FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 2, 1999
Commission file number 1-11276
DISCOUNT AUTO PARTS, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-1447420
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
4900 Frontage Road, South
Lakeland, Florida 33815
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(Address of principal executive offices) (zip code)
(941) 687-9226
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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 periods 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
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock $.01 Par Value -16,649,492 shares as of March 2, 1999
<PAGE>
Discount Auto Parts, Inc.
Index
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 2, 1999 and June 2, 1998...3
Condensed Consolidated Statements of Income - for the thirteen and
thirty-nine weeks ended March 2, 1999 and March 3, 1998...................4
Condensed Consolidated Statements of Cash Flows - for the thirty-nine weeks
ended March 2, 1999 and March 3, 1998.....................................5
Notes to Condensed Consolidated Financial Statements......................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.............................................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................12
Item 6. Exhibits and Reports on Form 8-K......................................13
SIGNATURES................................................................... 14
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<TABLE>
PART I - FINANCIAL INFORMATION
Discount Auto Parts, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
<CAPTION>
March 2 June 2
1999 1998
------------------- ------------------
ASSETS (In thousands)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 7,007 $ 5,064
Inventories 214,750 172,027
Prepaid expenses and other current assets 17,105 17,657
------------------- ------------------
Total current assets 238,862 194,748
Property and equipment 439,036 379,991
Less allowances for depreciation and amortization (78,334) (65,472)
------------------- ------------------
360,702 314,519
Other assets 5,116 2,468
------------------- ------------------
Total assets $ 604,680 $ 511,735
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 67,450 $ 67,083
Other current liabilities 18,708 19,603
Current maturities of long-term debt 4,256 2,400
------------------- ------------------
Total current liabilities 90,414 89,086
Deferred income taxes 6,051 5,069
Long-term debt 231,000 160,695
Stockholders' equity:
Preferred stock
- -
Common stock 167 166
Additional paid-in capital 141,627 141,163
Retained earnings 135,421 115,556
------------------- ------------------
Total stockholders' equity 277,215 256,885
------------------- ------------------
Total liabilities and stockholders' equity $ 604,680 $ 511,735
=================== ==================
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
Discount Auto Parts, Inc.
Condensed Consolidated Statements of Income (Unaudited)
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
-------------- -------------- --------------- ----------------
March 2 March 3 March 2 March 3
1999 1998 1999 1998
-------------- -------------- --------------- ----------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 127,380 $ 110,329 $ 370,709 $ 325,306
Cost of sales, including distribution costs 74,177 66,942 218,626 198,167
-------------- -------------- --------------- ----------------
Gross profit 53,203 43,387 152,083 127,139
Selling, general and administrative expenses 39,017 31,301 110,862 90,316
-------------- -------------- --------------- ----------------
Income from operations 14,186 12,086 41,221 36,823
Other income, net 280 2,063 411 2,379
Interest expense (3,552) (2,812) (9,279) (7,479)
-------------- -------------- --------------- ----------------
Income before income taxes 10,914 11,337 32,353 31,723
Income taxes 4,213 4,365 12,488 12,213
-------------- -------------- --------------- ----------------
Net income $ 6,701 $ 6,972 $ 19,865 $ 19,510
============== ============== =============== ================
Net income per share:
Basic net income per common share $ $ $ $
0.40 0.42 1.19 1.18
============== ============== =============== ================
Diluted net income per common share $ $ $ $
0.40 0.42 1.18 1.17
============== ============== =============== ================
Average common shares outstanding
16,648 16,605 16,641 16,600
Dilutive effect of stock options 123 159 87
91
-------------- -------------- --------------- ----------------
Average common shares outstanding -
assuming dilution
16,771 16,696 16,800 16,687
============== ============== =============== ================
</TABLE>
<PAGE>
<TABLE>
Discount Auto Parts, Inc.
Condensed Consolidated Statements Of Cash Flows (Unaudited)
<CAPTION>
Thirty-nine Thirty-nine
Weeks Ended Weeks Ended
--------------------------------------------
March 2 March 3
Operating activities 1999 1998
-------------------- -----------------
<S> <C> <C>
Net income $ 19,865 $ 19,510
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 13,404 11,129
Deferred income taxes 982 8,190
(Gain) on sales of property and equipment (252) (669)
Changes in operating assets and liabilities:
(Increase) in inventories (35,317) (16,605)
Decrease in prepaid expenses and other
current assets 552 1,669
Decrease (increase) in other assets 125 (1,761)
Increase (decrease) in trade accounts payable 367 (15,472)
(Decrease) in litigation settlement (20,400)
-
(Decrease) increase in other current liabilities (3,605) 3,009
-------------------- -----------------
Net cash used in operating activities (3,879) (11,400)
Investing activities
Proceeds from sales of property and equipment 3,396 1,474
Purchases of property and equipment (61,974) (41,209)
Business acquisition (8,225)
-
-------------------- -----------------
Net cash used in investing activities (66,803) (39,735)
Financing activities
Proceeds from short-term borrowings and long-term debt 95,359 188,601
Payments of short-term borrowings and long-term debt (23,198) (139,110)
Proceeds from issuance of common stock 464 202
-------------------- -----------------
Net cash provided by financing activities 72,625 49,693
Net increase (decrease) in cash and cash equivalents 1,943 (1,442)
Cash and cash equivalents at beginning of period 5,064 6,409
-------------------- -----------------
Cash and cash equivalents at end of period $ 7,007 $ 4,967
==================== =================
</TABLE>
<PAGE>
Discount Auto Parts, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 2, 1999
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Discount Auto Parts, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended June 2,
1998.
Operating results for the thirteen and thirty-nine week periods ended March 2,
1999 are not necessarily indicative of the results that may be expected for the
entire fiscal year.
2. Long-Term Debt
Long-term debt consists of the following (in thousands):
March 2 June 2
1999 1998
Revolving credit agreements $ 176,856 $ 103,495
Senior term notes 50,000 50,000
Senior secured notes 8,400 9,600
---------- ----------
235,256 163,095
Less current maturities (4,256) (2,400)
----------- ----------
$ 231,000 $ 160,695
==================================
Effective July 16, 1997, the Company entered into a three year $175 million
unsecured revolving credit agreement (the "Revolver"). The rate of interest
payable under the Revolver is a function of LIBOR or the prime rate of the lead
agent bank, at the option of the Company. The Company may increase the amount of
the facility to $200 million with the consent of the syndication of banks.
During the term of the Revolver, the Company is obligated to pay a fee of .125%
per annum for the unused portion of the Revolver.
Effective January 29, 1999, the Company entered into a separate $20 million
unsecured revolving credit agreement with a financial institution. The facility
matures September 1, 1999. The rate of interest payable under the facility is a
function of LIBOR.
Effective August 8, 1997, the Company completed the placement of a separate $50
million senior term notes facility (the "Notes"). The Notes provide for interest
at a fixed rate of 7.46%, payable semi-annually, with semi-annual principal
payments of $7.1 million, beginning on July 15, 2004. The net proceeds from the
Notes were used to reduce the Company's indebtedness under the Revolver.
At March 2, 1999, the Company's weighted average interest rate on its borrowings
under the revolving credit agreements was 5.6% and at June 2, 1998, the
Company's weighted average interest rate on its borrowing under the Revolver was
6.0%.
As of March 2, 1999, the Company had approximately $18.1 million of available
borrowings under its revolving credit agreements.
The Company has issued two senior secured notes, each for an original principal
amount of $12 million, with an insurance company. The notes are collateralized
by a first mortgage on certain retail store properties, equipment and fixtures.
The agreements provide for interest at fixed rates of 10.11% and 9.8%, payable
quarterly, with annual principal payments of $1.2 million on each December 15
and May 31.
The Company's debt agreements contain various restrictions, including the
maintenance of certain financial ratios and restrictions on dividends, with
which the Company was in compliance as of March 2, 1999.
3. Business Acquisition
Effective September 28, 1998, the Company acquired, pursuant to a definitive
purchase agreement dated September 21, 1998, all the Rose Auto Parts stores
through an asset purchase from Eastern Automotive Warehouse, Inc., a
wholly-owned subsidiary of National Auto Parts Warehouse, Inc. The total
purchase price was approximately $8.2 million. The acquisition included 39
leased retail store locations, primarily located in southeast Florida, and a
leased warehouse facility in Miami. The acquisition involved the purchase of
inventory and furniture and equipment at these various locations and the
assumption of the respective leases. At March 2, 1999, 26 of the 39 Rose retail
locations were in operation. Consistent with its plan, Discount Auto Parts does
not expect to continue operations in any of the remaining 13 stores.
The acquisition has been accounted for using the purchase method of accounting,
and, accordingly, the purchase price has been allocated to the assets purchased
and the liabilities assumed based upon the fair values at the date of
acquisition. Operating results of the acquired business have been included in
operations since the date of the acquisition.
The pro forma impact of the acquired business on results of operation is not
material.
4. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"), which is effective for
years beginning after December 15, 1997. Statement 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. Statement 131 is effective
for financial statements for fiscal years beginning after December 15, 1997, and
therefore the Company will adopt the new disclosure requirements retroactively
in fiscal 1999. Management has not completed its review of Statement 131, but
does not anticipate that the adoption of this statement will have a significant
effect on the Company's financial statements.
In June 1997, the FASB issued Statement 130, Reporting Comprehensive Income
("Statement 130"). Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components. The Company adopted the
provisions of Statement 130 effective June 3, 1998; however, Statement 130 had
no impact on the Company's financial position or results of operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations Results of Operations Thirteen Weeks and Thirty-nine Weeks
Ended March 2, 1999 Compared to Thirteen and Thirty-Nine Weeks Ended March 3,
1998
Total sales for the third quarter of fiscal 1999 were $127.4 million as compared
to $110.3 million a year earlier, an increase of 15.5%. Comparable store sales
(which include sales under the Company's commercial delivery program) increased
1% for the third quarter of fiscal 1999 as compared to the third quarter of
fiscal 1998. The balance of the increase in total sales for the fiscal 1999
third quarter was attributable to net sales from new stores opened since the
beginning of the fiscal 1998 period, as well as sales associated with the Rose
Auto Parts stores which were acquired effective September 28, 1998.
Total sales for the first nine months of fiscal 1999 were $370.7 million as
compared to $325.3 million a year earlier, an increase of 14.0%. Comparable
store sales (which include sales under the Company's commercial delivery
program) increased 2% for the first nine months of fiscal 1999 as compared to
the first nine months of fiscal 1998. The balance of the increase in total sales
for the first nine months of fiscal 1999 was attributable to net sales from new
stores opened since the beginning of fiscal 1998, as well as sales associated
with the Rose Auto Parts stores.
At March 2, 1999, the Company had 537 stores in operation, compared with 452
stores at June 2, 1998 and 435 stores at March 2, 1998.
Gross profit for the third quarter of fiscal 1999 increased to $53.2 million, or
41.8% of net sales, as compared to $43.4 million, or 39.3% of net sales, for the
comparable period of fiscal 1998. Gross profit for the first nine months of
fiscal 1999 increased to $152.1 million, or 41.0% of net sales, as compared to
$127.1 million, or 39.1% of net sales, for the first nine months of fiscal 1998.
The improvement in gross margins for the third quarter and first nine months of
fiscal 1999 was due in part to overall lower product cost, a shift in
merchandising strategies to promote higher gross margin product offerings,
vendor incentives associated with the Rose Auto store openings and a shift in
vendor cooperative advertising allowances to direct product cost reductions.
Selling, general and administrative (SG&A) expenses increased as a percentage of
sales from 28.4% in the third quarter of fiscal 1998 to 30.6% in the third
quarter of fiscal 1999. SG&A expenses increased as a percentage of sales from
27.8% for the first nine months of fiscal 1998 to 29.9% for the first nine
months of fiscal 1999. The increase is primarily due to the expenses incurred
related to the implementation of the Company's commercial delivery program and
the shift in cooperative advertising credits to direct product purchase price
reductions.
Income from operations for the third quarter of fiscal 1999 increased 17.4% to
$14.2 million as compared to $12.1 million in the third quarter of fiscal 1998.
Income from operations for the first nine months of fiscal 1999 increased 11.9%
to $41.2 million as compared to $36.8 million for the first nine months of
fiscal 1998. Operating margins for the third quarter of fiscal 1999 were 11.1%
as compared to 11.0% for the third quarter of fiscal 1998. Operating margins for
the first nine months of fiscal 1999 were 11.1% as compared to 11.3% for the
first nine months of fiscal 1998. Operating margins for the both the third
quarter and first nine months of fiscal 1999 were negatively impacted by
expenses associated with the implementation of the Company's commercial delivery
program. Excluding the impact of the commercial delivery program, operating
margins were 12.5% for the third quarter of fiscal 1999 and 12.2% for the first
nine months of fiscal 1999.
Interest expense for the third quarter of fiscal 1999 was $3.6 million, compared
to $2.8 million for the third quarter of fiscal 1998. Interest expense for the
first nine months of fiscal 1999 was $9.3 million as compared to $7.5 million
during the first nine months of fiscal 1998. The increase in interest expense
was primarily the result of increased borrowings associated with new store
growth and the costs associated with the recently completed expansion of the
Company's existing distribution center and corporate office space. Borrowings
under the Company's revolving credit line were used to fund the Rose Auto Parts
acquisition, which was completed in the second quarter of fiscal 1999. The
increase in interest expense was partially offset by overall lower interest
rates.
Other income for the third quarter and first nine months of fiscal 1998 included
a $4.0 million fee received from the termination of the proposed acquisition of
Hi-Lo Automotive, Inc., less related expenses.
The Company's effective tax rate for the third quarter and first nine months of
fiscal 1999 was 38.6% as compared to 38.5% for the third quarter and first nine
months of fiscal 1998.
As a result of the termination fee received in the third quarter of fiscal 1998
and the other above factors, net income was $6.7 million or $.40 per diluted
share for the third quarter of fiscal 1999 as compared to net income of $7.0
million or $.42 per diluted share for the third quarter of fiscal 1998. Net
income for the first nine months of fiscal 1999 increased to $19.9 million or
$1.18 per diluted share as compared to $19.5 million or $1.17 per diluted share
for the first nine months of fiscal 1998.
In the fourth quarter of fiscal 1999, the Company plans to have completed the
roll-out and full integration of its perpetual inventory system and,
commensurate with the completion and integration, expects to effectuate a change
in the manner in which it accounts for its inventory. As a consequence of this
change, the Company anticipates it will need to reflect a non-recurring,
non-cash charge in the fourth quarter that can be expected to have a material
impact on the Company's fourth quarter net income.
Liquidity and Capital Resources
For the thirty-nine weeks ended March 2, 1999, net cash of $3.9 million was used
by the Company's operations versus $11.4 million used by the Company's
operations for the comparable thirty-nine week period of fiscal 1998. The
primary reason for the change between periods was the funding of the $20.4
million litigation settlement accrual, less the deferred tax impact, which
occurred in the first nine months of fiscal 1998. Inventories for the
thirty-nine week period ended March 2, 1999, increased more significantly than
in the fiscal 1998 period primarily as a result of the Distribution Center
expansion which was completed in fiscal 1999, more store openings in fiscal
1999, additional express warehouses opened in fiscal 1999 and additional
inventory added to support the Company's continued expansion of its commercial
delivery program. The increase in inventory was partially offset by the increase
in trade accounts payable for the fiscal 1999 period versus a decrease in trade
accounts payable for the fiscal 1998 period. The fiscal 1999 change was due in
part to extended vendor terms on the inventory added to support the commercial
delivery program.
Capital expenditures for the thirty-nine weeks ended March 2, 1999 were $62.0
million. The majority of the capital expenditures related to the 59 stores
(excluding the 26 Rose Auto Parts stores) opened during that period and costs
associated with the completed expansion of the Company's distribution center.
For all of fiscal 1999, the Company expects to add approximately 105 new stores,
of which 85 had been added as of March 2, 1999. For fiscal 2000, the Company
expects to add approximately 80 to 90 stores.
In July 1998, the Company completed the expansion of its distribution center to
double its size. The expanded distribution center, which comprises approximately
600,000 square feet, should be capable of serving approximately 675 stores.
Additional office space, support facilities and extension of the merchandising
handling systems were also completed during fiscal 1999. The expanded
distribution center also provides service to the Company's express warehouses,
and is being utilized to support the commercial delivery program.
The Company also continued the roll-out of a commercial delivery service, which
began in the third quarter of fiscal 1998. The Company's commercial delivery
service consists of a program whereby commercial customers (such as auto service
centers, commercial mechanics, garages and the like) establish commercial
accounts with the Company and order automotive parts from the Company and such
parts will be delivered from, or can be picked up from, nearby Discount Auto
Parts stores. The commercial delivery program can be expected to require the
Company to extend trade credit to certain of the commercial account customers as
part of the ordinary course of business. The extension of such trade credit will
increase the capital requirements associated with the roll-out of the program
and will expose the Company to credit risk from uncollectible accounts. The
Company has established systems to manage and control such credit risk. The
amount of capital that is needed to cover extension of trade credit will be
dependent in large part upon the success of the commercial delivery service
roll-out and how quickly the commercial business develops. Because this is a
relatively new aspect of the auto parts supply business for the Company, there
are risks associated with the Company's entry into this new aspect of the
business and there can be no assurance as to if or when the commercial delivery
service business will be profitable or as to whether the Company will experience
any financial or other challenges in managing and controlling the credit risk.
As further discussed in Note 3 of the Notes to Condensed Consolidated Financial
Statements, effective September 28, 1998, the Company acquired substantially all
of the assets of Rose Auto Parts stores for approximately $8.2 million. Funding
for the acquisition was provided from available borrowings under the Company's
revolving line of credit.
The Company anticipates that total capital expenditures for all of fiscal 1999
including the costs associated with the Rose Auto Parts acquisition and the
distribution center expansion and the working capital costs associated with the
roll-out of the commercial delivery service, will be in the range of $78 million
to $88 million.
As of March 2, 1999, the Company had $18.1 million of additional availability
under its existing financing agreements.
The Company has historically been able to finance most of its new store growth
through unsecured lines of credit and medium and longer term mortgage financing
provided by banks and other institutional lenders, and through cash flow from
operations. Consistent with its historical practice, the Company expects to
finance both its short and long-term liquidity needs for new store growth, as to
land and buildings, primarily through these lines of credit and mortgage
financing (including renewals and replacements thereof), and as to equipment and
fixtures, primarily through cash flow from operations.
The Company's new store development program also requires significant working
capital, principally for inventories. The Company has historically used trade
credit to partially finance new store inventories and has been successful in
negotiating extended payment terms and incentives from many suppliers through
volume purchases. The Company believes that it will be able to continue
financing a portion of its inventory growth through the extension of favorable
payment terms and incentives from its vendors, but there can be no assurance
that the Company will be successful in doing so. The additional funding for
inventory expansion has been provided in large part from cash flow from
operations.
The Company believes that the expected cash flows from operations, available
bank borrowings and trade credit, will be sufficient to fund the short term
capital and liquidity needs of the Company. Particularly in light of the use of
available borrowings to fund the recently completed Rose Auto Parts stores
acquisition, the Company secured $20 million of additional interim financing
during the third quarter of fiscal 1999. During the first quarter of fiscal year
2000 the Company expects to expand and extend the maturity of both its primary
revolving credit agreements and the $20 million interim financing. Although
there can be no assurance, the Company believes that it will be able to secure
expanded borrowing facilities or establish other financing programs to fund its
long term capital needs for store growth.
Year 2000 Issue
The Year 2000 issue results from computer programs and electronic circuitry that
do not differentiate between the year 1900 and the year 2000 because they are
written using two rather than four digit dates to define the applicable year. If
not corrected, many computer applications and date-sensitive devices could fail
or produce erroneous results when processing dates after December 31, 1999. The
Year 2000 issue affects virtually all companies and organizations, including the
Company.
The Company employs a number of information technology systems in its
operations, including, without limitation, computer networking systems,
financial systems and other similar systems, some of which are internally
developed and others are licensed from outside vendors. A number of these
systems have been recently implemented by the Company and thus most of these
recently implemented systems are believed to be Year 2000 compliant. Management
developed and has been pursing a plan to modify the Company's other information
technology systems and has begun the process of converting these other critical
data processing systems. Management currently expects this plan to be
substantially complete by May 1999.
Throughout its operations, the Company also employs electronic equipment such as
building security, product handling and other devices containing embedded
electronic circuits. The Company is in the process of identifying and
prioritizing any embedded technology devices which may be deemed to be mission
critical or that tend to have a more significant impact on normal operations. A
team of internal staff and management that has been identified to manage the
Company's Year 2000 initiative will develop a separate plan to upgrade these
higher priority embedded technology devices. Management currently expects these
activities to be substantially complete by summer 1999.
The Company anticipates spending less than $250,000 to address Year 2000 issues.
This includes the estimated costs of all equipment upgrades, software
modifications, the salaries of employees, and the fees of consultants addressing
the issues. The majority of these funds will be spent January through June 1999.
The funds to pay for addressing Year 2000 issues will be from available funds
currently on hand. The Company believes that the cost of addressing the Year
2000 issues will not have a material effect on the Company's consolidated
financial position or results of operations.
The Company is also in the process of evaluating and managing the potential risk
posed by the impact of the Year 2000 issue on its major suppliers and vendors.
Formal and informal communications with these major suppliers and vendors have
been initiated, with an expectation and plan to substantially complete an
assessment in this regard by April 1999. However, it may be difficult to
determine with any certainty whether such suppliers and vendors will be able to
successfully address the Year 2000 issue with respect to their own systems and
thus be able to process purchase orders immediately following January 1, 2000.
Should the Company or any third party with whom the Company has a significant
business relationship have a systems failure due to the century change, the
Company believes that the most significant impact would likely be the inability,
with respect to a store or group of stores, to conduct operations due to a power
failure, to timely deliver inventory, to receive certain products from vendors,
or to electronically process sales to the customer at the store level. The
Company does not expect any such event to have a significant effect on its
overall operations. However, the Company's initiatives with respect to the Year
2000 issue are subject to a variety of risks and uncertainties, some of which
are beyond the Company's control. The failure of the Company or any of its major
suppliers or vendors to achieve Year 2000 readiness could have adverse impacts
on the Company's business operations not currently anticipated, which in turn
could have an adverse effect on the Company's future financial results.
Accordingly, the Company is in the process of developing contingency plans for
such events and estimates such plans will be finalized by approximately June 30,
1999.
<PAGE>
Forward Looking Statements
The Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this quarterly report contain forward looking
statements that are based on the current expectations, estimates and projections
about the industry in which the Company operates, management's beliefs and the
assumptions made by management. These statements include the words
"anticipates", "expects", "expected", "should", and "believes", variations of
such words, and similar expressions which are intended to identify such forward
looking statements. These forward looking statements are subject to potential
risks and uncertainties that could cause actual results to differ materially
from historical results or those currently anticipated.
These potential risks and uncertainties include increased competition, extent of
the market demand for auto parts, availability of inventory supply, propriety of
inventory mix, adequacy and perception of customer service, product quality and
defect experience, availability of and ability to take advantage of vendor
pricing programs and incentives, sourcing availability, rate of new store
openings, cannibalization of store sites, mix and types of merchandise sold,
governmental regulation of products, new store development and the like,
performance of information systems, effectiveness of deliveries from the
distribution center, ability to hire, train and retain qualified team members,
availability of quality store sites, ability to successfully roll-out the
commercial delivery service, credit risk associated with the commercial delivery
service, environmental risks, availability of expanded and extended credit
facilities, legal expenses associated with disputes and investigations
concerning freon matters, potential for liability with respect to these matters
and other risks.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Automotive Supply Company vs. Discount Auto Parts et al., United States District
Court for the Central District of California, Case
No. CV 98-0275 CAS (VAPx).
In December 1997, a complaint was filed in California against the
Company by Automotive Supply Company. The complaint alleged, among other things,
breach of contract, account stated, breach of implied covenant of good faith and
fair dealing, fraud and negligent misrepresentation, all in connection with the
supply by Automotive Supply Company of rotating electrical parts to the Company.
Although the complaint was initially filed in Superior Court, the Company
successfully removed the action to federal district court. The complaint sought
compensatory damages in excess of $16,000,000 as well as punitive and exemplary
damages. The Company filed an answer denying the essential allegations in the
complaint and, by way of a counterclaim, sought to recover amounts the Company
asserted it was owed by Automotive Supply Company as well as amounts
representing other damages the Company had suffered as a result of Automotive
Supply Company's own actions. On January 29, 1999, the Company entered into a
Settlement Agreement and Mutual Release with Automotive Supply Company which had
the effect of dismissing all claims and releasing both parties from current and
future liabilities and which did not involve any payment by the Company to
Automotive Supply Company.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.15 Revolving Loan Agreement dated as of January 29, 1999 by and between
Discount Auto Parts, Inc. and SunTrust Bank, Central Florida, National
Association.
10.16 Joint Business Termination Agreement dated as of February 1, 1999 by
and between Discount Auto Parts, Inc. and Q-Lube, Inc.
27 Financial Data Schedule (For SEC Use Only)
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the thirteen
week period ended March 2, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DISCOUNT AUTO PARTS, INC.
Date: April 15, 1999 By: /s/ Peter J. Fontaine
-------------- ---------------------
Peter J. Fontaine
Chief Executive Officer
(Principal Executive Officer)
Date: April 15, 1999 By: /s/ C. Michael Moore
--------------- --------------------
C. Michael Moore
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
Exhibit 10.15
REVOLVING LOAN AGREEMENT
THIS REVOLVING LOAN AGREEMENT is made and entered into this 29th day of
January, 1999, by and between
DISCOUNT AUTO PARTS, INC., a Florida corporation,
4900 Frontage Road, Lakeland, Florida 33815
(hereinafter referred to as the "Borrower")
and
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, a
national banking association, 200 South Orange Avenue, P.O.
Box 3833, Orlando, Florida 32897 (hereinafter referred to as
the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Bank to extend to it a
revolving line of credit loan in the maximum aggregate principal amount of
$20,000,000.00; and
WHEREAS, the Bank is willing to make such loan upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the above premises and the
mutual covenants and agreements contained herein, the Borrower and the Bank
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION I.1 Definitions. For the purposes of this Agreement, the
following terms shall have the respective meanings specified in this Section 1.1
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Advance" shall mean individually and collectively the proceeds of the
Loan delivered to the Borrower by the Bank pursuant to Section 2.2 hereof.
"Affiliate" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with Borrower,
including a Subsidiary. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract, or otherwise.
"Agreement" shall mean this Revolving Loan Agreement as originally
executed by the parties hereto and all permitted amendments and modifications
hereof.
"Banking Day" shall mean any Day other than a Saturday, Sunday or Day
on which commercial banks are authorized to close under the laws of State of
Florida.
"Day" shall mean a calendar day,unless the context indicates otherwise.
"Default Rate" shall mean the lesser of (i) the Interest Rate plus two
percent (2%) per annum or (ii) the highest rate of interest permitted from time
to time by applicable law.
"Dollars" shall mean lawful money of the United States of America.
"Due Date" shall mean the date any payment of principal or interest is
due and payable on the Loan or Note.
"Event of Default" shall mean an event of default specified in Article
Six of this Agreement.
"GAAP" shall mean generally accepted accounting principles consistently
applied to the particular item.
"Interest Payment Date" shall mean the last day of the Interest Period
applicable to each Advance and, in the case of Interest Periods longer than
three months, on each three month anniversary of the date of each such Advance.
"Interest Period" shall mean 1, 2, 3 or 6 months, as selected by the
Borrower from time to time, or any other period approved by the Bank in its sole
and absolute discretion; provided, that (a) the first day of an Interest Period
must be a Banking Day, (b) any Interest Period that would otherwise end on a day
that is not a Banking Day shall be extended to the next succeeding Banking Day,
unless such Banking Day falls in the next calendar month, in which case the
Interest Period shall end on the next preceding Banking Day, and (c) Borrower
may not elect an Interest Period which would extend beyond the Maturity Date.
"Interest Rate" shall mean the applicable rate of interest to be borne
by the Note (except when the Default Rate is in effect), which rate shall be the
lesser of (a) a rate per annum equal to LIBOR plus eighty-seven and one-half
basis points (i.e., 0.875%), or (b) the maximum rate allowable by law from time
to time.
"Interest Rate Determination Date" shall mean each date for calculating
LIBOR for purposes of determining the Interest Rate in respect of an Interest
Period, and which shall be the second Banking Day prior to the first Day of the
applicable Interest Period.
"Liabilities" shall mean all liabilities and obligations of the
Borrower, all as determined in accordance with GAAP.
"LIBOR" shall mean for any Interest Period, the offered rates for
deposits in U.S. dollars for a period comparable to the Interest Period
appearing on the Reuters Screen LIBOR Page as of 11:00 a.m., London time, on the
day that is two London banking days prior to the first day of the Interest
Period. If at least two such rates appear on the Reuters Screen LIBOR Page, the
rate for that Interest Period will be the arithmetic mean of such rates,
rounded, if necessary, to the next higher 1/16 of 1.0%; and in either case as
such rates may be adjusted for any applicable reserve requirements. If the
foregoing rate is unavailable from the Reuters Screen for any reason, then such
rate shall be determined by the Bank from Telerate or, if such rate is also
unavailable on such service, then on any other interest rate reporting service
of recognized standing designated in writing by the Bank to Borrower; in any
such case rounded, if necessary, to the next higher 1/16 of 1.0%, if the rate is
not such a multiple.
"Loan" shall mean the revolving line of credit loan extended to the
Borrower by the Bank pursuant to the terms hereof.
"Loan Documents" shall mean this Agreement, the Note, and all of the
other documents, agreements, certificates, schedules, notes, statements and
opinions, however described, referenced herein or executed or delivered pursuant
hereto or in connection with or arising with the Loan or the transactions
contemplated by this Agreement.
"Maturity Date" shall mean the earlier of (a) September 1, 1999, (b)
the closing of the new syndicated revolving line of credit loan replacing the
Syndicated Loan, or (c) such later date as the Bank, in its sole and absolute
discretion, may agree to in writing.
"Non-Usage Fee" shall mean the fee paid to the Bank by the Borrower for
the unused portion of the Loan, determined in accordance with Section 2.9
hereof.
"Note" shall mean the Borrower's promissory note or notes evidencing
the Loan together with all amendments, modifications, supplements renewals or
replacements thereof.
"Obligations", with respect to the Borrower, shall mean, individually
and collectively, all payment and performance duties, obligations and
liabilities of the Borrower to the Bank, however and whenever incurred, acquired
or evidenced, whether primary or secondary, direct or indirect, absolute or
contingent, sole or joint and several, or due or to become due, including,
without limitation, all such duties, obligations and liabilities of the Borrower
to the Bank, under and pursuant to the Loan Documents and all renewals,
modifications or extensions of any thereof.
"Permitted Loan Limit" shall mean $20,000,000.00.
"Person" shall mean any individual, joint venturer, partnership, firm,
corporation, trust, unincorporated organization or other organizational entity,
or a governmental body or any department or agency thereof, and shall include
both the singular and the plural.
"Revolving Period" shall mean the period during the term of the Loan
(in the absence of an Event of Default) during which principal owed to the Bank
under the Loan may be retained by the Borrower; such period of time shall
commence on the date hereof and terminate on the earlier of (i) the occurrence
of an Event of Default, (ii) the Maturity Date, or (iii) such later date as the
Bank may in its absolute discretion agree to in writing.
"Subsidiary" shall mean any other corporation whose assets and income
are includible in the financial statements of the Borrower in accordance with
GAAP, and shall include subsidiaries of a subsidiary.
"Syndicated Credit Agreement" shall mean that certain Revolving Credit
Agreement dated July 16, 1997 by and among the Borrower, the Bank, as Agent for
the Lenders parties thereto and the Lenders (as described therein) and all
amendments, modifications, supplements, restatements or replacements thereof.
"Syndicated Loan" shall mean the revolving line of credit loan extended
to the Borrower by the Lenders (as defined in the Syndicated Credit Agreement)
pursuant to the Syndicated Credit Agreement.
"UCC" shall mean the Florida Uniform Commercial Code, Chapters 671 to
680, inclusive.
SECTION I.2 Accounting Terms. All accounting terms used herein shall be
construed in accordance with GAAP consistently applied and all financial data
submitted pursuant to this Agreement shall be prepared in accordance with GAAP.
In the event of ambiguities in GAAP, the more conservative principle or
interpretation shall be used.
ARTICLE II
AMOUNTS AND TERMS OF THE LOAN
SECTION II.1 The Loan. The Bank agrees from time to time during the
Revolving Period to lend to the Borrower under the Loan upon the request of the
Borrower up to the aggregate principal amount of the Permitted Loan Limit on the
terms and conditions set forth herein. During the Revolving Period, the Borrower
shall be entitled to receive up to the amount of the Permitted Loan Limit in one
or more Advances pursuant to Section 2.2 hereof, except as otherwise
specifically set forth in this Agreement. Advances under the Loan shall be
evidenced by the Note and shall be payable as set forth in Section 2.7 hereof.
The Borrower shall not be liable under the Note except with respect to funds
actually advanced to the Borrower by the Bank pursuant to the terms hereof. The
Loan may revolve during the Revolving Period; accordingly, during the Revolving
Period, the Borrower may borrow up to the Permitted Loan Limit, repay all or any
portion of such principal amount of the Loan, and reborrow up to such amount,
subject to the terms and conditions set forth herein. After the expiration of
the Revolving Period, the Borrower shall not be entitled to receive any further
Advance.
SECTION II.2 Advance of Proceeds on Loan. After the date hereof, and
upon satisfaction of the conditions precedent set forth in Article Five hereof,
the Borrower shall be entitled to obtain Advances under the Loan. The Borrower
shall give the Bank written notice (or facsimile transmission, immediately
confirmed by telephone and further confirmed by sending the original notice to
the Bank so that the same is received by the Bank no later than three (3)
Banking Days after the date of the facsimile transmission) ( a "Notice of
Borrowing"), which Notice of Borrowing shall be given prior to 2:00 p.m.
Orlando, Florida time and such Notice of Borrowing shall be in such other form
as may be acceptable to the Bank in its sole and absolute discretion, which
shall specify (a) the proposed date of the Advance (which shall be a Banking
Day), (b) the amount of the proposed borrowing, (c) the requested Interest
Period, and (d) that on the date of the Notice of Borrowing there has been no
material adverse change in the financial condition of the Company from that set
forth on the most recent annual financial statements furnished to the Bank as
provided in this Agreement. The Notice of Borrowing shall be irrevocable by the
Borrower on or after the related Interest Rate Determination Date and the
Borrower shall be bound to make a borrowing in accordance therewith. The Bank
shall have no duty or obligation to verify or confirm the authority of the
representative of the Borrower requesting any such Advance as long as said
person identifies himself/herself as an employee or representative of the
Borrower. The Bank shall make each Advance hereunder on the date proposed by the
Borrower therefor by crediting the amount of each Advance requested by the
Borrower to the general deposit account of the Borrower maintained with the
Bank, or in such other manner as the Borrower may request in such Notice of
Borrowing and as is agreeable to the Bank. Each request for an Advance shall be
deemed to restate and verify all representations of the Borrower made herein as
of the date of such request.
SECTION II.3 Interest on The Note. The Loan shall be evidenced by the
Note and shall be due and payable in accordance with and as required by Section
2.7. The Note shall bear interest from the date thereof on the unpaid principal
balance thereof from time to time outstanding at the Interest Rate.
From and after the Due Date, interest shall accrue on the unpaid
principal balance of the Loan and on all accrued but unpaid interest thereon, or
on such defaulted payment, from the Due Date at the Default Rate. Such interest
shall continue to accrue until the date of payment in full of all principal and
accrued but unpaid interest of such defaulted payment, if applicable.
SECTION II.4 Prepayment of the Loan. The Borrower may at any time and
from time to time prepay all or any part of the principal amount of the Loan
outstanding without penalty; provided, however, that each permitted prepayment
shall be applied to the reduction of the Loan, in such manner as the Bank may,
in its sole discretion, elect and, further provided, that on the date of the
prepayment, there shall exist no Default and all accrued but unpaid interest on
the amount of the prepayment through the prepayment date, whether or not due and
payable, shall be paid in full prior to any prepayment. Each prepayment other
than full payment shall be made prior to 2:00 p.m. (Orlando time) on the date of
the prepayment, and shall be made on a Banking Day in immediately available
funds.
SECTION II.5 Calculation of Interest. Any interest due on the Loan or
any other Obligations shall be calculated on the basis of a year containing 360
Days. The interest due on any date for payment of interest hereunder shall be
that interest to the extent accrued as of midnight on the last Day immediately
prior to that interest payment date. Notwithstanding anything herein or in any
Loan Document to the contrary, the sum of all interest and all other amounts
deemed interest under Florida or other applicable law which may be collected by
the Bank hereunder shall not exceed the maximum lawful interest rate permitted
by such law from time to time. The Bank and the Borrower intend and agree that
under no circumstance shall the Borrower be required to pay interest on the Loan
or on any other Obligations at a rate in excess of the maximum interest rate
permitted by applicable law from time to time, and in the event any such
interest is received or charged by the Bank in excess of that rate, the Borrower
shall be entitled to an immediate refund of any such excess interest by a credit
to and payment toward the unpaid balance of the Loan (such credit to be
considered to have been made at the time of the payment of the excess interest)
with any excess interest not so credited to be immediately paid to the Borrower
by the Bank.
SECTION II.6 Place of Payment. All payments by the Borrower under the
Loan Documents shall be made to the Bank at its banking house at Orlando,
Florida, in lawful money of the United States of America and in immediately
available funds.
SECTION II.7 Payment of Note. The Borrower shall pay the Note together
with interest at the rate set forth in Section 2.3 as follows:
(a) Interest. Interest shall be payable on each Interest Payment
Date, upon any permitted prepayment of the Loan (to the extent accrued on the
amount being prepaid) and at maturity. The Bank will endeavor to notify the
Borrower of interest due prior to any Interest Payment Date.
(b) Maturity Date. On the Maturity Date, all outstanding principal,
together with accrued but unpaid interest thereon, shall become due and payable
in full.
SECTION II.8 Application of Payments. All payments made on the Note
shall be applied first to interest accrued to the date of payment and next to
the unpaid principal balance; provided, however, in the event an Event of
Default occurs, payments shall be applied first to any costs or expenses,
including attorneys fees, that the Bank may incur in exercising its rights under
the Loan Documents, as the Bank may determine.
SECTION II.9 Non-Usage Fee. The Borrower shall pay to the Bank a
quarterly Non-Usage Fee in an amount equal to fifteen basis points (0.15%) per
annum on the average unused portion of the Loan. Such fee shall accrue from the
date of this Agreement until the Bank's obligations to advance funds under the
Loan pursuant to this Agreement are terminated. The Non-Usage Fee shall be
calculated by aggregating the unused portion of the Loan amount outstanding each
Day of each quarter, divided by the number of Days in such quarter, multiplied
by the product derived from the following formula: fifteen basis points (0.15%)
of the average derived above divided by 365, multiplied by the number of Days in
said quarter. Such fees shall be calculated by the Bank and such calculations
shall not be subject to challenge or dispute except in the case of manifest
error. Said fee shall be paid quarterly, in arrears, on the last Day of each
calendar quarter during the term of this Agreement.
SECTION II.10 Special Provisions Governing LIBOR. Notwithstanding other
provisions of this Agreement, the following provisions shall govern with respect
to LIBOR as to the matters covered:
(a) Determination of Interest Period. The following provisions of this
Section 2.10 shall govern with respect to Interest Periods:
(i) in the case of immediately successive Interest
Periods, each successive Interest Period shall commence on the Day on
which the next preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire on
a Day which is not a Banking Day, that Interest Period shall be
extended to expire on the next succeeding Banking Day; provided, that
if any such Interest Period would otherwise expire on a Day which is
not a Banking Day but is a Day of the month after which no further
Banking Day occurs in that month, that Interest Period shall expire on
the next preceding Banking Day; and
(iii) any Interest Period which begins on the last
Banking Day of a calendar month (or on a Day for which there is no
numerically corresponding Day in the calendar month at the end of such
Interest Period) shall end on the last Banking Day of a calendar month.
(b) Determination of Interest Rate. As soon as practicable
after 11:00 A.M. Orlando, Florida time, on the Interest Rate Determination Date,
Bank shall determine (which determination shall, absent manifest error, be
final, conclusive and binding upon all parties) the Interest Rate which shall
apply to the Loan for which an Interest Rate is then being determined for the
applicable Interest Period and shall promptly give notice thereof (in writing or
by telephone confirmed in writing) to the Borrower.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Bank that:
SECTION III.1 Organization, Corporate Powers, Etc. The Borrower (i) is
a corporation duly organized, validly existing and in active status under the
laws of the State of Florida, (ii) has all requisite power and authority,
corporate and otherwise, to own its properties and assets and to carry on its
business as now conducted and proposed to be conducted, (iii) is duly qualified
to do business and is in good standing in every jurisdiction in which the
character of its properties or assets owned or the nature of its activities
conducted makes such qualification necessary including the State of Florida, and
(iv) has the corporate power and authority to execute and deliver, and to
perform its obligations under this Agreement, the Note, and the other Loan
Documents.
SECTION III.2 Authorization of Loan, Etc. The execution, delivery and
performance of the Loan Documents by the Borrower (a) have been duly authorized
by all requisite corporate action (no shareholder action being required pursuant
to applicable law) and (b) will not (i) violate (A) any provision of law, any
governmental rule or regulation, any order of any court or other agency of
government or the Articles of Incorporation or Bylaws of the Borrower or (B)
except for any Incidental Contracts (as defined in the Syndicated Credit
Agreement), any provision of any indenture, agreement or other instrument to
which the Borrower is a party or by which it or any of its properties or assets
are bound, (ii) except for any Incidental Contracts (as defined in the
Syndicated Credit Agreement), be in conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or (iii) result in the creation or
imposition of any material lien, charge or encumbrance of any nature whatsoever
upon any of the material properties or assets of the Borrower other than as
permitted by the terms hereof.
SECTION III.3 Incorporation of Representations and Warranties from
Syndicated Credit Agreement. All of the representations and warranties contained
in Article VI of the Syndicated Credit Agreement, as amended from time to time,
are hereby incorporated herein by reference, as though set forth herein. Each of
such representations and warranties are true and correct as of the date hereof
and shall be true and correct as of the date of each Advance hereunder. If the
Syndicated Credit Agreement shall be terminated prior to the termination of this
Agreement, the terms of Article VI of the Syndicated Credit Agreement
incorporated herein shall continue to be a part of this Agreement until this
Agreement terminates.
SECTION III.4 Financial Statements. The Borrower has furnished the Bank
with the Borrower's annual audited financial statements for the fiscal year
ended June 2, 1998 and internally prepared financial statements for the fiscal
quarters ended September 1, 1998 and December 1, 1998. Such financial statements
(including any related schedules) are true and correct in all material respects.
There has been no material adverse change in the business, condition or
operations (financial or otherwise) of the Borrower and its Subsidiaries taken
as a whole since the date of the financial statements referred to above.
SECTION III.5 Changes in Financial Condition; Adverse Developments.
From the date of the annual financial statements referenced in Section 3.5
hereof, to the date of this Agreement, there has been, and to the date of the
initial Advance and each subsequent Advance there will be, no material change in
the assets, liabilities, financial condition, business, operations, affairs or
prospects of the Borrower from that set forth or reflected in the Borrower's
most recent federal income tax return or in the fiscal year-end financial
statements referred to in Section 3.5, other than changes in the ordinary course
of business, including acquisitions, none of which have been, either in any case
or in the aggregate, materially adverse.
SECTION III.6 Consents and Approvals. No authorization, license,
consent, approval, or undertaking is required under any applicable law in
connection with the execution, delivery and performance by the Borrower of this
Agreement, the Note or any of the other Loan Documents.
SECTION III.7 Outstanding Debt. On the date of this Agreement, other
than the Syndicated Loan, the Borrower has no outstanding indebtedness except
(i) as reflected on the financial statements of the Borrower which have been
provided to the Bank and (ii) indebtedness incurred in the ordinary course of
business subsequent to the date of such financial statements.
ARTICLE IV
COVENANTS OF THE BORROWER
SECTION IV.1 Affirmative Covenants. The Borrower covenants, for so long
as any of the principal amount of or interest on the Note is outstanding and
unpaid or any duty or obligation of the Borrower or the Bank hereunder or under
any other Obligation remains unpaid or unperformed, as follows:
(a) Accounting; Financial Statements; Etc. The Borrower will deliver to the
Bank the annual audited and quarterly internally prepared financial statements,
compliance certificates and other items required in Section 7.7 of the
Syndicated Credit Agreement, within the time limits required therein, and will
provide such other financial information as the Bank may reasonably request from
time to time.
(b) Inspection. The Borrower will permit the Bank or Bank's
designated representative to (i) visit any place of business of the Borrower
and/or it Subsidiaries, (ii) inspect its properties, (iii) inspect and make
extracts from the Borrower's or any Subsidiary's books and records, and (iv)
discuss the affairs, finances and accounts of the Borrower or any Subsidiary
with the officers of the Borrower or such Subsidiary, all at such reasonable
times and as often as may reasonably be requested.
(c) Maintenance of Corporate Existence; Compliance with Laws.
The Borrower shall at all times preserve and maintain in full force and effect
its corporate existence, powers, rights, licenses, permits and franchises in the
jurisdiction of its incorporation; continue to conduct and operate its business
substantially as conducted and operated during the present and preceding fiscal
year of the Borrower; operate in full compliance with all applicable material
laws, statutes, regulations, certificates of authority and orders in respect of
the conduct of its business;and qualify and remain qualified as a foreign
corporation in each jurisdiction in which such qualification is necessary or
appropriate in view of its business and operations where the failure to remain
qualified would have a material adverse effect on the Borrower.
(d) Notice of Default. The Borrower shall immediately notify
the Bank in writing upon the happening, occurrence or existence of any Event of
Default, or any event or condition which with the passage of time or giving of
notice, or both, would constitute an Event of Default, and shall provide the
Bank with such written notice, a detailed statement by a responsible officer of
the Borrower of all relevant facts and the action being take or proposed to be
taken by the Borrower with respect thereto.
(e) Incorporation of Affirmative Covenants from Syndicated
Credit Agreement. All of the affirmative covenants contained in Article VII of
the Syndicated Credit Agreement, as amended from time to time, are hereby
incorporated herein by reference, as though set forth herein. The Borrower shall
comply with each of such covenants during the term of this Agreement. If the
Syndicated Credit Agreement shall be terminated prior to the termination of this
Agreement, the terms of Article VII of the Syndicated Credit Agreement
incorporated herein shall continue to be a part of this Agreement until this
Agreement terminates.
(f) Execution and Delivery of Loan Documents. The Borrower
shall execute and deliver to the Bank all Loan Documents (to be executed by the
Borrower) as and when requested by the Bank.
(g) Financial Covenants. During the term of this Agreement,
the Borrower shall comply with the financial covenants as provided in Section
7.8 of the Syndicated Credit Agreement.
(h) Use of Proceeds. The proceeds of the Loan shall be used
for working capital and other general corporate purposes, including acquisitions
and capital expenditures and such other purposes as the Bank, in its sole
discretion, may approve.
SECTION IV.2 Negative Covenants. The Borrower covenants, for so long as
any of the principal amount of or interest on the Note is outstanding and unpaid
or any Obligation remains unpaid or unperformed, as follows:
(a) Incorporation of Negative Covenants from Syndicated Credit
Agreement. All of the negative covenants contained in Article VIII of the
Syndicated Credit Agreement, as amended from time to time are hereby
incorporated herein by reference, as though set forth herein. The Borrower shall
comply with each of such negative covenants during the term of this Agreement.
If the Syndicated Credit Agreement shall be terminated prior to the termination
of this Agreement, the terms of Article VIII of the Syndicated Credit Agreement
incorporated herein shall continue to be a part of this Agreement until this
Agreement terminates.
ARTICLE V
CONDITIONS OF LENDING
The obligations of the Bank to lend hereunder and to make any Advance
from time to time are subject to the following conditions precedent:
SECTION V.1 Representations and Warranties. The representations and
warranties set forth in the Loan Documents (including the representations and
warranties of the Syndicated Credit Agreement incorporated herein) are true and
correct in all material respects on and as of the date hereof, and (except to
the extent that such representations and warranties expressly relate to an
earlier date or are affected by transactions permitted under this Agreement) on
the date of each Advance or disbursement hereunder.
SECTION V.2 No Default. On the date hereof and on the date of each
Advance or disbursement, the Borrower shall be in compliance in all material
respects with all the terms and provisions set forth in the Loan Documents on
its part to be observed or performed, and no Event of Default nor any event
that, upon notice or lapse of time or both, would constitute such an Event of
Default, shall have occurred and be continuing at such time.
SECTION V.3 Loan Documents. The Borrower shall have delivered or caused
to be delivered to the Bank, in fully executed form, all the Loan Documents, in
form and substance reasonably satisfactory to the Bank, as the Bank may request
and all of the Loan Documents shall be in full force and effect.
SECTION V.4 Supporting Documents. On or prior to the date hereof, the
Bank shall have received the following supporting documents, all of which shall
be reasonably satisfactory in form and substance to the Bank:
(a) a certificate or certificates, dated as of the date
hereof, of (i) the Secretary or any Assistant Secretary of the Borrower
certifying (A) that contained therein is a true and correct copy of certain
resolutions adopted by the Board of Directors of the Borrower authorizing the
execution, delivery and performance of the Loan Documents and the performance of
the obligations of the Borrower and the borrowings thereunder, which resolutions
have not been altered or amended in any respect, and remain in full force and
effect at all times since their adoption; (B) that attached thereto is a true
and correct copy of the Articles of Incorporation of the Borrower, and that such
Articles of Incorporation have not been altered or amended, and no other charter
documents have been filed, since the date of the filing of the last amendment
thereto or other charter document as indicated on the certificate of the
Secretary of State of the State of Florida attached thereto; (C) that attached
thereto is a true and correct copy of the Bylaws of the Borrower and that such
Bylaws are in full force and effect and no amendment thereto is pending which
would in any way affect the ability of the Borrower to enter into and perform
the Obligations contemplated hereby; and (D) the incumbency and signatures of
the officers of the Borrower signing the Loan Documents and any report,
certificate, letter or other instrument or document furnished by the Borrower in
connection therewith, and (ii) another authorized officer of the Borrower
certifying the incumbency and signature of the Secretary or Assistant Secretary
of the Borrower; and
(b) certificate or certificates of the Florida Secretary of
State dated as of a recent date, as to the active status of the Borrower.
SECTION V.5 Additional Notes. To the extent the principal amount then
outstanding under the Loan together with the Advance requested would exceed the
face amount of the Note then outstanding (which collectively includes all notes
executed by the Borrower in favor of the Bank to evidence the Loan), the
Borrower agrees to then execute and deliver to the Bank the additional note of
the Borrower in such face amount as is necessary so that the total principal
amount outstanding on the Loan after the making of said Advance shall not exceed
the face amount of the Note (which collectively includes all Notes executed by
the Borrower in favor of the Bank concerning said Loan and will include the note
described in this Section). At the time of the execution of said additional
Note, the Borrower shall pay to the Bank all documentary and other taxes
required under applicable law.
SECTION V.6 Non-Usage Fee. The Bank shall have received the Non-Usage
Fee, when and as due.
ARTICLE VI
EVENTS OF DEFAULT
SECTION VI.1 Events of Default. The following each and all are Events
of Default hereunder:
(a) Monetary Default. If the Borrower shall default in any
payment of the principal of or interest on the Loan when and as the same shall
become due and payable, whether at maturity, by acceleration at the discretion
of the Bank or otherwise and such default is not cured within five (5) Days
after receipt of notice that such amount is due; or
(b) Non-Monetary Default. If the Borrower shall default in the
performance of or compliance with any term or covenant contained in the Loan
Documents which default or non-compliance shall continue and not be cured within
thirty (30) Days of the date the Bank sends written notice of such default or
non-compliance to the Borrower; or
(c) Misrepresentation. If any representation or warranty made
in writing by or on behalf of the Borrower or any Subsidiary or in any other
Loan Document shall prove to have been false or incorrect in any material
respect on the date as of which made or reaffirmed and the effect thereof is
material and adverse; or
(d) Dissolution. Any order, judgment, or decree is entered in
any proceedings against Borrower or any Subsidiary decreeing the dissolution of
Borrower and such order, judgment, or decree remains unstayed and in effect for
more than thirty (30) Days; or
(e) Default Under Syndicated Loan. If there shall occur an
Event of Default under the terms of the Syndicated Credit Agreement or any other
documents executed in connection therewith, and which Event of Default is not
cured within any applicable grace period; or
(f) Bankruptcy, Failure to Pay Debts Etc. If the Borrower or
any Subsidiary shall admit in writing its inability, or be generally unable, to
pay its debts as they become due or shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, petition or apply to any tribunal for
the appointment of a custodian, receiver or trustee for the Borrower or any
Subsidiary or a substantial part of assets, or shall commence any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect, or if there shall have been filed any such petition or
application, or any such proceeding shall have been commenced against the
Borrower or any Subsidiary, in which an order for relief is entered or which
remains undismissed for a period of ninety (90) Days or more, or the Borrower or
any Subsidiary by any act or omission shall indicate its consent to, approval of
or acquiescence in any such petition, application, or proceeding or order for
relief or the appointment of a custodian, receiver or any trustee for the
Borrower or any Subsidiary or any substantial part of any of its properties, or
shall suffer any such custodianship, receivership or trusteeship to continue
undischarged for a period of ninety (90) Days or more; or
(g) Fraudulent Conveyance. The Borrower or any Subsidiary
shall have concealed, removed, or permitted to be concealed or removed, any
material part of its properties, with intent to hinder, delay or defraud its
creditors or any of them, or made or suffered a transfer of any of its material
properties which may be fraudulent under any bankruptcy, fraudulent conveyance
or similar law, or shall have made any transfer of its material properties to or
for the benefit of a creditor at a time when other creditors similarly situated
have not been paid, or shall have suffered or permitted, while insolvent, any
creditor to obtain a lien upon any of its material properties through legal
proceedings or distraint which is not vacated within ninety (90) Days from the
date thereof.
ARTICLE VII
RIGHTS UPON DEFAULT
Upon the occurrence or continuing of any Event of Default, the Bank shall
have and may exercise any or all of the rights set forth herein (provided,
however, the Bank shall be under no duty or obligation to do so):
SECTION VII.1 Acceleration. To declare the indebtedness evidenced by
the Note and all other Obligations to be forthwith due and payable, whereupon
the Note and all other Obligations shall become forthwith due and payable, both
as to principal and interest, without presentment, demand, protest or any other
notice or grace period of any kind, all of which are hereby expressly waived,
anything contained herein or in the Note or in such other Obligations to the
contrary notwithstanding, and, upon such acceleration, the unpaid principal
balance and accrued interest upon the Note shall from and after such date of
acceleration bear interest at the Default Rate.
SECTION VII.2 Other Rights. To exercise such other rights as may be
permitted under any of the Loan Documents, the Syndicated Credit Agreement or
any other loan agreement now or hereafter entered into by and between the
Borrower and the Bank or any document executed in connection therewith or
applicable law.
SECTION VII.3 Uniform Commercial Code. To exercise from time to time
any and all rights and remedies of a secured creditor under the UCC and any and
all rights and remedies available to it under any other applicable law.
ARTICLE VIII
MISCELLANEOUS
SECTION VIII.1 Cumulative Remedies. The remedies provided in this
Agreement and in the Loan Documents are cumulative and not exclusive of any
remedies provided by law or in equity. Upon an Event of Default, the Bank may
elect to exercise any one or more of such remedies and such election shall not
waive or cause the Bank to have elected not to subsequently exercise any other
such remedies available to it under the Agreement or any Loan Document.
SECTION VIII.2 Amendments, Etc. No amendment, modification, termination
or waiver of any provision of this Agreement, the Note or the other Loan
Documents, nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Bank,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
SECTION VIII.3 Addresses for Notices, Etc. All notices, requests,
demands and other communications provided for hereunder shall be in writing and
shall be deemed to have been given (i) in the case of delivery, when addressed
to the other party and delivered to the address set forth below, (ii) in the
case of mailing, three (3) Days after said notice has been deposited in the
United States Mails, postage prepaid, by certified or return mail, and addressed
to the other party as set forth below, and (iii) in all of the cases, when
received by the other party. The address at which notices may be sent under this
Section are the following:
If to the Borrower: Discount Auto Parts, Inc.
4900 Frontage Road
Lakeland, Florida 33815
Attention: C. Michael Moore
Chief Financial Officer/
Secretary
If to the Bank: SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
200 South Orange Avenue
P. 0. Box 3833
Orlando, Florida 32897
Attention: William C. Barr, III
First Vice President
with a copy to: Charles T. Brumback, Jr., Esq.
Akerman, Senterfitt & Eidson, P.A.
255 South Orange Avenue, 17th Floor
P.O. Box 231
Orlando, FL 32802-0231
Any party may at any time change the address to which notices may be sent under
this Section by the giving of notice of such change to the other party in the
manner set forth herein.
SECTION VIII.4 Applicable Law. This Agreement, and each of the Loan
Documents and transactions contemplated herein (unless specifically stipulated
to the contrary in such document) shall be governed by and interpreted in
accordance with the laws of the State of Florida.
SECTION VIII.5 Survival of Representations and Warranties. All
representations, warranties, covenants and agreements contained herein or made
in writing by the Borrower in connection herewith shall survive the execution
and delivery of this Agreement, the Note and the other Loan Documents and be
true and correct during the term of the Loan.
SECTION VIII.6 Time of the Essence. Time is of the essence of this
Agreement, the Note and the other Loan Documents.
SECTION VIII.7 Headings. The headings in this Agreement are intended to
be for convenience of reference only, and shall not define or limit the scope,
extent or intent or otherwise affect the meaning of any portion hereof.
SECTION VIII.8 Severability. In case any one or more of the provisions
contained in this Agreement, the Note or the other Loan Documents shall for any
reason be held to be invalid, illegal or unenforceable in any respect, the same
shall not affect any other provision of this Agreement, the Note or the other
Loan Documents, but this Agreement, the Note and the other Loan Documents shall
be construed as if such invalid or illegal or unenforceable provision had never
been contained therein; provided, however, in the event said matter would in the
reasonable opinion of the Bank adversely affect the rights of the Bank under any
or all of the Loan Documents, the same shall be an Event of Default.
SECTION VIII.9 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
SECTION VIII.10 Conflict. In the event any conflict arises between the
terms of this Agreement and the terms of any other Loan Document, the Bank shall
have the option of selecting which conditions shall govern the loan relationship
evidenced by this Agreement and, if the Bank does not so indicate, the terms of
this Agreement shall govern in all instances of such conflict.
SECTION VIII.11 Term. The term of this Agreement shall be for such
period of time until the Loan and Note have been repaid in full, the Borrower
has no further right to request any Advance on the Loan and all Obligations have
been paid to the Bank in full. At such time, the Bank shall mark all the Loan
Documents "Canceled" and return them to the Borrower.
SECTION VIII.12 Cross Defaults. A default under any Loan Document,
including a default under this Agreement, shall be and constitute a default
under each and every Loan Document, including this Agreement.
SECTION VIII.13 Expenses. The Borrower agrees, whether or not the
transactions hereby contemplated shall be consummated, to pay, and save Bank
harmless against liability for the payment of, all reasonable out-of-pocket
expenses arising in connection with this transaction, all
documentary,intangible, and other similar taxes, together in each case with
interest and penalties, if any, which may be payable in respect of the
execution, delivery and performance of this Agreement or the execution,
delivery, acquisition and performance of any Note issued under or pursuant to
this Agreement, and the reasonable fees and expenses of any special counsel to
Bank in connection with this Agreement and any subsequent modification or
enforcement thereof or consent thereunder including, without limitation,
attorneys fees and court costs incurred in any legal proceeding whether at the
trial or appellate level or in any bankruptcy proceeding. The obligations of
Borrower under this Section 8.13 shall survive payment of any Note.
SECTION VIII.14 Successors and Assigns. All covenants and agreements in
this Agreement contained by or on behalf of either of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not; provided, however, this clause shall
not by itself authorize any delegation of duties by the Borrower or any other
assignment which may be prohibited by the terms and conditions of this
Agreement.
SECTION VIII.15 Further Assurances. The Borrower shall, from time to
time, execute such additional documents as may reasonably be requested by the
Bank or its counsel, to carry out and fulfill the intent and purpose of this
Agreement and the Loan Documents.
SECTION VIII.16 No Third Party Beneficiaries. The parties intend that
this Agreement is solely for their benefit and no Person not a party hereto
shall have any rights or privileges under this Agreement whatsoever either as
the third party beneficiary or otherwise.
SECTION VIII.17 WAIVER OF JURY TRIAL. THE BORROWER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY, AFTER CAREFUL CONSIDERATION AND AN OPPORTUNITY TO
SEEK LEGAL ADVICE, WAIVES ITS RIGHT TO HAVE A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING OUT OF OR IN ANY WAY CONNECTED WITH ANY OF THE PROVISIONS OF
THIS AGREEMENT, THE NOTE OR ANY OTHER DOCUMENT EXECUTED IN CONJUNCTION WITH THE
LOAN EVIDENCED BY THIS AGREEMENT.
SECTION VIII.18 No Waiver. No failure or delay on the part of the Bank
in exercising any right, power or remedy hereunder, or under the Note or the
other Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder or thereunder.
SECTION VIII.19 Entire Agreement. Except as otherwise expressly
provided, this Agreement and the other Loan Documents embody the entire
agreement and understanding between the parties hereto and supersede all prior
agreements and understandings relating to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed, sealed and delivered, as applicable, by their duly
authorized officers on the day and year first above written.
BORROWER:
DISCOUNT AUTO PARTS, INC.
By:/s/ C. Michael Moore________
C. Michael Moore,
Chief Financial Officer/
Secretary
SUNTRUST BANK, CENTRAL
FLORIDA, NATIONAL ASSOCIATION
By:/s/ William C. Barr, III______
William C. Barr, III,
First Vice President
<PAGE>
PROMISSORY NOTE
As of January 29th, 1999 $20,000,000.00
New York, New York
FOR VALUE RECEIVED, the undersigned, DISCOUNT AUTO PARTS,
INC., a Florida corporation (the "Borrower"), promises to pay to the order of
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL ASSOCIATION, a national banking
association, (the "Bank") at the office of the Bank at 200 South Orange Avenue,
Orlando, Florida 32801, or at such other place as the holder hereof may
designate by notice in writing to Borrower, in immediately available funds in
lawful money of the United States of America, on the sooner of (i) the Maturity
Date (as defined in the Agreement hereinafter described), or (ii) acceleration
of this indebtedness as hereinafter provided, the lesser of (i) the principal
sum of Twenty Million and No/100 Dollars ($20,000,000.00) or (ii) so much
thereof as shall have been from time to time disbursed hereunder by the Bank in
accordance with that certain Revolving Loan Agreement dated of even date
herewith (as the same may hereafter be amended, modified, supplemented or
replaced, the "Agreement") by and between the Borrower and the Bank, and not
theretofore repaid, as shown on the grid schedule attached hereto (the "Grid
Schedule"), which Agreement is specifically not incorporated herein.
In addition to principal, Borrower agrees to pay interest on
the principal amounts disbursed hereunder from time to time from the date of
each disbursement until paid at such simple rates of interest per annum and upon
such dates as provided for in the Agreement. Interest shall accrue on the
outstanding principal balance from the date hereof up to and through the date on
which all principal and interest hereunder is paid in full, and shall be
computed on the basis of the actual number of days elapsed in a 360-day year.
Such interest is to be paid to the Bank at its office in Orlando, Florida.
This Promissory Note ("Note") evidences a loan incurred
pursuant to the terms and conditions of the Agreement to which reference is
hereby made for a full and complete description of such terms and conditions.
All capitalized terms used in this Note shall have the same meanings as set
forth in the Agreement.
Bank shall at all times have a right of set-off against any
deposit balances of Borrower in the possession of the Bank and the Bank may
apply the same against payment of this Note or any other indebtedness of
Borrower to the Bank. The payment of any indebtedness evidenced by this Note
prior to the Maturity Date or demand shall not affect the enforceability of this
Note as to any future, different or other indebtedness incurred hereunder by the
Borrower. In the event the indebtedness evidenced by this Note is collected by
legal action or through an attorney-at-law, the Bank shall be entitled to
recover from Borrower all costs of collection, including, without limitation,
reasonable attorneys' fees if collected by or through an attorney-at-law.
Borrower acknowledges that the actual crediting of the amount
of any disbursement under the Agreement to an account of Borrower or recording
such amount in the Grid Schedule shall, in the absence of manifest error,
constitute presumptive evidence of such disbursement and that such advance was
made and borrowed under the Agreement. Such account records or Grid Schedule
shall constitute, in the absence of manifest error, presumptive evidence of
principal amounts outstanding and the payments made under the Agreement at any
time and from time to time, provided that the failure of Bank or any holder
hereof to record on the Grid Schedule or in such account the type or amount of
any advance shall not affect the obligation of the undersigned to repay such
amount together with interest thereon in accordance with this Note and the
Agreement.
Upon the existence or occurrence of any Event of Default as
defined in the Agreement, the principal and all accrued interest hereof shall
automatically become, or may be declared, due and payable in the manner and with
the effect provided in the Agreement.
Prepayment of the Note in part or in whole is permitted
subject to the conditions set forth in the Agreement.
Failure or forbearance of Bank to exercise any right
hereunder, or otherwise granted by the Agreement or by law, shall not affect or
release the liability of Borrower hereunder, and shall not constitute a waiver
of such right unless so stated by Bank in writing. This Note shall be deemed to
be made under, and shall be construed in accordance with and governed by, the
laws of the State of Florida. Time is of the essence of this Note.
PRESENTMENT FOR PAYMENT, NOTICE OF DISHONOR AND PROTEST ARE HEREBY WAIVED.
Executed under hand and seal of the Borrower as of the day and year first above
written as of the 29th day of January, 1999.
DISCOUNT AUTO PARTS, INC.
By: /s/ C. Michael Moore_____________
Name: C. Michael Moore__
Title: Chief Financial Officer
<PAGE>
Exhibit 10.16
JOINT BUSINESS TERMINATION AGREEMENT
THIS JOINT BUSINESS TERMINATION AGREEMENT (hereinafter "Agreement") is
made and entered into as of this 1st day of February, 1999 and is by and between
the following Parties:
Q Lube: Q Lube, Inc. ("Q Lube")
a Delaware corporation
1385 West 2200 South
Salt Lake City, Utah 84119
Tel: (801) 972-6667
Fax: (801) 975-4627
DAP: Discount Auto Parts, Inc. ("DAP")
a Florida corporation
4900 Frontage Road South
Lakeland, Florida 33801
Tel: (941) 687-9226
Fax: (941) 284-2063
R E C I T A L S :
WHEREAS, on or about January 1, 1997, Q Lube and DAP (hereinafter
collectively "Parties" or individually "Party") entered into a Master Joint
Business Agreement ("MJB Agreement") wherein the Parties agreed to establish and
jointly operate a joint business entity ("Joint Business"), which in turn would
own and operate numerous quick-lube operations;
WHEREAS, the Parties have determined that it is in their respective
best interests to mutually and cooperatively terminate the Joint Business;
NOW THEREFORE, in consideration of the mutual covenants and agreements
of the Parties herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Parties do
hereby agree as follows:
A G R E E M E N T
1.0 AGREEMENT TO TERMINATE.
1.1 Generally. The Parties hereby agree that, as of February 1, 1999
(the "Closing Date") the MJB Agreement and all other prior agreements relating
to the Joint Business and its operations shall be terminated, and shall become
null and void, and of no further force and effect, except as otherwise provided
for herein.
1.2 Q Lube Sites. The Parties agree that all Joint Business operations
at the following sites (the "Q Lube Sites") shall be transferred and delivered,
on the Closing Date, pursuant to the Lease Agreements, Sublease Agreement and
Purchase Agreement described in paragraph 2.1.2 hereof respectively, into the
control and possession of Q Lube:
(1) State Road 590 and U.S. Highway 19 in Clearwater, FL (the
"Clearwater Site")
(2) Lumsden Road and Pauls Drive in Brandon, FL (the "Brandon
Site")
(3) Dale Mabry Highway and No. Lakeview Drive in Tampa, FL
(the "Tampa Site")
1.3 DAP Sites. The Parties agree that the real property at the
following sites (the "DAP Sites") shall be transferred and delivered on the
Closing Date into the control and possession of DAP and that any existing leases
thereof by the Joint Business or Q Lube shall be terminated as of the Closing
Date, without further liability, except as otherwise provided for herein:
(1) Military Trail and Boatman Street in Lake Worth, FL
(2) State Road 7 and N.W. 197th Street in Miami, FL
(3) S.W. 137th Avenue and 38th Street in Miami, FL
(4) State Road 50 and Salem Road in Orlando, FL (the
"Orlando Site")
(5) 52 North Yonge Street in Ormond Beach, FL (the
"Ormond Site")
(6) U.S. Highway 41 and Sumter Street in North Port, FL
(the "North Port Site")
(7) Highway 98 and Daugherty in Lakeland, FL (the
"Lakeland Site")
See Amendment
1.4 Formal Entity Dissolution. The Parties agree to fully cooperate and
comply with all state and local statutes, laws, ordinances, regulations, and
other regulatory requirements applicable to the formal dissolution and/or
termination of the General Partnership and Joint Business, including without
limitation, the filing of any documentation with state or local authorities
evidencing the dissolution and/or termination of the Joint Business.
2.0 ASSET DISTRIBUTION, LIQUIDATION AND EQUALIZATION. The assets of the Joint
Business shall be distributed and/or liquidated in accordance with the following
provisions.
2.1 Real Property. As of the Closing Date, all oral or written leases
and subleases of real property at the DAP Sites and the Q Lube Sites existing
between the Joint Business and DAP shall be terminated, without further
liability between the Joint Business and DAP. The Q Lube Sites and the DAP Sites
are collectively referred to hereinafter as the "Sites".
2.1.1 The DAP Sites. The real property at the DAP Sites shall
be immediately transferred and delivered into the control and possession of DAP,
subject to the provisions in paragraph 2.3 hereof.
2.1.2 The Q Lube Sites.The Q Lube Sites shall be transferred
and delivered, on the Closing Date, into the control and possession of Q Lube,
upon the following terms:
Lease Agreements. As of Closing, DAP shall lease to Q Lube the Clearwater,
Brandon, and Tampa Sites upon the terms set forth in the Lease Agreements
attached hereto as Exhibits "1" through "3" respectively (the "Lease
Agreements");
2.2 Site Improvements. All site improvements (exclusive of Buildings)
to the Real Property, (hereinafter referred to as "Site Improvements") shall
become the sole property of DAP, subject where applicable to the Lease
Agreements and the Sublease. In the event such Site Improvements, or any part
thereof, have been transferred to the Joint Business, the Joint Business shall,
concurrent with the execution of this Agreement, cause the same to be reconveyed
to DAP, free of lien and/or other encumbrance caused by the action of the Joint
Business or otherwise arising from any obligation of the Joint Business. As used
herein, "Site Improvements" shall not include building structures.
2.3 Building. The building structures (exclusive of Site Improvements)
(hereinafter "Buildings") housing the Joint Business' quick-lube operations
shall become the sole property of Q Lube. In the event such Buildings, or any
part thereof, have been transferred to the Joint Business, the Joint Business
shall, concurrent with the execution of this Agreement, cause the same to be
reconveyed, free of lien and/or other encumbrance caused by the action of the
Joint Business or otherwise arising from any obligation of the Joint Business. Q
Lube shall cause the building on the Lakeland Site to be removed and the
Lakeland Site restored as required by the Lakeland Lease (to include fill in of
the pit and surface paving of such within 60 days). DAP shall be responsible to
reimburse Q Lube 51% of the cost of such removal and restoration, the total cost
of which is estimated at Fifty Thousand Dollars ($50,000.00). In any event,
DAP's portion of such removal and restoration cost shall not exceed Twenty-Five
Thousand Dollars ($25,000.00).
2.4 Tool Packages. The Tool Packages ( "Tool Packages") used by the
Joint Business at the Sites shall be, or shall become, the sole property of Q
Lube. In the event such Tool Packages or any part thereof have been transferred
to the Joint Business as contemplated by the MJB Agreement, the Parties agree
that the Joint Business shall, concurrent with the execution of this Agreement,
cause the same to be reconveyed to Q Lube, free of lien and/or other encumbrance
caused by the action of the Joint Business or otherwise arising from any
obligation of the Joint Business. "Tool Packages" shall mean all hand tools,
manual tools, air tools, power tools, tool devices, tool boxes, tool
accessories, and oil-change accessories normally and routinely used in the
operation of a quick-lube center. The Tool Packages shall not include fixture
equipment, or other primary equipment used in the quick-lube operations, such as
compressors, hydraulic equipment, oil tanks, lifts, and oil injection equipment.
2.5 Computer Systems. The computers and computer related hardware and
software (collectively "Computer Systems") used by the Joint Business at the
Sites shall be, or shall become the sole property of Q Lube. In the event such
Computer Systems or any part thereof have been transferred to the Joint Business
as contemplated by the MJB Agreement, the Parties agree that the Joint Business
shall, concurrent with the execution of this Agreement, cause the same to be
reconveyed to Q Lube, free of lien and/or other encumbrance caused by the action
of the Joint Business or otherwise arising from any obligation of the Joint
Business.
2.6 Equipment. The equipment ("Equipment") used by the Joint Business
at the Sites shall be, or shall become, the sole property of Q Lube. In the
event such Equipment or any part thereof has been transferred to the Joint
Business as contemplated by the MJB Agreement, the Parties agree that the Joint
Business shall, concurrent with the execution of this Agreement, cause the same
to be reconveyed to Q Lube, free of lien and/or other encumbrance caused by the
action of the Joint Business or otherwise arising from any obligation of the
Joint Business. "Equipment" shall mean fixture equipment, or other primary
equipment used in the quick-lube operation, such as compressors, hydraulic
equipment, oil tanks, lifts, and oil injection equipment.
2.7 Furniture. The furniture ("Furniture") used by the Joint Business
at the Sites shall be, or shall become, the sole property of Q Lube. In the
event such Furniture or any part thereof has been transferred to the Joint
Business as contemplated by the MJB Agreement, the Parties agree that the Joint
Business shall, concurrent with the execution of this Agreement, cause the same
to be reconveyed to Q Lube, free of lien and/or other encumbrance caused by the
action of the Joint Business or otherwise arising from any obligation of the
Joint Business.
2.8 Inventory. The inventory ("Inventory") at the Sites or otherwise
held for use by the Joint Business shall be, or shall become, the sole property
of Q Lube. In the event such Inventory or any part thereof has been transferred
to the Joint Business as contemplated by the MJB Agreement, the Parties agree
that the Joint Business shall, concurrent with the execution of this Agreement,
cause the same to be reconveyed to Q Lube, free of lien and/or other encumbrance
caused by the action of the Joint Business or otherwise arising from any
obligation of the Joint Business.
2.9 Liens and Encumbrances. Notwithstanding any provision of sections
2.1 through 2.8 to the contrary, which otherwise require that the Joint Business
transfer all real or personal property free of liens and encumbrances of the
Joint Business, the Joint Business shall have the right to contest the validity
of any such lien or encumbrance, and the existence of such lien during the
pendency of such challenge shall not constitute a breach of the Joint Business'
obligation of transfer. In the event the lien shall be determined by a Court of
competent jurisdiction to be valid, the Joint Business shall cause such lien or
encumbrance to be removed within ten (10) days from the date of final judgment
declaring such lien or encumbrance to be valid.
2.10 Equalization. The Parties acknowledge that upon formation of the
Joint Business their respective initial investments in the Joint Business were
based upon their respective ownership interests: DAP contributing and owning
fifty-one percent (51%) and Q Lube contributing and owning forty-nine percent
(49%). It is the intent of the Parties that each party bear and be responsible
for its own losses; provided, however, that Q Lube shall refund to DAP certain
development expenses, to the extent set forth on the attached Schedule "A". The
Parties acknowledge and agree that payment by Q Lube of the amounts set forth on
Schedule "A" shall fully satisfy all obligations to DAP or the Joint Business
and that no other or further liability or obligation shall remain between the
Parties, except new obligations arising hereafter under the Lease Agreements and
the Sublease.
3.0 FRANCHISE FEES. The Parties acknowledge that no franchise fees have been
paid by the Joint Business or by either Party, nor are there any franchise fees
or similar fees which are reimbursable or payable to the Joint Business and/or
the Parties.
4.0 BOOKS AND RECORDS. The books and records of the Joint Business shall be
delivered to Q Lube for safekeeping and storage. Q Lube shall store such records
at Q Lube's sole cost for a period not less than seven (7) years. Q Lube shall
make such records available for inspection and/or copying by DAP upon prior
reasonable and written request, which inspection and/or copying shall be
conducted at the sole cost and expense of DAP. The Parties, and their respective
Accountants and agents shall not reveal any knowledge or financial information
obtained about the other Party as a result of the Joint Business except: (a) as
may be relevant to compliance with this Agreement; (b) as may be required by
applicable securities laws, regulations, exchanges or markets; or (c) to the
Party's respective banks, lenders and professional advisors for legitimate
business purposes.
5.0 COVENANT OF NON-COMPETITION.
a. Non-Competition by Discount. Commencing upon the execution of this
Agreement and continuing for a period of two (2) years Discount shall not,
either as an independent or as a franchisee or a joint venture partner, with any
third party other than Q Lube, provide Quick-lube Services: (1) within any state
in which Q Lube or its successors provides Quick -Lube Services; or (2) within a
ten (10) mile radius of any then existing Q Lube business providing quick lube
services; or (3) at a prior operating quick lubrication facility on a Discount
Site. As used herein, "Quick-lube Services" shall mean the provision of oil
change/lubrication services by an operation which receives 25% or more of its
revenues from oil change/lubrication services.
b. Non-Competition by Q Lube. Commencing upon the execution of this
Agreement and continuing for a period of two (2) years, Q Lube shall not, either
as an independent, or as a franchisee or a joint venture partner with any third
party other than Discount in any state in which the Parties formerly operated a
Joint Quick-lube business, within a ten (10) mile radius of any then existing
Discount Auto Parts store, engage in the operation of a traditional auto parts
business or engage in the sale of auto parts and accessories. As used herein
"traditional auto parts business" or to "engage in the sale of auto parts and
accessories" shall mean any entity which receives 50% or more of its revenues
from the sale of automotive parts or accessories. The terms "auto parts" and
"accessories" as used in this Section 5(b) shall not include any auto parts or
auto part accessories manufactured by Pennzoil-Quaker State, Jiffy Lube
International, Q Lube, or any affiliated company of such companies, including
without limitation, products such as "Slick 50," Blue Coral" and other Q Lube,
Jiffy Lube or Pennzoil-Quaker State brand products.
6.0 PROTECTED PROPERTY. It is understood and agreed that all Protected Property
of the respective Parties shall remain the sole possession of the Party owning
such Protected Property. Notwithstanding any provision of this Agreement or any
other prior agreement of the Parties to the contrary, nothing herein nor now
existing between the Parties shall be construed as a grant, conveyance or
vestiture by either Party to the other, or to any third party of any rights,
interest or entitlement in and to Protected Property, and no use shall be made
of Party's Protected Property for any purpose after the Effective Date of this
Agreement without the prior written consent of the Party owning the Protected
Property. "Protected Property" shall mean all trademarks, patents, logos, trade
names, trade secrets, operational manuals, established procedures, and other
confidential and/or proprietary information of either party or its agents,
provided such information:
(a) is not broadly published in the public domain;
(b) is legitimately treated as a trade secret by the Party
claiming it as their Protected Property; and
(c) did not come into the public domain by the inappropriate
act of the other Party or any franchisee or agent of the other Party.
7.0 RELEASE AND WAIVER. The Parties hereby release each other and each and every
person or entity which was, at any time prior to the execution hereof, an
officer, director, shareholder, employee, or agent of said Parties from any and
all liabilities, claims, counterclaims, expenses and demands of every nature and
kind, whether now known or unknown, arising out of, relating to or in any way
connected with: (i) the MJB Agreement; (ii) any other prior agreements relating
to the Joint Business and/or existing between the Parties, including without
limitation any Franchise Agreement executed in connection with the Joint
Business, and any other agreement relating to the development, management,
operation or ownership of the Joint Business and Sites prior to the date hereof;
(iii) any business enterprises or activity conducted at the Sites prior to the
date hereof; (iv) any losses or expenses incurred in connection with the Joint
Business, if any; (v) all representations or warranties made by the Parties
concerning the Joint Business, if any; and (vi) any other conduct, communication
or agreement that occurred by or related to any of the Parties and/or the Joint
Business. The Parties covenant not to file any legal action against each other
or any other affiliated person or entity of each other with respect to the
matters which are the subject of the release contained herein. The Parties
acknowledge that they have not, prior to the execution and delivery of this
Agreement, assigned or transferred to any person or entity any of the claims
released herein.
The waiver, release, relinquishment and disavowal herein shall be
construed broadly in favor of the Parties released, their agents, employees,
officers, advisors, directors, consultants and successors-in-interest, and any
ambiguity, doubt, or question as to the applicability of the same shall be
resolved in all events in favor of waiver, release, relinquishment and
disavowal. The Parties hereby agree that the waivers, releases, relinquishments
and disavowals herein granted shall be with respect to claims, interest, rights,
remedies, and causes of action, known or unknown, matured or unmatured,
contingent or direct, existing or hereafter arising from the agreements of the
parties prior to this Agreement, but shall not include any claims arising from
the terms of this Agreement, the Lease Agreements, the Sublease or the Purchase
Agreement.
8.0 NOTICES. All notices permitted or required to be given pursuant to the terms
of this Agreement shall be sent by certified mail, return receipt requested, to
the Parties as follows:
Q Lube: Q Lube, Inc.
c/o Legal Department
1385 West 2200 South
Salt Lake City, Utah 84119
Tel: (801) 972-6667
Fax: (801) 975-4627
and copied to: Stephen K. Christensen,
NELSON RASMUSSEN & CHRISTENSEN
215 State Street, Suite 900
Salt Lake City, Utah 84111
Tel: (801) 531-8400
Fax: (801) 363-3614
DAP: Discount Auto Parts, Inc.
c/o C. Michael Moore, CFO
4900 Frontage Road South
Lakeland, Florida 33801
Tel: (941) 687-9226
Fax (941) 284-2063
and copied to: Taso M. Milonas
WALTERS,LEVINE,BROWN,KLINGENSMITH,
MILONAS & THOMISON
1515 Ringling Blvd Suite 900
Sarasota, Florida 34236
Tel: (941) 364-8787
Fax: (941) 361-3023
Either Party may at any time notify the other Party at their last
provided address of any change of address or persons to which notices under this
Section shall be made.
9.0 MISCELLANEOUS PROVISIONS.
9.1 Governing Law and Jurisdiction. Any litigation relating to this
Agreement or its subject matter shall be conducted in the state or federal
courts located in Florida and shall be governed and interpreted in accordance
with the laws of the jurisdiction where such action is pending. The parties
expressly agree to the exercise of jurisdiction by such courts and expressly
waive all defenses related to such personal jurisdiction.
9.2 Severability. If any provision of this Agreement is invalid,
unenforceable, or in conflict with applicable law, such provision shall be
narrowed, limited and otherwise amended to the extent necessary to make it
valid, enforceable and not in conflict with applicable law, with as little
change as possible to the original intent and purpose of the provision. If
necessary, the provision shall be severed from this Agreement and the remainder
of the Agreement shall be enforced unless such enforcement would be inequitable.
9.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which when
taken together, shall constitute one and the same instrument. The signature page
of any counterpart may be detached therefrom without impairing the legal effect
of the signature(s) thereon, provided such signature page is attached to any
other counterpart identical thereto, except having additional signature pages
executed by other Parties to this Agreement attached hereto.
9.4 Waiver. Acceptance by either Party of any performance less than
required under the terms of this Agreement shall not be deemed to be a waiver of
the rights of such Party to enforce all of the terms and conditions hereof. No
waiver of any such right hereunder shall be binding unless reduced to writing
and signed by the Party to be charged therewith.
9.5 Costs and Attorneys Fees. In the event of any litigation between
the Parties relating to this Agreement or any of its subject matter, the
prevailing Party (as determined by the court) in such litigation shall be
entitled to recover from the other Party all costs of court and reasonable
attorneys' fees incurred in connection with such litigation, the amount of which
shall be fixed by the court and made a part of any judgement rendered by said
court.
9.6 Time. Time is of the essence.
9.7 Integration and Amendment. This Agreement: (i) represents the
entire agreement between the Parties relating to the subject matter of this
Agreement, and (ii) supersedes all prior agreements, understandings,
representations and warranties relating to the subject matter of this Agreement.
This Agreement may only be amended, modified or changed with the written consent
of the Parties.
9.8 Good Faith. The Parties hereby agree to exercise good faith,
cooperation, and reasonable due diligence in carrying out the intent of this
Agreement and in carrying out the performance of obligations hereunder. To such
extent, the Parties agree to execute all additional documents which may be
reasonably required to further carry out the express intent of this Agreement.
Neither Party to this Agreement shall commit any act or take any action which
frustrates or hampers the rights of the other Party under this Agreement. Each
Party shall act in good faith and engage in fair dealing when taking any action
under or related to this Agreement.
9.9 Construction. This Agreement represents the wording selected by the
Parties to define their agreement and no rule of strict construction shall apply
against either Party. Whenever the context reasonably permits, the singular
shall include the plural, the plural shall include the singular, and the whole
shall include any part thereof.
9.10 Successors. This Agreement shall be binding upon and inure to the
benefit of the Parties and their respective successors and assigns. Neither
Party shall have the right to assign their rights and obligations under this
Agreement without first obtaining the written consent of the other party, which
consent shall not be unreasonably withheld.
9.11 Effective Date. The effective date of this Agreement shall be the
date upon which this Agreement is fully executed by both Parties.
WHEREFORE, the Parties having set forth their agreement, do hereby
witnesseth the same on the dates herein set forth.
BY: DISCOUNT AUTO PARTS , Inc.
a Florida corporation
By:/s/ C. Michael Moore
Its: Chief Financial Officer
Date: 2-26-99
BY: Q LUBE, INC., a Delaware corporation
By:/s/ Kevin Lyng
Its: Vice President
Date: 3-1-99
<PAGE>
Amendment to Section 1.3(7)
Joint Business Termination Agreement
Notwithstanding anything else to the contrary, Q Lube will continue to operate
the Lakeland Site until the termination of the Master Lease Agreement becomes
effective and Q Lube will be one hundred percent (100%) responsible for its
operations on the Lakeland Site subsequent to the execution of this Termination
Agreement. Q Lube shall make monthly lease payments to DAP at the rate of Two
Thousand, Three Hundred Thirty-Two and No/100 Dollars ($2,332) per month until
the effective date of the termination of the Master Lease and until Q Lube
removes its improvements from the Lakeland Site. Further, Q Lube shall remove
all improvements from the Lakeland Site and restore said site to its
pre-construction condition within sixty (60) days from receiving notice that DAP
has provided notice to terminate the Master Lease Agreement.
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