<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1997
REGISTRATION NO. 333-24029
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CHIEF AUTO PARTS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C> <C>
DELAWARE
(State or other jurisdiction 5531 13-3440178
of incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code Number) Identification No.)
</TABLE>
---------------------
<TABLE>
<C> <C>
DAVID H. EISENBERG
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ONE LINCOLN CENTRE, SUITE 200 ONE LINCOLN CENTRE, SUITE 200
5400 LBJ FREEWAY 5400 LBJ FREEWAY
DALLAS, TEXAS 75240-6223 DALLAS, TEXAS 75240-6223
(972) 341-2000 (972) 341-2000
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number, including area code, of agent
principal executive offices) for service)
</TABLE>
With copies to:
<TABLE>
<C> <C>
CONOR D. REILLY, ESQUIRE JAMES J. CLARK, ESQUIRE
GIBSON, DUNN & CRUTCHER LLP CAHILL GORDON & REINDEL
200 PARK AVENUE 80 PINE STREET
NEW YORK, NEW YORK 10166-0193 NEW YORK, NEW YORK 10005
(212) 351-4000 (212) 701-3000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practical after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to change, completion or amendment.
A registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This Prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of such State.
SUBJECT TO COMPLETION, DATED MAY 5, 1997
<TABLE>
<C> <C> <C>
$125,000,000
[CHIEF AUTO PARTS LOGO] CHIEF AUTO PARTS INC.
% Senior Notes Due 2005
</TABLE>
Interest Payable and Due , 2005
------------------
The % Senior Notes Due 2005 (the "Notes") of Chief Auto Parts Inc. (the
"Company") being offered pursuant to this Prospectus (the "Offering") will
mature on , 2005. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after , 2001 at the
redemption prices set forth herein plus accrued interest, if any, to the date of
redemption. In addition, up to an aggregate of 36% of the principal amount of
the Notes may be redeemed from time to time prior to , 2000 at the
redemption price set forth herein plus accrued interest, if any, to the date of
redemption with the net proceeds of one or more Public Equity Offerings (as
defined), provided that at least 64% of the original principal amount of the
Notes remains outstanding after each such redemption. Upon a Change of Control
(as defined), each holder of Notes may require the Company to repurchase such
Notes at 101% of the principal amount thereof plus accrued interest, if any, to
the date of repurchase.
The Notes will be unsecured senior obligations of the Company and will rank pari
passu with all existing and future unsecured senior indebtedness of the Company
and senior to any subordinated indebtedness of the Company. As of March 30,
1997, after giving pro forma effect to the Recapitalization (as defined) as if
it had occurred on such date, the aggregate amount of secured indebtedness of
the Company, to which the Notes would be effectively subordinated, would have
been $4.0 million and, other than trade accounts payable, the Company would have
had no outstanding indebtedness ranking pari passu with the Notes.
Contemporaneously with the consummation of the Offering, the Company will effect
the Recapitalization, including entering into a credit facility (the "New Credit
Facility") with a group of banks providing for up to $100.0 million of revolving
credit loans and paying a net amount of approximately $61.2 million to
controlling stockholders and management of the Company. The Offering is
conditioned upon the concurrent consummation of each of the other elements of
the Recapitalization. See "Description of the Notes," "Description of New Credit
Facility," "The Recapitalization" and "Use of Proceeds."
There is no established trading market for the Notes, and the Company does not
intend to apply for listing of the Notes on any securities exchange or for
quotation on the Nasdaq National Market.
Settlement of the Notes will be made in immediately available funds. The Notes
will trade in the Same-Day Funds Settlement System of The Depository Trust
Company (the "Depositary"), and, to the extent that secondary market trading
activity in the Notes is effected through the facilities of the Depositary, such
trades will be settled in immediately available funds. All payments of principal
and interest will be made by the Company in immediately available funds.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE COMPANY(3)
--------- -------------- --------------
<S> <C> <C> <C>
Per Note................... % % %
Total...................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at $670,000.
------------------
The Notes are offered by the Underwriters when, as and if issued by the Company,
delivered to and accepted by the Underwriters, and subject to their right to
reject orders, in whole or in part. It is expected that delivery of the Notes,
in book-entry form through the facilities of the Depositary, will be made on or
about , 1997, against payment in immediately available funds.
------------------
CREDIT SUISSE FIRST BOSTON SALOMON BROTHERS INC
------------------
Prospectus dated , 1997.
<PAGE> 3
[ARTWORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
i
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. As used
herein and except as the context otherwise may require, the "Company" or "Chief"
means Chief Auto Parts Inc. and references to a certain fiscal year of the
Company mean the fiscal year ended on the last Sunday of that calendar year
(e.g., fiscal 1996 means the fiscal year ended December 29, 1996). This
Prospectus contains, in addition to historical information, forward-looking
statements that include risks and other uncertainties. The Company's actual
results may differ materially from those anticipated in these forward-looking
statements. Factors that might cause such a difference include those discussed
under "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as general economic
and business conditions, competition and other factors discussed elsewhere in
this Prospectus. The Company undertakes no obligation to release publicly any
revisions to these forward-looking statements that may reflect events or
circumstances after the date hereof or the occurrence of anticipated or
unanticipated events.
THE COMPANY
Chief is one of the nation's largest auto parts and accessories retail
chains, both in number of stores and annual revenue, with 547 retail stores as
of March 30, 1997 located in six states, primarily concentrated in Southern
California and Texas. The Company is a market leader based on number of stores
in its six primary markets -- Los Angeles, Dallas/Fort Worth, Sacramento, San
Diego, Las Vegas and Fresno -- with more than twice as many stores as its
nearest competitor in the Los Angeles market. The Company is a
consumer-oriented, specialty aftermarket retailer, primarily serving
do-it-yourself ("DIY") customers and, to a lesser extent, commercial customers.
Chief's product mix of approximately 16,000 stock keeping units ("SKUs") in its
typical retail store features nationally known brand names, as well as private
label automotive parts, including new and remanufactured hard parts, accessories
and maintenance items.
The Company's Chief Executive Officer, David H. Eisenberg, joined the
Company in 1992 and subsequently recruited many of the Company's current senior
executives. Since fiscal 1993, net sales and EBITDA (as defined) have increased
an average of 5.4% and 18.6% per year, respectively, to $438.2 million and $33.3
million, respectively, in fiscal 1996. Chief's management team has instituted a
number of initiatives designed to promote the Company's image as a premier
retailer for the DIY customer including a focus on competitive pricing and
superior customer service; investment in store expansions, relocations and
remodelings; and enhancement of information systems to improve customer service,
productivity and inventory management.
In June 1994, TCW Special Credits Fund V -- The Principal Fund, a private
equity investment fund ("The Principal Fund"), and certain of its affiliates
acquired Chief. Pursuant to a subadvisory agreement, Oaktree Capital Management
LLC ("Oaktree") manages The Principal Fund. The acquisition significantly
deleveraged the Company, providing it with access to growth capital and allowing
management to focus on operational improvements and growth. The support and
flexibility afforded by this change in Chief's capital structure enabled
management to reposition the Company from a chain of smaller automotive parts
convenience stores to a full-line auto parts and accessories chain. Since June
1994, the Company has invested approximately $45.1 million in total capital
expenditures in connection with its program to reposition Chief in the
automotive aftermarket marketplace and has doubled the average number of SKUs in
its stores. During this period, the Company remodeled 292 of its stores, opened
99 new stores, relocated 19 stores to larger, more favorable locations averaging
5,390 square feet (an increase from approximately 2,740 square feet for such
stores prior to relocation), closed 45 small or underperforming stores and
introduced Chief's commercial sales program into 32 existing stores (as of April
30, 1997, 16 of which were opened in the last 60 days). The Company has
substantially completed its program of repositioning Chief as a full-line auto
parts and accessories chain.
Chief's redesigned store layouts and enhanced product offerings enable the
Company to merchandise store product lines to target more effectively the needs
of the DIY customer, resulting in increased sales of "hard parts" (such as
alternators and starters) which carry higher margins and higher average
transaction prices than many of the Company's other products, such as motor oil.
These improvements also have contributed to an
<PAGE> 5
increase in gross profit margins and EBITDA margins from 37.9% and 6.3%,
respectively, in fiscal 1994 to 42.5% and 7.6%, respectively, in fiscal 1996.
Management believes that the automotive aftermarket parts industry is
growing as a result of: (i) increases in the size and age of the country's
automotive fleet; (ii) increases in the number of miles driven annually per
vehicle; (iii) the higher cost of new cars as compared to historical costs; (iv)
the higher cost of replacement parts as a result of technological changes in
recent models of vehicles; and (v) the increasing labor costs associated with
parts, installation and maintenance. Management further believes that the retail
auto parts industry displays certain recession-resistant characteristics
resulting from a shift from professional repairs to DIY repairs during economic
downturns and sales increases in automobile enhancement products during better
economic conditions.
OPERATING STRENGTHS AND BUSINESS STRATEGIES
Chief attributes its present success and significant opportunities for
continued growth to the following operating strengths and business strategies:
- Leading position in favorable markets. The Company is a market leader
based on number of stores in its six primary markets -- Los Angeles,
Dallas/Fort Worth, Sacramento, San Diego, Las Vegas and Fresno -- with
more than twice as many stores as its nearest competitor in the Los
Angeles market. California and Texas are the two largest states in the
country in terms of vehicle registration and population, and both have
climates suited for year-round outdoor auto repair activities. The
Company has achieved a high level of name recognition with its customers
in these markets as a result of consistently providing high quality
products and customer service.
- Investments in store relocation, expansion and remodeling. Chief has
focused on relocating and expanding existing stores to larger locations
with more customer-friendly layouts and identifying desirable locations
for opening new stores, primarily in existing markets. The Company also
significantly redesigned its store layout and remodeled 292 of its stores
from June 1994 through March 1997. Seventy-four percent of the Company's
existing store base is either new or has been remodeled since June 1994.
Chief plans to open 40 new stores, to relocate or expand at least 25
stores and to complete 80 remodels in 1997 at an aggregate estimated cost
of $11.1 million which the Company expects to finance with a combination
of funds generated from operations and borrowings under the New Credit
Facility.
- Enhancement of management information systems. Management has adopted a
strategy of enhancing Chief's customer service, productivity, inventory
and merchandising management through the implementation of new and
improved technology-based systems, including (i) the integration of its
point-of-sale system and electronic parts catalog, (ii) the introduction
and continued roll-out of perpetual inventory systems in its stores and
(iii) the installation of portable, hand-held radio frequency computer
devices to automate price management, receiving, shipping and ordering
functions in each store and distribution center and to facilitate the
management of the perpetual inventory system. Management believes these
systems should contribute to improved profitability.
- Commercial sales program. The Company recently initiated its commercial
sales program, marketed towards the commercial segment of the automotive
aftermarket industry, which the Company believes constitutes
approximately $40-$45 billion of the total estimated $75 billion annual
sales for the automotive aftermarket industry. In stores with commercial
sales capabilities, Chief offers commercial customers over 20,000 SKUs
delivered within 30 minutes from time of order. As of April 30, 1997, the
Company has introduced commercial sales capabilities into 32 of its
existing stores, 16 of which were opened within the last 60 days at an
estimated cost of $500,000. Chief believes that a successful commercial
sales program will complement the Company's existing retail business.
- Emphasis of competitive advantages over smaller retailers. The Company
will continue to consolidate its position in key markets by enhancing its
competitive advantages over smaller competitors including: (i) economies
of scale in advertising, distribution and warehousing; (ii) an ability to
stock and warehouse a larger number of SKUs, including private label
brands; (iii) lower product costs as a result of purchasing directly from
manufacturers rather than through distributors; (iv) an ability to
attract talented employees
2
<PAGE> 6
and offer attractive career paths; (v) superior customer service due to
better information systems and continuous employee training; and (vi) a
greater number of locations and extended store hours.
- Strong management team with significant equity ownership. Chief's
management team has repositioned the Company from a chain of smaller
automotive parts convenience stores to a full-line auto parts and
accessories chain. Four of the Company's top executives, including the
Chief Executive Officer, David H. Eisenberg, joined the Company following
their management of Peoples Drug Stores Incorporated, a drugstore chain
with approximately 500 locations. The Company's six senior executives
average more than 24 years of experience in the retail industry and
possess a diverse skill base which incorporates marketing, merchandising,
distribution, management information systems integration and customer and
vendor relationships. Senior management owns 9.2% of Chief's common stock
on a fully diluted basis.
The Company is a Delaware corporation. Its principal offices are located at
One Lincoln Centre, Suite 200, 5400 LBJ Freeway, Dallas, Texas 75240-6223 and
its telephone number is (972) 341-2000.
THE OFFERING
Securities Offered......... $125,000,000 aggregate principal amount of %
Senior Notes due 2005 of the Company.
Maturity Date.............. , 2005.
Interest Payment Dates..... and of each year, commencing
, 1997.
Optional Redemption........ The Notes may be redeemed at the option of the
Company, in whole or in part, at any time on or
after , 2001 at the redemption prices
set forth herein, plus accrued interest, if any, to
the date of redemption. Up to an aggregate of 36%
of the principal amount of the Notes may be
redeemed from time to time prior to ,
2000 at the option of the Company at the redemption
prices set forth herein plus accrued interest, if
any, to the date of redemption, with the net cash
proceeds of one or more Public Equity Offerings
provided that at least 64% of the original
aggregate principal amount of the Notes remains
outstanding immediately after each such redemption.
See "Description of the Notes -- Optional
Redemption."
Change of Control.......... Upon a Change of Control the Company each holder of
Notes may require the Company to make an offer to
repurchase such Holder's outstanding Notes at a
price equal to 101% of the principal amount thereof
plus accrued interest, if any, to the date of
repurchase. The New Credit Facility will prohibit
the purchase of Notes by the Company in the event
of a Change of Control unless and until any
indebtedness under the New Credit Facility is paid
in full. The Company's failure to purchase the
Notes would result in a default under the Indenture
and the New Credit Facility which could permit
acceleration of indebtedness under the Indenture
and the New Credit Facility. The Change of Control
provisions of the Indenture may be amended with the
consent of the holders of a majority in principal
amount of the Notes then outstanding. The Company
may not be able to fund the repurchase of all the
Notes in the event of a Change of Control. See
"Risk Factors -- Change of Control," "Description
of the Notes -- Change of Control," "-- Certain
Covenants" and "-- Defaults."
Ranking.................... The Notes will be unsecured senior obligations of
the Company and will rank pari passu in right of
payment with all existing and future senior
unsecured indebtedness of the Company, if any, and
will rank senior in right of payment to any
subordinated indebtedness of the Company. As of
3
<PAGE> 7
March 30, 1997, after giving pro forma effect to
the Recapitalization as if it had occurred on such
date, the aggregate amount of the Company's
outstanding secured indebtedness, to which the
Notes would be effectively subordinated, would have
been approximately $4.0 million and, other than
trade accounts payable, the Company would have had
no outstanding indebtedness ranking pari passu with
the Notes. In connection with the Recapitalization,
the Company will enter into the New Credit
Facility, which will mature on the fifth
anniversary of the closing of the Recapitalization.
See "Description of the Notes -- Ranking."
Restrictive Covenants...... The indenture under which the Notes will be issued
(the "Indenture") will contain certain covenants
that, among other things, will limit the ability of
the Company and/or its Restricted Subsidiaries (as
defined) to (i) incur additional indebtedness, (ii)
pay dividends or make certain other restricted
payments, (iii) make investments, (iv) enter into
transactions with affiliates, (v) make certain
asset dispositions and (vi) merge or consolidate
with, or transfer substantially all of its assets
to, another person. The Indenture also will limit
the ability of the Company's Restricted
Subsidiaries to issue Capital Stock (as defined)
and to create restrictions on the ability of such
Restricted Subsidiaries to pay dividends or make
any other distributions. In addition, the Company
will be obligated to offer to repurchase Notes at a
purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase, with the net
cash proceeds of certain sales or other
dispositions of assets only to the extent that an
excess of cash is available after application of
such net cash proceeds pursuant to the terms of the
Indenture. However, all of these limitations and
prohibitions are subject to a number of important
qualifications. A default under certain of the
Company's other financial obligations could result
in a default under the Indenture. See "Description
of the Notes -- Certain Covenants" and
"-- Defaults."
Limitation on Liability.... No director, officer, employee, incorporator,
controlling person or stockholder of the Company,
as such, shall have any liability for any
obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their
creation. Each holder of Notes by accepting a Note
waives and releases all such liability. The waiver
may not be effective to waive liabilities under the
federal securities laws and it is the view of the
Commission (as defined) that such waiver is against
public policy.
4
<PAGE> 8
THE RECAPITALIZATION
In connection with the Offering, the Company and its stockholders will
effect a series of transactions that will result in a recapitalization of the
Company (such transactions are collectively referred to herein as the
"Recapitalization"). The elements of the Recapitalization consist of (i) the
completion of the Offering (estimated to result in approximately $120.6 million
of net proceeds), (ii) the exercise of outstanding options to purchase 4,839.97
shares of common stock of the Company, par value $0.01 per share (the "Common
Stock"), by management for aggregate proceeds of $6.9 million, (iii) the
repayment by members of management of approximately $910,000, a portion of the
amounts owed to the Company under certain promissory notes, (iv) the
establishment of the New Credit Facility, which will provide for $100.0 million
of revolving credit facilities, and (v) the application of the aggregate net
proceeds from the foregoing as described under "Use of Proceeds." Consummation
of each of the foregoing transactions is subject to the simultaneous
consummation or effectiveness, as applicable, of each of the other elements of
the Recapitalization. The Principal Fund, its affiliates and certain management
stockholders will receive a net amount of $61.2 million in the Recapitalization.
These payments are the first dividend or return on investment that the
stockholders of the Company have received since the time of The Principal Fund's
investment in the Company in June 1994. The Principal Fund's investment
significantly deleveraged the Company at a time when management needed a
flexible capital structure in order to implement its plan to reposition Chief as
a full-line auto parts and accessories chain. Because the Company has
substantially completed its program of repositioning Chief, the Company has
decided to provide its stockholders with a partial return of their initial
investment in Chief. See "The Recapitalization," "Use of Proceeds," "Certain
Transactions" and "Description of New Credit Facility."
USE OF PROCEEDS
The net proceeds from the sale of the Notes are estimated to be
approximately $120.6 million (after deduction of discounts to the Underwriters
and other expenses). The Company intends to use the aggregate net proceeds from
the Recapitalization (i) to repay all outstanding indebtedness (approximately
$65.0 million) under its existing credit facility (the "Existing Credit
Facility"), (ii) to pay certain employees of the Company an aggregate of $4.0
million for previously accrued employee incentive compensation and (iii) to
distribute approximately $65.0 million to the stockholders of the Company
(consisting of approximately $56.1 million to The Principal Fund and its
affiliates and $8.9 million to management stockholders, of which approximately
$7.8 million will be used by certain management stockholders to exercise options
and repay certain loans pursuant to the Recapitalization). See "The
Recapitalization" and "Use of Proceeds."
RISK FACTORS
Prospective purchasers of the Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, the information set
forth under "Risk Factors" before making an investment in the Notes.
5
<PAGE> 9
SUMMARY FINANCIAL AND OTHER DATA
The following summary financial and other data have been derived from, and
should be read in conjunction with, the Financial Statements and related notes
thereto included elsewhere in this Prospectus. The Company's fiscal year is the
52- or 53-week period ending on the last Sunday in December. All fiscal years
presented are 52 weeks, except fiscal 1995, which is 53 weeks. In addition, the
Company was a party to a merger effective June 27, 1994 (the "Merger") which was
accounted for using the purchase method. The results of operations subsequent to
the Merger are not comparable to the results prior to the Merger due to certain
purchase accounting adjustments. See "Selected Financial and Other Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
PREDECESSOR(A) SUCCESSOR(A)
--------------------------- PRO FORMA ---------------------------------------------------
YEARS ENDED YEAR YEARS ENDED THREE MONTHS ENDED
--------------------------- ENDED --------------------------- ---------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 29, MARCH 31, MARCH 30,
1992 1993 1994(B) 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------ --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $371,347 $374,618 $399,164 $429,047 $438,182 $102,260 $109,854
Gross profit(c)........ 137,651 150,075 151,322 177,419 186,418 43,681 46,573
Selling, general and
administrative
expenses(d).......... 148,498 131,125 139,083 145,829 167,064 36,485 41,017
Operating income
(loss)(c)(d)......... (22,590) 11,427 3,010 21,193 7,732 4,530 2,305
Net income
(loss)(c)(d)......... (32,220) 226 (4,650) 9,479 1,104 1,672 170
</TABLE>
<TABLE>
<CAPTION>
MARCH 30, 1997
-----------------------
ACTUAL ADJUSTED(E)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................... $ 1,138 $ 1,138
Working capital............................................. 47,843 48,245
Total assets................................................ 299,472 302,938
Total debt, including current maturities(f)................. 81,622 147,643
Stockholders' equity........................................ 71,650 13,492
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR(A) SUCCESSOR(A)
--------------------------- PRO FORMA ---------------------------------------------------
YEARS ENDED YEAR YEARS ENDED THREE MONTHS ENDED
--------------------------- ENDED --------------------------- ---------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 29, MARCH 31, MARCH 30,
1992 1993 1994(B) 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------ --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER STORE SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(g).............. $ (1,407) $ 20,133 $ 25,161 $ 31,385 $ 33,288 $ 7,131 $ 5,546
EBITDA margin(h)....... (0.4)% 5.4% 6.3% 7.3% 7.6% 7.0% 5.0%
Gross margin........... 37.1% 40.1% 37.9% 41.3% 42.5% 42.7% 42.4%
Capital expenditures... $ 6,100 $ 6,178 12,397 $ 11,822 $ 23,275 $ 4,398 $ 3,536
Ratio of earnings to
fixed charges(i)..... (i) 1.0x (i) 2.0x 1.1x 1.8x 1.1x
SELECTED ADDITIONAL
OPERATING DATA:
Average net sales per
store(j)............. $ 727 $ 759 $ 809 $ 845 $ 824 $ 195 $ 201
Average net sales per
store square
foot(j).............. 220 229 240 242 223 54 52
Percentage change in
comparable store net
sales(k)............. 4.5% 1.8% 4.9% 1.8% (2.6)% (2.7)% 2.0%
PRO FORMA DATA:
Interest expense, net
(historical)......... $ 6,203 $ 1,784
Interest expense,
net.................. 17,189 4,343
Cash interest
expense(l)........... 16,227 4,102
Ratio of total debt to
EBITDA(f)(m)......... 4.5x (n)
Ratio of EBITDA to cash
interest
expense(l)(m)........ 2.1x 1.4x
Ratio of earnings to
fixed charges(i)..... (i) (i)
</TABLE>
6
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED STORE DATA:
Beginning stores....... 526 495 492 495 520 520 544
New stores............. 2 14 18 34 51 12 5
Relocated stores....... 2 1 6 3 12 2 2
Closed stores
(including relocated
stores).............. (35) (18) (21) (12) (39) (4) (4)
--------- --------- --------- --------- --------- --------- ---------
Ending stores........ 495 492 495 520 544 530 547
========= ========= ========= ========= ========= ========= =========
Remodeled stores....... 25 29 38 90 159 91 18
Average square footage
per store(j)......... 3,312 3,321 3,377 3,489 3,695 3,589 3,853
Total square footage at
period end (in
thousands)(j)........ 1,639 1,639 1,694 1,848 2,084 1,921 2,120
</TABLE>
- ---------------
(a) "Successor" refers to Chief Auto Parts Inc. subsequent to the Merger.
"Predecessor" refers to Chief Auto Parts Inc. prior to the Merger. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Pro Forma 1994 Information" for further information regarding
the Merger.
(b) Data for the pro forma year ended December 25, 1994 give effect to the
Merger as if it had occurred on December 27, 1993 and include pro forma
Merger adjustments.
(c) Year ended December 27, 1992 includes a $6.7 million non-cash provision
related to discontinued inventory. Pro forma year ended December 25, 1994
includes a $12.9 million Merger-related inventory charge.
(d) Year ended December 27, 1992 includes a $7.5 million non-cash provision
primarily related to the Company's exit from the Nashville and Phoenix
markets and a $3.5 million non-cash provision related to various insurance
reserves. Year ended December 29, 1996 includes a $14.0 million non-cash
provision for (i) store closings primarily related to the Company's exit
from the Little Rock market and (ii) legal reserves.
(e) The adjusted balance sheet data as of March 30, 1997 give effect to the
Recapitalization as if it had occurred on March 30, 1997.
(f) Total debt comprises long-term borrowings and capital leases.
(g) EBITDA represents income (loss) before interest expense (net), income taxes,
depreciation and amortization and, (i) in year ended December 27, 1992,
excludes a $7.5 million non-cash provision primarily related to the
Company's exit from the Nashville and Phoenix markets, (ii) in pro forma
year ended December 27, 1994, excludes a $12.9 million Merger-related
inventory charge, (iii) in year ended December 29, 1996, excludes a $14.0
million non-cash provision for (A) store closings primarily related to the
Company's exit from the Little Rock market and (B) legal reserves and (iv)
in the three months ended March 30, 1997 includes $1.9 million of expenses
related to the launch of the "All New Chief" campaign in the Los Angeles,
California market (excluding such expenses, EBITDA for such period would
have been $7.4 million). EBITDA is used by the Company for the purpose of
analyzing operating performance, leverage and liquidity. EBITDA is not a
measure of financial performance under generally accepted accounting
principles and should not be considered as an alternative to net income as
an indicator of the Company's operating performance or as an alternative to
cash flows as a measure of liquidity.
(h) EBITDA margin represents EBITDA as a percentage of net sales. EBITDA margin
for the three months ended March 30, 1997 includes $1.9 million of expenses
related to the launch of the "All New Chief" campaign in the Los Angeles,
California market. Excluding such expenses, EBITDA margin for such period
would have been 6.7%.
(i) The ratio of earnings to fixed charges is computed by aggregating income
before income taxes and fixed charges and dividing the total by fixed
charges. Fixed charges comprise interest on all indebtedness including
capital leases and amortization of debt expense, and one-third of rental
expense (being that portion of rental expense representative of an interest
factor). During the year ended December 27, 1992 and the pro forma year
ended December 25, 1994, earnings were insufficient to cover fixed charges
by $32.7 million and $2.1 million, respectively, and accordingly such
ratios are not presented. The pro forma ratio of earnings to fixed charges
gives effect to the Recapitalization as if it had occurred on January 1,
1996. On a pro forma basis, during the year ended December 29, 1996,
earnings were insufficient to cover fixed charges by $9.7 million, and
accordingly such ratio is not presented. On a pro forma basis, during the
three months ended March 30, 1997, earnings were insufficient to cover
fixed charges by $2.1 million, and accordingly such ratio is not presented.
(j) Average net sales per store, average square footage per store and average
net sales per store square foot are based on the average of the beginning
and ending number of stores and store square footage, and are not weighted
to take into consideration the actual dates of store openings, closings or
expansions. Total square footage at period end is based on the Company's
actual store formats and includes normal selling, office, stockroom and
receiving space.
(k) The percentage change in comparable store net sales is calculated as the net
change in sales for each comparable store for the equivalent period in the
prior year. Comparable stores are stores that have been operating for more
than 12 months since first opening. During the
7
<PAGE> 11
13th month of operations, new stores are considered comparable stores.
Stores which have been relocated are treated as comparable stores. Closed
stores are not categorized as comparable stores.
(l) Pro forma cash interest expense for the year ended December 29, 1996 and
the three months ended March 30, 1997 is pro forma interest expense,
excluding amortization of deferred financing costs, and gives effect to the
Recapitalization as if it had occurred on January 1, 1996 and December 30,
1996, respectively, assuming an interest rate on the Notes of 10.5% and a
composite interest rate of 7.5% on the New Credit Facility. No interest
income has been assumed on average excess cash invested of approximately
$10.0 million during year ended December 29, 1996.
(m) Ratios concerning EBITDA are included as they are generally recognized as
providing useful information regarding a company's ability to service
and/or incur debt. Such ratios are also relevant for covenant analysis
under the Indenture.
(n) This ratio is not presented for the three months ended March 30, 1997
because the Company believes the ratio of total debt to EBITDA, in which
total debt is compared to quarterly EBITDA, is not an accurate or
meaningful representation of full year results.
8
<PAGE> 12
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the following
risk factors, as well as the other information set forth elsewhere in this
Prospectus. This Prospectus contains, in addition to historical information,
forward-looking statements that include risks and other uncertainties. The
Company's actual results may differ materially from those anticipated in these
forward-looking statements. Factors that might cause such a difference include
those discussed below, as well as general economic and business conditions,
competition and other factors discussed elsewhere in this Prospectus.
LITIGATION
The Company is the defendant in two lawsuits alleging that the Company
failed to pay store managers and associate store managers in California for
overtime compensation as required by California law. On September 21, 1993, a
lawsuit was filed in the Superior Court of California, County of Alameda by
Stephen Cooper, a manager, on his own behalf and on behalf of all persons
similarly situated. Mr. Cooper is alleging that the Company's store managers and
associate store managers in California are not exempt employees under California
law, and that the Company failed to compensate its store managers and associate
store managers for overtime compensation as required by California law. In
December 1994, the court denied class certification to Mr. Cooper. However,
since the date this lawsuit was filed, approximately 242 current and former
employees have joined Mr. Cooper's lawsuit. In addition to the claims filed in
Alameda County, 15 current and former employees filed a lawsuit based on the
same claims against the Company on March 5, 1996 in the Superior Court of
California, County of San Joaquin. The Company is vigorously defending against
the claims of all plaintiffs.
In September 1996, at the recommendation of the Alameda court, the parties
submitted to binding arbitration with respect to eight of the Cooper plaintiffs.
On March 10, 1997, the arbitrator ruled in favor of the eight plaintiffs
involved in the arbitration with respect to liability, finding that these eight
plaintiffs are entitled to (i) compensation for the overtime hours they worked,
(ii) an additional amount equal to 30 days' compensation (in the case of the
seven plaintiffs no longer employed by the Company) as waiting time penalties
for the Company's "willful" failure to pay overtime compensation, (iii) interest
on such unpaid compensation and (iv) reasonable attorneys' fees and costs of
arbitration. The arbitrator has not yet made any determination with respect to
calculation of damages. This arbitration decision has no binding precedential or
stare decisis effect on the remaining 235 plaintiffs' cases. However, regardless
of the outcome of the damage phase of the arbitration, the Company may have to
litigate or arbitrate the remaining cases and may incur significant legal
expenses in connection therewith, and the Company could be subject to
significant compensatory damages. In addition, there are approximately 700 store
managers and associate store managers previously or currently employed by the
Company in California who have not brought or joined in the suit against the
Company as of the date hereof. Following the Alameda court's denial of class
certification to the plaintiffs, the court required the Company to send notice
in October 1995 to all potential plaintiffs (current and former managers as of
that date) notifying them of this action and providing them the opportunity to
contact the plaintiffs' attorney. Management is unable to predict the outcome of
the damage phase of the arbitration or the remaining lawsuits, or the
probability of additional lawsuits, at this time. However, if a significant
number of plaintiffs were to prevail on all elements of their claims against the
Company or if a significant number of additional current or former managers were
to bring suit and prevail as noted above, it could have a material adverse
effect on the Company. See "Business -- Legal Proceedings."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
In connection with the Offering, the Company will incur a significant
amount of indebtedness. As a result, following the completion of the Offering,
the Company will be highly leveraged and will have substantial repayment
obligations, as well as significantly increased interest expense. As of March
30, 1997, after giving effect to the Recapitalization as if it had occurred on
such date, the Company's total indebtedness would have been approximately $147.6
million. In addition, subject to the restrictions in the New Credit Facility and
the Indenture, the Company may incur additional indebtedness from time to time
to finance acquisitions or capital expenditures or for other purposes.
9
<PAGE> 13
The Company's ability to make scheduled payments of principal or interest
on, or to refinance, its indebtedness will depend on future operating
performance and cash flow, which are subject to prevailing economic conditions,
prevailing interest rate levels and financial, competitive, business and other
factors beyond its control. The degree to which the Company is leveraged could
have important consequences to holders of the Notes, including the following:
(i) the Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of interest on the Notes and interest on its
other existing indebtedness, thereby reducing the funds available to the Company
for other purposes; (iii) the agreements governing the Company's long-term
indebtedness contain certain restrictive financial and operating covenants; (iv)
all of the indebtedness under the New Credit Facility will be at variable rates
of interest, ranging from 0.5% to 1.0% above the Base Rate (as defined) or, at
the Company's option, from 1.5% to 2.5% above the Eurodollar Rate (as defined),
which would cause the Company to be vulnerable to increases in interest rates;
(v) all of the indebtedness outstanding under the New Credit Facility will be
secured by all inventory and accounts receivable of the Company and will become
due prior to the time the principal on the Notes will become due; (vi) the
Company is substantially more leveraged than certain of its competitors, which
might place the Company at a competitive disadvantage; (vii) the Company may be
hindered in its ability to adjust rapidly to changing market conditions; (viii)
the Company's substantial degree of leverage may negatively affect certain
vendors' willingness to give the Company favorable payment terms; and (ix) the
Company's substantial degree of leverage could make it more vulnerable in the
event of a downturn in general economic conditions or in its business. See
"Description of New Credit Facility."
The Company believes that, based upon anticipated levels of operations, it
should be able to meet its debt service obligations, including interest payments
on the Notes, when due. If, however, the Company cannot generate sufficient cash
flow from operations to meet its obligations, the Company might be required to
refinance its debt or to dispose of assets to obtain funds for such purpose.
There is no assurance that refinancings or asset dispositions could be effected
on satisfactory terms, if at all, or would be permitted by the terms of the New
Credit Facility or the Indenture pursuant to which the Notes will be issued. In
the event that the Company is unable to refinance the New Credit Facility or
raise funds through asset sales, sales of equity or otherwise, its ability to
pay principal of and interest on the Notes would be adversely affected. Pro
forma for the Recapitalization as if it had occurred on January 1, 1996,
earnings were insufficient to cover fixed charges during the year ended December
29, 1996 by $9.7 million and during the three months ended March 30, 1997 by
$2.1 million.
RANKING
The Indenture permits the Company to incur additional senior indebtedness,
provided certain financial or other conditions are met. The Notes will be senior
unsecured obligations and will rank pari passu in right of payment with all
existing and future senior unsecured indebtedness. As of March 30, 1997, after
giving pro forma effect to the Recapitalization as if it had occurred on such
date, the aggregate amount of secured indebtedness of the Company, to which the
Notes would be effectively subordinated, would have been $4.0 million and the
Company would have had no outstanding indebtedness ranking pari passu with the
Notes, other than trade accounts payable. Holders of existing or future secured
indebtedness of the Company permitted under the Indenture, including the New
Credit Facility, will have claims with respect to the assets constituting
collateral that are prior to the claims of holders of the Notes. See
"Description of the Notes -- Ranking."
RESTRICTIVE LOAN COVENANTS
The New Credit Facility will include certain covenants that, among other
things, restrict: (i) the making of investments, loans and advances and the
paying of dividends and other restricted payments; (ii) the incurrence of
additional indebtedness; (iii) the granting of liens, other than liens created
pursuant to the New Credit Facility and certain permitted liens; (iv)
consolidations and sales of all or a substantial part of the Company's business
or property and (v) the sale of assets. The New Credit Facility will also
require the Company to maintain certain financial ratios including (a) minimum
EBITDA of $22.5 million in each of 1997 and 1998, $25.5 million in each of 1999
and 2000 and $28.0 million in 2001; and (b) under certain circumstances, a
minimum fixed charge
10
<PAGE> 14
coverage ratio. All of these restrictive covenants may restrict the Company's
ability to expand or to pursue its business strategies. The ability of the
Company to comply with these and other provisions of the New Credit Facility may
be affected by changes in economic or business conditions, results of operations
or other events beyond the Company's control. The breach of any of these
covenants could result in a default under the New Credit Facility, in which
case, depending on the actions taken by the lenders thereunder or their
successors or assignees, such lenders could elect to declare all amounts
borrowed under the New Credit Facility, together with accrued interest, to be
due and payable, and the Company could be prohibited from making payments of
interest and principal on the Notes until the default is cured or all such
indebtedness is paid or satisfied in full. If the Company were unable to repay
such borrowings, such lenders could proceed against the collateral granted to
them to secure that indebtedness, which indebtedness will be secured by liens on
substantially all the inventory and accounts receivable of the Company. In
addition, the New Credit Facility contains certain events of default which are
substantially similar to the events of default under the Indenture except as
follows: (i) the Company's failure to pay other indebtedness or judgments
entered against the Company will trigger a default under the New Credit Facility
at lower dollar amounts than in the Indenture; (ii) the creation of liens on or
failure of any security interest in collateral securing the New Credit Facility
will trigger a default under the New Credit Facility; (iii) the insolvency or
dissolution of the Company will trigger a default under the New Credit Facility;
(iv) a Change of Control that triggers the Company's repurchase obligations
under the Indenture will trigger a default under the New Credit Facility; and
(v) the occurrence of certain events causing a material adverse change in the
Company's business could trigger a default under the New Credit Facility. If the
indebtedness under the New Credit Facility were to be accelerated, there can be
no assurance that the assets of the Company would be sufficient to repay in full
such indebtedness and the other indebtedness of the Company, including the
Notes. See "Description of New Credit Facility" and "Description of the
Notes -- Ranking." The Company anticipates that a combination of funds generated
from operations and significant additional borrowings under the New Credit
Facility will be required to finance the planned program of upgrading Chief's
store network by opening new stores and relocating or expanding certain existing
stores. If for any reason the Company were unable to satisfy the conditions to
borrowing under the New Credit Facility and to make additional borrowings
thereunder, the Company would not have sufficient funds to continue such upgrade
of the store network and to meet its other payment obligations. See "-- Ability
to Continue Company Growth."
CONCENTRATION OF OWNERSHIP
Following the Recapitalization, The Principal Fund and its affiliates, TCW
Special Credits Fund IV, TCW Special Credits Plus Fund, TCW Special Credits
Trust IV and TCW Special Credits Trust IVA, all of which are affiliates of The
TCW Group, Inc., will control the power to vote approximately 86.2% of the
outstanding Common Stock of the Company. Accordingly, The Principal Fund and its
affiliates are entitled to elect all directors of the Company, approve all
amendments to the Company's Certificate of Incorporation and effect fundamental
corporate transactions such as mergers and asset sales. See "Principal
Stockholders."
CHANGE OF CONTROL
A Change of Control could require the Company to refinance substantial
amounts of indebtedness. Upon the occurrence of a Change of Control, the holders
of the Notes would be entitled to require the Company to purchase the Notes at a
purchase price equal to 101% of the principal amount of such Notes, plus accrued
and unpaid interest, if any, to the date of repurchase. However, the New Credit
Facility will prohibit the purchase of the Notes by the Company in the event of
a Change of Control, unless and until such time as the indebtedness under the
New Credit Facility is repaid in full. The Company's failure to purchase the
Notes would result in a default under the Indenture and the New Credit Facility
which could permit the trustee under the Indenture, the holders of at least 25%
in principal amount of the outstanding Notes or the lenders under the New Credit
Facility to declare the principal and accrued but unpaid interest to be due and
payable. The inability to repay the indebtedness under the New Credit Facility,
if accelerated, would also constitute an event of default under the Indenture,
which could have adverse consequences to the Company and the holders of the
Notes because such a default could cause an acceleration of the indebtedness
under the Indenture. In the event of a Change of Control, there can be no
assurance that the Company would have either (i) the ability to refinance the
New Credit Facility
11
<PAGE> 15
or (ii) sufficient assets to satisfy all of its obligations under the New Credit
Facility and the Notes. See "Description of New Credit Facility" and
"Description of the Notes -- Change of Control."
DECLINE IN COMPARABLE STORE SALES
The Company's comparable store sales declined 2.6% in fiscal 1996. Although
the Company believes that comparable store sales declines resulted primarily
from disruptions caused by the Company's intensive remodeling efforts and the
opening of additional Company stores in close proximity to existing store
locations in an effort to further penetrate certain markets, there can be no
assurance that comparable store sales will not continue to decline in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success is largely dependent upon the
abilities and experience of its senior management team, particularly David H.
Eisenberg, the President and Chief Executive Officer of the Company. The loss of
the services of Mr. Eisenberg without a suitable replacement could have a
material adverse effect on the Company's business and future operations. The
Company does not maintain key man life insurance with respect to any of its
executive officers. The Company has employment agreements with Mr. Eisenberg and
Larry L. Buresh, the Vice President -- Information Systems of the Company, that
extend through 1999 and 1998, respectively. See "Management -- Employment
Arrangements."
DEPENDENCE ON VENDOR RELATIONSHIPS
The Company's business is dependent upon developing and maintaining close
relationships with its vendors and its ability to purchase products from these
vendors on favorable price and other terms, including obtaining financial
incentives, such as cooperative advertising arrangements and other marketing
incentive programs, and non-financial benefits such as improved packaging and
distribution accommodations. In fiscal 1996, the Company purchased approximately
13.7% of its products from Echlin, Inc., a supplier of ignition parts, fuel
pumps, brakes and brake parts and purchased approximately 10.5% of its products
from GNB Incorporated, a supplier of batteries. A disruption of these or other
vendor relationships, or a material reduction in any of the advertising,
incentive or other programs, could have a material adverse effect on the
Company's business. The Company believes that alternative sources of supply
could be obtained for all of its products, if necessary, on generally comparable
terms, but no assurance can be given in this regard. See
"Business -- Purchasing."
COMPETITION
The market for the retail sale of automotive parts and accessories is
highly fragmented and highly competitive. The Company competes primarily with
national and regional automotive parts chains, wholesalers or jobber stores
(some of which are associated with national automotive parts distributors or
associations), automobile dealers that supply manufacturer parts and mass
merchandisers that carry automotive replacement parts and accessories. As the
Company enters the commercial market, it faces additional competition from
wholesalers and jobber stores in particular. Furthermore, in light of the trend
in the automotive parts industry toward increasing consolidation at the
warehouse and jobber levels, the Company's financial performance may be
significantly affected by the Company's ability to compete successfully for
associated commercial customers, and otherwise take advantage of consolidation
opportunities and other industry trends. Many of the Company's competitors are
larger in terms of sales volume and have greater financial resources. See
"Business -- Competition."
DEMAND; ECONOMIC AND WEATHER CONDITIONS; GEOGRAPHIC CONCENTRATION
The demand for automotive products is affected by a number of factors
beyond the Company's control, including improvement of vehicle quality, U.S.
economic conditions and weather conditions. In recent years, there have been,
and in the future there are likely to continue to be, significant improvements
in the quality and complexity of new vehicles and vehicle parts, which may
reduce the demand for DIY repair parts. In addition, approximately 24% of the
Company's stores are located in Texas and 70% are located in California, and an
even
12
<PAGE> 16
higher percentage of the Company's EBITDA is derived from California. A majority
of the Company's business is likely to remain concentrated in these regions. As
a result, the Company's business is sensitive to the economic and weather
conditions of those regions. In recent years, certain parts of those regions
have experienced economic recessions and extreme weather conditions. California,
in particular, in recent years has experienced adverse economic conditions and
has suffered from numerous natural disasters. While adverse weather conditions
such as temperature extremes may enhance sales by causing a higher incidence of
parts failure and increasing sales of seasonal products, unusually severe
weather can reduce sales by causing deferral of elective maintenance. No
prediction can be made as to future economic or weather conditions in these or
the other regions in which the Company operates.
FRAUDULENT CONVEYANCE RISKS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Notes in
favor of other existing or future creditors of the Company.
Proceeds from the Offering are being used, in part, in a distribution to
the Company's stockholders. If a court in a lawsuit on behalf of any unpaid
creditor of the Company or a representative of the Company's creditors were to
find that, at the time the Company issued the Notes, the Company (x) intended to
hinder, delay or defraud any existing or future creditor or contemplated
insolvency with a design to prefer one or more creditors to the exclusion in
whole or in part of others or (y) did not receive fair consideration in good
faith or reasonably equivalent value for issuing the Notes and the Company (i)
was insolvent, (ii) was rendered insolvent by reason of such distribution, (iii)
was engaged or about to engage in business or transactions for which its
remaining assets constituted unreasonably small capital to carry on its
business, or (iv) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they matured, such court could avoid the
Notes and avoid such transactions. Alternatively, in such event, claims of the
holders of Notes could be subordinated to claims of other creditors of the
Company. The Company may be viewed as insolvent at the time of or as a result of
the Recapitalization if the fair market value of its assets does not exceed its
probable liabilities at the time of, or following, the Recapitalization.
Based upon financial and other information currently available to it,
management of the Company believes that the Notes are being incurred for proper
purposes and in good faith. Certain courts have held, however, that a company's
purchase of its own capital stock does not constitute reasonably equivalent
value or fair consideration for incurring indebtedness. By extension, the
Recapitalization may also be viewed as not constituting reasonably equivalent
value or fair consideration to the Company. The Company believes that it (i) is
solvent and will continue to be solvent after issuing the Notes, because the
Company believes the fair value of the Company's assets exceeds and will exceed
its probable liabilities, (ii) will have sufficient capital for carrying on the
business it intends to conduct after such issuance, and (iii) will be able to
pay its debts as they mature. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity, Capital Resources
and Financial Condition." There can be no assurance, however, that a court would
concur with such beliefs and positions.
Additionally, under federal bankruptcy or applicable state solvency law, if
a bankruptcy or insolvency were initiated by or against the Company within 90
days after any payment by the Company with respect to the Notes, or if the
Company anticipated becoming insolvent at the time of any such payment, all or a
portion of the payment could be avoided as a preferential transfer and the
recipient of such payment could be required to return such payment. In rendering
its opinion on the validity of the Notes, counsel for each of the Company and
the Underwriters will express no opinion as to federal or state laws relating to
fraudulent transfers.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local laws and
governmental regulations relating to the operation of its business, including
those governing battery recycling and used oil and oil filters, and regarding
ownership and operation of real property. The Company handles hazardous
materials during its operations, and its customers may also bring or use
hazardous materials or used oil onto the Company's properties. The Company also
currently provides a recycling program for the collection of used oil and oil
filters at certain of its stores as a
13
<PAGE> 17
service to its customers pursuant to agreements with third party vendors. In
addition, the Company collects and temporarily holds battery cores pursuant to
an agreement with the Company's battery vendor. Pursuant to these agreements,
the used oil and oil filters and battery cores are collected by Company
employees, deposited into vendor-supplied containers/pallets and then disposed
of by the third-party vendors. To date, compliance with applicable laws and
regulations has not had a material effect on the Company's results of operations
and financial condition. However, environmental laws have changed rapidly in
recent years, and the Company may be subject to more stringent environmental
laws in the future. There can be no assurance that more stringent environmental
laws would not have an adverse effect on the Company's results of operations.
In addition, under environmental laws, a current or previous owner or
operator of real property may be liable for the cost of removal or remediation
of hazardous or toxic substances on, under, or in such property. Such laws often
impose joint and several liability and may be imposed without regard to whether
the owner or operator knew of, or was responsible for, the release of such
hazardous or toxic substances. Compliance with such laws and regulations has not
had a material impact on the Company's operations to date, but there can be no
assurance that future compliance with such laws and regulations will not have a
material adverse effect on the Company or its operations. The Company is also
indemnified by The Southland Corporation ("Southland") against losses associated
with any environmental contamination existing on the date of the sale of the
Company by Southland. See "Business -- History" and "-- Environmental Matters."
ABILITY TO CONTINUE COMPANY GROWTH
The Company has grown in recent years by opening new stores, remodeling and
relocating existing stores and increasing the number of SKUs available in
existing stores. There can be no assurance that the Company will continue to be
able to maintain or expand its market presence in its current locations or to
successfully enter other markets. The ability of the Company to continue to grow
in the future will depend on a number of factors including existing and emerging
competition, the availability of working capital to support such growth, the
Company's ability to manage costs and maintain margins in the face of pricing
pressures and the ability to recruit and train additional qualified personnel.
Failure by the Company to maintain its growth could have an adverse effect on
its ability to make payments of interest and principal on the Notes.
IMPLEMENTATION AND INTEGRATION OF MANAGEMENT INFORMATION SYSTEMS
The Company is in the process of implementing new information systems which
management believes will assist the Company in reducing labor costs, enhancing
productivity and improving inventory and merchandising management. The Company's
future success may be dependent to a significant degree upon the implementation,
accuracy and proper utilization of its management information systems. For
example, the Company's ability to manage its inventories and to price its
products appropriately depends upon the quality and effective use of the
information generated by its management information systems. The Company
estimates that implementation and integration of its management information
systems will cost approximately $1.6 million during 1997. The failure of the
Company's management information systems to adapt to business needs resulting
from, among other things, expansion of its store network, introduction of new
products and the continued growth of its business, or the failure of the Company
to successfully finance or implement these systems, could have a material
adverse effect on the Company.
LACK OF PUBLIC MARKET FOR THE NOTES
There is no existing trading market for the Notes, and there can be no
assurance regarding the future development of a market for the Notes or the
ability of holders of the Notes to sell their Notes or the price at which such
holders may be able to sell their Notes. If such a market were to develop, the
Notes could trade at prices that may be higher or lower than the initial
offering price depending on many factors, including prevailing interest rates,
the Company's operating results and the market for similar securities. The
Underwriters have advised the Company that they currently intend to make a
market in the Notes. The Underwriters are not obligated to do so, however, and
any market-making with respect to the Notes may be discontinued at any time
without notice. Therefore, there can be no assurance as to the liquidity of any
trading market for the Notes or that an active market for the Notes will
develop. The Company does not intend to apply for listing or quotation of the
Notes on any securities exchange or stock market.
14
<PAGE> 18
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Notes will not be
subject to similar disruptions. Any such disruptions may have an adverse effect
on holders of the Notes.
THE RECAPITALIZATION
In connection with the Offering, the Company and its stockholders will
effect a series of transactions that will result in the Recapitalization of the
Company. The elements of the Recapitalization consist of (i) the completion of
the Offering (estimated to result in approximately $120.6 million of net
proceeds), (ii) the exercise of outstanding options to purchase 4,839.97 shares
of Common Stock by management for aggregate proceeds of $6.9 million, (iii) the
repayment by members of management of approximately $910,000, a portion of the
amounts owed to the Company under certain promissory notes, (iv) the
establishment of the New Credit Facility, which will provide for $100.0 million
of revolving credit facilities, $5.6 million of which will initially be borrowed
by the Company, and (v) the application of the aggregate net proceeds from the
foregoing as described under "Use of Proceeds." Consummation of each of the
foregoing transactions is subject to the simultaneous consummation or
effectiveness, as applicable, of each of the other elements of the
Recapitalization. The Principal Fund, its affiliates and certain management
stockholders will receive a net amount of $61.2 million in the Recapitalization.
These payments are the first dividend or return on investment that the
stockholders of the Company have received since the time of The Principal Fund's
investment in the Company in June 1994. This investment significantly
deleveraged the Company at a time when management needed a flexible capital
structure in order to implement its plan to reposition Chief as a full-line auto
parts and accessories chain. Because the Company has substantially completed its
program of repositioning Chief, the Company has decided to provide its
stockholders with a partial return of their initial investment in Chief. See
"Use of Proceeds," "Certain Transactions" and "Description of New Credit
Facility."
USE OF PROCEEDS
The net proceeds from the sale of the Notes are estimated to be
approximately $120.6 million (after deduction of discounts to the Underwriters
and other expenses). The Company intends to use the aggregate net proceeds from
the Recapitalization (i) to repay all outstanding indebtedness (approximately
$65.0 million) under the Existing Credit Facility which bears interest at a
variable rate, which was 6.7% at March 30, 1997, and expires in June 1999, (ii)
to pay certain employees of the Company an aggregate of $4.0 million for
previously accrued employee incentive compensation and (iii) to distribute
approximately $65.0 million to the stockholders of the Company (consisting of
approximately $56.1 million to The Principal Fund and its affiliates as a
partial return of their investment and $8.9 million to management stockholders,
of which approximately $7.8 million will be used by certain management
stockholders to exercise options and repay certain loans made in connection with
prior purchases of Common Stock and the remainder of which will be a partial
return of their initial investment). See "The Recapitalization." The estimated
net sources and uses of funds expected as of the closing of the Recapitalization
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Sources of funds:
Net proceeds from the Offering............................ $120,580
Borrowings under New Credit Facility...................... 5,639
--------
Total............................................. $126,219
Uses of funds:
Repayment of Existing Credit Facility..................... $ 65,000
Employee incentive compensation........................... 4,000
Net distribution to stockholders.......................... 57,219
--------
Total............................................. $126,219
</TABLE>
15
<PAGE> 19
CAPITALIZATION
The following table sets forth the unaudited cash and cash equivalents and
the capitalization of the Company at March 30, 1997 and as adjusted for the
Recapitalization, as described under "The Recapitalization" and "Use of
Proceeds." This table should be read in conjunction with the "Selected Financial
and Other Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 30, 1997
----------------------
AS
ACTUAL ADJUSTED
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 1,138 $ 1,138
======== ========
Long-term debt (including current portion):
Existing Credit Facility.................................. $ 61,100 $ --
New Credit Facility....................................... -- 2,121
Industrial development bonds.............................. 1,870 1,870
Senior Notes Due 2005..................................... -- 125,000
Capital lease obligations................................. 18,652 18,652
-------- --------
Total debt.................................................. 81,622 147,643
-------- --------
Stockholders' equity:
Common Stock, par value $0.01 per share; 100,000 shares
authorized; 49,898.31 shares issued and outstanding,
actual; 54,738.28 shares issued and outstanding, as
adjusted............................................... 1 1
Additional paid-in capital................................ 70,815 14,402
Less: management notes receivable......................... (1,821) (911)
Retained earnings......................................... 2,655 --
-------- --------
Total stockholders' equity.................................. 71,650 13,492
-------- --------
Total capitalization........................................ $153,272 $161,135
======== ========
</TABLE>
16
<PAGE> 20
SELECTED FINANCIAL AND OTHER DATA
The following table sets forth selected financial and other data of the
Company for the five fiscal years ended December 29, 1996 and for the three
months ended March 31, 1996 and March 30, 1997. The historical financial data
for the five fiscal years ended December 29, 1996 were derived from the
Company's audited Financial Statements, appearing elsewhere in this Prospectus.
The historical financial data for the three months ended March 31, 1996 and
March 30, 1997 were derived from the Company's unaudited Financial Statements
that have been prepared on the same basis as the audited Financial Statements
and include all adjustments, consisting of normal recurring accruals, that the
Company considers necessary for a fair presentation of the financial position
and results of operations for such periods. Operating results for the three
months ended March 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 28, 1997. The Company's fiscal year
is the 52- or 53-week period ending on the last Sunday in December. All fiscal
years presented are 52 weeks, except fiscal 1995, which is 53 weeks. In
addition, the results of operations subsequent to the Merger are not comparable
to the results prior to the Merger due to certain purchase accounting
adjustments. The following table should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Financial Statements appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR (a) SUCCESSOR (a)
------------------------------ ----------------------------------------------------
SIX SIX THREE MONTHS
YEARS ENDED MONTHS MONTHS YEARS ENDED ENDED
------------------- ENDED ENDED ------------------- -------------------
DEC. 27, DEC. 26, JUNE 26, DEC. 25, DEC. 31, DEC. 29, MAR. 31, MAR. 30,
1992 1993 1994 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER STORE SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $371,347 $374,618 $195,286 $203,878 $429,047 $438,182 $102,260 $109,854
Cost of goods sold, warehousing and
distribution(b).................... 233,696 224,543 114,452 133,390 251,628 251,764 58,579 63,281
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit(b)...................... 137,651 150,075 80,834 70,488 177,419 186,418 43,681 46,573
Selling, general and administrative
expenses(c)........................ 148,498 131,125 68,642 70,500 145,829 167,064 36,485 41,017
Depreciation and amortization........ 11,743 7,523 3,626 5,020 10,397 11,622 2,666 3,251
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)(b)(c)........ (22,590) 11,427 8,566 (5,032) 21,193 7,732 4,530 2,305
Interest expense, net................ 12,024 12,014 5,807 2,533 6,009 6,203 1,440 1,784
Other (expense) income, net.......... 1,956 1,183 41 4 (205) (66) (65) (10)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes.... (32,658) 596 2,800 (7,561) 14,979 1,463 3,025 511
Income tax expense (benefit)......... (438) 370 1,383 537 5,500 359 1,353 341
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)(b)(c).............. $(32,220) $ 226 $ 1,417 $ (8,098) $ 9,479 $ 1,104 $ 1,672 $ 170
======== ======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents............ $ 885 $ 1,095 $ 1,116 $ 1,133 $ 1,202 $ 1,140 $ 1,224 $ 1,138
Working capital (deficit)............ (20,088) (21,705) (26,075) 17,484 23,961 47,987 26,820 47,843
Total assets......................... 147,863 148,189 151,414 229,659 254,419 298,348 269,592 299,472
Total debt, including current
maturities(d)...................... 117,876 117,935 108,422 61,130 63,471 81,986 66,549 81,622
Stockholders' equity (deficit)(e).... (49,395) (48,820) (47,303) 60,646 70,275 71,480 71,948 71,650
SELECTED ADDITIONAL OPERATING DATA:
Average net sales per store(i)....... $ 727 $ 759 $ 397 $ 413 $ 845 $ 824 $ 195 $ 201
Average net sales per store square
foot(i)............................ $ 220 $ 229 $ 118 $ 121 $ 242 $ 223 $ 54 $ 52
Percentage change in comparable store
net sales(j)....................... 4.5% 1.8% 6.0% 3.9% 1.8% (2.6)% (2.7)% 2.0%
OTHER DATA:
EBITDA(f)............................ $ (1,407) $ 20,133 $ 12,233 $ 12,869 $ 31,385 $ 33,288 $ 7,131 $ 5,546
EBITDA margin(g)..................... (0.4)% 5.4% 6.3% 6.3% 7.3% 7.6% 7.0% 5.0%
Gross margin......................... 37.1% 40.1% 41.4% 34.6% 41.3% 42.5% 42.7% 42.4%
Capital expenditures................. $ 6,100 $ 6,178 $ 5,885 $ 6,512 $ 11,822 $ 23,275 $ 4,398 $ 3,536
Ratio of earnings to fixed
charges(h)......................... (h) 1.0x 1.3x (h) 2.0x 1.1x 1.8x 1.1x
Cash provided by (used in):
Operating activities............... $ 2,976 $ 5,205 $ 13,241 $ 9,854 $ 9,089 $ 1,864 $ 1,354 $ 3,609
Investing activities............... (2,101) (4,579) (3,663) (25,172) (11,673) (22,405) (4,271) (3,193)
Financing activities............... (984) (416) (9,557) 12,812 2,653 20,479 2,939 (418)
PRO FORMA DATA:
Interest expense, net (historical)... $ 6,203 $ 1,784
Interest expense, net................ 17,189 4,343
Cash interest expense(k)............. 16,227 4,102
Ratio of total debt to
EBITDA(k)(l)....................... 4.5x (m)
Ratio of EBITDA to cash interest
expense(k)(l)...................... 2.1x 1.4x
Ratio of earnings to fixed
charges(h)......................... (h) (h)
</TABLE>
17
<PAGE> 21
<TABLE>
<CAPTION>
PREDECESSOR (A) SUCCESSOR (A)
------------------------------ ----------------------------------------------------
SIX SIX THREE MONTHS
YEARS ENDED MONTHS MONTHS YEARS ENDED ENDED
------------------- ENDED ENDED ------------------- -------------------
DEC. 27, DEC. 26, JUNE 26, DEC. 25, DEC. 31, DEC. 29, MAR. 31, MAR. 30,
1992 1993 1994 1994 (B) 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER STORE SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED STORE DATA:
Beginning stores..................... 526 495 492 493 495 520 520 544
New stores........................... 2 14 9 9 34 51 12 5
Relocated stores..................... 2 1 4 2 3 12 2 2
Closed stores (including
relocated)......................... (35) (18) (12) (9) (12) (39) (4) (4)
-------- -------- -------- -------- -------- -------- -------- --------
Ending stores.................. 495 492 493 495 520 544 530 547
======== ======== ======== ======== ======== ======== ======== ========
Remodeled stores..................... 25 29 13 25 90 159 91 18
Average square footage per
store(i)........................... 3,312 3,321 3,362 3,408 3,489 3,695 3,589 3,853
Total square footage at period end
(in thousands)(i).................. 1,639 1,639 1,673 1,694 1,848 2,084 1,921 2,120
</TABLE>
- ---------------
(a) "Successor" refers to Chief Auto Parts Inc. subsequent to the Merger;
"Predecessor" refers to Chief Auto Parts Inc. prior to the Merger. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Pro Forma 1994 Information" for further information regarding
the Merger.
(b) Year ended December 27, 1992 includes a $6.7 million non-cash provision
related to discontinued inventory. Six months ended December 25, 1994
includes a $12.9 million Merger-related inventory charge.
(c) Year ended December 27, 1992 includes a $7.5 million non-cash provision
primarily related to the Company's exit from the Nashville and Phoenix
markets and a $3.5 million non-cash provision related to various insurance
reserves. Year ended December 29, 1996 includes a $14.0 million non-cash
provision for (i) store closings primarily related to the Company's exit
from the Little Rock market and (ii) legal reserves.
(d) Total debt comprises long-term borrowings and capital leases.
(e) No cash dividends have been paid during the presented periods.
(f) EBITDA represents income (loss) before interest expense (net), income
taxes, depreciation and amortization and, (i) in year ended December 27,
1992, excludes a $7.5 million non-cash provision primarily related to the
Company's exit from the Nashville and Phoenix markets, (ii) in pro forma
year ended December 27, 1994, excludes a $12.9 million Merger-related
inventory charge, (iii) in year ended December 29, 1996, excludes a $14.0
million non-cash provision for (A) store closings primarily related to the
Company's exit from the Little Rock market and (B) legal reserves and (iv)
in the three months ended March 30, 1997 includes $1.9 million of expenses
related to the launch of the "All New Chief" campaign in the Los Angeles,
California market (excluding such expenses, EBITDA for such period would
have been $7.4 million). EBITDA is used by the Company for the purpose of
analyzing operating performance, leverage and liquidity. Such data are not
a measure of financial performance under generally accepted accounting
principles and should not be considered as an alternative to net income as
an indicator of the Company's operating performance or as an alternative to
cash flows as a measure of liquidity.
(g) EBITDA margin represents EBITDA as a percentage of net sales. EBITDA margin
for the three months ended March 30, 1997 includes expenses related to the
launch of "The All New Chief" campaign in the Los Angeles, California
market. Excluding such expenses, EBITDA margin for such period would have
been 6.7%.
(h) The ratio of earnings to fixed charges is computed by aggregating income
before income taxes and fixed charges and dividing the total by fixed
charges. Fixed charges comprise interest on all indebtedness including
capital leases and amortization of debt expense, and one-third of rental
expense (being that portion of rental expense representative of an interest
factor). During the year ended December 27, 1992 and the six months ended
December 25, 1994, earnings were insufficient to cover fixed charges by
$32.7 million and $7.6 million, respectively, and accordingly such ratios
are not presented. The pro forma ratio of earnings to fixed charges gives
effect to the Recapitalization as if it had occurred on January 1, 1996. On
a pro forma basis, during the year ended December 29, 1996, earnings were
insufficient to cover fixed charges by $9.7 million, and accordingly such
ratio is not presented. On a pro forma basis, during the three months
18
<PAGE> 22
ended March 30, 1997, earnings were insufficient to cover fixed charges by
$2.1 million, and accordingly such ratio is not presented.
(i) Average net sales per store, average square footage per store and average
net sales per store square foot are based on the average of the beginning
and ending number of stores and store square footage, and are not weighted
to take into consideration the actual dates of store openings, closings or
expansions. Total square footage at period end is based on the Company's
actual store formats and includes normal selling, office, stockroom and
receiving space.
(j) The percentage change in comparable store net sales is calculated as the
net change in sales for each comparable store for the equivalent period in
the prior year. Comparable stores are stores that have been operating for
more than 12 months since first opening. During the 13th month of
operations, new stores are considered comparable stores. Stores which have
been relocated are treated as comparable stores. Closed stores are not
categorized as comparable stores.
(k) Pro forma cash interest expense for the year ended December 29, 1996 and
the three months ended March 30, 1997 is pro forma interest expense, net of
amortization of deferred financing costs, and gives effect to the
Recapitalization as if it had occurred on January 1, 1996 and December 30,
1996, respectively, assuming an interest rate on the Notes of 10.5% and a
composite interest rate of 7.5% on the New Credit Facility. No interest
income has been assumed on average excess cash invested of approximately
$10.0 million during year ended December 29, 1996.
(l) Ratios concerning EBITDA are included as they are generally recognized as
providing useful information regarding a company's ability to service
and/or incur debt. Such ratios are also relevant for covenant analysis
under the Indenture.
(m) This ratio is not presented for the three months ended March 30, 1997
because the Company believes the ratio of total debt to EBITDA, in which
total debt is compared to quarterly EBITDA, is not an accurate or
meaningful representation of full year results.
19
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial and Other Data" and the Financial Statements of the Company and the
related notes thereto included elsewhere in this Prospectus. This Prospectus
contains, in addition to historical information, forward-looking statements that
include risks and other uncertainties. The Company's actual results may differ
materially from those anticipated in these forward-looking statements. Factors
that might cause such a difference include those discussed below, as well as
general economic and business conditions, competition and other factors
discussed elsewhere in this Prospectus. The Company undertakes no obligation to
release publicly any revisions to these forward-looking statements that may
reflect events or circumstances after the date hereof or the occurrence of
anticipated or unanticipated events.
GENERAL
Management has repositioned Chief from a chain of smaller automotive parts
convenience stores to a full-line auto parts and accessories chain through a
number of initiatives designed to promote the Company's image as a premier
retailer for the DIY market. Since the Merger, the Company has invested
approximately $45.1 million in total capital expenditures, doubled the average
number of SKUs in its stores and either remodeled or opened as new stores 74% of
its current stores:
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED MARCH
------------------ -------------
1994 1995 1996 1996 1997
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Stores at beginning of period............................... 492 495 520 520 544
New stores.................................................. 18 34 51 12 5
Relocated stores............................................ 6 3 12 2 2
Closed stores (including relocated stores).................. (21) (12) (39) (4) (4)
--- --- --- ---- ----
Stores at end of period................................... 495 520 544 530 547
=== === === ==== ====
Remodeled or expanded stores................................ 38 90 159 91 18
=== === === ==== ====
</TABLE>
Newly-opened stores are categorized as new stores during the first full
year of operations. During the 13th month of operations, new stores are
considered comparable stores. Stores that have been relocated are treated as
comparable stores. Closed stores (including those closed during the current
year) are not categorized as comparable stores. The percentage change in
comparable store sales is calculated as the net change in sales for each
comparable store for the equivalent period in the prior year.
As described in Notes 1 and 2 to the Financial Statements, the Company was
the surviving corporation of the Merger effective June 27, 1994. The Merger was
accounted for by the purchase method of accounting, and accordingly, the assets
and liabilities of the Predecessor were revalued and significant adjustments to
the assets acquired and liabilities assumed were made to reflect their estimated
fair values at the date of the Merger. As a result of these factors, management
does not believe the financial statements of the Company are comparable to those
of the Predecessor. A comparison follows between the Company's results for the
years ended December 29, 1996 and December 31, 1995, and the pro forma combined
results of the Company and the Predecessor for the year ended December 25, 1994
(which assumes that the Merger occurred on December 27, 1993). The pro forma
results for 1994 combine the results of operations of the Company for the six
months ended December 25, 1994 and of the Predecessor for the six months ended
June 26, 1994 (as derived from the Financial Statements of the Company and the
Predecessor, included elsewhere in this Prospectus), and pro forma Merger
adjustments.
In order to make the following comparisons meaningful, it should be noted
that fiscal 1996 included 52 weeks, fiscal 1995 included 53 weeks and pro forma
fiscal 1994 included 52 weeks.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in Chief's Financial
Statements.
20
<PAGE> 24
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------------------------------------
PRO
FORMA THREE MONTHS ENDED THREE MONTHS ENDED
1994 1995 1996 MARCH 31, 1996 MARCH 30, 1997
--------- ----- ----- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales........... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold,
warehousing and
distribution..... 62.1 58.7 57.5 57.3 57.6
----- ----- ----- ------ ------
Gross profit........ 37.9 41.3 42.5 42.7 42.4
Selling, general and
administrative... 34.8 34.0 38.1 35.7 37.3
Depreciation and
amortization..... 2.3 2.4 2.6 2.6 3.0
----- ----- ----- ------ ------
Operating income.... 0.8 4.9 1.8 4.4 2.1
===== ===== ===== ====== ======
OTHER DATA:
EBITDA.............. 6.3 7.3 7.6 7.0 5.0
===== ===== ===== ====== ======
</TABLE>
Three Months Ended March 30, 1997 vs. Three Months Ended March 31, 1996
Net sales. Net sales increased by $7.6 million, or 7.4%, to $109.9 million
in the first quarter of 1997 from $102.3 million in the first quarter of 1996.
The increase was due primarily to growth in the Company's store base, as well as
a 2.0% increase in comparable store sales.
Gross profit. Gross profit increased by $2.9 million, or 6.6%, to $46.6
million in the first quarter of 1997 from $43.7 million in the first quarter of
1996, primarily as a result of sales volume increases. Gross profit margin
decreased slightly due to higher markdowns and sales discounts in the first
quarter of 1997 compared to the first quarter of 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $4.5 million, or 12.4%, to $41.0 million in
the first quarter of 1997 from $36.5 million in the first quarter of 1996. This
increase was primarily due to (i) higher occupancy costs resulting from an
increase in the number of stores open and (ii) additional advertising costs of
$1.4 million, or 1.3% of net sales, and additional labor costs of $500,000, or
0.5% of net sales, associated with the launch of "The All New Chief" program in
the Los Angeles, California market. Excluding $1.9 million of expenses
associated with "The All New Chief" program, selling, general and administrative
expenses as a percentage of net sales decreased to 35.5% in the first quarter of
1997 from 35.7% in the first quarter of 1996.
The "All New Chief" program is comprised of an institutional advertising
program broadcast in the Los Angeles market and additional staffing at stores in
that market. The program is designed to emphasize the extensive remodeling of
stores in that market, the related additional inventory and additional store
staffing to better serve customers.
EBITDA. EBITDA decreased by $1.6 million, or 22.2%, to $5.5 million in the
first quarter of 1997 from $7.1 million in the first quarter of 1996. Excluding
expenses associated with "The All New Chief" program, EBITDA increased by
$315,000, or 4.4%, to $7.4 million in the first quarter of 1997 from $7.1
million in the first quarter of 1996 and the EBITDA margin decreased to 6.7% in
the first quarter of 1997 from 7.0% in the first quarter of 1996.
Depreciation and amortization expense. Depreciation and amortization
expense increased by $585,000, or 21.9%, to $3.3 million in the first quarter of
1997 from $2.7 million in the first quarter of 1996. This increase was primarily
due to an increase in the depreciable asset base, including leasehold
improvements and furniture and
21
<PAGE> 25
equipment, resulting from extensive store remodeling throughout fiscal 1996, as
well as to an increase in the number of stores open.
Interest expense. Interest expense increased by $344,000, or 23.9%, to $1.8
million in the first quarter of 1997 from $1.4 million in the first quarter of
1996. This increase was due to higher average outstanding balances under the
Existing Credit Facility in the first quarter of 1997 compared to the first
quarter of 1996.
Net income. Net income decreased by $1.5 million, or 89.8%, to $170,000 in
the first quarter of 1997 from $1.7 million in the first quarter of 1996. This
decrease was primarily due to higher occupancy costs resulting from an increase
in the number of stores open and to additional advertising and labor costs
associated with the launch of "The All New Chief" program in the Los Angeles,
California market.
Fiscal Year Ended December 29, 1996 vs. Fiscal Year Ended December 31, 1995
Net sales. Net sales increased by $9.1 million, or 2.1%, to $438.2 million
in fiscal 1996 from $429.0 million in fiscal 1995. The increase was primarily
attributable to higher new store sales in fiscal 1996 compared to fiscal 1995
(63 stores were opened in fiscal 1996 compared to 37 in fiscal 1995). The
increase in new store sales offset a decrease in comparable store sales during
fiscal 1996. Additionally, fiscal 1995 consisted of 53 weeks compared to 52
weeks in fiscal 1996; the additional one week's sales of $7.4 million in fiscal
1995 had no equivalent in fiscal 1996. On a comparable basis (52 weeks compared
to 52 weeks), comparable store sales during fiscal 1996 decreased by $10.6
million, or 2.6%, to $394.3 million in fiscal 1996 from $404.9 million in fiscal
1995. The comparable store sales decrease resulted from a lower average number
of customer transactions per store, which was partially offset by a higher
average value of customer transaction size (as measured in dollars). Management
believes that the reduction in customer transactions was attributable to
disruptions caused by extensive remodeling efforts during fiscal 1996 (159
stores were remodeled in fiscal 1996 compared to 90 in fiscal 1995), as well as
to the opening of new stores in close proximity to existing stores in an effort
to extend market penetration.
Gross profit. Gross profit increased by $9.0 million, or 5.1%, to $186.4
million in fiscal 1996 from $177.4 million in fiscal 1995 due to the increased
sales volume and a higher gross profit margin (42.5% in fiscal 1996 compared to
41.3% in fiscal 1995). The gross profit margin increase resulted from product
mix enhancements, improved purchasing terms from primary vendors and additional
purchasing incentives provided by vendors due to remodeling and new store
openings.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $21.2 million, or 14.6%, to $167.1 million
in fiscal 1996 from $145.8 million in fiscal 1995. This increase was primarily
due to an unusual $14.0 million non-cash provision for (i) store closings
primarily related to the Company's exit from the Little Rock market and (ii)
legal reserves. The remainder of the increase was due to an increase in sales
volume and a corresponding increase in related expenses such as store labor,
advertising, and occupancy costs. As a percentage of net sales, excluding the
unusual $14.0 million non-cash provision, selling, general and administrative
expenses increased to 34.9% in fiscal 1996 from 34.0% in fiscal 1995. This 0.9%
increase was primarily attributable to expenses associated with new store
openings, additional store labor entailed in remerchandising the remodeled
stores, higher store supply expense and additional advertising promotions.
EBITDA. EBITDA increased by $1.9 million, or 6.1%, to $33.3 million in
fiscal 1996 (52 weeks) from $31.4 million in fiscal 1995 (53 weeks). The
increase was principally the result of the increased sales volume and gross
profit.
Depreciation and amortization expense. Depreciation and amortization
expense increased by $1.2 million, or 11.8%, to $11.6 million in fiscal 1996
from $10.4 million in fiscal 1995. The increase was primarily attributable to a
higher depreciable asset base in fiscal 1996 compared to fiscal 1995, most
notably in leasehold improvements and furniture and equipment. The asset base
increased due to capital improvements made during the year (such as the
remodeling of stores to accommodate the expanded hard parts merchandise
assortment and new store systems) and to the opening of new stores.
Interest expense. Interest expense increased by $194,000, or 3.2%, to $6.2
million in fiscal 1996 from $6.0 million in fiscal 1995. The increase was due
primarily to a higher average outstanding balance under the Existing Credit
Facility in fiscal 1996 compared to fiscal 1995, offset partially by lower
average interest rates during fiscal 1996 compared to fiscal 1995.
22
<PAGE> 26
Income taxes. The Company's effective income tax rate decreased to 24.5% in
fiscal 1996 from 36.7% in fiscal 1995, primarily due to the benefit of
previously unrecognized tax assets and lower state taxes.
Net income. Net income decreased by $8.4 million, or 88.4%, to $1.1 million
in fiscal 1996 from $9.5 million in fiscal 1995 due to the factors discussed
above.
Fiscal Year Ended December 31, 1995 vs. Pro Forma Fiscal Year Ended December
25, 1994
Net sales. Net sales increased by $29.9 million, or 7.5%, to $429.0 million
in fiscal 1995 from $399.2 million in fiscal 1994. The increase was attributable
to an additional week's sales of $7.4 million in fiscal 1995, which consisted of
53 weeks compared to 52 weeks in fiscal 1994, and to new store sales due to 37
new store openings in fiscal 1995 compared to 24 in fiscal 1994. On a comparable
basis (53 weeks compared to 53 weeks), comparable store sales increased by $7.2
million, or 1.8%, to $405.7 million in fiscal 1995 from $398.4 million in fiscal
1994. The increase in comparable store sales resulted from a higher average
customer transaction size (as measured in dollars), which offset a slight
decrease in the average number of customer transactions per store. The Company
believes the reduction in customer transactions was due to disruptions caused by
extensive remodeling efforts during fiscal 1995 (90 stores were remodeled during
fiscal 1995 compared to 38 in fiscal 1994).
Gross profit. Gross profit increased by $26.1 million, or 17.2%, to $177.4
million in fiscal 1995 from $151.3 million in fiscal 1994, due to the increased
sales volume. During fiscal 1994, a non-recurring Merger-related write-up of
merchandise inventory of $12.9 million was charged to cost of goods sold, for
which there was no comparable charge during fiscal 1995. Excluding this
non-recurring charge, gross profit increased by $13.2 million or 8.1%. Gross
profit margin increased to 41.3% in fiscal 1995 from 37.9% in fiscal 1994, due
in part to the non-recurring Merger-related charge in fiscal 1994 described
above, excluding which the gross profit margin in fiscal 1994 was 41.1%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $6.7 million, or 4.9%, to $145.8 million in
fiscal 1995 from $139.1 million in fiscal 1994 due principally to the increased
sales volume. As a percentage of net sales, selling, general and administrative
expenses decreased to 34.0% in fiscal 1995 from 34.8% in fiscal 1994. This
decrease was primarily attributable to improved expense control.
EBITDA. EBITDA increased by $6.2 million, or 24.7%, to $31.4 million in
fiscal 1995 from $25.2 million in fiscal 1994 principally as a result of the
increased sales volume, better gross margins and lower operating expenses.
Depreciation and amortization expense. Depreciation and amortization
expense increased by $1.2 million, or 12.7%, to $10.4 million in fiscal 1995
from $9.2 million in fiscal 1994. The increase was due to a higher depreciable
asset base in fiscal 1995 compared to fiscal 1994, most notably in leasehold
improvements and furniture and equipment. The asset base increased due to
capital improvements made during the year (such as the remodeling of stores to
the expanded hard parts merchandise assortment), and to the opening of new
stores.
Interest expense. Interest expense increased by $910,000, or 17.8%, to $6.0
million in fiscal 1995 from $5.1 million in fiscal 1994. The increase was due
primarily to a higher average outstanding balance under the Existing Credit
Facility in fiscal 1995 compared to fiscal 1994.
Income taxes. The Company's effective income tax rate during fiscal 1995
differed from that in fiscal 1994 as no tax benefits were provided in fiscal
1994 for the Company's losses during that period.
Net income. Net income increased by $14.1 million to $9.5 million in fiscal
1995 from a net loss of $4.7 million in fiscal 1994 due to the factors discussed
above.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Since the Merger, the Company has utilized funds generated from operations
and borrowings under the Existing Credit Facility to meet working capital
requirements (principally merchandise inventory) and to fund capital
expenditures (principally the opening of new stores, remodeling and expansion of
existing stores,
23
<PAGE> 27
information systems improvements and distribution center improvements). At March
30, 1997, the Company had net working capital of $47.8 million and $18.4 million
available for borrowing under the Existing Credit Facility. In connection with
the Recapitalization, the Company will enter into the New Credit Facility.
During fiscal 1996, the Company's principal sources of cash were $1.9
million from operations and $22.5 million from borrowings under the Existing
Credit Facility, which were used primarily to fund capital expenditures of $23.3
million. During fiscal 1995, the Company's principal sources of cash were $9.1
million from operations and $4.0 million from borrowings under the Existing
Credit Facility, which were used primarily to fund capital expenditures of $11.8
million. During the six months ended December 25, 1994, the Company's principal
sources of cash were $9.9 million from operations, $68.7 million from the
issuance of stock, and $34.5 million from borrowings under the Existing Credit
Facility, which were used primarily to fund capital expenditures of $6.5
million, to purchase the Predecessor for $67.6 million and to pay Predecessor
debt of $88.5 million. During the six months ended June 26, 1994 (Predecessor),
the principal sources of cash were $13.2 million from operations and $2.2
million from the sale of property and equipment, which were used primarily to
fund capital expenditures of $5.9 million and to repay debt of $9.5 million.
As a result of the Company's new store growth and major remodeling program,
the Company's capital expenditures and related investments in property, plant
and equipment and merchandise inventories have increased significantly. Capital
expenditures increased by $11.5 million, or 96.9%, to $23.3 million in fiscal
1996 from $11.8 million in fiscal 1995. The increase was due primarily to the
new store growth and the remodeling program, as well as to distribution center
improvements and store-related information systems. Merchandise inventories
increased by $32.8 million, or 30.5%, to $140.4 million in fiscal 1996 from
$107.6 million in fiscal 1995, due to the new store growth, the remodeling
program, the deliberate expansion of Chief's SKU count in a typical store, which
has doubled to an average of 16,000, since 1994, and other changes to product
mix. The Company plans to reduce inventory maintained in each store in the
future through improved inventory management.
During fiscal 1997, the Company plans to open approximately 40 new stores
and to relocate or expand approximately 25 existing stores. Additionally, the
Company plans to complete 80 remodels during fiscal 1997, and to improve
significantly its distribution systems. The total estimated cost of such new
store openings and existing store relocations and remodelings is approximately
$11.1 million.
The Company anticipates that substantially all of its new and relocated
stores during fiscal 1997 will be financed by arrangements structured as
operating leases that require no net capital expenditures by the Company except
for fixtures and store equipment. Merchandise inventories and related capital
expenditures for the new stores and remodeling are expected to be funded by
operations, working capital and credit facilities. The Existing Credit Facility
was increased from $50.0 million to $65.0 million effective January 26, 1996,
and then to $80.0 million effective November 4, 1996. The New Credit Facility
will provide for revolving credit borrowings up to $100.0 million, available
subject to a borrowing base formula. Under such formula, approximately $77.0
million is expected to be available under the commitment upon completion of the
Recapitalization, of which approximately $71.0 million is expected to be
available for additional borrowings on such date.
The Company believes that funds provided from operations and from credit
facilities currently in place will be sufficient to meet planned financial
commitments.
EFFECT OF INFLATION AND CHANGING PRICES
Inflation has not had a material effect on the Company's results of
operations. Chief has offset the effect of inflation by maintaining profit
margins through product mix enhancements and securing favorable purchase terms
from primary suppliers.
Substantially all of the Company's indebtedness (other than capitalized
leases) bears stated interest at rates that are subject to fluctuation. The
weighted average interest rate in effect on the Existing Credit Facility was
6.7% at March 30, 1997, 6.4% at December 29, 1996 and 8.5% at December 31, 1995.
24
<PAGE> 28
NEW ACCOUNTING STANDARDS
During fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of" ("SFAS 121"). SFAS 121 requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. SFAS 121
had no impact on the Company's financial position or results of operations.
Additionally, during fiscal 1996 the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 requires expanded disclosures of stock-based compensation
arrangements with employees, and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument. As more
fully described in Note 7 to the Financial Statements, the Company has opted to
continue the application of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and accordingly, the adoption of
SFAS 123 was for disclosure purposes only and had no effect on the Company's
financial position or results of operations.
PRO FORMA 1994 INFORMATION
In the table shown below, a pro forma statement of operations for the year
ended December 25, 1994 is presented, which gives effect to the Merger as if it
had occurred on December 27, 1993.
The pro forma statement of operations is derived from the Financial
Statements of the Company for the six months ended December 25, 1994 and of the
Predecessor for the six months ended June 26, 1994, which are included elsewhere
in this Prospectus.
In order to present the combined results of operations of the two
companies, the Predecessor results were adjusted to reflect the pro forma
Merger-related activity that would have resulted if the Merger had occurred at
the beginning of the Predecessor's fiscal period. The unaudited pro forma Merger
adjustments reflect purchase accounting treatment of the Merger and the
repayment of Predecessor debt, as follows:
PRO FORMA 1994 STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
SIX MONTHS ENDED SUCCESSOR PRO FORMA
JUNE 26, 1994 SIX MONTHS COMBINED
------------------------------------ ENDED YEAR ENDED
MERGER AS DECEMBER 25, DECEMBER 25,
ACTUAL ADJUSTMENTS(1) ADJUSTED 1994 1994
-------- -------------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales......................... $195,286 $ -- $195,286 $203,878 $399,164
Costs and expenses:
Costs of goods sold, warehousing
and distribution............. 114,452 -- 114,452 133,390 247,842
Selling, general and
administrative............... 68,642 (59) 68,583 70,500 139,083
Depreciation and amortization... 3,626 583 4,209 5,020 9,229
-------- ------- -------- -------- --------
Profit (loss) from operations..... 8,566 (524) 8,042 (5,032) 3,010
Interest expense, net............. 5,807 (3,241) 2,566 2,533 5,099
Other income, net................. 41 -- 41 4 45
-------- ------- -------- -------- --------
Profit (loss) before income
taxes........................... 2,800 2,717 5,517 (7,561) (2,044)
Income tax expense................ 1,383 686 2,069 537 2,606
-------- ------- -------- -------- --------
Net income (loss)................. $ 1,417 $ 2,031 $ 3,448 $ (8,098) $ (4,650)
======== ======= ======== ======== ========
</TABLE>
- ---------------
(1) Selling, general and administrative -- principally reduced rent expense of
$503,000 arising from unfavorable leasehold obligations, and additional
deferred compensation expense of $779,000.
Depreciation and amortization -- principally additional annual amortization
of $715,000 arising from goodwill resulting from the Merger, and other net
changes in depreciation resulting from increased basis of property and
assets under capital leases acquired in the Merger.
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<PAGE> 29
Interest expense, net -- principally a net reduction of interest expense of
$3 million resulting from the repayment of Predecessor debt with proceeds
from issuance of common stock in the Merger and the replacement of the
Predecessor line of credit with the Existing Credit Facility bearing lower
interest rates, and a net reduction of annual interest expense of $242,000
relating to obligations under capital leases.
Income tax expense -- increase in federal income taxes relating to the net
effect of the above items, excluding goodwill, presented on the same basis
(alternative minimum tax) as reflected in both the Predecessor's and the
Successor's separate historical results.
No adjustment is made to cost of goods sold, warehousing and distribution
in the Predecessor's results, as the non-recurring charge arising from the
write up of merchandise inventories by $12.9 million from the historical
cost as carried by the Predecessor at the time of the Merger is reflected
in the Successor's results for the six months ended December 25, 1994.
26
<PAGE> 30
BUSINESS
GENERAL
Chief is one of the nation's largest auto parts and accessories retail
chains, both in number of stores and annual revenue, with 547 retail stores as
of March 30, 1997 located in six states, primarily concentrated in Southern
California and Texas. The Company is a market leader based on number of stores
in its six primary markets -- Los Angeles, Dallas/Fort Worth, Sacramento, San
Diego, Las Vegas and Fresno -- with more than twice as many stores as its
nearest competitor in the Los Angeles market. The Company is a
consumer-oriented, specialty aftermarket retailer, primarily serving DIY
customers and, to a lesser extent, commercial customers. Chief's product mix of
approximately 16,000 SKUs in its typical retail store features nationally known
brand names, as well as private label automotive parts, including new and
remanufactured hard parts, accessories and maintenance items.
The Company's Chief Executive Officer, David H. Eisenberg, joined the
Company in 1992 and subsequently recruited many of the Company's current senior
executives. Since fiscal 1993, net sales and EBITDA have increased an average of
5.4% and 18.6% per year, respectively, to $438.2 million and $33.3 million,
respectively, in fiscal 1996. Chief's management team has instituted a number of
initiatives designed to promote the Company's image as a premier retailer for
the DIY customer including a focus on competitive pricing and superior customer
service; investment in store expansions, relocations and remodelings; and
enhancement of information systems to improve customer service, productivity and
inventory management.
In June 1994, The Principal Fund and certain of its affiliates acquired
Chief in a merger. Prior to the Merger, certain third party investors owned
warrants to purchase approximately 93.4% of the Common Stock on a fully diluted
basis and certain current and former employees of Chief owned shares of, and
options to purchase shares of Common Stock, representing an aggregate of
approximately 6.6% of the Common Stock on a fully diluted basis. In connection
with the Merger, The Principal Fund and its affiliates contributed $67.0 million
to the Company and received shares representing approximately 88.6% of the
Common Stock on a fully diluted basis. The third party investors received cash
and warrants representing approximately 10.7% of the Common Stock on a fully
diluted basis and the employee investors received cash and warrants representing
approximately 0.7% of the Common Stock on fully diluted basis, as well as the
reservation of certain shares for issuance either pursuant to stock purchase
agreements or upon exercise of options representing an aggregate of an
additional 12.43% of the Common Stock on a fully diluted basis after giving
effect thereto. Pursuant to a subadvisory agreement, Oaktree manages The
Principal Fund. The acquisition significantly deleveraged the Company, providing
it with access to growth capital and enabling management to focus on operational
improvements and growth. The support and flexibility afforded by this change in
Chief's capital structure enabled management to reposition the Company from a
chain of smaller automotive parts convenience stores to a full-line auto parts
and accessories chain. Since June 1994, the Company has invested approximately
$45.1 million in total capital expenditures in connection with its program to
reposition Chief in the automotive aftermarket marketplace and has doubled the
average number of SKUs in its stores. During this period, the Company remodeled
292 of its stores, opened 99 new stores, relocated 19 stores to larger, more
favorable locations averaging 5,390 square feet (an increase from approximately
2,740 square feet for such stores prior to relocation), closed 45 small or
underperforming stores and introduced Chief's commercial sales program into 32
existing stores (as of April 30, 1997, 16 of which were opened in the last 60
days). The Company has substantially completed its program of repositioning
Chief as a full-line auto parts and accessories chain.
Chief's redesigned store layouts and enhanced product offerings enable the
Company to merchandise store product lines to target more effectively the needs
of the DIY customer, resulting in increased sales of "hard parts" (such as
alternators and starters) which carry higher margins and higher average
transaction prices than many of the Company's other products, such as motor oil.
These improvements also have contributed to an increase in gross profit margins
and EBITDA margins from 37.9% and 6.3%, respectively, in fiscal 1994 to 42.5%
and 7.6%, respectively, in fiscal 1996.
Management believes that the automotive aftermarket parts industry is
growing as a result of: (i) increases in the size and age of the country's
automotive fleet; (ii) increases in the number of miles driven annually per
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<PAGE> 31
vehicle; (iii) the higher cost of new cars as compared to historical costs; (iv)
the higher cost of replacement parts as a result of technological changes in
recent models of vehicles; and (v) the increasing labor costs associated with
parts, installation and maintenance. Management further believes that the retail
auto parts industry displays certain recession-resistant characteristics
resulting from a shift from professional repairs to DIY repairs during economic
downturns and sales increases in automobile enhancement products during better
economic conditions.
OPERATING STRENGTHS AND BUSINESS STRATEGIES
Chief attributes its present success and significant opportunities for
continued growth to the following operating strengths and business strategies:
- Leading position in favorable markets. The Company is a market leader
based on number of stores in its six primary markets -- Los Angeles,
Dallas/Fort Worth, Sacramento, San Diego, Las Vegas and Fresno -- with
more than twice as many stores as its nearest competitor in the Los
Angeles market. California and Texas are the two largest states in the
country in terms of vehicle registration and population, and both have
climates suited for year-round outdoor auto repair activities. The
Company has achieved a high level of name recognition with its customers
in these markets as a result of consistently providing high quality
products and customer service.
- Investments in store relocation, expansion and remodeling. Chief has
focused on relocating and expanding existing stores to larger locations
with more customer-friendly layouts and identifying desirable locations
for opening new stores, primarily in existing markets. The Company also
significantly redesigned its store layout and remodeled 292 of its stores
from June 1994 through March 1997. Seventy-four percent of the Company's
existing store base is either new or has been remodeled since June 1994.
Chief plans to open 40 new stores, to relocate or expand at least 25
stores and to complete 80 remodels in 1997 at an aggregate estimated cost
of $11.1 million which the Company expects to finance with a combination
of funds generated from operations and borrowings under the New Credit
Facility.
- Enhancement of management information systems. Management has adopted a
strategy of enhancing Chief's customer service, productivity, inventory
and merchandising management through the implementation of new and
improved technology-based systems, including (i) the integration of its
point-of-sale system and electronic parts catalog, (ii) the introduction
and continued roll-out of perpetual inventory systems in its stores and
(iii) the installation of portable, hand-held radio frequency computer
devices to automate price management, receiving, shipping and ordering
functions in each store and distribution center and to facilitate the
management of the perpetual inventory system. Management believes these
systems should contribute to improved profitability.
- Commercial sales program. The Company recently initiated its commercial
sales program, marketed towards the commercial segment of the automotive
aftermarket industry, which the Company believes constitutes
approximately $40-$45 billion of the total estimated $75 billion annual
sales for the automotive aftermarket industry. In stores with commercial
sales capabilities, Chief offers commercial customers over 20,000 SKUs
delivered within 30 minutes from time of order. As of April 30, 1997, the
Company has introduced commercial sales capabilities into 32 of its
existing stores, 16 of which were opened within the last 60 days at an
estimated cost of $500,000. Chief believes that a successful commercial
sales program will complement the Company's existing retail business.
- Emphasis of competitive advantages over smaller retailers. The Company
will continue to consolidate its position in key markets by enhancing its
competitive advantages over smaller competitors including: (i) economies
of scale in advertising, distribution and warehousing, (ii) an ability to
stock and warehouse a larger number of SKUs, including private label
brands; (iii) lower product costs as a result of purchasing directly from
manufacturers rather than through distributors; (iv) an ability to
attract talented employees and offer attractive career paths; (v)
superior customer service due to better information systems and
continuous employee training; and (vi) a greater number of locations and
extended store hours.
- Strong management team with significant equity ownership. Chief's
management team has repositioned the Company from a chain of smaller
automotive parts convenience stores to a full-line auto parts and
accessories chain. Four of the Company's top executives, including the
Chief Executive Officer, David H. Eisenberg, joined the Company following
their management of Peoples Drug Stores Incorporated, a
28
<PAGE> 32
drugstore chain with approximately 500 locations. The Company's six
senior executives average more than 24 years of experience in the retail
industry and possess a diverse skill base which incorporates marketing,
merchandising, distribution, management information systems integration
and customer and vendor relationships. Senior management owns 9.2% of
Chief's common stock on a fully diluted basis.
HISTORY OF THE COMPANY
The original "Chief" automotive retail business began in September 1955
with one store in Norwalk, California near Los Angeles and had grown to 119
retail stores located in the greater Los Angeles area by the time Southland
purchased this business in December 1978; Southland grew the business by opening
new stores and by acquiring existing operations. In February 1985, Southland
acquired 86 Checker Auto Parts and Honey's Auto Parts stores, located
principally in the Dallas-Fort Worth area, from Lucky Stores, Inc. Also in
February 1985, Southland acquired 13 "2002" Auto Parts stores located in
Houston. Southland sold the business to a group of investors and prior
management in a leveraged buyout in 1988. In 1992 and 1993, a new management
team joined the Company and began to reposition Chief as a full-line retail auto
parts and accessories chain. When The Principal Fund and its affiliates
purchased the Company in June 1994, the Company operated 493 stores under the
name Chief Auto Parts. As of March 30, 1997, the Company operated 547 stores in
the states of California, Texas, Nevada, Tennessee, Arizona and Arkansas.
AUTOMOTIVE AFTERMARKET INDUSTRY
According to industry estimates, the size of the automotive aftermarket for
replacement parts, maintenance items and accessories was approximately $75
billion in sales in 1995. The retail portion of this market is estimated at $35
billion of this total market. The Company believes that the automotive
aftermarket for parts, maintenance items and accessories is growing due to
several factors, including: (i) increases in the size and age of the country's
automotive fleet; (ii) increases in the number of miles driven annually per
vehicle; (iii) the higher cost of new cars as compared to historical costs; (iv)
the higher cost of replacement parts as a result of technological changes in
recent models of vehicles; and (v) the increasing labor costs associated with
parts, installation and maintenance. Industry sources indicate that average
annual sales in the retail automotive parts market in the United States have
increased at a compound annual growth rate of 2.4% from 1990 to 1995.
The automotive aftermarket distribution channels currently are highly
fragmented in both the commercial and DIY segments. The Company believes that
consolidation of the industry is occurring as national and regional specialty
retail chains gain market share at the expense of smaller independent operators
and less specialized mass merchandisers. Automotive specialty retailing chains
with multiple locations in given market areas, such as the Company, enjoy
competitive advantages in purchasing, distribution, advertising and marketing
compared to most small independent retailers. In addition, the increase in the
number of automotive replacement parts caused by the significant increase in
recent years in the variety of domestic and imported vehicle makes and models
has made it difficult for smaller independent retailers and less specialized
mass merchandise chains to maintain inventory selection broad enough to meet
customer demands. The Company believes that automotive specialty retailing
chains, such as the Company, are in a favorable competitive position because
they have the distribution capacity and sophisticated information systems to
stock, advertise and deliver a broad inventory selection.
PRODUCTS
Product Selection. The Company offers a broad selection of nationally
recognized name brand and private label automotive products. The product mix of
approximately 16,000 SKUs in the Company's typical store includes new and
remanufactured hard parts such as alternators, starters, water pumps, brake
parts, clutches and shock absorbers; maintenance items such as oil and
lubrication products, antifreeze, chemicals, filters and waxes and protectants;
and various other products such as lighting systems, electrical components,
ignition parts, batteries, spark plugs, belts, hoses, gaskets, tools, equipment,
supplies and accessories. The Company also offers certain other parts, such as
engines, as special order items. The Company's broad selection of national brand
name products includes Monroe shocks, Borg-Warner clutches and clutch parts,
Fram air and oil filters, Raybestos brakes, Champion batteries, Bosch spark
plugs and oxygen sensors and Gates belts and hoses. These products generate
customer traffic and have strong appeal to Chief's commercial customers. The
Company's wide
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<PAGE> 33
selection of high quality private label products appeals to value-conscious
customers. The Company backs many of its products with either a one-year or a
lifetime warranty.
The Company continually reevaluates its product selection in order to
ensure that its product mix in each store meets current customer demand and is
appropriate to the needs of its customer base. Moreover, the Company
periodically modifies its product selection and discontinues underperforming
merchandise categories to improve its profitability and inventory turnover. For
example, as part of its recent remerchandising efforts, the Company increased
its selection of "hard parts," such as alternators and starters, which carry
higher margins and higher average transaction prices than other products, such
as motor oil.
Purchasing. Purchasing for all stores is consolidated at the Company's
headquarters in Dallas under the direction of the marketing department. In most
cases, the Company buys products directly from manufacturers rather than
purchasing from a distributor. Due to the Company's high sales volume, it is
generally able to obtain discounts and favorable terms from manufacturers. The
Company maintains multiple sources for the majority of the private label brands
it carries and has strategic alliances and long-standing relationships with many
suppliers. The benefits of these strategic alliances include special merchandise
purchases, regional testing of new products supplied to the Company at little or
no cost and extended payment terms on certain products. In fiscal 1996, Echlin,
Inc., one of the Company's strategic partners and suppliers of ignition parts,
fuel pumps, brakes and brake parts, accounted for approximately 13.7% of the
Company's total purchases and GNB Incorporated, a supplier of batteries,
accounted for approximately 10.5% of the Company's total purchases.
Substantially all of the Company's suppliers ship products to the Company's
distribution centers, from which products are delivered to stores once a week.
With its continuing program to upgrade the technological capabilities of its
stores, the Company currently orders over 90% of its products electronically.
Pricing. The Company's pricing policy focuses on providing customers with
high-quality products at competitive prices in each of its markets. The Company
conducts regular price checks to ensure that its prices remain competitive,
particularly with respect to high profile items, and offers to match
competitors' prices on certain of its products such as motor oil. In
particularly price sensitive markets, the Company offers a one-year warranty on
its products, as an alternative to a more costly lifetime warranty.
STORE OPERATIONS
Store Formats
Chief's current store prototype is 5,400-6,000 square feet in size, and the
Company is aggressively expanding or relocating its smaller stores into larger
facilities at better locations. Since June 1994, the Company has remodeled,
relocated or expanded 311 stores. Chief has increased the average size of its
stores to 3,853 square feet at March 30, 1997 from 3,312 square feet at year-end
1992.
The following table sets forth certain information regarding the Company's
stores by size as of March 30, 1997.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
STORE SIZE OF STORES OF STORES
- ---------- --------- ----------
<S> <C> <C>
5,000 sq. ft. or greater.................................... 91 17%
4,000 -- 5,000 sq. ft. ..................................... 106 19
3,500 -- 4,000 sq. ft. ..................................... 171 31
3,000 -- 3,500 sq. ft. ..................................... 39 7
Less than 3,000 sq. ft...................................... 140 26
--- ---
Total............................................. 547 100%
</TABLE>
The Company emphasizes customer service and convenience with its store
size, hours of operation and locations. The Company's stores range from 1,840 to
10,640 square feet, with newer stores averaging 5,400 to 6,000 square feet, and
are generally located in neighborhood shopping centers, shopping center pads or
other high visibility, high traffic locations. Stores are open at least from
8:00 a.m. to 9:00 p.m., seven days per week, with many stores opening at 6:00
a.m. and many stores staying open until midnight. Thirty-two locations are open
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<PAGE> 34
24 hours per day. The Company has located at least one 24-hour store within each
of its major market areas and provides its customers with a toll-free telephone
number 24 hours per day to assist them in locating the Company's nearest open
store. The Company strives to make its stores a convenient shopping environment
with easy-to-find products, a speedy check-out process, clean and uncluttered
aisles, numerous merchandise displays and attention-getting, in-store signage.
In its new and redesigned stores, the Company stocks automotive accessories in
self-service shelves and aisles and stocks "hard" parts, which generally demand
a higher level of employee assistance, behind a "high steel" parts counter,
attended by a parts-knowledgeable salesperson.
Geographic Distribution
The Company's 547 stores are organized into five geographic regions, each
administered by a Regional Vice-President who oversees from four to 12 District
Managers. District Managers are responsible for nine to 20 stores. The Company's
headquarters are located in Dallas, Texas, and the Company operates two
warehouse and distribution centers: one near Dallas in Seagoville, Texas and one
near Los Angeles in Cerritos, California. The table below shows the location and
number of the Company's 547 operating stores, eight principal offices and two
warehouses by state as of March 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF
OPERATING NUMBER OF OFFICES
STATE STORES AND WAREHOUSES
- ----- --------- -----------------------
<S> <C> <C>
California.......................................... 381 4 offices, 1 warehouse
Texas............................................... 129 4 offices, 1 warehouse
Nevada.............................................. 25 --
Tennessee........................................... 8 --
Arizona............................................. 3 --
Arkansas............................................ 1 --
--- -----------------------
Total..................................... 547 8 offices, 2 warehouses
--- -----------------------
</TABLE>
STORE DEVELOPMENT AND EXPANSION STRATEGY
The Company operates as a neighborhood store, and promotes this image by
generally selecting store sites in high density, high visibility areas such as
shopping centers and high traffic street corners. Chief's management continually
reevaluates the competitive position and profitability of its stores to
determine which stores would benefit from relocation or remodeling and in which
areas it should open new stores. The Company has begun to seek locations in
smaller communities near cities it currently serves, and which the Company
believes are not currently being served by automotive retail chains. The Company
is seeking to penetrate further its existing markets in the Western United
States by (i) expanding successful stores at existing locations and, where
necessary, by relocating stores in the same market to maximize sales volume and
profitability at proven sites and (ii) adding new stores in markets contiguous
to those currently served by the Company in order to increase market
penetration, while benefiting from economies of scale in advertising,
distribution and management costs.
The Company plans to open approximately 40 new stores and to relocate or
expand approximately 25 stores in fiscal 1997, primarily in its existing
markets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." As a result of its
new, relocated and remodeled stores, the Company expects that by the end of
1997, only 19% of its stores will be less than 3,000 square feet. Substantially
all of Chief's remodeled, expanded and new stores have the capacity to carry
approximately 16,000 SKUs and Chief stores with commercial sales capabilities
carry a minimum of 20,000 SKUs.
The Company routinely evaluates existing locations to determine which
stores could increase sales, market share and profitability by remodeling.
Remodeling may consist of one or more of the following: (i) enlarging the store,
usually by leasing adjacent premises; (ii) creating a parts counter and high
steel sales area; and (iii) image enhancement through cosmetic changes to the
store to update signage, fixtures, store frontage, lighting and/or floor
covering. The Company has remodeled 292 stores since June 1994, at an
approximate total cost of $15.4 million and expects to complete 80 remodels in
1997, at an approximate total cost of $2.5 million.
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<PAGE> 35
The Company performs new store site analysis using internally developed
methods, procedures and models which incorporate trade area demographics (such
as population density, growth patterns, age, per capita income and vehicle
traffic counts), competitive aspects (such as the number and type of existing
automotive-related facilities, including automotive parts stores and other
competitors, within a specified radius of the potential new location) and prior
experience from similar types of locations. The Company's real estate
representatives perform initial site sourcing and analysis with assistance from
local real estate brokerage firms. Appropriate managers within the Company
perform further review and approvals and compare potential locations to existing
store locations to determine opportunities for relocating or expanding existing
stores and opening new stores. The Company's new stores typically become
profitable during the first year of operation.
The following table sets forth the Company's store development activities
during the period indicated.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED MARCH
-------------------------------- -------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Stores at beginning of period................... 526 495 492 495 520 520 544
New stores...................................... 2 14 18 34 51 12 5
Relocated stores................................ 2 1 6 3 12 2 2
Closed stores (including relocated stores)...... (35) (18) (21) (12) (39) (4) (4)
--- --- --- --- --- ---- ----
Stores at end of period............... 495 492 495 520 544 530 547
=== === === === === ==== ====
Remodeled or expanded stores.................... 25 29 38 90 159 91 18
=== === === === === ==== ====
</TABLE>
WAREHOUSE AND DISTRIBUTION
The Company services all its stores from two warehouse distribution
centers, one located in Cerritos, California, near Los Angeles and one in
Seagoville, Texas, near Dallas. Substantially all of the Company's merchandise
is shipped by vendors to the Company's distribution centers with deliveries
being made to each of the Company's stores once per week, with the exception of
batteries, which are shipped directly to stores by the vendor. In order to
improve the efficiency and accuracy of its distribution operations, the Company
has installed portable radio frequency computer terminals in its stores and its
distribution centers. These terminals automate inventory management, as well as
store merchandise returns and shipment quality assurance.
The following table sets forth certain information relating to the
Company's two main distribution centers as of March 30, 1997:
<TABLE>
<CAPTION>
NUMBER
APPROXIMATE OF
DISTRIBUTION TOTAL STORES
CENTER AREA SERVED SIZE (SQ. FT.) SERVED
- -------------- ----------- -------------- ------
<S> <C> <C> <C>
Seagoville, TX Texas, Tennessee, Arkansas............................ 245,000 138
Cerritos, CA California, Nevada, Arizona........................... 304,000 409
------- ---
Total................................................. 549,000 547
======= ===
</TABLE>
COMMERCIAL SALES PROGRAM
Although Chief's primary focus is the DIY customer, the Company believes
that a successful commercial sales program will complement the Company's
existing retail business. The commercial segment of the automotive aftermarket
parts market constitutes approximately $40-$45 billion of annual sales (57% of
the total automotive aftermarket parts market). In 1995, the Company began to
develop its commercial sales program, called the Professional Parts Warehouse
("PPW"), by providing service to commercial customers from existing Company
stores. The PPW program is targeted to professional mechanics, auto repair
shops, auto dealers, fleet owners, mass and general merchandisers with auto
repair facilities and other commercial repair outlets located near the Company's
stores. As of April 30, 1997, the Company has implemented the PPW program in 32
existing retail stores, including 20 in California, ten in Texas and two in
Nevada. The Company intends to capitalize on its
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<PAGE> 36
reputation for carrying quality name brand parts and superior customer service
in developing the commercial sales program.
Chief's stores with commercial sales capability generally stock
approximately 20,000 SKUs, compared to an average of 16,000 SKUs in other
Company stores. Such stores typically maintain two delivery trucks and four
dedicated drivers in order to meet a 30 minute delivery time to commercial
customers. The Company currently services incoming commercial sales calls
through two centralized commercial call centers, one in Texas, and one in
California. Commercial customers call a toll-free number and are automatically
routed to their preferred specialist, one member of a two-person team
responsible for that commercial customer.
In addition, in three of its commercial stores, the Company is testing a
program in which it will stock an additional 6,000 SKUs of Beck-Arnley products,
a quality name brand of import replacement parts. The Company believes that the
Beck-Arnley products will appeal to commercial customers that repair foreign
automobiles which could potentially create a broader commercial customer base
for the PPW program.
In fiscal 1996, the Company's sales to commercial customers were $3.9
million. The Company believes that its selective roll-out of this PPW program
will lead to further growth in sales to commercial customers in 1997.
INFORMATION SYSTEMS
Management has adopted a strategy of enhancing Chief's customer service,
productivity and its inventory and merchandising management through selected
implementation of new and improved technology-based systems. The Company's
management information systems constitute an important part of the Company's
operations and growth strategy. The Company has increased the capabilities of
its staff through accelerated employee training programs and the hiring of
additional information systems staff. The Company estimates that the
implementation and enhancement of its information systems will cost an aggregate
of approximately $1.6 million in 1997, which the Company intends to finance with
a combination of funds generated from operations and borrowings under the New
Credit Facility.
Point of Sale System. Each of the Company's stores has a point-of-sale
system that is linked to the Company's IBM AS400 central mainframe computer
located in Seagoville, Texas. Chief expanded the capabilities of this system in
1994 with the integration of its electronic parts catalog ("EPC") with its point
of sale system.
Electronic Parts Catalog. The Company has installed an electronics parts
catalog in all of its stores which has been designed to improve the Company's
competitiveness by offering improved service to customers and which has been
integrated with the Company's point of sale system. The EPC is a user-friendly
tool which catalogs over one million parts and which enables the Company's
employees to assist customers in parts selection and ordering. The integration
of the point of sale system and the EPC allows employees to ascertain whether
Chief carries any particular item listed in the EPC, and speeds the check-out
process. The EPC displays related parts that store employees can recommend to
the customer for purchase and can be used as a selling tool. The EPC enables a
faster, more accurate search for customer parts requirements, improves special
order capabilities, quickens the pace of new employee training, improves
employee confidence in making parts recommendations and can increase sales of
related items and reduce returns.
Perpetual Inventory System. The Company has developed and is currently
installing a store level perpetual inventory system that electronically monitors
inventory, allowing employees to determine which products are in stock, on order
or overstocked. The Company has currently installed the perpetual inventory
system in 97 stores, and it expects to install the system in all of its stores
by the end of 1997.
Radio Frequency Terminals. The Company is installing portable radio
frequency ("RF") computer terminals in all stores to reduce labor, increase
productivity and facilitate management of the perpetual inventory system. The RF
terminals validate the inventory in stock in each store and will match such
information with the perpetual inventory system. The Company plans to implement
additional RF capabilities during the next 12 months in order to automate price
management as well as receiving, shipping and ordering. Using the RF terminals,
the Company expects that each store will be able to tailor ordering to its
particular needs instead of automatically reordering inventory.
33
<PAGE> 37
In-Store Printing System. The Company expects that by the end of 1997 each
store will have updated laser printers with the capacity to produce signs and
shelf labels that automatically reflect local market pricing. In-store printing
will automate price changes, improve price integrity and reduce store labor
costs associated with price changes. Such signs and shelf labels are currently
produced by local advertising firms and delivered to store locations, which is
more costly and less responsive than in-store printing.
Merchandising Systems. The Company recently installed the Chief Auto
Reporting System, a graphical information system for sales and inventory
analysis. The system provides information to the level of a specific item in a
specific store for a specific day. During the third quarter of 1996, the Company
installed a client server in order to automate the creation of plan-o-grams,
facilitate product movement and maximize product placement on store shelves.
Electronic Vendor Communication Systems. As a result of a focused effort to
establish electronic data imaging communications with its vendors, the Company
currently orders over 90% of its purchases electronically. The Company also is
beginning to introduce other enhanced electronic vendor communication
techniques, such as Vendor Managed Inventory and an Automated Invoice Matching
System.
CUSTOMER SERVICE
The Company believes that a distinct understanding of its customer base is
important to providing superior customer service. The Company has conducted
extensive market research to characterize its customers and analyze their
awareness of the Company. Customer feedback has indicated that Chief customers
value five principal qualities in Chief stores -- convenience, value, service,
selection and dependability. The Company has focused on enhancing these
qualities in order to attract existing and future Chief customers and to improve
the quality of the service which the Company can offer to its customers.
As part of its overall operating strategy to position Chief as a premier
retailer for the DIY customer and to satisfy customer expectations, the Company
has made significant investments in training service personnel and improving
store-level systems. This strategy enables the Company's in-store personnel to
serve effectively their customers' automotive needs. The Company has made a
concerted effort to attract and retain "parts knowledgeable" people who can
provide technical assistance to the customer. In order better to serve its
customers, the Company has adopted several service initiatives, including: free
testing of starters, alternators and batteries; free charging of batteries;
installation assistance for batteries, windshield wipers, headlights and other
selected products; flexible return policies; and lifetime warranties.
The Company believes that recruiting, training and retaining high quality
employees is an important ingredient of successful customer service. The Company
has implemented structured on-the-job training programs and incentives to
encourage the development of technical expertise of its store personnel that
enables them to effectively advise customers on product selection and use. The
Company's employees go through "Fast Start" video and in-store training,
followed by seminars with some of the Company's principal vendors. At the
beginning of 1997, the Company announced a new incentive program designed to
encourage its employees to become ASE certified parts specialists, a designation
awarded by the National Institute for Automotive Service Excellence and a symbol
of technical expertise recognized throughout the automotive industry. The
Company also provides continuing training programs for store managers and
district managers designed to assist them in increasing store-level efficiency
and improving their potential for promotion. A majority of the Company's store
managers have completed an internal Store Management Certification Program. The
Company believes that its training programs enable store employees to provide a
high level of service to a wide variety of customers ranging from less-informed
DIY consumers to more sophisticated purchasers requiring diagnostic advice.
ADVERTISING
The Company has pursued an aggressive advertising campaign designed to
enhance the name recognition of the Company and to increase awareness of Chief's
key strengths, such as customer service, competitive pricing, quality
merchandise, product selection, convenient locations and extended hours. The
Company has commenced an "All New Chief" advertising campaign in its six primary
market areas, most recently in the Los Angeles, California market, which
emphasizes the Company's significantly improved merchandising strategy. The
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<PAGE> 38
Company's advertising strategy includes television, radio and newspaper
advertising. The Company also utilizes an in-store radio advertising and music
program and in-store promotional displays that are intended to provide a more
pleasant shopping environment, as well as increase product movement. The
Company's bright, contemporary logo and supporting outdoor signage are designed
to be visible and legible to consumers day and night. The Company's in-store
signs and displays are used to promote products and identify departments, as
well as to announce store specials. Much of the Company's advertising is
co-sponsored by product vendors.
In 1996, Troy Aikman agreed to act as a spokesman for the Company. As the
quarterback for the Dallas Cowboys and a former quarterback for UCLA, Mr. Aikman
has strong appeal in the Company's two largest markets. Mr. Aikman is a
nationally recognized sports figure, and the Company believes that his high
visibility and popularity will be valuable to the Company's advertising efforts.
Mr. Aikman is featured in the Company's television and radio advertisements, as
well as in print advertising. In addition, to further its image with the car
enthusiast, the Company has sponsored National Hot Rod Association car racing
events. These events have given the Company national exposure via live ESPN
television coverage.
COMPETITION
The Company competes principally in the DIY segment of the automotive
aftermarket. Although the number of competitors and the level of competition
vary by market area, the DIY market is highly fragmented and generally very
competitive. The Company faces competition primarily from similar auto parts
retail chains and, to a lesser extent, tire stores, mass merchandisers, car
dealerships, gas stations and jobber retailers.
The Company competes primarily with national and regional automotive
aftermarket retailers such as AutoZone, Inc., CSK Auto, Inc.
(Checker/Schuck's/Kragen), Grand Auto, Hi-Lo Automotive, Inc. and The Pep
Boys -- Manny, Moe and Jack, Inc. The Company's competitors also include (i)
certain "conglomerate retailers" such as Dart Group Corp. (Trak Auto), (ii)
automobile dealers and mass merchandisers that carry automotive replacement
parts, maintenance items and accessories such as K mart Corporation, the Target
Stores division of Dayton Hudson Corp., Wal-Mart Stores, Inc. and Sears Roebuck
& Co. (Western Auto), and (iii) wholesalers or traditional jobber retail stores
(some of which are associated with national automotive parts distributors or
associations such as National Auto Parts Association ("NAPA")) such as Green
Light, Automotive Parts Systems, Big "A" Auto Parts, Bumper to Bumper and
Carquest. Traditional wholesalers or jobber retailers, such as NAPA, also
provide significant competition for the Company's commercial business.
The principal competitive factors that affect the Company's business are
store location, customer service, quality of employees and product selection,
availability, quality and price. While the Company believes that it competes
effectively in its various geographic areas, many competitors are larger in
terms of sales volume and have greater financial resources.
EMPLOYEES
As of April 30, 1997, the Company employed a total of 5,862 employees,
consisting of 3,337 full-time employees and 2,525 part-time employees.
Approximately 87% of these employees were employed in store operations, 8% in
administrative or corporate positions and 5% in distribution. On February 13,
1997, the Company entered into a collective bargaining agreement with respect to
approximately 20 truck drivers and yard employees at the Company's Cerritos,
California distribution center. The Company has had no labor-related work
stoppages and believes that its labor relations are good.
PROPERTIES
As of March 30, 1997, the Company owned 53 of its 547 operating stores and
leased or subleased the remaining 494 stores from third parties under leases
expiring between 1997 and 2028. Eighteen of the Company-owned buildings are
located on property which is ground leased from third parties under leases
expiring between 1997 and 2007. In most cases, such leases are subject to
customary renewal options. The Company owns 245,000 square-foot distribution
center in Seagoville, Texas, leases its 304,000 square-foot distribution center
in Cerritos, California, and leases its 27,000 square-foot executive offices in
Dallas, Texas. The Company believes that additional facilities, if needed, would
be readily available on a timely basis on commercially reasonable terms. In
addition, the Company believes that the leased space that houses its existing
office, warehouse and distribution facilities is not unique and could be readily
replaced, if necessary, at the end of the terms of its
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<PAGE> 39
existing leases on commercially reasonable terms. The minimum lease term on 74
of the Company's stores under 3,500 square feet will expire before the year 2000
and 25 of the Company's stores under 3,500 square feet are Company-owned. See
Note 5 to Notes to Financial Statements.
TRADENAMES AND TRADEMARKS
The Company owns and has registered the trademarks "Chief Auto Parts,"
"America's Chief Auto Parts Stores" and "Chief" with the United States Patent
and Trademark Office for use in connection with the automotive parts retailing
business throughout the United States. The Company owns and has registered the
trademark "Professional Parts Warehouse" and "PPW" in connection with its
commercial sales program. In addition, the Company owns and has registered
numerous trademarks, such as "Ultra Last," for use in connection with many of
its private label products including alternators, starters, brake pads and hand
tools. The Company believes that its various tradenames and trademarks are
important to its merchandising strategy, but that its business is not dependent
on any particular service mark, tradename or trademark.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local laws and
governmental regulations relating to the operation of its business, including
those governing battery recycling and used oil and oil filters, and regarding
ownership and operation of real property. The Company handles hazardous
materials during its operations, and its customers may also bring or use
hazardous materials or used oil onto the Company's properties. The Company also
currently provides a recycling program for the collection of used oil and oil
filters at certain of its stores as a service to its customers pursuant to
agreements with third party vendors. In addition, the Company collects and
temporarily holds battery cores pursuant to an agreement with the Company's
battery vendor. Pursuant to these agreements, the used oil and oil filters and
battery cores are collected by Company employees, deposited into vendor-supplied
containers/pallets and then disposed of by the third-party vendors. To date,
compliance with applicable laws and regulations has not had a material effect on
the Company's results of operations and financial condition. However,
environmental laws have changed rapidly in recent years, and the Company may be
subject to more stringent environmental laws in the future. There can be no
assurance that more stringent environmental laws would not have an adverse
effect on the Company's results of operations.
In addition, under environmental laws, a current or previous owner or
operator of real property may be liable for the cost of removal or remediation
of hazardous or toxic substances on, under, or in such property. Such laws often
impose joint and several liability and may be imposed without regard to whether
the owner or operator knew of, or was responsible for, the release of such
hazardous or toxic substances. Compliance with such laws and regulations has not
had a material impact on the Company's operations to date, but there can be no
assurance that future compliance with such laws and regulations will not have a
material adverse effect on the Company or its operations. The Company is also
indemnified by Southland against losses associated with any environmental
contamination existing on the date of the sale of the Company by Southland.
LEGAL PROCEEDINGS
The Company is the defendant in two lawsuits alleging that the Company
failed to pay store managers and associate store managers in California for
overtime compensation as required by California law. On September 21, 1993, a
lawsuit was filed in the Superior Court of California, County of Alameda by
Stephen Cooper, a manager, on his own behalf and on behalf of all persons
similarly situated. Mr. Cooper is alleging that the Company's store managers and
associate store managers in California are not exempt employees under California
law, and that the Company failed to compensate its store managers and associate
store managers for overtime compensation as required by California law. In
December 1994, the court denied class certification to Mr. Cooper. However,
since the date this lawsuit was filed, approximately 242 current and former
employees have joined Mr. Cooper's lawsuit. In addition to the claims filed in
Alameda County, 15 current and former employees filed a lawsuit based on the
same claims against the Company on March 5, 1996 in the Superior Court of
California, County of San Joaquin. The Company is vigorously defending against
the claims of all plaintiffs.
In September 1996, at the recommendation of the Alameda court, the parties
submitted to binding arbitration with respect to eight of the Cooper plaintiffs.
On March 10, 1997, the arbitrator ruled in favor of the eight plaintiffs
involved in the arbitration with respect to liability, finding that these eight
plaintiffs are entitled to
36
<PAGE> 40
(i) compensation for the overtime hours they worked, (ii) an additional amount
equal to 30 days' compensation (in the case of the seven plaintiffs no longer
employed by the Company) as waiting time penalties for the Company's "willful"
failure to pay overtime compensation, (iii) interest on such unpaid compensation
and (iv) reasonable attorneys' fees and costs of arbitration. The arbitrator has
not yet made any determination with respect to calculation of damages. This
arbitration decision has no binding precedential or stare decisis effect on the
remaining 235 plaintiffs' cases. However, regardless of the outcome of the
damage phase of the arbitration, the Company may have to litigate or arbitrate
the remaining cases and may incur significant legal expenses in connection
therewith, and the Company could be subject to significant compensatory damages.
In addition, there are approximately 700 store managers and associate store
managers previously or currently employed by the Company in California who have
not brought or joined in the suit against the Company as of the date hereof.
Following the Alameda court's denial of class certification to the plaintiffs,
the court required the Company to send notice in October 1995 to all potential
plaintiffs (current and former managers as of that date) notifying them of this
action and providing them the opportunity to contact the plaintiffs' attorney.
Management is unable to predict the outcome of the damage phase of the
arbitration or the remaining lawsuits, or the probability of additional
lawsuits, at this time. However, if a significant number of plaintiffs were to
prevail on all elements of their claims against the Company or if a significant
number of additional current or former managers were to bring suit and prevail
as noted above, it could have a material adverse effect on the Company.
From time to time, the Company has been and is involved in various other
legal proceedings. Management believes that such other litigation is routine in
nature and incidental to the conduct of its business, and that none of such
other litigation, if determined adversely to the Company, would have a material
adverse effect, individually or in the aggregate, on the Company.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of the Company. Each director of the Company
will hold office until the next annual meeting of stockholders of the Company or
until his successor has been elected and qualified. Officers of the Company are
elected by the Board of Directors of the Company and serve at the discretion of
the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
David H. Eisenberg........ 60 President, Chief Executive Officer and Chairman of the Board
Larry L. Buresh........... 52 Vice President -- Information Systems
Thomas A. Hough........... 44 Vice President -- Finance, Treasurer and Chief Financial
Officer
Mary M. Mahon............. 43 Vice President, General Counsel and Secretary
William V. Pantuso........ 45 Vice President -- Merchandising and Distribution
Paul F. Stevenson......... 47 Vice President -- Operations
Harold S. Eastman......... 57 Director
Stephen A. Kaplan......... 37 Director
Richard Masson............ 38 Director
</TABLE>
Officers are appointed to serve until the next annual meeting of the Board
of Directors, and until their successors have been appointed or elected and have
been qualified. They serve at the pleasure of the Board of Directors, subject to
any applicable employment agreements. Directors are elected to serve until the
next annual meeting of stockholders, and until their successors have been duly
elected and qualified.
David H. Eisenberg. Mr. Eisenberg joined the Company as President and Chief
Executive Officer in July 1992 and joined its Board of Directors as Chairman in
October 1992. Mr. Eisenberg was employed by Peoples Drug Stores Incorporated
from 1952 to 1991, holding various positions, most recently President and Chief
Operating Officer. From 1991 to July 1992, Mr. Eisenberg was President and Chief
Executive Officer of Eisenberg & Associates, Inc., a retail consulting firm.
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<PAGE> 41
Larry L. Buresh. Mr. Buresh joined the Company as Vice
President -- Information Systems in August 1995. From December 1994 to July
1995, Mr. Buresh was a Senior Director at Sears Roebuck and Company in the
information systems department. Mr. Buresh was the Vice President, Information
Services and Distribution at Frank's Nursery and Crafts, Inc. from 1986 to
December 1994, and was a Vice President at Ben Franklin Stores, Inc. from 1981
to 1986.
Thomas A. Hough. Mr. Hough has served as Vice President -- Finance,
Treasurer and Chief Financial Officer of the Company since August 1993. From
November 1991 to August 1993, he was the Chief Financial Officer of Roy Rogers
Restaurants, a subsidiary of Hardees Food Systems Inc. From 1988 to 1990, Mr.
Hough served as Vice President -- Controller and then, from 1990 to 1991, as
Vice President -- Chief Financial Officer and Treasurer of Peoples Drug Stores
Incorporated. From 1975 to 1988, Mr. Hough served in positions in the audit and
consulting departments of Deloitte & Touche in Washington, D.C. and Baltimore,
Maryland.
Mary M. Mahon. Ms. Mahon has served as the Vice President, General Counsel
and Secretary of the Company since January 1993. From 1991 to 1993, Ms. Mahon
was in the private practice of law, prior to which she worked for 13 years in
various positions in the Legal Department at Peoples Drug Stores Incorporated
beginning as a staff attorney in 1978. From 1988 to 1991, Ms. Mahon served as
Executive Vice President, General Counsel and Secretary of Peoples Drug Stores
Incorporated.
William V. Pantuso. Mr. Pantuso has served as Vice
President -- Merchandising and Distribution of the Company since April 1994. Mr.
Pantuso joined the Company in March 1993 as Director of Inventory Management and
was named Director of Distribution and Inventory Management in October 1993.
Prior to joining the Company, Mr. Pantuso spent 20 years with Peoples Drug
Stores Incorporated in positions in store operations and marketing control
(pricing department and allocation/distribution) including Director of Marketing
Services from 1985 to 1989, Vice President of Sales Promotion/Merchandising from
1989 to 1991 and Vice President of Marketing for Hillcrest Sales, a division of
Peoples Drug Stores Incorporated, from 1991 to March 1993.
Paul F. Stevenson. Prior to joining the Company as Vice
President -- Operations in 1988, Mr. Stevenson served as West Coast Division
Manager for the Chief Auto Parts Division of Southland. Mr. Stevenson began his
employment with Southland in 1974, holding various operations and human resource
positions within Southland's Retail Store Group, including District Manager,
Zone Manager, Group Personnel Manager and Corporate Store Group Personnel
Manager.
Harold S. Eastman. Mr. Eastman has served as a director of the Company
since July 1994. Mr. Eastman is President of Peregrine Capital Co., an
investment group. From June 1989 until April 1992, Mr. Eastman held various
positions with McCaw Cellular Communications, Inc., including Vice Chairman and
President. Mr. Eastman acts as an advisor to various affiliates of Trust Company
of the West ("TCW"), including The Principal Fund.
Stephen A. Kaplan. Mr. Kaplan has served as a director of the Company since
June 1994. Mr. Kaplan is a principal of Oaktree. Prior to joining Oaktree in
June 1995, Mr. Kaplan was a Managing Director of TCW. Prior to joining TCW in
1993, Mr. Kaplan was a partner in the law firm of Gibson, Dunn & Crutcher. Mr.
Kaplan serves as a director of Decorative Home Accents, Inc., KinderCare
Learning Centers, Inc., Vision Hardware Group, Inc. and various private
companies.
Richard Masson. Mr. Masson has served as a director of the Company since
June 1994. Mr. Masson has been a principal of Oaktree since May 1995. From 1988
to May 1995, Mr. Masson was a partner of TCW Special Credits and Managing
Director of TCW and TCW Asset Management Company ("TAMCO"). Prior to joining TCW
in 1988, Mr. Masson was with the valuation advisory firm of Houlihan, Lokey,
Howard & Zukin, Inc. Mr. Masson serves as a director of Aureal Semiconductor,
Inc.
DIRECTOR COMPENSATION
Currently, the Company's directors receive no cash compensation for serving
on the Board, but directors are reimbursed for expenses reasonably incurred in
connection with their services as directors.
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<PAGE> 42
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee (the "Audit Committee") and a
Compensation Committee (the "Compensation Committee"). The Audit Committee is
composed of Messrs. Eastman and Masson. The Audit Committee is responsible for
reviewing the scope of the independent auditors' examinations of the Company's
financial statements and receiving and reviewing their reports. The Audit
Committee also meets with the independent auditors, receives recommendations or
suggestions for changes in accounting procedures and initiates or supervises any
special investigations it may choose to undertake. The Compensation Committee is
composed of Messrs. Eastman, Eisenberg and Kaplan. The Compensation Committee
determines the Company's policy with respect to the nature and amount of all
compensation of the Company's executive officers, and administers the Company's
option plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Mr. Eisenberg, a member of the Company's Compensation Committee, also
serves as the President and Chief Executive Officer of the Company. See "Certain
Transactions."
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth all compensation earned in fiscal 1996 by
the Company's Chief Executive Officer and each of the other four most highly
compensated executive officers whose remuneration exceeded $100,000 (the "Named
Executive Officers"). The current compensation arrangements for each of these
officers are described in "Employment Arrangements" below.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND SALARY BONUS COMPENSATION COMPENSATION
PRINCIPAL POSITION ($) ($) ($)(1)(2) ($)
------------------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C>
David H. Eisenberg, 406,458 330,000 19,200 460,225(3)
President and Chief Executive
Officer
Larry L. Buresh, 145,500 53,200 -- 136,841(4)
Vice President -- Information
Systems
Thomas A. Hough, 175,500 72,800 10,200 143,813(5)
Vice President -- Finance and Chief
Financial Officer
Mary M. Mahon, 145,531 60,000 10,200 111,428(6)
Vice -- President, General Counsel
and Secretary
Paul F. Stevenson, 167,667 68,800 10,200 110,797(7)
Vice President -- Operations
</TABLE>
- ---------------
(1) These amounts were paid to the Named Executive Officers as a car allowance.
(2) Certain of the Company's executive officers receive perquisites and other
personal benefits in addition to salary, cash bonuses and other annual
compensation. The amounts of such perquisites and other personal benefits
are not shown because the aggregate amount of such compensation, if any, for
each of the Named Executive Officers during the 1996 fiscal year did not
exceed the lesser of $50,000 or 10% of total salary and bonus reported for
such executive officer.
(3) This amount represents $451,178 earned pursuant to the Chief Auto Parts Inc.
1994 Nonqualified Executive Target Bonus Plan and $9,047 paid on behalf of
Mr. Eisenberg for a term life insurance policy.
(4) This amount represents $85,183 earned pursuant to the Chief Auto Parts Inc.
1994 Nonqualified Executive Target Bonus Plan and $1,821 paid on behalf of
Mr. Buresh for a term life insurance policy. This amount also
39
<PAGE> 43
includes $49,837 for expenses related to Mr. Buresh's relocation, which the
Company agreed to pay in connection with Mr. Buresh's joining the Company.
(5) This amount represents $141,798 earned pursuant to the Chief Auto Parts Inc.
1994 Nonqualified Executive Target Bonus Plan and $2,015 paid on behalf of
Mr. Hough for a term life insurance policy.
(6) This amount represents $109,573 earned pursuant to the Chief Auto Parts Inc.
1994 Nonqualified Executive Target Bonus Plan and $1,855 paid on behalf of
Ms. Mahon for a term life insurance policy.
(7) This amount represents $109,573 earned pursuant to the Chief Auto Parts Inc.
1994 Nonqualified Executive Target Bonus Plan and $1,224 paid on behalf of
Mr. Stevenson for a term life insurance policy.
Aggregate Option Exercises in 1996 and 1996 Year-End Option Values
The following table sets forth for the Named Executive Officers information
with respect to unexercised options and year-end option values, in each case
with respect to options to purchase shares of the Company's Common Stock. None
of such Named Executive Officers exercised any options during fiscal 1996. In
connection with the Recapitalization, the Company is accelerating the vesting of
all outstanding options, and all of the Named Executive Officers are expected to
exercise their options. See "Principal Stockholders" and "The Recapitalization."
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AS OF IN-THE-MONEY OPTIONS AT
DECEMBER 29, 1996(#) DECEMBER 29, 1996(1)
---------------------------- ----------------------------
NAME EXERCISABLE NONEXERCISABLE EXERCISABLE NONEXERCISABLE
---- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
David H. Eisenberg................... 794.49 794.49 $0 $0
Larry L. Buresh...................... 75 225 0 0
Thomas A. Hough...................... 249.69 249.69 0 0
Mary M. Mahon........................ 192.95 192.95 0 0
Paul F. Stevenson.................... 192.95 192.95 0 0
</TABLE>
- ---------------
(1) The Common Stock of the Company is not publicly traded. As a result, the
Company has decided to use $1,419.71 per share as the value of the Common
Stock underlying the unexercised options for the purpose of these
calculations. The value of the unexercised options is equal to the net per
share value of such Common Stock as of December 29, 1996 ($1,419.71), less
the applicable per share exercise price of the option ($1,419.71).
Employment Arrangements
The Company has entered into an employment agreement with David H.
Eisenberg, the President and Chief Executive Officer of the Company effective
June 27, 1994. Mr. Eisenberg's employment agreement provides for a five year
term and for Mr. Eisenberg to serve as President and Chief Executive Officer of
the Company. The agreement provides for a base salary of $375,000 effective
January 1, 1995, subject to increase by the Board of Directors of the Company
and for yearly bonuses based on the Company's performance. The agreement also
provides that (i) upon a change of control (such that a party other than TCW or
an affiliate thereof, or an employee of the Company, becomes the holder of
equity securities of the Company representing more than 50% of the votes
entitled to elect the Board of Directors of the Company) or (ii) upon
termination of the agreement by the Company for any reason other than Mr.
Eisenberg's death or for cause, the Company will pay Mr. Eisenberg a cash amount
equal to the cost of an annuity that would provide a monthly payment of
$8,333.33 until his death. Such amount is reduced by the amount realizable
(after taxes) upon the sale of certain options granted to Mr. Eisenberg pursuant
to the 1994 Option Plan (as defined). The agreement also provides that if the
Company terminates the agreement for any reason other than death or for cause,
the Company will pay Mr. Eisenberg's salary for up to one year.
The Company has entered into an employment agreement with Larry L. Buresh,
the Vice President -- Information Systems of the Company effective August 10,
1995. Mr. Buresh's employment agreement provides for a three year term and for
Mr. Buresh to serve as Vice President -- Information Systems. The agreement
provides for an initial base salary of $140,000, subject to increase by the
Board of Directors of the Company and
40
<PAGE> 44
for yearly bonuses based on the Company's performance. The agreement provides
that if Mr. Buresh's employment is terminated for any reason other than for
cause (as defined in the agreement), the Company will pay Mr. Buresh's salary
for up to six months, relocation expenses or an additional month of base salary
(at Mr. Buresh's option), a prorated bonus and outplacement services.
Management Stock Purchases
In order to attract, retain and motivate selected employees, officers and
directors and to encourage such persons to devote their best efforts to the
business and financial success of the Company by providing for the purchase of
Common Stock, the Company implemented a management stock purchase plan. Pursuant
to certain stock purchase agreements (the "Management Stock Agreement"), the
Company granted each of the Company's executive officers and certain other
selected employees and Harold S. Eastman, a director of the Company
(collectively, the "Management Stockholders"), the right to purchase from the
Company up to an aggregate of 2,789.55 shares of Common Stock at a purchase
price of $1,419.71 per share. In addition, the Company agreed to finance each
Management Stockholder's, except for Mr. Eastman's, purchase of such Common
Stock to the extent desired by such Management Stockholder. Each Management
Stockholder who received financing from the Company executed one or more
promissory notes (the "Promissory Notes") to the Company and pledged his or her
shares of Common Stock as collateral for such Promissory Notes. In connection
with the Recapitalization, each Management Stockholder with amounts outstanding
under any Promissory Note will repay 50% of the principal amount outstanding on
the date of the Recapitalization under such Promissory Note. See "Certain
Transactions."
The Management Stock Agreement grants to each of the Company, The Principal
Fund and the Management Stockholders certain rights or obligations with respect
to the Common Stock upon the occurrence of particular events. The Management
Stock Agreement provides that, if a Management Stockholder ceases to be employed
by the Company or the Company is lawfully entitled to accelerate a Promissory
Note (a "Trigger Event"), the Company may elect to repurchase all of such
Management Stockholder's shares of Common Stock (a "Call Option"). If the
Company does not chose to exercise its Call Option, the Management Stockholder
may cause the Company to repurchase all of such Management Stockholder's shares
of Common Stock (a "Put Option"). The Management Stock Agreement also provides
for drag along/tag along rights, pursuant to which, in the event The Principal
Fund elects to sell its interest in the Company to an unaffiliated third party
(a "Purchaser"), (i) The Principal Fund may compel the Management Stockholders
to sell their shares of Common Stock to the Purchaser and (ii) the Management
Stockholders may require the Purchaser to purchase their shares of Common Stock,
in each case on the same terms and in the same fractional amount as The
Principal Fund proposes to sell its interest in the Company to such Purchaser.
In addition, the Management Stock Agreement provides the Management Stockholders
with the right, in certain situations, to require that the Company register a
number of the Management Stockholders' shares of Common Stock under the
Securities Act. Subject to certain conditions, Management Stockholders may, at
any time the Company proposes to register shares of the Common Stock under the
Securities Act, request that their shares of Common Stock be included in such
registration. In addition, subject to certain conditions, after the earlier of
an initial public offering of the Company's shares and August 1, 2002, the
holders of 50% of the aggregate number of shares of Common Stock subject to the
Management Stock Agreement may one time, upon written request, require that the
Company register their shares under the Securities Act.
1994 Executive Option Plan
The Company adopted the Chief Auto Parts Inc. 1994 Executive Option Plan
(the "1994 Option Plan") to attract, retain and motivate selected employees,
officers and directors and to encourage such persons to devote their best
efforts to the business and financial success of the Company by providing for
grants of options to purchase Common Stock. The 1994 Option Plan is administered
by the Compensation Committee of the Board of Directors. The Compensation
Committee determines the employees, officers and directors who will be granted
options, the number of options that each such person will be granted and the
terms, restrictions and conditions of such options (to the extent not
inconsistent with the 1994 Option Plan).
41
<PAGE> 45
The maximum number of shares of Common Stock subject to options and awards
under the 1994 Option Plan is 5,488.30 shares, subject to certain adjustments.
The 1994 Option Plan provides that the exercise price of each option is
$1,419.71 per share (subject to certain adjustments). Options become exercisable
in 25% increments: (i) on each anniversary of the date of grant if the grantee
is an employee or director of the Company on such date; (ii) on the date of
involuntary termination of employment or other relationship with the Company if
such termination is other than for cause; (iii) on the date of termination of
employment or other relationship with the Company on account of death or
permanent disability; or (iv) upon a change of control of the Company. Any
unvested options remaining after termination of a participant's employment or
other relationship or a change of control are terminated subject to the
reissuance of such options in accordance with the 1994 Option Plan. All
installments that become exercisable are cumulative and may be exercised at any
time after they become exercisable until the option expires. Options are not
transferable (other than by will, by the laws of descent or distribution, or
pursuant to a valid qualified domestic relations order).
Full payment for shares purchased upon exercise of an option must be made
at the time of exercise. The 1994 Option Plan provides that in certain
circumstances, an optionee may tender shares of Common Stock held by such
optionee for at least six months prior to the tender, in partial or full payment
of shares to be purchased upon exercise of an option. The Company's ability to
accept a tender of Common Stock is conditional upon and subject to (i) the
Company having sufficient funds legally available to purchase shares of Common
Stock, (ii) the ability of the Company to effect a purchase of Common Stock
under applicable law and (iii) any restrictions contained in the Company's
credit facilities or other debt instruments.
In addition, the 1994 Option Plan also contains restrictions on transfer,
incidental registration rights, required registration rights, a lock-up
agreement, drag-along and tag-along rights and put and call rights. However,
with respect to the tag-along rights and the put rights, the 1994 Option Plan
requires the grantee to hold the shares of Common Stock acquired pursuant to his
or her options for a period of six months before he or she may exercise such
rights.
Subject to certain limitations, the Board of Directors may amend, modify or
terminate the 1994 Option Plan. If not previously terminated, the 1994 Option
Plan terminates on June 30, 2004.
In connection with the Recapitalization, the Company will accelerate the
vesting of all outstanding options and all holders of outstanding options,
except Mr. Eastman, are expected to exercise such options.
1997 Employee Option Plan
In connection with the Recapitalization, the Company plans to adopt the
Chief Auto Parts Inc. 1997 Employee Option Plan (the "1997 Option Plan") to
attract, retain and motivate selected employees and to encourage such persons to
devote their best efforts to the business and financial success of the Company
by providing for grants of options to purchase Common Stock. The Company expects
that the 1997 Option Plan will be administered by the Compensation Committee of
the Board of Directors and will contain terms substantially conforming to the
following description. The Compensation Committee will determine the employees
who will be granted options, the number of options that each such person will be
granted and the terms, restrictions and conditions of such options (to the
extent not inconsistent with the 1997 Option Plan).
The maximum number of shares of Common Stock subject to options and awards
under the 1997 Option Plan will be 1,000 shares, subject to certain adjustments.
The 1997 Option Plan will provide that the exercise price of each option will be
set by the Compensation Committee of the Board of Directors at the time of
granting of such option. Options will become exercisable in 25% increments (i)
on each anniversary of the date of grant if the grantee is an employee of the
Company on such date, (ii) on the date of involuntary termination of employment
with the Company if such termination is other than for cause, (iii) on the date
of termination of employment with the Company on account of death or permanent
disability or (iv) upon a change of control of the Company. Any unvested options
remaining after termination of a participant's employment or other relationship
or a change of control will be terminated subject to the reissuance of such
options in accordance with the 1997 Option Plan. All installments that become
exercisable will be cumulative and may be exercised at any time after they
become exercisable until the option expires. Options will not be transferable
(other than by will, by the laws of descent or distribution, or pursuant to a
valid qualified domestic relations order). The 1997 Option
42
<PAGE> 46
Plan will require that full payment for shares purchased upon exercise of an
option be made at the time of exercise.
Subject to certain limitations, the Board of Directors will have the power
to amend, modify or terminate the 1997 Option Plan. If not previously
terminated, the 1997 Option Plan is expected to terminate on May 31, 2007.
Executive Target Bonus Plan
The Company adopted the Chief Auto Parts Inc. 1994 Executive Target Bonus
Plan (the "Bonus Plan") to attract and maintain the services of quality
management talent by rewarding certain employees for the sustained creation of
stockholder value. The Bonus Plan is administered by the Compensation Committee,
which determines the participants in the Bonus Plan, all of whom are members of
management of the Company. The Bonus Plan provides for the payment of bonuses
accrued through fiscal 1996 in connection with the exercise of options held by
plan participants. The exercise of options by certain management stockholders in
connection with the Recapitalization will result in the payment of $4.0 million
in cash bonuses, all of which has accrued on the Company's financial statements
as of December 29, 1996.
With respect to future bonuses, the Bonus Plan will provide for the payment
of cash bonuses to the extent that the Company achieves certain financial
targets based on the Company's EBITDA (as defined in the Bonus Plan) for fiscal
1997 and 1998. The EBITDA targets are $37.0 million and $41.0 million for fiscal
1997 and fiscal 1998, respectively. If the Company attains the EBITDA targets
for fiscal 1997 and fiscal 1998, the estimated aggregate amount payable under
the Bonus Plan would be $3.0 million.
Executive Retirement Plan
The Company adopted the Chief Auto Parts Inc. Nonqualified Executive
Retirement Plan (the "Retirement Plan") to provide certain of its highly
compensated and management employees with a mechanism through which to defer
part of their annual compensation on a pre-tax basis. The Retirement Plan is
unfunded and any funds accumulated are for the purpose of providing benefits
under the Retirement Plan and are fully available to satisfy the claims of the
Company's creditors. The Retirement Plan is administered by a plan committee,
which determines the participants in the Retirement Plan. Subject to certain
limitations, the Board of Directors may amend, modify or terminate the
Retirement Plan.
Each participant in the Retirement Plan may choose to contribute between 1%
and 20% of his or her annual salary to a salary deferral contribution account.
The Retirement Plan provides for a discretionary matching contribution as
determined by the Board of Directors. No such contribution was made for fiscal
1996. To the extent that a matching contribution is made, each participant vests
in 20% of his or her matching contribution account for each year of service by
such participant. In the event of a change of control of the Company, each
participant will fully vest in his or her matching contribution account.
The Company established the Nonqualified Executive Retirement Trust (the
"Retirement Trust") to hold the assets of the Retirement Plan, subject to the
claims of the Company's general creditors. In addition, the Retirement Trust
will also distribute benefits in accordance with the terms of the Retirement
Plan. Upon a change of control of the Company, the Company must contribute to
the Retirement Trust at the end of the then current calendar year such amount as
is needed in order for the Retirement Trust's assets to equal the account
balances of the Retirement Plan participants.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law (the "DGCL") authorizes
a Delaware corporation to include a provision in its certificate of
incorporation limiting or eliminating the personal liability of its directors to
the corporation and its stockholders for monetary damages for breach of the
directors' fiduciary duty of care. The duty of care requires that, when acting
on behalf of the corporation, directors exercise an informed business judgment
based on all material information reasonably available to them. Absent the
limitations authorized by such provision, directors are accountable to
corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Although
Section 102 of the DGCL
43
<PAGE> 47
does not change a director's duty of care, it enables corporations to limit
available relief to equitable remedies such as injunction or rescission. The
Company's Fourth Restated Certificate of Incorporation and By-laws include
provisions which limit or eliminate the personal liability of its directors to
the fullest extent permitted by Section 102 of the DGCL. Consequently, a
director will not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for (i) any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases, redemptions, or other distributions and (iv) any transaction
from which the director derived an improper personal benefit.
The Company's Fourth Restated Certificate of Incorporation and By-laws also
provide, in effect, that, to the fullest extent and under the circumstances
permitted by Section 145 of the DGCL, the Company will indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he or she is or was a director,
officer, employee or agent of the Company or is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation or
enterprise. The inclusion of these indemnification provisions in the Company's
Fourth Restated Certificate of Incorporation and By-laws is intended to enable
the Company to attract qualified persons to serve as directors, officers,
employees and agents who might otherwise be reluctant to do so.
Depending upon the character of the proceeding, the Company may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with any action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interest of
the Company, and with respect to any criminal action or proceeding, had no cause
to believe his or her conduct was unlawful. To the extent that a director,
officer, employee or agent of the Company has been successful in the defense of
any action, suit or proceeding referred to above, the Company shall indemnify
him or her against expenses (including attorneys' fees) actually and reasonably
incurred in connection therewith.
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<PAGE> 48
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock, as of the date hereof, after giving effect to the
Recapitalization, by (i) each person known by the Company to be the beneficial
owner of more than 5% of the outstanding shares of Common Stock, (ii) each
director and executive officer of the Company who beneficially owns Common Stock
and (iii) all directors and executive officers of the Company as a group. Unless
otherwise indicated, each of the stockholders shown in the table below has sole
voting and investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME(1) SHARES(2) OF CLASS
------- ---------- --------
<S> <C> <C>
The TCW Group, Inc.(3)...................................... 47,210.45 86.2%
TAMCO(4).................................................... 45,605.30 83.3
Oaktree Capital Management LLC(5)........................... 42,489.41 77.6
The Principal Fund.......................................... 42,489.41 77.6
Trust Company of the West(6)................................ 1,605.15 2.9
General Electric Capital Corporation(7)..................... 5,689.50 9.4
David H. Eisenberg(8)....................................... 2,651.78 4.8
Larry L. Buresh(9).......................................... 400.00 *
Thomas A. Hough(10)......................................... 819.74 1.5
Mary M. Mahon(11)........................................... 626.48 1.1
William V. Pantuso(12)...................................... 511.70 *
Paul F. Stevenson(13)....................................... 596.83 1.1
Harold S. Eastman(14)....................................... 554.89 1.0
Stephen A. Kaplan(15)....................................... 42,489.41 77.6
Richard Masson(16).......................................... 47,210.45 86.2
All directors and executive officers as a group
(9 persons)(17)........................................... 53,371.87 95.6%
</TABLE>
- ---------------
* Less than 1%.
(1) The address of The TCW Group, Inc. and The Principal Fund is 865 South
Figueroa Street, Los Angeles, California 90017. The address of Oaktree, Mr.
Kaplan and Mr. Masson is 550 South Hope Street, 22nd Floor, Los Angeles,
California 90071. The address of General Electric Capital Corporation is
292 Long Ridge Road, Stamford, Connecticut 06927. The address of Messrs.
Eisenberg, Buresh, Hough, Pantuso and Stevenson and Ms. Mahon is c/o Chief
Auto Parts Inc., One Lincoln Centre, Suite 200, 5400 LBJ Freeway, Dallas,
Texas 75240-6223. The address of Mr. Eastman is c/o Peregrine Capital Co.,
101 South Capitol Boulevard, Suite 1502, Boise, Idaho 83702.
(2) As used in the table above, a beneficial owner of a security includes any
person who, directly or indirectly, through contract, arrangement,
understanding, relationship, or otherwise has or shares (i) the power to
vote, or direct the voting, of such security or (ii) investment power which
includes the power to dispose, or to direct the disposition of, such
security. In addition, a person is deemed to be the beneficial owner of a
security if that person has the right to acquire beneficial ownership of
such security within 60 days.
(3) All such shares are owned by The Principal Fund (42,489.41 shares), TCW
Special Credits Fund IV (1,510.73 shares), TCW Special Credits Plus Fund
(1,605.16 shares), TCW Special Credits Trust IV (1,274.68 shares) and TCW
Special Credits Trust IVA (330.47 shares), all of which are managed by
affiliates of The TCW Group, Inc.
(4) All such shares are owned by The Principal Fund (42,489.41 shares), TCW
Special Credits Fund IV (1,510.73 shares) and TCW Special Credits Plus Fund
(1,605.16 shares). TAMCO, which is a wholly owned subsidiary of The TCW
Group, Inc., is the general partner of each of The Principal Fund, TCW
Special Credits Fund IV and TCW Special Credits Plus Fund and is managing
general partner of TCW Special Credits.
45
<PAGE> 49
(5) All such shares are owned by The Principal Fund. Pursuant to a subadvisory
agreement with TAMCO, Oaktree manages the investments and assets of The
Principal Fund.
(6) All such shares are owned by TCW Special Credits Trust V (1,274.68 shares)
and TCW Special Credits IVA (330.47) shares. Trust Company of the West, a
wholly owned subsidiary of The TCW Group, Inc. is the trustee of TCW
Special Credits Trust IV and TCW Special Credits Trust IVA.
(7) All such shares represent shares subject to warrants that are currently
exercisable and are beneficially owned by the named stockholder.
(8) Includes (i) options to purchase 1,588.98 shares of Common Stock, all of
which will be exercised in connection with the Recapitalization and (ii)
warrants to purchase 125.3 shares of Common Stock.
(9) Includes options to purchase 300 shares of Common Stock, all of which will
be exercised in connection with the Recapitalization.
(10) Includes (i) options to purchase 499.39 shares of Common Stock, all of
which will be exercised in connection with the Recapitalization and (ii)
warrants to purchase 25.7 shares of Common Stock.
(11) Includes (i) options to purchase 385.90 shares of Common Stock, all of
which will be exercised in connection with the Recapitalization and (ii)
warrants to purchase 12.9 shares of Common Stock.
(12) Includes (i) options to purchase 317.80 shares of Common Stock, all of
which will be exercised in connection with the Recapitalization and (ii)
warrants to purchase 6.4 shares of Common Stock.
(13) Includes (i) options to purchase 385.90 shares of Common Stock, all of
which will be exercised in connection with the Recapitalization and (ii)
warrants to purchase 36.6 shares of Common Stock.
(14) Includes options to purchase 443.91 shares of Common Stock, none of which
will be exercised in connection with the Recapitalization.
(15) All such shares are owned by The Principal Fund and are also shown as
beneficially owned by Oaktree. To the extent Mr. Kaplan, on behalf of
Oaktree, participates in the process to vote or dispose of any such shares,
he may be deemed under such circumstances for the purpose of Section 13 of
the Exchange Act to be the beneficial owner of such shares. Mr. Kaplan
disclaims beneficial ownership of such shares.
(16) All such shares are also shown as beneficially owned by The TCW Group,
Inc., 42,489.41 of which are also shown as beneficially owned by Oaktree
and 45,605.30 of which are also shown as beneficially owned by TAMCO. To
the extent, Mr. Masson, on behalf of Oaktree or TAMCO, as applicable,
participates in the process to vote or dispose of any such shares, he may
be deemed under such circumstances for the purpose of Section 13 of the
Exchange Act to be the beneficial owner of such shares. Mr. Masson
disclaims beneficial ownership of such shares.
(17) See Notes (8)-(16).
CERTAIN TRANSACTIONS
During 1993, the Company entered into an escrow agreement with Mr. Hough in
connection with his employment agreement, pursuant to which the Company held
$100,000 in escrow for Mr. Hough, which he would be entitled to receive upon the
termination of his employment in certain circumstances. Mr. Hough's employment
agreement expired in August 1996 and the escrow agreement was terminated (and
the escrowed funds were returned to the Company) by mutual agreement of the
parties in April 1996.
The Company financed the purchase of shares of Common Stock pursuant to the
Management Stock Agreement for several of the Management Stockholders, including
each of the Named Executive Officers. Each Management Stockholder who received
financing from the Company (each a "Promissor") executed Promissory Notes in
favor of the Company and pledged his or her shares of Common Stock as collateral
for such Promissory Notes pursuant to a stock pledge agreement. All of the
Promissory Notes bear interest at a rate of 7.05% per annum and mature on
October 31, 2002, except for Mr. Buresh's Promissory Note, which bears interest
at the rate of 6.11% per annum and matures on November 14, 2003. The maximum
aggregate principal amount outstanding in fiscal 1996 on the Promissory Notes
for David H. Eisenberg, Larry L. Buresh, Thomas A. Hough, Mary M. Mahon, William
V. Pantuso and Paul F. Stevenson was $681,026, $94,647, $241,617, $181,755,
$151,734 and $114,251, respectively. As of December 29, 1996, the aggregate
principal amount outstanding on
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<PAGE> 50
the Promissory Notes for Messrs. Eisenberg, Buresh and Hough, Ms. Mahon, and
Messrs. Pantuso and Stevenson was $638,838, $88,347, $230,292, $173,185,
$143,364 and $103,286, respectively.
In connection with the Recapitalization, each Promissor will repay 50% of
the principal amount outstanding at the date of the Recapitalization under his
or her respective Promissory Notes, which payments will equal $319,419, $44,174,
$115,146, $86,593, $71,682 and $51,643 for Messrs. Eisenberg, Buresh and Hough,
Ms. Mahon, and Messrs. Pantuso and Stevenson, respectively. Each Promissor's
shares of Common Stock will continue to serve as collateral for the amounts
remaining outstanding under his or her respective Promissory Notes, including
shares of Common Stock acquired pursuant to the exercise of such Promissor's
options to buy shares of the Common Stock. Each of Messrs. Eisenberg, Buresh,
Hough, Pantuso and Stevenson and Ms. Mahon, subject to deferral under certain
circumstances, will make additional annual payments on his or her Promissory
Notes equal to 15% of any cash bonus paid to such person in such year, excluding
amounts paid in connection with the Recapitalization and payments made pursuant
to the Bonus Plan. See "Management -- Management Stock Purchases."
In connection with the Recapitalization, the Company will pay the bonuses
accrued through fiscal 1996 pursuant to the Bonus Plan. This will result in the
payment of $4.0 million in cash bonuses, all of which was accrued on the
Company's audited financial statements as of December 29, 1996. In connection
with the Recapitalization, David H. Eisenberg, Larry L. Buresh, Thomas A. Hough,
Mary M. Mahon, William V. Pantuso and Paul F. Stevenson will receive bonus
payments of $1.4 million, $127,774, $425,393, $328,720, $270,710 and $328,720,
respectively. See "The Recapitalization" and "Management -- Executive Target
Bonus Plan."
Pursuant to the Recapitalization, Messrs. Eisenberg, Buresh and Hough, Ms.
Mahon and Messrs. Pantuso and Stevenson are estimated to receive, net of taxes
and amounts paid back to the Company in payment for the exercise of options or
amounts repaid under the Promissory Notes, an aggregate of approximately $1.1
million, $50,000, $300,000, $250,000, $200,000 and $200,000, respectively.
It is the policy of the Company to engage in transactions with affiliated
parties only on terms that, in the opinion of the Company, are no less favorable
to the Company than could be obtained with non-affiliated parties, and each of
the transactions described above conforms to that policy.
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DESCRIPTION OF NEW CREDIT FACILITY
GENERAL
As part of the Recapitalization, the Company will enter into the New Credit
Facility with Heller Financial, Inc., as agent. The New Credit Facility will
consist of a revolving credit facility in an aggregate principal amount of
$100.0 million (the "Loans") and matures in May 2002.
Indebtedness under the New Credit Facility will be secured by a first
priority security interest upon (i) all of the Company's existing and
after-acquired inventory and accounts receivable and such inventory and accounts
of each of its direct and indirect material subsidiaries, if any, and proceeds
thereof and (ii) all general intangibles and other intangible assets (including,
without limitation, trademarks and tradenames but not including real property)
of the Company and such material subsidiaries, if any, and proceeds thereof.
REVOLVING CREDIT FACILITY
The New Credit Facility will consist of a revolving credit facility in an
aggregate principal amount of $100.0 million. The Company will be entitled to
draw amounts under the New Credit Facility, subject to availability pursuant to
a borrowing base formula based upon eligible inventory levels, in order to meet
the Company's working capital requirements and for general corporate purposes.
The New Credit Facility includes a $10.0 million sub-limit for Letters of Credit
and a $10.0 million sub-limit for swing line loans ("Swing Line Loans")
available on same-day notice.
INTEREST RATES
Interest will accrue on the Loans with reference to the base rate (the
"Base Rate") plus the applicable interest margin. The Company may elect that all
or a portion of the Loans, other than Swing Line Loans, bear interest at the
Eurodollar rate (the "Eurodollar Rate") plus the applicable interest margin. The
Base Rate is defined as, on any date, the higher of (i) the Federal Funds Rate,
as published by the Federal Reserve Bank of New York, plus 1/2 of 1% or (ii) the
prime commercial lending rate in effect from time to time as announced by Chase
Manhattan Bank, NA, and two other reference institutions. The Eurodollar Rate is
defined as an amount equal to (i) the rate posted on the Reuters Screen LIBO
Page (if only a single rate is posted by Reuters), (ii) the arithmetic mean of
offered rates on the Reuters Screen LIBO Page (if two or more such offered rates
are posted by Reuters) or (iii) the average of offered rates (only in the event
that Reuters ceases to provide LIBOR quotations). The applicable interest margin
during the first year following the closing date of the New Credit Facility will
be 0.5% for Base Rate loans and 2.0% for Eurodollar Rate loans. After such first
year, the applicable interest margin will fluctuate between 0.0% and 1.0% for
Base Rate loans and between 1.5% and 2.5% for the Eurodollar Rate loans, based
on the leverage ratio of the Company.
MANDATORY AND OPTIONAL PREPAYMENT
The New Credit Facility will not contain any mandatory prepayment
provisions as long as the aggregate amount of the Loans does not exceed the
level of availability under the New Credit Facility. The New Credit Facility
will provide that the Company may prepay Loans in whole or in part without
penalty, subject to reimbursement of the lender's breakage and redeployment
costs in the case of prepayment of Eurodollar Rate loans.
COVENANTS
The New Credit Facility will contain certain covenants and other
requirements of the Company and its subsidiaries. In general, the affirmative
covenants will provide for mandatory reporting by the Company of financial and
other information to the agent and notice by the Company to the agent upon the
occurrence of certain events.
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<PAGE> 52
The New Credit Facility will also contain certain negative covenants and
restrictions on actions by the Company including, without limitation,
restrictions on indebtedness, liens, guarantee obligations, mergers, asset
dispositions not in the ordinary course of business, investments, loans,
advances, dividends and other restricted junior payments, transactions with
affiliates, sale and leaseback transactions and prepayment, entering other lines
of business and amendments of other indebtedness. The New Credit Facility will
require the Company to meet certain financial covenants including minimum EBITDA
and minimum fixed charge coverage ratio.
EVENTS OF DEFAULT
The New Credit Facility will specify certain customary events of default
including, without limitation, non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties in any
material respect, cross default to certain other indebtedness and agreements,
bankruptcy and insolvency events, material judgments and liabilities, and
unenforceability of certain documents under the New Credit Facility. The events
of default under the New Credit Facility are substantially similar to the events
of default under the Indenture except as follows: (i) the Company's failure to
pay other indebtedness or judgments entered against the Company will trigger a
default under the New Credit Facility at lower dollar amounts than in the
Indenture; (ii) the creation of liens on or failure of any security interest in
collateral securing the New Credit Facility will trigger a default under the New
Credit Facility; (iii) the insolvency or dissolution of the Company will trigger
a default under the New Credit Facility, (iv) a Change of Control that triggers
the Company's repurchase obligations under the Indenture will trigger a default
under the New Credit Facility and (v) the occurrence of certain events causing a
material adverse change in the Company's business could trigger a default under
the New Credit Facility.
The description of the New Credit Facility set forth above does not purport
to be complete and is qualified in its entirety to the complete text of the
documents entered into or to be entered into therewith. A copy of the New Credit
Facility will be filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
DESCRIPTION OF THE NOTES
GENERAL
The Notes are to be issued under an Indenture, to be dated as of
, 1997 (the "Indenture"), between the Company and First Trust National
Association, as Trustee (the "Trustee").
The following is a summary of the material provisions of the Indenture and
the Notes, a copy of which Indenture is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summary of certain
provisions of the Indenture and the Notes does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Indenture and the Notes, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended (the "TIA"). As used in this "Description of the Notes" section,
references to the "Company" include only Chief Auto Parts Inc. and not its
Subsidiaries. The definitions of certain capitalized terms used in the following
summary are set forth below under "-- Certain Definitions."
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee's agent at First Trust New York,
100 Wall Street, 20th Floor, New York, NY 10005), except that, at the option of
the Company, payment of interest may be made by check mailed to the address of
the Holders as such address appears in the Note register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
shall be made for any registration or exchange of Notes, but the Company may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes will be unsecured senior obligations of the Company, limited to
$125.0 million aggregate principal amount, and will mature on ,
2005. The Notes will bear interest at the rate per annum
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<PAGE> 53
shown on the cover page hereof from , 1997, or from the most recent
date to which interest has been paid or provided for, payable semiannually to
Holders of record at the close of business on the or
immediately preceding the interest payment date on and
of each year, commencing , 1997. The Company will pay interest on
overdue principal and, to the extent permitted by law, on overdue installments
of interest at the rate of interest borne by the Notes. Interest on the Notes
will be computed on the basis of a 360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to , 2001. On and
after such date, the Notes will be redeemable, at the Company's option, in whole
or in part, at any time or from time to time, upon not less than 30 nor more
than 60 days' prior notice mailed by first-class mail to each Holder's
registered address, at the following redemption prices (expressed in percentages
of principal amount), plus accrued and unpaid interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed during
the 12-month period commencing on of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
2001........................................................ %
2002........................................................
2003 and thereafter......................................... 100.000
</TABLE>
In addition, at any time and from time to time on or prior to , 2000,
the Company may redeem in the aggregate up to 36% of the principal amount of the
Notes with the proceeds of one or more Public Equity Offerings, at a redemption
price (expressed as a percentage of principal amount) of % plus accrued and
unpaid interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 64% of the original
aggregate principal amount of the Notes must remain outstanding after each such
redemption.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
RANKING
The indebtedness evidenced by the Notes will be senior unsecured
obligations of the Company ranking pari passu with other senior unsecured
Indebtedness of the Company and senior to all Subordinated Obligations. The
Notes will also be effectively subordinated to all senior secured Indebtedness
(including Indebtedness under the New Credit Facility) of the Company to the
extent of the value of the assets securing such indebtedness.
As of March 30, 1997, after giving pro forma effect to the Recapitalization
as if it had occurred on such date, the aggregate amount of senior Indebtedness
of the Company other than the Notes that would have been outstanding would have
been approximately $4.0 million (excluding unused commitments of approximately
$97.9 million under the New Credit Facility, of which approximately $75 million
would have then been eligible for borrowing thereunder), all of which is senior
secured Indebtedness. As of March 30, 1997, after giving pro forma effect to the
Recapitalization as if it had occurred on such date, the aggregate amount of
secured indebtedness of the Company, to which the Notes would be effectively
subordinated, would have been $4.0 million and the Company would have had no
outstanding indebtedness ranking pari passu with the Notes other than trade
accounts payable made in the ordinary course of business. Although the Indenture
contains limitations on the amount of additional Indebtedness that the Company
may incur, under certain circumstances the amount of such Indebtedness could be
substantial and, in any case, such Indebtedness may be senior
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<PAGE> 54
Indebtedness and may be secured. See "-- Certain Covenants -- Limitation on
Indebtedness," "-- Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries" and "-- Limitation on Liens."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date):
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (i) such person shall
be deemed to have "beneficial ownership" of all shares that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the
total voting power of the then outstanding Voting Stock of the Company;
(ii) during any period of two consecutive years commencing after the
Company's initial Public Equity Offering, individuals who at the beginning
of such period constituted the Board of Directors (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of
66 2/3% of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(iii) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person (in each case other than a Person that is controlled by the
Permitted Holders), and, in the case of any such merger or consolidation,
the securities of the Company that are outstanding immediately prior to
such transaction and which represent 100% of the aggregate voting power of
the Voting Stock of the Company are changed into or exchanged for cash,
securities or property, unless pursuant to such transaction such securities
are changed into or exchanged for, in addition to any other consideration,
securities of the surviving corporation or a parent corporation that owns
all of the capital stock of such corporation that represent immediately
after such transaction, at least 50% of the aggregate voting power of the
Voting Stock of the surviving corporation or such parent corporation, as
the case may be.
Within 30 days following any Change of Control, unless notice of redemption
of the Notes has been given pursuant to the provisions of the Indenture
described under "-- Optional Redemption" above, the Company shall mail a notice
to the Trustee and to each Holder stating: (1) that a Change of Control has
occurred and that such Holder has the right to require the Company to purchase
such Holder's Notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
repurchase (subject to the right of holders of record on the relevant record
date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts regarding such Change of Control; (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Notes repurchased.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the Change of
Control provisions of the Indenture. To the extent that the provisions of any
securities laws or regulations conflict with the Change of Control provisions of
the Indenture, the Company shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
Change of Control provisions of the Indenture by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Underwriters. Management has no present intention to engage
in a transaction involving a Change of Control,
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<PAGE> 55
although it is possible that the Company would decide to do so in the future.
Subject to the limitations discussed below, the Company could, in the future,
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Restrictions on the ability of the Company to incur additional Indebtedness are
contained in the covenants described under "-- Certain Covenants -- Limitation
on Indebtedness" and "-- Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries." Such restrictions can only be waived with the consent
of the Holders of a majority in principal amount of the Notes then outstanding.
Except for the limitations contained in such covenants, however, the Indenture
will not contain any covenants or provisions that may afford Holders protection
in the event of a highly leveraged transaction.
If a Change of Control offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes that might be delivered by Holders seeking to accept the Change of
Control offer. The failure of the Company to make or consummate the Change of
Control offer or pay the purchase price when due will give the Trustee and the
Holders the rights described under "-- Defaults."
The existence of a Holder's right to require the Company to offer to
repurchase such Holder's Notes upon a Change of Control may deter a third party
from acquiring the Company in a transaction which constitutes a Change of
Control.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repaid or repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the Notes could cause a default under such indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
Holders following the occurrence of a Change of Control may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. The provisions under the Indenture relating to the Company's
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of the Holders of a
majority in principal amount of the Notes.
SINKING FUND
There will be no mandatory sinking fund for the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not Incur, directly or
indirectly, any Indebtedness unless, on the date of such Incurrence, the
Consolidated Coverage Ratio exceeds 2.0 to 1.0 if such Indebtedness is Incurred
from the Issue Date through , 1999, and 2.25 to 1.0 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company may Incur any
or all of the following Indebtedness: (1) Indebtedness Incurred pursuant to the
New Credit Facility or any other credit facility in a principal amount which,
when taken together with all letters of credit and the principal amount of all
other Indebtedness Incurred pursuant to this clause (1) and then outstanding,
does not exceed the greater of (x) $100 million or (y) the sum of (A) 75% of the
net book value of the inventory of the Company and its Restricted Subsidiaries
and (B) 80% of the net book value of the accounts receivables of the Company and
its Restricted Subsidiaries; (2) Indebtedness owed to and held by a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness (other
than to another Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the Company; (3) the Notes;
(4) Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1), (2) or (3) of this covenant); (5) Refinancing
Indebtedness in respect of Indebtedness Incurred pursuant
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<PAGE> 56
to paragraph (a) or pursuant to clause (3) or (4) or this clause (5) or pursuant
to the covenant described under "-- Limitation on Indebtedness and Preferred
Stock of Restricted Subsidiaries" below; (6) Hedging Obligations consisting of
Interest Rate Agreements directly related to Indebtedness permitted to be
Incurred by the Company pursuant to the Indenture; (7) Indebtedness of the
Company consisting of obligations in respect of purchase price adjustments in
connection with the acquisition or disposition of assets by the Company or any
Restricted Subsidiary permitted under the Indenture; (8) Capital Lease
Obligations in an aggregate principal amount not exceeding $15 million at any
one time outstanding; (9) Attributable Debt of the Company with respect to
Sale/Leaseback Transactions in an aggregate principal amount not to exceed $5
million; and (10) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (1) through (9) above
or paragraph (a)), does not exceed $15 million at any one time outstanding.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with the covenant entitled
"-- Limitation on Indebtedness," (i) in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described
above, the Company, in its sole discretion, will classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be
divided and classified in more than one of the types of Indebtedness described
above.
Limitation on Indebtedness and Preferred Stock of Restricted Subsidiaries.
The Company shall not permit any Restricted Subsidiary to Incur, directly or
indirectly, any Indebtedness or Preferred Stock except:
(a) Indebtedness or Preferred Stock issued to and held by the Company
or a Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results in any such Wholly
Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of such Indebtedness or Preferred Stock (other than to the Company
or a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute
the issuance of such Indebtedness or Preferred Stock by the issuer thereof;
(b) Indebtedness or Preferred Stock of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness or
Preferred Stock Incurred in connection with, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by the
Company); provided, however, that on the date of such acquisition and after
giving effect thereto, the Company would have been able to Incur at least
$1.00 of additional Indebtedness pursuant to clause (a) of the covenant
described under "-- Limitation on Indebtedness";
(c) Indebtedness or Preferred Stock outstanding on the Issue Date
(other than Indebtedness or Preferred Stock described in clause (a) or (b)
of this paragraph);
(d) Indebtedness of any Restricted Subsidiary consisting of
obligations in respect of purchase price adjustments in connection with the
acquisition or disposition of assets by the Company or any Restricted
Subsidiary permitted under the Indenture;
(e) Preferred Stock which is not Disqualified Stock; provided,
however, that such Restricted Subsidiary shall not pay cash dividends on
such Preferred Stock; and
(f) Refinancing Indebtedness Incurred in respect of Indebtedness or
Preferred Stock referred to in clause (b) or (c) of this paragraph or this
clause (f); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness or Preferred
Stock of a Restricted Subsidiary described in clause (b), such Refinancing
Indebtedness shall be Incurred only by such Restricted Subsidiary.
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Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien upon any of its property or assets, now owned or hereafter acquired,
securing any obligation unless concurrently with the creation of such Lien
effective provision is made to secure the Notes equally and ratably with such
obligation for so long as such obligation is so secured; provided, that if such
obligation is a Subordinated Obligation, the Lien securing such obligation shall
be subordinated and junior to the Lien securing the Notes with the same or
lesser relative priority as such Subordinated Obligation shall have been with
respect to the Notes. The preceding restriction shall not require the Company or
any Restricted Subsidiary to secure the Notes if the Lien consists of the
following:
(a) Liens created by the Indenture and Liens existing as of the Issue
Date, including under the New Credit Facility;
(b) Permitted Liens;
(c) Liens to secure Indebtedness issued by the Company for the purpose
of financing all or a part of the purchase price of assets or property
acquired or constructed in the ordinary course of business after the Issue
Date; provided, however, that (a) the aggregate principal amount (or
accreted value in the case of Indebtedness issued at a discount) of
Indebtedness so issued shall not exceed the lesser of the cost or fair
market value, as determined in good faith by the Board of Directors of the
Company, of the assets or property so acquired or constructed, (b) the
Indebtedness secured by such Liens shall have been permitted to be Incurred
under the "-- Limitation on Indebtedness" covenant and (c) such Liens
shall not encumber any other assets or property of the Company or any of
its Restricted Subsidiaries other than such assets or property or any
improvement on such assets or property and shall attach to such assets or
property within 90 days of the construction or acquisition of such assets
or property;
(d) Liens on the assets or property of a Restricted Subsidiary
existing at the time such Restricted Subsidiary becomes a Restricted
Subsidiary and not issued as a result of (or in connection with or in
anticipation of) such Restricted Subsidiary becoming a Restricted
Subsidiary; provided, however, that such Liens do not extend to or cover
any other property or assets of the Company or any of its other Restricted
Subsidiaries;
(e) Liens securing Capital Lease Obligations Incurred in accordance
with the "-- Limitation on Indebtedness" covenant;
(f) Liens with respect to Sale/Leaseback Transactions permitted by
clause (b)(9) of the "-- Limitation on Indebtedness" covenant;
(g) Liens securing Indebtedness issued to Refinance Indebtedness which
has been secured by a Lien permitted under the Indenture and is permitted
to be Refinanced under the Indenture; provided, however, that such Liens do
not extend to or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced; or
(h) Liens on assets of the Company or any of its Restricted
Subsidiaries securing Indebtedness in an aggregate principal amount not to
exceed $5.0 million.
Limitation on Sale/Leaseback Transactions. The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Restricted Subsidiary would be (A) in compliance with the covenants described
under "-- Limitation on Indebtedness" or "-- Limitation on Indebtedness and
Preferred Stock of Restricted Subsidiaries" immediately after giving effect to
such Sale/Leaseback Transaction and (B) entitled to create a Lien on such
property securing the Attributable Debt with respect to such Sale/Leaseback
Transaction without securing the Notes pursuant to the covenant described under
"-- Limitation on Liens", (ii) the net proceeds received by the Company or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair market value (as determined by the Board of Directors of
the Company) of such property and (iii) the Company or such Restricted
Subsidiary applies the proceeds of such transaction in compliance with the
covenant described under "-- Limitation on Sales of Assets and Subsidiary
Stock".
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Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes, and
after giving effect to, the proposed Restricted Payment: (i) a Default shall
have occurred and be continuing (or would result therefrom); (ii) the Company is
not able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
of the covenant described under "-- Limitation on Indebtedness"; or (iii) the
aggregate amount of such Restricted Payment and all other Restricted Payments
since the Issue Date would exceed the sum of: (A) 75% of the Consolidated Net
Income accrued during the period (treated as one accounting period) from the
beginning of the fiscal quarter during which the Notes are originally issued to
the end of the most recent fiscal quarter ending prior to the date of such
Restricted Payment for which consolidated income statements of the Company are
available (or, in case such Consolidated Net Income shall be a deficit, minus
100% of such deficit); (B) the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company); (C) the amount by which Indebtedness of the Company
or its Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date, of any Indebtedness of the Company for Capital
Stock (other than Disqualified Stock) of the Company (less the amount of any
cash, or the fair market value of any other property, distributed by the Company
upon such conversion or exchange), whether pursuant to the terms of such
Indebtedness or pursuant to an agreement with a creditor to engage in an equity
for debt exchange; and (D) an amount equal to the sum of (i) the net reduction
in Investments in Unrestricted Subsidiaries resulting from dividends, repayments
of loans or advances or other transfers of assets, in each case to the Company
or any Restricted Subsidiary from Unrestricted Subsidiaries, and (ii) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of an Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and treated
as a Restricted Payment) by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary subsequent to the date of the Indenture.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than (A) Disqualified
Stock or (B) Capital Stock issued or sold to a Subsidiary of the Company) or out
of the proceeds of a substantially concurrent capital contribution to the
Company; provided, however, that (x) such purchase, capital contribution or
redemption shall be excluded in the calculation of the amount of Restricted
Payments and (y) the Net Cash Proceeds from such sale of Capital Stock or
capital contribution shall be excluded from clause (iii)(B) of paragraph (a)
above; (ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to the
covenant described under "-- Limitation on Indebtedness"; provided, however,
that such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments; (iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with paragraph (a) above; provided, however, that such dividend shall
be included in the calculation of the amount of Restricted Payments; (iv) the
repurchase of Capital Stock of the Company from directors, officers or employees
of the Company pursuant to the terms of an employee benefit plan or employment
or other agreement; provided that the aggregate amount of all such repurchases
shall not exceed $3.5 million in any fiscal year, and $10.0 million in total;
and (v) Investments in Unrestricted Subsidiaries or joint ventures in an amount
not to exceed $5.0 million at any time outstanding.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary (a) to
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness or obligations owed
to the Company, (b) to make any loans or advances to the Company or (c) to
transfer any of its property or assets to the Company, except: (i) any
encumbrance or restriction pursuant to an agreement in effect at or entered into
on the Issue Date; (ii) any encumbrance or restriction with respect to a
Restricted Subsidiary
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pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date; (iii)
any encumbrance or restriction pursuant to an agreement effecting a Refinancing
of Indebtedness Incurred pursuant to an agreement referred to in clause (i) or
(ii) of this covenant or this clause (iii) or contained in any amendment to an
agreement referred to in clause (i) or (ii) of this covenant or this clause
(iii); provided, however, that the encumbrances and restrictions with respect to
such Restricted Subsidiary contained in any such refinancing agreement or
amendment are not materially less favorable to the Noteholders than encumbrances
and restrictions with respect to such Restricted Subsidiary contained in such
agreements; (iv) any such encumbrance or restriction (A) consisting of customary
non-assignment provisions in leases to the extent such provisions restrict the
subletting, assignment or transfer of the lease or the property leased
thereunder or in purchase money financing or (B) by virtue of any transfer,
option or right with respect to, or Lien on, any property or assets of the
Company or any Restricted Subsidiary not otherwise prohibited by the Indenture;
(v) in the case of clause (c) above, restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject to such
security agreements or mortgages; (vi) encumbrances or restrictions imposed by
operation of applicable law; and (vii) any restriction with respect to a
Restricted Subsidiary imposed pursuant to an agreement entered into for the sale
or disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition, and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) first, to the extent the
Company elects (or is required by the terms of any Indebtedness), to prepay,
repay, redeem or purchase (and permanently reduce the commitments under)
Indebtedness of the Company or any Restricted Subsidiary (other than a
Subordinated Obligation and other than any Disqualified Stock) under the New
Credit Facility or that is otherwise secured by the assets subject to the Asset
Disposition within one year from the later of the date of such Asset Disposition
or the receipt of such Net Available Cash (the "Receipt Date"); (B) second, to
the extent of the balance of such Net Available Cash after application in
accordance with clause (A), to the extent the Company elects, to acquire
Additional Assets; provided, however, that the Company shall be required to
commit such Net Available Cash to the acquisition of Additional Assets within
one year from the later of the date of such Asset Disposition or the Receipt
Date and shall be required to consummate the acquisition of such Additional
Assets within 18 months from the Receipt Date; (C) third, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A) and (B), to make an offer pursuant to paragraph (b) below to the Holders to
purchase Notes pursuant to and subject to the conditions contained in the
Indenture; and (D) fourth, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A), (B) and (C) to any other
application or use not prohibited by the Indenture. Notwithstanding the
foregoing provisions of this paragraph, the Company and the Restricted
Subsidiaries shall not be required to apply the Net Available Cash in accordance
with this paragraph except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which are not applied in accordance with this
paragraph exceeds $5.0 million (at which time, the entire unutilized Net
Available Cash, and not just the amount in excess of $5.0 million, shall be
applied pursuant to this paragraph). Pending application of Net Available Cash
pursuant to this covenant, such Net Available Cash shall be invested in
Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the express assumption of Indebtedness of the Company or
any Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition, and
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(y) securities received by the Company or any Restricted Subsidiary from the
transferee that are converted by the Company or such Restricted Subsidiary into
cash within 90 days of closing the transaction.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes pursuant to clause (a)(ii)(C) above, the Company will be required to
purchase Notes tendered pursuant to an offer by the Company for the Notes at a
purchase price of 100% of their principal amount (without premium) plus accrued
but unpaid interest in accordance with the procedures (including prorating in
the event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of Notes tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Company will be required to
apply the remaining Net Available Cash in accordance with clause (a)(ii)(D)
above. The Company shall not be required to make such an offer to purchase Notes
pursuant to this covenant if the Net Available Cash available therefor after
application of the proceeds as provided in clause (a)(ii)(A) and (a)(ii)(B) is
less than $5.0 million (which lesser amount shall be carried forward for
purposes of determining whether such an offer is required with respect to any
subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into any transaction (including
the purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
the terms thereof (1) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
a comparable transaction in arm's-length dealings with a Person who is not such
an Affiliate, (2) if such Affiliate Transaction involves an amount in excess of
$1.0 million, (i) are set forth in writing and (ii) have been approved by a
majority of the members of the Board of Directors having no material personal
financial stake in such Affiliate Transaction and (3) if such Affiliate
Transaction involves an amount in excess of $5.0 million, have been determined
by a nationally recognized investment banking firm to be fair, from a financial
standpoint, to the Company or its Restricted Subsidiary, as the case may be.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Permitted Investment or Restricted Payment permitted to be made pursuant to
the covenant described under "-- Limitation on Restricted Payments," or any
payment or transaction specifically excepted from the definition of Restricted
Payment, (ii) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise and the performance of any other obligations of
the Company or any Restricted Subsidiary pursuant to, or the funding of,
employment arrangements, collective bargaining agreements, employee benefit
plans, health and life insurance plans, deferred compensation plans, directors'
and officers' indemnification agreements, retirement or savings plans, stock
options and stock ownership plans or any other similar arrangement heretofore or
hereafter entered into in the ordinary course of business or consistent with
past practice, (iii) the grant of stock options or similar rights to employees
and directors pursuant to plans approved by the Board of Directors or the board
of directors of the relevant Restricted Subsidiary, (iv) loans or advances to
officers, directors or employees heretofore or hereafter entered into in the
ordinary course of business or consistent with past practice, (v) the payment of
reasonable fees to directors of the Company and its Restricted Subsidiaries who
are not employees of the Company or its Restricted Subsidiaries, (vi) any
Affiliate Transaction between the Company and a Wholly Owned Subsidiary or
between Wholly Owned Subsidiaries, or (vii) the purchase of or the payment of
Indebtedness of or monies owed by the Company or any of its Restricted
Subsidiaries for goods or materials purchased, or services received, in the
ordinary course of business.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except (i) to the Company or a Wholly Owned
Subsidiary or (ii) if, immediately after giving effect to such issuance, sale or
other disposition, such Restricted Subsidiary remains a Restricted Subsidiary;
provided, however, that in
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connection with any such sale or disposition of Capital Stock the Company or any
such Restricted Subsidiary complies with the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock."
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, its assets substantially as an entirety to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not the Company) shall expressly assume, by an indenture supplemental
thereto, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary as a result of such transaction as having been Incurred by such
Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Successor Company shall have Consolidated Net
Worth in an amount that is not less than the Consolidated Net Worth of the
Company prior to such transaction minus any costs incurred in connection with
such transaction; and (iv) the Company shall have delivered to the Trustee an
officer's certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor company, only in the case
of a conveyance, transfer or lease, shall not be released from the obligation to
pay the principal of and interest on the Notes.
Notwithstanding the foregoing, (i) any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (ii) the Company may merge with an Affiliate
incorporated for the purpose of reincorporating the Company in another
jurisdiction to realize tax or other benefits.
SEC Reports. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC (if then permissible) and provide,
within 15 days after such reports would be required to be filed, to the Trustee
and Noteholders such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon acceleration or otherwise,
(iii) the failure by the Company to comply with its obligations under
"-- Certain Covenants -- Merger and Consolidation" above, (iv) the failure by
the Company to comply for 30 days after the Company receives written notice with
any of its obligations in the covenants described above under "Change of
Control" (other than a failure to purchase Notes) or under "-- Certain
Covenants -- Limitation on Indebtedness," "-- Limitation on Indebtedness and
Preferred Stock of Restricted Subsidiaries," "-- Limitation on Sale/Leaseback
Transactions," "-- Limitation on Restricted Payments," "-- Limitation on Sales
of Assets and Subsidiary Stock," or "-- Limitation on the Sale or Issuance of
Capital Stock of Restricted Subsidiaries," (v) the failure by the Company to
comply for 60 days after the Company receives written notice with its other
agreements contained in the Indenture, (vi) the failure by the Company or any
Significant Subsidiary to pay any Indebtedness within any applicable grace
period after final maturity or acceleration by the holders thereof because of a
default and the total amount of such Indebtedness unpaid or accelerated exceeds
$10.0 million (the "cross acceleration provision"), (vii) certain events of
bankruptcy, insolvency or reorganization of the Company or any Significant
Subsidiary (the "bankruptcy provisions") or (viii) the rendering of any judgment
or decree for the payment of money in excess of $10.0 million against the
Company or any Significant Subsidiary if such judgment remains outstanding for a
period of 60 days and is not discharged, waived or stayed within 30 days after
notice (the "judgment default
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provision"). However, a default under clause (iv) or (v) will not constitute an
Event of Default until the Trustee or the Holders of 25% in principal amount of
the outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified after receipt of such notice.
If an Event of Default (other than the bankruptcy provisions relating to
the Company) occurs and is continuing, the Trustee or the Holders of at least
25% in principal amount of the outstanding Notes may declare the principal of
and accrued but unpaid interest on all the Notes to be due and payable. Upon
such a declaration, such principal and interest shall be due and payable
immediately. If an Event of Default relating to the bankruptcy provisions
relating to the Company occurs and is continuing, the principal of and interest
on all the Notes will ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holders.
The Holders of a majority in aggregate principal amount of the outstanding Notes
by notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of acceleration. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder of a Note may pursue
any remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee written notice that an Event of Default is
continuing, (ii) Holders of at least 25% in principal amount of the outstanding
Notes have requested in writing the Trustee to pursue the remedy, (iii) such
Holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the Holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the Holders of a majority
in principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note, the Trustee may withhold notice if and
so long as the board of directors, the executive committee or a committee of its
trust officers determines that withholding notice is not opposed to the interest
of the Holders. In addition, the Company is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Company also is required to deliver to the Trustee, within 30
days after the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action the Company is taking
or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the Holders of a majority in principal
amount of the Notes then outstanding.
Without the consent of each Holder of an outstanding Note affected thereby,
no amendment may (i) reduce the amount of Notes whose Holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption" above, (v) make any Note payable in money other than
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that stated in the Note, (vi) impair the right of any Holder to receive payment
of principal of and interest on such Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such Holder's Notes, (vii) make any change in the amendment
provisions which require each Holder's consent or in the waiver provisions or
(viii) affect the ranking of the Notes in any material respect.
Without the consent of any Holder, the Company and the Trustee may amend
the Indenture to cure any ambiguity, omission, defect or inconsistency, to
provide for the assumption by a successor corporation of the obligations of the
Company under the Indenture, to provide for uncertificated Notes in addition to
or in place of certificated Notes (provided that the uncertificated Notes are
issued in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section 163(f)(2)(B)
of the Code), to add guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Company for the benefit of the Holders or to
surrender any right or power conferred upon the Company, to make any change that
does not adversely affect the rights of any Holder or to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the Trust Indenture Act.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment. However,
the failure to give such notice to all Holders, or any defect therein, will not
impair or affect the validity of the amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges. The Company is not required to transfer or exchange any Note selected
for redemption or repurchase or to transfer or exchange any Note for a period of
15 days prior to a selection of Notes to be redeemed or repurchased.
DEFEASANCE
The Company at its option at any time may terminate all of its obligations
under the Notes and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Notes, to replace mutilated, destroyed,
lost or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes. In addition, the Company at its option at any time may terminate its
obligations under "Change of Control" and under the covenants described under
"-- Certain Covenants" (other than the covenant described under "-- Merger and
Consolidation" except as described below) (and any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes), the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment default
provision described under "-- Defaults" above and the limitations contained in
clauses (iii) and (iv) of the first paragraph under "-- Certain Covenants --
Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default under the provisions described in the last sentence of the
foregoing paragraph.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal of and interest on the Notes
to redemption or maturity, as the case may be, and must comply with certain
other conditions, including delivery to the Trustee of an Opinion of Counsel to
the effect that Holders will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit and defeasance and will be
subject to Federal income tax on the same amount and in the same manner and at
the same times as would
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have been the case if such deposit and defeasance had not occurred (and, in the
case of legal defeasance only, such Opinion of Counsel must be based on a ruling
of the Internal Revenue Service or other change in applicable Federal income tax
law).
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when: (i) either (a)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid) have been delivered to the
Trustee for cancellation or (b) all Notes not theretofore delivered to the
Trustee for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee an amount in
United States dollars sufficient to pay and discharge the entire indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for the
principal of, premium, if any, and interest to the date of deposit; (ii) the
Company has paid or caused to be paid all other sums payable under the Indenture
by the Company; and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an opinion of counsel each stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company or any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the SEC that such waiver is against public policy.
CONCERNING THE TRUSTEE
First Trust National Association is to be the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes. Such bank may also act as a depository of funds for, or make loans
to and perform other services for, the Company or its affiliates in the ordinary
course of business in the future. The corporate trust office of the Trustee is
located at First Trust New York, 100 Wall Street, 20th Floor, New York, NY
10005.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture. The Trustee may resign at any
time or may be removed by the Company. If the Trustee resigns, is removed or
becomes incapable of acting as Trustee or if a vacancy occurs in the office of
the Trustee for any cause, a successor Trustee shall be appointed in accordance
with the provisions of the Indenture.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the TIA, the Trustee shall either eliminate such interest or resign,
to the extent and in the manner provided by, and subject to the provisions of,
the TIA and the Indenture. The Indenture also contains certain limitations on
the right of the Trustee, as a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received by it in
respect of any such claims, as security or otherwise.
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GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business, (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clause (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger or
consolidation (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted Subsidiary), (ii) all
or substantially all the assets of any division or line of business of the
Company or any Restricted Subsidiary or (iii) any other assets of the Company or
any Restricted Subsidiary outside of the ordinary course of business of the
Company or such Restricted Subsidiary (other than, in the case of (i), (ii) and
(iii) above, (x) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary and (y) for
purposes of the covenant described under "-- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock" only, a disposition that constitutes a
Restricted Payment permitted by the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" or a disposition specifically
excepted from the definition of Restricted Payment) provided, however, that
Asset Disposition shall not include (a) a transaction or series of related
transactions for which the Company or its Restricted Subsidiaries receive
aggregate consideration less than or equal to $1.0 million or (b) the sale,
lease, conveyance, disposition or other transfer of all or substantially all of
the assets of the Company as permitted under "Certain Covenants -- Merger,
Consolidation and Sale of Assets."
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total minimum obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/ Leaseback Transaction (including any period for which such lease has
been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
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"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has (x) Incurred any Indebtedness (other than Indebtedness Incurred
for working capital purposes under the New Credit Facility) since the beginning
of such period that remains outstanding on such date of determination or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving effect on a pro forma
basis to such Indebtedness as if such Indebtedness had been Incurred on the
first day of such period and the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period
or (y) has repaid, repurchased, defeased or otherwise discharged any
Indebtedness since the beginning of the period that is no longer outstanding on
such date of determination, or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio involves a discharge of Indebtedness,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect to such discharge of such Indebtedness, including with the
proceeds of such new Indebtedness, as if such discharge had occurred on the
first day of such period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four quarter period),
(2) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such period
shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative)
directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in connection
with such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary to the
extent the Company and its continuing Restricted Subsidiaries are no longer
liable for such Indebtedness after such sale), (3) if since the beginning of
such period the Company or any Restricted Subsidiary (by merger or otherwise)
shall have made an Investment in any Restricted Subsidiary (or any Person which
becomes a Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period, and (4) if since the beginning of such
period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any Asset Disposition, Investment or acquisition
of assets that would have required an adjustment pursuant to clause (2) or (3)
above if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Asset Disposition, Investment
or acquisition occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
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Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount
and debt issuance costs, (iii) capitalized interest, (iv) non-cash interest
expense, (v) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing, (vi) net costs
associated with Hedging Obligations (including amortization of fees), (vii) cash
dividends paid in respect of any Disqualified Stock of the Company or any
Preferred Stock of any Restricted Subsidiary of the Company held by Persons
other than the Company or a Wholly Owned Subsidiary (excluding the dividend paid
in connection with the Recapitalization), (viii) interest incurred in connection
with Investments in discontinued operations and (ix) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by the Company or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person if such Person is not a Restricted Subsidiary, except that subject to the
exclusion contained in clause (iv) below, the Company's equity in the net income
of any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution
paid to a Restricted Subsidiary, to the limitations contained in clause (iii)
below); (ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary of the Company in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income of any Restricted
Subsidiary to the extent that such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that subject to the exclusion contained in clause (iv) below,
the Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
paid to another Restricted Subsidiary, to the limitation contained in this
clause); (iv) any gain or loss realized upon the sale or other disposition of
any assets of the Company or its consolidated Subsidiaries (including pursuant
to any sale-and-leaseback arrangement) which is not sold or otherwise disposed
of in the ordinary course of business and any gain or loss realized upon the
sale or other disposition of any Capital Stock of any Person; (v) extraordinary
gains or losses; and (vi) the cumulative effect of a change in accounting
principles.
"Consolidated Net Worth" means, as of any date, the total of the amounts
shown on the balance sheet of the Company and its Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of such date, as
(i) the par or stated value of all outstanding Capital Stock of the Company plus
(ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (other than
as a result of a Change of Control) (i) matures or is mandatorily redeemable
pursuant to a
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sinking fund obligation or otherwise, (ii) is convertible into or exchangeable
for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of
the holder thereof, in whole or in part, in each case on or prior to the Stated
Maturity of the Notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and "-- Certain
Covenants -- Change of Control."
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company, (b) depreciation expense, (c) amortization expense and (d) all other
non-cash items reducing such Consolidated Net Income less all non-cash items
increasing such Consolidated Net Income (such amount calculated pursuant to this
clause (d) not to be less than zero), in each case for such period; and minus
the amount of all cash payments made by the Company or any Restricted Subsidiary
during such period to the extent that such payments relate to non-cash items
that were added back in determining EBITDA for any period subsequent to the
Issue Date. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Subsidiary of
the Company shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Subsidiary
was included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) in statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) in the rules and regulations of the SEC
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such Person (whether arising by virtue of agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided, however, that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "Guarantee" used as a verb has a corresponding meaning.
The term "Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for Indebtedness; provided, however, that any Indebtedness of a Person existing
at the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning. The
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accretion of principal of a non-interest bearing or other discount security
shall be deemed the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property
(which purchase price is due more than one year after taking title of such
property), all conditional sale obligations of such Person and all obligations
of such Person under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business); (iv) all obligations of
such Person for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (other than obligations with
respect to letters of credit securing obligations (other than obligations
described in clauses (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon, or, if and to the extent drawn upon, such drawing is reimbursed no
later than the tenth Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (v) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock or, with respect to any Subsidiary of
such Person, any Preferred Stock (but excluding, in each case, any accrued
dividends); (vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; (vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value of such property or
assets or the amount of the obligation so secured; and (viii) to the extent not
otherwise included in this definition, Hedging Obligations of such Person. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date. For purposes of
clarification, Indebtedness shall not include undrawn commitments on the New
Credit Facility.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed solely
to protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the Person making the
advance or loan) or other extensions of credit (including by way of Guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the definition of "Unrestricted Subsidiary," the definition of "Restricted
Payment" and the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments," (i) "Investment" shall include the portion (proportionate
to the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that if such
designation is made in connection with the acquisition of such Subsidiary or the
assets owned by such Subsidiary, the "Investment" in such Subsidiary shall be
deemed to be the consideration paid in connection with such acquisition;
provided further, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation, and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
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"Issue Date" means the date of original issuance of the Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or required by law to
close. If a payment date is a Legal Holiday, payment shall be made on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record date
shall not be affected.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) in each case
net of (i) all legal, title and recording tax expenses, brokerage commissions,
underwriting discounts or commissions or sales commissions and other reasonable
fees and expenses (including, without limitation, fees and expenses of counsel,
accountants and investment bankers) related to such Asset Disposition or
converting to cash any other proceeds received, and any relocation and severance
expenses as a result thereof, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition or made in order to
obtain a necessary consent to such Asset Disposition or to comply with
applicable law, (iii) all distributions and other payments required to be made
to minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition and (iv) appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Disposition. Further,
with respect to an Asset Disposition by a Subsidiary which is not a Wholly Owned
Subsidiary, Net Available Cash shall be reduced pro rata for the portion of the
equity of such Subsidiary which is not owned by the Company.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof. In addition, for the purposes of the calculations described in
"Certain Covenants -- Limitation on Restricted Payments," Net Cash Proceeds
shall also mean any cash amounts paid to the Company by members of management of
the Company in respect of certain Promissory Notes described under "Certain
Transactions."
"New Credit Facility" means the Credit Agreement, dated as of ,
1997, among the Company, Heller Financial, Inc., as agent, and the lenders party
thereto, as such agreement, in whole or in part, may be amended, renewed,
extended, increased (but only so long as such increase is permitted under the
terms of the Indenture), substituted, refinanced, restructured, replaced
(including, without limitation, any successive renewals, extensions, increases,
substitutions, refinancings, restructurings, replacements, supplements or other
modifications of the foregoing). Subsequent to the date of the Indenture, there
may be multiple New Credit Facilities and the term "New Credit Facility" shall
mean all such New Credit Facilities.
"Permitted Holders" means (i) TCW Special Credits Fund V -- The Principal
Fund, Trust Company of the West or any of their respective Affiliates and (ii)
Oaktree Capital Management, LLC ("Oaktree") and its Affiliates, including any
partnerships, separate accounts, or other entities managed by Oaktree.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making
of such Investment, become a Restricted Subsidiary; provided, however, that the
primary business of such Restricted Subsidiary is a Related Business; (ii)
another Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or
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conveys all or substantially all its assets to, the Company or a Restricted
Subsidiary; provided, however, that such Person's primary business is a Related
Business; (iii) Temporary Cash Investments; (iv) receivables owing to the
Company or any Restricted Subsidiary if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; provided, however, that such trade terms may include such
concessionary trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances; (v) payroll, travel and similar advances to
cover matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vi) loans or advances to employees permitted under "Certain
Covenants -- Limitation on Affiliate Transactions;" (vii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; (viii) payments, including without limitation,
security deposits, made to utilities or landlords in the ordinary course of
business; and (ix) any Person to the extent such Investment represents the
non-cash portion of the consideration received for an Asset Disposition as
permitted pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock."
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workers' compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings; (c)
Liens arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other proceedings
for review or time for appeal has not yet expired; (d) Liens for taxes,
assessments or other governmental charges not yet subject to penalties for
non-payment or which are being contested in good faith by appropriate
proceedings; (e) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of credit
do not constitute Indebtedness; (f) survey exceptions, encumbrances, easements
or reservations of or rights of others for licenses, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or Liens
incidental to the conduct of the business of such Person or to the ownership of
its properties which were not incurred in connection with Indebtedness and which
do not in the aggregate materially adversely affect the value of said properties
or materially impair their use in the operation of the business of such Person;
(g) Liens securing an Interest Rate Agreement so long as the related
Indebtedness is, and is permitted to be under the Indenture, secured by a Lien
on the same property securing the Interest Rate Agreement; and (h) leases and
subleases of real property which do not interfere with the ordinary conduct of
the business of such Person, and which are made on customary and usual terms
applicable to similar properties.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
68
<PAGE> 72
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding (plus fees and expenses, including any premium and defeasance costs)
under the Indebtedness being Refinanced (provided, however, that Refinancing
Indebtedness with respect to the Company's outstanding industrial revenue bonds
may have an aggregate principal amount in excess of the aggregate principal
amount outstanding on the Issue Date, such excess not to exceed the lesser of
the value of the real property that is subject to such Indebtedness being
Refinanced and $3 million); provided, further, however, that Refinancing
Indebtedness shall not include (x) Indebtedness of a Restricted Subsidiary that
Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company on the Issue Date.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person), other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Restricted Subsidiary that is not a Wholly Owned Subsidiary to minority
stockholders (or owners of an equivalent interest in the case of a Restricted
Subsidiary that is an entity other than a corporation), (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock of
the Company held by any Person or of any Capital Stock of a Restricted
Subsidiary held by any Affiliate of the Company (other than a Restricted
Subsidiary), including the exercise of any option to exchange any Capital Stock
(other than into Capital Stock of the Company that is not Disqualified Stock),
(iii) the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations purchased
in anticipation of satisfying of a sinking fund obligation, principal
installment or final maturity, in each case due within one year of the date of
acquisition) or (iv) the making of any Investment in any Person (other than a
Permitted Investment). For purposes of clarification, Restricted Payment does
not include any dividend, distribution or payment made in connection with the
Recapitalization.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
69
<PAGE> 73
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
limited liability company, limited or general partnership or other business
entity of which more than 50% of the total voting power of shares of Capital
Stock or other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person.
"S&P" means Standard & Poor's Ratings Service.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $10.0 million (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act) or any money-market fund sponsored by a registered broker dealer or mutual
fund distributor, (iii) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) investments in commercial paper, maturing not more than six months
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to S&P, and (v)
investments in securities with maturities of six months or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States of America, or by any political subdivision or taxing
authority thereof, and rated at least "A" by S&P or "A" by Moody's.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) if such Unrestricted Subsidiary at
such time has Indebtedness, the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" and (y) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced by the Company to the Trustee by promptly filing with the Trustee a
copy of the board resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also
70
<PAGE> 74
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such U.S. Government
Obligation held by such custodian for the account of the holder of such
depository receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of principal of or
interest on the U.S. Government Obligation evidenced by such depository receipt.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
71
<PAGE> 75
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated , 1997 (the "Underwriting Agreement") between the Company and
Credit Suisse First Boston Corporation and Salomon Brothers Inc (the
"Underwriters"), the Company has agreed to sell to the Underwriters, and the
Underwriters have agreed to purchase, severally but not jointly, from the
Company, the principal amount of Notes set forth opposite their names below:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITERS AMOUNT
------------ ------------
<S> <C>
Credit Suisse First Boston Corporation...................... $
Salomon Brothers Inc........................................
------------
$125,000,000
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the Notes, if any are purchased.
The Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances the purchase commitments of non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Underwriters that the Underwriters
propose to offer the Notes to investors initially at the offering price to
investors set forth on the cover page of this Prospectus, and to certain dealers
at such price less a concession of % of the principal amount per Note.
After the initial public offering, the public offering price and concession may
be changed by the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in respect
thereof.
The Notes are a new issue of securities with no established trading market.
The Underwriters have advised the Company that the Underwriters presently intend
to act as market makers in the Notes. The Underwriters are not obligated,
however, to make a market in the Notes and may discontinue any market making at
any time without notice. Accordingly, no assurance can be given as to the
development or liquidity of any trading market for the Notes.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
Notes in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit the Underwriters to reclaim
a selling concession from a syndicate member when the Notes originally sold by
such syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Notes to be higher than
it would otherwise be in the absence of such transactions.
Credit Suisse First Boston has performed certain financial advisory
services for the Company in the past and may continue to do so in the future.
72
<PAGE> 76
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis, exempt from the requirement that the Company prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of Notes are effected. Accordingly, any resale of the Notes in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resales of the Notes.
REPRESENTATION OF PURCHASERS
Each purchaser of Notes in Canada who receives a purchase confirmation will
be deemed to represent to the Company and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such Notes without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent and (iii) such
purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or remission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
Company or such persons. All or a substantial portion of the assets of the
Company and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the Company or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such Company
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Notes to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Notes acquired
by such purchaser pursuant to this Offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from the Company. Only one such report must be
filed in respect of Notes acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Notes should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the Notes in
their particular circumstances and with respect to the eligibility of the Notes
for investment by the purchaser under relevant Canadian legislation.
73
<PAGE> 77
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Gibson, Dunn & Crutcher LLP, New York, New York. Cahill Gordon &
Reindel (a partnership including a professional corporation), New York, New York
has acted as counsel for the Underwriters.
INDEPENDENT ACCOUNTANTS
The Financial Statements as of December 31, 1995 and December 29, 1996 and
for the six months ended June 26, 1994, the six months ended December 25, 1994
and for each of the two years in the period ended December 29, 1996 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Notes offered hereby
(herein, together with all amendments and exhibits thereto, referred to as the
"Registration Statement") on Form S-1 under the Securities Act. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information, reference is hereby made to the
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement, indenture or other document referred to are not
necessarily complete. With respect to each such contract, agreement, indenture
or other document filed as an exhibit to the Registration Statement, reference
is made to such exhibit for a more complete description thereof, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits and schedules thereto may be inspected
and copied (at prescribed rates) at the public reference facilities maintained
by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the Commissions regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, New York, New York 10048. The Commission also
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The Web site is located at http://www.sec.gov.
As a result of the Offering, the Company will become subject to the
information and reporting requirements of the Exchange Act, and in accordance
therewith will file periodic reports and other information with the Commission.
All such information may be inspected and copied at the public reference
facilities maintained by the Commission at the locations referred to above. The
Indenture pursuant to which the Notes will be issued will require the Company to
file with the Commission and to distribute to holders of the Notes annual
reports containing audited financial statements following the end of the fiscal
year as well as quarterly reports containing unaudited financial statements for
the first three quarters of each fiscal year following the end of each such
quarter.
74
<PAGE> 78
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Financial Statements:
Balance Sheets of December 31, 1995, December 29, 1996,
and March 30, 1997 (unaudited)......................... F-3
Statements of Operations for the six months ended June 26,
1994 (Predecessor) and December 25, 1994, for the two
years ended December 29, 1996 and for the three months
ended March 31, 1996 (unaudited) and March 30, 1997
(unaudited)............................................ F-4
Statements of Stockholders' Equity for the six months
ended June 26, 1994 (Predecessor), December 25, 1994,
for the two years ended December 29, 1996 and for the
three months ended March 30, 1997 (unaudited).......... F-5
Statements of Cash Flows for the six months ended June 26,
1994 (Predecessor) and December 25, 1994, for the two
years ended December 29, 1996 and for the three months
ended March 31, 1996 (unaudited) and March 30, 1997
(unaudited)............................................ F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Chief Auto Parts Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Chief Auto Parts Inc. at December
29, 1996 and December 31, 1995 and the results of its operations and its cash
flow for each of the two years in the period ended December 29, 1996, and for
the six months ended December 25, 1994, and the results of operations and cash
flows of the Company's predecessor, also known as Chief Auto Parts Inc., for the
six months ended June 26, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
March 24, 1997
F-2
<PAGE> 80
CHIEF AUTO PARTS INC.
BALANCE SHEETS -- DECEMBER 31, 1995, DECEMBER 29, 1996 AND
MARCH 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
MARCH 30, 1997
DECEMBER 31, DECEMBER 29, MARCH 30, LONG-TERM DEBT
1995 1996 1997 AND EQUITY
------------ ------------ ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents............................... $ 1,202 $ 1,140 $ 1,138
Accounts receivable, trade......................... 1,337 1,529 1,649
Accounts receivable, other, less allowances of
$480, $300 and $339.............................. 3,741 3,955 4,280
Merchandise inventories............................ 107,633 140,418 141,142
Deferred income taxes.............................. 2,959 6,084 6,084
Prepaid and other.................................. 709 1,014 1,239
-------- -------- --------
Total current assets...................... 117,581 154,140 155,532
PROPERTY AND EQUIPMENT, at cost:
Land............................................... 12,451 11,935 11,802
Buildings.......................................... 14,066 14,037 13,826
Leasehold improvements............................. 10,177 15,194 16,567
Furniture and equipment............................ 28,855 43,905 46,431
Assets under capital leases........................ 23,902 21,356 21,356
Equipment and construction in process.............. 1,155 3,301 2,208
-------- -------- --------
Total property and equipment.............. 90,606 109,728 112,190
Less accumulated depreciation and amortization..... 13,385 22,018 24,304
-------- -------- --------
Net property and equipment......................... 77,221 87,710 87,886
GOODWILL, less accumulated amortization of $2,144,
$3,574 and $3,854................................ 53,436 42,006 41,726
DEFERRED INCOME TAXES.............................. 4,791 13,018 13,018
OTHER ASSETS....................................... 1,390 1,474 1,310
-------- -------- --------
TOTAL..................................... $254,419 $298,348 $299,472
======== ======== ========
LIABILITIES
CURRENT LIABILITIES:
Current portion of long-term debt.................. $ 573 $ 622 $ 634
Current portion of obligations under capital
leases........................................... 1,223 1,318 1,359
Trade accounts payable............................. 55,696 71,928 74,742
Accrued salaries, benefits and related taxes....... 11,929 11,180 10,887
Accrued taxes (excluding payroll).................. 5,284 5,146 4,913
Other accrued liabilities.......................... 18,915 15,959 15,154
-------- -------- --------
Total current liabilities................. 93,620 106,153 107,689
LONG-TERM DEBT, less current portion............... 40,521 62,400 62,336 $128,357
OBLIGATIONS UNDER CAPITAL LEASES, less current
portion.......................................... 21,154 17,646 17,293
OTHER NONCURRENT LIABILITIES....................... 28,849 40,669 40,504
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par, 100,000 shares authorized,
shares issued and outstanding: 49,898............ $ 1 $ 1 $ 1 $ 1
Additional paid-in capital......................... 70,815 70,815 70,815 14,402
Less management notes receivable................... (1,922) (1,821) (1,821) (911)
Retained earnings.................................. 1,381 2,485 2,655 --
-------- -------- -------- --------
Total stockholders' equity................ 70,275 71,480 71,650 13,492
-------- -------- -------- --------
TOTAL..................................... $254,419 $298,348 $299,472
======== ======== ========
</TABLE>
See notes to financial statements
F-3
<PAGE> 81
CHIEF AUTO PARTS INC.
STATEMENTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 26, 1994 (PREDECESSOR) AND
DECEMBER 25, 1994, TWO YEARS ENDED DECEMBER 29, 1996 AND
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) AND MARCH 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEARS ENDED THREE MONTHS ENDED
------------------------ DECEMBER MARCH
JUNE DECEMBER ------------------- -------------------
1994 1994 1995 1996 1996 1997
------------- -------- -------- -------- -------- --------
PREDECESSOR (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET SALES.................... $195,286 $203,878 $429,047 $438,182 $102,260 $109,854
COSTS AND EXPENSES:
Cost of goods sold,
warehousing and
distribution............... 114,452 133,390 251,628 251,764 58,579 63,281
Selling, general and
administrative............. 68,642 70,500 145,829 167,064 36,485 41,017
Depreciation and
amortization............... 3,626 5,020 10,397 11,622 2,666 3,251
-------- -------- -------- -------- -------- --------
Operating income (loss)...... 8,566 (5,032) 21,193 7,732 4,530 2,305
Interest expense, net........ 5,807 2,533 6,009 6,203 1,440 1,784
Other (expense) income,
net........................ 41 4 (205) (66) (65) (10)
-------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES...................... 2,800 (7,561) 14,979 1,463 3,025 511
INCOME TAX EXPENSE........... 1,383 537 5,500 359 1,353 341
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS)............ $ 1,417 $ (8,098) $ 9,479 $ 1,104 $ 1,672 $ 170
======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements
F-4
<PAGE> 82
CHIEF AUTO PARTS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY -- SIX MONTHS ENDED
JUNE 26, 1994 (PREDECESSOR) AND DECEMBER 25, 1994, TWO
YEARS ENDED DECEMBER 29, 1996
AND THREE MONTHS ENDED MARCH 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
PREDECESSOR
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCK RETAINED
---------------- NOTES PAID-IN PURCHASE EARNINGS
SHARES AMOUNT RECEIVABLE CAPITAL WARRANT (DEFICIT) TOTAL
------- ------ ---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 26, 1993.............. 135,933 $1 $(338) $10,605 $2,150 $(61,238) $(48,820)
Net income.............................. 1,417 1,417
Reduction of notes receivable........... 100 100
------- -- ----- ------- ------ -------- --------
Balance, June 26, 1994.................. 135,933 $1 $(238) $10,605 $2,150 $(59,821) $(47,303)
======= == ===== ======= ====== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
COMPANY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------- NOTES PAID-IN EARNINGS
SHARES AMOUNT RECEIVABLE CAPITAL (DEFICIT) TOTAL
------- ------ ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock:
To majority stockholders.............. 47,210 $1 $66,999 $67,000
To management and director............ 2,588 $(1,930) 3,674 1,744
Net loss for the six months ended
December 25, 1994..................... $(8,098) (8,098)
------- -- ------- ------- ------- -------
Balance, December 25, 1994.............. 49,798 1 (1,930) 70,673 (8,098) 60,646
Issuance of common stock to
management............................ 100 (95) 142 47
Payments on notes receivable............ 103 103
Net income.............................. 9,479 9,479
------- -- ------- ------- ------- -------
Balance, December 31, 1995.............. 49,898 1 (1,922) 70,815 1,381 70,275
Payments on notes receivable............ 101 101
Net income.............................. 1,104 1,104
------- -- ------- ------- ------- -------
Balance, December 29, 1996.............. 49,898 1 (1,821) 70,815 2,485 71,480
Net income (unaudited).................. 170 170
Balance, March 30, 1997
------- -- ------- ------- ------- -------
(unaudited)........................... 49,898 $1 $(1,821) $70,815 $ 2,655 $71,650
======= == ======= ======= ======= =======
</TABLE>
See notes to financial statements
F-5
<PAGE> 83
CHIEF AUTO PARTS INC.
STATEMENTS OF CASH FLOWS -- SIX MONTHS ENDED JUNE 26, 1994 (PREDECESSOR)
AND DECEMBER 25, 1994, TWO YEARS ENDED DECEMBER 29, 1996 AND
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) AND MARCH 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEARS ENDED THREE MONTHS ENDED
------------------------ DECEMBER MARCH
JUNE DECEMBER ------------------- -------------------------
1994 1994 1995 1996 1996 1997
------------- -------- -------- -------- ----------- -----------
(PREDECESSOR) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ 1,417 $(8,098) $ 9,479 $ 1,104 $ 1,672 $ 170
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation and amortization............... 3,626 5,020 10,397 11,622 2,666 3,251
Amortization of deferred financing costs.... 34 133 266 319 67 101
Deferred compensation....................... -- 779 1,558 1,558 390 390
Provision for store closures and legal
reserves.................................. -- -- -- 14,000 -- --
Loss on sale of assets...................... 34 17 258 95 72 14
Provision for deferred income taxes......... -- -- 1,500 (1,352) -- --
Increase (decrease) from changes in:
Accounts receivable....................... 1,201 (630) (860) (406) (1,022) (445)
Merchandise inventories................... (4,660) 7,644 (17,565) (32,785) (12,106) (724)
Prepaid and other......................... 52 (412) 745 (305) (97) (225)
Other assets.............................. (238) (116) (101) (30) (32) 117
Accounts payable.......................... 9,987 (773) 5,879 16,232 8,472 2,814
Accrued salaries, benefits and related
taxes................................... 1,586 (1,026) (1,661) (749) (84) (293)
Accrued taxes............................. (1,347) 2,018 (1,458) (138) 433 (233)
Other accrued liabilities................. 1,419 (397) 2,770 (2,956) 1,500 (805)
Other noncurrent liabilities.............. 130 5,695 (2,118) (4,345) (577) (523)
------- -------- -------- -------- -------- --------
Net cash provided by operating activities..... 13,241 9,854 9,089 1,864 1,354 3,609
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment................................... 2,222 1,666 149 870 127 343
Additions to property and equipment........... (5,885) (6,512) (11,822) (23,275) (4,398) (3,536)
Purchase of Predecessor, net of cash
acquired.................................... -- (20,326) -- -- -- --
------- -------- -------- -------- -------- --------
Net cash used by investing activities......... (3,663) (25,172) (11,673) (22,405) (4,271) (3,193)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit loan........ 51,609 40,250 67,700 98,500 26,600 20,400
Payments against revolving credit loan........ (57,415) (40,750) (63,700) (76,000) (23,100) (20,300)
Initial funding of revolving credit loan...... -- 35,000 -- -- -- --
Deferred financing costs...................... -- (1,332) -- (372) (138) (54)
Issuance of stock, net of notes receivable.... -- 68,744 47 -- -- --
Principal payments on long-term debt.......... (3,713) (248) (532) (572) (139) (152)
Principal payments of obligations under
capital leases.............................. (138) (399) (965) (1,178) (284) (312)
Payments on management notes receivable for
common stock................................ 100 -- 103 101 -- --
Payment of Predecessor debt................... -- (88,453) -- -- -- --
------- -------- -------- -------- -------- --------
Net cash provided (used) by financing
activities.................................. (9,557) 12,812 2,653 20,479 2,939 (418)
------- -------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS................................. 21 (2,506) 69 (62) 22 (2)
CASH AND EQUIVALENTS, beginning of period..... 1,095 3,639 1,133 1,202 1,202 1,140
------- -------- -------- -------- -------- --------
CASH AND EQUIVALENTS, end of period........... $ 1,116 $ 1,133 $ 1,202 $ 1,140 $ 1,224 $ 1,138
======= ======== ======== ======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid................................. $ 5,904 $ 2,291 $ 6,199 $ 5,819 $ 1,228 $ 1,818
======= ======== ======== ======== ======== ========
Income taxes paid............................. $ 70 $ 1,338 $ 3,688 $ 1,700 $ 1 $ 853
======= ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 84
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business -- Chief Auto Parts Inc. (the "Company" or "Chief")
is engaged in the sale and distribution of automotive parts to the retail and
wholesale aftermarket through a chain of 544 stores (located predominately in
California and Texas) at December 29, 1996.
Basis of Presentation -- The Company was party to a merger (as defined at
Note 2, the "Merger") in June 1994. Chief prior to the Merger is herein referred
to as the "Predecessor" or the "Predecessor Company."
The Merger was accounted for using the purchase method, in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16").
The assets and liabilities of the Predecessor were revalued and significant
adjustments to the assets acquired and liabilities assumed were made to reflect
their estimated fair values at the date of the Merger, and accordingly the
results of operations subsequent to the date of the Merger are on a different
basis than those of the Predecessor Company. In addition, certain prior year
amounts have been reclassified to conform to the current year presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results may differ from these estimates.
Fiscal Year -- The Company's fiscal year is the 52- or 53-week period
ending on the last Sunday in December. The first fiscal period following the
Merger ended on December 25, 1994 (six months). Fiscal 1995 ended on December
31, 1995 (53 weeks), and fiscal 1996 ended on December 29, 1996 (52 weeks).
Predecessor Company information included in the accompanying financial
statements pertains to the six months ended June 26, 1994.
Merchandise Inventories -- Inventories are valued at the lower of cost or
market. Cost is determined on the retail method for retail store inventories,
and the weighted average cost method for warehouse inventories.
Property and Equipment -- Property and equipment, exclusive of capital
leases, are stated at cost. Significant additions and improvements are
capitalized; expenditures for maintenance and repairs are expensed. Costs
incurred in the selection and development of new store sites are capitalized as
construction costs and amortized over the lesser of the estimated useful life or
the term of the lease. Gains and losses on the disposition of property and
equipment are recognized in the period incurred. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets, ranging
from three to twenty-five years. Assets under capital leases are stated at the
lower of the present value of the minimum lease payments to be made during the
term of the lease or the fair value of the leased asset. Amortization of such
property is provided using the straight-line method over the term of the lease.
Goodwill -- The Company has classified as goodwill the cost in excess of
fair value of the net assets acquired in the Merger. Goodwill is being amortized
on the straight-line method over 40 years. Amortization for the six months ended
December 25, 1994 was $715,000 and for the years ended December 31, 1995 and
December 29, 1996 was $1,430,000 each year.
The Company evaluates the realizability of goodwill at each balance sheet
date based upon expectations of undiscounted cash flows and operating income.
The Company believes that no impairment of goodwill exists at December 29, 1996.
Advertising Costs -- Advertising costs are expensed the first time the
advertising takes place. For the six months ended June 26, 1994 (Predecessor)
and December 25, 1994, advertising expense, net of reimbursements by vendors,
was $3,239,000 and $1,502,000, respectively, and for the years ended December
31, 1995 and December 29, 1996, was $2,771,000 and $3,842,000, respectively.
F-7
<PAGE> 85
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Income Taxes -- Income tax expense is based on the liability method.
Deferred income taxes are provided for differences between tax laws and
financial accounting standards regarding the recognition and measurement of
assets, liabilities, revenues and expenses using presently enacted tax rates.
Such differences result principally from different methods of purchase price
allocation for tax and financial accounting purposes, depreciation, lease
transactions, and provisions for store closings.
Store Closing Costs -- The costs associated with closing stores are accrued
when the decision is made to close a location, and include disposition of
property and equipment and associated other costs. In the event a store is
closed before its lease has expired, a provision is recorded for the estimated
remaining lease obligation, less estimated sublease income, if any.
New Accounting Pronouncements -- During 1996, the Company adopted Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS 121").
This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. SFAS 121 had no impact on the Company's financial
position or results of operations.
Additionally, during 1996 the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). This statement requires expanded disclosures of stock-based compensation
arrangements with employees, and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument. As more
fully described at Note 7, the Company has opted to continue the application of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and accordingly, the adoption of SFAS 123 had no effect
on the Company's financial position or results of operations.
2. CHANGE IN CONTROL
On June 27, 1994, Chief was merged with a subsidiary of TCW Special Credits
Fund V -- The Principal Fund ("The Principal Fund"), and was the surviving
corporation (the "Merger").
The Principal Fund and its affiliates then acquired 100% of the issued and
outstanding common stock of the Company. The aggregate purchase consideration
given in the Merger was approximately $72 million, including fees and expenses.
Equityholders at the date of the Merger received both cash consideration
and stock purchase warrants. The stock purchase warrants are exercisable for an
aggregate of 10% of the outstanding shares of common stock of the Company on a
fully-diluted basis, after the issuance of stock and stock options to management
(as more fully described at Note 7). All stock, options and warrants outstanding
prior to the Merger were canceled. The Merger was a nontaxable transaction, and
accordingly, the tax basis of the Predecessor Company carried forward as that of
the Company's.
In conjunction with the Merger, Chief entered into a $50 million revolving
credit agreement (the "Credit Agreement") with a bank, as more fully described
at Note 3. All debt due the Predecessor's sole senior lender was repaid at the
date of the Merger.
F-8
<PAGE> 86
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 and December
29, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Revolving credit loan, due June 1999........................ $38,500 $61,000
$7.7 million industrial development bonds, interest at the
higher of 8% or 75% of prime (8% at December 29, 1996),
due monthly through December 1999......................... 2,594 2,022
------- -------
Total....................................................... 41,094 63,022
Less current portion........................................ 573 622
------- -------
Long-term debt.............................................. $40,521 $62,400
======= =======
</TABLE>
The commitment term of the Credit Agreement expires in June 1999.
Borrowings under the revolving credit facility are secured by the Company's
merchandise inventories. The maximum availability for borrowings ($80 million at
December 29, 1996, as amended November 4, 1996) is reduced by letter of credit
usage, which cannot exceed $10 million. At December 29, 1996, the Company had
outstanding a $500,000 letter of credit. A commitment fee ranging from 0.25% to
0.5% is payable on the unused portion.
At the Company's option, interest on the revolving credit loan is payable
either quarterly or on the last day of defined interest periods, based on either
(a) the higher of prime or the federal funds effective rate plus 0.5% (plus, in
either case, a defined margin rate ranging up to 0.75%), or (b) the one, three,
or six-month London Interbank Offered Rate ("LIBOR") plus a defined margin rate
ranging from 0.5% to 2.0%. The weighted average interest rate in effect at
December 29, 1996 was 6.37%.
Deferred financing costs relating to the credit facility are amortized over
the life of the commitment. Amortization is included as interest expense in the
accompanying statement of operations. Deferred financing costs, net of
accumulated amortization, were $932,000 and $985,000, at December 31, 1995 and
December 29, 1996, respectively.
Covenants contained in the Credit Agreement include, but are not limited
to, provisions for the maintenance of minimum cash flow levels and net worth,
and restrictions on additional indebtedness, liens, investments, and payment of
dividends. The Company is in compliance with these covenants at December 29,
1996.
The aggregate maturities of long-term debt for the years subsequent to
December 29, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal Year
1997...................................................... $ 622
1998...................................................... 674
1999...................................................... 61,726
Thereafter................................................ --
-------
Total payments.................................... $63,022
=======
</TABLE>
4. PROVISION FOR STORE CLOSURES
During the year ended December 29, 1996, the Company recorded a charge to
expense relating to stores identified for closing during 1996, primarily related
to the exit from the Little Rock, Arkansas market. The provision is based on the
Company's best estimate of the costs associated with closing the stores, and is
comprised primarily of the anticipated lease obligations for these stores, and
losses on the disposal of store-related assets.
F-9
<PAGE> 87
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES
The Company leases facilities and equipment under noncancelable capital and
operating leases expiring in various years through 2028. The lease agreements
covering facilities generally require that the Company pay a pro rata share of
common area maintenance, insurance, utilities and ad valorem taxes, for which
provision has been made currently. Certain lease agreements covering facilities
require that the Company pay a percentage of sales over a specified minimum
level, for which provision has been made currently.
Future minimum lease payments under capital and operating leases at
December 29, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Fiscal year:
1997...................................................... $ 2,857 $ 30,181
1998...................................................... 2,705 27,966
1999...................................................... 2,649 25,490
2000...................................................... 2,702 22,848
2001...................................................... 2,631 19,587
Thereafter................................................ 16,693 78,389
------- --------
Total minimum lease payments...................... 30,237 $204,461
========
Less imputed interest..................................... 11,273
-------
Present value of lease payments........................... 18,964
Current portion........................................... 1,318
-------
Long-term portion......................................... $17,646
=======
</TABLE>
Rent expense under operating leases for the six months ended June 26, 1994
(Predecessor) and December 25, 1994 was $10,500,000 and $11,100,000,
respectively, and for the years ended December 31, 1995 and December 29, 1996
was $24,826,000 and $28,395,000, respectively. Contingent rentals were not
significant. Assets under capital leases consist of the following at December
31, 1995 and December 29, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Buildings................................................... $23,509 $20,963
Furniture and equipment..................................... 393 393
------- -------
Total............................................. 23,902 21,356
Less accumulated amortization............................... 3,268 4,945
------- -------
Net............................................... $20,634 $16,411
======= =======
</TABLE>
F-10
<PAGE> 88
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Components of income tax expense for the six months ended June 26, 1994
(Predecessor) and December 25, 1994 and for the years ended December 31, 1995
and December 29, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED
-------------- DECEMBER
JUNE DEC. ----------------
1994 1994 1995 1996
------ ---- ------ ------
<S> <C> <C> <C> <C>
Current:
Federal........................................ $1,009 $434 $2,950 $1,261
State.......................................... 374 103 1,050 450
Deferred:
Federal........................................ -- -- 1,500 (1,352)
------ ---- ------ ------
Total.................................. $1,383 $537 $5,500 $ 359
====== ==== ====== ======
</TABLE>
Income tax expense differs from the amount computed by applying the U.S.
federal income tax rate (34%) because of the effect of the following items (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED
----------------- DECEMBER
JUNE DEC. ----------------
1994 1994 1995 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
Tax at U.S. federal rate....................... $ 952 $(2,571) $5,093 $ 497
State income taxes, net of U.S. federal
benefit...................................... 247 68 693 297
Goodwill amortization.......................... -- 243 486 486
Tax assets for which no benefit was
recognized................................... 157 2,767 -- --
Benefit of previously unrecognized tax
assets....................................... -- -- (1,144) (834)
Other, net..................................... 27 30 372 (87)
------ ------- ------ ------
Total................................ $1,383 $ 537 $5,500 $ 359
====== ======= ====== ======
</TABLE>
At December 29, 1996, the Company had an alternative minimum tax credit
carryforward of $1,762,000 which has no expiration.
The major deferred tax asset (liability) items at December 31, 1995 and
December 29, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Depreciation................................................ $ 2,574 $ 1,146
Provisions for merchandise realignment, store closures and
related dispositions...................................... 5,178 6,697
Capital leases.............................................. 743 995
Deferred gains from sale leasebacks......................... 1,131 1,021
Inventory cost capitalization............................... 1,503 1,956
Accruals not deducted for tax purposes...................... 14,606 15,845
Tax credit carryforwards.................................... 2,105 1,762
Unfavorable lease obligations............................... 1,317 908
Other....................................................... (983) (804)
-------- --------
Net before valuation allowance.................... 28,174 29,526
Valuation allowance......................................... (20,424) (10,424)
-------- --------
Net deferred tax assets........................... $ 7,750 $ 19,102
======== ========
</TABLE>
F-11
<PAGE> 89
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
At December 29, 1996, the Company had gross deferred tax assets of
$30,590,000, and gross deferred tax liabilities of $1,064,000. The net deferred
tax assets have been adjusted by a valuation allowance of $10,424,000. During
1996, in assessing the required valuation allowance against the deferred tax
asset, the Company concluded that it is more likely than not that a portion of
the deferred tax asset will be used to offset future tax. Accordingly, the
Company reduced the valuation allowance by $10,000,000 during the year ended
December 29, 1996, with a reduction in goodwill to reflect deferred tax assets
acquired in the Merger. Substantially all of the valuation allowance at December
29, 1996 relates to assets which were acquired in the Merger.
7. STOCKHOLDERS' EQUITY
Management Notes Receivable -- Several members of Company management have
purchased shares of Chief common stock, for which partial consideration is in
the form of notes made payable to Chief. The notes, which bear interest ranging
from 6.11% to 7.05% (payable annually), are due through 2003. Mandatory
prepayments of principal are due under certain circumstances.
Options -- In accordance with the Chief Auto Parts Inc. 1994 Executive
Option Plan (the "1994 Option Plan"), which became effective July 1, 1994,
options to purchase 5,488 shares of common stock can be granted to certain
employees and directors, at an exercise price of $1,420 per share. The options
become exercisable (vest) in 25% increments on each anniversary of the date of
grant, and may be exercised at any time after becoming exercisable until the
options expire. The 1994 Option Plan will terminate on June 30, 2004.
A summary of the options for the years ended December 31, 1995 and December
29, 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Outstanding at beginning of year............................ 4,984 5,284
Granted..................................................... 300 --
Exercised................................................... -- --
Forfeited................................................... -- --
----- -----
Outstanding at end of year.................................. 5,284 5,284
===== =====
Exercisable at end of year.................................. 1,246 2,567
===== =====
</TABLE>
The Company accounts for the 1994 Option Plan under APB 25, under which no
compensation expense has been recognized for the options granted because the
exercise price has equaled the fair value of the Company's common stock at the
date of grant.
The Company adopted SFAS 123 during 1996, for disclosure purposes only.
During the phase-in period of SFAS 123, the Company is required to disclose pro
forma information regarding the options granted in 1995. For SFAS 123 purposes,
the fair value of the options granted during 1995 was estimated using the
Black-Scholes options pricing model, and the pro forma effect on the Company's
net income for the years ended December 31, 1995 and December 29, 1996 was
insignificant.
Warrants -- In conjunction with the Merger, stock purchase warrants were
issued to the Predecessor's equityholders, exercisable for an aggregate of 10%
of the outstanding shares of common stock of the Company on a fully-diluted
basis, after the issuance of stock and stock options to management. At December
29, 1996, 6,090 shares may be purchased under the warrants, at an exercise price
of $1,655 per share. The exercise price is increased quarterly by an interest
factor. All of the warrants can be exercised in whole or in part, are
transferable under certain conditions, and contain provisions requiring the
Company to reserve a number of authorized and unissued shares sufficient to
exercise the warrants at any time. The number of shares issuable is subject to
adjustment under anti-dilution provisions contained in the warrants. The
warrants expire on June 27, 2004.
F-12
<PAGE> 90
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution benefit plan covering
substantially all employees with more than one year of service. Plan assets,
distributions and reporting are administered by a third party. The plan's assets
include, at the participant's choice, a guaranteed interest fund, a government
securities fund, a stock emphasis balanced fund, and a U.S. stock fund.
Employees may contribute to their individual accounts, and Chief may provide a
matching contribution. During the six months ended June 26, 1994 (Predecessor)
and December 25, 1994, Chief contributed approximately $200,000 on a combined
basis to the plan. During the years ended December 31, 1995 and December 29,
1996, Chief contributed approximately $200,000 and $300,000, respectively, to
the plan.
Chief provides health and other insurance benefits for employees and their
dependents through health maintenance organizations ("HMO"). Prior to January 1,
1996, the Company also offered an indemnity plan to employees, which has been
discontinued. For the six months ended June 26, 1994 (Predecessor) and December
25, 1994, Chief paid $600,000 and $441,000, respectively, through the indemnity
plan and for the year ended December 31, 1995, paid total claims of
approximately $843,000 through the indemnity plan.
In accordance with the Chief Auto Parts Inc. 1994 Executive Target Bonus
Plan (the "Bonus Plan"), which became effective July 1, 1994, key employees of
the Company may earn bonuses if targeted levels of income are obtained by Chief.
At their option, plan participants may elect to defer such bonuses to future
years. The Bonus Plan will terminate on June 30, 2004. The deferred compensation
expense for this plan during the six months ended December 25, 1994 was $779,000
and during the years ended December 31, 1995 and December 29, 1996 was
$1,558,000 each year.
9. SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or less
to be cash equivalents. During the stated periods below, noncash investing and
financing activities were as follows:
- Six months ended December 25, 1994: noncash assets of $13,300,000
(principally property and equipment) and noncash liabilities of
$20,600,000 (principally capital leases) were acquired or assumed in the
Merger.
- Year ended December 29, 1996: capital leases of $2,396,000 were retired.
10. RELATED PARTIES
At December 29, 1996, 94.6% of Chief's outstanding common stock was owned
collectively by The Principal Fund and four affiliates of The Principal Fund.
The remaining outstanding common stock is owned by members of Chief management
and a member of the Company's board of directors. As described at Note 7,
several members of Chief management made notes payable to Chief in conjunction
with their purchase of Chief common stock. Equityholders at the date of the
Merger received stock purchase warrants, as described at Notes 2 and 7. The
warrant holders are comprised of current and former employees of the Company, a
former member of the Predecessor's board of directors, and the Predecessor's
senior lender and major equityholder.
11. COMMITMENTS AND CONTINGENCIES
On March 30, 1994, an administrative proceeding was initiated by the United
States Equal Employment Opportunity Commission, alleging that certain of the
Predecessor Company's employment practices might have been discriminatory. On
December 20, 1996, this matter was settled, at amounts less than previously
accrued and $1.2 million was credited to expense.
F-13
<PAGE> 91
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company is the defendant in two lawsuits alleging that the Company
failed to pay store managers and associate store managers in California for
overtime compensation as required by California law. On September 21, 1993, a
lawsuit was filed in the Superior Court of California, County of Alameda, by a
former manager, alleging that the Company failed to pay store managers and
associate store managers in California overtime compensation. In December 1994,
the court denied class certification. Two hundred and forty two individual
claims have been added to the initial suit. In addition to the claims filed in
Alameda County, on March 5, 1996, 15 current and former employees filed a
lawsuit based on the same claims, in the Superior Court of California, County of
San Joaquin. The Company is vigorously defending against the claims of all
plaintiffs.
In September 1996, the Company submitted to binding arbitration with
respect to eight of the Alameda County plaintiffs. On March 10, 1997, the
arbitrator ruled in favor of the eight plaintiffs involved in the arbitration
with respect to liability and determined that these eight plaintiffs are
entitled to compensation for overtime hours worked, certain penalties and
interest and reasonable attorney's fees and costs of arbitration. However, the
arbitrator has not yet made a determination with respect to the amount of
damages. This arbitration decision has no binding precedential or stare decisis
effect on the remaining 235 plaintiffs' cases. However, regardless of the
outcome of the damage phase of the arbitration, the Company may have to litigate
or arbitrate the remaining cases and may incur significant legal expenses in
connection therewith, and the Company could be subject to significant
compensatory damages. In addition, there are approximately 700 store managers
and associate store managers previously or currently employed by the Company in
California who have not brought or joined in the suit against the Company.
Following the Alameda court's denial of class certification to the plaintiffs,
the court required the Company to send notice in October 1995 to all potential
plaintiffs (current and former managers as of that date) notifying them of this
action and providing them the opportunity to contact the plaintiffs' attorney.
The Company has recorded a provision for potential losses related to the
lawsuits, but management is unable to predict the outcome of the damage phase of
the arbitration or the remaining lawsuits, or the probability of additional
lawsuits, at this time. However, if a significant number of plaintiffs were to
prevail on all elements of their claims against the Company or if a significant
number of additional current or former managers were to bring suit and prevail
as noted above, it could have a material adverse effect on the Company.
The Company has been and is involved in various other legal proceedings.
Management believes that such other litigation is routine in nature and
incidental to the conduct of its business, and that none of such other
litigation, if determined adversely to the Company, would have a material
adverse effect, individually or in the aggregate, on the Company's financial
position or results of operations.
12. OTHER ACCRUED LIABILITIES
The following is a summary of other accrued liabilities at December 31,
1995 and December 29, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Store-closing provision..................................... $ 1,794 $ 2,065
Insurance reserves.......................................... 3,109 2,382
Other (including legal)..................................... 14,012 11,512
------- -------
Other accrued liabilities................................... $18,915 $15,959
======= =======
</TABLE>
F-14
<PAGE> 92
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER NONCURRENT LIABILITIES
The following is a summary of other noncurrent liabilities at December 31,
1995 and December 29, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Accrued average rent........................................ $12,031 $12,394
Store-closing provision..................................... 5,474 10,384
Unfavorable lease obligations, net.......................... 4,343 3,434
Deferred compensation....................................... 3,117 4,675
Deferred income from sale-leasebacks........................ 2,618 2,340
Other (including legal)..................................... 1,266 7,442
------- -------
Other noncurrent liabilities................................ $28,849 $40,669
======= =======
</TABLE>
F-15
<PAGE> 93
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 9
The Recapitalization.................. 15
Use of Proceeds....................... 15
Capitalization........................ 16
Selected Financial and Other Data..... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 27
Management............................ 37
Principal Stockholders................ 45
Certain Transactions.................. 46
Description of New Credit Facility.... 48
Description of the Notes.............. 49
Underwriting.......................... 72
Notice to Canadian Residents.......... 73
Legal Matters......................... 74
Independent Accountants............... 74
Available Information................. 74
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
[CHIEF AUTO PARTS LOGO]
CHIEF AUTO PARTS INC.
$125,000,000
% SENIOR NOTES DUE 2005
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC
- ------------------------------------------------------
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of Notes registered hereby, all of
which expenses, except for the Securities and Exchange Commission registration
fee and the National Association of Securities Dealers, Inc. filing fee, are
estimates:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- --------
<S> <C>
Securities and Exchange Commission registration fee......... $ 37,879
National Association of Securities Dealers, Inc. filing
fee....................................................... 13,000
Legal fees and expenses..................................... 200,000
Accounting fees and expenses................................ 100,000
Printing and engraving fees and expenses.................... 200,000
Blue sky fees and expenses.................................. 8,000
Trustee's fees and expenses................................. 10,000
Miscellaneous expenses...................................... 101,121
--------
Total..................................................... $670,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director for violations of the
director's fiduciary duty, except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payments of dividends of unlawful stock purchase or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit.
Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any person, including an officer or director, who is,
or is threatened to be made, party to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the corporation's best interest and, for
criminal proceeding, had no reasonable cause to believe that his conduct was
unlawful. A Delaware corporation may indemnify any officer or director in any
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses that
such officer or director actually and reasonably incurred.
Article IX of the Bylaws of the Company (filed as Exhibit 3.2) provides for
indemnification of the officers and directors to the full extent permitted by
applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the purchase of the Company by The Principal Fund and
its affiliates in June 1994, the Company (i) issued warrants to purchase 5,689.5
shares of Common Stock to General Electric Capital Corporation at an exercise
price of $1,419.71 per share, subject to adjustments, (ii) issued warrants to
purchase an
II-1
<PAGE> 95
aggregate of 400.6 shares of Common Stock to certain members of the Company's
management at an exercise price of $1,419.71 per share, subject to adjustments,
and (iii) issued an aggregate of 47,210.45 shares of Common Stock to The
Principal Fund and its affiliates. The issuances to General Electric Capital
Corporation and to the members of the Company's management and Board of
Directors were in exchange for the previous equity ownership interests of such
persons in the Company. The issuance to The Principal Fund and its affiliates
was in exchange for its capital contribution to the Company. The issuance of the
warrants and the shares of Common Stock was exempt from registration under the
Securities Act by virtue of Section 4(2) thereof.
In October 1994, pursuant to the Company's 1994 Executive Option Plan, the
Company granted options to purchase an aggregate of 4,983.88 shares of Common
Stock to certain members of the Company's management at an exercise price of
$1,419.71 per share. The issuance of the options was exempt from registration
under the Securities Act by virtue of Section 4(2) thereof.
In October and November 1994, pursuant to the Management Stock Purchase
Agreement, the Company issued an aggregate of 2,587.86 shares of Common Stock to
certain members of the Company's management at a purchase price of $1,419.71 per
share. The issuance of the shares of Common Stock was exempt from registration
under the Securities Act by virtue of Section 4(2) thereof.
In August 1995, pursuant to the Company's 1994 Executive Option Plan, the
Company granted options to purchase an aggregate of 300.0 shares of Common Stock
to Larry L. Buresh, an officer of the Company, at an exercise price of $1,419.71
per share. The issuance of the options was exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder.
In November 1995, pursuant to the Management Stock Purchase Agreement, the
Company issued an aggregate of 100.0 shares of Common Stock to Larry L. Buresh,
an officer of the Company, at a purchase price of $1,419.71 per share. The
issuance of the shares of Common Stock was exempt from registration under the
Securities Act by virtue of Section 4(2) thereof.
In connection with the Offering and the Recapitalization, certain members
of management are expected to exercise options to purchase an aggregate of
4,839.97 shares of Common Stock at an exercise price of $1,419.71 per share. The
issuance of the shares of Common Stock upon exercise will be exempt from
registration under the Securities Act by virtue of Section 4(2) thereof.
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement among Chief Auto Parts Inc.,
Credit Suisse First Boston and Salomon Brothers Inc
+3.1 Fourth Restated Certificate of Incorporation of Chief Auto
Parts Inc.
+3.2 Bylaws of Chief Auto Parts Inc.
4.1 Form of Indenture between Chief Auto Parts Inc. and First
Trust National Association, as trustee
*5.1 Opinion of Gibson, Dunn & Crutcher LLP regarding the
legality of the securities being issued
10.1 1994 Executive Target Bonus Plan, as amended
+10.2 Form of Series I Promissory Note
+10.3 Form of Series II Promissory Note
+10.4 Form of Stock Pledge Agreement
+10.5 Employment Agreement between Chief Auto Parts Inc. and Larry
L. Buresh, effective as of August 10, 1995
+10.6 Employment Agreement between Chief Auto Parts Inc. and David
H. Eisenberg, effective as of June 27, 1994
10.7 1994 Executive Option Plan of Chief Auto Parts Inc., as
amended
</TABLE>
II-2
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*10.8 Form of 1997 Employee Option Plan of Chief Auto Parts Inc.
+10.9 Nonqualified Executive Retirement Plan of Chief Auto Parts
Inc., as amended
*10.10 New Credit Facility
12.1 Statement regarding computation of ratios
+21.1 Subsidiaries of Chief Auto Parts Inc.
23.1 Consent of Price Waterhouse LLP
*23.2 Consent of Gibson, Dunn & Crutcher LLP (included in the
opinion filed as Exhibit 5.1 hereto)
+24.1 Powers of Attorney (included on the signature page hereto)
*25.1 Statement of eligibility of trustee
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
(b) Financial Statement Schedules
Schedule II
Valuation and Qualifying Accounts.
Six months ended December 25, 1994, years ended December 31, 1995 and
December 29, 1996 and three months ended March 30, 1997.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form Prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Dallas, State of Texas on May 2, 1997.
CHIEF AUTO PARTS INC.
By: /s/ DAVID H. EISENBERG
----------------------------------
David H. Eisenberg
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated as of May 2, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ DAVID H. EISENBERG President, Chief Executive Officer
- ----------------------------------------------------- and Chairman of the Board
David H. Eisenberg
/s/ THOMAS A. HOUGH Vice-President -- Finance,
- ----------------------------------------------------- Treasurer and Chief Financial
Thomas A. Hough Officer
/s/ PATRICK J. CORBETT Director of Financial Reporting
- ----------------------------------------------------- and principal accounting officer
Patrick J. Corbett
* Director
- -----------------------------------------------------
Harold S. Eastman
* Director
- -----------------------------------------------------
Stephen A. Kaplan
* Director
- -----------------------------------------------------
Richard Masson
*By: /s/ THOMAS A. HOUGH
------------------------------------------------
Thomas A. Hough
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 98
SCHEDULE II
CHIEF AUTO PARTS INC.
VALUATION AND QUALIFYING ACCOUNTS
SIX MONTHS ENDED DECEMBER 25, 1994,
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 29, 1996 AND
THREE MONTHS ENDED MARCH 30, 1997 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS DEDUCTIONS BALANCE
BEGINNING CHARGED TO FROM AT END
DESCRIPTION OF YEAR INCOME RESERVES(A) OF YEAR
----------- ---------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Six Months Ended December 25, 1994:
Inventory Reserve.............................. $5,424 $399 $1,139 $4,684
Store Closing Reserve.......................... 8,870 375 704 8,541
Year Ended December 31, 1995:
Inventory Reserve.............................. 4,684 506 757 4,433
Store Closing Reserve.......................... 8,541 500 1,773 7,268
Year Ended December 29, 1996:
Inventory Reserve.............................. 4,433 506 1,090 3,849
Store Closing Reserve.......................... 7,268 7,000 1,819 12,449
Three Months Ended March 30, 1997 (unaudited):
Inventory Reserve.............................. 3,849 -- 514 3,335
Store Closing Reserve.......................... 12,449 -- 418 12,031
</TABLE>
- ---------------
(a) Comprised of disposal of inventory, closed store assets and lease payments.
<PAGE> 99
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement among Chief Auto Parts Inc.,
Credit Suisse First Boston and Salomon Brothers Inc
+3.1 Fourth Restated Certificate of Incorporation of Chief Auto
Parts Inc.
+3.2 Bylaws of Chief Auto Parts Inc.
4.1 Form of Indenture between Chief Auto Parts Inc. and First
Trust National Association, as trustee
*5.1 Opinion of Gibson, Dunn & Crutcher LLP regarding the
legality of the securities being issued
10.1 1994 Executive Target Bonus Plan, as amended
+10.2 Form of Series I Promissory Note
+10.3 Form of Series II Promissory Note
+10.4 Form of Stock Pledge Agreement
+10.5 Employment Agreement between Chief Auto Parts Inc. and Larry
L. Buresh, effective as of August 10, 1995
+10.6 Employment Agreement between Chief Auto Parts Inc. and David
H. Eisenberg, effective as of June 27, 1994
10.7 1994 Executive Option Plan of Chief Auto Parts Inc., as
amended
*10.8 Form of 1997 Employee Option Plan of Chief Auto Parts Inc.
+10.9 Nonqualified Executive Retirement Plan of Chief Auto Parts
Inc., as amended
*10.10 New Credit Facility
12.1 Statement regarding computation of ratios
+21.1 Subsidiaries of Chief Auto Parts Inc.
23.1 Consent of Price Waterhouse LLP
*23.2 Consent of Gibson, Dunn & Crutcher LLP (included in the
opinion filed as Exhibit 5.1 hereto)
+24.1 Powers of Attorney (included on the signature page hereto)
*25.1 Statement of eligibility of trustee
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
$125,000,000
CHIEF AUTO PARTS INC.
___% Senior Notes Due 2005
UNDERWRITING AGREEMENT
_______ _, 1997
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON BROTHERS INC
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, N.Y. 10010-3629
Ladies and Gentlemen:
1. Introductory. Chief Auto Parts Inc. , a Delaware corporation
("Company"), proposes to issue and sell $125,000,000 principal amount of its ___
% Senior Notes Due 2005 ("Securities") to be issued under an indenture, dated as
of __________, 1997 ("Indenture"), between the Company and First Trust National
Association, as Trustee. As described in the Prospectus (as defined below),
the offering of the Securities is part of a recapitalization (the
"Recapitalization") of the Company. The elements of the Recapitalization consist
of (i) the completion of the offering of the Securities, (ii) the exercise of
outstanding options to purchase 4,839.97 shares of common stock of the Company,
par value $.01 per share, by holders of such options, (iii) the repayment by
members of management of the Company of a portion of the amounts owed to the
Company under certain promissory notes, (iv) the establishment of a new credit
facility (the "New Credit Facility"), which will provide for a $100.0 million
revolving credit facility and (v) the application of the aggregate net proceeds
from the foregoing as set forth in the Prospectus under "Use of Proceeds."
The Company hereby agrees with the several Underwriters named in Schedule A
hereto ("Underwriters") as follows:
1
<PAGE> 2
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-24029) relating to the
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (i) has
been declared effective under the Securities Act of 1933, as amended
("Act"), and is not proposed to be amended or (ii) is proposed to be
amended by amendment or post-effective amendment. If such registration
statement ("initial registration statement") has been declared
effective, either (i) an additional registration statement ("additional
registration statement") relating to the Securities may have been filed
with the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the
Act and, if so filed, has become effective upon filing pursuant to such
Rule and the Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (ii) such an additional
registration statement is proposed to be filed with the Commission
pursuant to Rule 462(b) and will become effective upon filing pursuant
to such Rule and upon such filing the Securities will all have been
duly registered under the Act pursuant to the initial registration
statement and such additional registration statement. If the Company
does not propose to amend the initial registration statement or if an
additional registration statement has been filed and the Company does
not propose to amend it, and if any post-effective amendment to either
such registration statement has been filed with the Commission prior to
the execution and delivery of this Agreement, the most recent amendment
(if any) to each such registration statement has been declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the case
of the additional registration statement, Rule 462(b). For purposes of
this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery
of this Agreement, the additional registration statement means (i) if
the Company has advised the Underwriters that it does not propose to
amend such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment
thereto (if any) filed prior to the execution and delivery of this
Agreement, was declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c), or (ii) if the Company
has advised the Underwriters that it proposes to file an amendment or
post-effective amendment to such registration statement, the date and
time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. If an additional registration statement
has not been filed prior to the execution and delivery of this
Agreement but the Company has advised the Underwriters that it proposes
to file one, "Effective Time" with respect to such additional
registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule
462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the
date of the Effective Time thereof. The initial registration statement,
as amended at its Effective Time, including all information contained
in the additional registration statement (if any) and deemed to be a
part of the initial registration statement as of the Effective Time of
the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, as
amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration
2
<PAGE> 3
Statements" and individually as a "Registration Statement". The form
of prospectus relating to the Securities, as first filed with the
Commission pursuant to and in accordance with Rule 424(b) ("Rule
424(b)") under the Act or (if no such filing is required) as included
in a Registration Statement, is hereinafter referred to as the
"Prospectus". No document has been or will be prepared or distributed
in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all material respects to the
applicable requirements of the Act, the Trust Indenture Act of 1939, as
amended ("Trust Indenture Act") and the rules and regulations of the
Commission promulgated thereunder ("Rules and Regulations") and did not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all material respects to the applicable
requirements of the Act, the Trust Indenture Act and the Rules and
Regulations and did not include, or will not include, any untrue
statement of a material fact and did not omit, or will not omit, to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) on the date of
this Agreement, the Initial Registration Statement and, if the
Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectus is included, each Registration Statement and the Prospectus
will conform, in all respects to the requirements of the Act, the Trust
Indenture Act and the Rules and Regulations, and neither of such
documents includes, or will include, any untrue statement of a material
fact or omit to state any material fact or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of
this Agreement: (i) as of its Effective Date, the Initial Registration
Statement will comply as to form in all material respects to the
applicable requirements of the Act, the Trust Indenture Act and the
Rules and Regulations, will not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
no Additional Registration Statement has been or will be filed and (ii)
The Prospectus, at the time of its filing pursuant to Rule 424(b) or
(if no such filing is required) at the Effective Date of the Additional
Registration Statement in which the Prospectus is included will not
include any untrue statement of material fact or omit to state any
material fact necessary, in the light of the circumstances under which
they were made, not misleading. The two preceding sentences do not
apply to (i) that part of a Registration Statement which shall
constitute the Statement of Eligibility and Qualification (Form T-1) of
the Trustee under the Trust Indenture Act or (ii) statements in or
omissions from a Registration Statement or the Prospectus based upon
written information furnished to the Company by any Underwriter
specifically for use therein, it being understood and agreed that the
only such information is that described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
has the power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus, and is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification, except where
the failure to have such power or authority or to be so qualified would
not have a Material Adverse Effect (as defined).
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<PAGE> 4
(d) The Company has no subsidiaries other than CAP Acquisition
Corp., a Delaware corporation. CAP Acquisition Corp. is inactive and
has total assets less than $10,000. All of the issued and outstanding
capital stock of CAP Acquisition Corp. is owned directly by the
Company.
(e) The Indenture has been duly authorized by the Company and, if
the Effective Time of a Registration Statement is prior to the
execution and delivery of this Agreement, has been or otherwise upon
such Effective Time will be duly qualified under the Trust Indenture
Act with respect to the Securities registered thereby; the Securities
have been duly authorized by the Company; and when the Securities are
delivered, authenticated by the Trustee in accordance with the
provisions of the Indenture and paid for pursuant to this Agreement on
the Closing Date (as defined below), the Indenture will have been duly
executed and delivered by the Company, such Securities will have been
duly executed, issued and delivered and will conform in all material
respects to the description thereof contained in the Prospectus and
the Indenture, when duly executed and delivered by the Trustee, and
such Securities, when duly authenticated by the Trustee, will
constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and remedies generally and
to general equity principles (regardless of whether enforcement is
sought in a proceeding at law or in equity).
(f) Other than this Agreement, there are no contracts, agreements
or understandings between the Company and any person that would give
rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection
with this offering of the Securities.
(g) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require
the Company to include securities of the Company owned or to be owned
by such person in the securities registered pursuant to the
Registration Statement and, except as disclosed in the Prospectus, and
except for the currently outstanding warrants to purchase 6,090.1
shares of the Company's Common Stock, no such person has the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company.
(h) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation by the Company of the transactions contemplated by this
Agreement in connection with the issuance and sale of the Securities
by the Company, except such as have been or, prior to the Closing
Date, will have been obtained and made under the Act and the Trust
Indenture Act and such as may be required under state securities or
"blue sky" laws.
(i) Each of the execution, delivery and performance by the
Company of the Indenture and this Agreement, the consummation by the
Company of each element of the Recapitalization and the issuance and
sale of the Securities and compliance by the Company with the terms
and provisions thereof will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under,
(assuming compliance with all applicable state securities or "blue sky
laws and, for purposes of this clause 2(i) only, the Act) any statute,
any rule, regulation or order of any governmental agency or body or
any court, domestic or foreign, having jurisdiction over the Company
or any of its properties, or any agreement or instrument to which the
Company is a party or by which the Company is bound or to which any of
the properties of the Company is subject, (except as would not have
Material Adverse Effect) or the charter or by-laws of the
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<PAGE> 5
Company, and the Company has all requisite power and authority to
authorize, issue and sell the Securities as contemplated by this
Agreement.
(j) This Agreement has been duly authorized, executed and
delivered by the Company.
(k) The Company has good and marketable title to all real
properties and good title to all other properties and assets owned by
it, in each case free from liens, encumbrances and defects, except as
described in the Prospectus or to the extent the failure to have such
title or the existence of such liens, encumbrances or defects would
not have, individually or in the aggregate, a Material Adverse Effect,
other than liens granted to the Company's lender under the Existing
Credit Facility or to be granted under the New Credit Facility; and
the Company holds any leased real or personal property under valid and
enforceable leases with no exceptions, except as described in the
Prospectus or to the extent the failure to so hold or the existence of
such exceptions would not have, individually or in the aggregate, a
Material Adverse Effect.
(l) The Company possesses adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by it and has not
received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if
determined adversely to the Company, would individually or in the
aggregate have a material adverse effect on the condition (financial
or other), business, properties or results of operations of the
Company (a "Material Adverse Effect").
(m) No labor dispute with the employees of the Company exists or,
to the knowledge of the Company, is threatened that would reasonably
be expected to have a Material Adverse Effect.
(n) The Company owns, possesses or can acquire on reasonable
terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information
and other intellectual property (collectively, "intellectual property
rights") necessary to conduct the business now operated by it and has
not received any notice of infringement of or conflict with asserted
rights of others with respect to any intellectual property rights
that, if determined adversely to the Company, would individually or in
the aggregate reasonably be expected to have a Material Adverse
Effect.
(o) The Company is not in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or
any court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection
or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "environmental laws"), does not own or
operate any real property contaminated with any substance that is
subject to any environmental laws, is not liable for any off-site
disposal or contamination pursuant to any environmental laws, or is
not subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in
the aggregate have a Material Adverse Effect, and the Company is not
aware of any pending investigation which might reasonably be expected
to lead to such a claim.
(p) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company or any
of its properties that, if determined adversely to the Company, would
individually or in the aggregate reasonably be expected to have a
Material Adverse Effect, or would materially and adversely affect the
ability of the Company to perform its obligations under the Indenture
or this Agreement, or which are otherwise material in the context of
the sale of the Securities; and no such actions, suits or proceedings
are, to the Company's knowledge, threatened or contemplated.
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<PAGE> 6
(q) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of
the Company as of the dates shown and its results of operations and
cash flows for the periods shown, and such financial statements have
been prepared in conformity with the generally accepted accounting
principles in the United States applied on a consistent basis; the
schedules included in each Registration Statement present fairly the
information required to be stated therein; and the assumptions used in
preparing the pro forma financial statements (including the notes
thereto) included in each Registration Statement and the Prospectus
provide a reasonable basis for presenting the significant effects
directly attributable to the transactions or events described therein,
the related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical
financial statement amounts. With respect to the Company, Price
Waterhouse LLP is an independent public accounting firm within the
meaning of the Act and the Rules and Regulations.
(r) The Company does not have any material liability for any
prohibited transaction or funding deficiency or any complete or
partial withdrawal liability with respect to any pension, profit
sharing or other plan which is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), to which it makes
or ever has made a contribution and in which any employee of it is or
has ever been a participant. With respect to such plans, the Company
is in compliance in all material respects with all applicable
provisions of ERISA.
(s) The Company has filed all necessary federal, state and
foreign income and franchise tax returns, except where the failure to
so file such returns would not, individually or in the aggregate, have
a Material Adverse Effect, and has paid all material taxes shown as
due thereon; and other than tax deficiencies which the Company is
contesting in good faith and for which the Company has provided
adequate reserves, there is no tax deficiency that has been asserted
against the Company that would have, individually or in the aggregate,
a Material Adverse Effect.
(t) Except as disclosed in the Prospectus, since the date of the
latest financial statements included in the Prospectus there has been
no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or
other), business, properties or results of operations of the Company,
and, except as disclosed in or contemplated by the Prospectus, there
has been no dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock.
(u) The Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Prospectus, will not be required to register as an
"investment company" or an entity "controlled" by an investment
company, as such terms are defined in the Investment Company Act of
1940, as amended.
(v) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes and the
Company agrees to comply with such Section if prior to the completion
of the distribution of the Securities it commences doing such
business.
(w) A true and correct copy of the executed New Credit Facility
has been or will be delivered to the Underwriters and counsel to the
Underwriters on or prior to the Closing Time. The Company has the
corporate power to execute, deliver and perform the terms and
provisions of the New Credit Facility to be performed by it and has
taken all necessary corporate action to authorize the execution,
delivery and performance by it of the New Credit Facility. The New
Credit
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<PAGE> 7
Facility, when executed and delivered by the Company (assuming due
authorization, execution and delivery thereof by the other parties
thereto) will be a valid and binding agreement of the Company,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or similar laws affecting the
enforceability or creditors' rights and remedies generally and by
equitable principles of general applicability (regardless of whether
such enforceability is considered in a proceeding in equity or at
law). If the New Credit Facility has already been executed, there have
been no amendments, alterations, modifications or waivers of the
provisions thereof. The New Credit Facility or will conform in all
material respects to the description thereof in the Prospectus.
(x) Immediately after the consummation of the Recapitalization,
the fair market value and present fair saleable value of the assets of
the Company will exceed the sum of its stated liabilities and
identified contingent liabilities; the Company is not, nor will it be,
after giving effect to the execution, delivery and performance of this
Agreement and the consummation of the Recapitalization, (a) left with
unreasonably small capital with which to carry on its business as it
is proposed to be conducted, (b) unable to pay its debts (contingent
or otherwise) as they mature or (c) otherwise insolvent.
3. Purchase, Sale and Delivery of Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of ___% of the principal amount thereof
plus accrued interest from
to the Closing Date, the respective principal amounts of
Securities set forth opposite the names of the Underwriters in Schedule A
hereto.
The Company will deliver against payment of the purchase price the
Securities in the form of one or more permanent global Securities in definitive
form (the "Global Securities") deposited with the Trustee as custodian for The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee for DTC. Interests in any permanent global Securities will be held only
in book-entry form through DTC[, except in the limited circumstances provided
for by the procedures of DTC]. Payment for the Securities shall be made by the
Underwriters in Federal (same day) funds by official bank check or checks drawn
to the order of the Company or wire transfer to a bank account of the Company,
designated at least 2 business days prior to the Closing Date, at the office of
Cahill Gordon & Reindel at 9:00 A.M., (New York time), on or at such other time
not later than seven full business days thereafter as Credit Suisse First Boston
Corporation ("CSFB") and the Company determine, such time being herein referred
to as the "Closing Date", against delivery to the Trustee as custodian for DTC
of the Global Securities representing all of the Securities. The Global
Securities will be made available for checking at the office of Cahill Gordon &
Reindel at least 24 hours prior to the Closing Date.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Securities for sale to the public as set forth in the
Prospectus.
5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance
with subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) within the time period prescribed in
such Rule. The Company will advise CSFBC promptly of any such filing
pursuant to Rule 424(b). If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement and an additional registration statement is necessary to
register a portion of the Securities under the Act
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<PAGE> 8
but the Effective Time thereof has not occurred as of such execution
and delivery, the Companywill file the additional registration
statement or, if filed, will file a post-effective amendment thereto
with the Commission pursuant to and in accordance with Rule 462(b) on
or prior to 10:00 P.M., New York time, on the date of this Agreement
or, if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later
date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial
Registration Statement, the Additional Registration Statement (if any)
or the Prospectus and will not effect such amendment or supplementation
without CSFBC's consent; and the Company will also advise CSFBC
promptly of the effectiveness of each Registration Statement (if its
Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration
Statement or the Prospectus and of the institution by the Commission of
any stop order proceedings in respect of a Registration Statement and
will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Securities
is required to be delivered under the Act in connection with sales by
any Underwriter or dealer, any event occurs as a result of which the
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any such time to amend or supplement the Prospectus to
comply with the Act, the Company will promptly notify CSFBC of such
event and will promptly prepare and file with the Commission, at its
own expense, an amendment or supplement which will correct such
statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery
of, any such amendment or supplement shall constitute a waiver of any
of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to
its securityholders an earnings statement (which need not be certified
by an independent public accountant) covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional
Registration Statement) which will satisfy the provisions of Section
11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the
90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Underwriters copies of each
Registration Statement (3 of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Securities is required to be delivered under
the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in
each case in such quantities as CSFBC reasonably requests. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other documents shall be so furnished as
soon as available. The Company will pay the expenses of printing and
distributing to the Underwriters all such documents.
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<PAGE> 9
(f) The Company will take such action as the Underwriters may
reasonably request to qualify the Securities for offering and sale and
the determination of their eligibility for investment under the laws
of such jurisdictions as CSFBC designates and to comply with such laws
so as to permit the continuance of such qualifications in effect so
long as required for the distribution of the Securities, provided that
in connection therewith the Company shall not be required to qualify
as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not so qualified or so
subject.
(g) For and during the period ending on the date no Securities
are outstanding, the Company will furnish to the Underwriters copies
of all reports and other communications (financial or otherwise)
furnished by the Company to the Trustee or the holders of the
Securities and, as soon as available, copies of any reports or
financial statements furnished to or filed by the Company with the
Commission or any national securities exchange on which any class of
securities of the Company may be listed.
(h) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(i) The Company will pay all expenses incident to the performance
of its obligations under this Agreement, for any filing fees and other
expenses (including fees and disbursements of counsel) incurred in
connection with qualification of the Securities for sale under the
laws of such jurisdictions as CSFBC designates and the printing of
memoranda relating thereto, for any fees charged by investment rating
agencies for the rating of the Securities, for the filing fee incident
to the review by the National Association of Securities Dealers, Inc.
of the Securities, for any travel expenses of the Company's officers
and employees and any other expenses of the Company in connection with
attending or hosting meetings with prospective purchasers of the
Securities and for expenses incurred in distributing preliminary
prospectuses and the Prospectus (including any amendments and
supplements thereto) to the Underwriters.
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Securities on the
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Underwriters shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if
the Effective Time of the Initial Registration Statement is subsequent
to the execution and delivery of this Agreement, shall be prior to the
filing of the amendment or post-effective amendment to the registration
statement to be filed shortly prior to such Effective Time), of Price
Waterhouse LLP confirming that, with respect to the Company, they are
independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to
the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
Rules and Regulations;
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<PAGE> 10
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company
who have responsibility for financial and accounting matters and
other procedures specified in such letter nothing came to their
attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all
material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations or any material modifications should be made to
such unaudited financial statements for them to be in
conformity with generally accepted accounting principles;
(B) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not
more than three business days prior to the date of this
Agreement, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company or, at the date of the latest available balance
sheet read by such accountants, there was any decrease in
consolidated net assets as compared with amounts shown on
the latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of the latest
income statement included in the Prospectus to the closing
date of the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year in consolidated
net sales or net operating income, income before
extraordinary items, net income or in the ratio of earnings
to fixed charges,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company subject
to the internal controls of the Company's accounting system or are
derived directly from such records by analysis or computation) with
the results obtained from inquiries, a reading of such general
accounting records and other procedures specified in such letter and
have found such dollar amounts, percentages and other financial
information to be in agreement with such results.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration is subsequent to such execution and delivery,
"Registration
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<PAGE> 11
Statements" shall mean the Initial Registration Statement and the
additional registration statement as proposed to be filed or as proposed to
be amended by the post-effective amendment to be filed shortly prior to its
Effective Time, and (iii) "Prospectus" shall mean the prospectus included
in the Registration Statements.
(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to the Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Underwriters, shall be contemplated by the
Commission.
(c) The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects on and as
of the date hereof and on and as of the Closing Date as if made on and as
of the Closing Date; the statements of the officers of the Company made
pursuant to any certificate delivered in accordance with the provisions
hereof shall be true and correct on and as of the date made and on and as
of the Closing Date; the Company shall have performed all covenants and
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date.
(d) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company which, in the
judgment of CSFBC is material and adverse and makes it impractical or
inadvisable to proceed with completion of the public offering or the sale
of and payment for the Securities; (ii) any downgrading in the rating of
any debt securities of the Company by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g)
under the Act), or any public announcement that any such organization has
under surveillance or review its rating of any debt securities of the
Company (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading, of such
rating); (iii) any suspension or limitation of trading in securities
generally on the New York Stock Exchange, or any setting of minimum prices
for trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter
market; (iv) any banking moratorium declared by U.S. Federal or New York
State authorities; or (v) any outbreak or escalation of major hostilities
in which the United States is involved, any declaration of war by Congress
or any other substantial national or international calamity or emergency
if, in the judgment of CSFBC, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable to
proceed with completion of the public offering or the sale of and payment
for the Securities.
(e) The Underwriters shall have received an opinion, dated such
Closing Date, of Gibson Dunn & Crutcher LLP, counsel for the Company, to
the effect that:
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(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
has the requisite corporate power and authority to own its properties
and conduct its business as described in the Prospectus and is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification, except where
the failure to have such power or authority or to be so qualified
would not have a Material Adverse Effect;
(ii) The Indenture has been duly authorized, executed and
delivered by the Company and has been duly qualified under the Trust
Indenture Act; the Securities delivered on the Closing Date have been
duly authorized, executed, and assuming due authentication thereof by
the Trustee, issued and delivered by the Company and conform in all
material respects to the description thereof contained in the
Prospectus; and the Indenture and the Securities (when paid for by the
Underwriters in accordance with this Agreement) delivered on the
Closing Date constitute valid and legally binding obligations of the
Company enforceable against the Company in accordance with their terms
(assuming due execution and delivery by the other parties thereto),
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and remedies generally and
to general equity principles (regardless of whether enforcement is
sought in a proceeding at law or in equity);
(iii) There are no contracts, agreements or understandings known
to such counsel between the Company and any person granting such
person the right to require the Company to include securities owned or
to be owned by such person in the securities registered pursuant to
the Registration Statement and, except as disclosed in the Prospectus
and except for the currently outstanding warrants to purchase 6,090.1
shares of the Company's common Stock, no such person has the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company.
(iv) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation by the Company of the transactions contemplated by this
Agreement in connection with the issuance or sale of the Securities by
the Company, except such as have been obtained and made under the Act
and the Trust Indenture Act and such as may be required under state
securities or "blue sky" laws;
(v) Each of the execution, delivery and performance by the
Company of the Indenture and this Agreement, the consummation by the
Company of each element of the Recapitalization and the issuance and
sale of the Securities and compliance by the Company with the terms
and provisions thereof will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under
(assuming compliance with all applicable state securities or "blue
sky" laws and, for purposes of this clause (v) only, the Act), any
statute, any rule, regulation or order known to such counsel of any
governmental agency or body or any court having jurisdiction over the
Company or any of its properties, or any agreement or instrument
[identified to such counsel in a certificate of the Company as being a
material instrument] to which the Company is a party or by which the
Company is bound or to which any of the properties of the Company is
subject, or the charter or by-laws of the Company. The Company has the
requisite corporate authority to authorize, issue and sell the
Securities as contemplated by this Agreement;
12
<PAGE> 13
(vi) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be). To the best of the knowledge of such
counsel, no stop order suspending the effectiveness of a Registration
Statement has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Act. Such
counsel does not have actual knowledge of any legal or governmental
proceedings required to be described in a Registration Statement or
the Prospectus which are not described as required or [(based solely
upon such counsel's review of the Company's corporate records, minute
books, charter documents and those contracts of the Company identified
to such counsel as material in a certificate of the Company)] of any
contracts or documents of a character required to be described in a
Registration Statement or the Prospectus or to be filed as exhibits to
a Registration Statement which are not described and filed as
required.
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) Except as disclosed in the Prospectus, to the best of such
counsel's knowledge, there are no pending actions, suits or
proceedings against or affecting the Company or its properties that,
if determined adversely to the Company, would individually or in the
aggregate reasonably be expected to have a Material Adverse Effect, or
would materially and adversely affect the ability of the Company to
perform its obligations under the Indenture or this Agreement, or
which are otherwise material in the context of the sale of the
Securities; and no such actions, suits or proceedings are to the
Company's knowledge, threatened or, contemplated;
(ix) The Company is not, nor immediately after the sale of the
Securities and the application of the proceeds from such sale as
described in the Prospectus will it be, required to register as an
"investment company" or an entity "controlled" by an "investment
company", as such terms are defined in the Investment Company Act of
1940, as amended;
(x) The Company has the corporate power to execute, deliver and
perform the terms and provisions of the New Credit Facility and has
taken all necessary corporate action to authorize the execution,
delivery and performance by it of the New Credit Facility. The Company
has duly executed and delivered the New Credit Facility. Assuming due
authorization, execution and delivery thereof by the other parties
thereto, the New Credit Facility is a valid and binding agreement of
the Company, enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforceability or creditors' rights and remedies generally and by
equitable principles of general applicability (regardless of whether
such enforceability is considered in a proceeding in equity or at
law); and
(xi) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization".
13
<PAGE> 14
Such counsel shall state that such counsel has participated in the
preparation of the Registration Statement and the Prospectus and in
conferences with officers and other representatives of the Company,
representatives of the independent auditors of the Company and
representatives of the Underwriters at which conferences the contents
of the Registration Statements and the Prospectus and related matters
were discussed. Such counsel may also state that because the purpose
of their professional engagement was not to establish or confirm
factual matters and because the scope of their examination of the
affairs of the Company did not permit them to verify the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or Prospectus, they are not passing upon and do
not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or
Prospectus, except to the extent set forth in the last sentence of
this paragraph. Such counsel also shall state that, on the basis of
the foregoing except for the financial statements and schedules and
other financial data included therein and the Form T-1, as to which
such counsel need express no opinion or belief (a) such counsel is of
the opinion that the Registration Statement at the time it became
effective complied as to form in al material respects with the
relevant requirements of the Act and the Rules and Regulations and (b)
nothing has come to such counsel's attention that would lead such
counsel to believe that the Registration Statement at the time it
became effective contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto, as of its date and
as of the date of such opinion, contained or contains any untrue
statement of a material fact or omitted or omits to state any material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. Such
counsel shall also state that, insofar as the statements contained in
the Registration Statement and the Prospectus under the caption
"Description of Notes" constitute a summary of documents and legal
matters referred to therein, such statements are accurate in all
material respects.
In rendering such opinion, such counsel may rely as to matters of
fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials.
(f) The Underwriters shall have received from Cahill Gordon & Reindel,
counsel for the Underwriters, such opinion or opinions, dated the Closing
Date, with respect to the validity of the Securities delivered on the
Closing Date, the Registration Statements, the Prospectus and other related
matters as the Underwriters may require, and the Company shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass upon such matters.
(g) The Underwriters shall have received a certificate, dated the
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to the Closing Date; no stop order suspending the effectiveness
of any Registration Statement has been issued and no proceedings for that
purpose have been instituted or are contemplated by the Commission; the
Additional Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b),
including payment of the applicable filing fee in accordance with Rule
111(a) or (b) under
14
<PAGE> 15
the Act, prior to the time the Prospectus was printed and distributed to
any Underwriter; and, subsequent to the date of the most recent financial
statements in the Prospectus, there has been no material adverse change,
nor any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of the Company except as set forth in or contemplated
by the Prospectus or as described in such certificate.
(h) The Underwriters shall have received a letter, dated such Closing
Date, of Price Waterhouse LLP which meets the requirements of subsection
(a) of this Section, except that the specified date referred to in such
subsection will be a date not more than three days prior to the Closing
Date for the purposes of this subsection.
(i) The Underwriters shall have received a true and correct copy of
the New Credit Facility, dated the Closing Date, and there shall have been
no material amendments, alterations, modifications or waivers of any
provisions of the New Credit Facility, and there exists on and as of the
Closing Date (after giving effect to the transactions contemplated by this
Agreement) no condition that would constitute a Default or an Event of
Default (each as defined in the New Credit Facility) under the New Credit
Facility.
(j) The Indenture shall have been duly executed and delivered by the
Company and the Trustee, and the Securities shall have been duly executed
and delivered by the Company and duly authenticated by the Trustee.
(k) On or prior to the Closing Date, the Underwriters shall have
received an opinion from Houlihan Lokey, Howard & Zukin, in form and
substance satisfactory to the Underwriters, regarding the solvency of the
Company.
(l) On or prior to the Closing Date, of the Company shall have
consummated each element of the Recapitalization as described in the
Prospectus.
(m) On the Closing Date, counsel for the Underwriters shall have been
furnished and documents as they may reasonably require in order to evidence
the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all opinions
and certificates mentioned above or elsewhere in this Agreement shall be
reasonably satisfactory in form and substance to the Underwriters and
counsel for the Underwriters.
The Company will furnish the Underwriters with such conformed copies of such
opinions, certificates, letters and documents as the Underwriters reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse such Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is
15
<PAGE> 16
based upon an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity
with written information furnished to the Company by any Underwriter through
CSFBC specifically for use therein, it being understood and agreed that the only
such information furnished by any Underwriter consists of the information
described as such in subsection (b) below and, provided, further, that as to any
preliminary prospectus, this Section 7(a) shall not inure to the benefit of any
Underwriter on account of any loss, claim, damage, liability or action from the
sale of the Securities, if that Underwriter failed to send or give a copy of the
Prospectus, as the same may be amended or supplemented, to that person if
required under the Act, and the untrue statement or alleged untrue statement or
omission or alleged omission in such preliminary prospectus was connected to the
Prospectus, unless, in either case, such failure to deliver the Prospectus was a
result of noncompliance by the Company with Section 5(c).
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company against any losses, claims, damages or liabilities, joint
or several, to which the Company may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement, the
Prospectus, or any amendment or supplement thereto, or any related preliminary
prospectus, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through CSFBC specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Underwriter consists of the following information
in the Prospectus furnished on behalf of each Underwriter: the last paragraph at
the bottom of the cover page concerning the terms of the offering by the
Underwriters, the legend concerning over-allotments, stabilizing transactions,
syndicate short covering transactions and penalty bids on the inside front cover
page, the third paragraph under the caption "Underwriting" and the last two
paragraphs under the caption "Underwriting."
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any claims
that are the subject matter of such action. No indemnifying party shall be
liable for any settlement of any such claim or actin effected without its
written consent (which consent shall not be unreasonably withheld).
16
<PAGE> 17
(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in addition
to any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.
8. Default of Underwriter. If any Underwriter or Underwriters default in
their obligations to purchase Securities hereunder on the Closing Date and the
aggregate principal amount of Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
principal amount of Securities that the Underwriters are obligated to purchase
on the Closing Date, CSFBC may make arrangements satisfactory to the Company for
the purchase of such Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by the Closing Date, the
non-defaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Securities that such
defaulting Underwriters agreed but failed to purchase on the Closing Date. If
any Underwriter or Underwriters so default and the aggregate principal amount of
Securities with respect to which such default or defaults occur exceeds 10% of
the total principal amount of Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Securities by other persons are not made within
36 hours after such default, this Agreement will terminate without liability on
the part of any non-
17
<PAGE> 18
defaulting Underwriter or the Company, except as provided in Section 9. As used
in this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default. The Company shall not be obligated
to deliver any of the Securities except upon payment for all the Securities to
be purchased as provided herein.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective Underwriters,
officers or directors or any controlling person, and will survive delivery of
and payment for the Securities. If this Agreement is terminated pursuant to
Section 8 or if for any reason the purchase of the Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Securities have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 5
shall also remain in effect. If the purchase of the Securities by the
Underwriters is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 8 or the occurrence of any
event specified in clause (iii), (iv) or (v) of Section 6(d), the Company will
reimburse the Underwriters for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection with the
offering of the Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered, faxed or telegraphed and
confirmed to the Underwriters, c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at One Lincoln Centre,
Suite 200, 5400 LBJ Freeway, Dallas, Texas 75240, Attention: Chief Executive
Officer. The Company shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
CSFBC.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
13. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
18
<PAGE> 19
If the foregoing is in accordance with the Underwriters' understanding of
our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
Very truly yours,
CHIEF AUTO PARTS INC.
By__________________________
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
By: ___________________________________
Name:
Title:
SALOMON BROTHERS INC
By: ___________________________________
Name:
Title:
19
<PAGE> 20
SCHEDULE A
Principal Amount
Underwriter of Securities
----------- -------------
Credit Suisse First Boston Corporation $
Salomon Brothers Inc
-----------
$125,000,000
------------
20
<PAGE> 1
EXHIBIT 4.1
CHIEF AUTO PARTS INC.
as Issuer
and
FIRST TRUST NATIONAL ASSOCIATION
as Trustee
INDENTURE
Dated as of , 1997
% Senior Notes Due 2005
<PAGE> 2
CROSS-REFERENCE TABLE
TIA Section Indenture Section
- ----------- -----------------
310(a)(1)........................... 7.10
(a)(2)........................... 7.10
(a)(3)........................... N.A.
(a)(4)........................... N.A.
(b).............................. 7.8; 7.10
(c).............................. N.A.
311(a).............................. 7.11
(b).............................. 7.11
312(a).............................. 2.5
(b).............................. 2.5; 10.3
(c).............................. 10.3
313(a).............................. 10.3
(b)(1)........................... 7.6
(b)(2)........................... N.A.
(c).............................. 10.2
(d).............................. 7.6
314(a).............................. 4.2; 4.10; 10.2
(b).............................. N.A.
(c)(1)........................... 10.4
(c)(2)........................... 10.4
(c)(3)........................... N.A.
(d).............................. N.A.
(e).............................. 10.5
(f).............................. 4.10
315(a).............................. 7.1
(b).............................. 7.5; 10.2
(c).............................. 7.1
(d).............................. 7.1
(e).............................. 6.11
316(a)(last sentence)............... 10.6
(a)(1)(A)........................ 6.5
(a)(1)(B)........................ 6.4
(a)(2)........................... N.A.
(b).............................. 6.7
317(a)(1)........................... 6.9
(a)(2)........................... 6.9
(b).............................. 2.4
318(a).............................. 10.1
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions .....................................................1
SECTION 1.2. Other Definitions...............................................20
SECTION 1.3. Incorporation By Reference Of Trust Indenture
Act..........................................................21
SECTION 1.4. Rules Of Construction...........................................21
ARTICLE 2
THE SECURITIES
SECTION 2.1. Form And Dating ................................................22
SECTION 2.2. Execution And Authentication....................................23
SECTION 2.3. Registrar and Payiny Agent......................................23
SECTION 2.4. Paying Agent to Hold Money in Trust.............................24
SECTION 2.5. Securityholder Lists............................................24
SECTION 2.6. Transfer and Exchange...........................................25
SECTION 2.7. Replacement Securities..........................................27
SECTION 2.8. Outstanding Securities..........................................28
SECTION 2.9. Temporary Securities............................................28
SECTION 2.10. Cancellation ...................................................29
SECTION 2.11. Defaulted Interest..............................................29
SECTION 2.12. CUSIP Numbers ..................................................29
ARTICLE 3
REDEMPTION
SECTION 3.1. Notices To Trustee..............................................30
SECTION 3.2. Selection of Securities to be Redeemed..........................30
SECTION 3.3. Notice of Redemption............................................30
SECTION 3.4. Effect of Notice of Redemption..................................31
SECTION 3.5. Deposit of Redemption Price.....................................31
SECTION 3.6. Securities Redeemed In Part.....................................32
ARTICLE 4
i
<PAGE> 4
COVENANTS
SECTION 4.1. Payment of Securities...........................................32
SECTION 4.2. SEC Reports ....................................................32
SECTION 4.3. Limitation on Indebtedness......................................33
SECTION 4.4. Limitation on Restricted Payments...............................35
SECTION 4.5. Limitation on Restrictions on
Distributions from Restricted
Subsidiaries.................................................37
SECTION 4.6. Limitation on Sales of Assets and
Subsidiary Stock.............................................38
SECTION 4.7. Limitation on Affiliate Transactions............................42
SECTION 4.8. Change of Control...............................................43
SECTION 4.9. Compliance Certificate..........................................45
SECTION 4.10. Further Instruments and Acts....................................45
SECTION 4.11. Limitation on Liens.............................................45
SECTION 4.12. Limitation on Sale/Leaseback
Transactions.................................................46
SECTION 4.13. Limitation on Sale or Issuance of
Capital Stock of Restricted
Subsidiaries.................................................47
SECTION 4.14. Limitation on Indebtedness and
Preferred Stock of Restricted
Subsidiaries................... .............................47
SECTION 4.15. Payment of Taxes and Other Claims...............................48
SECTION 4.16. Maintenance of Office or Agency.................................48
SECTION 4.17. Corporate Existence.............................................49
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.1. Merger, Consolidation and Sale of
Assets.......................................................50
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. Events of Default...............................................51
SECTION 6.2. Acceleration ...................................................53
SECTION 6.3. Other Remedies .................................................54
SECTION 6.4. Waiver of Past Defaults.........................................54
SECTION 6.5. Control by Majority.............................................54
SECTION 6.6. Limitation on Suits.............................................55
ii
<PAGE> 5
SECTION 6.7. Rights Of Holders to Receive Payment............................55
SECTION 6.8. Collection Suit by Trustee......................................55
SECTION 6.9. Trustee May File Proofs of Claim................................56
SECTION 6.10. Priorities .....................................................56
SECTION 6.11. Undertaking for Costs...........................................56
SECTION 6.12. Waiver of Stay or Extension Laws................................57
iii
<PAGE> 6
ARTICLE 7
TRUSTEE
SECTION 7.1. Duties of Trustee...............................................57
SECTION 7.2. Rights of Trustee...............................................58
SECTION 7.3. Individual Rights of Trustee....................................59
SECTION 7.4. Trustee's Disclaimer............................................59
SECTION 7.5. Notice of Defaults..............................................60
SECTION 7.6. Reports by Trustee to Holders...................................60
SECTION 7.7. Compensation and Indemnity......................................60
SECTION 7.8. Replacement of Trustee..........................................61
SECTION 7.9. Successor Trustee by Merger.....................................62
SECTION 7.10. Eligibility; Disqualification...................................63
SECTION 7.11. Preferential Collection of Claims
Against Company..............................................63
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.1. Discharge of Liability on
Securities; Defeasance.......................................63
SECTION 8.2. Conditions to Defeasance........................................64
SECTION 8.3. Application of Trust Money......................................66
SECTION 8.4. Repayment to Company............................................66
SECTION 8.5. Indemnity for Government Obligations............................67
SECTION 8.6. Reinstatement ..................................................67
ARTICLE 9
AMENDMENTS
SECTION 9.1. Without Consent of Holders......................................67
SECTION 9.2. With Consent of Holders.........................................68
SECTION 9.3. Compliance with Trust Indenture Act.............................69
SECTION 9.4. Revocation and Effect of Consents
and Waivers..................................................69
SECTION 9.5. Notation on or Exchange of
Securities...................................................70
SECTION 9.6. Trustee To Sign Amendments......................................70
iv
<PAGE> 7
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Trust Indenture Act Controls...................................70
SECTION 10.2. Notices .......................................................71
SECTION 10.3. Communication by Holders with Other
Holders.....................................................72
SECTION 10.4. Certificate and Opinion as to
Conditions Precedent........................................72
SECTION 10.5. Statements Required in Certificate
or Opinion..................................................72
SECTION 10.6. When Securities Disregarded....................................73
SECTION 10.7. Rules by Trustee, Paying Agent and
Registrar...................................................73
SECTION 10.8. Legal Holidays ................................................73
SECTION 10.9. Governing Law .................................................73
SECTION 10.10. No Recourse Against Others.....................................73
SECTION 10.11. Successors ....................................................74
SECTION 10.12. Multiple Originals.............................................74
SECTION 10.13. Table of Contents; Headings....................................74
SECTION 10.14. Severability Clause............................................74
Signatures....................................................................76
Exhibit A - Form of Security.................................................A-1
Note: This Table of Contents shall not, for any purpose, be deemed to be part of
the Indenture.
v
<PAGE> 8
INDENTURE dated as of , 1997, between CHIEF AUTO PARTS INC., a Delaware
corporation (the "Company"), and First Trust National Association, a banking
corporation , as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Company's % Senior Notes Due
2005 (the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business, (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that, any such Restricted
Subsidiary described in clause (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger or
consolidation (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying
<PAGE> 9
2
shares or shares required by applicable law to be held by a Person other than
the Company or a Restricted Subsidiary), (ii) all or substantially all the
assets of any division or line of business of the Company or any Restricted
Subsidiary or (iii) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such Restricted
Subsidiary (other than, in the case of (i), (ii) and (iii) above, (x) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary and (y) for purposes of
Section 4.6 only, a disposition that constitutes a Restricted Payment permitted
by Section 4.4 or a disposition specifically excepted from the definition of
Restricted Payment) provided, however, that Asset Disposition shall not include
(a) a transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration less than or equal to
$1.0 million or (b) the sale, lease, conveyance, disposition or other transfer
of all or substantially all of the assets of the Company as permitted by Section
5.1.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Securities, compounded annually) of the total minimum obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation
<PAGE> 10
3
shall be the capitalized amount of such obligation determined in accordance with
GAAP; and the Stated Maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following events
with respect to the Company:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders,
is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that for purposes of this clause (i)
such person shall be deemed to have "beneficial ownership" of all
shares that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total voting power of the then
outstanding Voting Stock of the Company;
(ii) during any period of two consecutive years commencing
after the Company's initial Public Equity Offering, individuals who at
the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of 66 2/3% of the directors of the
Company then still in office who were either directors at the beginning
of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority
of the Board of Directors then in office; or
(iii) the merger or consolidation of the Company with or into
another Person or the merger of another Person with or into the
Company, or the sale of all or substantially all the assets of the
Company to another Person (in each case other than a Person that is
controlled by the Permitted Holders), and, in the case of any such
merger or consolidation, the securities of the Company that are out
<PAGE> 11
4
standing immediately prior to such transaction and which represent 100%
of the aggregate voting power of the Voting Stock of the Company are
changed into or exchanged for cash, securities or property, unless
pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of
the surviving corporation or a parent corporation that owns all of the
capital stock of such corporation that represent immediately after such
transaction, at least 50% of the aggregate voting power of the Voting
Stock of the surviving corporation or such parent corporation, as the
case may be.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has (x) Incurred any Indebtedness (other than Indebtedness Incurred
for working capital purposes under the New Credit Facility) since the beginning
of such period that remains outstanding on such date of determination or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving effect on a pro forma
basis to such Indebtedness as if such Indebtedness had been Incurred on the
first day of such period and the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period
or (y) has repaid, repurchased, defeased or otherwise discharged any
Indebtedness since the beginning of the period that is no longer outstanding on
such date of determination, or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio involves a discharge of Indebtedness,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect to such discharge of such Indebtedness, including with the
proceeds of such new Indebtedness, as if such discharge had occurred on the
first day of such period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four quarter period),
(2) if since the
<PAGE> 12
5
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased by
an amount equal to the EBITDA (if negative) directly attributable thereto for
such period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary is sold,
the Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitute all or substantially all of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the first day of
such period and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, Investment or acquisition of assets that would
have required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition occurred
on the first day of such period. For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest expense on such In
<PAGE> 13
6
debtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount
and debt issuance costs, (iii) capitalized interest, (iv) non-cash interest
expense, (v) commissions, discounts and other fees and charges with respect to
letters of credit and bankers' acceptance financing, (vi) net costs associated
with Hedging Obligations (including amortization of fees), (vii) cash dividends
paid in respect of any Disqualified Stock of the Company or any Preferred Stock
of any Restricted Subsidiary of the Company held by Persons other than the
Company or a Wholly Owned Subsidiary (excluding the dividend paid in connection
with the Recapitalization), (viii) interest incurred in connection with
Investments in discontinued operations and (ix) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by the Company or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person if such Person is not a Restricted Subsidiary, except that subject to the
exclusion contained in clause (iv) below, the Company's equity in the net income
of any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution
paid to a Restricted Subsidiary, to the limitations contained in clause (iii)
below); (ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary of the Company in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income of any Restricted
Subsidiary to the extent that such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that subject to the exclusion
<PAGE> 14
7
contained in clause (iv) below, the Company's equity in the net income of any
such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution paid to another Restricted Subsidiary, to
the limitation contained in this clause); (iv) any gain or loss realized upon
the sale or other disposition of any assets of the Company or its consolidated
Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale or other disposition of any Capital Stock of
any Person, (v) extraordinary gains or losses, and (vi) the cumulative effect of
a change in accounting principles.
"Consolidated Net Worth" means, as of any date, the total of the amounts
shown on the balance sheet of the Company and its Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of such date, as
(i) the par or stated value of all outstanding Capital Stock of the Company plus
(ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Depository" means The Depository Trust Company, its nominees and their
respective successors.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (other than
as a result of a Change of Control) (i) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is convertible into or
exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at
the option of the holder thereof, in whole or in part, in each case on or prior
to the Stated Maturity of the Securities; provided, however,
<PAGE> 15
8
that any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the first anniversary of the Stated
Maturity of the Securities shall not constitute Disqualified Stock if the "asset
sale" or "change of control" provisions applicable to such Capital Stock are not
more favorable to the holders of such Capital Stock than the provisions
described under Section 4.6 and Section 4.8.
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company, (b) depreciation expense, (c) amortization expense, and (d) all other
non-cash items reducing such Consolidated Net Income, less all non-cash items
increasing such Consolidated Net Income (such amount calculated pursuant to this
clause (d) not to be less than zero), in each case for such period; and minus
the amount of all cash payments made by the Company or any Restricted Subsidiary
during such period to the extent that such payments relate to non-cash items
that were added back in determining EBITDA for any period subsequent to the
Issue Date. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Subsidiary of
the Company shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Subsidiary
was included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) in statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and
<PAGE> 16
9
(iv) in the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and similar
written statements from the accounting staff of the SEC. For the purposes of
Section 4.2, "GAAP" shall mean GAAP as of the date of the relevant financial
statements.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such Person (whether arising by virtue of agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided, however, that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "Guarantee" used as a verb has a corresponding meaning.
The term "Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a Security is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for Indebtedness; provided, however, that any Indebtedness of a Person existing
at the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning. The accretion of principal in a non-interest
bearing or other discount security shall be deemed the Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of
<PAGE> 17
10
such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (ii) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale/Leaseback Transactions
entered into by such Person; (iii) all obligations of such Person issued or
assumed as the deferred purchase price of property (which purchase price is due
more than one year after taking title of such property), all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon, or, if and to
the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit); (v) the amount of all obligations of
such Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee; (vii) all
obligations of the type referred to in clauses (i) through (vi) of other Persons
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by other Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured; and (viii) to the extent not otherwise included in
this definition, Hedging Obligations of such Person. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date. For purposes of clarification, Indebtedness shall not
include undrawn commitments on the New Credit Facility.
"Indenture" means this Indenture as amended or supplemented from time to
time by one or more supplemental inden-
<PAGE> 18
11
tures entered into pursuant to the applicable provisions hereof or otherwise in
accordance with the terms hereof.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed solely
to protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the Person making the
advance or loan) or other extensions of credit (including by way of Guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the definition of "Unrestricted Subsidiary," the definition of "Restricted
Payment" and Section 4.4, (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of any Subsidiary of the Company at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that if such designation is made in connection with the acquisition of such
Subsidiary or the assets owned by such Subsidiary, the "Investment" in such
Subsidiary shall be deemed to be the consideration paid in connection with such
acquisition; provided, further, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the time
of such redesignation less (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation, and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Issue Date" means the date of original issuance of the Securities.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any condi-
<PAGE> 19
12
tional sale or other title retention agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) in each case
net of (i) all legal, title and recording tax expenses, brokerage commissions,
underwriting discounts or commissions or sales commissions and other reasonable
fees and expenses (including, without limitation, fees and expenses of counsel,
accountants and investment bankers) related to such Asset Disposition or
converting to cash any other proceeds received, and any relocation and severence
expenses as a result thereof, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition or made in order to
obtain a necessary consent to such Asset Disposition or to comply with
applicable law, (iii) all distributions and other payments required to be made
to minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition and (iv) appropriate amounts provided by seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Disposition. Further,
with respect to an Asset Disposition by a Subsidiary which is not a Wholly Owned
Subsidiary, Net Available Cash shall be reduced pro rata for the portion of the
equity of such Subsidiary which is not owned by the Company.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or
<PAGE> 20
13
payable as a result thereof. In addition, for the purposes of the calculations
described in Section 4.4, Net Cash Proceeds shall also mean any cash amounts
paid to the Company by members of management of the Company in respect of
certain Promissory Notes described under the caption "Certain Transactions" in
the Prospectus.
"New Credit Facility" means the Credit Agreement, dated as of , 1997, among
the Company, Heller Financial, Inc., as agent, and the lenders party thereto, as
such agreement, in whole or in part, may be amended, renewed, extended,
increased (but only so long as such increase is permitted under the terms of the
Indenture), substituted, refinanced, restructured, replaced (including, without
limitation, any successive renewals, extensions, increases, substitutions,
refinancings, restructurings, replacements, supplements or other modifications
of the foregoing). Subsequent to the date of the Indenture, there may be
multiple New Credit Facilities and the term "New Credit Facility" shall mean all
such New Credit Facilities.
"Officer" means the Chairman of the Board, any Vice Chairman, the Chief
Executive Officer, the Chief Financial Officer, the President, any Executive
Vice President, Vice President -- Finance (or any such other officer that
performs similar duties), or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers, one of
which is the Chairman of the Board, the Chief Executive Officer, the Chief
Financial Officer, the President, any Executive Vice President (or any such
other officer that performs similar duties).
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holders" means (i) TCW Special Credits Fund V --The Principal
Fund, Trust Company of the West or any of their respective Affiliates and (ii)
Oaktree Capital Management, LLC ("Oaktree") and its Affiliates, including any
partnerships, separate accounts, or other entities managed by Oaktree.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making
of such Invest-
<PAGE> 21
14
ment, become a Restricted Subsidiary; provided, however, that the primary
business of such Restricted Subsidiary is a Related Business; (ii) another
Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all of
its assets to, the Company or a Restricted Subsidiary; provided, however, that
such Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any Restricted Subsidiary
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as the Company or
any such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees permitted under Section 4.7; (vii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; (viii) payments, including without limitation,
security deposits, made to utilities or landlords in the ordinary course of
business; and (ix) any Person to the extent such Investment represents the
non-cash portion of the consideration received for an Asset Disposition as
permitted under Section 4.6.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workers' compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings; (c)
Liens arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other proceedings
for review or time for appeal has not yet expired; (d) Liens for taxes,
assessments or other governmental charges not yet subject to penalties for
non-payment or which are being contested in good faith by appropriate proceed-
<PAGE> 22
15
ings; (e) Liens in favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the ordinary
course of its business; provided, however, that such letters of credit do not
constitute Indebtedness; (f) survey exceptions, encumbrances, easements or
reservations of, or rights of others for licenses, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or Liens
incidental to the conduct of the business of such Person or to the ownership of
its properties which were not incurred in connection with Indebtedness and which
do not in the aggregate materially adversely affect the value of said properties
or materially impair their use in the operation of the business of such Person;
(g) Liens securing an Interest Rate Agreement so long as the related
Indebtedness is, and is permitted to be under this Indenture, secured by a Lien
on the same property securing the Interest Rate Agreement; and (h) leases and
subleases of real property which do not interfere with the ordinary conduct of
the business of such Person, and which are made on customary and usual terms
applicable to similar properties.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security which is due or overdue or is to become
due at the relevant time.
"Prospectus" means the Prospectus dated [ ], 1997, prepared in connection
with the issuance of the Securities.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
<PAGE> 23
16
"Recapitalization" means the recapitalization of the Company as of the
Issue Date as described in the Prospectus.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with this Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being Refinanced, (ii) such Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being Refinanced and (iii)
such Refinancing Indebtedness has an aggregate principal amount (or if Incurred
with original issue discount, an aggregate issue price) that is equal to or less
than the aggregate principal amount (or if Incurred with original issue
discount, the aggregate accreted value) then outstanding (plus fees and
expenses, including any premium and defeasance costs) under the Indebtedness
being Refinanced (provided, however, that Refinancing Indebtedness with respect
to the Company's outstanding industrial revenue bonds may have an aggregate
principal amount in excess of the aggregate principal amount outstanding on the
Issue Date, such excess not to exceed the lesser of the value of the real
property that is subject to such Indebtedness being Refinanced and $3 million);
provided, further, however, that Refinancing Indebtedness shall not include (x)
Indebtedness of a Restricted Subsidiary that Refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company on the Issue Date.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person), other than dividends or distributions
payable solely in its Capital Stock (other than Dis-
<PAGE> 24
17
qualified Stock) and dividends or distributions payable solely to the Company or
a Restricted Subsidiary, and other than pro rata dividends or other
distributions made by a Restricted Subsidiary that is not a Wholly Owned
Subsidiary to minority stockholders (or owners of an equivalent interest in the
case of a Restricted Subsidiary that is an entity other than a corporation),
(ii) the purchase, redemption or other acquisition or retirement for value of
any Capital Stock of the Company held by any Person or of any Capital Stock of a
Restricted Subsidiary held by any Affiliate of the Company (other than a
Restricted Subsidiary), including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying of a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition) or (iv) the making of any Investment
in any Person (other than a Permitted Investment). For purposes of
clarification, Restricted Payment does not include any dividend, distribution or
payment made in connection with the Recapitalization.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Securities" has the meaning set forth in the second paragraph of this
Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due
<PAGE> 25
18
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Securities pursuant to a written agreement to
that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
limited liability company, limited or general partnership or other business
entity of which more than 50% of the total voting power of shares of Capital
Stock or other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person.
"S&P" means Standard and Poor's Ratings Service.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $10.0 million (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act) or any money-market fund sponsored by a registered broker, dealer or mutual
fund distributor, (iii) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) investments in commercial paper, maturing not more than six months
after the date of ac-
<PAGE> 26
19
quisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or higher) according
to Moody's or "A-1" (or higher) according to S&P and (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by S&P or "A" by Moody's.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 1
77aaa-77bbbb) as in effect on the date of this Indenture, except as provided in
Section 9.3.
"Trustee" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code as in
effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under Section 4.4. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) if such Unrestricted Subsidiary at
such time has Indebtedness, the Company could Incur $1.00 of additional
Indebtedness under Section 4.3(a) and (y) no Default
<PAGE> 27
20
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced by the Company to the Trustee by promptly filing
with the Trustee a copy of the board resolution giving effect to such
designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
SECTION 1.2. Other Definitions.
Term Defined In Section
"Affiliate Transaction" 4.7
"Bankruptcy Law" 6.1
"covenant defeasance option" 8.1(b)
<PAGE> 28
21
"Custodian" 6.1
"Event of Default" 6.1
"Global Securities" 2.1(b)
"legal defeasance option" 8.1(b)
"Legal Holiday" 10.8
"Notice of Default" 6.1
"Offer" 4.6(b)
"Offer Amount" 4.6(d)
"Offer Period" 4.6(d)
"Participants" 2.6
"Paying Agent" 2.3
"Purchase Date" 4.6(c)
"Receipt Date" 4.6(a)
"Registrar" 2.3
"Securities Register" 2.3
"Successor Company" 5.1
SECTION 1.3. Incorporation By Reference Of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA, which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the Securities means the Company and any other obligor on the
indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.4. Rules Of Construction. Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
<PAGE> 29
22
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in
the plural include the singular;
(6) the principal amount of any non-interest-bearing or
other discount security at any date shall be the principal amount
thereof that would be shown on a balance sheet of the issuer
dated such date prepared in accordance with GAAP;
(7) all references to $, US$, dollars or United States
dollars shall refer to the lawful currency of the United States;
and
(8) "herein", "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
ARTICLE 2
THE SECURITIES
SECTION 2.1. Form and Dating. (a) The Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A,
which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rules, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Company). Each Security shall be dated the date of its authentication.
The terms of the Securities set forth in Exhibit A are part of the terms of this
Indenture and, to the extent applicable, the Company and the trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and agree to be bound hereby.
(b) Global Securities. The Securities shall be issued initially in the form
of one or more permanent Global Securities ("Global Securities") in definitive,
fully registered form without interest coupons, in substantially the form of
Exhibit A, which shall be deposited on behalf of the purchasers
<PAGE> 30
23
of the Securities represented thereby with the Trustee, at its principal
corporate trust office in New York City, as custodian for the Depository, and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depository or its nominee in the limited circumstances
hereinafter provided.
(c) Certificated Securities. Except as provided in Section 2.6, owners of
beneficial interests in Global Securities will not be entitled to receive
physical delivery of certificated securities.
SECTION 2.2. Execution And Authentication. An Officer of the Company shall
sign the Securities for the Company by manual or facsimile signature. If an
Officer whose signature is on a Security no longer holds that office at the time
the Trustee authenticates the Security, the Security shall be valid
nevertheless. A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture. The Trustee shall authenticate and make available for
delivery Securities for original issue in an aggregate principal amount of
$125,000,000, upon a written order of the Company signed by an Officer of the
Company. Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated. The aggregate principal amount of Securities outstanding at any
time may not exceed that amount except as provided in Section 2.7. The Trustee
may appoint an authenticating agent acceptable to the Company to authenticate
the Securities, upon the consent of the Company to such appointment. Unless
limited by the terms of such appointment, an authenticating agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as any Registrar, Paying
Agent or agent for service of notices and demands.
SECTION 2.3. Registrar and Paying Agent. The Company shall maintain an
office or agency where Securities may be presented for registration of transfer
or for exchange (the "Registrar") and an office or agency where Securities may
be presented for payment (the "Paying Agent"). The Registrar, acting on behalf
of and as agent for the Company, shall keep a register (the "Securities
Register")
<PAGE> 31
24
of the Securities and of their transfer and exchange. The Company may have one
or more co-registrars and one or more additional paying agents.
The term "Paying Agent" includes any additional paying agent. The Company
shall enter into an appropriate agency agreement with any Registrar, Paying
Agent or co-registrar not a party to this Indenture, which shall incorporate the
terms of the TIA. The agreement shall implement the provisions of this Indenture
that relate to such agent. The Company shall notify the Trustee of the name and
address of any such agent. If the Company fails to maintain a Registrar or
Paying Agent, the Trustee shall act as such and shall be entitled to appropriate
compensation therefor pursuant to Section 7.7. The Company may act as Paying
Agent, Registrar, co-Registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying Agent in
connection with the Securities.
SECTION 2.4. Paying Agent to Hold Money in Trust. On or prior to each due
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal and interest when
so becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities and shall notify the
Trustee of any default by the Company in making any such payment. The Company at
any time may require a Paying Agent to pay all money held by it to the Trustee
and to account for any funds disbursed by the Paying Agent. Upon complying with
this Section, the Paying Agent shall have no further liability for the money
delivered to the Trustee.
SECTION 2.5. Securityholder Lists. The Trustee shall preserve in as current
a form as is reasonably practicable the most recent list available to it of the
names and addresses of Securityholders. If the Trustee is not the Registrar, the
Company shall furnish to the Trustee, in writing at least five Business Days
before each interest payment date and at such other times as the Trustee may
request in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Securityholders; provided that
as long as the Trustee is the Registrar, no such list need be furnished.
<PAGE> 32
25
SECTION 2.6. Transfer and Exchange. The Securities shall be issued in
registered form and shall be transferable only upon the surrender of a Security
for registration of transfer. When a Security is presented to the Registrar or a
co-registrar with a request to register a transfer, the Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Registrar shall record in the
Securities Register the transfer as requested if the requirements of Section
8-401(1) of the Uniform Commercial Code are met, and thereupon one or more new
Securities in the same aggregate principal amount shall be issued to the
designated assignee or transferee and the old Security will be returned to the
Company. When Securities are presented to the Registrar or a co-registrar with a
request to exchange them for an equal principal amount of Securities of other
denominations, the Registrar shall make the exchange as requested, in the same
manner, if the same requirements are met. To permit registration of transfers
and exchanges, the Company shall execute and the Trustee shall authenticate
Securities at the Registrar's or co-registrar's request. The Company may require
payment of a sum sufficient to pay all taxes, assessments or other governmental
charges in connection with any transfer or exchange pursuant to this Section.
The Company shall not be required to make and the Registrar need not register
transfers or exchanges of Securities selected for redemption (except, in the
case of Securities to be redeemed in part, the portion thereof not to be
redeemed) or any Securities for a period of 15 days before a selection of
Securities to be redeemed or 15 days before an interest payment date.
Prior to the due presentation for registration of transfer of any Security,
the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar
may deem and treat the person in whose name a Security is registered as the
absolute owner of such Security for the purpose of receiving payment of
principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant to the terms
of this Indenture will evidence the same debt and will be entitled to the same
benefits under this Indenture as the Securities surrendered upon such transfer
or exchange.
<PAGE> 33
26
With respect to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depository designated for such Global
Security or a nominee thereof and deposited with such Depository or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(2) A Global Security may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository. A Global Security is exchangeable for certificated
Securities only if (i) the Depository notifies the Company that it is
unwilling or unable to continue as a Depository for such Global Security or
if at any time the Depository ceases to be a clearing agency registered
under the Exchange Act,(ii) the Company executes and delivers to the
Trustee a notice that such Global Security shall be so transferable,
registrable, and exchangeable, and such transfers shall be registrable or
(iii) there shall have occurred and be continuing an Event of Default or an
event which, with the giving of notice or lapse of time or both, would
constitute an Event of Default with respect to the Securities represented
by such Global Security. Any Global Security that is exchangeable for
certificated Securities pursuant to the preceding sentence will be
transferred to, and registered and exchanged for, certificated Securities
in authorized denominations, without legends applicable to a Global
Security, and registered in such names as the Depository holding such
Global Security may direct. Subject to the foregoing, a Global Security is
not exchangeable, except for a Global Security of like denomination to be
registered in the name of the Depository or its nominee. In the event that
a Global Security becomes exchangeable for certificated Securities, (i)
certificated Securities will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof, (ii) payment of
principal, any repurchase price, and interest on the certificated
Securities will be payable, and the transfer of the certificated Securities
will be registrable, at the office or agency of the Company maintained for
such purposes, and (iii) no service charge will be made for any
registration or transfer or exchange of the certificated Securities,
although the Company may require payment of a sum sufficient to cover any
tax or governmental charge imposed in connection therewith.
<PAGE> 34
27
(3) Securities issued in exchange for a Global Security or any portion
thereof shall have an aggregate principal amount equal to that of such
Global Security or portion thereof to be so exchanged, shall be registered
in such names and be in such authorized denominations as the Depository
shall designate and shall bear the applicable legends provided for herein.
Any Global Security to be exchanged in whole shall be surrendered by the
Depository to the Trustee. With respect to any Global Security to be
exchanged in part, either such Global Security shall be so surrendered for
exchange or, if the Trustee is acting as custodian for the Depository or
its nominee with respect to such Global Security, the principal amount
thereof shall be reduced, by an amount equal to the portion thereof to be
so exchanged, by means of an appropriate adjustment made on the records of
the Trustee. Upon any such surrender or adjustment, the Trustee shall
authenticate and deliver the Security issuable on such exchange to or upon
the order of the Depository or an authorized representative thereof.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Section 2.6, Section 2.7 or 2.9
or otherwise, shall be authenticated and delivered in the form of, and
shall be, a Global Security, unless such Security is registered in the name
of a Person other than the Depository for such Global Security or a nominee
thereof. Members of, or participants in, the Depository ("Participants")
shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depository or by the Trustee as the
custodian of the Depository or under such Global Security, and the
Depository may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Security for
all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the De pository or impair, as between the
Depository and its Participants, the operation of customary practices of
such Depository governing the exercise of the rights of a holder of a
beneficial interest in any Global Security.
SECTION 2.7. Replacement Securities. If a mutilated Security is surrendered
to the Trustee or Registrar or if the
<PAGE> 35
28
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the requirements of Section 8-405 of the Uniform
Commercial Code are met and the Holder satisfies any other reasonable
requirements of the Trustee and the Company. Such Holder shall furnish an
indemnity bond sufficient in the judgment of the Company and the Trustee to
protect the Company, the Trustee, the Paying Agent, the Registrar and any
co-registrar from any loss which any of them may suffer if a security is
replaced. The Company and the Trustee may charge the Holder for their expenses
in replacing a Security.
Every replacement Security issued pursuant to the terms of this Section is
an obligation of the Company under this Indenture.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.8. Outstanding Securities. Securities outstanding at any time are
all Securities authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation and those described in this Section as
not outstanding. Subject to the provisions of Section 10.6, a Security does not
cease to be outstanding because the Company or an Affiliate of the Company holds
the security.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with this
Indenture, on a redemption date or maturity date or, pursuant to Section 8.1(a),
within 91 days prior thereto, money sufficient to pay all principal and interest
payable on that redemption or maturity date with respect to the Securities (or
portions thereof) to be redeemed or maturing, as the case may be, then on and
after such date such Securities (or portions thereof) cease to be outstanding
and on and after such redemption or maturity date interest on them ceases to
accrue.
SECTION 2.9. Temporary Securities. Until definitive Securities are ready
for delivery, the Company may prepare and
<PAGE> 36
29
the Trustee shall authenticate temporary Securities. Temporary Securities shall
be substantially in the form of definitive Securities but may have variations
that the Company considers appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee shall authenticate
definitive Securities and deliver them in exchange for temporary securities.
SECTION 2.10. Cancellation. The Company at any time may deliver Securities
to the Trustee for cancellation. The Registrar and the Paying Agent shall
forward to the Trustee any Securities surrendered to them for registration of
transfer, exchange or payment. The Trustee and no one else shall cancel all
Securities surrendered for registration of transfer, exchange, payment or
cancellation and deliver such canceled Securities to the Company. The Trustee
shall from time to time provide the Company a list of all Securities that have
been canceled as requested by the Company. The Company may not issue new
Securities to replace Securities it has redeemed, paid or delivered to the
Trustee for cancellation.
SECTION 2.11. Defaulted Interest. If the Company defaults in a payment of
interest on the Securities, the Company shall pay defaulted interest (plus
interest on such defaulted interest to the extent lawful) in any lawful manner.
The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities may use
"CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; provided
that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the CUSIP numbers.
<PAGE> 37
30
ARTICLE 3
REDEMPTION
SECTION 3.1. Notices To Trustee. If the Company elects to redeem Securities
pursuant to paragraph 5 of the Securities, they shall notify the Trustee in
writing of the redemption date, the principal amount of Securities to be
redeemed and the paragraph of the Securities pursuant to which the redemption
will occur. The Company shall give each notice to the Trustee provided for in
this Section at least 45 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate from the Company to the effect that such redemption will comply with
the provisions herein.
SECTION 3.2. Selection of Securities to be Redeemed. If fewer than all the
Securities are to be redeemed, the Trustee shall select the Securities to be
redeemed pro rata or by lot or by a method that complies with applicable legal
and securities exchange requirements, if any, and that the Trustee considers
fair and appropriate and in accordance with methods generally used at the time
of selection by fiduciaries in similar circumstances. The Trustee shall make the
selection from outstanding Securities not previously called for redemption. The
Trustee may select for redemption portions of the principal of Securities that
have denominations larger than $1,000. Securities and portions of them the
Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000.
Provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption. The Trustee shall notify
the Company promptly of the Securities or portions of Securities to be redeemed.
In the event the Company is required to make an offer to repurchase Securities
pursuant to Sections 4.6 or 4.8 and the amount available for such offer is not
evenly divisible by $1,000, the Trustee shall promptly refund to the Company any
remaining funds, which in no event will exceed $1,000.
SECTION 3.3. Notice of Redemption. At least 30 days but not more than 60
days before a date for redemption of Securities, the Company shall mail a notice
of redemption by first-class mail to the registered address appearing in the
Security Register of each Holder of Securities to be redeemed. The notice shall
identify the Securities (including CUSIP numbers, if any) to be redeemed and
shall state:
(1) the redemption date;
<PAGE> 38
31
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to be
redeemed;
(6) that, unless the Company defaults in making such redemption
payment, interest on Securities (or portion thereof) called for redemption
ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such
event, the Company shall provide the Trustee with the information required
by this Section.
SECTION 3.4. Effect of Notice of Redemption. Once notice of redemption is
mailed, Securities called for redemption become due and payable on the
redemption date and at the redemption price stated in the notice. Upon surrender
to the Paying Agent, such Securities shall be paid at the redemption price
stated in the notice, plus accrued interest to the redemption date. Such notice
if mailed in the manner herein provided shall be conclusively presumed to have
been given, whether or not the Holder receives such notice. Failure to give
notice or any defect in the notice to any Holder shall not affect the validity
of the notice to any other Holder.
SECTION 3.5. Deposit of Redemption Price. Prior to 11:00 a.m. (New York
City time) on the redemption date, the Company shall deposit with the Trustee or
Paying Agent (or, if
<PAGE> 39
32
the Company or a Subsidiary is the Paying Agent, shall segregate and hold in
trust) money sufficient to pay the redemption price of and accrued interest (if
any) on all Securities or portions thereof to be redeemed on that date other
than Securities or portions of Securities called for redemption which have been
delivered by the Company to the Trustee for cancellation.
SECTION 3.6. Securities Redeemed In Part. Upon surrender of a Security that
is redeemed in part (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered, except that
if a Global Security is so surrendered, the Company shall execute, and the
Trustee shall authenticate and deliver to the Depository for such Global
Security, without service charge, a new Global Security in denomination equal to
and in exchange for the unredeemed portion of the principal of the Global
Security so surrendered.
ARTICLE 4
COVENANTS
SECTION 4.1. Payment of Securities. The Company shall promptly pay the
principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due. The Company shall pay interest on overdue
principal at the rate specified therefor in the Securities, and it shall pay
interest on overdue installments of interest at the same rate to the extent
lawful.
SECTION 4.2. SEC Reports. The Company shall file with the Trustee and
provide Securityholders, as their names appear in the Security Register, within
15 days after it files them with the SEC, copies of the annual reports and the
information, documents and other reports which it is required to file with the
SEC pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that
the Company may not be re-
<PAGE> 40
33
quired to remain subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, the Company shall file with the SEC and provide the Trustee
and Securityholders with the annual reports and the information, documents and
other reports as are specified in Sections 13 and 15(d) of the Exchange Act. The
Company also shall comply with the other provisions of TIA ss. 314(a).
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.3. Limitation on Indebtedness. (a) The Company will not Incur,
directly or indirectly, any Indebtedness unless, on the date of such Incurrence,
the Consolidated Coverage Ratio exceeds 2.0 to 1.0 if such Indebtedness is
Incurred from the Issue Date through , 1999, and 2.25 to 1.0 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding Section 4.3(a), the Company may Incur any and all of
the following Indebtedness:
(i) Indebtedness Incurred pursuant to the New Credit Facility or any
other credit facility in a principal amount which, when taken together with
all letters of credit and the principal amount of all other Indebtedness
Incurred pursuant to this clause (i) and then outstanding, does not exceed
the greater of (x) $100 million or (y) the sum of (A) 75% of the net book
value of the inventory of the Company and its Restricted Subsidiaries and
(B) 80% of the net book value of the accounts receivables of the Company
and its Restricted Subsidiaries;
(ii) Indebtedness owed to and held by a Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital
Stock which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness
(other than to another Wholly Owned Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the Company;
(iii) the Securities;
<PAGE> 41
34
(iv) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (i), (ii), or (iii) of this Section
4.3(b));
(v) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (iii) or (iv) or this
Section 4.3(b)(v) or pursuant to Section 4.14;
(vi) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the Company
hereunder;
(vii) Indebtedness of the Company consisting of obligations in respect
of purchase price adjustments in connection with the acquisition or
disposition of assets by the Company or any Restricted Subsidiary permitted
hereunder;
(viii) Capital Lease Obligations in an aggregate principal amount not
exceeding $15 million at any one time outstanding;
(ix) Attributable Debt of the Company with respect to Sale/Leaseback
Transactions in an aggregate principal amount not to exceed $5 million; and
(x) Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of the Company outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (i) through (ix)
above or Section 4.3(a)), does not exceed $15 million at any one time
outstanding.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing Section 4.3(b) if the proceeds thereof
are used, directly or indirectly, to Refinance any Subordinated Obligations
unless such Indebtedness shall be subordinated to the Securities to at least the
same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with this Section 4.3, (i) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided
<PAGE> 42
35
and classified in more than one of the types of Indebtedness described above.
SECTION 4.4. Limitation on Restricted Payments. (a) The Company will
not, and will not permit any Restricted Subsidiary to, directly or
indirectly, make a Restricted Payment if at the time the Company or such
Restricted Subsidiary makes, after giving effect to, the proposed
Restricted Payment: (i) a Default will have occurred and be continuing (or
would result therefrom); (ii) the Company is not able to Incur an
additional $1.00 of Indebtedness under Section 4.3(a); or (iii) the
aggregate amount of such Restricted Payment and all other Restricted
Payments since the Issue Date would exceed the sum of:
(A) 75% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter during which the Securities are originally issued to the end
of the most recent fiscal quarter ending prior to the date of such
Restricted Payment for which consoli dated income statements of the
Company are available (or, in case such Consolidated Net Income shall
be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from
the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to
a Subsidiary of the Company);
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date, of any Indebtedness of the Company for
Capital Stock (other than Disqualified Stock) of the Company (less the
amount of any cash, or the fair market value of any other property,
distributed by the Company upon such conversion or exchange), whether
pursuant to the terms of such Indebtedness or pursuant to an agreement
with a creditor to engage in an equity for debt exchange; and
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
re-
<PAGE> 43
payments of loans or advances or other transfers of assets, in each
case to the Company or any Unrestricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the
net assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however,
that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary subsequent to the date of
this Indenture.
(b) The provisions of Section 4.4(a) will not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the
Company (other than (A) Disqualified Stock or (B) Capital Stock issued
or sold
<PAGE> 44
36
to a Subsidiary of the Company) or out of the proceeds of a
substantially concurrent capital contribution to the Company;
provided, however, that (x) such purchase, capital contribution or
redemption shall be excluded in the calculation of the amount of
Restricted Payments and (y) the Net Cash Proceeds from such sale of
Capital Stock or capital contribution shall be excluded from Section
4.4(a)(iii)(B);
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made
by exchange for, or out of the net proceeds of the substantially
concurrent sale of, Indebtedness of the Company which is permitted to
be Incurred pursuant to Section 4.3; provided, however, that such
purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value will be excluded in the calculation of the amount
of Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have
complied with Section 4.4(a); provided, however, that such dividend
will be included in the calculation of the amount of Restricted
Payments;
<PAGE> 45
37
(iv) the repurchase of Capital Stock of the Company from
directors, officers or employees of the Company pursuant to the terms
of an employee benefit plan or employment or other agreement; provided
that the aggregate amount of all such repurchases shall not exceed
$3.5 million in any fiscal year, and $10.0 million in total; and
(v) Investments in Unrestricted Subsidiaries or joint ventures in
an amount not to exceed $5.0 million at any time outstanding.
SECTION 4.5. Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness or
obligations owed to the Company, (b) to make any loans or advances to the
Company or (c) to transfer any of its property or assets to the Company, except:
(i) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary on or prior to the date on
which such Restricted Subsidiary was acquired by the Company (other
than Indebtedness Incurred as consideration in, or to provide all or
any portion of funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired
by the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (i) or (ii) of this Section 4.5 or
contained in any amendment to an agreement referred to in clause (i)
or (ii) of this Section 4.5 or this clause (iii); provided, however,
that the encumbrances and restrictions with respect to such Restricted
Subsidiary contained in any such refinancing agreement or amendment
are not materially less favorable to the Securityholders than
encumbrances and restrictions
<PAGE> 46
38
with respect to such Restricted Subsidiary contained in such
agreements;
(iv) any such encumbrance or restriction (A) consisting of
customary non-assignment provisions in leases to the extent such
provisions restrict the subletting, assignment or transfer of the
lease or the property leased thereunder or in purchase money financing
or (B) by virtue of any transfer, option or right with respect to, or
Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by this Indenture;
(v) in the case of Section 4.5(c), restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of
the property subject to such security agreements or mortgages;
(vi) encumbrances or restrictions imposed by operation of
applicable law; and
(vii) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or
disposition.
SECTION 4.6. Limitation on Sales of Assets and Subsidiary Stock. (a) The
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, consummate any Asset Disposition unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (including the value of all
non-cash consideration), as determined in good faith by the Board of Directors,
of the shares and assets subject to such Asset Disposition, and at least 75% of
the consideration thereof received by the Company or such Restricted Subsidiary
is in the form of cash or cash equivalents and (ii) an amount equal to 100% of
the Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) first, to the extent the
Company elects (or is required by the terms of any Indebtedness), to prepay,
repay, redeem or purchase (and permanently reduce the commitments under)
Indebtedness of the Company or any Restricted Subsidiary (other than a
Subordinated Obligation and other than any Disqualified Stock) under the New
Credit Facility or that is otherwise secured by the assets sub-
<PAGE> 47
39
ject to the Asset Disposition within one year from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash (the "Receipt
Date"); (B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to the extent the Company
elects, to acquire Additional Assets; provided, however, that the Company shall
be required to commit such Net Available Cash to the acquisition of such
Additional Assets within one year from the later of the date of such Asset
Disposition or the Receipt Date and shall be required to consummate the
acquisition of such Additional Assets within 18 months from the Receipt Date;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer pursuant to
paragraph (b) below to the Holders to purchase Securities; and (D) fourth, to
the extent of the balance of such Net Available Cash after application in
accordance with clauses (A), (B) and (C) to any other application or use not
prohibited by this Indenture. Notwithstanding the foregoing provisions of this
paragraph, the Company and the Restricted Subsidiaries shall not be required to
apply the Net Available Cash in accordance with this paragraph except to the
extent that the aggregate Net Available Cash from all Asset Dispositions which
are not applied in accordance with this paragraph exceeds $5.0 million (at which
time, the entire unutilized Net Available Cash, and not just the amount in
excess of $5.0 million, shall be applied pursuant to this paragraph). Pending
application of Net Available Cash pursuant to this Section 4.6, such Net
Available Cash shall be invested in Permitted Investments.
For the purposes of this Section 4.6, the following are deemed to be cash
or cash equivalents: (x) the express assumption of Indebtedness of the Company
or any Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition, and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are converted by the Company or such
Restricted Subsidiary into cash within 90 days of closing the transaction.
(b) In the event of an Asset Disposition that requires the purchase of
Securities pursuant to Section 4.6(a)(iii)(C), the Company will be required to
purchase Securities tendered pursuant to an offer by the Company for the
Securities (the "Offer") at a purchase price of 100% of their principal amount
(without premium) plus accrued but unpaid interest in accordance with the
procedures (including prorating in the event of over subscription) set forth in
Section 4.6(c).
<PAGE> 48
40
If the aggregate purchase price of Securities tendered pursuant to the Offer is
less than the Net Available Cash allotted to the purchase of the Securities, the
Company will apply the remaining Net Available Cash in accordance with Section
4.6(a)(ii)(D) above. The Company shall not be required to make an Offer to
purchase Securities pursuant to this Section 4.6 if the Net Available Cash
available therefor after application of the proceeds as provided in Sections
4.6(a)(ii)(A) and 4.6(a)(ii)(B) is less than $5.0 million (which lesser amounts
shall be carried forward for purposes of determining whether such an Offer is
required with respect to any subsequent Asset Disposition).
(c) Promptly, and in any event within 30 days after the Company becomes
obligated to make an Offer, the Company shall be obligated to deliver to the
Trustee and send, by first-class mail to each Holder, at the address appearing
in the Security Register, a written notice stating that the Holder may elect to
have his Securities purchased by the Company either in whole or in part (subject
to prorationing as hereinafter described in the event the Offer is
oversubscribed) in in tegral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice, which shall govern the terms of the
Offer, shall include such disclosures as are required by law and shall specify
(i) that the Offer is being made pursuant to this Section 4.6; (ii) the purchase
price (including the amount of accrued interest, if any) for each Security and
the purchase date not less than 30 days nor more than 60 days after the date of
such notice (the "Purchase Date"); (iii) that any Security not tendered or
accepted for payment will continue to accrue interest in accordance with the
terms thereof; (iv) that, unless the Company defaults on making the payment, any
Security accepted for payment pursuant to the Offer shall cease to accrue
interest on and after the Purchase Date; (v) that Securityholders electing to
have Securities purchased pursuant to an Offer will be required to surrender
their Securities to the Paying Agent at the address specified in the notice at
least three business days prior to the Purchase Date and must complete any form
letter of transmittal proposed by the Company and acceptable to the Trustee and
the Paying Agent; (vi) that Securityholders will be entitled to withdraw their
election if the Paying Agent receives, not later than one business day prior to
the Purchase Date, a tested telex, facsimile transmission or letter setting
forth the name of the Securityholder, the principal amount of Securities the
Securityholder delivered for purchase, the Security certificate number (if any)
and a statement that such Secuirty holder is withdrawing
<PAGE> 49
41
its election to have such Securities purchased; (vii) that if Securities in a
principal amount in excess of the aggregate principal amount which the Company
has offered to purchase are tendered pursuant to the Offer, the Company shall
purchase Securities on a pro rata basis among the Securities tendered (with such
adjustments as may be deemed appropriate by the Company so that only Securities
in denominations of $1,000 or integral multiples of $1,000 shall be acquired);
(viii) that Securityholders whose Securities are purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered; and (ix) the instructions that Security holders must
follow in order to tender their Securities.
(d) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.6(a). Upon the expiration of
the period for which the Offer remains open (the "Offer Period"), the Company
shall deliver to the Trustee for cancellation the Securities or portions thereof
which have been properly tendered to and are to be accepted by the Company. Not
later than 11:00 a.m. (New York City time) on the Purchase Date, the Company
shall irrevocably deposit with the Trustee or with a paying agent (or, if the
Company is acting as Paying Agent, segregate and hold in trust) an amount in
cash sufficient to pay the Offer Amount for all Securities properly tendered to
and accepted by the Company. The Trustee shall, on the Purchase Date, mail or
deliver payment to each tendering Holder in the amount of the purchase price.
(e) Holders electing to have a Security purchased will be required to
surrender the Security, together with all necessary endorsements and other
appropriate materials duly completed, to the Company at the address specified in
the notice at least three Business Days prior to the Purchase Date. Holders will
be entitled to withdraw their election in whole or in part if the Trustee or the
Company receives not later than one Business Day prior to the Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security (which shall be $1,000 or an integral multiple
thereof) which was delivered for purchase by the Holder, the aggregate principal
amount of such Security (if any) that remains subject to the original notice of
the Offer
<PAGE> 50
42
and that has been or will be delivered for purchase by the Company and a
statement that such Holder is withdrawing his election to have such Security
purchased. If at the expiration of the Offer Period the aggregate principal
amount of Securities surrendered by Holders exceeds the Offer Amount, the
Company shall select the Securities to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so that only
securities in denominations of $1,000, or integral multiples thereof, shall be
purchased). Holders whose Securities are purchased only in part will be issued
new Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
(f) A Security shall be deemed to have been accepted for purchase at the
time the Trustee, directly or through an agent, mails or delivers payment
therefor to the surrendering Holder.
(g) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.6. To the extent that the provisions of any securities laws or regu
lations conflict with provisions of this Section 4.6, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
SECTION 4.7. Limitation on Affiliate Transactions. (a) The Company will
not, and will not permit any Restricted Subsidiary to, enter into any
transaction (including the purchase, sale, lease or exchange of any property, or
rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") unless the terms of such transaction (1) are no less favorable to
the Company or such Restricted Subsidiary than those that could be obtained at
the time of such transaction in a comparable transaction in arm's-length
dealings with a Person who is not such an Affiliate, (2) if such Affiliate
Transaction involves an amount in excess of $1.0 million, (i) are set forth in
writing and (ii) have been approved by a majority of the members of the Board of
Directors having no material personal financial stake in such Affiliate
Transaction, and (3) if such Affiliate Transaction involves an amount in excess
of $5.0 million, have been determined by a nationally recognized investment
banking firm to be fair, from a financial standpoint, to the Company or its
Restricted Subsidiary, as the case may be.
<PAGE> 51
43
(b) The foregoing provisions of Section 4.7(a) shall not prohibit (i) any
Permitted Investment or Restricted Payment permitted to be made pursuant to
Section 4.4, or any payment or transaction specifically excepted from the
definition of Restricted Payment, (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise and the performance
of any other obligations of the Company or any Restricted Subsidiary pursuant
to, or the funding of, employment arrangements, collective bargaining
agreements, employee benefit plans, health and life insurance plans, deferred
compensation plans, directors' and officers' indemnification agreements,
retirement or savings plans, stock options and stock ownership plans or any
other similar arrangement heretofore or hereafter entered into in the ordinary
course of business or consistent with past practice, (iii) the grant of stock
options or similar rights to employees and directors pursuant to plans approved
by the Board of Directors or the board of directors of the relevant Restricted
Subsidiary (iv) loans or advances to officers, directors or employees heretofore
or hereafter entered into in the ordinary course of business or consistent with
past practice, (v) the payment of reasonable fees to directors of the Company
and its Restricted Subsidiaries who are not employees of the Company or its
Restricted Subsidiaries, (vi) any Affiliate Transaction between the Company and
a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries, or (vii) the
purchase of or the payment of Indebtedness of or monies owed by the Company or
any of its Restricted Subsidiaries for goods or materials purchased, or services
received, in the ordinary course of business.
SECTION 4.8. Change of Control. (a) Upon a Change of Control, each Holder
shall have the right to require that the Company repurchase all or any part of
such Holder's Securities at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the related interest payment date), in
accordance with the terms contemplated in Section 4.8(b).
(b) Within 30 days following any Change of Control, unless notice of
redemption of the Securities has been given pursuant to paragraph 5 of Exhibit A
hereto, the Company shall mail a notice to each Holder with a copy to the
Trustee stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to pur-
<PAGE> 52
44
chase such Holder's Securities at a purchase price in cash equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of Holders of record on a
record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control;
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
repurchased.
(c) Holders electing to have a Security purchased will be required to
surrender the Security, together with all necessary endorsements and other
appropriate materials duly completed, to the Company at the address specified in
the notice at least three Business Days prior to the purchase date. Holders will
be entitled to withdraw their election if the Trustee or the Company receives
not later than one Business Day prior to the purchase date, a facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Security which was delivered for purchase by the Holder as to
which such notice of withdrawal is being submitted and a statement that such
Holder is withdrawing his election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the Company under
this Section shall be delivered to the Trustee for cancellation, and the Company
shall pay the purchase price plus accrued and unpaid interest, if any, to the
Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
<PAGE> 53
45
(f) Notwithstanding the occurrence of a Change of Control, the Company
shall not be obligated to repurchase the Securities or otherwise comply with
this Section if the Company has irrevocably elected to redeem all the Securities
in accordance with Article Three; provided that the Company does not default in
its redemption obligations pursuant to such election.
SECTION 4.9. Compliance Certificate. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate, one of the signers of which shall be the principal
executive, financial or accounting officer of the Company, stating that in the
course of the performance by the signers of their duties as Officers of the
Company they would normally have knowledge of any Default and whether or not the
signers know of any Default that occurred during such period. If they do, the
certificate shall describe the Default, its status and what action the Company
is taking or proposes to take with respect thereto. The Company also shall
comply with TIA Section 314(a)(4).
SECTION 4.10. Further Instruments and Acts. Upon request of the Trustee,
the Company will execute and deliver such further instruments and do such
further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.11. Limitation on Liens. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or permit to
exist any Lien on any of its property or assets, now owned or hereafter
acquired, securing any obligation unless concurrently with the creation of such
Lien effective provision is made to secure the Securities equally and ratably
with such obligation for so long as such obligation is so secured; provided,
that if such obligation is a Subordinated Obligation, the Lien securing such
obligation shall be subordinated and junior to the Lien securing the Securities
with the same or lesser relative priority as such Subordinated Obligation shall
have been with respect to the Securities. The preceding restriction shall not
require the Company or any Restricted Subsidiary to secure the Securities if the
Lien consists of the following:
(a) Liens created by the Indenture and Liens existing as of the Issue
Date, including under the New Credit Facility;
(b) Permitted Liens;
<PAGE> 54
46
(c) Liens to secure Indebtedness issued by the Company for the purpose
of financing all or a part of the purchase price of assets or property
acquired or constructed in the ordinary course of business after the Issue
Date; provided, however, that (a) the aggregate principal amount (or
accreted value in the case of Indebtedness issued at a discount) of
Indebtedness so issued shall not exceed the lesser of the cost or fair
market value, as determined in good faith by the Board of Directors of the
Company, of the assets or property so acquired or constructed, (b) the
Indebtedness secured by such Liens shall have been permitted to be Incurred
under Section 4.3 and (c) such Liens shall not encumber any other assets or
property of the Company or any of its Restricted Subsidiaries other than
such assets or property or any improvement on such assets or property and
shall attach to such assets or property within 90 days of the construction
or acquisition of such assets or property;
(d) Liens on the assets or property of a Restricted Subsidiary
existing at the time such Restricted Subsidiary becomes a Restricted
Subsidiary and not issued as a result of (or in connection with or in
anticipation of) such Restricted Subsidiary becoming a Restricted
Subsidiary; provided, however, that such Liens do not extend to or cover
any other property or assets of the Company or any of its other Restricted
Subsidiaries;
(e) Liens securing Capital Lease Obligations Incurred in accordance
with Section 4.3;
(f) Liens with respect to Sale/Leaseback Transactions permitted by
Section 4.3(b)(ix);
(g) Liens securing Indebtedness issued to Refinance Indebtedness which
has been secured by a Lien permitted under the Indenture and is permitted
to be Refinanced under the Indenture; provided, however, that such Liens do
not extend to or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced; or
(h) Liens on assets of the Company or any of its Restricted
Subsidiaries securing Indebtedness in an aggregate principal amount not to
exceed $5.0 million.
SECTION 4.12. Limitation on Sale/Leaseback Transactions. The Company will
not, and will not permit any Re-
<PAGE> 55
47
stricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect
to any property unless (i) the Company or such Restricted Subsidiary would be
(A) in compliance with Section 4.3 or Section 4.14 immediately after giving
effect to such Sale/Leaseback Transaction and (B) entitled to create a Lien on
such property securing the Attributable Debt with respect to such Sale/Leaseback
Transaction without securing the Securities pursuant to Section 4.11, (ii) the
net cash proceeds received by the Company or any Restricted Subsidiary in
connection with such Sale/Leaseback Transaction are at least equal to the fair
market value (as determined by the Board of Directors of the Company) of such
property and (iii) the Company or such Restricted Subsidiary applies the
proceeds of such transaction in compliance with Section 4.6.
SECTION 4.13. Limitation on Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except (i) to the Company or a Wholly Owned
Subsidiary or (ii) if, immediately after giving effect to such issuance, sale or
other disposition, such Restricted Subsidiary remains a Restricted Subsidiary;
provided, however, that in connection with any such sale or disposition of
Capital Stock the Company or any such Restricted Subsidiary complies with
Section 4.6.
SECTION 4.14. Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries. The Company shall not permit any Restricted Subsidiary to Incur,
directly or indirectly, any Indebtedness or Preferred Stock except:
(a) Indebtedness or Preferred Stock issued to and held by the Company
or a Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results in any such Wholly
Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of such Indebtedness or Preferred Stock (other than to the Company
or a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute
the issuance of such Indebtedness or Preferred Stock by the issuer thereof;
(b) Indebtedness or Preferred Stock of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness or
Preferred Stock
<PAGE> 56
48
Incurred in connection with, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company); provided, however,
that on the date of such acquisition and after giving effect thereto, the
Company would have been able to Incur at least $1.00 of additional
Indebtedness pursuant to Section 4.3(a);
(c) Indebtedness or Preferred Stock outstanding on the Issue Date
(other than Indebtedness or Preferred Stock described in Section 4.14(a) or
(b);
(d) Indebtedness of any Restricted Subsidiary consisting of
obligations in respect of purchase price adjustments in connection with the
acquisition or disposition of assets by the Company or any Restricted
Subsidiary permitted under this Indenture;
(e) Preferred Stock which is not Disqualified Stock; provided,
however, that such Restricted Subsidiary shall not pay cash dividends on
such Preferred Stock; and
(f) Refinancing Indebtedness Incurred in respect of Indebtedness or
Preferred Stock referred to in Section 4.14(b) or (c) or this Section
4.14(f); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness or Preferred
Stock of a Restricted Subsidiary described in Section 4.14(b), such
Refinancing Indebtedness shall be Incurred only by such Restricted
Subsidiary.
SECTION 4.15 . Payment of Taxes and Other Claims. The Company shall, and
shall cause each of its Subsidiaries to, pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, all taxes, assessments and
governmental charges levied or imposed upon its or its Subsidiaries' income,
profits or property ; provided, however, that neither the Company nor any of its
Subsidiaries shall be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate negotiations or
proceedings and for which disputed amounts adequate reserves have been made in
accordance with GAAP.
SECTION 4.16. Maintenance of Office or Agency. The Company shall maintain
in the Borough of Manhattan, the City of New York, an office or agency (which
may be an office or agency of the Trustee, Registrar or co-Registrar), where
Securities may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company
<PAGE> 57
49
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the Trustee set
forth in Section 10.2.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York, for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby initially designates the corporate trust office of the
Trustee set forth in Section 10.2 as an agency of the Company in accordance with
Section 2.3.
SECTION 4.17. Corporate Existence. Subject to Article 5 and Section 4.6,
the Company shall do or cause to be done, at its own cost and expense, all
things necessary to, and will cause each of its Restricted Subsidiaries to,
preserve and keep in full force and effect the corporate or partnership
existence and rights (charter and statutory), licenses and/or franchises of the
Company and each of its Restricted Subsidiaries; provided, however, that the
Company or any of its Restricted Subsidiaries shall not be required to preserve
any such rights, licenses or franchises if the Board of Directors shall
reasonably determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and the Subsidiaries, taken as a whole.
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.1. Merger, Consolidation and Sale of Assets. The Company will not
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or a series of transactions, its assets substantially as an entirety
to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") will be a Person organized and
<PAGE> 58
50
existing under the laws of the United States of America, any State thereof
or the District of Columbia and the Suc cessor Company (if not the Company)
will expressly assume, by supplemental indenture, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the obligations of
the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of such Successor Company or
any Subsidiary as a result of such transaction as having been Incurred by
such Successor Company or such Subsidiary at the time of such transaction),
no Default will have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company will have a Consolidated Net Worth in an amount that is
not less than the Consolidated Net Worth of the Company prior to such
transaction minus any costs incurred in connection with such transaction;
and
(iv) the Company will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
Opinions of Counsel required to be delivered under this Section or
elsewhere in this Indenture may have qualifications customary for opinions of
the type required and counsel delivering such Opinions of Counsel may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, including certificates certifying as to matters
of fact.
The Successor Company will be the successor to the Company and succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture, but the predecessor company, only in the case of a
conveyance, transfer or lease, will not be released from the obligation to pay
the principal of and interest on the Securities.
Notwithstanding the foregoing, (i) any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (ii) the Company may merge with an Affiliate
incorporated for the pur-
<PAGE> 59
51
pose of reincorporating the Company in another jurisdiction to realize tax or
other benefits.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. Events of Default. An "Event of Default" occurs if:
(i) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, and such default continues for a
period of 30 days;
(ii) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
optional redemption, upon required repurchase, upon acceleration or
otherwise;
(iii) the Company fails to comply with Section 5.1;
(iv) the Company fails to comply with Section 4.3, 4.4, 4.6, 4.8,
4.12, 4.13 or 4.14 (other than a failure to purchase Securities when
required under Section 4.8) and such failure continues for 30 days after
the notice specified below;
(v) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in (i), (ii),
(iii) or (iv) above) and such failure continues for 60 days after the
notice specified below;
(vi) the Company or any Significant Subsidiary of the Company fails to
pay any Indebtedness within any applicable grace period after final
maturity or acceleration of any such Indebtedness by the holders thereof
because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10.0 million or its foreign currency equivalent at the
time;
(vii) the Company or any Significant Subsidiary of the Company
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
<PAGE> 60
52
(B) consents to the entry of an order for relief against it in an
involuntary case in which it is the debtor;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(viii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary of the Company in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary of the Company or for any substantial part of the property
of the Company or Significant Subsidiary; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary of the Company;
(or any similar relief is granted under any foreign laws) and the
order or decree remains unstayed and in effect for 60 days; or
(ix) the rendering of any judgment or decree for the payment of money
in excess of $10.0 million or its foreign currency equivalent at the time
against the Company or any Significant Subsidiary if such judgment or
decree remains unpaid and outstanding for a period of 60 days following
such judgment and is not discharged, waived or stayed within 30 days after
notice thereof.
The foregoing will constitute Events of Default whatever the reason for any such
Event of Default and whether it is voluntary or involuntary or is effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
<PAGE> 61
53
The term "Bankruptcy Law" means Title 11, United States Code, as amended,
or any similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clause (iv) or (v) of this Section 6.1 is not an Event of
Default until the Trustee or the Holders of at least 25% in aggregate principal
amount of the outstanding Securities notify the Company of the Default and the
Company does not cure such Default within the time specified after receipt of
such notice. Such notice must specify the Default, demand that it be remedied
and state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (vi) of this Section 6.1 and any event which
with the giving of notice or the lapse of time would become an Event of Default
under clause (iv), (v) or (ix) of this Section 6.1, its status and what action
the Company is taking or proposes to take with respect thereto.
SECTION 6.2. Acceleration. If an Event of Default (other than an Event of
Default specified in Section 6.1(vii) or (viii) with respect to the Company)
occurs and is continuing, the Trustee by notice to the Company, or the Holders
of at least 25% in aggregate principal amount of the outstanding Securities by
notice to the Company and the Trustee, may declare the principal of and accrued
but unpaid interest on all the Securities to be due and payable. Upon such a
declaration, such principal and interest shall be due and payable immediately.
If an Event of Default specified in Section 6.1(vii) or (viii) with respect to
the Company occurs and is continuing, the principal of and interest on all the
Securities will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Securityholders. The
Holders of a majority in aggregate principal amount of the outstanding
Securities by notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
<PAGE> 62
54
SECTION 6.3. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are, to the extent
permitted by law, cumulative.
SECTION 6.4. Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of the Securities then outstanding by notice to the
Trustee may waive any past or existing Default and its consequences except (i) a
Default in the payment of the principal of or interest on a Security or (ii) a
Default in respect of a provision that under Section 9.2 cannot be amended
without the consent of each Securityholder affected. When a Default is waived,
it is deemed cured, and any Event of Default arising therefrom shall be deemed
to have been cured, but no such waiver shall extend to any subsequent or other
Default or impair any consequent right.
SECTION 6.5. Control by Majority. The Holders of a majority in aggregate
principal amount of the Securities then outstanding may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture or, subject to Section 7.1, that the Trustee determines is unduly
prejudicial to the rights of other Securityholders or would involve the Trustee
in personal liability; provided, however, that the Trustee may take any other
action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification from the Securityholders satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
SECTION 6.6. Limitation on Suits. A Securityholder may not pursue any
remedy with respect to this Indenture or the Securities unless:
<PAGE> 63
55
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in aggregate principal amount of the
Securities then outstanding make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in aggregate principal amount of the
Securities then outstanding do not give the Trustee a direction
inconsistent with the request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.7. Rights Of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
principal of and interest on the Securities held by such Holder, on or after the
respective due dates expressed in the Securities, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 6.8. Collection Suit by Trustee. If an Event of Default specified
in Section 6.1(i) or (ii) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
for the whole amount then due and owing (together with interest on any unpaid
interest to the extent lawful) and the amounts provided for in Section 7.7.
SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and the Securityholders allowed in
any judicial proceedings relative to the Company, its creditors or its property
and, unless prohibited by law or applicable regulations, may vote on behalf of
the Holders in any election
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of a trustee in bankruptcy or other Person performing similar functions, and any
Custodian in any such judicial proceeding is hereby authorized by each Holder to
make payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.7.
SECTION 6.10. Priorities. If the Trustee collects any money or property
pursuant to this Article 6, it shall pay out the money or property in the
following order, subject to applicable law:
FIRST: to the Trustee for amounts due under Section 7.7;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
THIRD: to the Company.
The Trustee may, upon prior written notice to the Company, fix a record
date and payment date for any payment to Securityholders pursuant to this
Section. At least 15 days before such record date, the Company shall mail to
each Securityholder and the Trustee a notice that states the record date, the
payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any
right or remedy under this Indenture or in any suit against the Trustee for any
action taken or omitted by it as Trustee, a court in its discretion may require
the filing by any party litigant in the suit of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
the suit, having due regard to the merits and good faith of the claims or
defenses made by the party litigant. This Section does not apply to a suit by
the Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of
more than 10% in aggregate principal amount of the outstanding Securities.
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SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the extent
it may lawfully do so) shall not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE 7
TRUSTEE
SECTION 7.1. Duties of Trustee. (a) If an Event of Default has occurred and
is continuing, the Trustee shall exercise the rights and powers vested in it by
this Indenture and use the same degree of care and skill in their exercise as a
prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct, except
that:
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(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section and to the
provisions of the TIA.
(e) Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
(f) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur financial liability in the performance of
any of its duties hereunder or in the exercise of any of its rights or powers,
if it shall have reasonable grounds to believe that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
(g) Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be subject to the
provisions of this Section and to the provisions of the TIA.
SECTION 7.2. Rights of Trustee. Subject to Section 7.1, (a) The Trustee may
rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
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(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute
willful misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction.
SECTION 7.3. Individual Rights of Trustee. The Trustee in its individual or
any other capacity may become the owner or pledgee of Securities and may
otherwise deal with the Company or its respective Affiliates with the same
rights it would have if it were not Trustee. Any Paying Agent, Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be responsible for
and makes no representation as to the validity or adequacy of this Indenture or
the Securities, it shall not be accountable for the Company's use of the
proceeds from the Securities, and it shall not be responsible for any statement
of the Company in this Indenture or in any document issued in connection with
the sale of the Securities or in the Securities other than the Trustee's
certificate of authentication.
SECTION 7.5. Notice of Defaults. If a Default occurs and is continuing and
if it is known to the Trustee, the Trustee
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shall mail to each Securityholder notice of the Default within the earlier of 90
days after it occurs or 30 days after it is known by a Trust Officer or written
notice is received by the Trustee. Except in the case of a Default in payment of
principal of or interest on any Security (including payments pursuant to the
mandatory redemption provisions of such Security, if any), the Trustee may
withhold the notice if and so long as a committee of its Trust Officers in good
faith determines that withholding the notice is in the interests of
Securityholders.
SECTION 7.6. Reports by Trustee to Holders. As promptly as practicable
after each May 15 beginning with the May 15 following the date of this
Indenture, and in any event prior to July 15 in each year, the Trustee shall
mail to each Securityholder a brief report dated as of May 15 that complies with
TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b). Prior to
delivery to the Holders, the Trustee shall deliver to the Company a copy of any
report it delivers to Holders pursuant to this Section 7.6.
A copy of each report at the time of its mailing to Securityholders shall
be filed with the SEC and each stock exchange (if any) on which the Securities
are listed. The Company agrees to notify promptly the Trustee whenever the
Securities become listed on any stock exchange and of any delisting thereof.
SECTION 7.7. Compensation and Indemnity. The Company shall pay to the
Trustee from time to time such reasonable compensation for its services as the
Company and the Trustee shall from time to time agree in writing. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to such compensation for its services, except any such
expense, disbursement or advance as may arise from its negligence, willful
misconduct or bad faith. Such expenses shall include the reasonable compensation
and expenses, disbursements and advances of the Trustee's agents, counsel,
accountants and experts. The Trustee shall provide the Company reasonable notice
of any expenditure not in the ordinary course of business; provided that prior
approval by the Company of any such expenditure shall not be a requirement for
the making of such expenditure nor for reimbursement by the Company thereof. The
Com pany shall indemnify each of the Trustee and any predecessor Trustees
against any and all loss, damage, claim, liability or expense
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(including attorneys' fees and expenses) (other than taxes applicable to the
Trustee's compensation hereunder) incurred by it in connection with the
acceptance or administration of this trust and the performance of its duties
hereunder. The Trustee shall notify the Company promptly of any claim for which
it may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend the
claim and the Trustee shall cooperate in the defense of such claim. The Trustee
may have separate counsel at its own expense. The Company need not reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Trustee through the Trustee's own willful misconduct, negligence or bad faith.
The Company need not pay for any settlement made without its written consent.
To secure the Company's payment obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall survive
the discharge of this Indenture. When the Trustee incurs expenses after the
occurrence of a Default specified in Section 6.1(vii) or (viii) with respect to
the Company, the expenses are intended to constitute expenses of administration
under the Bankruptcy Law.
SECTION 7.8. Replacement of Trustee. The Trustee may resign at any time
upon 30 days notice to the Company . The Holders of a majority in principal
amount of the Securities then outstanding may remove the Trustee by so notifying
the Trustee and may appoint a successor Trustee. The Company shall remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
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If the Trustee resigns, is removed by the Company or by the Holders of a
majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Securityholders. The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee, subject to the lien provided for in Section 7.7.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section,
the Company's obligations under Section 7.7 shall continue for the benefit of
the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger. If the Trustee consolidates with,
merges or converts into, or transfers all or substantially all its corporate
trust business or assets to, another corporation or banking association, the
resulting, surviving or transferee corporation without any further act shall be
the successor Trustee, provided that such corporation shall be eligible under
this Article Seven and TIA ss. 3.10(a).
In case at the time such successor or successors by merger, conversion or
consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such
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successor to the Trustee may adopt the certificate of authentication of any
predecessor trustee, and deliver such Securities so authenticated; and in case
at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times
satisfy the requirements of TIA ss. 310(a). The Trustee shall have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA ss.
310(b); provided, however, that there shall be excluded from the operation of
TIA ss. 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.1. Discharge of Liability on Securities; Defeasance. (a) When (i)
the Company delivers to the Trustee all outstanding Securities (other than
Securities replaced pursuant to Section 2.7) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 3 hereof ,
and, in each case of this clause (ii), the Company irrevocably deposits or
causes to be deposited with the Trustee United States dollars or U.S. Government
Obligations sufficient to pay and discharge the entire indebtedness on the
Securities not heretofore delivered to the Trustee for cancellation, for the
principal of, premium, if
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any, and interest to the date of deposit (other than Securities replaced
pursuant to Section 2.7), and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Section
8.1(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel from the
Company that all conditions precedent provided herein for relating to
satisfaction and discharge of this Indenture have been complied with and at the
cost and expense of the Company.
(b) Subject to Sections 8.1(c) and 8.2, the Company at any time may
terminate (i) all of its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Article 4 and the
operation of Sections 6.1(iv), 6.1(vi) and 6.1(vii) (but only with respect to a
Significant Subsidiary), 6.1(viii) (but only with respect to a Significant
Subsidiary), 6.1(ix) and 5.1(iii) and 5.1(iv) ("covenant defeasance option").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of the
Securities may not be accelerated due to a failure to comply with Article 4 or
the operation of Sections 6.1(vi) and 6.1(vii) (but only with respect to a
Significant Subsidiary), 6.1(viii) (but only with respect to a Significant
Subsidiary) or 6.1(ix) or because of the failure of the Company to comply with
5.1(iii) and 5.1(iv).
Upon satisfaction of the conditions set forth herein and upon request of
the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's obligations in
Sections 2.3, 2.4, 2.5, 2.6, 2.7, 7.7, 7.8, 8.4, 8.5 and 8.6 shall survive until
the Securities have been paid in full. Thereafter, the Company's obligations in
Sections 7.7, 8.4 and 8.5 shall survive.
SECTION 8.2. Conditions to Defeasance. The Company
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may exercise its legal defeasance option or its covenant defeasance option only
if:
(1) the Company irrevocably deposits or causes to be deposited in
trust with the Trustee money or U.S. Government Obligations which through
the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide cash at such times and in such
amounts as will be sufficient to pay principal and interest when due on all
outstanding Securities (except Securities replaced pursuant to Section 2.7)
to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all outstanding Securities (except Securities replaced pursuant to
Section 2.7) to maturity or redemption, as the case may be;
(3) 91 days pass after the deposit is made and during the 91-day
period no Default specified in Section 6.1(vii) or (viii) with respect to
the Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other material
agreement binding on the Company;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
have received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Securityholders will not recognize income, gain or loss for federal
income tax purposes as a result of such de
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posit and defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for federal income
tax purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such deposit and covenant defeasance
had not occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with.
Opinions of Counsel required to be delivered under this Section may have
qualifications customary for opinions of the type required and counsel
delivering such Opinions of Counsel may rely on certificates of the Company or
government or other officials customary for opinions of the type required,
including certificates certifying as to matters of fact.
Before or after a deposit, the Company may make arrangements satisfactory
to the Trustee for the redemption of Securities at a future date in accordance
with Article 3.
SECTION 8.3. Application of Trust Money. The Trustee shall hold in trust
money or U.S. Government Obligations deposited with it pursuant to this Article
8. It shall apply the deposited money and the money from U.S. Government
Obligations either directly or through the Paying Agent (including the Company
acting as its own Paying Agent as the Trustee may determine) and in accordance
with this Indenture to the payment of principal of and interest on the
Securities.
SECTION 8.4. Repayment to Company. The Trustee and the Paying Agent shall
notify the Company of any excess money or Securities held by them at any time
and shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
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Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to the
Company for payment as general creditors.
SECTION 8.5. Indemnity for Government Obligations. The Company shall pay
and shall indemnify the Trustee against any tax, fee or other charge imposed on
or assessed against deposited U.S. Government Obligations or the principal and
interest received on such U.S. Government Obligations other than any such tax,
fee or other charge which by law is for the account of the Holders of the
defeased Securities; provided that the Trustee shall be entitled to charge any
such tax, fee or other charge to such Holder's account.
SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is unable to
apply any money or U.S. Government Obligations in accordance with this Article 8
by reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article 8 until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with this Article 8; provided, however, that, (a) if the Company has made any
payment of interest on or principal of any Securities following the
reinstatement of their obligations, the Company shall be subrogated to the
rights of the Holders of such Securities to receive such payment from the money
or U.S. Government Obligations held by the Trustee or Paying Agent and (b)
unless otherwise required by any legal proceeding or any order or judgment of
any court or governmental authority, the Trustee or Paying Agent shall return
all such money and U.S. Government Obligations to the Company promptly after
receiving a written request therefor at any time, if such reinstatement of the
Company's obligations has occurred and continues to be in effect.
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ARTICLE 9
AMENDMENTS
SECTION 9.1. Without Consent of Holders. The Company and the Trustee may
amend this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are as described in Section 163(f)(2)(B) of the Code;
(4) to add guarantees with respect to the Securities;
(5) to secure the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to make any change that does not adversely affect the rights of
any Securityholder; or
(8) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA.
After an amendment under this Section becomes effective, the Company shall
mail to Securityholders a notice briefly describing such amendment. The failure
to give such notice to all Securityholders, or any defect therein, shall not
impair or affect the validity of an amendment under this section.
SECTION 9.2. With Consent of Holders. The Company and the Trustee may amend
this Indenture or the Securities without notice to any Securityholder but with
the written consent of
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the Holders of at least a majority in principal amount of the Securities then
outstanding. However, without the consent of each Securityholder affected, an
amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance with
Article 3;
(5) make any Security payable in money other than that stated in the
Security;
(6) impair the right of any Holder to receive payment of principal of
and interest on such Holder's Securities on or after the due dates therefor
or to institute suit for the enforcement of any payment on or with respect
to such Holder's Securities;
(7) make any change in Section 6.4 or 6.7 or the second sentence of
this Section; or
(8) affect the ranking of the Securities in any material respect.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Company shall
mail to Securityholders a notice briefly describing such amendment. The failure
to give such notice to all Securityholders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section.
SECTION 9.3. Compliance with Trust Indenture Act. Every amendment to this
Indenture or the Securities shall comply with the TIA as then in effect.
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SECTION 9.4. Revocation and Effect of Consents and Waivers. A consent to an
amendment or a waiver by a Holder of a Security shall bind the Holder and every
subsequent Holder of that Security or portion of the Security that evidences the
same debt as the consenting Holder's Security, even if notation of the consent
or waiver is not made on the Security. An amendment or waiver becomes effective
once the requisite number of consents are received by the Company or the
Trustee. After an amendment or waiver becomes effective, it shall bind every
Securityholder.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.5. Notation on or Exchange of Securities. If an amendment changes
the terms of a Security, the Trustee may require the Holder of the Security to
deliver it to the Trustee. The Trustee may place an appropriate notation on the
Security regarding the changed terms and return it to the Holder.
Alternatively, if the Company or the Trustee so determine, the Company in
exchange for the Security shall issue and the Trustee shall authenticate a new
Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.6. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity
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reasonably satisfactory to it and to receive, and (subject to Section 7.1) shall
be fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel stating that such amendment complies with the provisions of Article 9 of
this Indenture.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control. If this Indenture excludes any provision of the TIA that is
required to be included, such provision shall be deemed included herein.
SECTION 10.2. Notices. Any notice or communication shall be in writing and
delivered in person, by overnight courier or facsimile (if to the Company, with
receipt confirmed by an Officer) or mailed by first-class mail addressed as
follows:
If to the Company:
Chief Auto Parts Inc.
One Lincoln Centre
Suite 200
5400 LBJ Freeway
Dallas, Texas 75240-6223
Attention: General Counsel
With copies to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166-0193
Attention: Conor D. Reilly, Esq.
If to the Trustee:
<PAGE> 81
72
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication mailed or sent by overnight courier or
facsimile to a Securityholder shall be sent to the Securityholder at the
Securityholder's address as it appears on the registration books of the
Registrar and shall be sufficiently given if so sent within the time prescribed.
Failure to send a notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders. If
a notice or communication is sent in the manner provided above, it is duly
given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
SECTION 10.3 Communication by Holders with Other Holders. Securityholders
may communicate pursuant to TIA ss. 312(b) with other Securityholders with
respect to their rights under this Indenture or the Securities. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
SECTION 10.4. Certificate and Opinion as to Conditions Precedent. Upon any
request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate (which in connection with the original
issuance of the Securities need only be executed by one Officer for the
Company) in form and substance reasonably satisfactory to the Trustee
stating that, in the opinion of the signers, all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have
been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
<PAGE> 82
73
SECTION 10.5. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with; provided,
that an Opinion of Counsel can rely as to matters of fact on an Officers'
Certificate or a certificate of a public official..
SECTION 10.6. When Securities Disregarded. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee actually knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
SECTION 10.7. Rules by Trustee, Paying Agent and Registrar. The Trustee may
make reasonable rules for action by or a meeting of Securityholders. The Trustee
shall provide the Company reasonable notice of such rules. The Registrar and the
Paying Agent may make reasonable rules for their functions.
<PAGE> 83
74
SECTION 10.8. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or
a day on which banking institutions in the State of New York are authorized or
required by law to close. If a payment date is a Legal Holiday, payment shall be
made on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period. If a regular record date is a Legal
Holiday, the record date shall not be affected.
SECTION 10.9. Governing Law. This Indenture and the Securities shall be
governed by, and construed in accordance with, the laws of the State of New York
without giving effect to applicable principles of conflict of laws to the extent
that the application of the laws of another jurisdiction would be required
thereby.
SECTION 10.10. No Recourse Against Others. No recourse for the payment of
the principal of, premium, if any, or interest on any of the Securities or for
any claim based thereon or otherwise in respect thereof, and no recourse under
or upon any obligation, covenant or agreement of the Company in this Indenture,
or in any of the Securities or because of the creation of any Indebtedness
represented hereby and thereby, shall be had against any incorporator,
stockholder, officer, director, employee or controlling person of the Company or
any Successor Person thereof. Each Holder, by accepting a Security, waives and
releases all such liability. The waiver and release shall be part of the
consideration for the issuance of the Securities.
SECTION 10.11. Successors. All agreements of the Company in this Indenture
and the Securities shall bind the Company's successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 10.12. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
SECTION 10.13. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of
<PAGE> 84
75
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not intended to be considered a part hereof and shall not
modify or restrict any of the terms or provisions hereof.
SECTION 10.14. Severability Clause. In case any provision in this Indenture
or in the Securities shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
<PAGE> 85
76
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
CHIEF AUTO PARTS INC.
By: _______________________________________
Name:
Title:
FIRST TRUST NATIONAL ASSOCIATION, as Trustee
By: _______________________________________
Name:
Title:
<PAGE> 86
EXHIBIT A
FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR
TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON
THE REVERSE HEREOF.
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<PAGE> 87
No.
$125,000,000
% Senior Notes Due 2005
CUSIP No.
CHIEF AUTO PARTS INC., a Delaware corporation, promises to pay to Cede &
Co., or registered assigns, the principal sum of One Hundred Twenty-Five Million
Dollars on , 2005.
Interest Payment Dates: and .
Record Dates: and .
Additional provisions of this Security are set forth on the reverse side of
this Security.
CHIEF AUTO PARTS INC.
By:_________________________________________
Name:
Title:
Dated: , 1997
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
[ ], as Trustee, certifies that this is one of the Securities
referred to in the within-mentioned Indenture.
By:
- ----------------------
Authorized Signatory
A-2
<PAGE> 88
REVERSE OF SECURITY
% SENIOR NOTE DUE 2005
1. Interest
CHIEF AUTO PARTS INC., a Delaware corporation (such entity, and its
successors and assigns under the Indenture hereinafter referred to, and each
other entity which is required to become the Company pursuant to the Indenture,
and its successors and assigns under the Indenture, being herein called the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. The Company will pay interest semiannually on
and of each year, commencing ,1997. Interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from, 1997. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. The Company shall pay interest on overdue principal at the
rate borne by the Securities, and it shall pay interest on overdue installments
of interest at the same rate to the extent lawful.
2. Method Of Payment
The Company will pay interest on the Securities (except defaulted interest)
to the Persons who are registered holders of Securities at the close of business
on the record date immediately preceding the interest payment date even if
Securities are canceled after the record date and on or before the interest
payment date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. However, the Company, in the case of certificated Securities,
may pay principal and interest by check payable in such money and may mail an
interest check to a Holder's registered address. All payments of principal of,
premium, if any, and interest on the Securities will be made by the Company in
immediately available funds.
3. Paying Agent and Registrar
Initially, [ ], a [ ] banking corporation ("Trustee"), will act as Paying
Agent and Registrar. The Company may appoint and change any Paying Agent,
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<PAGE> 89
Registrar or co-registrar without notice. The Company may act as Paying Agent,
Registrar, co-Registrar or transfer agent.
4. Indenture
The Company issued the Securities under an Indenture dated as of , 1997
(the "Indenture"), among the Company and the Trustee. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.
77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms. Any conflict between this Note and the Indenture will be governed
by the Indenture.
The Securities are general unsecured obligations of the Company limited to
$125,000,000 aggregate principal amount (subject to Section 2.7 of the
Indenture). The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and its Restricted Subsidiaries, the existence of
liens, the payment of dividends on, and redemption of, the Capital Stock of the
Company and its Subsidiaries, restricted payments, the sale or transfer of
assets and Subsidiary stock, the issuance or sale of Capital Stock of Restricted
Subsidiaries, sale and leaseback transactions, the investments of the Company
and its Restricted Subsidiaries, consolidations, mergers and transfers of all or
substantially all the assets of the Company, and transactions with Affiliates.
In addition, the Indenture limits the ability of the Company and certain of its
Subsidiaries to restrict distributions and dividends from Restricted
Subsidiaries.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to , 2001. On and after that date, the Company may redeem as
provided in, and subject to the terms of, the Indenture the Securities in whole
or in part, at any time or from time to time, at the following redemption prices
(expressed in percentages of principal amount), plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date)
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<PAGE> 90
if redeemed during the 12-month period commencing on of the years set forth
below:
Period Percentage
------ ----------
2001 ................. %
2002 ................. %
2003 and thereafter .. 100.000%
In addition, at any time and from time to time prior to , 2000, the Company
may redeem in the aggregate up to 35% of the principal amount of the Securities
with the proceeds of one or more Public Equity Offerings, at a redemption price
(expressed as a percentage of principal amount) of % plus accrued and unpaid
interest to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date) as provided in, and subject to the terms of, the Indenture;
provided, however, that at least 65% of the original aggregate principal amount
of the Securities must remain outstanding after each such redemption.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30 days
but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his registered address. Securities in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. If money sufficient to pay the redemption price of and accrued interest
on all Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to accrue
on such Securities (or such portions thereof) called for redemption. If a notice
or communication is sent in the manner provided in the Indenture, it is duly
given, whether or not the addressee receives it. Failure to send a notice or
communication to a Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders.
In addition, in the event of certain Asset Dispositions, the Company will
be required to make an offer to purchase Securities at a purchase price of 100%
of their principal amount plus accrued interest to the date of purchase (subject
to the rights of Holders of record on the relevant record date
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<PAGE> 91
to receive interest due on the relevant interest payment date) as provided in,
and subject to the terms of, the Indenture.
7. Change of Control
Upon a Change of Control, each Holder of Securities will have the right to
require the Company to repurchase all or any part of the Securities of such
Holder at a repurchase price in cash equal to 101% of the principal amount of
the Securities to be repurchased plus accrued and unpaid interest to the date of
repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the related interest payment date) as provided
in, and subject to the terms of, the Indenture.
8. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in denominations of
$1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements or transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture,
including any transfer tax or other similar governmental charge payable in
connection therewith. The Registrar need not register the transfer of or
exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
9. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of it
for all purposes.
10. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent shall pay the money back to the Company at
its written request unless an abandoned property law designates another Person.
After any such payment, Holders entitled to the money must look only to the
Company and not to the Trustee for payment.
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<PAGE> 92
11. Discharge And Defeasance
Subject to certain conditions, the Company at any time may terminate some
or all of its obligations under the Securities and the Indenture if the Company
deposits with the Trustee money or U.S. Government Obligations for the payment
of principal and interest on the Securities to redemption or maturity, as the
case may be.
12. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the Indenture
or the Securities may be amended with the consent of the Holders of at least a
majority in principal amount outstanding of the Securities and (ii) any past
default or compliance with any provision may be waived with the consent of the
Holders of a majority in principal amount outstanding of the Securities. Subject
to certain exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, omission, defect or inconsistency, to comply
with Article 5 of the Indenture, to provide for uncertificated Securities in
addition to or in place of certificated Securities, to add guarantees with
respect to the Securities, to secure the Securities, to add additional covenants
or surrender rights and powers conferred on the Company, to make any change that
does not adversely affect the rights of any Securityholder or to comply with any
request of the SEC in connection with qualifying the Indenture under the TIA.
13. Defaults And Remedies
Under the Indenture, Events of Default include (i) default for 30 days in
payment of interest on the Securities; (ii) default in payment of principal on
any Security when due at its Stated Maturity, upon redemption pursuant to
paragraphs 5 or 6 above, upon required repurchase, upon acceleration or
otherwise, (iii) failure by the Company to comply with Article 5 of the
Indenture; (iv) failure by the Company to comply with other agreements in the
Indenture or the Securities, in certain cases subject to notice and lapse of
time; (iv) failure by the Company or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or
acceleration by the Holders thereof because of a default and the total amount of
such Indebtedness unpaid or accelerated exceeds $10.0 million; (v) certain
events of bank-
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<PAGE> 93
ruptcy, insolvency or reorganization of the Company or any Significant
Subsidiary; and (vi) the rendering of any judgments or decrees for the payment
of money in excess of $10.0 million.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the Securities then outstanding may
declare all the Securities to be due and payable. Certain events of bankruptcy
or insolvency are Events of Default which will result in the Securities being
due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of principal or interest) if it determines that withholding notice is
in the interest of the Holders.
14. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or any of its Affiliates and may otherwise deal with the
Company or any of its Affiliates with the same rights it would have if it were
not Trustee.
15. No Recourse Against Others
No recourse for the payment of the principal of, premium, if any, or
interest on any of the Securities or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture, or in any of the Securities or
because of the creation of any Indebtedness represented hereby and thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company or any Successor Person thereof. Each
Holder, by accepting a Security, waives and releases all such liability.
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<PAGE> 94
16. Governing Law
The Indenture and the Securities shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflict of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
17. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written
request and without charge to the Securityholder a copy of the Indenture which
has in it the text of this Security in larger type. Requests may be made as
follows:
If to the Company:
Chief Auto Parts Inc.
One Lincoln Centre
Suite 200
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<PAGE> 95
5400 LBJ Freeway
Dallas, Texas 75240-6223
Attention: General Counsel
If to the Trustee:
[
Attention: Corporate Trust Trustee
Administration]
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<PAGE> 96
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Date: _______________ Your Signature: _______________
Sign exactly as your name
appears on the other side
of this Security.
Signature Guarantee: _______________
(Signature must be guaranteed)
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<PAGE> 97
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box: /_/
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount: $
Date: ______________ Your Signature: _______________
(Sign exactly as your name
appears on the other side of the
Security)
Signature Guarantee:
(Signature must be guaranteed)
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<PAGE> 1
EXHIBIT 10.1
CHIEF AUTO PARTS INC.
1994 EXECUTIVE TARGET BONUS PLAN
1. Purpose of the Plan. The primary purpose of the 1994
Executive Target Bonus Plan (the "Plan") is to reinforce the mutuality of
interests between the management of the Company and its shareholders by
rewarding key employees of the Company for the sustained creation of
shareholder value. In addition, the Plan provides a means for the Company to
attract and retain the services of quality management talent by providing an
attractive and competitive reward opportunity when justified by performance.
2. General Plan Description. The Plan provides for the granting
of cash bonuses to key employees of the Company.
3. Effective Date and Term of the Plan. The Plan shall be
effective upon the date of its adoption by the Board of Directors, provided
that it is approved by the shareholders of the Company within one (1) year
thereafter, and shall terminate on June 30, 2004, unless terminated earlier by
the Board of Directors in accordance with Section 6.3 of the Plan.
4. Participation Criteria. Participation in the Plan shall be
limited to the Option Participants set forth on Schedule 1 attached hereto and
those additional Option Participants, if any, designated as Participants in the
sole discretion of the Compensation Committee (as defined in Section 6.1), but
only with respect to Options.
5. Definitions. As used herein, the following definitions shall
apply unless the context clearly indicates otherwise:
"Adjusted EBITDA" shall mean the Company's annual earnings in a Plan
Year before interest expense, interest income, provisions for income taxes,
depreciation, amortization, gains or losses relating to the extinguishment of
debt, accruals for bonuses payable in respect of the Plan, accruals in respect
of the Option Plan, and other items relating to the Merger as determined from
the Company's annual financial statements prepared in accordance with GAAP by
the Company's independent accountants. The Board of Directors may in its
reasonable discretion modify the foregoing calculation as it deems appropriate.
"Annual Bonus Accrual Per Share" shall mean, for a Plan Year, with
respect to each share of Common Stock underlying an Option, an amount equal to
the product of (A) 40% of the then applicable Maximum Bonus Target Per Share
multiplied by (B) a second percentage equal to (i) the Adjusted EBITDA for the
most recently completed Plan Year divided by the Target EBITDA for such Plan
Year (expressed as a percentage) (the "Theoretical Gross Increase"), less (ii)
fifty (50) percentage points; provided, however, that (a) the actual increase
each year in the Target Bonus Per Share cannot exceed twenty percent (20%) of
such Maximum Bonus Target Per Share except to the extent necessary to make up
for previous years' Annual Bonus Accrual Per Share that were less than 20% of
such Maximum Bonus Target Per Share and (b) if the Theoretical Gross Increase
is less than 50% (hereinafter called a "Deficit"), then no Annual Bonus
<PAGE> 2
Accrual Per Share shall be earned in any subsequent year until such Deficit is
first made up in full, by applying any Theoretical Gross Increase (in any Plan
Year subsequent to the year in which a Deficit was incurred) to first satisfy
any prior Deficit before any remaining Theoretical Gross Increase can be used
to earn a new Annual Bonus Accrual Per Share. However, notwithstanding the
above, (i) a Deficit shall not result in a decrease in any previously earned
Target Bonus Per Share, and (ii) any Theoretical Gross Increase greater than
100% in any Plan Year may not be used to increase any future Plan Year's Annual
Bonus Accrual Per Share. The Board of Directors may modify the calculation of
the Annual Bonus Accrual Per Share in its reasonable discretion as it applies
to persons who become Participants after the first EBITDA Accrual Date.
For example, if a Participant holds Options for 100 shares of Common
Stock at an exercise price of $10 per share, and the Adjusted EBITDA for Plan
Year 1994 is $25.0 million, the Annual Bonus Accrual Per Share shall be
determined as follows:
40% x $10 (the exercise price per share) x 50.8% (determined by
dividing $25.0 million, the actual Adjusted EBITDA for Plan Year
1994, by $24.8 million, the Target Adjusted EBITDA for Plan Year
1994, which results in a quotient of 100.8%, which decreased by
50% equals 50.8%) = $2.03, which is limited to $2.00 (20% of the
Maximum Bonus Target Per Share), except to the extent necessary
to make up any prior accrual of less than 20% of the Maximum
Bonus Target Per Share. The Annual Bonus Accrual Per Share
would be further limited to the extent of any Deficit from prior
Plan Years.
"Board" or "Board of Directors" shall mean the Board of Directors of
the Company.
"Code" refers to the Internal Revenue Code of 1986, as amended, or any
successor legislation.
"Common Stock" shall mean the common stock, par value $0.01 per share,
of the Company.
"Company" shall mean Chief Auto Parts Inc., a Delaware corporation.
"EBITDA Accrual Date" shall mean the date on which the Company
receives the annual audited financial statements from its independent
accountants.
"Exchange Act" refers to The Securities Exchange Act of 1934, as
amended or any successor legislation.
"Fair Market Value" shall have the meaning ascribed to it in the
Option Plan.
"GAAP" shall mean generally accepted accounting principles, as
consistently applied.
"Maximum Bonus Target Per Share" at any time for any Participant, with
respect to each share of Common Stock underlying an Option, shall be equal to
the then exercise price of the Option with respect to such share.
2
<PAGE> 3
"Merger" shall mean the merger of Chief Acquisition Corp., a Delaware
corporation, with and into the Company, pursuant to the Agreement and Plan of
Merger, dated as of June 1, 1994, as amended, by and among the Company, General
Electric Capital Corporation, TCW Special Credits Fund V - The Principal Fund,
and Chief Acquisition Corp.
"Option Participant" shall mean any participant in the Option Plan.
"Option Plan" shall mean the 1994 Executive Option Plan of the
Company.
"Option Stock" shall mean shares of Common Stock acquired by an Option
Participant upon exercise of Options.
"Options" shall mean those options listed on Schedule 1 attached
hereto and additional options issued to an Option Participant pursuant to the
Option Plan and designated by the Compensation Committee as qualifying for the
accrual and payment of bonuses hereunder.
"Participant" shall mean the persons on Schedule 1 attached hereto and
additional key employees of the Company determined by the Compensation
Committee to be eligible to receive a bonus hereunder as set forth in Section 4
hereof.
"Plan Year" shall mean each 52/53-week period ending on the last
Sunday in December. The initial Plan Year shall end on December 25, 1994.
"Qualified Holder" shall mean an Option Participant (or such
Participant's heirs, estate or personal representatives or an alternate payee
pursuant to a qualified domestic relations order as defined in the Code) who
beneficially owns vested Options or issued and outstanding Option Stock
pursuant to the Option Plan.
"Retirement" shall mean a Participant's voluntary Termination of
Service at or after reaching age 65 provided that the Participant has at least
five (5) years of Service (not necessarily continuous) with the Company or a
subsidiary thereof as of the date of the Termination of Service.
"Service" shall mean full-time employment (whether active or on an
authorized leave of absence) with the Company or a subsidiary thereof.
"Target Bonus Per Share" shall mean, with respect to each share of
Common Stock underlying an Option, the amount currently payable pursuant to
this Plan to a Participant based upon his Annual Bonus Accruals Per Share,
assuming that such Participant were to exercise the Option relating to such
share.
3
<PAGE> 4
"Target EBITDA" for the Plan Years 1994-1998 shall mean the following:
<TABLE>
<CAPTION>
Adjusted EBITDA
Plan Year (in millions)
<S> <C>
1994 $24.8
1995 $29.5
1996 $33.6
1997 $39.3
1998 $45.7
</TABLE>
"Termination of Service" shall mean a termination of Service from the
Company for any reason, whether voluntary or involuntary, including death,
disability, or retirement.
"Trigger Date" shall mean the earlier of (i) the date on which a
Trigger Event occurs, (ii) Retirement or (iii) June 30, 2004 (the "Expiration
Date").
"Trigger Event" shall mean the exercise by a Qualified Holder of
Options.
6. Administration of the Plan.
6.1 Composition of the Compensation Committee. The Plan
shall be administered by a committee of the Board of Directors (the
"Compensation Committee"). On and after the date that the Common Stock becomes
subject to Section 16 of the Exchange Act, the Compensation Committee shall
consist of not less than two (2) directors appointed by the Board of Directors,
each of whom shall be (i) a "disinterested person" (as the term is defined in
Rule 16b-3(c) (2) promulgated by the Securities and Exchange Commission
pursuant to its authority under the Exchange Act), and, to the extent feasible,
(ii) an outside director within the meaning of Code Section 162(m).
6.2 Powers of the Compensation Committee. Subject to the
terms and conditions of the Plan, the Compensation Committee shall have
complete discretion and authority to (a) subject to Section 4, determine who
shall participate in the Plan, (b) interpret the Plan, (c) decide all questions
of eligibility and benefits, (d) adjudicate all claims, (e) prescribe, amend
and rescind rules and regulations relating to the Plan, (f) make exceptions to
the provisions of the Plan in good faith and for the benefit of the Company,
and (g) make all other determinations deemed necessary or advisable for the
administration of the Plan.
6.3 Amendment, Suspension or Termination of the Plan.
The Board of Directors may, at any time, amend, suspend or terminate the Plan,
without the need of consent from or advance notice to any party; provided,
that, on and after the date that the Common Stock becomes subject to the
Exchange Act, the Board of Directors shall not amend the Plan to (i) materially
increase the benefits accruing to Participants, (ii) materially modify the
requirements as to eligibility for participation in the Plan, or (iii) make any
other change requiring shareholder approval under (A) any applicable rule,
regulation, or procedure of any national securities
4
<PAGE> 5
exchange or securities association upon which any securities of the Company are
listed (or any listing agreement with any such securities exchange or
securities association), or (B) Rule 16b-3 promulgated under the Exchange Act,
without the approval of a majority of the outstanding stock of the Company
entitled to vote thereon at a meeting. No amendment, suspension or termination
of the Plan shall, without the consent of the Participant, alter or impair any
rights and obligations under any outstanding Target Bonus Per Share previously
accrued, or payable to such Participant under the Plan but deferred in
accordance with the terms hereof.
6.4 Effect of Compensation Committee's and Board's
Decision. All decisions, determinations and interpretations by the
Compensation Committee or the Board of Directors regarding the Plan shall be
final and binding on all Participants.
7. Bonus.
7.1 When Bonus Payable. On a Trigger Date caused by a
Trigger Event, a Qualified Holder in the Plan shall be entitled to receive a
cash payment from the Company in an amount equal to the number of shares of
Option Stock being exercised multiplied by his or her then accrued Target Bonus
Per Share (unless previously deferred). On a Trigger Date which is (i) the
date of such Qualified Holder's Retirement or (ii) the Expiration Date, a
Qualified Participant in the Plan shall be entitled to receive a cash payment
from the Company equal to his or her then accrued Target Bonus Per Share
(unless previously deferred).
7.2 Accrual of Target Bonus. As of the date of a
Participant's admission into the Plan, his or her accrued Target Bonus Per
Share shall be $0. On each EBITDA Accrual Date, the then applicable accrued
Target Bonus Per Share shall be increased by the Annual Bonus Accrual Per Share
for the preceding Plan Year, if any; provided, however, that (i) if a
Participant is admitted into the Plan after the first day and before April 1 of
a Plan Year, the Participant's Annual Bonus Accrual Per Share for such Plan
Year shall be reduced to 75% of its otherwise applicable accrual; (ii) if a
Participant is admitted into the Plan on or after April 1 and before July 1 of
a Plan Year, the Participant's Annual Bonus Accrual Per Share for such Plan
Year shall be reduced to 50% of its otherwise applicable accruals; (iii) if a
Participant is admitted into the Plan on or after July 1 and before October 1
of a Plan Year, the Participant's Annual Bonus Accrual Per Share for such Plan
Year shall be reduced to 25% of its otherwise applicable accrual; and (iv) if a
Participant is admitted into the Plan on or after October 1 of a Plan Year, the
Participant's Annual Bonus Accrual Per Share for such Plan Year shall be $0.
Notwithstanding the provisions of this Section 7.2, in no event shall the
Target Bonus Per Share for any Participant exceed the then applicable Maximum
Bonus Target Per Share for such Participant as adjusted pursuant to Section 7.4
hereof. If a Participant terminates his Service with the Company or is
terminated by the Company for any reason (i) prior to the end of a Plan Year,
such Participant shall not be entitled to any Annual Bonus Accrual Per Share
for such Plan Year, unless such Termination of Service arose from the death or
permanent disability of such Participant, in which case such Participant shall
be entitled to (A) 25% of the otherwise applicable accruals for such Plan Year
if such Termination of Service occurs on or after April 1 and before July 1 of
such Plan Year; (B) 50% of the otherwise applicable accruals for such Plan Year
if such Termination of Service occurs on or after July 1 and before October 1
of such Plan Year and (C) 75% of the otherwise applicable accruals for such
Plan Year if such Termination of Service occurs on or after
5
<PAGE> 6
October 1 of such Plan Year, or (ii) after the end of a Plan Year but prior to
the EBITDA Accrual Date for such Plan Year, such Participant shall not be
entitled to his Annual Bonus Accrual Per Share for such Plan Year, unless such
Termination of Service arose after the end of such Plan Year from the death or
permanent disability of such Participant, or termination after the end of such
Plan Year without Cause. For the purpose of this Section 7.2, "Cause" shall
have the meaning set forth in the Option Plan.
7.3 Forfeiture. Each Participant shall forfeit his
rights to receive any payments under the Plan to the extent that such
Participant returns his or her Options to the Company, or his or her right to
exercise such Options expires.
7.4 Adjustments.
(a) Each of the then effective Target Bonus Per Share and
Maximum Bonus Target Per Share for each Participant may be equitably adjusted
by the Compensation Committee to the extent that there is an adjustment in the
exercise price of the Options, and shall be computed as if the new exercise
price had been the exercise price of the Options from the date of grant;
provided, however, that such adjustment shall not affect any payments or
deferrals with respect to any previous Option exercises.
(b) In the event a Participant has exercised all of his
Options, he shall no longer be entitled to any payments or accruals under the
Plan, except for any payment of such Participant's Target Bonus Per Share
previously accrued and payable (whether or not deferred).
7.5 Deferral of Payment of Bonus. Any Participant may
elect to defer payment of a bonus otherwise payable hereunder by making a
written election in the form attached hereto as Exhibit A within thirty (30)
days of becoming a Participant. Upon exercise of an Option by a Participant
electing such deferral, (i) no further accruals shall be made in respect of the
Options so exercised and (ii) no interest shall accrue on such deferred and
unpaid bonus amount. Each Participant may elect to defer payments under the
Plan until the earlier of a date certain selected by such Participant, such
Participant's Termination of Service or Retirement.
8. Approval of Plan by Shareholders. The Plan will be submitted
for the approval of the Company's shareholders within twelve (12) months after
the date of the initial adoption of the Plan by the Board, and will be null and
void ab initio if not approved by the shareholders within such time.
9. Miscellaneous Provisions.
9.1 Discretionary Nature of Grants. Nothing herein
contained shall be construed to give any person other than a Participant any
right to participate in the Plan or to receive any payments under the Plan.
9.2 Right of Employment Denied. Nothing in the Plan
shall confer upon any Participant any right with respect to continuation of
Service with the Company, nor shall it interfere in any way with the
Participant's right to terminate Service or the Company's right to
6
<PAGE> 7
terminate the Service of the Participant at any time for any reason whatsoever,
with or without cause.
9.3 Rights as Shareholders. Participation under the Plan
shall not convey any of the rights and privileges of a shareholder of the
Company.
9.4 Withholding Tax. The Company shall be entitled to
require payment, or to deduct from other compensation payable to each Qualified
Holder, any sums required by federal, state or local tax law to be withheld
with respect to any bonus granted under the Plan. The Compensation Committee
may, in its sole discretion, allow a Qualified Holder to elect to pay such tax
through payment of cash and/or the surrender of whole shares of Common Stock.
Such shares surrendered shall have a Fair Market Value equal to or, if
necessary to pay such tax, greater than the sums required to be withheld as of
the date on which the amount of tax to be withheld is determined (the "Tax
Date") less the cash amount, if any, paid by such Qualified Holder in respect
of such exercise. In the event a Qualified Holder surrenders shares of Common
Stock having a Fair Market Value greater than the amount necessary to pay such
tax, the Company shall pay the Qualified Holder in cash the amount equal to the
Fair Market Value for the shares of Common Stock surrendered less the amount of
such tax; provided, however, that such cash amount shall in no event exceed the
Fair Market Value for one share of Common Stock. Elections to surrender shares
for this purpose will be subject to the following restrictions: (a) the
election must be made on or prior to the Tax Date, (b) the election must be
irrevocable, (c) the election shall be subject to disapproval by the
Compensation Committee, and (d) if the person is an officer, director, or 10%
shareholder of the Company within the meaning of Section 16 of the Exchange Act
and the rules thereunder, the election shall be subject to such additional
restrictions as the Compensation Committee may impose in an effort to secure
the benefits of any rules or regulations thereunder. Notwithstanding the
foregoing, the Company shall have no obligation to purchase shares of Common
Stock to the extent such purchase is prohibited by applicable law or the terms
of the Company's then outstanding indebtedness.
9.5 Transfer Restrictions. Except as otherwise provided
herein, the right to receive bonuses granted under the Plan shall not be
transferred, assigned, pledged or hypothecated in any way, whether by operation
of law (including bankruptcy) or otherwise, other than by will or the laws of
descent and distribution or pursuant to a valid qualified domestic relations
order as defined in the Code, and may be exercised during the lifetime of the
Participant only by such Participant or permitted transferee pursuant to a
qualified domestic relations order as defined in the Code. Any attempt to so
transfer, assign, pledge or hypothecate or otherwise dispose of a right to
receive a bonus granted under the Plan contrary to the provisions of the Plan
shall be null and void.
9.6 Effect of Plan Upon Other Compensation Plans. The
adoption of this Plan shall not affect any other compensation or incentive
plans in effect for the Company. Nothing in this Plan shall be construed to
limit the right of the Company (a) to establish any other forms of incentives
or compensation for employees of the Company, or (b) to grant or assume options
or other rights otherwise than under this Plan in connection with any proper
corporate purpose, including but not limited to, the grant or assumption of
options in connection with the acquisition
7
<PAGE> 8
by purchase, lease, merger, consolidation or otherwise, of the business, stock
or assets of any corporation, firm or association.
9.7 Unfunded Plan; Participant as Unsecured Creditor.
The Plan shall be unfunded and unsecured, and the rights of each Participant
hereunder shall be those of a general unsecured creditor.
9.8 Validity. In the event that any provision of the
Plan or any related agreement is held to be invalid, void or unenforceable, the
same shall not affect, in any respect whatsoever, the validity of any other
provision of the Plan or any related agreement.
9.9 Inurement of Rights and Obligations. The rights and
obligations under the Plan and any related agreements shall inure to the
benefit of, and shall be binding upon the Company, its successors and assigns,
and the Participants and their beneficiaries and legal representatives.
9.10 Titles. Titles are provided herein for convenience
only and are not to serve as a basis for interpretation or construction of the
Plan.
9.11 Governing Law. This Plan and any agreements
hereunder shall be administered, interpreted and enforced under the laws of the
State of Delaware, without regard to the provisions thereof relating to
conflict of laws.
9.12 Arbitration. Any controversy, dispute or claim
hereunder shall be settled by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, using a
single arbitrator. Judgment upon any award rendered by such arbitrator may be
entered in any court having jurisdiction thereof. The arbitration shall be
conducted in the City and State of the Company's principal executive office.
In connection with arbitration conducted in accordance herewith the prevailing
party shall be entitled to recover its reasonable attorney's fees.
9.13 Entire Agreement. This Plan constitutes the entire
agreement between the Company and the Participants concerning the subject
matter hereof, and supersedes all other agreements, whether written or oral,
pursuant to such subject matter. Any amendment or modification hereto must be
made in accordance with the provisions of Section 6.3 hereof.
9.14 Bonus Limited to Deductible Amount. Notwithstanding
anything herein to the contrary, no bonus or other amounts shall be payable
hereunder to the extent that the same would not be deductible by the Company
for federal income tax purposes (whether pursuant to Code Sections 162(m),
280G, or otherwise). In the event a bonus or other amount otherwise payable
hereunder would not be payable pursuant to this Section 9.14, the Company in
its sole discretion may elect, but shall not be required, to pay such bonus or
other amount at such time, if any, when such bonus or other amount would be
deductible for federal income tax purposes.
9.15 Tax Treatment. The Company is not responsible for,
and makes no representation or warranty whatsoever as to the tax treatment
hereunder, and each Participant should consult his or her own tax advisor.
8
<PAGE> 9
EXHIBIT A
DEFERRAL LETTER
TO: Board of Directors
Chief Auto Parts Inc. (the "Company")
I hereby elect to defer any payments which may be payable to me under
the Company's 1994 Executive Target Bonus Plan (the "Plan") until the earlier
of (i) ______________, (ii) my Termination of Service (as defined in the Plan)
or (iii) my Retirement (as defined in the Plan). I acknowledge that (i) no
interest shall be paid on such deferral, (ii) this deferral does not guarantee
any particular treatment of such payments for tax purposes, and (iii) I have
been advised to consult with my personal tax advisor regarding any tax
consequences of this deferral.
Dated:
---------------------- ----------------------------
[Name of Participant]
<PAGE> 10
FORM OF
FIRST AMENDMENT TO THE
CHIEF AUTO PARTS INC.
1994 EXECUTIVE TARGET BONUS PLAN
This First Amendment is hereby adopted, made, and entered into by
Chief Auto Parts Inc. (the "Company") in accordance with the terms and
provisions of the Chief Auto Parts Inc. 1994 Executive Target Bonus Plan (the
"Plan"). Capitalized terms used herein and not otherwise defined herein have
the same meaning as in the Plan.
1. The purpose of this First Amendment is to provide for an earlier
payment of cash bonuses for the 1997 and 1998 Plan Years and to revise the
EBITDA targets for such Plan Years.
2. The definition of "Target EBITDA" is hereby amended to read in its
entirety as follows:
"Target EBITDA" for the Plan Years 1994 -1998 shall
mean the following:
<TABLE>
<CAPTION>
Plan Year Adjusted EBITDA
(in millions)
<S> <C>
1994 $24.8
1995 29.5
1996 33.6
1997 37.0
1998 41.0
</TABLE>
3. The definition of "Trigger Event" is hereby amended to read in its
entirety as follows:
"Trigger Event" for each of Plan Years 1997 and 1998
shall mean the delivery by the Company's auditors of
the audited financial statements for such Plan Year.
4. Section 7.1 of the Plan is hereby amended to read in its entirety as
follows:
7.1 When Bonus Payable. On a Trigger Date caused by a
Trigger Event, a Qualified Holder in the Plan shall be entitled to
receive a cash payment from the Company in an amount equal to (i) the
number of shares of Common Stock into which the Options originally
granted to such holder are
<PAGE> 11
exercisable (even if such Options have been exercised to acquire
Option Stock) multiplied by (ii) his or her then accrued Target Bonus
Per Share.
5. Section 7.4 of the Plan is hereby amended by deleting subsection (b)
in its entirety.
6. Except as expressly amended hereby, the Plan remains in full force and
effect.
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed by a duly authorized officer this ____ day of ________, 1997.
CHIEF AUTO PARTS INC.
By:
--------------------------
Its: President
<PAGE> 1
EXHIBIT 10.7
FORM OF
FIRST AMENDMENT TO THE
CHIEF AUTO PARTS INC.
1994 EXECUTIVE OPTION PLAN
This First Amendment is hereby adopted, made, and entered into by Chief
Auto Parts Inc. (the "Company") in accordance with the terms and provisions of
the Chief Auto Parts Inc. 1994 Executive Option Plan (the "Plan"). Capitalized
terms used herein and not otherwise defined herein have the same meaning as
used in the Plan.
1. Section 3.2 of Exhibit A Option Terms and Conditions of the
Plan and Section 2 of each outstanding Option Certificate are hereby amended to
read in their entirety as follows:
Vesting. Options shall fully vest and become exercisable on the date
of the consummation of the Recapitalization (as defined in the
registration statement on Form S-1 initially filed with the Securities
and Exchange Commission on March 27, 1997).
2. Except as expressly amended hereby, the Plan remains in full
force and effect.
IN WITNESS WHEREOF, the Company has caused this First Amendment to be
executed by a duly authorized officer this ____ day of ________, 1997.
CHIEF AUTO PARTS INC.
By:
--------------------------
Its: President
<PAGE> 1
EXHIBIT 12.1
<TABLE>
<CAPTION>
Predecessor
--------------------------------------------------
Six Months Pro Forma
Years Ended Ended Year Ended
Dec. 27, Dec. 26, June 26, December 25,
1992 1993 1994 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) $ (32,220) $ 226 $ 1,417 $ (4,650)
Plus provision (benefit) for income taxes (438) 370 1,383 2,606
-------------- -------------- -------------- --------------
Income (loss) before income taxes (32,658) 596 2,800 (2,044)
Adjustments:
Fixed charges, as below 18,579 19,090 9,318 12,392
Interest income, as below (55) (43) (11) (93)
-------------- -------------- -------------- --------------
Earnings (loss), as adjusted $ (14,134) $ 19,649 $ 12,107 $ 10,255
============== ============== ============== ==============
Fixed charges:
Interest expense, net $ 12,024 $ 12,014 $ 5,807 $ 5,099
Remove effect of interest income 55 43 11 93
Portion of rent expense representative
of interest factor (one-third) 6,500 7,033 3,500 7,200
-------------- -------------- -------------- --------------
Total fixed charges $ 18,579 $ 19,090 $ 9,318 $ 12,392
============== ============== ============== ==============
Ratio of earnings to fixed charges * 1.03 1.30 *
============== ============== ============== ==============
<CAPTION>
Successor
--------------------------------------------------------------------
Six Months Pro Forma
Ended Years Ended Year Ended
Dec. 25, Dec. 31, Dec. 29, Dec. 29,
1994 1995 1996 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) $ (8,098) $ 9,479 $ 1,104 $ (5,488)
Plus provision (benefit) for income taxes 537 5,500 359 (4,035)
-------------- -------------- -------------- --------------
Income (loss) before income taxes (7,561) 14,979 1,463 (9,523)
Adjustments:
Fixed charges, as below 6,255 14,426 15,808 26,794
Interest income, as below (22) (142) (140) (140)
-------------- -------------- -------------- --------------
Earnings (loss), as adjusted $ (1,328) $ 29,263 $ 17,131 $ 17,131
============== ============== ============== ==============
Fixed charges:
Interest expense, net $ 2,533 $ 6,009 $ 6,203 $ 17,189
Remove effect of interest income 22 142 140 140
Portion of rent expense representative
of interest factor (one-third) 3,700 8,275 9,465 9,465
-------------- -------------- -------------- --------------
Total fixed charges $ 6,255 $ 14,426 $ 15,808 $ 26,794
============== ============== ============== ==============
Ratio of earnings to fixed charges * 2.03 1.08 *
============== ============== ============== ==============
<CAPTION>
Pro Forma
Three Months
Three Months Ended Ended
-------------------------------- --------------
March 31, March 30, March 30,
1996 1997 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net income (loss) $ 1,672 $ 170 $ (1,365)
Plus provision (benefit) for income taxes 1,353 341 (683)
-------------- -------------- --------------
Income (loss) before income taxes 3,025 511 (2,048)
Adjustments:
Fixed charges, as below 3,625 4,448 7,007
Interest income, as below (36) (34) (34)
-------------- -------------- --------------
Earnings (loss), as adjusted $ 6,614 $ 4,925 $ 4,925
============== ============== ==============
Fixed charges:
Interest expense, net $ 1,440 $ 1,784 $ 4,343
Remove effect of interest income 36 34 34
Portion of rent expense representative
of interest factor (one-third) 2,149 2,630 2,630
-------------- -------------- --------------
Total fixed charges $ 3,625 $ 4,448 $ 7,007
============== ============== ==============
Ratio of earnings to fixed charges 1.82 1.11 *
============== ============== ==============
</TABLE>
*Earnings were insufficent to cover fixed charges and accordingly, such ratios
are not presented.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 24, 1997
relating to the financial statements of Chief Auto Parts Inc., which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the two years ended December 29, 1996 and for
the six months ended December 25, 1994 listed under Item 16(b) of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the reference to us
under the heading "Independent Accountants" in such Prospectus.
PRICE WATERHOUSE LLP
Dallas Texas
May 2, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 1,138
<SECURITIES> 0
<RECEIVABLES> 5,929
<ALLOWANCES> 339
<INVENTORY> 141,142
<CURRENT-ASSETS> 155,532
<PP&E> 112,190
<DEPRECIATION> 24,304
<TOTAL-ASSETS> 299,472
<CURRENT-LIABILITIES> 107,689
<BONDS> 62,336
0
0
<COMMON> 1
<OTHER-SE> 71,649
<TOTAL-LIABILITY-AND-EQUITY> 299,472
<SALES> 109,854
<TOTAL-REVENUES> 109,854
<CGS> 63,281
<TOTAL-COSTS> 63,281
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,784
<INCOME-PRETAX> 511
<INCOME-TAX> 341
<INCOME-CONTINUING> 170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
