Documents.
18. Payment of Lender Costs and Expenses. The Borrower
hereby acknowledges that the reasonable costs and expenses of each Lender
incurred, or to be incurred, during the period covered by the Fifth Amendment
and Waiver and the Sixth Amendment Period, in connection with the Loan
Documents or such Lender's lending relationship with any Loan Party, are
payable or reimbursable by the Borrower pursuant to subsection 11.5(b) of the
Credit Agreement.
19. Representations and Warranties. (a) On and as of the
date hereof and after giving effect to this Waiver and Amendment, the Borrower
hereby confirms, reaffirms and restates in all material respects the
representations and warranties set forth in Section 5 of the Credit Agreement
mutatis mutandis, except to the extent that such representations and warranties
expressly relate to a specific earlier date in which case the Borrower hereby
confirms, reaffirms and restates in all material respects such representations
and warranties as of such earlier date, provided that the references to the
Credit Agreement in such representations and warranties shall be deemed to
refer to the Credit Agreement as amended prior to the date hereof.
<PAGE> 9
9
(b) The Borrower further represents, warrants and covenants
that (i) except for the property of the Borrower and its Restricted
Subsidiaries set forth by category on Schedule I hereto, the Borrower and its
Restricted Subsidiaries do not own or lease any material assets and property
(real or personal, tangible or intangible) that is not subject to a first
priority Lien in favor of the Agent, subject to Liens permitted under
subsection 8.3 of the Credit Agreement and (ii) upon the reasonable request of
the Agent or the Required Lenders, the Borrower shall provide, or cause to be
provided, reasonably detailed additional information to the Agent and the
Lenders regarding any property set forth on Schedule I.
(c) The Borrower further represents and warrants that the
Borrower and the other Loan Parties are truly and justly indebted to the Agent
and the Lenders pursuant to the Loan Documents, without defense, counterclaim
or offset of any kind.
20. Effectiveness. This Waiver and Amendment shall
constitute a Loan Document and shall become effective as of the date hereof
(the "Sixth Amendment Effective Date") upon satisfaction of the following
conditions:
(a) receipt by the Agent of counterparts of this Waiver and
Amendment duly executed and delivered by the Borrower and the Required
Lenders and consented to by the Guarantors;
(b) receipt by the Agent of the following documents, each in
form and substance satisfactory to the Agent: (i) a stock pledge
agreement made by American Parts System, Inc. providing for the pledge
of the capital stock of Installers' Service Warehouse Inc.,
substantially in the form of the Borrower Stock Pledge Agreement, (ii)
a supplement to the Trademark Security Agreement, dated as of May 15,
1996, made by A.P.S. Management Services, Inc. in favor of the Agent
in respect of a single trademark registration filed on December 23,
1996 and (iii) a Security Agreement made by APS Holding Corporation in
favor of the Agent, providing for Holding's grant of a first priority
Lien on substantially all of its personal property;
(c) the Agent's receipt of the information requested pursuant
to Section 17 hereof;
(d) receipt by each of Policano & Manzo, L.L.C. and Simpson
Thacher & Bartlett of a retainer in the amount as agreed between the
Agent and the Borrower; and
(b) the payment by the Borrower of all amounts owing under the
Credit Agreement, the payment of which has been requested on or prior
to the date hereof, including amounts owing in respect of interest,
fees and expenses.
<PAGE> 10
10
21. Compliance. The Borrower agrees that its failure to
perform timely its obligations set forth in Sections 5, 6 and 13 through 17
shall constitute an immediate Event of Default under paragraph (c) of Section 9
of the Credit Agreement.
22. Continuing Effect; No Other Amendments or Waivers.
Except as expressly amended or waived hereby, all the terms and provisions of
the Credit Agreement are and shall remain in full force and effect. The
amendments and waiver provided for herein are limited to the specific
subsections of the Credit Agreement specified herein and shall not constitute
an amendment or a waiver of, or an indication of the Agent's or the Lenders'
willingness to waive, any other provisions of the Credit Agreement or the same
subsection for any other date or time period (whether or not such other
provisions or compliance with such subsection for another date or time period
are affected by the circumstances addressed in this Waiver and Amendment). The
Agent and the Lenders reserve the right to exercise all of their rights and
remedies under the Credit Agreement, the other Loan Documents and applicable
law against the Borrower or any other Loan Party upon the expiration of the
Sixth Amendment Period in respect of the Events of Default arising by reason of
the Covenant Defaults or any other Events of Default which may occur.
23. Counterparts. This Waiver and Amendment may be executed
by one or more of the parties to this Waiver and Amendment on any number of
separate counterparts (including by telecopy), and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. This
Waiver and Amendment may be delivered by facsimile transmission of the relevant
signature pages hereof, and the failure to deliver an executed counterpart by
other means shall not affect the validity, enforceability or binding effect of
this Waiver. A set of the copies of this Waiver and Amendment signed by all
the parties shall be delivered to the Borrower and the Agent.
24. GOVERNING LAW. THIS WAIVER AND AMENDMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES UNDER THIS WAIVER AND AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.
<PAGE> 11
11
IN WITNESS WHEREOF, the parties hereto have caused this Waiver
and Amendment to be executed and delivered by their respective duly authorized
officers as of the date first above written.
A.P.S., INC.
By: /s/ E. Eugene Lauver
----------------------------------
Title: Senior Vice President
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), as
Agent and as a Lender
By: /s/ Peter Eckstein
--------------------------------
Title: Vice President
AMSOUTH BANK OF ALABAMA
By:
--------------------------------
Title:
BANKERS TRUST COMPANY
By: /s/ Ryan Zanin
--------------------------------
Title: Vice President
BANK OF AMERICA NT & SA
By: /s/ M. Duncan McDuffie
--------------------------------
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Jay Lifton
--------------------------------
Title: Vice President
BANK ONE, N.A.
By: /s/ Douglas H. Klamforth
--------------------------------
Title: Vice President
<PAGE> 12
12
FIRST AMERICAN NATIONAL BANK
By:
--------------------------------
Title:
NBD BANK
By: /s/ Dennis Saletta
--------------------------------
Title: First Vice President
FLEET NATIONAL BANK
By: /s/ M.F. O'Neil
-------------------------------
Title: Vice President
THE FUJI BANK, LIMITED, HOUSTON
AGENCY
<PAGE> 13
13
By: /s/ P.C. Lauinger, III
--------------------------------
Title: Vice President & Manager
GOLDMAN SACHS CREDIT PARTNERS L.P.
By:
--------------------------------
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ Gary T. Maciak
--------------------------------
Title: First Vice President
NATIONAL BANK OF CANADA
By: /s/ Randy K. Wilhoit
--------------------------------
Title: Vice President
By: /s/ Larry L. Sears
--------------------------------
Title: Vice President
<PAGE> 14
14
NATIONSBANK OF TEXAS, NATIONAL
ASSOCIATION
By: /s/ William E. Livingstone, IV
--------------------------------
Title: Senior Vice President
SOCIETE GENERALE
By: /s/ Richard A. Gould
--------------------------------
Title: Vice President
WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION
By: /s/ Roger Freundt
--------------------------------
Title: Vice President
<PAGE> 15
15
Each of the undersigned hereby consents to the foregoing
Waiver and Amendment and hereby confirms, reaffirms and restates that its
obligations under or in respect of the Credit Agreement and the documents
related thereto to which it is a party are and shall remain in full force and
effect after giving effect to the foregoing Waiver and Amendment.
APS HOLDING CORPORATION
By: /s/ E. Eugene Lauver
--------------------------------
Title: Senior Vice President
BIG A AUTO PARTS, INC.
By: /s/ E. Eugene Lauver
--------------------------------
Title: Senior Vice President
AUTOPARTS FINANCE COMPANY, INC.
By: /s/ E. Eugene Lauver
--------------------------------
Title: Senior Vice President
APS SUPPLY, INC.
By: /s/ E. Eugene Lauver
--------------------------------
Title: Senior Vice President
AMERICAN PARTS SYSTEM, INC.
By: /s/ E. Eugene Lauver
--------------------------------
Title: Senior Vice President
A.P.S. MANAGEMENT SERVICES, INC.
By: /s/ E. Eugene Lauver
--------------------------------
Title: Senior Vice President
<PAGE> 16
16
PARTS, INC.
By: /s/ E. Eugene Lauver
--------------------------------
Title: Senior Vice President
PRESATT, INC.
By: /s/ E. Eugene Lauver
--------------------------------
Title: Senior Vice President
INSTALLERS' SERVICE WAREHOUSE, INC.
By: /s/ E. Eugene Lauver
--------------------------------
Title: Senior Vice President
<PAGE> 17
17
LIST OF MATERIAL ASSETS
1. OWNED REAL PROPERTY
(a) Dudley Avenue, Texarcana, AR
(b) 1st Street, Berthoud, CO
(c) SE Dixie Highway, Stuart, FL
(d) 718-720 Allen Street, Allentown, PA
(e) 719 Conestoga, Bethlehem, PA
(f) 3235 Franklin Avenue, Midland, TX
(g) 425 S. Palace, Tyler, TX
(h) 60 East Rock, Harrisonburg, VA
(i) 6106 Virginia Beach Blvd., Norfolk, VA
(j) 60 (62) Franklin, Warrentown, VA
(k) 1900 Valley Avenue, Winchester, VA
2. LEASED REAL PROPERTY:
The Borrower is party to numerous real property leases throughout the
United States. These leases are in respect of the premises at which
the Borrower-owned Big A stores and Installers' Service warehouses
(other than those listed under items 1 (h) through (j) above) and the
distribution centers (other than those distribution centers that are
owned by a Loan Party and in respect of which mortgages have been
granted to the Agent on behalf of the Lenders) are located.
3. LEASED PERSONAL PROPERTY:
The Borrower is party to numerous leases for equipment, vehicles and
computers, including, without limitation, equipment, vehicles and
computers of the following types:
(a) Equipment Leases for, inter alia, copiers, fax machines, fork
lifts, hand lifts, telephone systems and other similar types of
equipment.
(b) Computer Leases for, inter alia, various types of hardware
ranging from mainframe to personal computers, operating systems and
other application software programs.
(c) Vehicles Leases for, inter alia, tractor trailers, delivery
trucks, vans, pick-up trucks and passenger vehicles.
<PAGE> 1
EXHIBIT 10.1.27
EXECUTION VERSION
SECURITY AGREEMENT, dated as of December 8, 1997, made by APS
HOLDING CORPORATION (the "Grantor"), in favor of THE CHASE MANHATTAN BANK, a
New York banking corporation, as agent (in such capacity, the "Agent") for the
several banks and other financial institutions (the "Lenders") from time to
time parties to the Amended and Restated Credit Agreement, dated as of January
25, 1996 (as the same may be amended, supplemented, waived or otherwise
modified from time to time, the "Credit Agreement"), among A.P.S., Inc., a
Delaware corporation (the "Borrower"), the Agent and the Lenders.
W I T N E S S E T H :
WHEREAS, the Borrower, the Lenders and the Agent are parties
to the Credit Agreement, pursuant to which the Lenders have severally agreed to
make Loans and provide other financial accommodations to the Borrower upon the
terms and subject to the conditions set forth therein;
WHEREAS, the Borrower has failed to comply with the
requirements of subsection 8.1 of the Credit Agreement at the last day of the
fiscal quarter ended October 25, 1997 (the "Existing Defaults") and, pursuant
to the Fifth Amendment and Waiver, dated as of October 25, 1997, to the Credit
Agreement, the Lenders have waived the Existing Defaults until December 31,
1997;
WHEREAS, the Borrower has requested that the Agent and the
Lenders enter into that certain Sixth Amendment, Waiver and Agreement, dated as
of December 8, 1997, to the Credit Agreement (the "Sixth Amendment and
Waiver"), pursuant to which the Lenders would, among other things, agree,
subject to the terms and conditions thereof, to forbear, until February 10,
1998 or the occurrence of certain other events, from the exercise of their
rights and remedies under the Loan Documents and applicable law with respect to
(i) the Existing Defaults following the expiration of the Fifth Amendment and
Waiver and (ii) any Default or Event of Default arising out of the failure of
the Borrower to comply with the requirements of subsection 8.1 of the Credit
Agreement at the last day of the fiscal quarter ending January 31, 1998
(together with the Existing Defaults, the "Covenant Defaults");
WHEREAS, in connection with, and as a condition precedent to,
the execution of the Credit Agreement, the Grantor executed and delivered to
the Agent the Amended and Restated Guarantee, dated as of January 25, 1996 (the
"Holding Guarantee"), pursuant to which, among other things, the Grantor
unconditionally and irrevocably guaranteed to the Agent, for the ratable
benefit of the Lenders, the prompt and complete payment and performance by the
Borrower when due and payable of the Obligations (as defined in the Holding
Guarantee);
<PAGE> 2
2
WHEREAS, pursuant to the Holding Guarantee, the Grantor agreed
to restrict its business to the activities described in subsections 10(b) and
(c) thereof, and the Grantor asserts that it is in compliance with said
subsections and, accordingly, does not, as of the date hereof, own any material
assets or property other than the Pledged Stock (as defined in the Holding
Stock Pledge Agreement); and
WHEREAS, it is nonetheless a condition precedent to the
effectiveness of the Sixth Amendment and Waiver that, in order to further
secure the Grantor's obligations under the Holding Guarantee, the Grantor shall
have executed and delivered this Security Agreement to the Agent for the
ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises contained
herein and to induce the Lenders to enter into the Sixth Amendment and Waiver,
the Grantor hereby agrees with the Agent, for the benefit of the Lenders, as
follows:
1. Defined Terms. (a) Unless otherwise defined herein,
capitalized terms which are defined in the Credit Agreement and used herein are
so used as so defined; the following terms are used herein as defined in the
Uniform Commercial Code in effect in the State of New York from time to time:
Accounts, Chattel Paper, Documents, Equipment, Farm Products, Fixtures, General
Intangibles, Instruments, Inventory, Investment Property and Proceeds; and the
following terms shall have the following meanings:
"Agreement": this Security Agreement, as the same may be
amended, supplemented, waived or otherwise modified from time to time.
"Code": the Uniform Commercial Code as from time to time in
effect in the State of New York.
"Collateral": as defined in Section 2 of this Agreement.
"Concentration Account": the cash collateral account
established at the office of Chemical Bank located at 270 Park Avenue,
New York, New York 10017, in the name of the Agent, Account No.
323261655.
"Copyright Licenses": any written agreement, naming the
Grantor as licensor, granting any right under any Copyright.
"Copyrights": (i) all registered United States copyrights in
all Works, now existing or hereafter created or acquired, all
registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, registrations,
recordings and applications in the United States Copyright Office, and
(ii) all renewals thereof.
<PAGE> 3
3
"General Fund Account": the general fund account established
at the office of Chemical Bank located at 270 Park Avenue, New York,
New York 10017, in the name of the Borrower, Account No. 323250343.
"Lockbox System": as defined in the Borrower Security
Agreement.
"Obligations": as defined in the Holding Guarantee.
"Patent License": any written agreement providing for the
grant by the Grantor of any right to manufacture, use or sell any
invention covered by a Patent.
"Patents": (a) all letters patent of the United States and
all reissues and extensions thereof and (b) all applications for
letters patent of the United States and all divisions, continuations
and continuations-in- part thereof.
"Secured Obligations": the collective reference to (a) the
Obligations and (b) all obligations and liabilities of the Grantor
which may arise under or in connection with this Agreement or any
other Loan Document to which the Grantor is a party, whether on
account of reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all reasonable
fees and disbursements of counsel to the Agent or to the Lenders that
are required to be paid by the Grantor pursuant to the terms of this
Agreement or any other Loan Document), provided that anything herein
or in any other Loan Document to the contrary notwithstanding, the
maximum liability of the Grantor hereunder and under the Loan
Documents shall in no event exceed an amount which, under applicable
federal and state laws, including those relating to the insolvency of
debtors, would result in the avoidance or illegality of the
obligations of the Grantor hereunder and under the Loan Documents.
"Trademark License": any written agreement providing for the
grant by the Grantor of any right to use any Trademark, but excluding
the grant of any such right to any automotive parts store or warehouse
(i) to which the Grantor, the Borrower or any of its Subsidiaries
sells goods in connection with the Borrower's Big A(R) program or
which otherwise participates in the Borrower's Big A(R) program, (ii)
in connection with the Installers' Service Warehouse or Installers
Express programs or (iii) in connection with any other similar
programs that may have been or may be created by the Grantor, the
Borrower or any Restricted Subsidiary after January 25, 1996.
"Trademarks": (a) all United States trademarks, trade names,
corporate names, company names, business names, fictitious business
names, trade styles, service marks, logos and other source or business
identifiers, and the goodwill associated therewith, now existing or
hereafter
<PAGE> 4
4
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States
Patent and Trademark Office or in any similar office or agency of the
United States or any State thereof and (b) all renewals thereof.
"Work": any work which is subject to copyright protection
pursuant to Title 17 of the United States Code.
(b) 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 and paragraph references are to this Agreement unless otherwise
specified.
(c) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
2. Grant of Security Interest. As collateral security for
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Secured Obligations, the Grantor
hereby grants to the Agent for the ratable benefit of the Lenders a security
interest in all of the following property, if any, now owned or at any time
hereafter acquired by the Grantor or in which the Grantor now has or at any
time in the future may acquire any right, title or interest (collectively, the
"Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Documents;
(iv) all Equipment (other than motor vehicles covered by
certificate of title statutes);
(v) all General Intangibles;
(vi) all Instruments (other than "Collateral" as defined in
the Note Pledge Agreement);
(vii) all Inventory;
(viii) all Investment Property (other than "Collateral" as
defined in the Holding Stock Pledge Agreement);
(ix) all Trademarks;
(x) all Trademark Licenses; and
(xi) to the extent not otherwise included, all Proceeds
and products of any and all of the foregoing;
provided, that (a) in the case of any Instrument or other contract or agreement
with or issued by Persons other than a Subsidiary of the Grantor that would
otherwise be included in the
<PAGE> 5
5
foregoing Collateral, the foregoing will not be deemed to grant a security
interest therein under this Agreement (and such Instrument or other contract or
agreement shall not be deemed to constitute a part of the Collateral) for so
long as the granting of a security interest pursuant to the terms hereof would
result in a breach, default or termination of such Instrument or other contract
or agreement and (b) in the case of any property (the "Prince-Oracle
Collateral") subject to the security interest granted to Prince-Oracle Auto
Parts and Equipment, Inc. ("Prince-Oracle") pursuant to the Security Agreement
(Purchase Money), dated March 1, 1993 (the "Prince-Oracle Security Agreement"),
between Prince- Oracle and Big A Auto Parts, Inc., the foregoing will not be
deemed to grant a security interest therein under this Agreement (and such
Prince-Oracle Collateral shall not be deemed to constitute a part of the
Collateral) until such time as, and only to the extent that, such Prince-Oracle
Collateral ceases to be subject to the security interest granted pursuant to
the Prince-Oracle Security Agreement. The Grantor shall use its reasonable
best efforts to cause each Instrument entered into, created or made after the
Effective Date and owned by it to be subject to the Lien and security interest
created pursuant to this Agreement.
3. Rights of Agent and Lenders; Limitations on Agent's and
Lenders' Obligations.
(a) No Liability of Agent or Lenders under Accounts. Neither
the Agent nor any Lender shall have any obligation or liability under any
Account (or any agreement giving rise thereto) by reason of or arising out of
this Agreement or the receipt by the Agent or any such Lender of any payment
relating to such Account pursuant hereto, nor shall the Agent or any Lender be
obligated in any manner to perform any of the obligations of the Grantor under
or pursuant to any Account (or any agreement giving rise thereto), to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party under
any Account (or any agreement giving rise thereto), to present or file any
claim, to take any action to enforce any performance or to collect the payment
of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
(b) Notice to Account Debtors. Upon the request of the Agent
at any time after the occurrence and during the continuance of an Event of
Default, the Grantor shall notify the account debtors on the Accounts then
owned by it that such Accounts have been assigned to the Agent for the ratable
benefit of the Lenders and that payments in respect thereof shall be made
directly to the Agent. At any time and from time to time after the occurrence
and during the continuance of an Event of Default, the Agent may in its own
name or in the name of others communicate with account debtors on such Accounts
to verify with them to its satisfaction the existence, amount and terms of such
Accounts.
<PAGE> 6
6
(c) Analysis of Accounts. At any time that the Grantor shall
own any Accounts and from time to time, the Agent shall have the right, upon
reasonable advance notice to the Grantor and at reasonable intervals, to make
test verifications of the Accounts then owned by it in any manner and through
any medium that it reasonably considers advisable, and the Grantor shall
furnish all such assistance and information as the Agent may reasonably require
in connection therewith. At any time that the Grantor shall own any Accounts
and from time to time, upon the Agent's reasonable request, at reasonable
intervals and, in the event that such request is made in connection with the
annual audit of the Grantor's financial statements by independent public
accountants, at the reasonable expense of the Grantor, the Grantor shall cause
Coopers & Lybrand, or other independent public accountants or others reasonably
satisfactory to the Agent, to furnish to the Agent reports showing
reconciliations, aging and test verifications of, and trial balances for, the
Accounts then owned by the Grantor.
(d) Collections on Accounts. If required by the Agent at any
time when an Event of Default has occurred and is continuing, any payments of
Accounts then owned by the Grantor, when collected by the Grantor, shall be
forthwith (and, in any event, within two Business Days of receipt by the
Grantor) deposited or otherwise transferred by the Grantor in or to the
Concentration Account maintained by the Agent, subject to withdrawal by the
Agent for the account of the Lenders only, as hereinafter provided. Until so
turned over, all such payments shall be held by the Grantor in trust for the
benefit of the Agent and the Lenders, segregated from other funds of the
Grantor. All Proceeds constituting collections of Accounts while held by the
Agent (or by the Grantor in trust for the benefit of the Agent and the Lenders)
shall continue to be collateral security for all of the Secured Obligations and
shall not constitute payment thereof until applied as hereinafter provided. At
any time when an Event of Default has occurred and is continuing, the Agent
shall hold all or any part of the funds on deposit in the Concentration Account
on account of the Secured Obligations (whether matured or unmatured) and may
apply such funds from time to time to the Secured Obligations then due and
owing, and any part of such funds which the Agent does not so apply shall be
paid over from time to time by the Agent to the Grantor or to whomsoever may be
lawfully entitled to receive the same. At any time when an Event of Default
has occurred and is continuing, at the Agent's request, the Grantor shall
deliver to the Agent all original and other documents evidencing, and relating
to, the agreements and transactions which gave rise to the Accounts then owned
by the Grantor, including, without limitation, all statements relating to such
Accounts.
(e) Lockbox System; Concentration Account. (i) The Proceeds
of all Accounts, if any, owned by the Grantor (except as permitted under
subsection 8.19 of the Credit Agreement) shall be deposited into the Lockbox
System in accordance with the Lockbox Agreements. Without the prior consent of
the Agent, the Grantor shall not, in a manner materially adverse to the
Lenders, change
<PAGE> 7
7
the general instructions given to account debtors on or prior to the date
hereof in respect of payment on Accounts to be deposited in the Lockbox System.
Until the Agent shall have advised the Grantor to the contrary, the Grantor
shall, and the Agent hereby authorizes the Grantor to, enforce and collect all
amounts owing on the Accounts, if any, owned by the Grantor, for the benefit
and on behalf of the Agent and the Lenders; provided, however, that such
privilege shall automatically be suspended upon the occurrence of an Event of
Default specified in Section 9(f) of the Credit Agreement and may at the option
of the Agent be terminated upon the occurrence and during the continuance of
any other Event of Default.
(ii) All Proceeds of Accounts which have been received on any
Business Day through the Lockbox System will be transferred into the
Concentration Account on such Business Day to the extent required by the
applicable Lockbox Agreement. All Proceeds received on any Business Day by the
Agent pursuant to paragraph (e) above will be transferred into the
Concentration Account on such Business Day. The Concentration Account is, and
shall remain, under the sole dominion and control of the Agent. The Grantor
acknowledges and agrees that (A) the Grantor has no right of withdrawal from
the Concentration Account, (B) the funds on deposit in the Concentration
Account shall continue to be collateral security for all of the Secured
Obligations and (C) upon the occurrence and during the continuance of an Event
of Default, at the Agent's election, the funds on deposit in the Concentration
Account shall be applied as provided in paragraph (e) above. So long as no
Event of Default has occurred and is continuing (other than any Covenant
Default during the Sixth Amendment Period), the Agent shall cause the amounts
on deposit in the Concentration Account to be applied or held in accordance
with subsection 8.19(c) of the Credit Agreement.
4. Representations and Warranties. The Grantor (I) hereby
represents and warrants that (A) the Grantor does not conduct, transact or
otherwise engage, and has not committed to conduct, transact or otherwise
engage, in any business or operations other than as permitted by subsections
10(b) and (c) of the Holding Guarantee and (B) except as set forth on Schedule
1 hereto, as of the date hereof, the Grantor does not own any Accounts or any
other material Collateral and (II) without limiting the foregoing
representations and warranties or the acknowledgements in Section 20 hereof,
hereby represents and warrants as follows:
(a) Title; No Other Liens. Except for the Lien granted
to the Agent for the ratable benefit of the Lenders pursuant to this
Agreement and the other Liens permitted to exist on the Collateral
pursuant to the Loan Documents, if and when the Grantor acquires any
Collateral, it will own each item of such Collateral free and clear of
any and all Liens. No security agreement, financing statement or
other public notice similar in effect with respect to all or any part
of such Collateral is on file or of record in any public office,
except such as may have been filed in favor
<PAGE> 8
8
of the Agent, for the ratable benefit of the Lenders, pursuant to this
Agreement, or as may be permitted pursuant to the Loan Documents.
(b) Perfected Liens. (i) If and when the Grantor
acquires any Collateral, this Agreement will be effective to create,
as collateral security for the Secured Obligations, valid and
enforceable Liens on such Collateral in favor of the Agent, for the
ratable benefit of the Lenders.
(ii) Except with regard to (A) Liens in Equipment
constituting Fixtures, (B) Liens upon the Trademarks and Trademark
Licenses, which Liens, to the extent not otherwise perfected by the
filing of Uniform Commercial Code financing statements, would, or in
the case of Trademark Licenses may, be perfected upon filing and
acceptance thereof in the United States Patent and Trademark Office
and in appropriate offices under applicable State trademark laws and
(C) Liens on uncertificated securities, upon filing of the financing
statement to be delivered to the Agent by the Grantor promptly after
the date hereof in the jurisdiction listed on Schedule 2 hereto (which
financing statement will be in proper form for filing in such
jurisdiction) (and the making of filings in any other jurisdiction as
may be necessary under any Requirement of Law after the date hereof)
and the delivery to, and continuing possession by, the Agent of all
Instruments, Chattel Paper and Documents, if any, a security interest
in which is perfected by possession, the Liens created pursuant to
this Agreement will constitute valid and perfected Liens on the
Collateral, if any, in favor of the Agent, for the ratable benefit of
the Lenders, which Liens will be prior to all other Liens on such
Collateral, except Liens permitted to exist on such Collateral
pursuant to the Credit Agreement or the other Loan Documents, and
which Liens will be enforceable as such against all creditors of and
purchasers (except, with respect to goods only, buyers in the ordinary
course of business to the extent provided in Section 9-307(1) of the
Code) from the Grantor and against any owner or purchaser of the real
property where any of the Equipment, if any, is located and any
present or future creditor obtaining a Lien on such real property,
except for enforcement against landlords and their mortgagees with
respect to prior claims in Equipment constituting Fixtures, and except
as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles
(whether considered in a proceeding in equity or at law).
(c) Accounts. The amount represented by the Grantor to
the Lenders from time to time as owing by each account debtor or by
all account debtors in respect of the Accounts, if any, will at such
time be the correct amount, in all material respects, actually owing
by such account debtor or debtors thereunder, except to the extent
that appropriate reserves therefor have been established on the books
of the
<PAGE> 9
9
Grantor and/or any of its Subsidiaries in accordance with GAAP. The
places where the Grantor will keep its records, if any, concerning the
Accounts are 15710 John F. Kennedy Boulevard, Suite 700, Houston,
Texas 77032- 2347, 12165 Pacific Street, Omaha, Nebraska 68154, 4704
Harlan, Suite 511, Denver, Colorado 80212 and 3000 Pawnee Street,
Houston, Texas 77054, or such other location or locations of which the
Grantor shall have provided prior written notice to the Agent pursuant
to Section 5(p).
(d) Consents. If and when the Grantor acquires any
Account, such Account will be in full force and effect and will
constitute a valid and legally enforceable obligation of the Grantor
and (to the knowledge of the Grantor) each other party thereto except
as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement
of creditor's rights generally and by general equitable principles
(whether enforcement is sought by proceedings in equity or at law) and
except to the extent the failure of any such Account to be in full
force and effect or valid or legally enforceable would not be
reasonably expected, in the aggregate, to have a material adverse
effect on the value of the Collateral (as defined in the Credit
Agreement). No consent or authorization of, filing with or other act
by or in respect of any Governmental Authority will have been required
in connection with the execution, delivery, performance, validity or
enforceability of any Account (if and when such Account is acquired by
the Grantor) by any party thereto other than those which will have
been duly obtained, made or performed and will be in full force and
effect and those the failure of which to make or obtain will not be
reasonably expected, in the aggregate, to have a material adverse
effect on the value of the Collateral (as defined in the Credit
Agreement). If and when the Grantor acquires any Account, neither the
Grantor nor (to the knowledge of the Grantor) any other party to such
Account will be in default in the performance or observance of any of
the terms thereof, except for such defaults as will not reasonably be
expected, in the aggregate, to have a material adverse effect on the
value of the Collateral (as defined in the Credit Agreement). The
right, title and interest of the Grantor in, to and under each such
Account will not be subject to any defense, offset, counterclaim or
claim which would be reasonably expected, either individually or in
the aggregate, to have a material adverse effect on the value of the
Collateral (as defined in the Credit Agreement).
(e) Location of Tangible Property. Any Inventory or
Equipment owned by the Grantor shall be kept at the locations listed
on Schedule 1 hereto and/or such other locations of which the Grantor
shall provide written notice to the Agent pursuant to Section 5(p).
(f) Chief Executive Office. The Grantor's chief executive
office and chief place of business is located at
<PAGE> 10
10
15710 John F. Kennedy Boulevard, Suite 700, Houston, Texas 77032-2347
or such other location of which the Grantor shall have provided
written notice to the Agent pursuant to Section 5(p).
(g) Farm Products. None of the Collateral constitutes, or
will be the Proceeds of, Farm Products.
(h) Governmental Obligors. None of the Obligors on any
Accounts will be a Governmental Authority, except for any such
Accounts that are not material in relation to the business of the
Grantor and its Subsidiaries, taken as a whole.
(i) Prince-Oracle Collateral. The Prince-Oracle
Collateral is not subject to any security interest other than the
security interest granted pursuant to the Prince-Oracle Security
Agreement or as may be permitted pursuant to the Loan Documents.
The Grantor agrees that the foregoing representations and
warranties shall be deemed to have been made by the Grantor on and as of each
date on which an Extension of Credit is made by the Lenders to the Borrower
under the Credit Agreement, in each case as though made on and as of each such
date (or, if any such representation or warranty is expressly stated to have
been made as of a specific date, as of such specific date).
5. Covenants. The Grantor covenants and agrees with the
Agent and the Lenders, and, with respect to Section 5(a), the Agent covenants
and agrees with the Grantor, that, from and after the date of this Agreement
until the payment in full of the Notes, the Reimbursement Obligations and the
other Obligations then due and owing, the termination of the Commitments and
the expiration, termination or return to the Issuing Lender of the Letters of
Credit:
(a) Further Documentation; Pledge of Instruments and
Chattel Paper. At any time after the Grantor shall have acquired any
material Collateral and from time to time, upon the written request of
the Agent or the Grantor, as the case may be, and at the sole expense
of the Grantor, the Grantor or the Agent, as the case may be, will
promptly and duly execute and deliver such further instruments and
documents and take such further action as the Agent or the Grantor may
reasonably request for the purpose of obtaining or preserving the full
benefits of this Agreement and of the rights and powers herein
granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in
any jurisdiction with respect to the Liens created hereby. The
Grantor also hereby authorizes the Agent to file any such financing or
continuation statement without the signature of the Grantor to the
extent permitted by applicable law. A carbon, photographic or other
reproduction of this Agreement shall be sufficient as a
<PAGE> 11
11
financing statement for filing in any jurisdiction. The Agent agrees
to notify the Grantor and the Grantor agrees to notify the Agent of
any financing or continuation statement filed by it pursuant to this
Section 5(a), provided that any failure to give any such notice shall
not affect the validity or effectiveness of any such filing. If any
amount payable under or in connection with any of the Collateral shall
be or become evidenced by any Instrument or Chattel Paper, such
Instrument or Chattel Paper shall be promptly delivered to the Agent,
duly indorsed in a manner satisfactory to the Agent, to be held as
Collateral pursuant to this Agreement. The Grantor shall not permit
any other Person to possess any such Collateral at any time other than
in connection with a transaction permitted under subsection 8.15 of
the Credit Agreement.
(b) Indemnification. The Grantor agrees to pay, and to
save the Agent and the Lenders harmless from, any and all liabilities
and reasonable costs and expenses (including, without limitation,
reasonable legal fees and expenses) (i) with respect to, or resulting
from, any delay by the Grantor in paying, any and all excise, sales or
other similar taxes which may be payable or determined to be payable
with respect to any of the Collateral, (ii) with respect to, or
resulting from, any delay by the Grantor in complying with any
material Requirement of Law applicable to any of the Collateral or
(iii) in connection with any of the transactions contemplated by this
Agreement, provided that such indemnity shall not, as to the Agent or
any Lender, be available to the extent that such liabilities, costs
and expenses resulted from the gross negligence or willful misconduct
of the Agent or any Lender. In any suit, proceeding or action brought
by the Agent or any Lender under any Account for any sum owing
thereunder, or to enforce any provisions of any Account, the Grantor
will save, indemnify and keep the Agent and such Lender harmless from
and against all expense, loss or damage suffered by reason of any
defense, setoff, counterclaim, recoupment or reduction or liability
whatsoever of the account debtor or obligor thereunder, arising out of
a material breach by the Grantor of any obligation thereunder.
(c) Maintenance of Records. The Grantor will keep and
maintain at its own cost and expense reasonably satisfactory and
complete records of the Collateral, if any, including, without
limitation, a record of all payments received and all credits granted
with respect to the Accounts, if any. For the Agent's and the
Lenders' further security, the Agent, for the ratable benefit of the
Lenders, shall have a security interest in all of the Grantor's books
and records, if any, pertaining to the Collateral, and the Grantor
shall
<PAGE> 12
12
permit the Agent or its representatives to review such books and
records upon reasonable advance notice during normal business hours at
the location where such books and records are kept and at the
reasonable request of the Agent.
(d) Right of Inspection. Upon reasonable advance notice
to the Grantor and at reasonable intervals, or at any time and from
time to time after the occurrence and during the continuance of an
Event of Default, the Agent and the Lenders shall have reasonable
access during normal business hours to all the books, correspondence
and records of the Grantor, and the Agent and the Lenders and their
respective representatives may examine the same, and to the extent
reasonable take extracts therefrom and make photocopies thereof, and
the Grantor agrees to render to the Agent and the Lenders, at the
Grantor's reasonable cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto. If the
Grantor owns any Inventory or Equipment, the Agent and the Lenders and
their respective representatives shall also have the right upon
reasonable advance notice to the Grantor to enter during normal
business hours into and upon any premises where any of the Inventory
or Equipment is located for the purpose of inspecting the same,
observing its use or otherwise protecting its interests therein.
(e) Compliance with Laws, etc. The Grantor will comply
in all material respects with all Requirements of Law applicable to
the Collateral, if any, or any part thereof, except to the extent that
the failure to so comply would not be reasonably expected to
materially adversely affect in the aggregate the Agent's or the
Lenders' rights hereunder, the priority of their Liens on the
Collateral or the value of the Collateral.
(f) Compliance with Contractual Obligations. The Grantor
will perform and comply in all material respects with all its
Contractual Obligations relating to the Collateral, if any, unless (i)
such performance or compliance is fully excused by breach by the other
party or parties thereto or (ii) such failure to comply or perform
would not be reasonably expected in the aggregate to have a material
adverse effect on the value of the Collateral (as defined in the
Credit Agreement).
(g) Payment of Obligations. The Grantor will pay
promptly when due all taxes, assessments and governmental charges or
levies imposed upon the Collateral, if any, as well as all claims of
any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that
no such tax, assessment, charge or levy need be paid if (i) the
validity thereof is being contested in good faith by appropriate
proceedings diligently conducted and (ii) such tax, assessment, charge
or levy is adequately reserved
<PAGE> 13
13
against on the Grantor's or any of its Subsidiaries' books in
accordance with GAAP.
(h) Limitation on Liens on Collateral and Prince-Oracle
Collateral. The Grantor will not create, incur or permit to exist,
will defend the Collateral, if any, and the Prince-Oracle Collateral
against, and will take such other action as is reasonably necessary to
remove, any Lien or material adverse claim on or to any of the
Collateral, other than the Liens created hereby and other than as
permitted pursuant to the Loan Documents, and will defend the right,
title and interest of the Agent and the Lenders in and to any of the
Collateral against the claims and demands of all Persons whomsoever.
(i) Limitations on Dispositions of Collateral. Without
the prior written consent of the Agent, the Grantor will not sell,
assign, transfer, exchange or otherwise dispose of, or grant any
option with respect to, the Collateral, if any, or attempt, offer or
contract to do so, except as permitted by this Agreement or the Credit
Agreement.
(j) Limitations on Modifications, Waivers, Extensions of
Licenses and Accounts. If the Grantor owns any Accounts, it will not,
except in the ordinary course of business, amend, modify, terminate or
waive any provision of any agreement giving rise to a material Account
in any manner which would reasonably be expected to materially
adversely affect the value of such Account as Collateral.
(k) Limitations on Discounts, Compromises, Extensions of
Accounts. At any time the Grantor owns any Accounts, the Grantor will
not, except in the ordinary course of business, grant any extension of
the time of payment of any material Account owned by it, compromise,
compound or settle the same for less than the full amount thereof,
release, wholly or partially, any Person liable for the payment
thereof, or allow any credit or discount whatsoever thereon, unless
such extensions, compromises, compoundings, settlements, releases,
credits or discounts are permitted by the Loan Documents.
(l) Maintenance of Equipment. The Grantor will maintain
each material item of Equipment, if any, in good operating condition,
ordinary wear and tear and immaterial impairments of value and damage
by the elements excepted, and will provide all maintenance, service
and repairs necessary for such purpose, except to the extent that the
failure to do any of the foregoing would not be reasonably expected to
have a Material Adverse Effect.
(m) Maintenance of Insurance. If the Grantor acquires
any material Collateral, the Grantor will maintain, with financially
sound and reputable insurance companies, (i) insurance (including
property insurance) in at least such
<PAGE> 14
14
amounts and against at least such risks (but including in any event
public liability, product liability and business interruption where
obtainable) as are usually insured against in the same general area by
companies engaged in the same or a similar business; and furnish to
the Agent, upon written request, information in reasonable detail as
to the insurance carried and (ii) insurance policies relating to the
Inventory and Equipment, if any, (A) insuring such Inventory and
Equipment against loss by fire, explosion, theft and such other
casualties as are usually insured against by companies engaged in the
same or a similar business, (B) insuring the Grantor, the Agent and
the Lenders against liability for personal injury and property damage
relating to such Inventory and Equipment, (C) providing that no
cancellation, material reduction in amount or material change in
coverage thereof shall be effective until at least 15 days after
receipt by the Agent of written notice thereof, (D) naming the Agent
and the Lenders as insured parties and (E) being otherwise reasonably
satisfactory in all material respects to the Agent.
(n) Identification of Collateral. The Grantor will
furnish to the Agent and the Lenders from time to time such statements
and schedules identifying and describing the Collateral, if any, and
such other reports in connection with the Collateral, as the Agent may
reasonably request, all in reasonable detail.
(o) Notices. The Grantor will advise the Agent and the
Lenders promptly, in reasonable detail, at their respective addresses
set forth in the Credit Agreement, (i) of any Lien (other than Liens
created hereby or permitted under the Loan Documents) on, or material
adverse claim asserted against, any of the Collateral and (ii) of the
occurrence of any other event which would reasonably be expected in
the aggregate to have a material adverse effect on the aggregate value
of the Collateral, if any, or the Liens created hereunder.
(p) Changes in Locations, Name, etc. The Grantor will
not (i) change the location of its chief executive office/chief place
of business from that specified in Section 4(f) or remove its books
and records from the locations specified in Section 4(c), (ii) permit
any of its Inventory or Equipment to be kept at a location other than
those listed on Schedule 1 hereto, unless such Inventory or Equipment
is conveyed, sold, leased, transferred, assigned or otherwise disposed
of as permitted by subsection 8.6 of the Credit Agreement or (iii)
change its name, identity or corporate structure to such an extent
that any financing statement filed by the Agent in connection with
this Agreement would become seriously misleading, unless the Grantor
shall have complied with the following:
(A) with respect to clauses (i) and (iii) above, the
Grantor (x) shall have given the Agent at least 30
<PAGE> 15
15
days' prior written notice thereof and (y) prior to effecting
any such change, shall have taken such actions as may be
necessary or, upon the reasonable request of the Agent,
advisable to continue the perfection and priority of the Liens
granted pursuant hereto, and
(B) with respect to clause (ii) above, the Grantor
(x) shall have given the Agent at least fifteen days' prior
written notice of the intended location thereof and (y) prior
to keeping any Inventory or Equipment at such location, shall
have taken such actions as may be necessary or, upon the
reasonable request of the Agent, advisable to perfect the
Liens granted pursuant hereto with respect to such Inventory
or Equipment (it being agreed that, at the Agent's option, (I)
the Agent shall prepare and file any UCC-1 or UCC-3 financing
statements required to be filed to perfect such Liens and, in
such event, the Grantor shall promptly provide to the Agent
all information required in connection with such filings or
(II) the Grantor shall prepare and file any UCC-1 or UCC-3
financing statements required to be filed to perfect such
Liens and, in such event, shall promptly upon receipt of the
acknowledgement copy for such filing, forward the original of
such acknowledgement copy (together with all attachments to
such filing) to the Agent together with a certificate in form
attached hereto as Exhibit A, duly completed and executed by
the Grantor);
provided in each case under clauses (A)(y) and (B)(y), that
the Agent shall have taken all actions required by Section
5(a) hereof in connection with such actions of the Grantor.
(q) Patents, Trademarks and Copyrights. The Grantor does not
own, as of the date hereof, and will not at any time in the future
acquire any right, title or interest in or to any Patent, Trademark,
Trademark License or Copyright other than with respect to computer
software or hardware licenses or other licenses of copyrights granted
to the Grantor in the ordinary course of business.
6. Agent's Appointment as Attorney-in-Fact.
(a) Powers. The Grantor hereby irrevocably constitutes
and appoints the Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Grantor and in the name of
the Grantor or in its own name, from time to time in the Agent's discretion,
for the purpose of carrying out the terms of this Agreement, to take any and
all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this
Agreement, and, without limiting
<PAGE> 16
16
the generality of the foregoing, the Grantor hereby gives the Agent the power
and right, on behalf of the Grantor, without notice to or assent by the
Grantor, to do the following at any time when any Event of Default shall have
occurred and be continuing, and to the extent permitted by law:
(i) in the name of the Grantor or its own name, or
otherwise, to take possession of and indorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any Account, Instrument or General Intangible (to the
extent that the foregoing constitute Collateral) or with respect to
any other Collateral and to file any claim or to take any other action
or institute any proceeding in any court of law or equity or otherwise
deemed appropriate by the Agent for the purpose of collecting any and
all such moneys due under any such Account, Instrument or General
Intangible or with respect to any such other Collateral whenever
payable;
(ii) to pay or discharge taxes and Liens levied or placed
on the Collateral, other than Liens permitted under this Agreement or
the other Loan Documents, to effect any repairs or any insurance
called for by the terms of this Agreement and to pay all or any part
of the premiums therefor and the costs thereof; and
(iii) upon the occurrence and during the continuance of any
Event of Default (A) to direct any party liable for any payment under
any of the Collateral to make payment of any and all moneys due or to
become due thereunder directly to the Agent or as the Agent shall
direct; (B) to ask for, or demand, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to
become due at any time in respect of or arising out of any Collateral;
(C) to sign and indorse any invoices, freight or express bills, bills
of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection
with any of the Collateral; (D) to commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any thereof and to enforce
any other right in respect of any Collateral; (E) to defend any suit,
action or proceeding brought against the Grantor with respect to any
of the Collateral; (F) to settle, compromise or adjust any suit,
action or proceeding described in clause (E) above and, in connection
therewith, to give such discharges or releases as the Agent may deem
appropriate; (G) to assign any Trademark (along with the goodwill of
the business to which any such Trademark pertains), for such term or
terms, on such conditions, and in such manner, as the Agent shall in
its sole discretion determine; and (H) generally, to sell, transfer,
pledge and make any agreement with respect to or otherwise deal with
any of the Collateral as fully and completely as though the Agent were
the absolute owner thereof for all purposes, and to do, at the Agent's
option and the Grantor's expense, at
<PAGE> 17
17
any time, or from time to time, all acts and things which the Agent
deems necessary to protect, preserve or realize upon the Collateral
and the Agent's and the Lenders' Liens thereon and to effect the
intent of this Agreement, all as fully and effectively as the Grantor
might do.
The Grantor hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable until payment in full of the Notes, the
Reimbursement Obligations and the other Obligations then due and owing, the
termination of the Commitments and the expiration, termination or return to the
Issuing Lender of the Letters of Credit.
(b) Other Powers. The Grantor also authorizes the Agent,
from time to time if an Event of Default shall have occurred and be continuing,
to execute, in connection with any sale provided for in Section 9 hereof, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
(c) No Duty on the Part of Agent or Lenders. The powers
conferred on the Agent and the Lenders hereunder are solely to protect the
Agent's and the Lenders' interests in the Collateral (if any) and shall not
impose any duty upon the Agent or any Lender to exercise any such powers. The
Agent and the Lenders shall be accountable only for amounts that they actually
receive as a result of the exercise of such powers, and neither they nor any of
their officers, directors, employees or agents shall be responsible to the
Grantor for any act or failure to act hereunder, except for their own gross
negligence or willful misconduct.
7. Performance by Agent of Grantor's Obligations. If the
Grantor fails to perform or comply with any of its agreements contained herein
and the Agent, as provided for by the terms of this Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, the reasonable expenses of the Agent incurred in connection with
such performance or compliance, together with interest thereon at a rate per
annum 2% above the rate applicable to ABR Loans, shall be payable by the
Grantor to the Agent on demand and shall constitute Secured Obligations secured
hereby.
8. Proceeds. It is agreed that if an Event of Default shall
occur and be continuing, (a) all Proceeds of any Collateral received by the
Grantor consisting of cash, checks and other near-cash items shall be held by
the Grantor in trust for the Agent and the Lenders, segregated from other funds
of the Grantor, and at the request of the Agent shall, forthwith upon receipt
by the Grantor, be turned over to the Agent in the exact form received by the
Grantor (duly indorsed by the Grantor to the Agent, if required), and (b) any
and all such Proceeds received by the Agent (whether from the Grantor or
otherwise) may, in the sole discretion of the Agent, be held by the Agent for
the ratable benefit of the Lenders as collateral security for the
<PAGE> 18
18
Secured Obligations (whether matured or unmatured), and/or then or at any time
thereafter may be applied by the Agent against, the Secured Obligations then
due and owing. Any balance of such Proceeds remaining after the payment in
full of the Notes, the Reimbursement Obligations and the other Obligations then
due and owing, the termination of the Commitments and the expiration,
termination or return to the Issuing Lender of the Letters of Credit shall be
paid over to the Grantor or to whomsoever may be lawfully entitled to receive
the same.
9. Remedies. If an Event of Default shall occur and be
continuing, the Agent, on behalf of the Lenders, may exercise all rights and
remedies of a secured party under the Code, and, to the extent permitted by
law, all other rights and remedies granted to them in this Agreement and in any
other instrument or agreement securing, evidencing or relating to the
Obligations. Without limiting the generality of the foregoing, the Agent,
without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon the Grantor or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances, to the extent permitted by law, forthwith collect, receive,
appropriate and realize upon the Collateral or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do
any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of the Agent or any Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. The Agent or any Lender shall have the
right, to the extent permitted by law, upon any such sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Grantor, which right or equity is hereby waived or released.
The Grantor further agrees, at the Agent's request, upon the occurrence and
during the continuance of an Event of Default, to assemble the Collateral and
make it available to the Agent at places which the Agent shall reasonably
select, whether at the Grantor's premises or elsewhere. The Agent shall apply
the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the Agent
and the Lenders hereunder, including, without limitation, reasonable attorneys'
fees and disbursements, to the payment in whole or in part of the Secured
Obligations then due and owing, and only after such application and after the
payment by the Agent of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, need the Agent
account for the surplus, if any, to the Grantor. To the extent permitted by
applicable law, the Grantor waives all claims, damages and demands it may
acquire against the Agent or any Lender arising out of the repossession,
<PAGE> 19
19
retention or sale of the Collateral, other than any such claims, damages and
demands that may arise from the gross negligence or willful misconduct of any
of them. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition. The Grantor
shall remain liable for any deficiency if the proceeds of any sale or other
disposition of the Collateral are insufficient to pay the then outstanding
Secured Obligations, including the reasonable fees and disbursements of any
attorneys employed by the Agent or any Lender to collect such deficiency.
10. Limitation on Duties Regarding Preservation of
Collateral. The Agent's sole duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Code or otherwise, shall be to deal with it in the same manner as the
Agent deals with similar property for its own account. Neither the Agent, any
Lender, nor any of their respective directors, officers, employees or agents
shall be liable for failure to demand, collect or realize upon all or any part
of the Collateral or for any delay in doing so or shall be under any obligation
to sell or otherwise dispose of any Collateral upon the request of the Grantor
or any other Person.
11. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are powers coupled
with an interest and are irrevocable until payment in full of the Notes, the
Reimbursement Obligations and the other Obligations then due and owing, the
termination of the Commitments and the expiration, termination or return to the
Issuing Lender of the Letters of Credit.
12. Severability. Any provision of this Agreement which 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.
13. Section Headings. The Section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
14. No Waiver; Cumulative Remedies. Neither the Agent nor
any Lender shall by any act (except by a written instrument pursuant to Section
15 hereof), delay, indulgence, omission or otherwise be deemed to have waived
any right or remedy hereunder or to have acquiesced in any Default or Event of
Default or in any breach of any of the terms and conditions hereof. No failure
to exercise, nor any delay in exercising, on the part of the Agent or any
Lender, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any
<PAGE> 20
20
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Agent or any Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Agent or such Lender would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
15. Waivers and Amendments; Successors and Assigns. None of
the terms or provisions of this Agreement may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the Grantor
and the Agent, provided that any provision of this Agreement for the benefit of
the Agent and/or the Lenders may be waived by the Agent in a written letter or
agreement executed by the Agent or by telex or facsimile transmission from the
Agent. This Agreement shall be binding upon the successors and assigns of the
Grantor and shall inure to the benefit of the Agent and the Lenders and their
respective successors and assigns, except that the Grantor may not assign,
transfer or delegate any of its rights or obligations under this Agreement
without the prior written consent of the Agent.
16. Notices. All notices, requests and demands to or upon
the Agent or the Grantor to be effective shall be in writing (including by
telecopy), and unless otherwise provided herein, shall be deemed to have been
duly given or made when delivered by hand or three days after being deposited
in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed, in the case of the Agent, as set forth in the Credit
Agreement, and, in the case of the Grantor, as set forth below its signature
below. The Agent and the Grantor may change their addresses and transmission
numbers for notices by notice in the manner provided in this Section.
17. Authority of Agent. The Grantor acknowledges that the
rights and responsibilities of the Agent under this Agreement with respect to
any action taken by the Agent or the exercise or non-exercise by the Agent of
any option, voting right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Agreement shall, as between the
Agent and the Lenders, be governed by the Loan Documents and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Agent and the Grantor, the Agent shall be conclusively presumed
to be acting as agent for the Lenders with full and valid authority so to act
or refrain from acting, and the Grantor shall not be under any obligation to
make any inquiry respecting such authority.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
<PAGE> 21
21
19. Release of Collateral and Termination. (a) At such time
as the payment in full of the Notes, the Reimbursement Obligations and the
other Obligations then due and owing shall have occurred, the Commitments have
been terminated and the Letters of Credit have expired, terminated or been
returned to the Issuing Lender, the Collateral (if any) shall be released from
the Liens created hereby, and this Agreement and all obligations (other than
those expressly stated to survive such termination) of the Agent and the
Grantor hereunder shall terminate, all without delivery of any instrument or
performance of any act by any party, and all rights to the Collateral shall
revert to the Grantor. Upon request of the Grantor following any such
termination, the Agent shall deliver (at the sole cost and expense of the
Grantor) to the Grantor any Collateral held by the Agent hereunder, and execute
and deliver (at the sole cost and expense of the Grantor) to the Grantor such
documents as the Grantor shall reasonably request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or
otherwise disposed of by the Grantor in a transaction permitted by the Credit
Agreement or the Holding Guarantee, then the Agent shall execute and deliver to
the Grantor (at the sole cost and expense of the Grantor) all releases or other
documents reasonably necessary or desirable for the release of the Liens
created hereby on such Collateral.
20. No Effect on Holding Guarantee; Conflicts. (a) The
Grantor acknowledges that nothing in this Agreement shall be deemed to be, or
construed as, an amendment or waiver by the Agent or the Lenders of any
provisions of the Holding Guarantee, including, without limitation, the
restrictions in subsections 10(b) and (c) thereof regarding the Grantor's
permitted business activities or right to own assets or property, and the
Grantor hereby acknowledges that the Holding Guarantee remains in full force
and effect in accordance with its terms and conditions.
(b) In the event of a conflict between any provision of this
Agreement or the obligations of the Grantor under this Agreement in respect of
the collateral described in this paragraph with any provision of, or obligation
in respect of such collateral under, in the case of "Collateral" (as
defined in the Note Pledge Agreement), the Note Pledge Agreement or, in the
case of the "Pledged Collateral" (as defined in the Holding Stock Pledge
Agreement"), the Holding Stock Pledge Agreement, the provisions of the Note
Pledge Agreement or the Holding Stock Pledge Agreement, as the case may be,
shall govern.
<PAGE> 22
IN WITNESS WHEREOF, the Grantor has caused this Agreement to
be duly executed and delivered as of the date first above written.
APS HOLDING CORPORATION
By
------------------------------
Title:
Address for Notices:
15710 John F. Kennedy Boulevard
Suite 700
Houston, Texas 77032-2347
Attention: Chief Financial Officer
Telecopy: (713) 507-1320
ACKNOWLEDGED AND AGREED AS OF
THE DATE HEREOF BY:
THE CHASE MANHATTAN BANK, as Agent
By
----------------------------------
Title:
<PAGE> 23
Schedule 1
COLLATERAL
None
<PAGE> 24
Schedule 2
UCC FILING OFFICES
Texas Secretary of State
<PAGE> 25
Exhibit A
FORM OF FINANCING STATEMENT REPORT
TO: The Chase Manhattan Bank
Lien Perfection Department
200 Jericho Quadrangle
Jericho, New York 11753
FROM: APS Holding Corporation
DATE: ____________________, 199__
================================================================================
ATTACHED ARE UNIFORM COMMERCIAL CODE FILINGS RELATING TO THE FOLLOWING LOAN:
Name of Debtor: APS Holding Loan Facility: A.P.S.,
Corporation Inc.
----------------------------------------------------------------------
----------------------------------------------------------------------
Description of Enclosures:
----------------------------------------------------------------------
Contacts and Telephone Numbers:
----------------------------------------------------------------------
COMPLETE THE FOLLOWING GRID FOR EACH UCC FILING:
<TABLE>
<S> <C>
================================================================================
Name of Debtor: APS Holding Corporation
- --------------------------------------------------------------------------------
Name of Secured Party:
- --------------------------------------------------------------------------------
Type of Filing:
- --------------------------------------------------------------------------------
Filing Date:
- --------------------------------------------------------------------------------
File Number:
- --------------------------------------------------------------------------------
Jurisdiction:
- --------------------------------------------------------------------------------
Security Document: [Title] dated ___________, 199__
================================================================================
</TABLE>
<PAGE> 26
The undersigned hereby certifies that the above described
information is true and correct as of the date hereof.
APS HOLDING CORPORATION
By:
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.1.28
EXECUTION VERSION
PLEDGE AGREEMENT, dated as of December 8, 1997, made by
AMERICAN PARTS SYSTEM, INC., a Delaware corporation (the "Pledgor"), in favor
of THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), a New York
banking corporation, as agent (in such capacity, the "Agent") for the several
banks and other financial institutions (collectively, the "Lenders") from time
to time parties to the Amended and Restated Credit Agreement, dated as of
January 25, 1996 (as the same may be amended, supplemented, waived or otherwise
modified from time to time, the "Credit Agreement"), among A.P.S., Inc., a
Delaware corporation (the "Borrower"), the Agent and the Lenders.
W I T N E S S E T H :
WHEREAS, the Borrower, the Lenders and the Agent are parties
to the Credit Agreement, pursuant to which the Lenders have severally agreed to
make Loans and provide other financial accommodations to the Borrower upon the
terms and subject to the conditions set forth therein;
WHEREAS, the Borrower has failed to comply with the
requirements of subsection 8.1 of the Credit Agreement at the last day of the
fiscal quarter ended October 25, 1997 (the "Existing Defaults") and, pursuant
to the Fifth Amendment and Waiver, dated as of October 25, 1997, to the Credit
Agreement, the Lenders have waived the Existing Defaults until December 31,
1997;
WHEREAS, the Borrower has requested that the Agent and the
Lenders enter into that certain Sixth Amendment, Waiver and Agreement, dated as
of December 8, 1997, to the Credit Agreement (the "Sixth Amendment and
Waiver"), pursuant to which the Lenders would, among other things, agree,
subject to the terms and conditions thereof, to forbear, until February 10,
1998 or the occurrence of certain other events, from the exercise of their
rights and remedies under the Loan Documents and applicable law with respect to
the Existing Defaults following the expiration of the Fifth Amendment and
Waiver;
WHEREAS, in connection with, and as a condition precedent to,
the execution of the Credit Agreement, the Pledgor executed and delivered to
the Agent the Amended and Restated Subsidiaries' Guarantee, dated as of January
25, 1996 (the "Subsidiaries Guarantee"), pursuant to which, among other things,
the Pledgor unconditionally and irrevocably guaranteed to the Agent, for the
ratable benefit of the Lenders, the prompt and complete payment and performance
by the Borrower when due and payable of the Obligations (as defined in the
Subsidiaries Guarantee); and
<PAGE> 2
2
WHEREAS, it is a condition precedent to the effectiveness of
the Sixth Amendment and Waiver that, in order to further secure the Pledgor's
obligations under the Subsidiaries Guarantee, the Pledgor shall have executed
and delivered this Agreement to the Agent for the ratable benefit of the
Lenders;
NOW, THEREFORE, in consideration of the premises contained
herein and to induce the Lenders to enter into the Sixth Amendment and Waiver,
the Pledgor hereby agrees with the Agent, for the benefit of the Lenders, as
follows:
1. Defined Terms. (a) Unless otherwise defined herein,
terms which are defined in the Credit Agreement and used herein are so used as
so defined.
(b) The following terms shall have the following
meanings:
"Agreement": this Pledge Agreement, as the same may be
amended, supplemented, waived or otherwise modified from time to time.
"Code": the Uniform Commercial Code from time to time in
effect in the State of New York.
"Collateral": the Pledged Stock and all Proceeds thereof.
"Collateral Account": any account established to hold money
Proceeds, maintained under the sole dominion and control of the Agent,
subject to withdrawal by the Agent for the account of the Lenders only
as provided in paragraph 8(a).
"Issuer": the company identified on Schedule 1 attached
hereto as the issuer of the Pledged Stock.
"Obligations": as defined in the Subsidiaries Guarantee.
"Pledged Stock": the shares of capital stock listed on
Schedule 1 hereto, together with all stock certificates, stock options
or similar rights of any nature whatsoever that may be issued or
granted by the Issuer to the Pledgor while this Agreement is in
effect.
"Proceeds": all "proceeds" as such term is defined in Section
9-306(1) of the Code and, in any event, shall include, without
limitation, all dividends or other income
<PAGE> 3
3
from the Pledged Stock, collections thereon or distributions with
respect thereto.
"Securities Act": the Securities Act of 1933, as amended.
(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 and
paragraph 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.
2. Pledge; Grant of Security Interest. The Pledgor hereby
delivers to the Agent, for the ratable benefit of the Lenders, all of the
Pledged Stock and hereby grants to Agent, for the ratable benefit of the
Lenders, a security interest in the Collateral, as collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations.
3. Stock Powers. Concurrently with the delivery to the Agent
of each certificate representing one or more shares of Pledged Stock pursuant
to paragraph 2 above, the Pledgor shall deliver an undated stock power covering
such certificate, duly executed in blank by the Pledgor with, if the Agent so
requests, signature guaranteed.
4. Representations and Warranties. The Pledgor represents
and warrants that:
(a) The shares of Pledged Stock constitute all the issued and
outstanding shares of all classes of the capital stock of the Issuer
held by the Pledgor.
(b) All the shares of the Pledged Stock have been duly and
validly issued and are fully paid and nonassessable.
(c) The Pledgor is the record and beneficial owner of, and
has good and marketable title to, the Pledged Stock, free of any and
all Liens or options in favor of, or material adverse claims on any of
the Pledged Stock of, any other Person, except the security interest
created by this Agreement and Liens arising by operation of law.
(d) Upon delivery to the Agent of the stock certificates
evidencing the Pledged Stock, the security interest created by this
Agreement, assuming the continuing
<PAGE> 4
4
possession of the Pledged Stock by the Agent, will constitute a valid,
perfected first priority security interest in the Collateral,
enforceable in accordance with its terms against all creditors of the
Pledgor and any Persons purporting to purchase any Collateral from the
Pledgor, except as affected by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating
to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing; provided,
however, that the above representation and warranty does not apply to
any Lien arising by operation of law and entitled to a priority over
the security interest created by this Agreement.
5. Covenants. The Pledgor covenants and agrees with the
Agent and the Lenders that, from and after the date of this Agreement until
payment in full of the Notes, the Reimbursement Obligations and the other
Obligations then due and owing, the termination of the Commitments and the
expiration, termination or return to the Issuing Lender of the Letters of
Credit:
(a) If the Pledgor shall, as a result of its ownership of the
Pledged Stock, become entitled to receive or shall receive any stock
certificate (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), stock option or similar
rights, whether in addition to, in substitution of, as a conversion
of, or in exchange for any shares of the Pledged Stock, or otherwise
in respect thereof, the Pledgor shall accept the same as the agent of
the Agent and the Lenders, hold the same in trust for the Agent and
the Lenders and deliver the same forthwith to the Agent in the exact
form received, duly indorsed by the Pledgor to the Agent, if required,
together with an undated stock power covering such certificate duly
executed in blank by the Pledgor and with, if the Agent so requests,
signature guaranteed, to be held by the Agent, subject to the terms
hereof, as additional collateral security for the Obligations. Any
sums paid upon or in respect of the Pledged Stock upon the liquidation
or dissolution of the Issuer (other than pursuant to a transaction
permitted under subsection 8.5 or 8.6 of the Credit Agreement) shall
be paid over to the Agent to be held by it hereunder as additional
collateral security for the Obligations, and in case any property
shall be distributed upon or with respect to the Pledged Stock
pursuant to the recapitalization or reclassification of the capital of
the Issuer or pursuant to the reorganization thereof (other than
pursuant to a
<PAGE> 5
5
transaction permitted under subsection 8.5 or 8.6 of the Credit
Agreement), the property so distributed shall be delivered to the
Agent to be held by it hereunder as additional collateral security for
the Obligations. If any such sums of money or property so paid or
distributed in respect of the Pledged Stock shall be received by the
Pledgor, the Pledgor shall, until such money or property is paid or
delivered to the Agent, hold such money or property in trust for the
Lenders, segregated from other funds of the Pledgor, as additional
collateral security for the Obligations.
(b) Without the prior written consent of the Agent, the
Pledgor will not (1) vote to enable, or take any other action to
permit, the Issuer to issue any stock or other equity securities of
any nature or to issue any other securities convertible into or
granting the right to purchase or exchange for any stock or other
equity securities of any nature of the Issuer, to any Person other
than the Pledgor, (2) sell, assign, transfer, exchange, or otherwise
dispose of, or grant any option with respect to, the Collateral,
except as permitted by subsection 8.5 or 8.6 of the Credit Agreement,
(3) create, incur or permit to exist any Lien or option in favor of,
or any material adverse claim of any Person with respect to, any of
the Collateral, or any interest therein, except for the security
interests created by this Agreement, Liens arising by operation of law
or (4) except as permitted by the Credit Agreement, enter into any
agreement or undertaking restricting the right or ability of the
Pledgor or the Agent to sell, assign or transfer any of the
Collateral.
(c) The Pledgor shall defend the security interest created by
this Agreement as a perfected security interest against claims and
demands of all Persons whomsoever. At any time and from time to time,
upon the written request of the Agent, and at the sole expense of the
Pledgor, the Pledgor will promptly and duly execute and deliver such
further instruments and documents and take such further actions as the
Agent may reasonably request for the purposes of obtaining or
preserving the full benefits of this Agreement and of the rights and
powers herein granted. In the event that an Event of Default has
occurred and is continuing, if any amount payable under or in
connection with any of the Collateral shall be or become evidenced by
any instrument (including any promissory note) or chattel paper (in
each case as defined in the Code), such instrument or chattel paper
shall be immediately delivered to the Agent, duly endorsed in a manner
satisfactory to the Agent, to be held as Collateral pursuant to this
Agreement.
<PAGE> 6
6
(d) The Pledgor shall pay, and save the Agent and the Lenders
harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other
similar taxes which may be payable or determined to be payable with
respect to any of the Collateral or in connection with any of the
transactions contemplated by this Agreement.
6. Cash Dividends; Voting Rights. Unless an Event of Default
shall have occurred and be continuing and the Agent shall have given notice to
the Pledgor of the Agent's intent to exercise its corresponding rights pursuant
to Section 7 below, the Pledgor shall be permitted to receive all dividends and
distributions paid or made in respect of the Pledged Stock and to exercise all
voting and corporate and other rights with respect to the Pledged Stock;
provided, however, that no vote shall be cast or corporate right exercised or
other action taken which would materially impair the Collateral (other than
pursuant to a transaction permitted under subsection 8.3, 8.5 or 8.6 of the
Credit Agreement) or result in any violation of any provision of the Credit
Agreement, the Notes, this Agreement or any other Loan Document.
7. Rights of the Lenders and the Agent. (a) All money
Proceeds received by the Agent hereunder shall be held by the Agent for the
benefit of the Lenders in a Collateral Account. All Proceeds while held by the
Agent in a Collateral Account (or by the Pledgor in trust for the Agent and the
Lenders) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
in Section 8(a).
(b) If an Event of Default shall occur and be continuing
and the Agent shall give notice to the Pledgor of its intent to exercise such
rights, (i) the Agent shall have the right to receive any and all cash
dividends paid in respect of the Pledged Stock and make application thereof to
the Obligations in such order as the Agent may determine and (ii) the Agent
shall have the right to cause all shares of the Pledged Stock to be registered
in the name of the Agent or its nominee, and the Agent or its nominee may
thereafter exercise (A) all voting, corporate and other rights pertaining to
such shares of the Pledged Stock at any meeting of shareholders of the Issuer
or otherwise and (B) any and all rights of conversion, exchange, subscription
and any other rights, privileges or options pertaining to such shares of the
Pledged Stock as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Stock upon the merger, consolidation, reorganization, recapitalization or other
fundamental change in the corporate structure of the Issuer, or upon the
exercise by the Pledgor or the Agent of any right,
<PAGE> 7
7
privilege or option pertaining to such shares of the Pledged Stock, and in
connection therewith, the right to deposit and deliver any and all of the
Pledged Stock with any committee, depositary, transfer agent, registrar or
other designated agency upon such terms and conditions as the Agent may
determine), all without liability (other than for its gross negligence or
willful misconduct) except to account for property actually received by it, but
the Agent shall have no duty to the Pledgor to exercise any such right,
privilege or option and shall not be responsible for any failure to do so or
delay in so doing.
8. Remedies. (a) If an Event of Default shall have
occurred and be continuing, at any time at the Agent's election, the Agent may
apply all or any part of Proceeds held in any Collateral Account in payment of
the Obligations in such order as the Agent may elect.
(b) If an Event of Default shall occur and be continuing,
the Agent, on behalf of the Lenders, may exercise all rights and remedies of a
secured party under the Code, and, to the extent permitted by law, all other
rights and remedies granted in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations. Without
limiting the generality of the foregoing, the Agent, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Pledgor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances, to
the extent permitted by law, forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, in the over-the-counter
market, at any exchange, broker's board or office of the Agent or any Lender or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery
without assumption of any credit risk. The Agent or any Lender shall have the
right, to the extent permitted by law, upon any such sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Pledgor, which right or equity is hereby waived or released.
The Agent shall apply any Proceeds from time to time held by it and the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred in respect thereof or incidental to the care or safekeeping of any of
the Collateral or in any way relating to the Collateral or the rights of the
Agent and the Lenders hereunder, including, without
<PAGE> 8
8
limitation, reasonable attorneys' fees and disbursements of counsel to the
Agent, to the payment in whole or in part of the Obligations, in such order as
the Agent may elect, and only after such application and after the payment by
the Agent of any other amount required by any provision of law, including,
without limitation, Section 9-504(1)(c) of the Code, need the Agent account for
the surplus, if any, to the Pledgor. To the extent permitted by applicable
law, the Pledgor waives all claims, damages and demands it may acquire against
the Agent or any Lender arising out of the repossession, retention or sale of
the Collateral, other than any such claims, damages and demands that may arise
from the gross negligence or willful misconduct of any of them. If any notice
of a proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least 10 days
before such sale or other disposition. The Pledgor waives and agrees not to
assert any rights or privileges which it may acquire under Section 9-112 of the
Code. The Pledgor shall remain liable for any deficiency if the proceeds of
any sale or other disposition of Collateral are insufficient to pay the then
outstanding Obligations and the fees and disbursements of any attorneys
employed by the Agent or any Lender to collect such deficiency.
9. Registration Rights; Private Sales. (a) If the Agent
shall determine to exercise its right to sell any or all of the Pledged Stock
pursuant to Section 8 hereof, and if in the reasonable opinion of the Agent it
is necessary or reasonably advisable to have the Pledged Stock, or that portion
thereof to be sold, registered under the provisions of the Securities Act, the
Pledgor will use best efforts to cause the Issuer (i) to execute and deliver,
and cause the directors and officers of the Issuer to execute and deliver, all
such instruments and documents, and do or cause to be done all such other acts
as may be, in the reasonable opinion of the Agent, necessary or reasonably
advisable to register the Pledged Stock to be sold, or that portion thereof to
be sold under the provisions of the Securities Act, (ii) to use its best
efforts to cause the registration statement relating thereto to become
effective and to remain effective for a period of not more than one year from
the date of the first public offering of the Pledged Stock, or that portion
thereof to be sold, ending when all such Pledged Stock is sold, and (iii) to
make all amendments thereto and/or to the related prospectus which, in the
reasonable opinion of the Agent, are necessary or reasonably advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. If
the Agent shall determine to exercise its right to sell any or all of the
Pledged Stock pursuant to Section 8 hereof, and if in the reasonable opinion of
the Agent it is necessary or reasonably advisable to comply with the provisions
of the securities or "Blue Sky" laws of any jurisdiction, the
<PAGE> 9
9
Pledgor agrees to use best efforts to cause the Issuer to comply with the
provisions of the securities or "Blue Sky" laws of any and all jurisdictions
which the Agent shall reasonably designate and to make available to its
security holders, as soon as practicable, an earnings statement (which need not
be audited) which will satisfy the provisions of Section 11(a) of the
Securities Act.
(b) The Pledgor recognizes that the Agent may be unable to
effect a public sale of any or all the Pledged Stock, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Agent shall
be under no obligation to delay a sale of any of the Pledged Stock for the
period of time necessary to permit the Issuer to register such securities for
public sale under the Securities Act, or under applicable state securities
laws, even if the Issuer would agree to do so.
(c) The Pledgor further agrees to use its best efforts to do
or cause to be done all such other acts as may be necessary to make such sale
or sales of all or any portion of the Pledged Stock pursuant to this Section 9
valid and binding and in compliance with any and all other applicable
Requirements of Law. The Pledgor further agrees that a breach of any of the
covenants contained in this Section will cause irreparable injury to the Agent
and the Lenders, that the Agent and the Lenders have no adequate remedy at law
in respect of such breach and, as a consequence, that each and every covenant
contained in this Section shall be specifically enforceable against the
Pledgor, and, to the extent permitted by law, the Pledgor hereby waives and
agrees not to assert any defenses against an action for specific performance of
such covenants except for a defense that no Event of Default has occurred and
is continuing under the Credit Agreement.
10. Irrevocable Authorization and Instruction to Issuers.
The Pledgor hereby authorizes and instructs the Issuer to comply with any
instruction received by it from the Agent in writing that (a) states that an
Event of Default has occurred and is continuing and (b) is otherwise in
accordance with the terms of this Agreement, without any other or further
instructions from
<PAGE> 10
10
the Pledgor, and the Pledgor agrees that the Issuer shall be fully protected in
so complying.
11. Agent's Appointment as Attorney-in-Fact. (a) The
Pledgor hereby irrevocably constitutes and appoints the Agent and any officer
or agent of the Agent, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the Pledgor and in the name of the Pledgor or in the Agent's own name,
from time to time in the Agent's discretion, in the event that an Event of
Default has occurred and is continuing, and to the extent permitted by law, to
take any and all appropriate action and to execute any and all documents and
instruments which may be necessary or reasonably desirable to accomplish the
purposes of this Agreement, including, without limitation, any financing
statements, endorsements, assignments or other instruments of transfer.
(b) The Pledgor hereby ratifies all that said attorneys shall
lawfully do or cause to be done pursuant to the power of attorney granted in
Section 11(a). All powers, authorizations and agencies contained in this
Agreement with respect to the Collateral are coupled with an interest and are
irrevocable until payment in full of the Notes, the Reimbursement Obligations
and the other Obligations then due and owing, the termination of the
Commitments and the expiration, termination or return to the Issuing Lender of
the Letters of Credit.
12. Duty of Agent. The Agent's sole duty with respect to the
custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the Code or otherwise, shall be to deal with
it in the same manner as the Agent deals with similar securities and property
for its own account. Neither the Agent, any Lender nor any of their respective
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon any of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Pledgor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof.
13. Execution of Financing Statements. Pursuant to Section
9-402 of the Code, the Pledgor authorizes the Agent to file financing
statements with respect to the Collateral without the signature of the Pledgor
in such form and in such filing offices as the Agent reasonably determines
appropriate to perfect the security interests of the Agent under this
Agreement. A carbon, photographic or other reproduction of this Agreement
shall be sufficient as a financing statement for filing in any jurisdiction.
<PAGE> 11
11
14. Authority of Agent. The Pledgor acknowledges that the
rights and responsibilities of the Agent under this Agreement with respect to
any action taken by the Agent or the exercise or non-exercise by the Agent of
any option, voting right, request, judgment or other right or remedy provided
for herein or resulting or arising out of this Agreement shall, as between the
Agent and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Agent and the Pledgor, the Agent shall be conclusively presumed
to be acting as agent for the Lenders with full and valid authority so to act
or refrain from acting, and neither the Pledgor nor the Issuer shall be under
any obligation to make any inquiry respecting such authority.
15. Notices. All notices, requests and demands under this
Agreement shall be given in accordance with subsection 11.2 of the Credit
Agreement, except that notice to the Pledgor shall be given at the address set
forth under its signature below.
16. Release of Collateral and Termination. (a) At such time
as the payment in full of the Notes, the Reimbursement Obligations and the
other Obligations then due and owing shall have occurred, the Commitments have
been terminated and the Letters of Credit have expired, terminated or been
returned to the Issuing Lender, the Collateral shall be released from the Liens
created hereby, and this Agreement and all obligations (other than those
expressly stated to survive such termination) of the Agent and the Pledgor
hereunder shall terminate, all without delivery of any instrument or
performance of any act by any party, and all rights to the Collateral shall
revert to the Pledgor. Upon request of the Pledgor following any such
termination, the Agent shall deliver (at the sole cost and expense of the
Pledgor) to the Pledgor any Collateral held by the Agent hereunder, and execute
and deliver (at the sole cost and expense of the Pledgor) to the Pledgor such
documents as the Pledgor shall reasonably request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred
or otherwise disposed of by the Pledgor in a transaction permitted by the
Credit Agreement, then the Agent shall execute and deliver to the Pledgor (at
the sole cost and expense of the Pledgor) all releases or other documents
necessary or reasonably desirable for the release of the Liens created hereby
on such Collateral.
17. Severability. Any provision of this Agreement which 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
<PAGE> 12
12
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
18. Amendments in Writing; No Waiver; Cumulative Remedies.
(a) None of the terms or provisions of this Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Agent, provided that, at the Pledgor's request, any
provision of this Agreement for the benefit of the Agent and/or the Lenders may
be waived by the Agent in a written letter or agreement executed by the Agent
or by telex or facsimile transmission from the Agent.
(b) Neither the Agent nor any Lender shall by any act (except
by a written instrument pursuant to Section 18(a) hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default or in any breach of any
of the terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of the Agent or any Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Agent or any Lender of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Agent or such Lender would otherwise have on any future
occasion.
(c) The rights and remedies herein provided are cumulative,
may be exercised singly or concurrently and are not exclusive of any other
rights or remedies provided by law.
19. Section Headings. The section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
20. Successors and Assigns. This Agreement shall be binding
upon the successors and assigns of the Pledgor and shall inure to the benefit
of the Agent and the Lenders and their successors and assigns.
21. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
<PAGE> 13
IN WITNESS WHEREOF, the undersigned has caused this Agreement
to be duly executed and delivered as of the date first above written.
AMERICAN PARTS SYSTEM, INC.
By:
------------------------------
Title:
Address for Notices:
15710 John F. Kennedy Boulevard
Suite 700
Houston, Texas 77032-2347
Attention: Chief Financial Officer
Telecopy:(713) 507-1320
and
Attention: General Counsel
Telecopy: (713) 507-1342
AGREED TO AND ACCEPTED
AS OF THE DATE HEREOF BY:
THE CHASE MANHATTAN BANK, as Agent
By:
------------------------------
Title:
<PAGE> 14
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledges receipt of a copy of the
Pledge Agreement (as the same may be amended, supplemented, waived or otherwise
modified from time to time, the "Pledge Agreement") dated as of December 8,
1997, made by American Parts System, Inc. (the "Pledgor"), in favor of The
Chase Manhattan Bank, as agent (in such capacity, the "Agent") for the several
banks and other financial institutions (collectively, the "Lenders") from time
to time parties to the Credit Agreement dated as of January 25, 1996, among
A.P.S., Inc., the Lenders and the Agent. The undersigned agrees for the
benefit of the Agent and the Lenders as follows:
1. The undersigned will be bound by the terms of the
Pledge Agreement and will comply with such terms insofar as such terms
are applicable to the undersigned.
2. The undersigned will notify the Agent promptly in
writing of the occurrence of any of the events described in Section
5(a) of the Pledge Agreement.
3. The terms of Section 9(c) of the Pledge Agreement
shall apply to it, mutatis mutandis, with respect to all actions that
may be required of it under or pursuant to or arising out of Section 9
of the Pledge Agreement.
INSTALLERS' SERVICE WAREHOUSE, INC.
By:
------------------------------
Title:
---------------------------
<PAGE> 15
SCHEDULE 1
TO PLEDGE AGREEMENT
DESCRIPTION OF PLEDGED STOCK
<TABLE>
<CAPTION>
Stock
Class of Certificate No. of
Issuer Stock* No. Shares
- ----------------------------- ----- ----------- ------
<S> <C> <C> <C>
INSTALLERS' SERVICE Common [1] [1000]
WAREHOUSE, INC.
</TABLE>
- -------------------
* Stock is common stock unless otherwise indicated.
<PAGE> 1
EXHIBIT 10.1.29
EXECUTION VERSION
SUPPLEMENT, dated as of December 8, 1997 to the Trademark
Security Agreement, dated as of May 15, 1996 (as amended, supplemented, waived
or otherwise modified from time to time, the "Trademark Security Agreement"),
made by A.P.S. Management Services, Inc. (the "Grantor") in favor of The Chase
Manhattan Bank (formerly known as Chemical Bank), as agent (in such capacity,
the "Agent") for the several banks and other financial institutions (the
"Lenders") from time to time parties to the Amended and Restated Credit
Agreement, dated as of January 25, 1996 (as the same may be amended,
supplemented, waived or otherwise modified from time to time), among A.P.S.,
Inc. (the "Borrower"), the Agent and the Lenders.
W I T N E S S E T H :
WHEREAS, the Borrower, the Agent and the Lenders are parties to
the Credit Agreement;
WHEREAS, the Grantor is party to the Amended and Restated
Subsidiaries' Guarantee, dated as of January 25, 1996 (as amended,
supplemented, waived or otherwise modified from time to time, the
("Subsidiaries Guarantee"), pursuant to which, among other things, the Grantor
unconditionally and irrevocably guaranteed to the Agent, for the ratable
benefit of the Lenders, the prompt and complete payment and performance of the
Obligations (as defined in the Subsidiaries Guarantee);
WHEREAS, the Grantor is a party to the Amended and Restated
Security Agreement, dated as of January 25, 1996 (as amended, supplemented,
waived or otherwise modified from time to time, the "Subsidiaries Security
Agreement"), made by the grantors named therein in favor of the Agent, for the
benefit of the Lenders, pursuant to which the Grantor granted a security
interest in, among other things, its General Intangibles (as defined in the
Subsidiaries Security Agreement), including, without limitation, trademarks,
trade names and other intangible property;
WHEREAS, the Grantor executed and delivered the Trademark
Security Agreement to further evidence its grant to the Agent, for the ratable
benefit of the Lenders, a security interest in the "Collateral" described
therein;
WHEREAS, following the execution and delivery of the Trademark
Security Agreement the Grantor became the owner of the trademark listed on
Annex A hereto (the "Additional Trademark");
WHEREAS, the Grantor is entering into this Supplement to further
evidence its grant of a security interest in all of its right, title and
interest in and to the Additional Trademark, and all Proceeds thereof, as
collateral security for the prompt and complete payment and performance of the
Secured Obligations (as defined in the Subsidiaries Security Agreement);
<PAGE> 2
2
NOW, THEREFORE, in consideration of the premises, the Grantor
hereby agrees with the Agent, for the ratable benefit of the Lenders, as
follows:
1. Defined Terms. Unless otherwise defined herein, terms which
are defined in the Trademark Security Agreement and used herein are so used as
so defined.
2. Grant of Security Interest. As collateral security for
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Secured Obligations, the Grantor
hereby grants to the Agent for the ratable benefit of the Lenders a security
interest in the Additional Trademark and the Proceeds thereof.
3. Representations and Warranties. The Grantor hereby
represents that each of the representations and warranties contained in Section
3 of the Trademark Security Agreement is true and correct in all material
respects on and as of the date hereof (after giving effect to this Supplement)
as if made on and as of such date and with references to the "Agreement" to
mean the Trademark Security Agreement as supplemented by this Supplement.
4. Supplement to the Trademark Security Agreement. This
Supplement is supplemental to the Trademark Security Agreement, forms a part
thereof and is subject to the terms thereof and the Trademark Security
Agreement is hereby supplemented as provided herein. Schedule 1 to the
Trademark Security Agreement shall hereby be deemed to include the item listed
on Annex A to this Supplement. Without limiting the foregoing, all references
in the Trademark Security Agreement to "Trademarks" shall be deemed to, and
shall, include the Additional Trademark.
5. Effectiveness. This Supplement shall become effective as of
the date hereof upon receipt by the Agent of counterparts of this Supplement
duly executed and delivered by the Grantor.
6. Continuing Effect. Except as expressly supplemented hereby,
all terms and provisions of the Trademark Security Agreement are and shall
remain in full force and effect.
7. Counterparts. This Supplement may be executed by one or more
of the parties to this Supplement on any number of separate counterparts, and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.
8. GOVERNING LAW. THIS SUPPLEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS SUPPLEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH,
<PAGE> 3
3
THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF.
<PAGE> 4
IN WITNESS WHEREOF, the undersigned has caused this Supplement to
be executed and delivered by a duly authorized officer on the date first above
written.
A.P.S. MANAGEMENT SERVICES, INC.
By:_______________________________
Title:
Accepted and agreed as of the
date first above written:
THE CHASE MANHATTAN BANK, as Agent
By:________________________
Title:
<PAGE> 5
ANNEX A
<TABLE>
<CAPTION>
MARK APPLICATION NO. FILING DATE
- ---- --------------- -----------
<S> <C> <C>
TechKnowledge 75-217,044 December 23, 1996
</TABLE>
<PAGE> 1
EXHIBIT 11.1
APS HOLDING CORPORATION
COMPUTATION OF INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 25, OCTOBER 25,
------------------- ---------------------
1997 1996 1997 1996
------- ------ ------- -------
<S> <C> <C> <C> <C>
Weighted average shares of common stock outstanding 13,790 13,741 13,780 13,733
Shares issuable on assumed exercise of stock options 0 200 0 171
------- ------ ------- -------
Weighted average shares for primary net income per share 13,790 13,941 13,780 13,904
Incremental shares issuable on assumed exercise of stock
options to reflect maximum dilutive effect 0 8 0 16
------- ------ ------- -------
Weighted average shares for fully diluted net income per share 13,790 13,949 13,780 13,920
======= ====== ======= =======
Net income (loss) ($5,266) $6,100 ($15,852) $13,418
======= ====== ======= =======
Primary net income (loss) per share ($0.38) $0.44 ($1.15) $0.97
======= ====== ======= =======
Fully diluted net income (loss) per share ($0.38) $0.44 ($1.15) $0.96
======= ====== ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 12.0
APS HOLDING CORPORATION
COMPUTATION OF EARNINGS (LOSS) TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 25, OCTOBER 25,
------------------ -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Earnings (loss) before income taxes and interest ($536) $16,535 ($1,153) $41,848
Portion of operating rents deemed representative
of an interest factor 2,221 2,275 6,712 6,943
------- ------- ------- -------
Earnings (loss) before fixed charges $1,685 $18,810 $5,559 $48,791
======= ======= ======= =======
Interest expense $8,090 $6,846 $23,154 $20,529
Portion of operating rents deemed representative
of an interest factor 2,221 2,275 6,712 6,943
------- ------- ------- -------
Fixed charges $10,311 $9,121 $29,866 $27,472
======= ======= ======= =======
Earnings (loss) to fixed charges 0.2 2.1 0.2 1.8
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> JAN-26-1997
<PERIOD-END> OCT-25-1997
<CASH> 27,972
<SECURITIES> 0
<RECEIVABLES> 105,819
<ALLOWANCES> 0
<INVENTORY> 277,329
<CURRENT-ASSETS> 462,251
<PP&E> 44,611
<DEPRECIATION> 0
<TOTAL-ASSETS> 588,991
<CURRENT-LIABILITIES> 386,412
<BONDS> 101,258
0
0
<COMMON> 138
<OTHER-SE> 96,849
<TOTAL-LIABILITY-AND-EQUITY> 588,991
<SALES> 633,728
<TOTAL-REVENUES> 633,728
<CGS> 427,528
<TOTAL-COSTS> 427,528
<OTHER-EXPENSES> 211,268
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,154
<INCOME-PRETAX> (24,307)
<INCOME-TAX> (8,455)
<INCOME-CONTINUING> (15,852)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,852)
<EPS-PRIMARY> (1.15)
<EPS-DILUTED> 0
</TABLE>
