<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
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 5531
(State or other (Primary Standard
jurisdiction Industrial 13-3440178
of incorporation or Classification Code (I.R.S. Employer
organization) 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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Notes Due 2005......... $125,000,000 100% $125,000,000 $37,879
==================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
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 MARCH 27, 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 % 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 % 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 December 29,
1996, 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 would have been $6.2 million. 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. 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" and "The Recapitalization."
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 7.
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
$ .
------------------
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 544 retail stores as
of December 29, 1996 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 $41.6 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 349 of its stores, opened
94 new stores, relocated 17 stores to larger, more favorable locations averaging
5,380 square feet (an increase from approximately 2,780 square feet for such
stores prior to relocation), closed 43 small or underperforming stores and
introduced Chief's commercial sales program into 16 existing stores. 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 positions 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 349 of its stores
from June 1994 through 1996. Eighty-five 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 and to relocate or expand at least 25
stores in 1997.
- 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 radio frequency computer hand held
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. To date, the Company has
introduced commercial sales capabilities into 16 of its existing stores
and plans to expand the commercial sales program to an additional 15
existing stores by mid-1997. 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.
2
<PAGE> 6
- 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
% 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 % 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 will be
required to make an offer to repurchase all
outstanding Notes at a price equal to 101% of the
principal amount thereof plus accrued interest, if
any, to the date of repurchase. See "Description of
the Notes -- Change of Control."
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
December 29, 1996, 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 would have been
approximately $6.2 million. 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
3
<PAGE> 7
Restricted Subsidiaries to pay dividends or make
any other distributions. In addition, the Company
will be obligated, under certain circumstances, 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. However, all
of these limitations and prohibitions are subject
to a number of important qualifications. See
"Description of the Notes -- Certain Covenants."
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 $ 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. 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 $ 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
$ ) 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.
4
<PAGE> 8
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
--------------------------- ENDED ---------------------------
DECEMBER 27, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 29,
1992 1993 1994(B) 1995 1996
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER STORE SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $371,347 $374,618 $399,164 $429,047 $438,182
Gross profit(c).............. 137,651 150,075 151,322 177,419 186,418
Selling, general and
administrative
expenses(d)............... 148,498 131,125 139,083 145,829 167,064
Operating income (loss)(e)... (22,590) 11,427 3,010 21,193 7,732
Net income (loss)(e)......... (32,220) 226 (4,650) 9,479 1,104
OTHER DATA:
EBITDA(f).................... $ (1,407) $ 20,133 $ 25,161 $ 31,385 $ 33,288
EBITDA margin(g)............. (0.4)% 5.4% 6.3% 7.3% 7.6%
Gross margin................. 37.1% 40.1% 37.9% 41.3% 42.5%
Capital expenditures......... $ 6,100 $ 6,178 12,397 $ 11,822 $ 23,275
Ratio of earnings to fixed
charges(h)................ (h) 1.0x (h) 2.0x 1.1x
SELECTED ADDITIONAL OPERATING
DATA:
Average net sales per
store(i).................. $ 727 $ 759 $ 809 $ 845 $ 824
Average net sales per store
square foot(i)............ 220 229 240 242 223
Percentage change in
comparable store net
sales(j).................. 4.5% 1.8% 4.9% 1.8% (2.6)%
PRO FORMA DATA:
Cash interest expense(k)..... $ 16,227
Ratio of total debt to
EBITDA(l)................. 4.5x
Ratio of EBITDA to cash
interest expense(k)....... 2.1x
Ratio of earnings to fixed
charges(h)................ (h)
SELECTED STORE DATA:
Beginning stores............. 526 495 492 495 520
New stores................... 2 14 18 34 51
Relocated stores............. 2 1 6 3 12
Closed stores (including
relocated stores)......... (35) (18) (21) (12) (39)
-------- -------- -------- -------- --------
Ending stores............. 495 492 495 520 544
======== ======== ======== ======== ========
Remodeled stores............. 25 29 39 98 225
Average square footage per
store(i).................. 3,312 3,321 3,377 3,489 3,695
Total square footage at
period end (in
thousands)(i)............. 1,639 1,639 1,694 1,848 2,084
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
DECEMBER 29, 1996
-----------------------
ACTUAL ADJUSTED(M)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................... $ 1,140 $ 1,140
Working capital............................................. 47,987 48,423
Total assets................................................ 298,348 303,863
Total debt, including current maturities(l)................. 81,986 150,136
Stockholders' equity........................................ 71,480 13,276
</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
"Selected Financial and Other Data" 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) Pro forma year ended December 25, 1994 includes a $12.9 million
Merger-related inventory charge. Year ended December 27, 1992 includes a
$6.7 million non-cash provision related to discontinued inventory.
(d) 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. 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.
(e) 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. Pro forma year ended December 25, 1994
includes a $12.9 million Merger-related inventory charge. 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, a $6.7
million non-cash provision related to discontinued inventory and a $3.5
million non-cash provision related to various insurance reserves.
(f) EBITDA represents income (loss) before interest expense (net), income
taxes, depreciation and amortization and (i) 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, (ii) in pro forma year ended December 25, 1994, excludes a
$12.9 million Merger-related inventory charge and (iii) 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.
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.
(g) EBITDA margin represents EBITDA as a percentage of net sales.
(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 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.
(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 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, 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 $8.0 million
during year ended December 29, 1996.
(l) Total debt comprises long-term borrowings and capital leases.
(m) The adjusted balance sheet data as of December 29, 1996 give effect to the
Recapitalization as if it had occurred on December 29, 1996.
6
<PAGE> 10
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.
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 December
29, 1996, after giving effect to the Recapitalization as if it had occurred on
such date, the Company's total indebtedness would have been approximately $150.1
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.
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)
certain indebtedness under the New Credit Facility will be at variable rates of
interest, 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.
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.
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. Holders of existing or future
secured indebtedness of the Company permitted under the Indenture, including the
New Credit Facility, will have claims
7
<PAGE> 11
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. 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. 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 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 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.
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.
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. 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
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."
8
<PAGE> 12
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. The loss of the services
of one or more of these senior executives 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 David H.
Eisenberg, the President and Chief Executive Officer of the Company, 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."
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
9
<PAGE> 13
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 a significant number of
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. 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."
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 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 69% are located in California, and an even 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
10
<PAGE> 14
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.
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 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
11
<PAGE> 15
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 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 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.
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 $ 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, 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. See "Use of Proceeds," "Certain Transactions" and
"Description of New Credit Facility."
12
<PAGE> 16
USE OF PROCEEDS
The net proceeds from the sale of the Notes are estimated to be
approximately $ 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
$ ) under 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."
13
<PAGE> 17
CAPITALIZATION
The following table sets forth the unaudited cash and cash equivalents and
the capitalization of the Company at December 29, 1996 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 DECEMBER 29, 1996
------------------------
AS
ACTUAL ADJUSTED
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 1,140 $ 1,140
======== ========
Long-term debt (including current portion):
Existing Credit Facility.................................. $ 61,000 $ --
New Credit Facility....................................... -- 4,150
Industrial development bonds.............................. 2,022 2,022
Senior Notes Due 2005..................................... -- 125,000
Capital lease obligations................................. 18,964 18,964
-------- --------
Total debt.................................................. 81,986 150,136
-------- --------
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 77,686
Less: management notes receivable......................... (1,821) (911)
Retained earnings (deficit)............................... 2,485 (63,500)
-------- --------
Total stockholders' equity.................................. 71,480 13,276
-------- --------
Total capitalization........................................ $153,466 $163,412
======== ========
</TABLE>
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<PAGE> 18
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. The historical
financial data were derived from the Company's audited Financial Statements,
appearing 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 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
YEARS ENDED MONTHS MONTHS YEARS ENDED
------------------- ENDED ENDED -------------------
DEC. 27, DEC. 26, JUNE 26, DEC. 25, DEC. 31, DEC. 29,
1992 1993 1994 1994 1995 1996
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER STORE SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $371,347 $374,618 $195,286 $203,878 $429,047 $438,182
Cost of goods sold,
warehousing and
distribution(b)........... 233,696 224,543 114,452 133,390 251,628 251,764
-------- -------- -------- -------- -------- --------
Gross profit(b).............. 137,651 150,075 80,834 70,488 177,419 186,418
Selling, general and
administrative
expenses(c)............... 148,498 131,125 68,642 70,500 145,829 167,064
Depreciation and
amortization.............. 11,743 7,523 3,626 5,020 10,397 11,622
-------- -------- -------- -------- -------- --------
Operating income (loss)(d)... (22,590) 11,427 8,566 (5,032) 21,193 7,732
Interest expense, net........ 12,024 12,014 5,807 2,533 6,009 6,203
Other (expense) income,
net....................... 1,956 1,183 41 4 (205) (66)
-------- -------- -------- -------- -------- --------
Income (loss) before income
taxes..................... (32,658) 596 2,800 (7,561) 14,979 1,463
Income tax expense
(benefit)................. (438) 370 1,383 537 5,500 359
-------- -------- -------- -------- -------- --------
Net income (loss)(d)......... $(32,220) $ 226 $ 1,417 $ (8,098) $ 9,479 $ 1,104
======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(e).................... $ (1,407) $ 20,133 $ 12,233 $ 12,869 $ 31,385 $ 33,288
EBITDA margin(f)............. (0.4)% 5.4% 6.3% 6.3% 7.3% 7.6%
Gross margin................. 37.1% 40.1% 41.4% 34.6% 41.3% 42.5%
Capital expenditures......... $ 6,100 $ 6,178 $ 5,885 $ 6,512 $ 11,822 $ 23,275
Ratio of earnings to fixed
charges(g)................ (g) 1.0x 1.3x (g) 2.0x 1.1x
SELECTED ADDITIONAL OPERATING
DATA:
Average net sales per
store(h).................. $ 727 $ 759 $ 397 $ 413 $ 845 $ 824
Average net sales per store
square foot(h)............ $ 220 $ 229 $ 118 $ 121 $ 242 $ 223
Percentage change in
comparable store net
sales(i).................. 4.5% 1.8% 6.0% 3.9% 1.8% (2.6)%
PRO FORMA DATA:
Cash interest expense(j)..... $ 16,227
Ratio of total debt to
EBITDA(k)................. 4.5x
Ratio of EBITDA to cash
interest expense(j)....... 2.1x
Ratio of earnings to fixed
charges(g)................ (g)
</TABLE>
15
<PAGE> 19
<TABLE>
<CAPTION>
PREDECESSOR (A) SUCCESSOR (A)
------------------------------ ------------------------------
SIX SIX
YEARS ENDED MONTHS MONTHS YEARS ENDED
------------------- ENDED ENDED -------------------
DEC. 27, DEC. 26, JUNE 26, DEC. 25, DEC. 31, DEC. 29,
1992 1993 1994 1994 (B) 1995 1996
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED STORE DATA:
Beginning stores............. 526 495 492 493 495 520
New stores................... 2 14 9 9 34 51
Relocated stores............. 2 1 4 2 3 12
Closed stores (including
relocated)................ (35) (18) (12) (9) (12) (39)
-------- -------- -------- -------- -------- --------
Ending stores........ 495 492 493 495 520 544
======== ======== ======== ======== ======== ========
Remodeled stores............. 25 29 13 26 98 225
Average square footage per
store(h).................. 3,312 3,321 3,362 3,408 3,489 3,695
Total square footage at
period end (in
thousands)(h)............. 1,639 1,639 1,673 1,694 1,848 2,084
BALANCE SHEET DATA (AT PERIOD
END):
Cash and cash equivalents.... $ 885 $ 1,095 $ 1,116 $ 1,133 $ 1,202 $ 1,140
Working capital (deficit).... (20,088) (21,705) (26,075) 17,484 23,961 47,987
Total assets................. 147,863 148,189 151,414 229,659 254,419 298,348
Total debt, including current
maturities(k)............. 117,876 117,935 108,422 61,130 63,471 81,986
Stockholders' equity
(deficit)(l).............. (49,395) (48,820) (47,303) 60,646 70,275 71,480
</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
"-- Pro Forma 1994 Information" below for further information regarding the
Merger.
(b) Six months ended December 25, 1994 includes a $12.9 million Merger-related
inventory charge. Year ended December 27, 1992 includes a $6.7 million
non-cash provision related to discontinued inventory.
(c) 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. 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.
(d) 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. Six months ended December 25,
1994 includes a $12.9 million Merger-related inventory charge. 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, a
$6.7 million non-cash provision related to discontinued inventory and a
$3.5 million non-cash provision related to various insurance reserves.
(e) EBITDA represents income (loss) before interest expense (net), income
taxes, depreciation and amortization and (i) 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, (ii) in the six months ended December 25, 1994, excludes a
$12.9 million Merger-related inventory charge and (iii) 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.
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.
(f) EBITDA margin represents EBITDA as a percentage of net sales.
16
<PAGE> 20
(g) 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.
(h) 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.
(i) 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.
(j) Pro forma cash interest expense for the year ended December 29, 1996 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, 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 $8.0 million
during year ended December 29, 1996.
(k) Total debt comprises long-term borrowings and capital leases.
(l) No cash dividends have been paid during the presented periods.
17
<PAGE> 21
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.
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.
18
<PAGE> 22
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 $41.6 million in total capital expenditures, doubled the average
number of SKUs in its stores and either remodeled or opened as new stores 85% of
its current stores:
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Stores at beginning of period............................... 492 495 520
New stores.................................................. 18 34 51
Relocated stores............................................ 6 3 12
Closed stores (including relocated stores).................. (21) (12) (39)
--- --- ---
Stores at end of period................................... 495 520 544
=== === ===
Remodeled or expanded stores................................ 39 98 225
=== === ===
</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 fiscal years indicated, the
percentage relationship to net sales of certain items included in Chief's
Financial Statements.
19
<PAGE> 23
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
---------------------------
PRO
FORMA ACTUAL ACTUAL
1994 1995 1996
--------- ------ ------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................... 100.0% 100.0% 100.0%
Cost of goods sold, warehousing and distribution........ 62.1 58.7 57.5
----- ----- -----
Gross profit............................................ 37.9 41.3 42.5
Selling, general and administrative..................... 34.8 34.0 38.1
Depreciation and amortization........................... 2.3 2.4 2.6
----- ----- -----
Operating income........................................ 0.8 4.9 1.8
===== ===== =====
OTHER DATA:
EBITDA.................................................. 6.3 7.3 7.6
===== ===== =====
</TABLE>
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 (225
stores were remodeled in fiscal 1996 compared to 98 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 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. 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
$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.
20
<PAGE> 24
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.
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 (98 stores were remodeled during
fiscal 1995 compared to 39 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
21
<PAGE> 25
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, information systems improvements and distribution center
improvements). At December 29, 1996, the Company had net working capital of
$48.0 million and $18.5 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 65 new stores,
including the relocation of approximately 25 existing stores. Additionally, the
Company plans to remodel approximately 80 stores 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
22
<PAGE> 26
$77.0 million is expected to be available under the commitment upon completion
of the Recapitalization, of which approximately $69.0 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
6.4% at December 29, 1996 and 8.5% at December 31, 1995.
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.
23
<PAGE> 27
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 544 retail stores as
of December 29, 1996 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. 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 $41.6
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
349 of its stores, opened 94 new stores, relocated 17 stores to larger, more
favorable locations averaging 5,380 square feet (an increase from approximately
2,780 square feet for such stores prior to relocation), closed 43 small or
underperforming stores and introduced Chief's commercial sales program into 16
existing stores. 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
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.
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<PAGE> 28
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 positions 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 349 of its stores
from June 1994 through 1996. Eighty-five 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 and to relocate or expand at least 25
stores in 1997.
- 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 radio frequency computer hand held
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. To date, the Company has
introduced commercial sales capabilities into 16 of its existing stores
and plans to expand the commercial sales program to an additional 15
existing stores by mid-1997. 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 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.
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<PAGE> 29
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 December 29, 1996, the Company operated 544 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 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
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<PAGE> 30
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 373 stores. Chief has increased the average size of its
stores to 3,695 square feet at year-end 1996 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 December 29, 1996.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
STORE SIZE OF STORES OF STORES
- ---------- --------- ----------
<S> <C> <C>
5,000 sq. ft. or greater.................................... 86 16%
4,000 -- 5,000 sq. ft. ..................................... 105 19
3,500 -- 4,000 sq. ft. ..................................... 171 32
3,000 -- 3,500 sq. ft. ..................................... 39 7
Less than 3,000 sq. ft...................................... 143 26
--- ---
Total............................................. 544 100%
</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
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
27
<PAGE> 31
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 544 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 544 operating stores, eight principal offices and two
warehouses by state as of December 29, 1996.
<TABLE>
<CAPTION>
NUMBER OF
OPERATING NUMBER OF OFFICES
STATE STORES AND WAREHOUSES
- ----- --------- -----------------------
<S> <C> <C>
California.......................................... 378 4 offices, 1 warehouse
Texas............................................... 129 4 offices, 1 warehouse
Nevada.............................................. 25 --
Tennessee........................................... 8 --
Arizona............................................. 3 --
Arkansas............................................ 1 --
--- -----------------------
Total..................................... 544 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. 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 349 stores since June 1994, at an
approximate total cost of $14.9 million and expects to remodel an additional 80
stores in 1997, at an approximate total cost of $2.5 million.
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
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<PAGE> 32
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>
FISCAL YEAR
--------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Stores at beginning of period......................... 526 495 492 495 520
New stores............................................ 2 14 18 34 51
Relocated stores...................................... 2 1 6 3 12
Closed stores (including relocated stores)............ (35) (18) (21) (12) (39)
--- --- --- --- ---
Stores at end of period..................... 495 492 495 520 544
=== === === === ===
Remodeled or expanded stores.......................... 25 29 39 98 225
=== === === === ===
</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 December 29, 1996:
<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........................... 304,000 406
------- ---
Total................................................. 549,000 544
======= ===
</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. To date, the Company has implemented the PPW program in 16 existing
retail stores, including ten in Dallas, two in Las Vegas and four in Sacramento.
The Company will begin to provide commercial service at 15 additional existing
stores in California in the second quarter of 1997. The Company intends to
capitalize on its 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 one centralized commercial call center in Texas, with a second to become
operational in California during the second quarter of 1997. Commercial
customers call a toll-free
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<PAGE> 33
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.
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 73 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.
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
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<PAGE> 34
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 which emphasizes the Company's significantly improved merchandising
strategy. The 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
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<PAGE> 35
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 February 5, 1997, the Company employed a total of 5,586 employees,
consisting of 3,270 full-time employees and 2,316 part-time employees.
Approximately 87% of these employees were employed in store operations, 8% in
administrative or corporate positions and 5% in distribution. On August 26,
1996, a collective bargaining representative was certified for the approximately
20 truck drivers and yard employees at the Company's Cerritos, California
distribution center and a collective bargaining agreement for those employees
was reached in February 1997. The Company has had no labor-related work
stoppages and believes that its labor relations are good.
PROPERTIES
As of December 29, 1996, the Company owned 53 of its 544 operating stores
and leased or subleased the remaining 491 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 existing leases on
commercially reasonable terms. The minimum lease term on 77 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
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<PAGE> 36
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 (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
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are a significant number of 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. 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.
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
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<PAGE> 38
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.
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
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<PAGE> 39
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.
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 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.
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<PAGE> 40
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
Larry L. Buresh...................... 75 225
Thomas A. Hough...................... 249.69 249.69
Mary M. Mahon........................ 192.95 192.95
Paul F. Stevenson.................... 192.95 192.95
</TABLE>
- ---------------
(1) The Common Stock of the Company is not publicly traded. As a result, the
Board of Directors has decided to use $ 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 ($ ), 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 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
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<PAGE> 41
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).
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
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<PAGE> 42
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
$ per share (subject to certain adjustments). 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 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 June 30, 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. In
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<PAGE> 43
connection with the Recapitalization, the Bonus Plan will be amended to provide
for an acceleration of the bonuses accrued through fiscal 1996. This
acceleration 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 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
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<PAGE> 44
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.
41
<PAGE> 45
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%
Oaktree Capital Management LLC(4)........................... 42,489.41 77.6
The Principal Fund.......................................... 42,489.41 77.6
General Electric Capital Corporation(5)..................... 5,689.50 9.4
David H. Eisenberg(6)....................................... 2,651.78 4.8
Larry L. Buresh(7).......................................... 400.00 *
Thomas A. Hough(8).......................................... 819.74 1.5
Mary M. Mahon(9)............................................ 626.48 1.1
William V. Pantuso(10)...................................... 511.70 *
Paul F. Stevenson(11)....................................... 596.83 1.1
Harold S. Eastman(12)....................................... 554.89 1.0
Stephen A. Kaplan(13)....................................... 42,489.41 77.6
Richard Masson(14).......................................... 47,210.45 86.2
All directors and executive officers as a group
(9 persons)(15)........................................... 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. The general partner of The
Principal Fund is TAMCO, which is a wholly owned subsidiary of The TCW
Group, Inc. Pursuant to a subadvisory agreement with TAMCO, Oaktree manages
the investments and assets of The Principal Fund.
(5) All such shares represent shares subject to warrants that are currently
exercisable and are beneficially owned by the named stockholder.
(6) 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.
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<PAGE> 46
(7) Includes options to purchase 300 shares of Common Stock, all of which will
be exercised in connection with the Recapitalization.
(8) 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.
(9) 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.
(10) 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.
(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 36.6 shares of Common Stock.
(12) Includes options to purchase 443.91 shares of Common Stock, none of which
will be exercised in connection with the Recapitalization.
(13) 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.
(14) All such shares are also shown as beneficially owned by Oaktree and The TCW
Group, Inc. 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.
(15) See Notes (6)-(14).
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 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 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
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<PAGE> 47
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 accelerate the
payment of the bonuses accrued through fiscal 1996 pursuant to the Bonus Plan.
This acceleration 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 accelerated 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.
DESCRIPTION OF NEW CREDIT FACILITY
As part of the Recapitalization, the Company will enter into the New Credit
Facility with , as agent. The New Credit Facility will consist of
a revolving credit facility in an aggregate principal amount of $100.0 million.
Availability under the New Credit Facility will be 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 $69.0 million is expected to be available for additional
borrowings on such date.
The definitive New Credit Facility has not yet been fully negotiated and
may contain provisions different from those set forth below. This information
relating to the New Credit Facility is qualified in its entirety by reference to
the complete text of the documents entered into or to be entered into in
connection therewith. The following is a description of the general terms that
are contemplated to be included in the New Credit Facility.
Indebtedness of the Company under the New Credit Facility will be secured
by a first perfected security lien on substantially all of the Company's
inventory and accounts receivable.
Indebtedness under the New Credit Facility will bear interest at an initial
rate, as set forth in the New Credit Facility. Subsequent pricing will be
subject to a performance grid based on a leverage test.
The New Credit Facility will require the Company to meet certain financial
tests and will also contain certain affirmative and negative covenants and
events of default customary for a transaction of its type. These covenants are
expected to be more restrictive than those in favor of holders of the Notes as
described herein and as set forth in the Indenture.
44
<PAGE> 48
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 , as Trustee
(the "Trustee").
The following is a summary of certain 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 ), 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 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 % 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
45
<PAGE> 49
receive interest due on the relevant interest payment date); provided, however,
that at least % 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 December 29, 1996, 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 $6.2 million (excluding unused
commitments of approximately $95.8 million under the New Credit Facility, of
which approximately $73 million would have then been eligible for borrowing
thereunder), all of which is senior secured Indebtedness. 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 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 purchase (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
46
<PAGE> 50
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 purchase
(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 purchased.
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, 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 "-- Events of Default."
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.
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<PAGE> 51
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 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;
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(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.
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;
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(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".
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
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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 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
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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 (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,
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(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 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.
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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 declaration 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 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.
Under certain circumstances, the Holders of a majority in principal amount of
the outstanding Notes may rescind any such acceleration with respect to the
Notes and its consequences.
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
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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 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
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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 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.
CONCERNING THE TRUSTEE
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 .
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
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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.
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).
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"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 Obligations" 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
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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 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
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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 sinking fund obligation or otherwise, (ii) is convertible 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
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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 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
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<PAGE> 65
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 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
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, , 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,
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<PAGE> 66
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 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 -- Limitations on
Transaction with Affiliates;" (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 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.
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"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.
"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.
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<PAGE> 68
"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).
"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
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<PAGE> 69
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 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.
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<PAGE> 70
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.
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.
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<PAGE> 71
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.
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<PAGE> 72
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Financial Statements:
Balance Sheets of December 31, 1995 and December 29,
1996................................................... F-3
Statements of Operations for the six months ended June 26,
1994 (Predecessor) and December 25, 1994, and for the
two years ended December 29, 1996...................... F-4
Statements of Stockholders' Equity for the six months
ended June 26, 1994 (Predecessor) and December 25,
1994, and for the two years ended December 29, 1996.... F-5
Statements of Cash Flows for the six months ended June 26,
1994 (Predecessor) and December 25, 1994, and for the
two years ended December 29, 1996...................... F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 73
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
flows 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> 74
CHIEF AUTO PARTS INC.
BALANCE SHEETS -- DECEMBER 31, 1995 AND DECEMBER 29, 1996
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents........................................ $ 1,202 $ 1,140
Accounts receivable, trade.................................. 1,337 1,529
Accounts receivable, other, less allowances of $480 and
$300...................................................... 3,741 3,955
Merchandise inventories..................................... 107,633 140,418
Deferred income taxes....................................... 2,959 6,084
Prepaid and other........................................... 709 1,014
-------- --------
Total current assets.............................. 117,581 154,140
PROPERTY AND EQUIPMENT, at cost:
Land........................................................ 12,451 11,935
Buildings................................................... 14,066 14,037
Leasehold improvements...................................... 10,177 15,194
Furniture and equipment..................................... 28,855 43,905
Assets under capital leases................................. 23,902 21,356
Equipment and construction in process....................... 1,155 3,301
-------- --------
Total property and equipment...................... 90,606 109,728
Less accumulated depreciation and amortization.............. 13,385 22,018
-------- --------
Net property and equipment.................................. 77,221 87,710
GOODWILL, less accumulated amortization of $2,144 and
$3,574.................................................... 53,436 42,006
DEFERRED INCOME TAXES....................................... 4,791 13,018
OTHER ASSETS................................................ 1,390 1,474
-------- --------
TOTAL............................................. $254,419 $298,348
======== ========
LIABILITIES
CURRENT LIABILITIES:
Current portion of long-term debt........................... $ 573 $ 622
Current portion of obligations under capital leases......... 1,223 1,318
Trade accounts payable...................................... 55,696 71,928
Accrued salaries, benefits and related taxes................ 11,929 11,180
Accrued taxes (excluding payroll)........................... 5,284 5,146
Other accrued liabilities................................... 18,915 15,959
-------- --------
Total current liabilities......................... 93,620 106,153
LONG-TERM DEBT, less current portion........................ 40,521 62,400
OBLIGATIONS UNDER CAPITAL LEASES, less current portion...... 21,154 17,646
OTHER NONCURRENT LIABILITIES................................ 28,849 40,669
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par. 100,000 shares authorized, shares
issued and outstanding: 49,898............................ 1 1
Additional paid-in capital.................................. 70,815 70,815
Less management notes receivable............................ (1,922) (1,821)
Retained earnings........................................... 1,381 2,485
-------- --------
Total stockholders' equity........................ 70,275 71,480
-------- --------
TOTAL............................................. $254,419 $298,348
======== ========
</TABLE>
See notes to financial statements
F-3
<PAGE> 75
CHIEF AUTO PARTS INC.
STATEMENTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 26, 1994 (PREDECESSOR)
AND DECEMBER 25, 1994 AND TWO YEARS ENDED DECEMBER 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEARS ENDED
------------------------ DECEMBER
JUNE DECEMBER -------------------
1994 1994 1995 1996
------------- -------- -------- --------
(PREDECESSOR)
<S> <C> <C> <C> <C>
NET SALES........................................ $195,286 $203,878 $429,047 $438,182
COSTS AND EXPENSES:
Cost of goods sold, warehousing and
distribution................................... 114,452 133,390 251,628 251,764
Selling, general and administrative.............. 68,642 70,500 145,829 167,064
Depreciation and amortization.................... 3,626 5,020 10,397 11,622
-------- -------- -------- --------
Operating income (loss).......................... 8,566 (5,032) 21,193 7,732
Interest expense, net............................ 5,807 2,533 6,009 6,203
Other (expense) income, net...................... 41 4 (205) (66)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES................ 2,800 (7,561) 14,979 1,463
INCOME TAX EXPENSE............................... 1,383 537 5,500 359
-------- -------- -------- --------
NET INCOME (LOSS)................................ $ 1,417 $ (8,098) $ 9,479 $ 1,104
======== ======== ======== ========
</TABLE>
See notes to financial statements
F-4
<PAGE> 76
CHIEF AUTO PARTS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY -- SIX MONTHS ENDED
JUNE 26, 1994 (PREDECESSOR) AND DECEMBER 25, 1994 AND TWO
YEARS ENDED DECEMBER 29, 1996
(DOLLARS IN THOUSANDS)
<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
======= == ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
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>
See notes to financial statements
F-5
<PAGE> 77
CHIEF AUTO PARTS INC.
STATEMENTS OF CASH FLOWS -- SIX MONTHS ENDED JUNE 26, 1994 (PREDECESSOR)
AND DECEMBER 25, 1994 AND TWO YEARS ENDED DECEMBER 29, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEARS ENDED
------------------------ DECEMBER
JUNE DECEMBER -------------------
1994 1994 1995 1996
------------- -------- -------- --------
(PREDECESSOR)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 1,417 $ (8,098) $ 9,479 $ 1,104
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Depreciation and amortization............................ 3,626 5,020 10,397 11,622
Amortization of deferred financing costs................. 34 133 266 319
Deferred compensation.................................... -- 779 1,558 1,558
Provision for store closures and legal reserves.......... -- -- -- 14,000
Loss on sale of assets................................... 34 17 258 95
Provision for deferred income taxes...................... -- -- 1,500 (1,352)
Merger-related non-recurring charge to cost of goods
sold.................................................. -- 12,877 -- --
Increase (decrease) from changes in:
Accounts receivable................................... 1,201 (630) (860) (406)
Merchandise inventories............................... (4,660) (5,233) (17,565) (32,785)
Prepaid and other..................................... 52 (412) 745 (305)
Other assets.......................................... (238) (116) (101) (30)
Accounts payable...................................... 9,987 (773) 5,879 16,232
Accrued salaries, benefits and related taxes.......... 1,586 (1,026) (1,661) (749)
Accrued taxes......................................... (1,347) 2,018 (1,458) (138)
Other accrued liabilities............................. 1,419 (397) 2,770 (2,956)
Other noncurrent liabilities.......................... 130 5,695 (2,118) (4,345)
------- -------- -------- --------
Net cash provided by operating activities.................. 13,241 9,854 9,089 1,864
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment............... 2,222 1,666 149 870
Additions to property and equipment........................ (5,885) (6,512) (11,822) (23,275)
Purchase of Predecessor, net of cash acquired.............. -- (67,629) -- --
------- -------- -------- --------
Net cash used by investing activities...................... (3,663) (72,475) (11,673) (22,405)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (payments) under revolving credit loan....... (5,806) (500) 4,000 22,500
Initial funding of revolving credit loan................... -- 35,000 -- --
Deferred financing costs................................... -- (1,332) -- (372)
Issuance of stock, net of notes receivable................. -- 68,744 47 --
Principal payments on long-term debt....................... (3,713) (248) (532) (572)
Principal payments of obligations under capital leases..... (138) (399) (965) (1,178)
Payments on management notes receivable for common stock... 100 -- 103 101
Payment of Predecessor debt................................ -- (88,453) -- --
Elimination of Predecessor book value...................... -- 47,303 -- --
------- -------- -------- --------
Net cash provided (used) by financing activities........... (9,557) 60,115 2,653 20,479
------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS............ 21 (2,506) 69 (62)
CASH AND EQUIVALENTS, beginning of period.................. 1,095 3,639 1,133 1,202
------- -------- -------- --------
CASH AND EQUIVALENTS, end of period........................ $ 1,116 $ 1,133 $ 1,202 $ 1,140
======= ======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.............................................. $ 5,904 $ 2,291 $ 6,199 $ 5,819
======= ======== ======== ========
Income taxes paid.......................................... $ 70 $ 1,338 $ 3,688 $ 1,700
======= ======== ======== ========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 78
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 years ended
December 29, 1996 and December 31, 1995 was $1,430,000 each year, and for the
six months ended December 25, 1994 was $715,000.
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. During the years ended December 29, 1996 and December
31, 1995, advertising expense, net of reimbursements by vendors, was $3,842,000
and $2,771,000, respectively, and for the six months ended December 25, 1994 and
June 26, 1994 (Predecessor), was $1,502,000 and $3,239,000, respectively.
F-7
<PAGE> 79
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> 80
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, are $985,000 and $932,000, at December 29, 1996 and
December 31, 1995, 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> 81
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 years ended December 29, 1996
and December 31, 1995 was $28,395,000 and $24,826,000, respectively, and for the
six months ended December 25, 1994 and June 26, 1994 (Predecessor) was
$11,100,000 and $10,500,000, 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> 82
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> 83
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 29, 1996 and December 31, 1995 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> 84
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 years ended December 29, 1996 and December 31,
1995, Chief contributed approximately $300,000 and $200,000, respectively, to
the plan. During the six months ended December 25, 1994 and June 26, 1994
(Predecessor), Chief contributed approximately $200,000 on a combined basis 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 year ended December 31, 1995, Chief paid total claims of
approximately $843,000 through the indemnity plan, and for the six months ended
December 25, 1994 and June 26, 1994 (Predecessor), paid $441,000 and $600,000,
respectively, 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 years ended December 29, 1996 and December 31,
1995 was $1,558,000 each year, and during the six months ended December 25, 1994
was $779,000.
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:
- Year ended December 29, 1996: capital leases of $2,396,000 were retired.
- 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.
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> 85
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 associate store 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, several 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 a significant number of 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> 86
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> 87
- ------------------------------------------------------
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.......................... 7
The Recapitalization.................. 12
Use of Proceeds....................... 13
Capitalization........................ 14
Selected Financial and Other Data..... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 24
Management............................ 34
Principal Stockholders................ 42
Certain Transactions.................. 43
Description of New Credit Facility.... 44
Description of the Notes.............. 45
Underwriting.......................... 67
Legal Matters......................... 67
Independent Accountants............... 68
Available Information................. 68
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> 88
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..................................... *
Accounting fees and expenses................................ *
Printing and engraving fees and expenses.................... *
Blue sky fees and expenses.................................. *
Transfer agent fees and expenses............................ *
Miscellaneous expenses...................................... *
-------
Total..................................................... *
=======
</TABLE>
- ---------------
* To be completed by amendment.
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.
II-1
<PAGE> 89
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 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
, as trustee
*5.1 Opinion of Gibson, Dunn & Crutcher LLP regarding the
legality of the securities being issued
*10.1 Form of Amendment to 1994 Executive Target Bonus Plan
10.2 Form of Series I Promissory Note
10.3 Form of Series II Promissory Note
10.4 Form of Stock Pledge Agreement
</TABLE>
II-2
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
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.
*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.
(b) Financial Statement Schedules
Schedule II
Valuation and Qualifying Accounts.
Six months ended December 25, 1994 and years ended December 31, 1995
and December 29, 1996.
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> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Dallas, State of Texas
on March 26, 1997.
CHIEF AUTO PARTS INC.
By: /s/ DAVID H. EISENBERG
----------------------------------
David H. Eisenberg
President
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David H. Eisenberg and Thomas A. Hough,
individually, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including pre-effective and
post-effective amendments) to this Registration Statement, and any Registration
Statement filed pursuant to Rule 462 under the Securities Act of 1933, and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of March 26, 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/ HAROLD S. EASTMAN Director
- -----------------------------------------------------
Harold S. Eastman
/s/ STEPHEN A. KAPLAN Director
- -----------------------------------------------------
Stephen A. Kaplan
/s/ RICHARD MASSON Director
- -----------------------------------------------------
Richard Masson
</TABLE>
II-4
<PAGE> 92
SCHEDULE II
CHIEF AUTO PARTS INC.
VALUATION AND QUALIFYING ACCOUNTS
SIX MONTHS ENDED DECEMBER 25, 1994 AND
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 29, 1996
(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>
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
Year Ended December 31, 1995:
Inventory Reserve.............................. 4,684 506 757 4,433
Store Closing Reserve.......................... 8,541 500 1,773 7,268
Six Months Ended December 25, 1994:
Inventory Reserve.............................. 5,424 399 1,139 4,684
Store Closing Reserve.......................... 8,870 375 704 8,541
</TABLE>
- ---------------
(a) Comprised of disposal of discontinued inventory, closed store assets and
lease payments.
<PAGE> 93
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
, as trustee
*5.1 Opinion of Gibson, Dunn & Crutcher LLP regarding the
legality of the securities being issued
*10.1 Form of Amendment to 1994 Executive Target Bonus Plan
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.
*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.
<PAGE> 1
EXHIBIT 3.1
FOURTH RESTATED
CERTIFICATE OF INCORPORATION
OF
CHIEF AUTO PARTS INC.
FIRST: The name of the corporation (hereinafter called the
"Corporation") is CHIEF AUTO PARTS INC.
SECOND: The address, including street, number, city, and county, of
the registered office of the Corporation in the State of Delaware is 1013
Centre Road, City of Wilmington 19805, County of New Castle; and the name of
the registered agent of the Corporation in the State of Delaware at such
address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the Delaware General
Corporation Law.
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is one hundred thousand (100,000) shares of
common stock, all of which shall be of the same series with $.01 par value per
share.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors.
The number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the
By-laws. The phrase "whole Board" and the phrase "total number of the
directors" shall be deemed to have the same meaning, to wit, the total
number of directors which the Corporation would have if there were no
vacancies. No election of directors need be by written ballot unless
required by the By-laws of the Corporation.
2. After the original or other By-laws of the Corporation have
been adopted, amended, or repealed, as the case may be, in accordance
with the provisions of Section 109 of the Delaware General Corporation
Law, and, after the Corporation has received any payment for any of
its stock, the power to adopt, amend, or repeal the By-laws of the
Corporation may be exercised by the Board of Directors of the
Corporation.
SEVENTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same may be amended or supplemented, a director of the
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. If the Delaware
General Corporation Law is amended after the date of the filing of this
<PAGE> 2
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended from
time to time. No repeal or modification of this Article SEVENTH by the
stockholders shall adversely affect any right or protection of a director of
the Corporation existing by virtue of this Article SEVENTH at the time of such
repeal or modification.
EIGHTH: From time to time and subject to the provisions of any
Certificate of Designation filed by the Board of Directors, any of the
provisions of this Certificate of Incorporation may be amended, altered, or
repealed, and other provisions authorized by the laws of the State of Delaware
at the time in force may be added or inserted in the manner and at the time
prescribed by said laws, and all rights at any time conferred upon the
stockholders of the Corporation by this Certificate of Incorporation are
granted subject to the provisions of this Article EIGHTH.
2
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
CHIEF AUTO PARTS INC.
a Delaware corporation
As adopted on March 11, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
Meetings of Stockholders; Stockholders' Consent in Lieu of Meeting . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 3. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 4. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 5. Stockholders' Consent in Lieu of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1. General Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2. Number and Term of Holding Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3. Chairman of the Board and organization of Business . . . . . . . . . . . . . . . . . . . . . 3
SECTION 4. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 5. Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 6. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 7. Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 8. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 9. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 10. Quorum and Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 11. Unanimous Director Consent in Lieu of
Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 12. Action by Means of Conference Telephone or Similar Communications Equipment . . . . . . . . . 5
SECTION 13. Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE IV
Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 1. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
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<TABLE>
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ARTICLE V
Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 1. Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2. The President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 4. Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 5. The Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 6. Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 7. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE VI
Contracts, Checks, Drafts, Bank Accounts, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 1. Execution of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3. Proxies in Respect of Stock or Other Securities of Other Corporations . . . . . . . . . . . . 8
ARTICLE VII
Shares and Their Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 1. Certificates for Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2. Transfer of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3. Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
SECTION 4. Lost, Stolen, Destroyed, and Mutilated Certificates . . . . . . . . . . . . . . . . . . . . .10
ARTICLE VIII
Books and Records, Seal, Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
SECTION 2. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
SECTION 3. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE IX
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
SECTION 1. Action, etc, Other than by or in the Right of the Corporation . . . . . . . . . . . . . . .12
SECTION 2. Actions, etc., by or in the Right of the Corporation . . . . . . . . . . . . . . . . . . . .12
SECTION 3. Determination of Right of Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4. Right to Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
SECTION 5. Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
SECTION 6. Other Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
SECTION 7. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
</TABLE>
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<TABLE>
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ARTICLE X
Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE XI
Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
</TABLE>
<PAGE> 5
BYLAWS
OF
CHIEF AUTO PARTS INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of CHIEF
AUTO PARTS INC. (the "Corporation") in the State of Delaware shall be at 1209
Orange Street, City of Wilmington, County of New Castle, and the name of the
registered agent in charge thereof is The Corporation Trust Company.
SECTION 2. Other Offices. The Corporation also may have an
office or offices at any other place or places within or without the State of
Delaware.
ARTICLE II
MEETINGS OF STOCKHOLDERS; STOCKHOLDERS'
CONSENT IN LIEU OF MEETING
SECTION 1. Annual Meetings. The annual meeting of the
stockholders for the election of directors, and for the transaction of such
other business as may properly come before the meeting, shall be held at such
place, date and hour as shall be fixed by the Board of Directors (the "Board")
and designated in the notice or waiver of notice thereof; except that no annual
meeting need be held if all actions, including the election of directors,
required by the General Corporation Law of Delaware to be taken at a
stockholders' annual meeting are taken by written consent in lieu of meeting
pursuant to Section 5 of this Article.
SECTION 2. Special Meetings. Special meetings of the
stockholders may be called at any time by the Board, the Chairman of the Board
or the President of the Corporation or a stockholder or stockholders holding of
record at least a majority of the shares of outstanding stock of the
Corporation, such meetings to be held at such place, date and hour as shall be
designated in the notice or waiver of notice thereof.
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SECTION 3. Place of Meetings. All meetings of the stockholders
shall be held at such places, within or without the State of Delaware, as may
from time to time be designated by the person or persons calling the respective
meeting and specified in the respective notices or waivers of notice thereof.
SECTION 4. Notice of Meetings. Unless waived in writing by the
stockholder of record or unless such stockholder shall be represented at the
meeting in person or by proxy, written notice of each meeting of stockholders
shall be given not less than 10 nor more than 60 days before the date of such
meeting to each stockholder of record entitled to vote at such meeting. Such
notice shall state the place, date and hour of the meeting, and, in the case of
a special meeting, the purpose or purposes for which the meeting is called.
SECTION 5. Stockholders' Consent in Lieu of Meetings. Any
action by stockholders may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Every written consent shall bear the date of the signature of each
stockholder who signs the consent and such writing or writings shall be filed
with the minutes of stockholder meetings within 60 days of the earliest dated
consent. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
SECTION 6. Quorum. The presence at a stockholders meeting of
the holders, present in person or represented by proxy, of capital stock of the
company representing a majority of the votes of all capital stock of the
company entitled to vote thereat shall constitute a quorum at such meeting for
the transaction of business except as otherwise provided by law, the
certificate of incorporation or these Bylaws. If a quorum shall not be present
or represented at any meeting of the stockholders, a majority of the
stockholders entitled to vote thereat, present in person or representative by a
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or
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<PAGE> 7
represented. At such reconvened meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the reconvened
meeting, a notice of said meeting shall be given to each stockholder entitled
to vote at said meeting. The stockholders present at a duly covened meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate of Incorporation directed or
required to be exercised or done by the stockholders.
SECTION 2. Number and Term of Holding Office. The number of
directors which shall constitute the whole Board shall be such number as from
time to time shall be fixed by resolution of the Board. Directors need not be
stockholders. Each director shall hold office until the next annual meeting
after his election and until his successor shall be elected and shall qualify
or until his earlier death or resignation or removal in the manner hereinafter
provided. Directors shall be elected by the Stockholders by plurality vote at
an annual stockholders meeting, except as hereinafter provided.
SECTION 3. Chairman of the Board and organization of Business.
The Board may elect from among its members a Chairman of the Board who shall be
an officer of the Board. The Chairman of the Board shall preside at all
meetings of the Board at which he shall be present and shall perform such other
duties as may be assigned to him from time to time by the Board. In the
absence of the Chairman of the Board, the President, if a director, or, in his
absence, a chairman chosen by a majority of the directors present, shall act as
Chairman. The Secretary of the Corporation or, in his absence, any person (who
shall be an Assistant
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Secretary if an Assistant Secretary shall be present) whom the Chairman shall
appoint, shall act as secretary of such meeting and keep the minutes thereof.
SECTION 4. Resignations. Any director may resign at any time by
giving written notice of his resignation to the Board, the President or the
Secretary of the Corporation. Any such resignation shall take effect at the
time specified therein or, if such time is not specified therein, immediately
upon its receipt.
SECTION 5. Removal of Directors. Any director or the entire
Board may be removed, either with or without cause, at any time by the holders
of a majority of the shares then entitled to vote at an election of directors
or by written consent of the stockholders pursuant to Section 5 of Article 11
hereof.
SECTION 6. Vacancies. In case of any vacancy on the Board or in
case of any newly created directorship, a director to fill the vacancy or the
newly created directorship for the unexpired portion of the term being filled
may be elected by a majority of the directors of the Corporation then in
office, even though the directors then in office may constitute less than a
quorum, or by a sole remaining director.
SECTION 7. Place of Meeting. The Board may hold its meetings at
such place or places within or without the State of Delaware as the Board may
from time to time by resolution determine or as shall be designated in the
notices or waivers of notice thereof.
SECTION 8. Meetings. - (A) Annual Meetings. As soon as
practicable after each annual election of directors, the Board shall meet for
the purpose of organization and the transaction of other business, unless it
shall have transacted all such business by written consent pursuant to Section
11 of this Article.
(B) Other Meetings. Other meetings of the Board shall be held at
such times and places as the Board shall from time to time determine or upon
call by the Chairman of the Board, the President or any two or more of the
directors.
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SECTION 9. Notice of Meetings. The Secretary of the Corporation
shall give notice to each director of each meeting, including the time and
place of such meeting. Notice of each such meeting shall be mailed to each
director addressed to him at his residence or usual place of business, at least
two days before the day on which such meeting is to be held, or shall be sent
to him by telegraph, cable, wireless or other form of recorded communication or
be delivered personally or by telephone not later than the day before the day
on which such meeting is to be held. Notice of any meeting shall not be
required to be given to any director who shall attend such meeting. A written
waiver of notice, signed by the person entitled thereto, whether before or
after the time stated therein, shall be equivalent to adequate notice.
SECTION 10. Quorum and Manner of Acting. Except as provided in
Section 6 of this Article, a majority of the total number of directors shall be
necessary at any meeting of the Board in order to constitute a quorum for the
transaction of business at such meeting, and the vote of a majority of those
directors present at any such meeting at which a quorum shall be present shall
be necessary for the passage of any resolution or act of the Board, except as
otherwise expressly required by law or the Certificate of Incorporation or
these Bylaws. In the absence of a quorum for any such meeting, a majority of
the directors present thereat may adjourn such meeting from time to time until
a quorum shall be present. Notice of any adjourned meeting need not be given.
SECTION 11. Unanimous Director Consent in Lieu of Meeting. Any
action by the Board or a committee appointed pursuant to Section 1 of Article
IV hereof may be taken without a meeting if all members of the Board or such
committee, as the case may be, consent to such action in writing and the
writing or writings are filed with the minutes of the proceedings of the Board
or such committee.
SECTION 12. Action by Means of Conference Telephone or Similar
Communications Equipment. Any one or more members of the Board, or of any
committee designated by the Board, may participate in a meeting of the Board or
any such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and
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<PAGE> 10
participation in a meeting by such means shall constitute presence in person at
such meeting.
SECTION 13. Remuneration. No director shall be entitled to
receive from the Corporation any amounts or fees for attendance at meetings of
the Board or of any committee, or both, unless the Board shall otherwise
determine. The Board may provide that the Corporation shall reimburse each
director or member of a committee for any expenses incurred by him on account
of his attendance at any such meeting. Nothing contained in this Section shall
be construed to preclude any director from serving the Corporation in any other
capacity and receiving remuneration therefor.
ARTICLE IV
COMMITTEES
SECTION 1. Committees. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of one or more directors of the Corporation. The Board may
designate one or more directors as alternate' members of any committee who may
replace an absent or disqualified member at any meeting of such committee. In
the absence or disqualification of any member of a committee and the alternate
or alternates, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member. Any such committee, to the
extent provided in the resolution of the Board constituting such committee,
shall have and may exercise all the delegable powers and authority of the Board
in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers that may
require it. Notices for meetings of a committee shall be given in the manner
required by Section 9 of Article III hereof and may be waived in writing or
dispensed with as their. provided. Unless otherwise provided in the resolution
of the Board constituting any such committee, such committee shall adopt its
own resolutions of procedure and shall keep a record of its proceedings which
shall be reported upon to the Board and filed with the minutes of the
proceedings of the Board or such committee.
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ARTICLE V
OFFICERS
SECTION 1. Number. The officers of the Corporation shall be a
President, a Secretary and a Treasurer and may include a Chairman of the Board,
one or more Vice Presidents, Regional Vice Presidents, and Divisional Vice
Presidents, one or more Assistant Secretaries and one or more Assistant
Treasurers. Each such officer shall be elected or appointed by the Board and
shall hold office until his successor shall be elected or appointed and
qualified or until his earlier death or resignation or removal in the manner
hereinafter provided. Any number of offices may be held by the same person.
The Board may elect or appoint such other officers of the Corporation
as it shall deem necessary who shall have such authority and shall perform such
duties as the Board may prescribe.
All officers elected or appointed by the Board shall be subject to
removal at any time by the Board with or without cause.
Any officer may resign at any time by giving written notice to the
Board or the President or the Secretary of the Corporation, and such
resignation shall take effect at the time specified therein or if such time is
not specified therein, immediately upon its receipt.
SECTION 2. The President. The President of the Corporation,
subject to the direction of the Board, shall be the chief executive officer of
the Corporation, shall have general charge of the business and affairs of the
Corporation, shall have the direction all other officers, agents and employees
and may assign such duties to the other officers of the Corporation as he shall
deem appropriate.
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<PAGE> 12
SECTION 3. Secretary. The Secretary of the Corporation, or an
Assistant Secretary of the Corporation, shall attend all meetings of the
stockholders, the Board and (as required) committees of the Board and shall
keep the records of all meetings of stockholders and of the Board. He shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board. He shall affix the seal of the Corporation to
all deeds, contracts, bonds or other instruments requiring the corporate seal
when the same shall have been signed on behalf of the Corporation by a duly
authorized officer and shall be the custodian of all contracts, deeds,
documents and all other indicia of title to properties owned by the Corporation
and of its other corporate records.
SECTION 4. Assistant Secretaries. The Assistant Secretaries, if
any, in order of their seniority or in any other order determined by the Board
shall, in the absence or disability of the Secretary, perform the duties and
exercise the powers of the Secretary and shall perform such other duties as the
Board or the Secretary shall prescribe.
SECTION 5. The Treasurer. The Treasurer shall have the care and
custody of the corporate funds and other valuable effects, including
securities, and shall keep full and accurate accounts of the receipts and
disbursements in books belonging to the Corporation, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board. The
Treasurer, shall disburse the funds of the Corporation as may be ordered by the
Board, taking proper vouchers for such disbursements, and shall render to the
President and directors, at the meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the
financial condition of the Corporation; and, in general, the Treasurer shall
perform all the duties incident to the office of Treasurer and such duties as
from time to, time may be assigned to him by the President of the Board.
SECTION 6. Assistant Treasurers. The Assistant Treasurers, if
any, in the order of their seniority or in any other order determined by the
Board, shall in the absence or disability of the Treasurer perform the duties
and exercise the powers of the Treasurer and shall perform such other duties as
the Board or the Treasurer may prescribe.
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<PAGE> 13
SECTION 7. Election. All elected officers shall serve until
their successors are duly elected and qualified or until their earlier death,
disqualification, retirement, resignation or removal from office.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. Execution of Documents. The Board shall designate
the officers, employees and agents of the Corporation who shall have power to
execute and deliver deeds, contracts, mortgages, bonds, debentures, checks,
drafts and other orders for the payment of money and other documents for and in
the name of the Corporation and may authorize such officers, employees and
agents to delegate such power (including authority to redelegate) by written
instrument to other officers, employees or agents of the Corporation.
SECTION 2. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board, the Treasurer or any other officer of the
Corporation to whom power in that respect shall have been delegated by the
Board shall select.
SECTION 3. Proxies in Respect of Stock or Other Securities of
Other Corporations. The President or any officer of the Corporation designated
by the Board shall have authority from time to time to appoint an agent or
agents of the Corporation to exercise in the name and on behalf of the
Corporation the powers and rights which the Corporation may have as the holder
of stock or other securities or interests in any other corporation or business
entity and to vote or consent in respect of such stock, securities or
interests; the President or such designated officer may instruct the person or
persons so appointed as to the manner of exercising such powers and rights and
the manner of such voting or consenting; and the President or such designated
officer may execute or cause to be executed in the name and on behalf of the
Corporation and under its corporate seal, or otherwise, such written proxies,
powers of attorney or other instruments as may deem necessary or proper in
order that the Corporation may exercise its said powers and rights.
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ARTICLE VII
SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
President or a Vice President, and by the Secretary or an Assistant Secretary
or by the Treasurer or an Assistant Treasurer. Any of or all of the signatures
on the certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon,
any such certificate, shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may nevertheless
be issued by the Corporation with the same effect as though the person who
signed such certificate, or whose facsimile signature shall have been placed
thereupon, were such officer, transfer agent or registrar at the date of issue.
A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates thereof, and in case of cancellation, the respective dates of
cancellation, every certificate surrendered to the Corporation for exchange or
transfer shall be canceled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so canceled, except in cases provided for in Section 4 of this
Article.
SECTION 2. Transfer of Stock. Transfers of shares of stock of
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary, or with a transfer agent
appointed as provided in Section 3 of this Article, and upon surrender of the
certificate or certificates for such shares properly endorsed and the payment
of all taxes thereon. The person in whose name shares of stock stand on the
books of the Corporation shall be
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<PAGE> 15
deemed the owner thereof for all purposes as regards the Corporation. Whenever
any transfer of shares shall be made for collateral security, and not
absolutely, such fact shall be so expressed in the entry of transfer if, when
the certificate or certificates shall be presented to the Corporation for
transfer, both the transferor and the transferee request the Corporation to do
so.
SECTION 3. Regulations. The Board may make such rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates for shares of
the stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer clerks or one or more transfer agents
and one or more registrars, and may require all certificates for stock to bear
the signature or signatures of any of them.
SECTION 4. Lost, Stolen, Destroyed, and Mutilated Certificates.
In any case of loss, theft, destruction or Mutilation of any certificate of
stock, another may be issued in its place upon proof of such loss, theft,
destruction or mutilation and upon the giving of a bond of indemnity to the
Corporation in such form and in such sum as the Board may direct; Provided,
however, that a new certificate may be issued without requiring any bond when,
in the judgment of the Board, it is proper so to do.
ARTICLE VIII
BOOKS AND RECORDS, SEAL, FISCAL YEAR
SECTION 1. Books and Records. The books and records of the
Corporation may be kept at such places within or without the State of Delaware
as the Board may from time to time determine.
SECTION 2. Seal. The Board shall provide a corporate seal,
which shall be in the form of a circle and shall bear the full name of the
Corporation and the words and figures "Corporate Seal Delaware".
SECTION 3. Fiscal Year. The fiscal year of the Corporation
shall end on the last Sunday of December in each year, unless changed by
resolution of the Board.
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ARTICLE IX
INDEMNIFICATION
SECTION 1. Action, etc, Other than by or in the Right of the
Corporation. The Corporation shall indemnify any person who shall be or shall
have been a party or shall be threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he shall be or shall have been a
director, officer, employee or agent of the Corporation, or shall be or shall
have been serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he shall have acted in good
faith and in a manner he reasonably shall have believed to be in or not opposed
to the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct shall have
been unlawful. The termination of any action, suit or proceedings by judgment,
order, settlement, conviction or upon a plea of nolo contenders or its
equivalent, shall not, of itself, create a presumption that the person shall
not have acted in good faith and in a manner which he reasonably shall have
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, that he shall have had
reasonable cause to believe that his conduct shall have been unlawful.
SECTION 2. Actions, etc., by or in the Right of the Corporation.
The Corporation shall indemnify any person who shall be or shall have been a
party or shall be threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
Judgment in its favor by reason of the fact that he shall be or shall have been
a director, officer, employee or agent of the Corporation, or shall he or shall
have been serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually
12
<PAGE> 17
and reasonably incurred by him in connection with the defense or settlement of
such action or acted in good faith and in a manner he believed to be in or not
opposed to the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person shall be fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
SECTION 3. Determination of Right of Indemnification. Any
indemnification under Section 1 or 2 a of this Article (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent shall be proper in the circumstances because he shall have met the
applicable standard of conduct set forth in Section 1 or 2, of this Article.
Such determination shall be made (i) by the Board by a majority vote of a
quorum consisting of directors who shall not have been parties to such action,
suit or proceeding, (ii) if such a quorum shall not be obtainable, or, even if
obtainable, if a quorum of disinterested directors shall so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
SECTION 4. Right to Indemnification. Notwithstanding the other
provisions of this Article, to the extent that a director, officer, employee or
agent of the Corporation shall be successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 1 or 2 of this
Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 5. Prepaid Expenses. Expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board in the specific case upon receipt of an
13
<PAGE> 18
undertaking by or on behalf of such officer or director to repay such amount if
it shall ultimately be determined that he shall not be entitled to be
indemnified by the Corporation as authorized in this Article. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board deems appropriate.
SECTION 6. Other Rights and Remedies. The indemnification
provided by this Article shall not be deemed exclusive of any other rights to
which a person seeking indemnification may be entitled by law or under any
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
SECTION 7. Insurance. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who
shall be or shall have been a director, officer, employee or agent of the
Corporation, or shall be or shall have been serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given by these Bylaws or the
Certificate of Incorporation of the Corporation or the laws of the State of
Delaware, the person entitled thereto may, in person or by attorney thereunto
authorized, in writing or by telegraph, cable or other form of recorded
communication, waive such notice, whether before or after the meeting or other
matter in respect of which such notice is given, and in such event such notice
need not be given to such person and such waiver shall be deemed equivalent to
such notice.
ARTICLE XI
AMENDMENTS
These Bylaws may be altered or repealed by the vote of the Board,
subject to the power of the stockholders of the Corporation to alter or repeal
any Bylaw made by the Board.
14
<PAGE> 1
EXHIBIT 10.2
FORM OF SERIES I PROMISSORY NOTE
$__________ September __, 1994
Dallas, Texas
FOR VALUE RECEIVED, the undersigned, _______________ [MANAGER]
(the "Maker"), hereby unconditionally promises to pay to the order of CHIEF
AUTO PARTS INC., or its successors and assigns (the "Payee"), on or before
______________, 2002 [EIGHTH ANNIVERSARY OF THE CLOSING DATE] at the address of
the Payee set forth herein for notices and other communications, the aggregate
principal amount of ______________________ ($_____________) in lawful money of
the United States of America and in immediately available funds. This Series I
Note shall bear interest, payable in like funds at such address, on the unpaid
principal amount hereof from the date hereof until the principal amount hereof
is paid in full at the rate of 7.05% per annum (calculated on the basis of the
actual number of days elapsed in a year of 365 days). All or a part of such
interest on the unpaid principal balance shall be payable annually on each
anniversary of this Series I Note as hereinafter set forth. Accrued and unpaid
interest shall be payable upon the maturity of this Series I Note with the
payment of principal.
This Series I Note is secured by that certain Stock Pledge
Agreement, dated as of even date herewith, between the Maker and the Payee (the
"Stock Pledge Agreement"), pursuant to which the Maker grants the Payee a
security interest in the shares of common stock of the Payee purchased by Maker
on the date hereof (the "Pledged Shares") and any dividends or distributions
thereon.
Notwithstanding any other provision to the contrary contained
herein, the Payee's sole recourse against the Maker for the payment of
principal, interest, fees, costs and other expenses in connection with this
Series I Note shall be limited to the Payee's security interest in the Pledged
Shares. The Payee shall at all times have the right to proceed against any
portion of the security held herefor in such order and in such manner as the
Payee may select, without waiving any rights with respect to any other
security. The Payee shall not seek a personal judgment against the Maker for
payment under this Series I Note and no recourse shall be had for the payment
of this Series I Note against the Maker or his or her successors or any of the
Maker's or his or her successor's properties or assets (except as to the
aforesaid security interest in the Pledged Shares), all such liability being,
by the acceptance hereof and as part of the consideration for the receipt of
the security interests provided for in the Stock Pledge Agreement, expressly
waived and released by the Payee and any of its assignees.
Within ten (10) business days of the date of payment of any
cash dividends payable or otherwise distributed in respect of the
<PAGE> 2
Pledged Shares, the Maker shall be required to make a mandatory prepayment on
this Series I Note in an amount equal to one hundred percent (100%) of such
cash dividends less any potential tax liabilities, computed at the then
applicable maximum combined federal and state rates, which the Maker may incur
in connection with the receipt of such dividends.
Until the principal and interest on this Series I Note is paid
in full, the Maker shall be required to make a mandatory prepayment on this
Series I Note in an amount equal to the lesser of (A) fifteen percent (15%) of
the pre-tax amount of any cash bonus paid by the Payee to the Maker (excluding
any amounts paid to the Maker by the Payee on or prior to the date hereof and
excluding payments made pursuant to the Company's 1994 Executive Target Bonus
Plan) (the "Bonus Prepayment")) and (B) the sum of (i) all accrued and unpaid
interest owing on this Series I Note and (ii) the unpaid principal amount
outstanding on this Series I Note; provided however, that the Maker may elect
only once while this Series I Note is outstanding to omit clause (B)(ii) from
the foregoing calculation. Such mandatory Bonus Prepayments shall be payable
within ten (10) business days of receipt by the Maker of the cash bonus
referenced in clause (A) above.
In addition to the foregoing prepayments, the Maker shall be
required to make a mandatory prepayment on this Series I Note in an amount
equal to the lesser of (A) twenty-five percent (25%) of the gross pre-tax
amount of any cash distribution made to the Maker pursuant to the 5% allocation
made to David H. Eisenberg for distribution pursuant to Section 5(a)(i) of the
Escrow Agreement dated June 27, 1994 among General Electric Capital
Corporation, Bankers Trust Company, as escrow agent, and the Payee and (B) all
amounts, whether principal or interest, accrued and unpaid or owing under this
Series I Note. Such mandatory prepayment shall be payable within ten (10)
business days of receipt by the Maker of the distribution referenced in clause
(A) above.
The Maker shall have the right at any time and from time to
time on any business day to prepay the principal and interest due on this
Series I Note, in whole or in part, without penalty or premium, upon at least
three business days' prior written notice to the holder hereof, such notice to
specify the prepayment date and the amount to be prepaid. In the event the
Maker decides not to so prepay this Series I Note in accordance with any such
notice delivered to the holder hereof, the Maker shall so notify the holder
hereof not less than two business days before such prepayment would otherwise
have been made.
All Bonus Prepayments made by the Maker shall be applied first
to the reduction of the outstanding principal and then to the outstanding
interest accrued on this Series I Note. All other mandatory and optional
prepayments made by the Maker shall be applied first to the reduction of the
outstanding interest and then to the outstanding principal on this Series I
Note.
2
(Series I Note)
<PAGE> 3
Upon each anniversary of the date of issuance of this Series I
Note, the Maker shall be required to pay to the Payee an amount equal to the
excess, if any, of the amount of interest accrued on this Series I Note during
the preceding year over the amount paid by the Maker to the Payee during the
preceding year as a result of mandatory or optional prepayments.
If the Maker elects to sell any of the Pledged Shares as
permitted under the Stock Pledge Agreement, then the Maker shall be required to
apply the proceeds of such sale as a prepayment of principal and interest due
on this Series I Note within three (3) business days of receipt of such
proceeds.
In case of the happening of any of the following events
("Events of Default"):
(a) default shall be made in the payment of the principal
of or interest on this Series I Note when and as the same shall become
due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof or otherwise which default shall continue
unremedied for five (5) business days after written notice thereof to
the Maker by the holder hereof;
(b) a breach of any covenant contained in this Series I
Note, other than the covenant to pay the principal of and interest on
this Series I Note, which breach shall continue unremedied for thirty
days after written notice by the holder hereof;
(c) the Maker shall (i) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the
United States Code or any other Federal or state bankruptcy,
insolvency, liquidation or similar law, (ii) consent to the
institution of, or fail to controvert in a timely and appropriate
manner, any such proceeding or the filing of any such petition, (iii)
apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator or similar official for him or for a
substantial part of his property, (iv) file an answer admitting the
material allegations of a petition filed against him in any such
proceeding, (v) make a general assignment for the benefit of creditors
or (vi) become unable, admit in writing his inability or fail
generally to pay his debts as they become due;
(d) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Maker, or of a
substantial part of the property of the Maker, under Title 11 of the
United States Code or any other Federal or state bankruptcy,
insolvency, receivership or similar law or
3
(Series I Note)
<PAGE> 4
(ii) the appointment of a receiver, trustee, custodian, sequestrator
or similar official for the Maker or for a substantial part of the
property of the Maker; and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering
any of the foregoing shall continue unstayed and in effect for 60
days;
(e) an Event of Default (as defined in the Stock Pledge
Agreement) shall have occurred under the Stock Pledge Agreement;
then, in any such event (other than an event described in paragraph (c) or (d)
above), the holder hereof may declare the principal amount of this Series I
Note then outstanding to be forthwith due and payable, whereupon the principal
hereof, together with accrued and unpaid interest thereon, shall become
forthwith due and payable both as to principal and interest, without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived by the Maker (to the extent permitted by law), anything
contained herein to the contrary notwithstanding; and, in any event described
in paragraph (c) or (d) above, the principal amount of this Series I Note,
together with accrued and unpaid interest thereon, shall automatically become
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by the Maker.
The nonexercise by the Payee of any of its rights hereunder or
under the Stock Pledge Agreement in any particular instance shall not
constitute a waiver thereof in that or any subsequent instance. No delay or
omission on the part of the Payee in exercising any right hereunder or under
the Stock Pledge Agreement or other agreement shall operate as a waiver of such
right or of any other right under this Series I Note.
Maker hereby certifies and declares that all acts, conditions
and things required to be done and performed and to have happened precedent to
the creation and issuance of this Series I Note, and to constitute this Series
I Note the legal, valid and binding obligation of Maker, enforceable in
accordance with the terms hereof, have been done and performed and happened in
due and strict compliance with all applicable laws.
All payments of the principal hereof and interest hereon and
the respective dates thereof shall be endorsed by the holder hereof on the
schedule attached hereto and made a part hereof, or on a continuation thereof
which shall be attached hereto and made a part hereof; provided, however, that
the failure of the holder hereof to make such a notation or any error in such a
notation shall not affect the obligations of the Maker under this Series I
Note.
This Series I Note may be assigned, pledged, hypothecated or
otherwise transferred by the holder hereof.
4
(Series I Note)
<PAGE> 5
The Maker hereby expressly waives presentment for payment or
for acceptance, demand, protest, notice of protest, notice of dishonor or
acceptance and any other notice of any kind.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered, telexed or telecopied to, or, if mailed, when received
by, the other party at the following addresses (or at such other address as
shall be given in writing by any party to the others):
If to the Maker:
------------------------
------------------------
------------------------
If to the Payee: Chief Auto Parts Inc.
15303 Dallas Parkway, Suite 800
Dallas, Texas 74248
Attention: Mary M. Mahon, Esq.
Telephone: 214-404-1114
with a copy to: Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attention: Conor D. Reilly, Esq.
Telephone: 212-351-4000
If any provision hereof is invalid or unenforceable in any
jurisdiction, the other provisions hereof shall remain in full force and effect
in such jurisdiction and shall be liberally construed in favor of the Payee.
This Series I Note may not be changed orally.
THIS SERIES I NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING
EFFECT TO CONFLICT OF LAWS.
-------------------------------
[MANAGER]
5
(Series I Note)
<PAGE> 6
SCHEDULE I
<TABLE>
<CAPTION>
==============================================================================
Amount of Amount of Unpaid
Principal Interest Principal Notation
Date Prepaid Paid Amount Made By
<S> <C> <C> <C> <C>
===============================================================================
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</TABLE>
(Series I Note)
<PAGE> 1
EXHIBIT 10.3
FORM OF SERIES II PROMISSORY NOTE
$__________ September __, 1994
Dallas, Texas
FOR VALUE RECEIVED, the undersigned, _______________ [MANAGER]
(the "Maker"), hereby unconditionally promises to pay to the order of CHIEF
AUTO PARTS INC., or its successors and assigns (the "Payee"), on or before
______________, 2002 [eighth anniversary of the Closing Date] at the address of
the Payee set forth herein for notices and other communications, the aggregate
principal amount of ______________________ ($_____________) in lawful money of
the United States of America and in immediately available funds. This Series
II Note shall bear interest, payable in like funds at such address, on the
unpaid principal amount hereof from the date hereof until the principal amount
hereof is paid in full at the rate of 7.05% per annum (calculated on the basis
of the actual number of days elapsed in a year of 365 days). All or part of
such interest on the unpaid principal balance shall be payable annually on each
anniversary of this Series II Note as hereinafter set forth. Accrued and
unpaid interest shall be payable upon the maturity of this Series II Note with
the payment of principal.
This Series II Note is secured by that certain Stock Pledge
Agreement, dated as of even date herewith, between the Maker and the Payee (the
"Stock Pledge Agreement"), pursuant to which the Maker grants the Payee a
security interest in the shares of common stock of the Payee purchased by Maker
on the date hereof (the "Pledged Shares") and any dividends or distributions
thereon.
Notwithstanding any other provision to the contrary contained
herein, the Payee's sole recourse against the Maker for the payment of
principal, interest, fees, costs and other expenses in connection with this
Series II Note shall be limited to the Payee's security interest in the Pledged
Shares. The Payee shall at all times have the right to proceed against any
portion of the security held herefor in such order and in such manner as the
Payee may select, without waiving any rights with respect to any other
security. The Payee shall not seek a personal judgment against the Maker for
payment under this Series II Note and no recourse shall be had for the payment
of this Series II Note against the Maker or his or her successors or any of the
Maker's or his or her successor's properties or assets (except as to the
aforesaid security interest in the Pledged Shares), all such liability being,
by the acceptance hereof and as part of the consideration for the receipt of
the security interests
<PAGE> 2
provided for pursuant to the Stock Pledge Agreement, expressly waived and
released by the Payee and any of its assignees.
Within ten (10) business days of the date of payment of any
cash dividends payable or otherwise distributed in respect of the Pledged
Shares, to the extent not used to prepay the Maker's Series I Note, the Maker
shall be required to make a mandatory prepayment on this Series II Note in an
amount equal to one hundred percent (100%) of such cash dividends less any
potential tax liabilities, computed at the then applicable maximum combined
federal and state rates, which the Maker may incur in connection with the
receipt of such dividends.
The Maker shall have the right at any time and from time to
time on any business day to prepay the principal and interest due on this
Series II Note, in whole or in part, without penalty or premium, upon at least
three business days' prior written notice to the holder hereof, such notice to
specify the prepayment date and the amount to be prepaid. In the event the
Maker decides not to so prepay this Series II Note in accordance with any such
notice delivered to the holder hereof, the Maker shall so notify the holder
hereof not less than two business days before such prepayment would otherwise
have been made.
All mandatory and optional prepayments made by the Maker shall
be applied first to the outstanding interest accrued on this Series II Note and
then to the reduction of the outstanding principal.
Upon each anniversary of the date of issuance of this Series
II Note, the Maker shall be required to pay to the Payee an amount equal to the
excess, if any, of the amount of interest accrued on this Series II Note during
the preceding year over the amount paid by the Maker to the Payee during the
preceding year.
If the Maker elects to sell any of the Pledged Shares as
permitted under the Stock Pledge Agreement, then the Maker shall be required to
apply the proceeds of such sale as a prepayment of principal and interest due
on this Series II Note within three (3) business days of receipt of such
proceeds.
In case of the happening of any of the following events
("Events of Default"):
(a) default shall be made in the payment of the principal
of or interest on this Series II Note when and as the same shall
become due and payable, whether at the due date thereof or at a date
fixed
2
<PAGE> 3
for prepayment thereof or otherwise which default shall continue
unremedied for five (5) business days after written notice thereof
by the holder hereof;
(b) a breach of any covenant contained in this Series II
Note, other than the covenant to pay the principal of and interest on
this Series II Note, which breach shall continue unremedied for thirty
days after written notice to the Maker by the holder hereof;
(c) the Maker shall (i) voluntarily commence any
proceeding or file any petition seeking relief under Title 11 of the
United States Code or any other Federal or state bankruptcy,
insolvency, liquidation or similar law, (ii) consent to the
institution of, or fail to controvert in a timely and appropriate
manner, any such proceeding or the filing of any such petition, (iii)
apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator or similar official for him or for a
substantial part of his property, (iv) file an answer admitting the
material allegations of a petition filed against him in any such
proceeding, (v) make a general assignment for the benefit of creditors
or (vi) become unable, admit in writing his inability or fail
generally to pay his debts as they become due;
(d) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Maker, or of a
substantial part of the property of the Maker, under Title 11 of the
United States Code or any other Federal or state bankruptcy,
insolvency, receivership or similar law or (ii) the appointment of a
receiver, trustee, custodian, sequestrator or similar official for the
Maker or for a substantial part of the property of the Maker; and such
proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall
continue unstayed and in effect for 60 days;
(e) an Event of Default (as defined in the Stock Pledge
Agreement) shall have occurred under the Stock Pledge Agreement;
then, in any such event (other than an event described in paragraph (c) or (d)
above), the holder hereof may declare the principal amount of this Series II
Note then outstanding to be forthwith due and payable, whereupon the principal
hereof,
3
<PAGE> 4
together with accrued and unpaid interest thereon, shall become forthwith due
and payable both as to principal and interest, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived by the Maker (to the extent permitted by law), anything contained herein
to the contrary notwithstanding; and, in any event described in paragraph (c)
or (d) above, the principal amount of this Series II Note, together with
accrued and unpaid interest thereon, shall automatically become due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Maker.
The nonexercise by the Payee of any of its rights hereunder or
under the Stock Pledge Agreement in any particular instance shall not
constitute a waiver thereof in that or any subsequent instance. No delay or
omission on the part of the Payee in exercising any right hereunder or under
the Stock Pledge Agreement or other agreement shall operate as a waiver of such
right or of any other right under this Series II Note.
Maker hereby certifies and declares that all acts, conditions
and things required to be done and performed and to have happened precedent to
the creation and issuance of this Series II Note, and to constitute this Series
II Note the legal, valid and binding obligation of Maker, enforceable in
accordance with the terms hereof, have been done and performed and happened in
due and strict compliance with all applicable laws.
All payments of the principal hereof and interest hereon and
the respective dates thereof shall be endorsed by the holder hereof on the
schedule attached hereto and made a part hereof, or on a continuation thereof
which shall be attached hereto and made a part hereof; provided, however, that
the failure of the holder hereof to make such a notation or any error in such a
notation shall not affect the obligations of the Maker under this Series II
Note.
This Series II Note may be assigned, pledged, hypothecated or
otherwise transferred by the holder hereof.
The Maker hereby expressly waives presentment for payment or
for acceptance, demand, protest, notice of protest, notice of dishonor or
acceptance and any other notice of any kind.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered, telexed or telecopied to, or, if mailed, when received
by, the
4
<PAGE> 5
other party at the following addresses (or at such other address as shall be
given in writing by any party to the others):
If to the Maker: ---------------------
---------------------
---------------------
If to the Payee: Chief Auto Parts Inc.
15303 Dallas Parkway, Suite 800
Dallas, Texas 74248
Attention: Mary M. Mahon, Esq.
Telephone: 214-404-1114
with a copy to: Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attention: Conor D. Reilly, Esq.
Telephone: 212-351-4000
If any provision hereof is invalid or unenforceable in any
jurisdiction, the other provisions hereof shall remain in full force and effect
in such jurisdiction and shall be liberally construed in favor of the Payee.
This Series II Note may not be changed orally.
THIS SERIES II NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING
EFFECT TO CONFLICT OF LAWS.
----------------------
[MANAGER]
5
<PAGE> 6
SCHEDULE I
<TABLE>
<CAPTION>
==============================================================================
Amount of Amount of Unpaid
Principal Interest Principal Notation
Date Prepaid Paid Amount Made By
<S> <C> <C> <C> <C>
===============================================================================
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</TABLE>
6
<PAGE> 1
EXHIBIT 10.4
FORM OF STOCK PLEDGE AGREEMENT
This Stock Pledge Agreement (the "Agreement") is entered into as
of _________, 1994 by and between ____________ [MANAGER] ("Pledgor") and CHIEF
AUTO PARTS INC., a Delaware corporation (the "Secured Party").
W I T N E S S E T H
WHEREAS, the Secured Party has agreed [(I)] to make a loan to
Pledgor in the aggregate amount of $___________, [ AND (II) TO MAKE A LOAN TO
PLEDGOR IN THE AGGREGATE AMOUNT OF $_____, EACH] pursuant to that certain Stock
Purchase Agreement dated as of ______, 1994 among the Secured Party, TCW
Special Credits Fund V - The Principal Fund, a California limited partnership
and Pledgor (the "Stock Purchase Agreement") (terms not otherwise defined
herein are used as defined in the Stock Purchase Agreement), and, as evidence
thereof, Pledgor has executed and delivered to the Secured Party [___]
promissory NOTE[S] dated as of even date herewith ([COLLECTIVELY,] the
"NOTE[S]");
WHEREAS, Pledgor holds an aggregate of ____ shares purchased by
Pledgor on the date hereof (the "Pledged Shares") of the common stock, par
value $0.01 per share, of the Secured Party; and
WHEREAS, as a condition to the making of the LOAN[S] evidenced by
the NOTE[S], the parties contemplate that the Pledged Shares will be pledged
and delivered by Pledgor to the Secured Party, with duly endorsed instruments
of transfer, as security for such LOAN[S].
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and provisions contained herein and in the NOTE[S] and for other
good and valuable consideration, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used herein without
definition, which are defined in or by reference in the NOTE[S], shall have the
respective meanings specified therein.
Section 2. Pledge. Pledgor hereby conveys, pledges, assigns
and transfers to the Secured Party, and hereby grants to the Secured Party, a
valid, first priority security interest (the "Security Interest") in Pledgor's
right, title, interest in and to the Pledged Shares and the
<PAGE> 2
certificates representing the Pledged Shares, all dividends, cash, securities,
instruments and other property from time to time paid, payable or otherwise
distributed in respect of or in exchange for all or any part of the Pledged
Shares and all proceeds thereof (the "Pledged Collateral").
Section 3. Secured Obligations. The Security Interest shall
secure for the benefit of the Secured Party the following (collectively, the
"Secured Obligations"):
(a) payment and performance of each and every obligation,
covenant and agreement of Pledgor now, or hereafter existing contained herein
or in the NOTE[S], whether for principal, interest, fees, expenses or
otherwise, and any amendments or supplements thereto, extensions or renewals
thereof or replacements therefor; and
(b) payment of all sums advanced upon an Event of Default or
in accordance herewith by the Secured Party to protect the Pledged Collateral,
with interest thereon at the rate equal to the highest interest rate under the
NOTE[S] as in effect from time to time;
in each case whether direct or indirect, joint or several, absolute or
contingent, liquidated or unliquidated, now or hereafter existing, renewed or
restructured, whether or not from time to time decreased or extinguished
(except as provided in Section 18 hereof) and later increased, created or
incurred, and including all indebtedness, obligations and liabilities of
Pledgor under any instrument now or hereafter evidencing or securing any of the
foregoing.
Section 4. Delivery of Collateral; Issuance of Additional
Shares.
(a) All certificates or instruments representing or evidencing
the Pledged Shares shall be delivered to the Secured Party on the date hereof,
and shall be held by the Secured Party or on behalf of the Secured Party
pursuant hereto at all times hereafter, and all certificates and instruments
representing or evidencing the Pledged Collateral hereunder shall be delivered
to the Secured Party immediately upon, and held by the Secured Party at all
times after, receipt thereof by Pledgor. All such certificates or instruments
shall be in suitable form for transfer by delivery, or shall be accompanied by
duly executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to the Secured Party.
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<PAGE> 3
(b) Upon the occurrence and during the continuance of an Event
of Default hereunder, the Secured Party shall have the right, at any time in
its discretion, to transfer to or to register on the books of the Secured Party
in the name of the Secured Party or any of its nominees any or all of the
Pledged Collateral (with, in the discretion of the Secured Party, such transfer
or registration expressly empowering the Secured Party to vote shares of stock
included in the Pledged Collateral), subject only to the revocable rights
specified in Section 8(a) hereof. In addition, the Secured Party shall have
the right at any time to exchange certificates or instruments representing or
evidencing Pledged Collateral for certificates or instruments of smaller or
larger denominations.
Section 5. Non-Recourse. Notwithstanding any other provision
to the contrary contained herein, the parties hereto agree that the Secured
Party's sole recourse against Pledgor for the payment of principal, interest,
fees, costs and other expenses in connection with the NOTE[S] shall be limited
to the Secured Party's security interest in the Pledged Collateral. The
Secured Party shall at all times have the right to proceed against any portion
of the security held herefor in such order and in such manner as provided in
this Agreement, without waiving any rights with respect to any other security.
The Secured Party shall not seek a personal judgment against Pledgor for
payment under the NOTE[S] and no recourse shall be had for the payment of the
NOTE[S] against Pledgor or his or her successors or any of Pledgor's or his or
her successor's properties or assets (except as to the aforesaid security
interest in the Pledged Shares), all such liability being, by the acceptance
hereof and as part of the consideration for the receipt of the security
interests hereunder, expressly waived and released by the Secured Party and any
of its assignees.
Section 6. Representations and Warranties; Certain Covenants.
(a) Pledgor hereby represents and warrants that Pledgor is the
legal and equitable owner of the Pledged Collateral free and clear of all
liens, charges, encumbrances and security interests of every kind and nature,
other than Permitted Encumbrances (as defined below).
(b) Pledgor covenants that:
(i) except for the Security Interest granted hereby,
the security interests permitted under or otherwise contemplated
hereby and the repurchase agreement provided
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<PAGE> 4
for herein ("Permitted Encumbrances"), Pledgor will not create,
assume, incur or permit to exist or to be created, assumed or
incurred, directly, or indirectly, any lien of any kind on, or
any repurchase agreement with respect to, the Pledged Collateral,
and will defend the Pledged Collateral against, and take such
action as is necessary to remove, any such lien, and will defend
the Security Interest against the claims and demands of all
persons; and
(ii) Pledgor shall advise the Secured Party promptly, in
reasonable detail, of any lien or claim made or asserted against
any of the Pledged Collateral; and of the occurrence of any other
event which would have a material adverse effect on the
enforceability of the Security Interest created hereunder.
(c) Pledgor may, upon thirty days prior written notice to the
Secured Party, transfer a part of the Pledged Collateral to one or more persons
if: (i) the person(s) acquiring such Pledged Collateral grant(s) to the Secured
Party a pledge of such Pledged Collateral, on terms and conditions acceptable
to the Secured Party; (ii) the ownership of such Pledged Collateral by such
person(s) would not cause Pledgor to breach any of his covenants set forth
herein or cause any Event of Default (or event that with giving of notice,
lapse of time or both could constitute an Event of Default); and (iii) each
such person is otherwise reasonably acceptable to the Secured Party.
(d) Pledgor may transfer a part of the Pledged Collateral
pursuant to (i) an offering by the Secured Party for the general sale of its
common stock registered with the Securities and Exchange Commission on a
registration statement (other than a registration statement on Form S-4 or S-8
or any successor form for securities to be offered in a transaction of the type
referred to in Rule 145 under the Securities Act of 1933 or to the employees of
the Secured Party pursuant to any employee benefit plan, respectively), (ii)
Rule 144 or Rule 701 of the Securities Act of 1933 following any public
offering of the common stock of the Company (or any successor or similar
statute or rule), or (iii) a Transfer as contemplated pursuant to Article IV of
the Stock Purchase Agreement. Upon any transfer of the Pledged Collateral
pursuant to this Section 6(d), Pledgor shall apply the proceeds received by
Pledgor to prepay the principal and interest on the NOTE(S). The Secured Party
shall release any Security Interest in the Pledged Collateral to be sold
pursuant to this Section 6(d) but shall retain its Security
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<PAGE> 5
Interest in the proceeds of the sale of the Pledged Collateral.
Notwithstanding the foregoing, if the fair market value of
the Pledged Collateral to be transferred pursuant to this Section 6(d) is less
than the product obtained from the multiplication of (A) the balance of all
accrued and unpaid interest and principal owing in respect of the NOTE(S), owed
by the Pledgor to the Secured Party (the "Combined Note Balance"), and (B) a
fraction equal to the fair market value of the Pledged Collateral to be
transferred hereby divided by the fair market value of the Pledged Collateral
immediately prior to such transfer (the "Value Percentage"), then the Secured
Party shall have the right, but not the obligation, to purchase from Pledgor
the Pledged Collateral to be transferred hereby. The consideration for such
purchase shall be the cancellation of outstanding principal and interest owing
in respect of the NOTE(S) in an amount equal to the Combined Note Balance
multiplied by the Value Percentage.
(e) Pledgor shall not, other than as provided for in Section
6(c) or 6(d), transfer, or consent to the transfer of, any of the Pledged
Collateral.
Section 7. Further Assurances. Pledgor agrees that at any
time and from time to time, at the expense of Pledgor, Pledgor will promptly
execute and deliver all further instruments and documents, and take all further
action that the Secured Party may reasonably request, in order to perfect and
protect the Security Interest granted or intended to be granted hereby or to
enable the Secured Party to exercise and enforce its rights and remedies
hereunder with respect to any Pledged Collateral.
Section 8. Voting Rights; Dividends; Etc.
(a) So long as no Event of Default hereunder shall have
occurred and be continuing:
(i) Pledgor shall be entitled to exercise any and all
voting and other consensual rights (if any) pertaining to the
Pledged Collateral or any part thereof for any purpose not
prohibited by the terms of this Agreement; and
(ii) except as otherwise provided in Sections 4(b), 8(b)
and 8(d) hereof, Pledgor shall be entitled to receive and retain
any dividends and other property (other than cash
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<PAGE> 6
or other securities) from time to time paid, payable or otherwise
distributed in respect of the Pledged Collateral.
(b) Pursuant to the terms of the NOTE[S], Pledgor is required
to make mandatory prepayments on the NOTE[S] in an amount equal to one hundred
percent (100%) of any cash dividends payable or otherwise distributed in
respect of the Pledged Shares.
(c) Pledgor hereby irrevocably appoints the Secured Party as
Pledgor's proxyholder with respect to the Pledged Shares and any other voting
securities forming a part of the Pledged Collateral with full power and
authority to vote such Pledged Shares and other voting securities and to
otherwise act with respect to such Pledged Shares or other voting securities on
behalf of Pledgor, provided that this proxy shall only be operative upon the
occurrence of an Event of Default and so long as such Event of Default
continues. Such proxy shall be irrevocable for so long as any of the Secured
Obligations remain in existence. Pledgor shall execute and deliver (or cause
to be executed and delivered) to the Secured Party all proxies and other
instruments as the Secured Party may reasonably request for the purpose of
enabling the Secured Party to exercise the voting and other rights which it is
entitled to exercise pursuant to this Section 8(c); and
(d) Upon the occurrence and during the continuance of an Event of
Default hereunder, all rights of Pledgor to receive and retain dividends and
other property, which they would otherwise be authorized to receive and retain
pursuant to Section 8(a)(ii), shall cease and all such rights shall thereupon
be vested in the Secured Party, who shall thereupon have the sole right to
receive and hold as Pledged Collateral such dividends and other property. All
other property received by Pledgor contrary to the provisions of this Section
8(d) shall be received in trust for the benefit of the Secured Party, shall be
segregated from other property or funds of Pledgor and shall be forthwith
delivered to the Secured Party as Pledged Collateral in the same form as so
received (with any necessary transfer documents or endorsements).
Section 9. Dispositions and Release of Collateral.
(a) Pledgor covenants that Pledgor shall not enter into or
perform any agreement to sell, lease, transfer or otherwise dispose of all or
any part of the Pledged Collateral (other than in accordance with Sections 6(c)
or 6(d) hereof) unless the Security Interest in such Pledged Collateral to be
sold, leased, transferred or otherwise disposed of shall have
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<PAGE> 7
been released prior to or concurrent with the disposition of the Pledged
Collateral.
(b) The Secured Party covenants that the Secured Party shall
release any Security Interest in the Pledged Collateral to permit the transfer
thereof as contemplated by Section 6(d) free and clear of such Security
Interest; provided, however, that the Secured Party shall retain its Security
Interest in the proceeds of the transfer of the Pledged Collateral.
Section 10. Reasonable Care. The Secured Party shall be deemed
to have exercised reasonable care in the custody and preservation of the
Pledged Collateral in its possession if the Pledged Collateral is accorded
treatment substantially equal to that which the Secured Party accords its own
property, it being understood that the Secured Party shall have no
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Pledged Collateral, whether or not the Secured Party has or is deemed to have
knowledge of such matters, unless reasonably requested in writing to do so by
Pledgor, or (b) taking any necessary steps (other than steps taken in
accordance with the standard of care set forth above to maintain possession of
the Pledged Collateral) to preserve rights against any parties with respect to
any Pledged Collateral.
Section 11. Secured Party Appointed Attorney-in-Fact. Pledgor
hereby irrevocably appoints the Secured Party Pledgor's attorney-in-fact, with
full authority in the place and stead of Pledgor and in Pledgor's name or
otherwise, if the Secured Party elects, upon an Event of Default, to take any
action and to execute any instrument which the Secured Party may deem
reasonably necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation, to receive, endorse and collect all instruments
made payable to Pledgor representing any dividend, interest payment or other
distribution in respect of the Pledged Collateral or any part thereof and to
give full discharge for the same, when and to the extent permitted by this
Agreement.
Section 12. Secured Party May Perform. Upon the occurrence and
during the continuance of an Event of Default hereunder (including an Event of
Default resulting from a failure to perform any agreement contained herein), if
Pledgor fails to perform any agreement contained herein, the Secured Party may
itself perform, or cause performance of, such
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<PAGE> 8
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be payable by Pledgor.
Section 13. Events of Default; Remedies.
(a) The occurrence of any of the following events shall
constitute an event of default ("Event of Default") hereunder:
(i) Any Event of Default (as defined in the NOTE[S])
shall have occurred, which Event of Default shall not be waived
or, if capable of being cured, shall not be cured within the
respective periods provided in such NOTE[S];
(ii) Pledgor fails, breaches or defaults in the payment
or performance of any of the obligations, covenants or conditions
contained in this Agreement.
(b) Upon or after the occurrence of an Event of Default:
(i) The Secured Party may exercise (in compliance with
all applicable securities laws) in respect of the Pledged
Collateral, in addition to other rights, powers and remedies
provided for herein or otherwise available to it, all the rights,
powers and remedies of the Secured Party after default under the
Uniform Commercial Code in force and effect in each state in
which such rights, powers and remedies are asserted, all of which
rights, powers and remedies shall be cumulative and not
exclusive, to the extent permitted by applicable law.
(ii) The Secured Party may also, without notice except
as specified below, sell the Pledged Collateral or any part
thereof in one or more parcels at public or private sale, at any
exchange, over the counter or at any of the Secured Party's
offices or elsewhere, for cash, on credit or for future delivery,
and at such price or prices and upon such other terms as may be
commercially reasonable or otherwise in such manner as necessary
to comply with applicable federal and state securities laws.
Pledgor agrees that the Secured Party shall not be required to
register or qualify any of the Pledged Collateral under
applicable state or federal securities laws in connection with
any
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such sale if the sale is effected in a manner that complies with
all applicable federal and state securities laws. The Secured
Party shall be authorized at any such sale (if it deems it
advisable to do so) to restrict the prospective bidders or
purchasers to persons who will represent and agree that they are
purchasing the Pledged Collateral for their own account, for
investment and not with a view to the distribution thereof. Upon
consummation of any such sale the Secured Party shall have the
right to assign, transfer and deliver to the purchaser or
purchasers at any such sale, and such purchasers shall hold, the
property sold absolutely free from any claim or right on the part
of Pledgor, and Pledgor hereby waives (to the extent permitted by
law) all rights of redemption, stay or appraisal which he now has
or may at any time in the future have under applicable law now
existing or hereafter enacted.
(iii) The Secured Party shall give Pledgor at least ten
(10) days' (or such longer period as shall be specified by
applicable law) notice of the time and place of any public sale
or the time after which any private sale is to be made, which
Pledgor agrees shall constitute commercially reasonable
notification. At any such public sale and (to the extent
permitted by law) at any such private sale, the Secured Party may
bid, in whole or in part, in the form of cancellation of Secured
Obligations, and the Secured Party may purchase the whole or any
part of the Pledged Collateral. The Secured Party shall not be
obligated to make any sale of the Pledged Collateral regardless
of notice of sale having been given. The Secured Party may
adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to
which it was so adjourned.
(iv) If a sale of all or any part of the Pledged
Collateral is made on credit or for future delivery, the Pledged
Collateral so sold may be retained by the Secured Party until the
sale price is paid by the purchaser or purchasers thereof, but
the Secured Party shall not incur any liability in case any such
purchaser or purchasers shall fail to take up
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and pay for the Pledged Collateral so sold and, in case of any
such failure, such Pledged Collateral may be sold again upon like
notice. Pledgor agrees to the maximum extent permitted by
applicable law that any sale of the Pledged Collateral conducted
by the Secured Party in accordance with the foregoing provisions
of this Section 13 shall be deemed to be a commercially
reasonable sale under Section 9-504 of the Texas Uniform
Commercial Code.
(v) As an alternative to exercising the power of sale
herein conferred upon it, the Secured Party may proceed by a suit
or suits at law or in equity to foreclose the Security Interest
and to sell the Pledged Collateral, or any portion thereof,
pursuant to a judgment or decree of a court or courts of
competent jurisdiction.
(vi) Any cash held by the Secured Party as the Pledged
Collateral and all cash proceeds received by the Secured Party in
respect of any sale of, collection from, or other realization
upon all or any part of the Pledged Collateral shall be applied
as follows: (a) first, to the payment to the Secured Party of the
costs and expenses of retaking, holding and preparing for sale of
the Pledged Collateral and any other fees, expenses, claims,
demands, losses, judgments, damages and liabilities payable to
the Secured Party pursuant to any provision hereof; and (b)
second, in accordance with the provisions of the NOTE[S].
(vii) Any surplus of such cash or cash proceeds held by
the Secured Party and remaining after payment in full of all the
Secured Obligations shall be reassigned and redelivered as
provided in Section 18 hereof.
Section 14. Security Interest Absolute. All rights of the
Secured Party hereunder, the Security Interest, and all obligations of Pledgor
hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the NOTE[S], any
agreement with respect to any of the Secured Obligations, or any other
agreement or instrument relating to any of the foregoing;
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(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of or any consent to and departure from the NOTE[S] or any
other agreement or instrument;
(c) any exchange, release or non-perfection of any other
collateral, or any release of, amendment to, waiver of, consent to or departure
from any guaranty, for all or any of the Secured Obligations; and
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Pledgor in respect of the Secured
Obligations or in respect of this Agreement.
Section 15. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered, telexed or telecopied to, or, if mailed,
when received by, the other party at the following addresses (or at such other
address as shall be given in writing by any party to the others):
If to the Secured Party, to:
Chief Auto Parts Inc.
15303 Dallas Parkway
Suite 800
Dallas, Texas 75248
Attention: Mary M. Mahon, Esq.
Telephone: 214-404-1114
Telecopier: 214-991-9259
With a required copy (which shall not constitute notice to the
principal) to:
Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attention: Conor D. Reilly, Esq.
Telephone: 212-351-4000
Telecopier: 212-949-7606
If to Pledgor, to the address set forth under Pledgor's name on
the signature page hereto.
Section 16. Amendments and Waivers. This Agreement may only be
amended by a document signed by the Secured Party and Pledgor. No waiver of
any provision of this Agreement nor consent by the Secured Party to any
departure by Pledgor
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therefrom shall in any event be effective unless the same shall be in writing
and signed by the Secured Party. Any such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. No
failure on the part of the Secured Party to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof (except as
provided above) nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.
Section 17. Election of Remedies. The remedies herein provided
are cumulative and not exclusive of any remedies provided by law. The Secured
Party shall have all of the rights and remedies granted herein and available at
law or in equity, and these same rights and remedies may be pursued separately,
successively or concurrently against Pledgor, at the sole discretion of the
Secured Party.
Section 18. Release of Pledged Collateral and Termination.
Immediately following the payment of all the principal, interest, fees, costs
and other expenses due under the NOTE[S], all of the Pledged Collateral shall
be released from the pledge of this Agreement, and the Secured Party shall
reassign and redeliver (or cause to be reassigned and redelivered) to Pledgor,
or, subject to compliance with applicable law, to each person or persons as
Pledgor shall designate or to whoever may be lawfully entitled to receive such
surplus, against receipt, certificates representing the Pledged Shares (if any)
or such Pledged Collateral other than the Pledged Shares (if any) as shall not
have been sold or otherwise applied by the Secured Party pursuant to the terms
hereof and shall still be held by it hereunder, together with appropriate
instruments of reassignment and release.
Any transfer, redelivery or reassignment provided for above shall
be without recourse upon or warranty by the Secured Party (other than a
warranty that the Secured Party has not assigned its rights and interests
hereunder to any other person) and at the expense of the Secured Party.
Section 19. Continuing Security Interest; Assignments. This
Agreement shall create a continuing security interest in the Pledged Collateral
or the proceeds therefrom as provided in Section 9(b) and shall (a) remain in
full force and effect until termination as provided in Section 18, (b) be
binding upon Pledgor, the Secured Party and their respective successors and
assigns, and (c) inure, together with the rights, powers and remedies of
Pledgor and the Secured Party hereunder, to the benefit of Pledgor and the
Secured Party and their respective successors, transferees and assigns, as the
case may be. Notwithstanding the foregoing
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clause (b), Pledgor shall not be permitted to assign this Agreement or any
interest herein except as provided for in Section 6(c) and 6(d).
Section 20. Applicable Law. The parties hereto expressly
acknowledge and agree that this Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without giving effect to choice
of laws.
Section 21. Severability. Any provision of this Agreement
which is prohibited, unenforceable or not authorized in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
Section 22. Number and Gender. Whenever used herein, the
singular number shall include the plural and the plural the singular, and the
use of any gender shall be applicable to all genders.
Section 23. Captions. The captions, headings, and arrangements
used in this Agreement are for convenience only and do not and shall not be
deemed to affect, limit, amplify or modify the terms and provisions hereof.
Section 24. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized, as of the date first above written.
"SECURED PARTY"
CHIEF AUTO PARTS INC.
By:
--------------------------
Name:
Title:
"PLEDGOR"
-----------------------------
[STOCKHOLDER]
Address
----------------------
----------------------
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EXHIBIT 10.5
July 3, 1995
VIA FEDERAL EXPRESS MAIL
Mr. Larry L. Buresh
39 W 710 Cross Creek Lane
St. Charles, IL 60175
RE: Employment with Chief Auto Parts Inc., Dallas, Texas
Dear Larry:
This letter will set forth the basis of our understanding regarding your
employment with Chief Auto Parts Inc., a Delaware corporation headquartered in
Dallas, Texas.
1. Title; Salary; Bonus Opportunity
You will be appointed as Vice President-Information Systems. Your
election as an officer is, of course, subject to approval by the Board
of Directors.
Your initial base annual salary will be One Hundred Forty Thousand
Dollars ($140,000), subject to further increases from time to time at
the discretion of the President and Chief Executive Officer.
The terms of your bonus opportunity will be equivalent to those of other
senior officers of Chief. Currently, the bonus opportunity for your
position is thirty percent (30%) of your then current annual salary.
We have agreed to guarantee you a bonus for the 1995 fiscal year, in the
amount of Forty-two Thousand Dollars ($42,000). This bonus (less
applicable withholdings) is payable in March of 1996. Thereafter, you
will participate in Chief's bonus plans as are made available to other
senior officers of the Company.
<PAGE> 2
2. Job Duties
You will report to the President and Chief Executive Officer.
You will be responsible for all of the information services requirements
of Chief, and such additional duties as may be assigned from time to
time by the President and Chief Executive Officer.
3. Purchase of Stock; Option Grant and Participation in the Executive
Target Bonus Plan
Subject to (i) approval by Chief's Board of Directors, (ii) the
requirements of federal and state securities laws, and (iii) the terms
and conditions of the 1994 Executive Option Plan and 1994 Executive
Target Bonus Plan, Chief has agreed as follows:
(a) Purchase of Common Stock
You will be given the opportunity to purchase one hundred (100) shares
of the common stock of Chief, at a purchase price of $1,419.71 per
share.
Chief will loan you two-thirds of the aggregate purchase price of said
one hundred (100) shares, to be evidenced by a non-recourse Promissory
Note, payable over eight years at the current federally imputed interest
rate.
(b) Option Grant
We have agreed to recommend a grant of options to purchase three hundred
(300) shares of common stock, at a purchase price of $1,419.71 per
share, pursuant to the 1994 Executive Option Plan. These shares vest in
25% increments on each anniversary date of the date of the grant.
(c) Participation in the Executive Target Bonus Plan
You will be eligible to immediately participate in the Executive Target
Bonus Plan, which provides for a cash bonus accrual on an annual basis
to the extent the Company achieves certain financial targets described
in the Plan (i.e., EBITDA of $30 million for the 1995 fiscal year).
This will allow you to earn an annual bonus accrual which can be
utilized to pay the exercise price of the stock options described above.
Each year, a participant such as yourself can earn up to 20% of the
exercise price of the options.
<PAGE> 3
Also, please note that the annual accrual will be reduced (prorated) for
this, your first year, based on your date of service. Subject to Board
Approval, you will earn 50% of the 20% credit for the 1995 fiscal year.
4. Tax Assistance
In light of the fact that Chief is a privately held entity, and the
above stock purchase comes with significant risk, the Company has agreed
to pay up to $5,000, to a tax advisor, for the purpose of valuing your
investment in Chief.
5. Health, Welfare, Retirement and Other Benefits
You will be eligible to participate in Chief's health and welfare plans,
disability income plan, any executive non-qualified retirement plan, the
401(k) plan and the life insurance plan, as such plans exist and are
amended from time to time, as well as any other benefits provided to
other senior officers. With the approval of the President and Chief
Executive Officer, you may take up to three weeks for vacation during
your first year and during subsequent years at Chief. Additional time
will be provided to you to relocate your family.
You will also be eligible to apply for a $250,000 term life policy, as
currently made available to certain select officers. You must, of
course, be insurable to Sun Life, the provider of this term insurance.
6. Relocation Expenses and Allowances
(a) Chief will pay all reasonable and customary expenses related to
the transport, packing, and if needed, temporary storage of your
personal property (including your personal automobiles) to the Dallas
metropolitan area from the Chicago, Illinois metropolitan area. You
will also be reimbursed for reasonable travel expenses to arrange your
family's move. Said moving expenses shall be set up to be directly
billed to Chief.
(b) Chief will pay reasonable housing and car rental expenses for you
until you can arrange to relocate your family to Dallas for a period of
six (6) months. Such six (6) month period includes three (3) months
temporary housing for your family, if you so choose. Such housing
expenses shall be set up to be directly billed to Chief, where possible.
(c) You will receive Sixty Thousand Dollars ($60,000) (gross
<PAGE> 4
amount) as a relocation allowance associated with your relocation to
Dallas, which is intended to cover your closing costs and other
incidental expenses attendant to your move. This sum will be paid
within thirty (30) days of your joining Chief.
7. Term
Unless sooner terminated as set forth below, your employment will
commence immediately upon reporting to work at Chief (on or about August
10th) and will for a period of three (3) years under this Agreement.
8. Termination
Your employment shall terminate upon the occurrence of any of the
following:
(a) your death;
(b) an injury or physical or mental illness (as determined by a
physician selected by Chief in good faith) which renders you incapable
of fulfilling your duties (despite reasonable accommodations by Chief)
for a period in excess of 120 days, but only if Chief consents in
writing;
(c) the liquidation or dissolution of Chief;
(d) termination for cause, by reason of one or more of the following
occurrences:
(i) your conviction, by a court of competent jurisdiction, of
a felony (or a plea of nolo contendere thereto) or of any crime
involving moral turpitude;
(ii) the commission of an act of fraud upon, or bad faith or
willful misconduct toward Chief;
(iii) conduct constituting gross neglect of your duties which,
in the reasonable determination of the President and Chief
Executive Officer has been or is likely to be materially
injurious to Chief; or
(iv) willful and continued failure substantially to perform the
duties and obligations of your job, as determined by the
President and Chief Executive Officer;
<PAGE> 5
(e) termination without cause (including, but not limited to, a
change of control of Chief); or
(f) voluntary resignation.
9. Severance Obligations
Upon the termination of your employment for cause or your voluntary
resignation, Chief shall have no further obligation to you or your
estate except for compensation owed and unpaid at the date of such
termination for services previously rendered. Upon the termination of
your employment due to your death, Chief shall have no further
obligation to you or your estate except for compensation owed and unpaid
at the date of such termination for services previously rendered, and
payment of a prorated bonus. Upon termination of your employment for
any reason other than for cause as described above, your death or
voluntary resignation, Chief shall pay you:
(a) a prorated bonus, taking into account the formula in effect at
the time and the months served in the then current fiscal year;
(b) your then current annual salary and the benefits set forth in
Section 4 for a six (6) month period commencing with the date of
termination (except that your health benefit continuation shall be
administered in accordance with COBRA, which shall run concurrently with
your salary continuation). Your salary shall continue to be paid in
such installments as it was being paid to you prior to termination;
provided that if you obtain new employment following such termination
requiring a comparable level of responsibility and decision making, all
compensation from such new employment during such six (6) month period
shall reduce the amount payable by Chief to you;
(c) relocation expenses to move you and your household back to the
Chicago, Illinois metropolitan area, OR at your choice, an additional
month of base salary, as described in 8(b), above.
(d) outplacement services, such as would be provided to other senior
officers of Chief.
10. Severability
If any term or provision of this agreement or the application thereof to
any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this agreement shall not be affected
<PAGE> 6
thereby, and each remaining term or provision of this agreement shall be
valid and enforceable to the fullest extent permitted by law.
If the foregoing accurately sets forth our understanding, please sign
below where indicated.
Very truly yours,
/s/ DAVID H. EISENBERG
---------------------------
David H. Eisenberg
AGREED AND ACCEPTED:
/s/ LARRY L. BURESH
- ------------------------------------
Larry L. Buresh
Date: 7/5/95
-------------------------------
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT ("Agreement"), effective as of June 27, 1994, by
and between CHIEF AUTO PARTS, INC., a Delaware corporation (the "Company"), and
DAVID EISENBERG, an individual residing at 5200 Keller Springs Road, Dallas, TX
(the "Executive").
W I T N E S S E T H
WHEREAS, the Executive wishes to serve the Company and the Company
wishes to secure the services of the Executive under the terms described below.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained in this Agreement, the parties hereto agree as
follows:
1. Term of Employment. The Company hereby employs the Executive
for a term (the "Term") of five (5) years commencing on June 27, 1994. Upon
the end of the Term, the obligations and covenants of the parties hereunder
shall be of no further force and effect as of the end of the Term, except those
obligations which shall survive this Agreement as set forth in Section 11, and
except for vested compensation earned by the Executive pursuant to Section 3 up
to the end of the Term.
2. Duties of Executive. During the Term, the Executive shall
perform the duties of President and Chief Executive Officer of the Company and
shall serve in such additional capacities as the Board of Directors of the
Company (the "Board") may determine in its sole discretion from time to time.
Subject to supervision by the Board, the Executive shall have overall charge of
the business affairs of the Company, with the duties, responsibilities and
authorities normally associated with such position for a company similar in
size and nature to the Company. The Executive shall devote substantially all
of his time, attention and energy to the business of the Company and shall not,
during the term of this Agreement, be actively engaged in any other business
activity for gain, profit, or other pecuniary advantage if and to the extent
such activity shall impair his ability to fully perform his duties to the
Company pursuant to this Agreement. The Executive may make personal passive
investments in business entities that do not compete with the Company. The
Executive may also invest in less than one percent of the issued and
outstanding common stock of a corporation which competes with the Company if
such stock is traded upon the floor of the New York Stock Exchange or the
American Stock Exchange or quotations for such stock are reported by the
National Association of Securities Dealers Automated Quotation System
("NASDAQ").
3. Compensation.
3.1 Base Salary. In consideration of the Executive's
service hereunder, the Company shall pay to the Executive a base salary at an
annual rate of Three Hundred Fifty Thousand Dollars ($350,000) effective as of
June 27, 1994 through December 31, 1994 and Three Hundred Seventy-Five Thousand
Dollars ($375,000) effective January 1, 1995, subject to increases, if any,
which the Board in its sole discretion may determine, payable semi-monthly in
<PAGE> 2
accordance with the standard policies of the Company in existence from time to
time, subject to any deductions required by law. For purposes hereof, "Base
Salary" for any measurement period shall mean the annualized base salary rate
in effect under this Section 3.1 on the last day of such measurement period.
3.2 Bonus. Subject to the provisions of Section 4
hereof, following the end of the Company's 1994 fiscal year, the Executive
shall be entitled to receive a cash bonus to be paid within fifteen (15) days
of the receipt by the Company of its audited financial statements (as prepared
by the Company's independent auditors) for fiscal year 1994 and determined as
follows. In the event that the Company achieves a level of EBITDA (as defined
herein) equal to the Minimum Target (as defined herein), the Executive shall be
entitled to receive a bonus equal to 37.5% of his then current annual base
salary. In the event that the Company achieves a level of EBITDA equal to or
in excess of the Maximum Target (as defined herein), the Executive shall be
entitled to receive a bonus equal to 75% of his then current annual base
salary; provided that any additional bonus over such 75% which relates to the
excess of EBITDA over the Maximum Target shall be paid to the Executive as
determined by the Board in its sole discretion. In the event that the Company
achieves a level of EBITDA greater than the Minimum Target but less than the
Maximum Target, the Executive shall be entitled to receive a bonus equal to the
sum of (i) 37.5% of his then current annual base salary and (ii) 37.5% of his
then current annual base salary multiplied by the EBITDA Factor (as defined
herein). "EBITDA" shall mean the Company's annual earnings before interest,
taxes, depreciation and amortization as determined from the Company's annual
financial statements prepared in accordance with generally accepted accounting
principles by the independent public accountants regularly employed by the
Company. The "Minimum Target" shall mean $19,862,257 of EBITDA for 1994. The
"Maximum Target" shall mean $24,827,821 of EBITDA for 1994. The "EBITDA
Factor" shall mean the quotient obtained by dividing (i) the difference between
actual EBITDA for fiscal 1994 and the Minimum Target for such year by (ii) the
difference between the Maximum Target and the Minimum Target for such year.
After fiscal year 1994, the Executive shall be entitled to a bonus pursuant to
the terms of an Executive Bonus Plan to be adopted by the Board.
3.3 Additional Benefits. In addition to the compensation
explicitly provided for herein, the Executive shall be entitled to (a) such
fringe benefits as are made available generally to the senior executives of the
Company, including participation in such pension, group life, disability,
health and other similar benefit or insurance programs as are now or hereafter
made available generally to such executives, including any directors' and
officers' liability insurance which the Company may adopt for some or all of
its senior executives during the Term and (b) participate in the Company's Long
Term Incentive Plan in the manner and to the extent provided therein.
3.4 Expenses. The Executive shall be reimbursed by the
Company for all reasonable, out-of-pocket ordinary and necessary business
expenses incurred by the Executive for the purpose of and in connection with
the performance of the Executive's services hereunder, including, without
limitation, (i) a monthly automobile allowance of not less than One Thousand
Six Hundred Dollars ($1,600) per month, as determined by the Board, and
reasonable expenses related to such automobile such as gasoline, maintenance
and insurance and (ii) dues and
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<PAGE> 3
expenses of up to Five Thousand Dollars ($5,000) per year in respect of the
Executive's membership in a country or social club located in the Dallas/Fort
Worth metropolitan area. Such reimbursement shall be made upon presentation of
vouchers or other statements itemizing such expenses in reasonable detail
consistent with the Company's policies.
3.5 Vacation. The Executive shall be entitled to not
less than three (3) weeks of paid vacation during each year as determined by
the Board.
3.6 Moving Expenses. The Executive shall be reimbursed
by the Company for all out-of-pocket expenses incurred by the Executive and his
immediate family in connection with the permanent relocation of the Executive's
personal property to Dallas, Texas, including travel expenses of the Executive
and his immediate family, up to an aggregate amount not to exceed Fifty
Thousand Dollars ($50,000). In the event of termination of this Agreement
pursuant to Section 4.1 or 4.4, the Executive shall also be reimbursed by the
Company for all such expenses incurred in connection with relocation from
Dallas, Texas, up to an aggregate amount not to exceed Fifty Thousand Dollars
($50,000). All such reimbursement shall be made upon presentation of vouchers
or other statements itemizing such expenses in reasonable detail consistent
with the Company's policy.
4. Termination by the Company.
4.1 Termination Without Cause.
(a) During the term, the Company may terminate
this Agreement, without Cause, effective upon the occurrence of any of the
following events:
(i) thirty (30) days after written
notice is delivered to the Executive by the Company of the determination of the
permanent disability of the Executive, defined for purposes of this
subparagraph (a)(i) as incapacity of the Executive to fulfill his normal duties
and responsibilities hereunder for a period in excess of ninety (90) days by
reason of physical or mental disability as determined by a medical doctor
acceptable to the Board;
(ii) the death of the Executive; or
(iii) thirty (30) days after written
notice of termination is delivered to the Executive by the Company for any
reason other than pursuant to subsection (a)(i) or (a)(ii) of this Section or
Section 4.3 hereof.
(b) Upon termination of this Agreement pursuant
to this Section 4.1, the obligations and covenants of the parties hereunder
shall be of no further force and effect, except those obligations which shall
survive this Agreement as set forth in Section 11 and except for the payment
obligations of the Company set forth in Section 4.2 below.
4.2 Payment Obligations of the Company upon Termination
Without Cause. The Company shall be obligated to the Executive as follows in
the event of any termination of this Agreement as set forth in Section 4.1:
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<PAGE> 4
(a) In the event of termination pursuant to
Section 4.1(a), the Company shall pay to the Executive or his estate all
compensation and other benefits, including, without limitation, any amounts
payable under Sections 3.4 and 3.6 hereof and any accrued bonus to which the
Executive is entitled under the Executive Bonus Plan, through the date of such
termination, plus,
(i) in the event of termination pursuant
to Section 4.1(a)(ii), the estate of the Executive shall continue to receive
from the Company, for a period of six (6) months after the death of the
Executive, in cash and without discounts, the Base Salary in effect on the date
of the death of the Executive; and
(ii) in the event of termination pursuant
to Section 4.1(a)(i) or (iii), the Executive shall continue to receive from the
Company, for a period of one (1) year after the date of termination, in cash
and without discount, the Base Salary in effect on the date of termination.
(b) All amounts payable under this Section 4.2
shall be paid within sixty (60) days of the date of termination of this
Agreement, except that any bonus shall be paid on the next occurring regular
bonus payment date and Base Salary shall be paid in normal increments over the
period for which it is payable.
4.3 Termination for Cause. During the Term, this
Agreement may be terminated for Cause effective upon receipt by the Executive
of the Company's written notice specifying any valid basis for termination of
the Executive for Cause. "Cause" shall mean:
(a) the Executive's criminal conviction for
fraud, embezzlement, misappropriation of assets or any other felony (excluding
traffic violations) or any crime of moral turpitude;
(b) the continuance of willful and repeated
failures by the Executive to perform his obligations under this Agreement which
have not been cured by the Executive within thirty (30) days following receipt
of written notice from the Board specifying such failure and the action
required by the Executive to cure such breach of his obligations hereunder;
(c) the commission of an act of fraud upon, or
bad faith or willful misconduct toward, the Company; or
(d) the determination by the Board that the
Executive has, in the performance of his duties hereunder, engaged in grossly
negligent conduct which has been or is likely to result in material injury to
the Company.
Upon termination by the Company for Cause, the obligations and
covenants of the parties hereunder shall be of no further force and effect,
except those obligations which shall survive this Agreement as set forth in
Section 11, and except for vested compensation earned by the Executive pursuant
to Section 3 up to the termination date, provided that the Executive shall not
be entitled to any accrued or prorated bonus.
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<PAGE> 5
4.4 Voluntary Termination by the Executive for Good
Reason. During the Term, this Agreement may be terminated by the Executive if
(i) the Company commits a material breach of any provision of this Agreement,
or (ii) there is a material and adverse alteration or diminution in the nature
of status of the Executive's authority, duties or responsibilities from those
in effect immediately prior to such change, in either case which the Company
does not cure within thirty (30) days of receipt of written notice from the
Executive demanding such a cure. Upon such a termination, the Executive shall
be entitled to all rights available to him upon a termination of this Agreement
pursuant to Section 4.1(a)(iii) hereof.
5. Restrictive Covenants.
(a) Non-Disclosure. The Executive acknowledges that
during the course of his employment with the Company he will receive or obtain
proprietary and confidential technical and business information with respect to
the Company's business operations, including, by way of illustration and not
limitation, the Company's existing and contemplated product lines, business and
financial methods and practices, business plans and marketing, pricing and
selling techniques (collectively, the "Confidential Information"). The
Executive further acknowledges that the Company conducts its business in a
national market and that the Company would be substantially damaged by any
association of the Executive with a competitive business enterprise in which
the Executive used Confidential Information to compete with the Company. In
view of the foregoing, and in consideration of the compensation to be paid to
the Executive by the Company, the Executive agrees that: He will not, while he
is employed by the Company, print, publish, divulge or communicate in any
manner to any person, firm, corporation or other entity, directly or
indirectly, except to the Company or its officers and agents or as reasonably
required in connection with his duties on behalf of the Company, or use, except
on behalf of the Company, any Confidential Information, whether or not with the
knowledge or permission of the Company. The Executive agrees that he will not,
at any time after his employment with the Company has ended, print, publish,
divulge or communicate in any manner to any person, firm, corporation or other
entity, or use, directly or indirectly, any Confidential Information. The
Executive further agrees that after his employment with the Company has ended
he shall not take with him but will leave with the Company all records, papers
and computer data and any copies thereof relating to the Confidential
Information (or if such papers, records, computer data or copies are not on the
premises of the Company, the Executive agrees to return such papers, records
and computer data immediately upon the termination of his employment with the
Company). The Executive acknowledges that all such papers, records, computer
data or copies thereof are and remain the property of the Company. The
provisions of this Section 5(a) shall apply to any Confidential Information
obtained by the Company from any third party under a contract containing
restrictions on disclosure known to the Executive.
(b) Non-Competition. For a period commencing on the date
of termination of the Executive's employment and ending one year after the date
of termination of the Executive's employment (the "Non-Competition Period"),
the Executive will not:
(i) within a two-mile radius of any location
where the Company operates its retail business during the Non-Competition
Period, compete with the Company; or
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<PAGE> 6
(ii) be employed by, own an interest in, manage,
or be a partner, director, stockholder, advisor or consultant of, any entity
which significantly competes with the Company within a two-mile radius of any
location where the Company operates its retail business during the
Non-Competition Period; or
(iii) directly or indirectly induce or solicit, or
directly or indirectly aid or assist any other person to induce or solicit,
employees, salesmen, agents, consultants, distributors, representatives,
advisors, customers or suppliers of the Company to terminate, curtail or
otherwise limit their employment or business relations with the Company.
Notwithstanding other provisions of this Section 5(b), nothing contained in
this paragraph shall prevent the Executive from purchasing less than one
percent (1%) of the issued and outstanding common stock of a corporation which
conducts such competitive business if such stock is traded upon the floor of
the New York Stock Exchange or the American Stock Exchange or if quotations for
such stock are reported by NASDAQ.
(c) Savings Clause. If any one or more of the provisions
contained in this Section 5 shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity, legality and enforceability of
any other provisions of this Section. Such invalid, illegal or unenforceable
provision or provisions shall be deemed to be modified to the extent necessary
to render it, or them, valid, legal and enforceable and if no such modification
shall render it, or them, valid, legal and enforceable, then this Section 5
shall be construed as if not containing the provision or provisions held to be
invalid, illegal or unenforceable, and the rights and obligations of the
parties shall be construed and enforced accordingly.
6. Purchase of Annuity. Upon the first to occur (the "Trigger
Date") of (i) a Change in Control (as hereinafter defined) or (ii) a
termination of this Agreement pursuant to Section 4.1(a)(i), 4.1(a)(iii) or
4.4, the Company shall immediately thereupon pay to the Executive in cash an
amount equal to the cost of purchasing an annuity from the Northwestern Mutual
Life Insurance Company that would pay to the Executive a monthly payment of
$8,333.33 commencing upon the Trigger Date and ending on the date of the
Executive's death, less any Realizable Value as hereinafter defined. "Change
in Control" means the occurrence of events so that any party which is neither
(x) Trust Company of the West or an affiliate thereof nor (y) an employee of
the Company acquires equity securities of the Company having in excess of fifty
percent (50%) of the voting power entitled to elect the Board. "Realizable
Value" means Compensation less federal income tax payable on Compensation at
the then effective highest applicable individual marginal income tax rate.
"Compensation" means the sum of (a) cash and the Fair Market Value of non-cash
compensation received by the Executive from the sale or other transfer of the
Option Interest, less amounts expended to exercise the Options and (b) the Fair
Market Value of the Option Interest as of the Trigger Date. "Fair Market
Value" means, with respect to securities which are publicly traded either on a
major securities exchange or on NASDAQ with not less than two market makers,
the last sales price for such securities immediately preceding the Trigger
Date, and, with respect to other items, the fair market value as determined by
a nationally recognized appraisal or accounting firm selected by the Company.
6
<PAGE> 7
"Option Interest" means (i) options received by the Executive or his personal
representative (collectively, the "Recipient") pursuant to the Company's 1994
Executive Option Plan (the "Options"), (ii) shares of common stock of the
Company received by the Recipient upon the exercise of the Options (the "Option
Shares") and (iii) dividends paid in respect of Option Shares held by the
Recipient.
7. Remedies. It is recognized that damages in the event of
breach or threatened breach by the Executive of the provisions of Section 5
would be difficult, if not impossible, to ascertain, and it is therefore agreed
that the Company, in addition to and without limiting any other remedy or right
it may have, shall have the right to an injunction or other equitable relief,
in any court of competent jurisdiction, enjoining any such breach, and the
Executive hereby waives any and all defenses he may have on the ground of lack
of jurisdiction or competence of the court to grant such an injunction or other
equitable relief. The existence of this right shall not preclude or impair any
other rights and remedies at law or in equity that the Company may have.
8. Assignability; Binding Nature. This Agreement shall inure to
the benefit of the Company and the Executive and their respective successors,
heirs (in the case of the Executive) and assigns. No rights or obligations of
the Company under this Agreement may be assigned or transferred by the Company
except that any such rights or obligations may be assigned or transferred
pursuant to a merger or consolidation in which the Company is not the
continuing entity, or the sale or liquidation of all or substantially all of
the assets of the Company, provided that the assignee or transferee is the
successor to all or substantially all of the assets of the Company and such
assignee or transferee assumes the liabilities, obligations and duties of the
Company, as contained in this Agreement, either contractually or as a matter of
law. The Company will require all successors (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, by agreement in form and substance
reasonably satisfactory to the Executive, to expressly assume and agree to
perform the obligations of the Company under this Agreement. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall entitle the Executive to terminate this Agreement pursuant to
Section 4.4 hereof. As used in this Agreement, the "Company" shall mean the
Company as hereinbefore defined and any successor to its business and/or assets
as aforesaid which executes and delivers an agreement as described above or
which otherwise becomes bound by the terms and provisions of this Agreement by
operation of law.
9. Notices. Any notice hereunder shall be properly given if by
personal delivery or registered or certified mail, return receipt requested, as
follows:
If to Executive, at the address first above written.
If to the Company, to:
Chief Auto Parts, Inc.
15303 Dallas Parkway, Suite 800
Dallas, Texas 75248
Attention: General Counsel
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<PAGE> 8
with a copy to:
Conor D. Reilly, Esq.
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166-0193
or to such other addresses as the parties may designate in writing.
10. Integration; Modification. This Agreement shall supersede all
previous negotiations, commitments and writings with respect to the employment
of the Executive. Without limiting the foregoing, upon this Agreement becoming
effective, the employment agreement dated as of November 8, 1992 by and between
Chief Auto Parts, Inc. and the Executive shall be null and void and of no
further force or effect. This Agreement may not be released, discharged,
abandoned, changed or modified in any manner, except by an instrument in
writing signed on behalf of each of the parties hereto. The failure of either
party hereto to enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such provisions, nor in any
way to affect the validity of this Agreement or either party thereof or the
right of either party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to be a waiver of any
other or subsequent breach.
11. Survival of Certain Obligations. Except as otherwise
specifically provided for herein, the obligations of the parties pursuant to
Section 5 shall survive the termination of this Agreement.
12. Severability. If any term or provision of this Agreement is
declared invalid by a court of competent jurisdiction the remaining terms and
provisions of this Agreement shall remain unimpaired.
13. Captions. The captions appearing in this Agreement are
inserted only as a matter of convenience and as a reference and in no way
define, limit or describe the scope or intent of this Agreement or any of the
provisions hereof.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic substantive laws of the State of
Texas without giving effect to any choice or conflict of laws provision or rule
that would cause the application of the domestic substantive laws of any other
jurisdiction.
15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 9
IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Agreement as of the date first above written.
/s/ DAVID H. EISENBERG
--------------------------
DAVID EISENBERG
CHIEF AUTO PARTS, INC.
By: /s/ THOMAS A. HOUGH
-----------------------
Name: Thomas A. Hough
Title:
--------------------
9
<PAGE> 1
EXHIBIT 10.7
1994 EXECUTIVE OPTION PLAN
CHIEF AUTO PARTS INC.
Section 1. Purpose. The purpose of the 1994 Executive Option
Plan (the "Plan") is to promote the interests of Chief Auto Parts Inc., a
Delaware corporation (the "Company"), and the interests of the Company's
stockholders by providing an opportunity to selected employees, officers and
directors of the Company or any subsidiary thereof as of the date of the
adoption of the Plan or at any time thereafter to purchase Common Stock of the
Company. By encouraging such stock ownership, the Company seeks to attract,
retain and motivate such employees and persons and to encourage such employees
and persons to devote their best efforts to the business and financial success
of the Company. It is intended that this purpose will be effected by the
granting of "Options" to acquire the Common Stock of the Company.
Section 2. Definitions. For purposes of the Plan, the following
terms used herein shall have the following meanings, unless a different meaning
is clearly required by the context.
2.1. "Board of Directors" shall mean the Board of Directors of
the Company.
2.2. "Code" shall mean the Internal Revenue Code of 1986, as
amended, or any successor legislation.
2.3. "Common Stock" shall mean the Common Stock, $0.0l par value
per share, of the Company.
2.4. "Compensation Committee" shall mean the committee of the
Board of Directors referred to in Section 5 hereof.
2.5. "Employee" shall mean any person employed by, or performing
services for, the Company, including, without limitation, directors and
officers.
2.6. "Option" or "Options" shall have the meaning set forth in
Section 1 of Exhibit A attached hereto.
2.7. "Option Certificate" shall have the meaning set forth in
Section 1 of Exhibit A attached hereto.
2.8. "Participant" shall mean the persons listed on Schedule 2.8
attached hereto for the Options listed opposite each such person on Schedule
2.8, and any other Employee to whom an Option is granted under the Plan.
Section 3. Eligibility. Options may be granted to any Employee.
No person other than a Participant shall have any right to participate in the
Plan.
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<PAGE> 2
Section 4. Common Stock Subject to the Plan.
4.1. Number of Shares. The total number of shares of Common
Stock for which Options may be granted under the Plan shall not exceed in the
aggregate 5,488.30 shares of Common Stock (subject to adjustment as provided in
Exhibit A), and the maximum number of shares of Common Stock that shall be
issued during any Plan Year to any one person hereunder shall be 5,488.30.
4.2. Reissuance. The shares of Common Stock that may be subject
to Options granted under the Plan may be either authorized and unissued shares
or shares reacquired at any time and now or hereafter held as treasury stock as
the Board of Directors may determine. In the event that any outstanding Option
expires or is terminated for any reason, the shares allocable to the
unexercised portion of such Option may again be subject to an Option granted
under the Plan.
Section 5. Administration of the Plan.
5.1. Administration. The Plan shall be administered by a
committee of the Board of Directors (the "Compensation Committee") established
by the Board of Directors and consisting of no fewer than two persons. The
Compensation Committee shall be appointed from time to time by, and shall serve
at the pleasure of, the Board of Directors. Upon such time as the Common Stock
becomes subject to Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (i) all members of the Compensation Committee
shall be "disinterested persons" within the meaning of Rule 16b-3 promulgated
under the Exchange Act, and, to the extent feasible, (ii) the Compensation
Committee shall consist solely of two (2) or more outside directors within the
meaning of the Code Section 162(m).
5.2. Grant of Options. The Compensation Committee shall have
the sole authority and discretion under the Plan (i) to select the Employees
who are to be granted Options hereunder other than the persons listed on
Schedule 2.8 attached hereto, who are Participants (with respect to the Options
listed on Schedule 2.8) according to the terms of the Plan; (ii) subject to
Section 4, to establish the number of shares of Common Stock that may be
issued; and (iii) to establish any other terms, restrictions and/or conditions
applicable to any Option not inconsistent with the provisions of the Plan,
including without limitation the provisions of Exhibit A attached hereto.
5.3. Interpretation. The Compensation Committee has complete
discretion and authority to interpret the Plan, decide all questions of
eligibility and benefits hereunder, and adopt such rules and regulations, not
inconsistent with the provisions of the Plan, as it may deem advisable to carry
out the purposes of the Plan.
2
<PAGE> 3
5.4. Finality. The interpretation and construction by the
Compensation Committee of any provision of the Plan, any Option granted
hereunder or any agreement evidencing any such Option shall be final and
conclusive upon all parties.
5.5. Expenses. Etc. All expenses and liabilities incurred by
the Compensation Committee in the administration of the Plan shall be borne by
the Company. The Compensation Committee may employ attorneys, consultants,
accountants or other persons in connection with the administration of the Plan.
The Compensation Committee, the Company, and its officers and directors, shall
be entitled to rely upon the advice, opinions or valuations of any such
persons. No member of the Compensation Committee shall be liable for any
action, determination or interpretation taken or made in good faith with
respect to the Plan or any Option granted hereunder.
Section 6. Terms and Conditions of Options. The terms and
conditions of each Option granted under the Plan shall be substantially as set
forth in Exhibit A attached hereto. Each Participant shall receive an Option
Certificate substantially in the form of Schedule 1 to Exhibit A evidencing
such Participant's Options.
Section 7. Effect of the Plan on Employment Relationship.
Neither the Plan nor any Option granted hereunder to a Participant shall be
construed as conferring upon such Participant any right to continue in the
employ of (or otherwise provide services to) the Company, or limit in any
respect the right of the Company to terminate such Participant's employment or
other relationship with the Company, as the case may be, at any time, for any
reason.
Section 8. Amendment of the Plan. The Board of Directors may
amend the Plan from time to time as it deems desirable, subject to the
provisions of Exhibit A. However, upon the Common Stock becoming subject to
the Exchange Act, the Board of Directors may not amend the Plan (i) to increase
(except for increases due to adjustments in accordance with Exhibit A) the
aggregate number of shares of Common Stock for which Options may be granted
hereunder, (ii) to materially increase the benefits accruing to Participants,
(iii) materially modify the requirements as to the eligibility for
participation in the Plan, or (iv) make any other change requiring shareholder
approval under (A) any applicable rule, regulation, or procedure of any
national securities 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 the holders of a majority of
the outstanding stock of the Company entitled to vote thereon at a meeting.
3
<PAGE> 4
Section 9. Termination of the Plan. The Board of Directors may
terminate the Plan at any time. Unless the Plan shall theretofore have been
terminated by the Board of Directors, the Plan shall terminate on June 30,
2004. No Option may be granted hereunder after termination of the Plan. The
termination or amendment of the Plan shall not alter or impair any rights or
obligations under any Option theretofore granted under the Plan.
Section 10. Effective Date of the Plan. The Plan shall be
effective as of June 30, 1994, provided that it is approved by the holders of
all the outstanding Common Stock of the Company within twelve (12) months
thereafter, and will be null and void ab initio if not approved by such holders
within such time.
Section 11. Severability. Wherever possible, each provision of
this Plan shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Plan shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Plan.
Section 12. Headings. The headings used in this Plan are for
the convenience of reference only and shall not, for any purpose, be deemed a
part of this Plan.
Section 13. Governing Law. This Plan shall be governed by the
laws of the State of Delaware, without regard to the provisions thereof
relating to conflict of laws.
Section 14. Entire Agreement. The Plan in its entirety
(including Exhibit A hereto) and the Option Certificates issued to each
Participant constitute the entire agreement between the Company and each
Participant in respect of the subject matter hereof and hereby terminates,
cancels and supersedes any and all other negotiations, understandings and
written and verbal agreements between the parties relating to the subject
matter hereof.
Section 15. 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.
Section 16. 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
4
<PAGE> 5
Company, its successors and assigns, and the Participants and their
beneficiaries and legal representatives.
Section 17. Tax and Securities Law Treatment. The Company is
not responsible for, and makes no representation or warranty whatsoever as to
the tax or securities law treatment hereunder, and each Participant should
consult his or her own tax and legal advisor.
5
<PAGE> 6
EXHIBIT A
OPTION TERMS AND CONDITIONS
<PAGE> 7
CONTENTS
<TABLE>
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. OPTION CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. EXERCISE OF OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1. Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2. Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.3. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4. No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.5. Continued Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. TRANSFER, DIVISION AND COMBINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2. Division and Combination . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.4. Maintenance of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5. ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.1. Stock Dividend; Stock Split . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2. Reorganization; Recapitalization . . . . . . . . . . . . . . . . . . . . . 11
5.3. Other Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.4. Adjustments to Current Option Price . . . . . . . . . . . . . . . . . . . . 12
6. NOTICES TO OPTION HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1. Notice of Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.2. Notice of Corporate Action . . . . . . . . . . . . . . . . . . . . . . . . 12
7. NO IMPAIRMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . 14
9. TAKING OF RECORD; STOCK AND OPTION TRANSFER BOOKS . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 8
<TABLE>
<S> <C> <C>
10. RESTRICTIONS ON TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.1. Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.2. Restrictions on Proposed Transfers . . . . . . . . . . . . . . . . . . . . 16
10.3. Incidental Registration . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.4. Required Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10.5. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . 19
10.6. Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.7. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.8. Indemnification and Contribution . . . . . . . . . . . . . . . . . . . . . 21
10.9. Termination of Restrictions . . . . . . . . . . . . . . . . . . . . . . . . 23
10.10. Certain Limitation on Registration Rights . . . . . . . . . . . . . . . . . 23
10.11. Lock-Up Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10.12. Company Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11. SUPPLYING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12. LOSS OR MUTILATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
13. OFFICE OF COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14. FINANCIAL AND BUSINESS INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.1. Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
14.2. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15. DRAG-ALONG/TAG-ALONG RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
16. PUT/CALL RIGHT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
16.1 Call Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
16.2 Put Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
17. TAX REPURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
18. NO RIGHTS AS STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
ii
<PAGE> 9
<TABLE>
<S> <C> <C>
19. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
19.1. Representations of Participants . . . . . . . . . . . . . . . . . . . . . . 29
19.2. Notice Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
19.3. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
19.4. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . 31
19.5. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
19.6. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
SIGNATURES
EXHIBITS
Exhibit A - Subscription Form
Exhibit B - Assignment Form
iii
<PAGE> 10
EXHIBIT A
OPTION TERMS AND CONDITIONS
1. DEFINITIONS
As used in this Agreement, the following terms have the respective
meanings set forth below (capitalized terms not defined herein shall have the
meanings ascribed thereto in the Plan):
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by Company after the Effective Date, other than Option Stock.
"Adjusted EBITDA" shall mean the Company's annual earnings 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 Deferred Compensation Plan, accruals in
respect of the Plan, and other items relating to the Merger as determined from
the Company's annual financial statements prepared in accordance with generally
accepted accounting principles by the Company's independent accountants;
provided that, at its reasonable discretion, the Board of Directors of the
Company shall be entitled to modify the foregoing calculation where it deems
such modification to be appropriate.
"Business Day" shall mean any day that is not a Saturday or Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.
"Call Right" shall have the meaning set forth in Section 16.1.
"Cause" shall mean, without limitation, (i) conviction of a felony or
any crime of moral turpitude, (ii) commission of an act of fraud upon, or bad
faith or willful misconduct toward, the Company, (iii) conduct constituting
gross negligence which in the determination of the Board of Directors has been
or is likely to be materially injurious to the Company; and (iv) willful or
continued failure substantially to perform duties and obligations relating to
employment of such Participant. The Board of Directors shall have reasonable
discretion to determine if "Cause" has occurred.
"Change of Control" shall mean the occurrence of an event whereby a
party other than TCW or its affiliates, or an employee stockholder as of the
Effective Date, acquires an interest of at least 50.01% of the Company's
outstanding voting securities.
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<PAGE> 11
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, $.01 par value per share, of the Company as
constituted on the Effective Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of
Company of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification thereof which is
also not preferred as to dividends or assets over any other class of stock of
Company and which is not subject to redemption and (ii) shares of common stock
of any successor or acquiring corporation (as defined in Section 5.8) received
by or distributed to the holders of Common Stock of Company in the
circumstances contemplated by Section 5.8.
"Company" shall mean Chief Auto Parts Inc., a Delaware corporation.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable, with
or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event.
"Current Market Price" shall mean, in respect of any share of Common
Stock on any date herein specified, the Fair Market Value per share of Common
Stock at such date.
"Current Option Price" shall mean, unless otherwise specified by the
Compensation Committee, $1,419.71 per share of Common Stock, as adjusted
hereunder. The Current Option Price for the Options listed on Schedule 2.8 of
the Plan shall not be adjusted other than in accordance with Article 5 of this
Exhibit A.
"Deferred Compensation Plan" shall mean the 1994 Executive Target
Bonus Plan.
"Effective Date" shall mean July 1, 1994.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
2
<PAGE> 12
"Exercise Period" shall mean the period during which this Option is
exercisable pursuant to Section 3.1.
"Expiration Date" as to any Option issued to any Participant shall
mean the earlier of (i) the date such Participant (A) voluntarily terminates
his or her employment with the Company or (B) is terminated for Cause, (ii) 90
days after the date such Participant is terminated by the Company without
Cause, (iii) 180 days after the date such Participant dies or becomes
permanently disabled, or (iv) ten (10) years from the date of grant of such
Option.
"Fair Market Value" shall mean, if there is no public market for the
Option Stock, the fair market value as of the date of a Trigger Event as such
value is determined by a nationally recognized appraiser selected by the
Company; provided, however, that if the aggregate number of Option Stock
(either outstanding or underlying the Options to be valued) subject to
valuation shall in the aggregate represent less than 0.5% of the Fully Diluted
Outstanding Common Stock, then "Fair Market Value" shall be based on a
computation assuming that the value of the Company's outstanding Common Stock
outstanding as of the date of valuation is equal to the sum of (A) the product
of Adjusted EBITDA for the most recently reported four fiscal quarters ending
on the date of the most recently completed fiscal quarter (the "Balance Sheet
Date") multiplied by the Multiple and (B) cash and cash equivalents as of the
Balance Sheet Date, (C) an amount equal to the aggregate exercise price of all
options and warrants then outstanding less amounts that would be payable under
the Deferred Compensation Plan had all options issued under the Plan been
exercised, less (D) total indebtedness (including obligations under capitalized
leases) outstanding as of the Balance Sheet Date, all as shall be reasonably
adjusted in good faith by the Board of Directors of the Company for material
changes in the Company's balance sheet after the Balance Sheet Date. For the
purposes of this definition, "Multiple" shall be equal to 5.0 but may be
adjusted from time to time at the sole discretion of the Board of Directors;
provided, however, that the Multiple shall not be less than 5.0 at any time.
If there is a public market for the Common Stock, "Fair Market Value" shall
mean the last reported sales price of the Common Stock (or asking price if the
shares of Common Stock are traded on the NASD over-the-counter market) on the
date of determination.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of all warrants and options outstanding on
such date, and other options to purchase, or securities convertible into,
shares of Common Stock outstanding on such date.
3
<PAGE> 13
"Holder" shall mean the Person in whose name the Option set forth
herein is registered on the books of Company maintained for such purpose.
"Initial Public Offering" means the effectiveness of a registration
statement under the Securities Act (other than a registration on Form S-8 or
S-4 or any successor form or any other registration relating to a special
offering to the Company's employees or security holders) covering any of the
Common Stock and the completion of a sale of such Common Stock thereunder, if
as a result of such sale, (i) the Company becomes a reporting company under
Section 12 of the Exchange Act, and (ii) any of the shares of Common Stock are
traded on the New York Stock Exchange or the American Stock Exchange, or quoted
on the NASDAQ National Market System.
"Majority Holders" shall mean the holders of Options exercisable for
in excess of 50% of the aggregate number of shares of Common Stock then
purchasable upon exercise of all Options.
"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, by and among the Company, General Electric
Capital Corporation, TCW, and Chief Acquisition Corp.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Options" shall mean options to purchase Common Stock issued pursuant
to the Plan and all Options issued upon transfer, division or combination of,
or in substitution for, any thereof. All Options issued pursuant to the Plan
shall at all times be identical as to terms and conditions, except as to the
number of shares of Common Stock for which they may be exercised.
"Option Certificate" shall mean a certificate substantially in the
form of Schedule 1 attached hereto evidencing ownership of Options.
"Option Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of an Option pursuant to Section
3.1, multiplied by (ii) the Current Option Price as of the date of such
exercise.
4
<PAGE> 14
"Option Stock" shall mean the shares of Common Stock purchased by the
holders of the Options upon the exercise thereof.
"Other Property" shall have the meaning set forth in Section 5.8.
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Participant" shall mean a person awarded Options pursuant to the
Plan.
"Permitted Transferee," with respect to a Transfer by an individual
Qualified Holder, means a Transfer to (i) such Participant's spouse or issue;
or (ii) a trust, the beneficiaries of which, a corporation, the stockholders
and directors of which, and a partnership, the limited and general partners of
which, include only the Participant and his or her spouse or issue; provided,
that as a condition precedent to such Transfer, such Permitted Transferee shall
execute and deliver a Transferee Agreement.
"Person" shall mean any individual, sole proprietor-ship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Plan" shall mean the 1994 Executive Option Plan of the Company.
"Qualified Holder" shall mean a Participant (or his or her heirs,
estate or personal representatives or transferee pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code of 1986, as
amended (the "Code")) who beneficially owns Option Stock or vested Options
issued pursuant to the Plan.
"Registrable Common Stock" shall mean the shares of Common Stock
purchased by holders of Options upon the exercise thereof and shares of Common
Stock underlying Options which are then vested.
5
<PAGE> 15
"Restricted Common Stock" shall mean shares of Common Stock which are,
or which upon their issuance on the exercise of this Option would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 10.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Seller" shall have the meaning set forth in Section 15.1.
"TCW" shall mean TCW Special Credits Fund V - The Principal Fund.
"Transfer" shall mean any disposition of any Option or Option Stock or
of any interest in either thereof, which would constitute a sale thereof within
the meaning of the Securities Act.
"Transferee Agreement" means an agreement (i) in writing in form and
substance satisfactory to the Company, (ii) executed by a proposed transferee
of any of the shares of Common Stock of any Participant, (iii) delivered to the
Company and the Participant, (iv) pursuant to which such transferee shall (a)
agree to be bound by the terms and conditions set forth herein applicable to
the Participant transferring such shares and (b) be so bound.
"Trigger Event" shall mean the termination of any Participant's
employment or other relationship with the Company for any reason.
2. OPTION CERTIFICATES
The Option Certificates evidencing the Options to be delivered
pursuant to the Plan shall be in registered form only and shall be
substantially in the form set forth in either Schedule 1 or Schedule 2 attached
hereto.
Option Certificates shall be signed on behalf of the Company by its
Chairman of the Board or its President or a Vice President and by its Secretary
or an Assistant Secretary under its corporate seal. Each such signature upon
the Option Certificates may be in the form of a facsimile signature of the
present or any future Chairman of the Board, President, or Vice President, and
Secretary or Assistant Secretary and may be imprinted or otherwise reproduced
on the Option Certificates, and for that purpose the Company may adopt and use
the facsimile signature of any person who shall have been Chairman of the
Board, President, Vice President, Secretary or
6
<PAGE> 16
Assistant Secretary, notwithstanding the fact that at the time the Option
Certificates shall be countersigned and delivered or disposed of he or she
shall have ceased to hold such office. The seal of the Company may be in the
form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Option Certificates.
Upon the grant of any Options hereunder, the Company shall promptly
deliver to the grantee an Option Certificate evidencing such Options.
3. EXERCISE OF OPTION
3.1. Manner of Exercise. From and after the issuance of a Option
and until 5:00 P.M., New York time, on the Expiration Date, and subject to the
vesting requirements of Section 3.2 hereof, a Holder may exercise his or its
Options, on any Business Day, for all or any part of the number of shares of
Common Stock purchasable thereunder.
In order to exercise an Option, in whole or in part, the exercising
Holder shall deliver to the Company at its principal office at 15303 Dallas
Parkway, Dallas, Texas 75248 or at the office or agency designated by Company
pursuant to Section 13, (i) a written notice of such Holder's election to
exercise such Option, which notice shall specify the number of shares of Common
Stock to be purchased, (ii) payment of the Option Price and (iii) the Option
Certificate or Certificates evidencing such Options. Such notice shall be
substantially in the form of the subscription form appearing at the end of this
Agreement as Exhibit B, duly executed by Holder or his or its agent or
attorney. Upon receipt thereof, the Company shall, as promptly as practicable,
and in any event within five (5) Business Days thereafter, execute or cause to
be executed and deliver or cause to be delivered to Holder a certificate or
certificates representing the aggregate number of full shares of Common Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share, as hereinafter provided. The stock certificate or certificates so
delivered shall be, to the extent possible, in such denomination or
denominations as such Holder shall request in the notice and shall be
registered in the name of such Holder or, subject to Section 10, such other
name as shall be designated in the notice. An Option shall be deemed to have
been exercised and such certificate or certificates shall be deemed to have
been issued, and such Holder or any other Person so designated to be named
therein shall be deemed to have become a holder of record of such shares for
all purposes, as of the date the notice, together with the cash or check or
checks and the Option Certificate evidencing such Options, is received by the
Company as described above and all taxes required to be paid by such Holder, if
any, pursuant to
7
<PAGE> 17
Section 3.3 prior to the issuance of such shares have been paid. If an Option
shall have been exercised in part, the Company shall, at the time of delivery
of the certificate or certificates representing Option Stock, deliver to such
Holder a new Option Certificate evidencing the unexercised Options of such
Holder. Notwithstanding any provision herein to the contrary, the Company
shall not be required to register shares in the name of any Person who acquired
an Option Certificate or any Option Stock otherwise than in accordance with the
Plan.
Payment of the Option Price shall be made at the option of the Holder
by (a) a wire transfer to an account in a bank located in the United States
designated by the Company for such purpose, (b) a certified or official bank
check payable to the order of the Company, (c) with the prior written consent
of the Company and subject to the terms of applicable law and the Company's
then outstanding indebtedness, by the Holder's surrender to Company of that
number of shares of Common Stock held by such Holder for at least six months
prior to such surrender having an aggregate Current Market Price equal to or,
if necessary to pay such Option Price, greater than the Option Price for all
shares then being purchased or (d) any combination thereof, duly endorsed by or
accompanied by appropriate instruments of transfer duly executed by the Holder
or by the Holder's attorney duly authorized in writing. In the event a Holder
surrenders shares of Common Stock having a Current Market Price greater than
the Option Price for all shares then being purchased, the Company shall pay the
Holder in cash the amount equal to the Current Market Price for the shares of
Common Stock surrendered less the Option Price for all shares then being
purchased; provided, however, that such cash amount shall in no event exceed
the Current Market Price for one share of Common Stock.
3.2. Vesting. Options shall vest and become exercisable at the
rate of twenty-five percent (25%) per year on each anniversary date of the
effective date of grant with respect to which the Participant is employed (each
such date being a "Vesting Date"). Thus, for example, Options granted
effective June 30, 1994 will vest and become exercisable in accordance with the
following schedule:
<TABLE>
<CAPTION>
Options Vested On and
After Vesting Date
Vesting Date and Before Next Vesting Date
<S> <C>
June 30, 1995 25%
June 30, 1996 50%
June 30, 1997 75%
June 30, 1998 100%
</TABLE>
8
<PAGE> 18
Notwithstanding the foregoing and unless otherwise noted in an Option
Certificate issued in the form of Schedule 2, the portion of an Option which
would otherwise vest and become exercisable on the next succeeding Vesting Date
shall vest immediately on the earliest of: (i) the Participant's date of
involuntary termination of employment or other relationship with the Company
other than for Cause, (ii) the date on which the Participant's employment or
other relationship with the Company is terminated on account of death or
permanent disability, or (iii) the occurrence of a Change in Control. Any
Options which are not vested in accordance with the preceding provisions shall
terminate immediately upon a Participant's termination of employment or other
relationship with the Company or, if earlier, upon the occurrence of a Change
in Control, subject to the Company's reissuance of such Options pursuant to the
terms of the Plan.
3.3. Payment of Taxes. All shares of Common Stock issuable upon
the exercise of an Option pursuant to the terms hereof shall be validly issued,
fully paid and nonassessable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issue or delivery thereof,
unless such tax or charge is imposed by law upon the exercising Holder, in
which case such taxes or charges shall be paid by Holder and shall be
reimbursed by Company (except for franchise taxes and taxes on or measured by
income). The Company shall not be required, however, to pay any tax or other
charge imposed in connection with any transfer involved in the issue of any
certificate for shares of Common Stock issuable upon exercise of this Option in
any name other than that of the Holder, and in such case the Company shall not
be required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the satisfaction of the
Company that no such tax or other charge is due.
3.4. No Fractional Shares. The Company shall not be required to
issue a fractional share of Common Stock upon exercise of any Option. As to
any fraction of a share which the Holder of one or more Options would otherwise
be entitled to purchase upon exercise of any such Options, the Company shall
pay a cash adjustment in respect of such fractional share in an amount equal to
the same fraction of the Current Market Price per share of Common Stock on the
date of exercise.
3.5. Continued Validity. A holder of shares of Common Stock issued
upon the exercise of an Option, in whole or in part (other than a holder who
acquires such shares after the same have been publicly sold pursuant to a
Registration Statement under the Securities Act or sold pursuant to Rule
9
<PAGE> 19
144 thereunder), shall continue to be entitled with respect to such shares to
all rights to which it would have been entitled as a holder under Sections 10,
11, 14, 15 and 19 of this Option. The Company will, at the time of each
exercise of an Option, in whole or in part, upon the written request of the
holder of the shares of Common Stock issued upon such exercise hereof,
acknowledge in writing, in form reasonably satisfactory to such holder, its
continuing obligation to afford to such holder all such rights; provided,
however, that if such holder shall fail to make any such request, such failure
shall not affect the continuing obligation of the Company to afford to such
holder all such rights.
4. TRANSFER, DIVISION AND COMBINATION
4.1. Transfer. Subject to compliance with Section 10, Transfer of
an Option and all rights hereunder, in whole or in part, shall be registered on
the books of Company to be maintained for such purpose, upon surrender of this
Option at the principal office of Company referred to in Section 3.1 or the
office or agency designated by Company pursuant to Section 13, together with a
written assignment of such Option substantially in the form of Exhibit B hereto
duly executed by Holder or its agent or attorney and funds sufficient to pay
any transfer taxes payable upon the making of such transfer. Upon such
surrender and, if required, such payment, Company shall, subject to Section 10,
execute and deliver a new Option or Options in the name of the assignee or
assignees and in the denomination specified in such instrument of assignment,
and shall issue to the assignor a new Option evidencing the portion such an
Option not so assigned, and the surrendered Option shall promptly be canceled.
An Option, if properly assigned in compliance with Section 10, may be exercised
by a new Holder for the purchase of shares of Common Stock without having a new
Option issued.
4.2. Division and Combination. Subject to Section 10, an Option
may be divided or combined with other Options upon presentation hereof at the
aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Options are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
4.1 and with Section 10, as to any Transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Option or
Options (in substantially the form of Options issued pursuant to the Plan,
evidencing in the aggregate the right to purchase upon vesting in accordance
herewith the number of remaining shares that then underlie such Options, each
such new Option to be dated the date of such exchange and to represent the
right to purchase such number of shares as shall be designated on the Option or
Options) in exchange for the Option or Options to be divided or combined in
accordance with such notice.
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<PAGE> 20
4.3. Expenses. The Company shall prepare, issue and deliver at its
own expense (other than transfer taxes) the new Option or Options under this
Section 4.
4.4. Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration and the registration of
transfer of the Options.
5. ADJUSTMENTS
The number of shares of Common Stock for which this Option is
exercisable, or the price at which such shares may be purchased upon exercise
of an Option, shall be subject to adjustment from time to time as set forth in
this Section 5. The Company shall give each Holder notice of any event
described below which requires an adjustment pursuant to this Section 5 at the
time of such event.
5.1. Stock Dividend; Stock Split. If a dividend or stock split
shall be hereinafter declared upon the Common Stock of the Company payable in
shares of Common Stock of the Company, the number of shares of Common Stock
then subject to an Option and the number of shares reserved for issuance
pursuant to the Plan but not yet covered by an Option shall be adjusted by
converting each such share to the number of shares which would be distributable
thereon if such share had been outstanding on the date fixed for determining
the stockholders entitled to receive such stock dividend or stock split.
5.2. Reorganization; Recapitalization. If the outstanding shares
of the Common Stock of the Company shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company
or of another corporation, whether through reorganization, recapitalization,
combination of shares, merger or consolidation, then there shall be substituted
for each share of Common Stock subject to any Option and for each share of
Common Stock reserved for issuance pursuant to the Plan but not yet covered by
an Option, the number and kind of shares of stock or other securities into
which each outstanding share of Common Stock shall be so changed or for which
each such share shall be exchanged.
5.3. Other Adjustments. If there shall be any change, other than
as specified above in subsections (a) and (b), in the number or kind of
outstanding shares of Common Stock of the Company or of any stock or other
securities into which Common Stock shall have been changed or for which it
shall have been exchanged, then if the Compensation Committee
11
<PAGE> 21
shall in its sole discretion determine that such change equitably requires an
adjustment in the number or kind of shares theretofore reserved for issuance
pursuant to the Plan but not yet covered by an Option and of the shares then
subject to an Option or Options, such adjustment shall be made by the
Compensation Committee and shall be effective and binding for all purposes of
the Plan and of each Option Certificate.
5.4. Adjustments to Current Option Price. In the case of any such
substitution or adjustment as provided for in this Section 5, the Current
Option Price shall also be equitably adjusted to take such substitution or
adjustment into account; provided, that the aggregate Option Price shall not
change as a result of such adjustment. No adjustment or substitution provided
for in this Section 5 shall require the Company to issue a fractional share of
Common Stock, and the total substitution or adjustment with respect to each
Option shall be limited accordingly.
6. NOTICES TO OPTION HOLDERS
6.1. Notice of Adjustments. Whenever the number of shares of
Common Stock for which an Option is exercisable, or whenever the price at which
a share of such Common Stock may be purchased upon exercise of the Options,
shall be adjusted pursuant to Section 5, the Company shall forthwith prepare a
certificate to be executed by the chief financial officer of the Company
setting forth, in reasonable detail, the event requiring the adjustment and the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors of the Company determined the fair value
of any evidences of indebtedness, shares of stock, other securities or property
or Options or other subscription or purchase rights referred to in Section 5),
specifying the number of shares of Common Stock for which an Option is
exercisable and (if such adjustment was made pursuant to Section 5) describing
the number and kind of any other shares of stock or Other Property for which an
Option is exercisable, and any change in the purchase price or prices thereof,
after giving effect to such adjustment or change. The Company shall promptly
cause a signed copy of such certificate to be delivered to each Holder in
accordance with Section 19.2. The Company shall keep at its office or agency
designated pursuant to Section 13 copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by any Holder or any prospective purchaser of an Option designated by a Holder
thereof.
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<PAGE> 22
6.2. Notice of Corporate Action. If at any time
(a) The Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
or other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any
other securities or property, or to receive any other right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock
of the Company or any consolidation or merger of the Company with, or
any sale, transfer or other disposition of all or substantially all
the property, assets or business of the Company to, another
corporation, or
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 20 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 19.2.
13
<PAGE> 23
7. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms hereof, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of Options issued under the Plan above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of Options issued under the Plan, and
(c) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under Options issued
under the Plan.
Upon the request of Holder, the Company will at any time during the
period any Option is outstanding acknowledge in writing, in form satisfactory
to Holder, the continuing validity of such Option and the obligations of
Company hereunder.
8. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR
APPROVAL OF ANY GOVERNMENTAL AUTHORITY
The Company shall at all times reserve and keep available for issue
upon the exercise of Options such number of its authorized but unissued shares
of Common Stock as will be sufficient to permit the exercise in full of all
outstanding Options. All shares of Common Stock which shall be so issuable,
when issued, upon exercise of any Option and payment therefor in accordance
with the terms of such Option, shall be duly and validly issued and fully paid
and nonassessable, and not subject to preemptive rights.
Nothing herein, in any agreement entered into hereunder, or in any
Option issued hereunder, shall require the Company to sell or issue any Common
Stock or other securities pursuant to such Option if such sale or issuance
would, in the opinion of counsel for the Company, constitute a violation of the
Securities Act of 1933, as amended, or any
14
<PAGE> 24
similar or superseding statute or statutes, or any other applicable federal or
state statute, rule, or regulation, as then in effect. At the time of any
grant or exercise of an Option, or sale or issuance of Common Stock or other
securities pursuant thereto, the Company may, as a condition precedent to the
sale or issuance of such Common Stock or other securities, require from the
holder of such Option (or in the event of his death, his legal representatives,
legatees, or distributees) such written representations, if any, concerning his
(or the transferee's) intentions with regard to the retention or disposition of
the Common Stock or other securities being acquired pursuant to such Option,
and such written covenants and agreements, if any, as to the manner of disposal
of such Common Stock or other securities as, in the opinion of counsel to the
Company, may be necessary to ensure that any disposition by such holder (or in
the event of his death, his legal representatives, legatees, or distributees),
will not involve a violation of the Securities Act of 1933, as amended, or any
similar or superseding statute or statutes, or any other applicable federal or
state statute, rule, or regulation, as then in effect. Certificates for Common
Stock or other securities, when issued, shall have appropriate legends, or
statements of other applicable restrictions, endorsed thereon, and may or may
not be immediately transferable.
9. TAKING OF RECORD; STOCK AND OPTION TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Section
5 refers to the taking of a record of such holders, the Company will in each
such case take such a record and will take such record as of the close of
business on a Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its stock transfer
books or Option transfer books so as to result in preventing or delaying the
exercise or transfer of any Option.
10. RESTRICTIONS ON TRANSFERABILITY
The Options and the Option Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in
this Section 10, which conditions are intended, inter alia, to ensure
compliance with the provisions of the Securities Act with respect to the
Transfer of any Option or any Option Stock. The Holder, by acceptance of this
Option, agrees to be bound by the provisions of this Section 10.
10.1. Restrictive Legend. (a) Except as otherwise provided in this
Section 10, each certificate for Option Stock
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<PAGE> 25
initially issued upon the exercise of an Option, and each certificate for
Option Stock issued to any subsequent transferee of any such certificate, shall
be stamped or otherwise imprinted with a legend in substantially the following
form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and are
subject to the conditions specified in the 1994 Executive Option Plan
of CHIEF AUTO PARTS INC. No transfer of the shares represented by
this certificate shall be valid or effective until such conditions
have been fulfilled. A copy of the form of said Plan is on file with
the Secretary of CHIEF AUTO PARTS INC. The holder of this
certificate, by acceptance of this certificate, agrees to be bound by
the provisions of such Plan."
(b) Except as otherwise provided in this Section 10, each Option
Certificate shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The Option represented by this certificate and the underlying
securities represented hereby have not been registered under the
Securities Act of 1933, as amended, and are subject to the conditions
specified in the 1994 Executive Option Plan of CHIEF AUTO PARTS INC.
No transfer of the Options represented by this certificate shall be
valid or effective until such conditions have been fulfilled. A copy
of the form of said Plan is on file with the Secretary of CHIEF AUTO
PARTS INC. The holder of this certificate, by acceptance of this
certificate, agrees to be bound by the provisions of such Plan."
10.2. Restrictions on Proposed Transfers. Options may not be
Transferred by a Participant (other than pursuant to Sections 16.1 or 16.2, by
will or the laws of descent or distribution or pursuant to a valid qualified
domestic relations order as defined in the Code) and may be exercised during
the lifetime of a Participant only by such Participant, except pursuant to a
qualified domestic relations order as defined by the Code, or as otherwise
permitted in the Plan. Prior to an Initial Public Offering, no Holder may (i)
pledge its Option Stock as security or collateral to any Person or (ii) sell,
transfer or assign its rights to, or ownership interest in, such Option Stock
to any Person other than the Company, a Permitted Transferee or pursuant to
Section 15 hereof.
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<PAGE> 26
10.3. Incidental Registration. If the Company at any time proposes
to file on its behalf and/or on behalf of any of its security holders (the
"demanding security holders") a Registration Statement under the Securities Act
on any form (a "Registration Statement")(other than a Registration Statement on
Form S-4 or S-8 or any successor form for securities to be offered in a
transaction of the type referred to in Rule 145 under the Securities Act or to
employees of the Company pursuant to any employee benefit plan, respectively)
for the general registration of securities to be sold for cash with respect to
its Common Stock or any other class of equity security (as defined in Section
3(a)(11) of the Exchange Act) of the Company, it will give written notice to
all holders of Registrable Common Stock at least 30 days before the initial
filing with the Commission of such Registration Statement, which notice shall
set forth the intended method of disposition of the securities proposed to be
registered by the Company. The notice shall offer to include in such filing
the aggregate number of shares of Registrable Common Stock as such holders may
request.
Each holder of any such Options or any such Option Stock desiring to
have Registrable Common Stock registered under this Section 10.3 shall advise
the Company in writing within 15 days after the date of receipt of such offer
from the Company, setting forth the amount of such Registrable Common Stock for
which registration is requested. The Company shall thereupon include in such
filing the number of shares of Registrable Common Stock for which registration
is so requested, subject to the next sentence, and shall use its best efforts
to effect registration under the Securities Act of such shares. If the
managing underwriter of a proposed public offering shall advise the Company in
writing that, in its opinion, the distribution of the Option Stock requested to
be included in the registration concurrently with the securities being
registered by the Company or such demanding security holders would materially
and adversely affect the distribution of such securities by the Company or such
demanding security holders, then all selling security holders (other than such
demanding security holders) shall reduce the amount of securities each intended
to distribute through such offering on a pro rata basis. Except as otherwise
provided in Section 10.5, all expenses of such registration shall be borne by
Company.
It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Section 10 in respect of the securities which
are to be registered at the request of any holder of Options or Option Stock
that such holder shall furnish to the Company such information regarding the
securities held by such holder and the intended method of disposition thereof
as the Company shall reasonably request and as shall be required in connection
with the action taken by the Company.
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<PAGE> 27
10.4. Required Registration. At any time after the earlier to occur
of (A) the consummation by the Company of an Initial Public Offering or (B)
August 1, 2002, and after receipt of a written request from the holders of
Options and/or Registrable Common Stock representing at least an aggregate of
50% of the total of (i) all shares of Registrable Common Stock then subject to
purchase upon exercise of all Options and (ii) all shares of Registrable Common
Stock then outstanding and which are Restricted Common Stock, requesting that
the Company effect the registration of Registrable Common Stock issuable upon
the exercise of such holder's Options or of any of such holder's Registrable
Common Stock under the Securities Act and specifying the intended method or
methods of disposition thereof, the Company shall promptly notify all holders
of Options and Registrable Common Stock in writing of the receipt of such
request and each such holder, in lieu of exercising its rights under Section
10.3, may elect (by written notice sent to the Company within ten Business Days
from the date of such holder's receipt of the aforementioned Company's notice)
to have its shares of Registrable Common Stock included in such registration
thereof pursuant to this Section 10.4. Thereupon the Company shall, as
expeditiously as is possible, use its best efforts to effect the registration
under the Securities Act of all shares of Registrable Common Stock which the
Company has been so requested to register by such holders for sale, all to the
extent required to permit the disposition (in accordance with the intended
method or methods thereof, as aforesaid) of the Registrable Common Stock so
registered; provided, however, that (i) the Company shall not be required to
effect more than one registration of any Registrable Common Stock pursuant to
this Section 10.4, (ii) the Company may defer, for a single period not to
exceed 180 days, the filing or the effectiveness of such a registration
statement if, in the good faith judgment of the Board of Directors of the
Company, such registration might reasonably be expected to have an adverse
effect on any proposal or plan by the Company or any of its subsidiaries to
engage in any underwritten public offering of securities, acquisition of assets
or any merger, consolidation, tender offer or other material transaction which,
in the reasonable judgment of the Board of Directors of the Company, would be
required to be disclosed in a registration statement of the Company, and (iii)
if the managing underwriter of a proposed public offering pursuant to this
Section 10.4 shall advise the Company in writing that, in its opinion, the
distribution of the Common Stock requested to be included by the holders of
warrants (or shares of Common Stock acquired pursuant to such warrants)
originally issued on June 27, 1994 in the registration concurrently with the
18
<PAGE> 28
securities being registered by the holders of Registrable Common Stock would
materially and adversely affect the distribution of such securities by such
holders of Registrable Common Stock, then all selling security holders shall
reduce the amount of securities each intended to distribute through such
offering on a pro rata basis. Those requesting Holders holding the number of
shares required to make a demand pursuant to this Section 10.4 shall have the
right to withdraw the request for registration prior to the Registration
Statement being declared effective, but such Holders shall be required to pay
the expenses of such registration as contemplated by Section 10.7 and the
Holders shall continue to have the right to demand one registration pursuant to
this Section 10.4. In the event the Holders do not pay such expenses, the
right to demand one registration pursuant to this Section 10.4 shall terminate.
10.5. Registration Procedures. In respect of any registration
contemplated by the provisions of this Section 10, the Company will, as
expeditiously as possible:
(i) prepare and file with the SEC a Registration
Statement with respect to such securities and use its best efforts to cause
such Registration Statement to become and remain effective for a period of time
required for the disposition of such securities by the holders thereof, but not
to exceed 180 days;
(ii) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the Securities Act with respect
to the sale or other disposition of all securities covered by such Registration
Statement until the earlier of such time as all of such securities have been
disposed of in a public offering or the expiration of 180 days;
(iii) furnish to such selling holders such number of copies
of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents, as such selling holders may reasonably request;
(iv) use its best efforts to register or qualify the
securities covered by such Registration Statement under such other securities
or blue sky laws of such jurisdictions within the United States and Puerto Rico
as each holder of such securities shall request (provided, however, that the
Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any jurisdiction in which it is not then qualified
or to file any
19
<PAGE> 29
general consent to service of process), and do such other reasonable acts and
things as may be required of it to enable such holder to consummate the
disposition in such jurisdiction of the securities covered by such Registration
Statement;
(v) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Common Stock; and
(vi) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, but not later than 18 months after
the effective date of the Registration Statement, an earnings statement
covering the period of at least 12 months beginning with the first full month
after the effective date of such Registration Statement, which earnings
statements shall satisfy the provisions of Section 11(a) of the Securities Act.
It shall be a condition precedent to the obligation of the
Company to take any action pursuant to this Section 10.5 in respect of the
Registrable Common Stock which is to be registered at the request of any holder
holding Registrable Common Stock that such holder shall furnish to the Company
such information regarding the Registrable Common Stock held by such holder and
the intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action taken by the
Company.
10.6. Rule 144. Following any public offering of the Common Stock
registered under the Securities Act, the Company, for as long as any holder of
Option Stock is required to comply with Rule 144 (or any successor regulation)
under the Securities Act in order to Transfer the Option Stock to the public
without registration thereunder, will make available to each holder the benefit
of certain rules and regulations of the SEC which may permit such Stockholder
to Transfer the Option Stock to the public without registration under the
Securities Act by (i) making and keeping "current public information"
"available" (as both such terms are defined in Rule 144 under the Securities
Act) at all times after such public offering, (ii) timely filing with the SEC,
in accordance with all rules and regulations applicable thereto, all reports
and other documents (x) required of the Company for Rule 144, as it may be
amended from time to time (or any rule, regulation or statute replacing Rule
144), to be available and (y) required to be filed under Section 15d of the
Exchange Act, notwithstanding that the Company's duty to file such reports or
document may be suspended or otherwise
20
<PAGE> 30
terminated under the express terms of such provision, and (iii) furnishing such
holder a written statement by the Company that it has complied with the
reporting requirements of the Exchange Act and Rule 144, together with a copy
of the most recent annual reports and documents filed by the Company with the
SEC as may reasonably be required by such holder in order that such holder may
avail himself or herself of any rule or regulation of the SEC allowing
Transfers of the Option Stock without registration under the Securities Act.
10.7. Expenses. All expenses incurred in complying with Section 10,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the Company, accounting expenses of the Company,
expenses of any special audits incident to or required by any such registration
and expenses of complying with the securities or blue sky laws of any
jurisdictions, shall be paid by the Company, except that
(a) all such expenses in connection with any amendment or
supplement to the Registration Statement or prospectus filed more than
180 days after the effective date of such Registration Statement
because any holder of Registrable Common Stock has not effected the
disposition of the securities requested to be registered shall be paid
by such holder; and
(b) the Company shall not be liable for any fees, discounts or
commissions to any underwriter or any fees or disbursements of counsel
for any underwriter or holder in respect of the securities sold by
such holder of Registrable Common Stock; and
(c) the Company shall not be liable for any fees or disbursements
for counsel of any holder of Registrable Common Stock.
10.8. Indemnification and Contribution. (a) In the event of any
registration of any of the Registrable Common Stock under the Securities Act
pursuant to this Section 10, the Company shall indemnify and hold harmless the
holder of such Registrable Common Stock, such holder's directors and officers,
and each other Person (including each underwriter) who participated in the
offering of such Registrable Common Stock and each other Person, if any, who
controls such holder or such participating Person within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such holder or any such director or officer or participating
Person or controlling Person may become subject under the Securities Act
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<PAGE> 31
or any other statute or at common law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) are caused by (i) any untrue
statement of any material fact contained, on the effective date thereof, in any
Registration Statement under which such securities were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or (ii) any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and shall reimburse such holder or such
director, officer or participating Person or controlling Person for any legal
or any other expenses reasonably incurred by such holder or such director,
officer or participating Person or controlling Person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon (i) any alleged untrue statement or alleged omission made in such
Registration Statement, preliminary prospectus, prospectus or amendment or
supplement that is not proven to be actually untrue or misleading, or (ii) any
untrue statement or omission based upon or caused by information furnished to
the Company by such holder. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such holder or
such director, officer or participating Person or controlling Person, and shall
survive the transfer of such securities by such holder.
(b) Each holder of any Registrable Common Stock, by acceptance
thereof, agrees to indemnify and hold harmless the Company, its directors and
officers and each other Person, if any, who controls the Company within the
meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which the Company or any such director or
officer or any such Person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
information in writing provided to the Company by such holder of such
Registrable Common Stock specifically for use in the following documents and
contained, on the effective date thereof, in any Registration Statement under
which securities were registered under the Securities Act at the request of
such holder, any preliminary prospectus or final prospectus contained therein,
or any amendment or supplement thereto.
(c) If the indemnification provided for in this Section 10 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
22
<PAGE> 32
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue statement of a
material fact or omission to state a material fact, has been made by, or
relates to information supplied by, such indemnifying party or indemnified
parties, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. The amount paid or payable by a
party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 10.8(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
10.9. Termination of Restrictions. Notwithstanding the foregoing
provisions of Section 10, the restrictions imposed by this Section upon the
transferability of the Registrable Common Stock and the Restricted Common Stock
(or Common Stock issuable upon the exercise of the Options) and the legend
requirements of Section 10.1 shall terminate as to any particular share of
Registrable Common Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Options) when and so long as such security shall have
been effectively registered under the Securities Act and disposed of pursuant
thereto. Whenever the restrictions imposed by this Section shall terminate as
to any share of Restricted Common Stock, as hereinabove provided, the holder
thereof shall be entitled to receive from Company, at Company's expense, a new
certificate representing such Common Stock not bearing the restrictive legend
set forth in Section 10.1(a).
10.10. Certain Limitation on Registration Rights. Notwithstanding the
other provisions of Section 10, Company shall not be obligated to register the
Option Stock of any holder if, in the opinion of counsel to Company, the sale
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<PAGE> 33
or other disposition of such holder's Option Stock, in the manner proposed by
such holder, may be effected without registering such Option Stock under the
Securities Act.
10.11. Lock-Up Agreement. In connection with any public offering of
the Common Stock in which all or a part of the shares of Common Stock held by a
Participant are not being registered, the underwriters for the Company may
require that such Participant not sell such shares of Common Stock for a
certain period of time after the effectiveness of the Registration Statement
filed in connection with such offering. Upon the Company's request in
connection with any such public offering, such Participant will not, directly
or indirectly, offer, sell, contract to sell, make subject to any purchase
option, or otherwise dispose of any shares of Common Stock held by such
Participant not being sold in such public offering for a period requested by
the underwriter or its representative, not to exceed 180 days from the date of
the effectiveness of the Registration Statement, without the prior written
consent of the underwriter or its representative.
10.12. Company Repurchase. Subsequent to an Initial Public
Offering, in the event a holder of Registrable Common Stock elects to have all
or a portion of its shares of Registrable Common Stock registered in accordance
with this Section 10, the Company may at its option, to the extent permitted by
applicable law and the terms of its outstanding indebtedness, and in lieu of
effecting such registration, elect to purchase the shares of Registrable Common
Stock for which such registration is requested, at a price equal to the Fair
Market Value of the shares for which such registration is requested; provided,
however, that the Fair Market Value for shares of Registrable Common Stock
underlying Options not yet exercised shall equal the Fair Market Value of the
shares of Common Stock underlying such Options less the Current Option Price
applicable to such Options. If the Company does elect to purchase such shares,
it shall notify the holders of such shares within thirty (30) days of the
Company's receipt of a written request for such registration. In the event
that the Company elects to exercise its option under this Section 10.12, it
shall so notify all holders of Registrable Common Stock in writing of the
receipt of a request for registration and of the Company's intent to exercise
its option to repurchase shares in lieu of effecting a registration thereof,
and each holder of Registrable Common Stock may elect (by written notice sent
to the Company within ten business days from the date of such holder's receipt
of the aforementioned Company's notice) to have shares of Registrable Common
Stock purchased by the Company pursuant to this Section. If the Company
exercises its option under this Section 10.12 to purchase shares of Registrable
Common Stock in lieu of effecting a registration of such shares under
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<PAGE> 34
Section 10.12 as provided herein, then the Company shall not be required to
comply, but for purposes of Section 10.12 shall be considered to have complied,
with such request to register shares of Registrable Common Stock. For the
purposes of this Section 10.12, Fair Market Value shall be determined as of the
business day immediately prior to the date of purchase.
11. SUPPLYING INFORMATION
The Company shall cooperate with each Holder of an Option and each
holder of Restricted Common Stock in supplying such information as may be
reasonably necessary for such holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a
condition to the availability of an exemption from the Securities Act for the
sale of any Restricted Common Stock.
12. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of an Option Certificate and indemnity reasonably satisfactory to
it, and in case of mutilation upon surrender and cancellation hereof, Company
will execute and deliver in lieu hereof a new Option Certificate of like tenor
to such Holder; provided, in the case of mutilation, no indemnity shall be
required if such Option Certificate in identifiable form is surrendered to
Company for cancellation.
13. OFFICE OF COMPANY
As long as any of the Options remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
Company) where the Options may be presented for exercise, registration of
transfer, division or combination as provided in this Option.
14. FINANCIAL AND BUSINESS INFORMATION
14.1. Filings. The Company will file on or before the required date
all regular or periodic reports (pursuant to the Exchange Act) with the
Commission and will upon written request deliver to Holder promptly upon their
becoming available one copy of each report, notice or proxy statement sent by
Company to its stockholders generally, and of each regular or periodic report
(pursuant to the Exchange Act) and any Registration Statement, prospectus or
written communication (other than transmittal letters) (pursuant to the
Securities Act), filed by the Company with (i) the Commission or (ii) any
securities exchange on which shares of Common Stock are listed.
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<PAGE> 35
14.2. Confidentiality. The Holder recognizes and acknowledges that
some of the information obtained by him or her or by his or her representative
pursuant to this Agreement is not otherwise public information and agrees
hereby not to disclose any such non-public information, in whole or in part, to
any Person for any reason or purpose.
15. DRAG-ALONG/TAG-ALONG RIGHTS
If, at any time after the Effective Date, TCW or any of its affiliates
to which TCW has transferred shares of Common Stock (collectively, the
"Seller") proposes to sell any shares of Common Stock pursuant to a bona fide
offer from an unaffiliated third party (other than in a registered offering to
which the rights granted under Section 10.3 apply) (a "Sale"), then:
(a) The Seller shall give each Holder and each holder of Option
Stock 20 days' written notice (the "Sale Notice") of such proposed Sale
specifying the name of the proposed purchaser and the terms and conditions of
the proposed Sale including, without limitation, the number of shares to be
purchased by the purchaser, the percentage of the total number of shares of
Common Stock owned by the Seller represented by the shares to be purchased (the
"Fractional Amount") and the proposed per share purchase price. In addition,
the Sale Notice shall state whether the Seller is exercising the Drag-Along
Right (as defined in clause (b) of this Section 15).
(b) The Seller shall have the right (the "Drag-Along Right"), but
not the obligation, to require each holder of Option Stock to sell to the
proposed purchaser a number of shares equal to the product of (a) the number of
shares owned by such holder, and (b) the Fractional Amount for the same
consideration per share and otherwise on the same terms and conditions obtained
by the Seller in such Sale (except that Holder shall not be required to give
any representations, warranties or indemnities, other than a representation and
warranty as to such Holder's title to its Option Stock).
(c) The Seller shall cause the proposed purchaser to purchase from
each holder of Option Stock, if requested by him or her as provided below (the
"Tag-Along Right"), a number of shares equal to the product of (a) the number
of shares owned by such holder, and (b) the Fractional Amount for the same
consideration per share and otherwise on the same terms and conditions obtained
by the Seller in such sale (except that such holder shall not be required to
give any representations, warranties or indemnities, other than a
representation and warranty as to such holder's title to his or her Option
Stock); provided, however, that the Seller shall
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<PAGE> 36
cause the proposed purchaser to purchase from each holder of Option Stock, if
requested by such holder, up to 100% of the shares of Option Stock held by such
holder if such Sale would result in a Change of Control. Any holder of Option
Stock may exercise the rights set forth in this clause (c) by written notice to
the Seller delivered not later than 10 days after receipt of the Sale Notice.
Notwithstanding the other provisions of this Section 15(c), holders of Option
Stock shall only be eligible to sell shares of Option Stock held for at least
six months at the time of such sale.
(d) Notwithstanding anything to the contrary contained herein, the
provisions of this Section 15 shall terminate upon the consummation of a public
offering or series of public offerings by the Company or its stockholders of
Common Stock registered pursuant to the Securities Act representing, after
giving effect to such offering or offerings, more than 30% of the Fully Diluted
Outstanding shares of Common Stock.
16. PUT/CALL RIGHT
16.1 Call Rights.
(a) The Company is hereby granted a right (the "Call Right"),
exercisable in its sole discretion, to purchase from each Holder or holder of
Option Stock 100% of the vested Options or Option Stock held by such Holder or
holder upon the occurrence of a Trigger Event. The Company may exercise its
Call Right by notifying such Holder or holder in writing (the "Call Notice")
within 30 days of the occurrence of the Trigger Event (the "Call Expiration
Date") of its intention to exercise its Call Right. If such Call Notice is
given, the Company is obligated to repurchase from such Holder or holder and
such Holder or holder is obligated to sell to the Company, not later than the
60th day following the occurrence of the Trigger Event, all of the vested
Options or Option Stock owned by such Holder or holder for cash consideration
equal to the Fair Market Value of such Holder's or holder's vested Options or
Option Stock; provided, that the Fair Market Value of such Option shall equal
the Fair Market Value of the shares of Common Stock underlying such Options
less the Current Option Price applicable to such Options. For the purposes of
this Section 16.1, Fair Market Value shall be determined as of the Trigger
Date.
(b) Notwithstanding anything to the contrary contained herein, the
provisions of this Section 16.1 shall terminate upon the consummation of an
Initial Public Offering.
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16.2 Put Rights.
(a) If subsequent to the occurrence of a Trigger Event the Company
does not exercise its Call Right on or before the Call Expiration Date, a
holder of vested Options or Option Stock (or his or her legal representative)
shall have the right (the "Put Right") to cause the Company to repurchase from
such holder 100% of the Option Stock owned by such holder for cash
consideration equal to the Fair Market Value of such holder's Option Stock.
Notwithstanding any provision to the contrary, under no circumstances shall a
holder of vested Options or Option Stock be eligible to exercise a Put Right
unless the Trigger Event shall have been the termination of such holder's
employment or other relationship with the Company without Cause or due to such
holder's death or permanent disability.
(b) A holder of vested Options or Option Stock eligible to
exercise a Put Right shall be required to notify the Company in writing (the
"First Put Notice") within 30 days of the Call Expiration Date of his or her
intention to exercise his or her Put Right with regard to Option Stock held by
such holder for more than six months (determined at the date of receipt of the
Call Notice). If such First Put Notice is given, then the Company shall be
required to repurchase from such holder, no later than 30 days following the
date on which the First Put Notice is given to the Company, all of the Option
Stock held by such holder for at least six months and subject to the Put Right;
provided, however, that the obligation of the Company to repurchase such Option
Stock shall be conditioned upon and subject to applicable law and any
restrictions contained in the Company's credit facilities or other debt
instruments. Notwithstanding the foregoing, the Put Right relating to Option
Stock held for more than six months as of the Trigger Date shall expire if such
holder does not deliver a First Put Notice in a timely manner. In the event
such holder desires to require the Company to purchase Common Stock underlying
vested Options or Option Stock held for less than six months (determined at the
date of receipt of the Call Notice), such holder (i) must exercise any vested
Options relating to such Common Stock in accordance with provisions of the Plan
within 30 days of the Call Expiration Date, and (ii) shall be required to
notify the Company in writing (the "Second Put Notice") within 14 days of the
date which is six months after the date of such exercise of his or her
intention to exercise his or her Put Right with regard to such Option Stock
held for at least six months. Upon receipt of such information in a Second Put
Notice and such accompanying exercise of such vested Options, the Company shall
be required to purchase such Common Stock and Option Stock no later than 30
days after the date on which the Second Put Notice is given to the Company;
provided, however, that the obligation of the Company to repurchase such Common
Stock or Option Stock shall be conditioned on and subject to
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<PAGE> 38
applicable law and any restrictions contained in the Company's credit
facilities or other debt instruments. For the purposes of this Section 16.2,
the Fair Market Value of Option Stock included in the First Put Notice shall be
determined as of the Trigger Date, and the Fair Market Value of Common Stock
and Option Stock included in the Second Put Notice shall be as of the date the
Second Put Notice is received by the Company.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of this Section 16.2 shall terminate upon the consummation of an
Initial Public Offering.
17. TAX REPURCHASE
To the extent that (i) a Participant exercises Options and incurs a
tax liability in respect of such exercise and (ii) the Option Stock underlying
such Options is not then registered under an effective Registration Statement,
then, upon written consent of the Company, which may be withheld at its sole
discretion, such Participant shall be entitled to cause the Company to purchase
from such Participant a number of shares of Option Stock (at their then Fair
Market Value)(the "Tax Shares") equal to the quotient obtained from (A) the
product of (x) the excess, if any, of the Fair Market Value of the Option Stock
received upon the exercise of such Options over the Option Price for such
Options multiplied by (y) the maximum applicable combined federal, state, and
local tax rate for individuals in Participant's place of residence then in
effect, divided by (B) the Fair Market Value (expressed on a per share basis)
of the shares of Option Stock so received. Notwithstanding the foregoing
sentence, the Company shall be relieved of its obligation to repurchase the Tax
Shares to the extent that it is prohibited by applicable law or the terms of
its outstanding indebtedness from making such repurchase. 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 date on which
the amount of tax to be withheld is determined, (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.
18. NO RIGHTS AS STOCKHOLDERS
Except as provided in Section 5.2 hereof, until and except to the
extent a Holder exercises an Option, no Option shall entitle a Holder to any
voting, economic or other rights
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as a stockholder of the Company, or to any other rights whatsoever except the
rights herein expressed, and no cash dividend paid out of earnings or surplus
or interest shall be payable or accrue in respect of any Option or the
interests represented hereby or by the Option Stock. No provision hereof, in
the absence of affirmative action by Holder to purchase shares of Common Stock,
and no enumeration herein of the rights or privileges of Holder hereof, shall
give rise to any liability of such Holder for the purchase price of any Common
Stock or as a stockholder of Company, whether such liability is asserted by
Company or by creditors of Company.
19. MISCELLANEOUS
19.1. Representations of Participants. By accepting Options
pursuant to the Plan, each Participant represents and warrants that it is
acquiring the Options (and, upon exercise of the Options, the Option Stock) for
its own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof, and each Participant
understands that (i) neither the Options nor the Option Stock has been
registered with the Commission, nor are they exempt therefrom by reason of
their issuance in a transaction exempt from the registration requirements of
the Commission, and (ii) the Options and Option Stock must be held indefinitely
by each Participant unless a subsequent disposition thereof is registered under
the Securities Act, and the securities laws of any applicable state or other
jurisdiction, or is exempt from such registration, subject further to other
restrictions on transfer set forth in Section 10.
19.2. Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of an Option shall be sufficiently given or made if
in writing and either delivered in person with receipt acknowledged or sent by
registered or certified mail, return receipt requested, postage prepaid, or by
telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Option Stock, at its last known
address appearing on the books of the Company maintained for such purpose.
(b) If to the Company, at:
Chief Auto Parts Inc.
15303 Dallas Parkway
Dallas, Texas 75248
Attention: Mary Mahon, Esq.
Telephone: (214) 404-1114
Telecopier: (214) 991-9529
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or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, or three (3) Business Days after the same shall have been deposited
in the United States mail. Failure or delay in delivering copies of any
notice, demand, request, approval, declaration, delivery or other communication
to the person designated above to receive a copy shall in no way adversely
affect the effectiveness of such notice, demand, request, approval,
declaration, delivery or other communication.
19.3. Remedies. Each holder of Options and Option Stock, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under Section 10 of this Option. Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of Section 10 of this Option and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
19.4. Successors and Assigns. Subject to the provisions of Sections
4.1 and 10, Options issued hereunder and the rights evidenced hereby shall
inure to the benefit of and be binding upon the successors of the Company and
the successors and assigns of Holder. The provisions of the Plan and this
Exhibit are intended to be for the benefit of all Holders from time to time of
any Options and, with respect to Section 10 hereof, holders of Option Stock,
and shall be enforceable by any such Holder or holder of Option Stock. The
Company may, in its sole discretion, at any time and from time to time, assign
its purchase rights and obligations under this Plan; provided, however, that no
assignment of the Company's obligations shall relieve the Company from any
liability with respect thereto; and provided further, that at no time shall the
Company be under any obligation to assign its purchase rights or obligations
under this Plan (including, without limitation, where such assignment would
enable an assignee to purchase a holder's Options or Option Stock at a time
when the Company would not be able to do so).
19.5. Amendment. Subject to the requirements of (A) any applicable
rule, regulations, or procedure of any national securities 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),
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or (B) Rule 16b-3 promulgated under the Exchange Act, any Option and all other
Options may be modified or amended or the provisions hereof waived with the
written consent of Company and the Majority Holders, provided that no such
Option may be modified or amended to reduce the number of shares of Common
Stock for which such Option is exercisable or to increase the price at which
such shares may be purchased upon exercise of such Option (before giving effect
to any adjustment as provided therein) without the prior written consent of the
Holder thereof.
19.6 Disclosure. Unless otherwise required by applicable law,
rule, regulation or order of any governmental authority, the Company shall have
no duty or obligation to affirmatively disclose to a Holder or Qualified
Holder, and a Holder or Qualified Holder shall have no right to be advised of,
any material information regarding the Company at any time prior to, upon or in
connection with the Company's repurchase of Options or Option Stock from a
Holder or Qualified Holder at the termination of such Holder's or Qualified
Holder's employment or other relationship with the Company.
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SCHEDULE 1
FORM OF OPTION CERTIFICATE
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE UNDERLYING
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ARE SUBJECT TO THE CONDITIONS
SPECIFIED IN THE 1994 EXECUTIVE OPTION PLAN OF CHIEF AUTO PARTS INC.
NO TRANSFER OF THE OPTIONS REPRESENTED BY THIS CERTIFICATE SHALL BE
VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. A COPY
OF THE FORM OF SAID PLAN IS ON FILE WITH THE SECRETARY OF CHIEF AUTO
PARTS INC. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY THE PROVISIONS OF SUCH PLAN.
Options to Receive Common Stock
$.01 par value, of CHIEF AUTO PARTS INC.
No. Options
----------------- ---------------
This Option Certificate certifies that___________ or registered
assigns is the registered owner of____ Options, each Option entitling such owner
to purchase initially 1 share of common stock, $.01 par value ("Common Stock"),
of Chief Auto Parts Inc., a Delaware corporation (the "Company") at the price
of $1,419.71 per share (the "Option Exercise Price"), subject to the terms and
conditions hereof and of the Plan hereinafter referred to below. The holder
("Holder") may exercise the Options evidenced hereby by providing certain
information set forth herein and by paying in full, in lawful money of the
United States of America in cash, by certified check or official bank check, by
bank wire transfer, or any combination of the foregoing, or by surrendering
shares of Common Stock to the Company with a Fair Market Value equal to, the
Option Exercise Price for each Option exercised to the Company and by
surrendering this Option Certificate, with the exercise form attached hereto
duly executed.
The Options are issued under a 1994 Executive Option Plan (the
"Plan") and are subject to the terms and provisions contained in the Plan,
which are incorporated by reference in and made a part of this Option
Certificate, to all of which terms and provisions the Holder of this Option
Certificate consents by acceptance hereof. The Holder acknowledges that a copy
of the Plan has been provided to the Holder. Additional copies of the Plan are
on file at the offices of the Company. All capitalized terms not otherwise
defined herein shall have
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the meaning assigned such term in the Plan. The following is a summary of the
terms and provisions of the Plan.
1. General
Each Option entitles the holder to purchase 1 share of Common
Stock of the Company subject to adjustment in certain circumstances as set
forth in the Plan (the "Option Exercise Number") at an exercise price of
$1,419.71 per share. Each Option not exercised prior to 5:00 p.m., New York
City time, on ________________, 2004 [insert date 10 years from date of
certificate], or such earlier time as may be specified in the Plan (the
"Expiration Date"), shall become void and all rights thereunder and all rights
in respect thereof and under the Option Agreement shall cease as of such time.
Options will be in registered form only and each certificate
will be exchangeable without service charge for similar certificates of
different denominations at the office of the Company. In lieu of issuing
fractional shares of Common Stock upon exercise of the Options, the Company
shall pay cash in an amount equal to the same fraction of the Fair Market Value
(as defined in the Plan) of a share of Common Stock.
2. Vesting
Options shall vest and become exercisable at the rate of
twenty-five percent (25%) per year on each anniversary date of the effective
date of grant with respect to which the Participant is employed (each such date
being a "Vesting Date"). Thus, for example, Options granted effective June 30,
1994 will vest and become exercisable in accordance with the following
schedule:
<TABLE>
<CAPTION>
Options Vested On and
After Vesting Date
Vesting Date and Before Next Vesting Date
<S> <C>
June 30, 1995 25%
June 30, 1996 50%
June 30, 1997 75%
June 30, 1998 100%
</TABLE>
Notwithstanding the foregoing, the portion of an Option which
would otherwise vest and become exercisable on the next succeeding Vesting Date
shall vest immediately on the earliest of: (i) the Participant's date of
involuntary termination of employment or other relationship with the Company
other than for Cause, (ii) the date on which the Participant's employment or
other relationship with the Company is terminated on account of death or
permanent
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disability, or (iii) the occurrence of a Change in Control. Any Options which
are not vested in accordance with the preceding provisions shall terminate
immediately upon a Participant's termination of employment or other
relationship with the Company or, if earlier, upon the occurrence of a Change
in Control, subject to the Company's reissuance of such Options pursuant to the
terms of the Plan.
3. Registration Rights
The Company covenants and agrees with the Option holders that
the Option holders shall have the registration rights (including the
registration procedures and rights to indemnity and contribution specified
therein) with respect to the Registrable Common Stock that are set forth in the
Plan.
4. Other Provisions
This Option Certificate is subject to the other terms and
conditions of the Plan, including certain put and call rights.
5. Miscellaneous
This Option Certificate shall not entitle the Holder hereof to
any of the rights of a holder of Common Stock of the Company, including,
without limitation, the right to vote at or receive notice of meetings of the
stockholders of the Company, except as specifically set forth in the Plan.
IN WITNESS WHEREOF, the Company has caused this Option
Certificate to be duly executed under its corporate seal.
Attest: CHIEF AUTO PARTS INC.
- ------------------------- By:
--------------------------
Its:
----------------------
[SEAL]
35
<PAGE> 45
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Option]
The undersigned registered owner of this Option irrevocably
exercises this Option for the purchase of ______ shares of Common Stock of
CHIEF AUTO PARTS INC. and herewith makes payment therefor, all at the price and
on the terms and conditions specified in this Option and requests that
certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to _____________ whose address is _________________ and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Option, that a new Option of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered
to the undersigned.
-----------------------------------
(Name of Registered Owner)
-----------------------------------
(Signature of Registered Owner)
-----------------------------------
(Street Address)
-----------------------------------
(City)(State)(Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Option Certificate in every
particular, without alteration or enlargement or any change whatsoever.
36
<PAGE> 46
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Option hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Option, with respect to the number of
shares of Common Stock set forth below:
<TABLE>
<CAPTION>
No. of Shares
Name and Address of Assignee of Common Stock
---------------------------- ---------------
<S> <C>
</TABLE>
and does hereby irrevocably constitute and appoint __________________________
attorney-in-fact to register such transfer on the books of CHIEF AUTO PARTS
INC. maintained for the purpose, with full power of substitution in the
premises.
Dated: Print Name:
------------------ -------------------------
Signature:
-------------------------
Witness:
---------------------------
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Option Certificate in every
particular, without alteration or enlargement or any change whatsoever.
37
<PAGE> 47
SCHEDULE 2
FORM OF OPTION CERTIFICATE
THE OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE
UNDERLYING SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
ARE SUBJECT TO THE CONDITIONS SPECIFIED IN THE 1994 EXECUTIVE
OPTION PLAN OF CHIEF AUTO PARTS INC. NO TRANSFER OF THE
OPTIONS REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR
EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. A COPY
OF THE FORM OF SAID PLAN IS ON FILE WITH THE SECRETARY OF
CHIEF AUTO PARTS INC. THE HOLDER OF THIS CERTIFICATE, BY
ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY THE
PROVISIONS OF SUCH PLAN.
Options to Receive Common Stock
$.01 par value, of CHIEF AUTO PARTS INC.
No. Options
--------------- -----------------
This Option Certificate certifies that___________ or registered
assigns is the registered owner of____ Options, each Option entitling such owner
to purchase initially 1 share of common stock, $.01 par value ("Common Stock"),
of Chief Auto Parts Inc., a Delaware corporation (the "Company") at the price
of $1,419.71 per share (the "Option Exercise Price"), subject to the terms and
conditions hereof and of the Plan hereinafter referred to below. The holder
("Holder") may exercise the Options evidenced hereby by providing certain
information set forth herein and by paying in full, in lawful money of the
United States of America in cash, by certified check or official bank check, by
bank wire transfer, or any combination of the foregoing, or by surrendering
shares of Common Stock to the Company with a Fair Market Value equal to, the
Option Exercise Price for each Option exercised to the Company and by
surrendering this Option Certificate, with the exercise form attached hereto
duly executed.
The Options are issued under a 1994 Executive Option Plan (the
"Plan") and are subject to the terms and provisions contained in the Plan,
which are incorporated by reference in and made a part of this Option
Certificate, to all of which terms and provisions the Holder of this Option
Certificate consents by acceptance hereof. The Holder acknowledges that a copy
of the Plan has been provided to the Holder. Additional copies of the Plan are
on file at the offices of the Company. All capitalized terms not otherwise
defined herein shall have
38
<PAGE> 48
the meaning assigned such term in the Plan. The following is a summary of the
terms and provisions of the Plan.
1. General
Each Option entitles the holder to purchase 1 share of Common
Stock of the Company subject to adjustment in certain circumstances as set
forth in the Plan (the "Option Exercise Number") at an exercise price of
$1,419.71 per share. Each Option not exercised prior to 5:00 p.m., New York
City time, on ________________, 2004 [insert date 10 years from date of
certificate], or such earlier time as may be specified in the Plan (the
"Expiration Date"), shall become void and all rights thereunder and all rights
in respect thereof and under the Option Agreement shall cease as of such time.
Options will be in registered form only and each certificate
will be exchangeable without service charge for similar certificates of
different denominations at the office of the Company. In lieu of issuing
fractional shares of Common Stock upon exercise of the Options, the Company
shall pay cash in an amount equal to the same fraction of the Fair Market Value
(as defined in the Plan) of a share of Common Stock.
2. Vesting
Options shall vest and become exercisable at the rate of
twenty-five percent (25%) per year on each anniversary date of the effective
date of grant with respect to which the Participant is employed or is a
director of the Company. Thus, for example, Options granted effective June 30,
1994 will vest and become exercisable in accordance with the following
schedule:
<TABLE>
<CAPTION>
Options Vested On and
After Vesting Date
Vesting Date and Before Next Vesting Date
<S> <C>
June 30, 1995 25%
June 30, 1996 50%
June 30, 1997 75%
June 30, 1998 100%
</TABLE>
Notwithstanding the foregoing: (i) the portion of an Option
which would otherwise vest and become exercisable on the next succeeding
Vesting Date shall vest immediately on the earliest of the Participant's date
of involuntary termination of employment or other relationship with the Company
other than for Cause, (ii) the portion of an Option which would otherwise vest
and become exercisable on the next succeeding Vesting Date shall vest
immediately on the earliest of the
39
<PAGE> 49
date on which the Participant's employment or other relationship with the
Company is terminated on account of death or permanent disability, and (iii)
all of a Participant's Options not yet vested shall immediately vest upon the
occurrence of a Change in Control. Any Options which are not vested in
accordance with the preceding provisions shall terminate immediately upon a
Participant's termination of employment or other relationship with the Company
or, if earlier, upon the occurrence of a Change in Control, subject to the
Company's reissuance of such Options pursuant to the terms of the Plan.
3. Registration Rights
The Company covenants and agrees with the Option holders that
the Option holders shall have the registration rights (including the
registration procedures and rights to indemnity and contribution specified
therein) with respect to the Registrable Common Stock that are set forth in the
Plan.
4. Other Provisions
This Option Certificate is subject to the other terms and
conditions of the Plan, including certain put and call rights.
5. Miscellaneous
This Option Certificate shall not entitle the Holder hereof to
any of the rights of a holder of Common Stock of the Company, including,
without limitation, the right to vote at or receive notice of meetings of the
stockholders of the Company, except as specifically set forth in the Plan.
IN WITNESS WHEREOF, the Company has caused this Option
Certificate to be duly executed under its corporate seal.
Attest: CHIEF AUTO PARTS INC.
- ------------------------- By:
--------------------------
Its:
----------------------
[SEAL]
40
<PAGE> 50
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Option]
The undersigned registered owner of this Option irrevocably
exercises this Option for the purchase of ______ shares of Common Stock of
CHIEF AUTO PARTS INC. and herewith makes payment therefor, all at the price and
on the terms and conditions specified in this Option and requests that
certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to _____________ whose address is _________________ and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Option, that a new Option of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered
to the undersigned.
-----------------------------------
(Name of Registered Owner)
-----------------------------------
(Signature of Registered Owner)
-----------------------------------
(Street Address)
-----------------------------------
(City)(State)(Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Option Certificate in every
particular, without alteration or enlargement or any change whatsoever.
41
<PAGE> 51
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Option hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Option, with respect to the number of
shares of Common Stock set forth below:
<TABLE>
<CAPTION>
No. of Shares
Name and Address of Assignee of Common Stock
---------------------------- ---------------
<S> <C>
</TABLE>
and does hereby irrevocably constitute and appoint __________________________
attorney-in-fact to register such transfer on the books of CHIEF AUTO PARTS
INC. maintained for the purpose, with full power of substitution in the
premises.
Dated: Print Name:
------------------ -------------------------
Signature:
-------------------------
Witness:
---------------------------
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the within Option Certificate in every
particular, without alteration or enlargement or any change whatsoever.
42
<PAGE> 1
EXHIBIT 10.9
CHIEF AUTO PARTS INC.
NONQUALIFIED EXECUTIVE RETIREMENT PLAN
Effective January 1, 1992
<PAGE> 2
CHIEF AUTO PARTS INC.
NONQUALIFIED EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
1.1 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Active Participant . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Authorized Leave of Absence . . . . . . . . . . . . . . . . . . 1
1.4 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Claimant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Change in Control . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 Eligibility Service . . . . . . . . . . . . . . . . . . . . . . 3
1.13 Eligible Employee . . . . . . . . . . . . . . . . . . . . . . . 3
1.14 Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.15 Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.16 Employment Commencement Date . . . . . . . . . . . . . . . . . . 3
1.17 Entry Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.18 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.19 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.20 Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.21 Inactive Participant . . . . . . . . . . . . . . . . . . . . . . 3
1.22 Matching Contributions . . . . . . . . . . . . . . . . . . . . . 3
1.23 Matching Contributions Account . . . . . . . . . . . . . . . . . 3
1.24 Normal Retirement Age . . . . . . . . . . . . . . . . . . . . . 4
1.25 Normal Retirement Date . . . . . . . . . . . . . . . . . . . . . 4
1.26 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.27 Period of Service . . . . . . . . . . . . . . . . . . . . . . . 4
1.28 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.29 Plan Committee . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.30 Plan Sponsor . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.31 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.32 Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . 4
1.33 Salary Deferral Contributions Account . . . . . . . . . . . . . 4
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
1.34 Salary Deferral Contributions . . . . . . . . . . . . . . . . . 4
1.35 Salary Reduction Agreement . . . . . . . . . . . . . . . . . . . 5
1.36 Spouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.37 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.38 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.39 Vested Account . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.40 Vesting Service . . . . . . . . . . . . . . . . . . . . . . . . 5
1.41 Year of Service . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 Active Participant . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Participation in the Plan . . . . . . . . . . . . . . . . . . . 6
2.3 Inactive Participant . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Cessation of Participation . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
CONTRIBUTIONS AND ALLOCATIONS
3.1 Salary Deferral Contributions . . . . . . . . . . . . . . . . . 8
3.2 Matching Contributions . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV
ALLOCATIONS OF EARNINGS AND LOSSES TO PARTICIPANTS' ACCOUNTS
4.1 Individual Accounts . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Valuation of Accounts . . . . . . . . . . . . . . . . . . . . . 11
4.3 Valuation of the Matching Contributions Accounts . . . . . . . . 11
4.4 Valuation of the Salary Deferral Contributions
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.5 Guaranteed Interest Fund . . . . . . . . . . . . . . . . . . . . 13
4.6 Equity Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.7 Government Securities Income Fund . . . . . . . . . . . . . . . 13
ARTICLE V
DETERMINATION AND DISTRIBUTION OF BENEFITS
5.1 Vesting of Accounts . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Determination of Benefits Upon Retirement . . . . . . . . . . . 15
5.4 Determination of Benefits Upon Death or Disability . . . . . . . 15
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
5.5 Determination of Benefits Upon
Termination of Employment . . . . . . . . . . . . . . . . . . . 15
5.6 Timing of Distributions . . . . . . . . . . . . . . . . . . . . 15
5.7 Form of Payment . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8 Designation of Beneficiary . . . . . . . . . . . . . . . . . . . 16
5.9 Distribution for Minor Beneficiary . . . . . . . . . . . . . . . 17
5.10 Location of Participant or Beneficiary Unknown . . . . . . . . . 17
5.11 Benefits Payable from General Assets . . . . . . . . . . . . . . 17
ARTICLE VI
FORMER PARTICIPANTS
6.1 Years of Service . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII
PLAN ADMINISTRATION
7.1 Administration . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.3 Information Available . . . . . . . . . . . . . . . . . . . . . 20
7.4 Powers and Responsibilities . . . . . . . . . . . . . . . . . . 20
7.5 Assignment and Designation of Administrative
Authority/Compensation of Plan Committee . . . . . . . . . . . . 20
7.6 Allocation and Delegation of Responsibilities . . . . . . . . . 21
7.7 Powers, Duties and Responsibilities . . . . . . . . . . . . . . 22
7.8 Appointment of Advisors . . . . . . . . . . . . . . . . . . . . 23
7.9 Information from Plan Sponsor . . . . . . . . . . . . . . . . . 23
7.10 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . 23
7.11 Majority Actions . . . . . . . . . . . . . . . . . . . . . . . . 23
7.12 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 24
7.13 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.14 Claims Procedure . . . . . . . . . . . . . . . . . . . . . . . . 24
7.15 Claims Review Procedure . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGER
8.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 26
8.3 Successor Plan Sponsor . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
iii
<PAGE> 5
ARTICLE IX
MISCELLANEOUS
<TABLE>
<S> <C> <C>
9.1 Participant's Rights . . . . . . . . . . . . . . . . . . . . . . 27
9.2 Alienation . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.3 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.4 Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.5 Receipt and Release for Payments . . . . . . . . . . . . . . . . 29
9.6 Action by the Plan Sponsor or Employer . . . . . . . . . . . . . 29
9.7 Provisions Relating to the Insurer and Other Parties . . . . . . 29
9.8 Uniformity . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.9 No Guarantee of Interests . . . . . . . . . . . . . . . . . . . 30
</TABLE>
iv
<PAGE> 6
CHIEF AUTO PARTS INC.
NONQUALIFIED EXECUTIVE RETIREMENT PLAN
INTRODUCTION
THIS PLAN, hereby adopted, made and entered into by CHIEF AUTO PARTS
INC., a Delaware corporation (the "Plan Sponsor"), is established as a
nonqualified, defined contribution employees' retirement plan that has been
designed as, and is intended to be, an unfunded plan for purposes of the
Employee Retirement Income Security Act of 1974, as amended, and a nonqualified
plan under the Internal Revenue Code of 1986, including any later amendments
thereto, for employees of the Plan Sponsor that are highly compensated or
management employees. The Plan Sponsor agrees to operate this Plan according
to the terms, provisions and conditions set forth in this document. Any funds
accumulated for purposes of providing benefits under this Plan are fully
available to satisfy the claims of the Plan Sponsor's creditors. Participants
have no greater rights with regard to such funds than any other general
creditor of the Plan Sponsor.
The Plan Sponsor has established the Chief Auto Parts Inc.
Nonqualified Executive Retirement Trust to which it may contribute to provide
the benefits under this Plan. Participants shall not have any right, title or
interest in the Trust.
Effective January 1, 1992, the Plan Sponsor adopts this Plan in its entirety to
provide as follows:
v
<PAGE> 7
ARTICLE I
DEFINITIONS
Words and phrases defined in this Article I shall have that defined
meaning when used in this Plan, unless the context clearly indicates otherwise,
and, where appropriate, shall include the conjunctive and disjunctive form of
the term defined.
1.1 "Account" means the total interest of a Participant under this Plan
consisting of his Salary Deferral Contributions Account and his Matching
Contributions Account. The amounts credited to a Participant's Accounts are for
bookkeeping purposes only and do not entitle a Participant to any account or
fund of the Plan Sponsor. That portion of the Participant's Account
attributable to Salary Deferral Contributions shall be 100% vested and
nonforfeitable at all times without regard to the age or Years of Service of
the Participant.
1.2 "Active Participant" means an Eligible Employee who is actively
participating in the Plan according to the provisions of Section 2.1(a) hereof.
1.3 "Authorized Leave of Absence" means any absence authorized by the
Employer under the Employer's standard personnel practices, provided that all
persons under similar circumstances must be treated alike in the granting of
such Authorized Leaves of Absence and provided further that the Participant
returns at the end of the period of authorized absence. Absence due to
mandatory military service in the Armed Forces of the United States (including
enlistment in lieu of impending mandatory service) shall be considered as an
Authorized Leave of Absence. Such an Authorized Leave of Absence shall not
constitute a termination of the Employee's employment provided such Employee
returns to active employment with the Employer at or prior to the expiration of
such Authorized Leave of Absence. If the Employee does not return to active
employment with Employer at the expiration of such Authorized Leave of Absence,
his employment will be considered terminated as of the date on which his
Authorized Leave of Absence began.
1
<PAGE> 8
1.4 "Beneficiary" means the person or persons (natural or otherwise)
designated by a Participant or the Plan in accordance with Section 5.8 hereof
to receive any benefits under this Plan payable upon the Participant's death.
1.5 "Board of Directors or Board" means the Board of Directors of the Plan
Sponsor or any committee of the Board authorized to act on its behalf.
1.6 "Claimant" means any person who has made a claim for benefits pursuant
to Article VII of this Plan.
1.7 "Change in Control" means (i) a merger or consolidation of the Plan
Sponsor with or into another entity in which the Plan Sponsor is not the
surviving corporation, (ii) a merger or consolidation of the Plan Sponsor with
or into another entity in which the Plan Sponsor is the surviving corporation
but the holders of the Plan Sponsor's common stock are required to exchange
their shares for cash, property and/or securities, or (iii) a sale or lease of
all or substantially all of the assets of the Plan Sponsor.
1.8 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.9 "Compensation" means an Employee's W-2 earnings; the total earnings
paid or made available to an Employee by the Employer during any specified
period, including employer contributions made pursuant to a salary reduction
agreement that are not includible in the gross income of the Employee under
Code Sections 125, 402(a)(8), or 402(h); provided, however, that car allowances
and stock options shall be excluded from Compensation for purposes of this
Plan.
1.10 "Contributions" means Salary Deferral Contributions and Matching
Contributions as set out in Article III, unless the context clearly indicates
otherwise.
1.11 "Disability" means a physical or mental condition that permanently
prevents an Employee from satisfactorily performing his usual duties for the
Employer or the duties of such other position or job which the Employer makes
available to him and for which such Employee is qualified by reason of his
training, education or experience. Receipt of disability benefits under the
Social
2
<PAGE> 9
Security Act shall be considered to be sufficient evidence of disability.
Otherwise, the Plan Committee reserves the right to have a Participant examined
by a physician selected by it at reasonable intervals to determine whether a
Participant continues to be disabled. If a Participant shall refuse to be so
examined, he shall automatically be deemed no longer disabled.
1.12 "Eligibility Service" means an Employee's Period of Service with the
Employer, expressed as whole years.
1.13 "Eligible Employee" means any Employee who is invited by the Employer
to participate in the Plan and who is in a select group of highly-compensated
or management employees.
1.14 "Employee" means an individual who is employed by the Employer.
1.15 "Employer" means Chief Auto Parts Inc.
1.16 "Employment Commencement Date" means the date on which an Employee
first performs an hour of service for the Employer.
1.17 "Entry Date" means the date an Employee first enters the Plan as an
Active Participant pursuant to Section 2.1(a) hereof.
1.18 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.19 "Fiscal Year" means the Employer's taxable year. The Fiscal Year ends
on the last Sunday in December of each year.
1.20 "Forfeiture" means that portion of the Participant's Matching
Contributions Account that have been forfeited by such Participant pursuant to
Section 5.2 hereof.
1.21 "Inactive Participant" means a former Active Participant who is
described in Section 2.3 and has an Account hereunder.
1.22 "Matching Contributions" means contributions made by the Employer
pursuant to Section 3.2 hereof.
1.23 "Matching Contributions Account" means the portion of the
Participant's Account that is credited with Matching Contributions
3
<PAGE> 10
under Section 3.2 hereof, together with earnings attributable to such
contributions.
1.24 "Normal Retirement Age" means 65 years of age.
1.25 "Normal Retirement Date" means the first day of the month on or after
the date the Participant reaches his Normal Retirement Age.
1.26 "Participant" means either an Active Participant or an Inactive
Participant.
1.27 "Period of Service" means the Employee's Years of Service during the
period commencing on the Employee's Employment Commencement Date and ending on
the date of his termination of employment. In the event that a Participant is
reemployed, his Period of Service prior to his reemployment date shall be
disregarded with respect to any amounts credited to his Accounts after his
reemployment date.
1.28 "Plan" means the Chief Auto Parts Inc. Nonqualified Executive
Retirement Plan set forth in this document, including any later amendments to
it.
1.29 "Plan Committee" means the person(s) appointed by the Board of
Directors of the Plan Sponsor to assist in the administration of the Plan. The
Plan Committee shall serve at the pleasure of the Plan Sponsor pursuant to
Article VII hereof.
1.30 "Plan Sponsor" means Chief Auto Parts Inc.
1.31 "Plan Year" means the Plan's accounting year of twelve (12)
consecutive months commencing on January 1st and ending on the following
December 31st.
1.32 "Retirement Date" means the date a retirement benefit will begin.
1.33 "Salary Deferral Contributions" means contributions made to the Plan
on behalf of a Participant pursuant to Section 3.1 hereof.
1.34 "Salary Deferral Contributions Account" means the portion of a
Participant's Account credited with Salary Deferral Contributions made pursuant
to Section 3.1 hereof, with earnings attributable to such contributions.
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<PAGE> 11
1.35 "Salary Reduction Agreement" means an agreement between a Participant
and the Employer, pursuant to which the Participant shall agree to have the
Employer withhold the appropriate amount of such Participant's Compensation as
designated and set forth therein pursuant to Section 3.1(a) hereof, and, in
lieu of receiving such amount in cash, to have the Employer credit the
Participant with such amount as a Salary Deferral Contribution.
1.36 "Spouse" means the spouse of a Participant who was legally married to
the Participant under the laws of the jurisdiction in which the marriage was
contracted at the time of the Participant's death or actual Retirement Date.
1.37 "Trust" means the Chief Auto Parts Inc. Nonqualified Executive
Retirement Trust entered into between the Plan Sponsor and the Trustee, as
amended from time to time.
1.38 "Trustee" means the persons named as trustee pursuant to the Trust or
any duly appointed, qualified or acting successor trustee that assumes
responsibility and liability under the Trust.
1.39 "Vested Account" means the part of a Participant's Account which is
nonforfeitable pursuant to Section 5.1 hereof.
1.40 "Vesting Service" means an Employee's Period of Service with the
Employer, expressed as whole years. Years of Service with The Southland
Corporation will be included as Vesting Service with the Employer for those
Employees who were hired from The Southland Corporation on or before December
31, 1988.
1.41 "Year of Service" means a whole year of the Employee's Period of
Service. An Employee's number of Years of Service shall be equal to a number
of whole calendar years of the Employee's Period of Service. In order to
determine the number of whole years of an Employee's Period of Service,
nonsuccessive Periods of Service shall not be aggregated.
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<PAGE> 12
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 ACTIVE PARTICIPANT
(a) An Employee shall first become an Active Participant (begin
active participation in the Plan) on the first day on or after
January 1, 1992, on which he is an Eligible Employee, has
completed one year of Eligibility Service, and has executed a
Salary Reduction Agreement pursuant to Section 2.2 hereof.
(b) An Inactive Participant shall again become an Active Participant
(resume active participation in the Plan) on the date he again
performs an hour of service as an Eligible Employee, executes a
Salary Reduction Agreement, and such Agreement is approved by the
Plan Committee.
Upon again becoming an Active Participant, a Participant shall
cease to be an Inactive Participant.
There shall be no duplication of benefits for a Participant under this
Plan because of more than one period as an Active Participant.
2.2 PARTICIPATION IN THE PLAN
An Eligible Employee who is invited to participate in this Plan and
meets the requirements of Section 2.1 must execute a Salary Reduction
Agreement, effective with respect to Compensation which has not been earned,
and agree to the terms of this Plan. The Employee shall supply all
information, including designation of Beneficiary form, required by the Plan
Sponsor in such manner and at such time as determined by the Plan Sponsor.
Upon the execution of a Salary Reduction Agreement, such Eligible Employee
shall automatically be bound by the terms and conditions of the Plan.
2.3 INACTIVE PARTICIPANT
An Active Participant shall become an Inactive Participant on the earlier
of the following:
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<PAGE> 13
(a) The date on which he ceases to be an Eligible Employee;
(b) The date he ceases making Salary Deferral Contributions to the
Plan; or
(c) The effective date of complete termination of the Plan.
An Active Participant may modify or revoke his Salary Reduction
Agreement at such times and in the manner set forth in Section 3.1.
2.4 CESSATION OF PARTICIPATION
A Participant shall cease to be a Participant on the date he is no longer
an Eligible Employee and the value of his Account is zero.
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<PAGE> 14
ARTICLE III
CONTRIBUTIONS AND ALLOCATIONS
3.1 SALARY DEFERRAL CONTRIBUTIONS
For any Plan Year, each Participant may enter into a Salary Reduction
Agreement in which he elects to have allocated to his Salary Deferral
Contributions Account any whole percentage of not less than 1% and not more
than 20% of his Compensation.
(a) Salary Reduction Agreements. All Salary Reduction Agreements
shall be made at the time, in the manner and subject to the
conditions specified by the Plan Committee.
(b) Participant Amendment of Salary Reduction Agreement. A
Participant may change the rate of Salary Deferral Contributions
to his Salary Deferral Contributions Account twice each Plan
Year, provided the Plan Committee receives the amended Salary
Reduction Agreement at least 15 days prior to the effective date
of the change. Amended Salary Reduction Agreements shall be
effective as of the first full payroll period beginning 15 days
after the receipt of the notice of the change. Amended Salary
Reduction Agreements that are received within 15 days of the
proposed effective date of the change shall not be effective
until after the next following full payroll period.
A Participant may suspend his Salary Reduction Agreement twice
each Plan Year with respect to Compensation not yet paid,
provided the Plan Committee receives notice of the suspension at
least 15 days prior to the effective date of the change. The
effective date of the suspension shall be the first full payroll
period beginning 15 days after receipt of the notice of the
suspension. Suspension notices that are received within 15 days
of the proposed effective date of the change shall not be
effective until after the next following full payroll period.
A Participant's election shall remain in effect for future Plan
Years until revoked.
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<PAGE> 15
(c) Termination of Employment, Death or Retirement. Upon the
termination of employment, death or retirement of the
Participant, such Participant's Salary Reduction Agreement shall
become void, except as to Compensation earned but unpaid as of
the date of such termination, death or retirement.
(d) Date of Salary Deferral Contributions. Salary Deferral
Contributions shall be credited to the appropriate Salary
Deferral Contributions Accounts as soon as administratively
feasible.
3.2 MATCHING CONTRIBUTIONS
Unless otherwise provided by resolution of the Board of Directors by
June 30 following the end of each Plan Year, the Employer shall, for each Plan
Year, credit the Matching Contributions Accounts of the Participants with an
amount equal to one-half of the Salary Deferral Contributions for any Plan Year
excluding all Salary Deferral Contributions in excess of 10% of a Participant's
Compensation. The Matching Contributions for the Plan Year shall be credited
to each Participant as follows:
(a) Matching Contributions. The Matching Contribution for the Plan
Year, if any, shall be credited to the Matching Contributions
Account of each Participant eligible to share in such
contribution pursuant to Section 3.2(b) hereof by June 30
following the end of the Plan Year, in the same proportion that
such Participant's Salary Deferral Contributions for the Plan
Year bears to the Salary Deferral Contributions of all such
Participants made to the Plan for such Plan Year. Provided,
however, that Salary Deferral Contributions in excess of 10% of
such Participant's Compensation for the Plan Year will not be
considered for purposes of this Subsection (a).
(b) Requirements for Sharing in Matching Contributions. The Matching
Contributions shall be credited to: (1) Participants who made
Salary Deferral Contributions during the Plan Year and who are
still employed by the
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<PAGE> 16
Employer at the end of the Plan Year; and (2) Inactive
Participants who were Participants in the Plan during the Plan
Year, who made Salary Deferral Contributions during the Plan
Year, and who have terminated employment with the Employer due to
retirement on or after Normal Retirement Age, death or
Disability.
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<PAGE> 17
ARTICLE IV
ALLOCATIONS OF EARNINGS AND
LOSSES TO PARTICIPANTS' ACCOUNTS
4.1 INDIVIDUAL ACCOUNTS
Adequate records shall be created and maintained to disclose the
interest under the Plan of each Active Participant, Inactive Participant and
Beneficiary. Such records shall be in the form of individual accounts and
credits and charges shall be made to such accounts in the manner herein
described. Each Participant shall have a Salary Deferral Contributions Account
and a Matching Contributions Account. The maintenance of individual accounts
is only for accounting purposes.
4.2 VALUATION OF ACCOUNTS
At the close of each day, the Accounts of Active Participants and
Inactive Participants shall be adjusted to reflect payments of benefits and to
reflect transfers of benefits to or for the benefit of any Active Participant
or Inactive Participant and to reflect earnings and losses as determined in
accordance with this Article.
4.3 VALUATION OF THE MATCHING CONTRIBUTIONS ACCOUNTS
The Matching Contributions Accounts of all Participants shall be
adjusted at the close of each day for the performance of one or more investment
funds designated by the Plan Sponsor or an officer of the Plan Sponsor to whom
such authority has been delegated. Each Matching Contributions Account shall
be credited with the income or losses that would have been earned or incurred
if the Matching Contributions Account had been invested in such investment
funds designated by the Plan Sponsor or an officer to whom such authority has
been delegated. The Plan Sponsor or an officer to whom such authority has been
delegated may change the designated investment funds upon 30 days written
notice to Participants. In the event more than one investment fund is
designated, a Participant's Matching Contributions Account shall be treated as
if invested in each investment fund in the same proportion that his Salary
Deferral Contributions Account is deemed invested. The Plan Sponsor and the
Trustee are not obligated to invest in any investment fund designated by the
Plan Committee.
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<PAGE> 18
4.4 VALUATION OF THE SALARY DEFERRAL CONTRIBUTIONS ACCOUNTS
An Active Participant or Inactive Participant or Beneficiary may elect
from the investment funds designated by the Plan Sponsor, or an officer to whom
such authority has been delegated, the investment funds in which his Salary
Deferral Contributions Account will be deemed to be invested. Such selection
shall be made by the Participant, Inactive Participant or Beneficiary on a form
provided by the Plan Committee. At the close of each day, a Participant's
Salary Deferral Contributions Account shall be credited with the income or
losses that would have been earned or incurred if the Account had been invested
in such investment funds selected by the Participant. The Participant may
change the investment funds he elected on January 1, April 1, July 1, October
1, or any such other dates approved by the Plan Committee. A Participant may
elect that his Salary Deferral Contributions Account be invested in more than
one investment fund, provided that not less than 25 percent of his Account
shall be deemed to be invested in a single investment fund. The Plan may
change the designated investment funds. The Plan Sponsor or an officer whom
such authority has been delegated shall provide each Participant with 30 days
written notice prior to changing the designated investment funds. The Plan
Sponsor or an authorized officer shall designate as permissible investment
funds a guaranteed interest fund, an equity fund, and a government securities
income fund as described below, and such other investments as the Plan Sponsor
or an authorized officer shall deem prudent; provided, however, that securities
issued by the Plan Sponsor shall not be part of a designated investment fund.
Under no circumstances shall the Plan Sponsor, the Trustee, or the Plan
Committee be obligated to actually invest any Contributions in the investment
funds designated by a Participant or a Beneficiary.
Upon becoming a Participant in the Plan in which his Salary Deferral
Contributions Account shall be deemed to be invested, the Participant shall
make an election as to the investment funds. If no election is made, all
amounts in a Participant's Deferred Salary Contributions Account shall be
deemed to be invested in the Guaranteed Interest Fund with a two year guarantee
period.
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<PAGE> 19
4.5 GUARANTEED INTEREST FUND
The guaranteed interest fund will be an investment fund, the assets of
which will be invested in privately placed loans such as bonds and commercial
mortgages. Participants may select between two year and five year guarantee
periods.
4.6 EQUITY FUND
The equity fund will be an investment fund, the assets of which will
consist of such common or other forms of equity stocks.
4.7 GOVERNMENT SECURITIES INCOME FUND
The government securities income fund will be an investment fund, the
assets of which shall be invested in Government National Mortgage Association
certificates.
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<PAGE> 20
ARTICLE V
DETERMINATION AND DISTRIBUTION OF BENEFITS
5.1 VESTING OF ACCOUNTS
Participants shall be vested in their Accounts in accordance with the
following:
(a) Participants shall always be 100% vested in their Salary Deferral
Contributions Accounts without regard to their Years of Service.
(b) Participants shall be vested in their Matching Contributions
Accounts in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Service Vested Percentage Non-Vested
---------------- ----------------- ----------
Percentage
----------
<S> <C> <C>
Less than 1 0% 100%
1 but less than 2 20% 80%
2 but less than 3 40% 60%
3 but less than 4 60% 40%
4 but less than 5 80% 20%
5 or more 100% 0%
</TABLE>
Notwithstanding any of the above, a Participant shall become fully
vested upon reaching his sixty-fifth (65th) birthday provided he is employed by
the Employer on such date.
Notwithstanding the other provisions of this Section 5.1, in the event
of a Change in Control a Participant shall be fully vested in his Matching
Contributions Account.
5.2 FORFEITURES
The nonvested portion of the Participant's Matching Contributions
Account upon the Participant's termination of employment for reasons other than
death, retirement or Disability shall become a Forfeiture on the date of such
termination.
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<PAGE> 21
5.3 DETERMINATION OF BENEFITS UPON RETIREMENT
Notwithstanding Section 5.1 hereof, a Participant who terminates his
employment on or after his Normal Retirement Age shall be 100% vested in his
Matching Contributions Account and shall be entitled to all amounts credited to
his Account as of the date of distribution. The Participant's Account shall be
distributed in accordance with Sections 5.6 and 5.7 hereof.
5.4 DETERMINATION OF BENEFITS UPON DEATH OR DISABILITY
Notwithstanding Section 5.1 hereof, upon the death of a Participant
before his termination of employment, his entire Account shall be 100% vested
and paid to his Beneficiary. Upon the death of an Inactive Participant whose
employment terminated prior to his death and whose Account had not been
distributed to him prior to his death, the vested portion of his Account,
determined as of the date of his termination of employment, shall be payable to
his Beneficiary and the nonvested portion shall be forfeited. The
Participant's Account shall be distributed in accordance with Sections 5.6 and
5.7 hereof.
Notwithstanding Section 5.1 hereof, a Participant shall be 100% vested
in his Matching Contributions Account upon his Disability prior to attaining
his Normal Retirement Age and entitled to payment thereof.
5.5 DETERMINATION OF BENEFITS UPON TERMINATION OF EMPLOYMENT
Upon the Participant's termination of employment before his Normal
Retirement Date for any reason other than death or Disability, the Participant
shall be entitled to the vested portion of his Account as of the date of
termination of employment determined in accordance with Section 5.1 hereof.
The Participant's Account shall be distributed in accordance with Sections 5.6
and 5.7 hereof.
5.6 TIMING OF DISTRIBUTIONS
(a) Retirement, Disability or Death. Distributions of Account
balances shall be made to Participants or Beneficiaries as
soon as administratively feasible on or after the
Participant's retirement, Disability or death. Participant's
or their Beneficiary shall be entitled to
15
<PAGE> 22
the value of their vested Accounts as of the date of actual
distribution.
(b) Termination of Employment. Distributions on account of
termination of employment for any reason other than death,
Disability or retirement shall be made as soon as
administratively feasible and Participants shall be entitled
to the value of their vested Accounts as of the date of actual
distribution.
5.7 FORM OF PAYMENT
A Participant or Beneficiary entitled to receive a benefit under the
Plan shall be paid such benefit in cash as a single-sum payment.
5.8 DESIGNATION OF BENEFICIARY
Each Participant from time to time may designate any person or persons
(who may be designated contingently or successively and who may be an entity
other than a natural person) as his Beneficiary or Beneficiaries to whom his
Plan benefits shall be paid if he dies before receipt of all such benefits.
Each Beneficiary designation shall be in a form approved by the Plan Committee
and will be effective only when filed with the Plan Committee during the
Participant's lifetime. Each Beneficiary designation filed with the Plan
Committee will cancel all Beneficiary designations previously filed with the
Plan Committee.
If a Participant fails to designate a Beneficiary in the manner
provided above, or if the Beneficiary dies before him or before complete
distribution of such Participant's benefits, the Plan Committee in its
discretion, shall, unless otherwise provided through a valid contingent
Beneficiary designation, direct the distribution of such Participant's benefits
(or the balance thereof) to the estate of the last to die of such Participant
and his Beneficiary or Beneficiaries.
Any designation of a spouse as a primary or contingent Beneficiary
made by a Participant before or during marriage shall automatically become void
upon final divorce of such Participant from such spouse.
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<PAGE> 23
5.9 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor Beneficiary, or
to the custodian for such minor Beneficiary under the Uniform Gift to Minors
Act or Gift to Minors Act, if such is permitted by the laws of the state in
which said Beneficiary resides, such payment to the legal guardian or parent of
a minor Beneficiary shall fully discharge the Employer, the Plan Committee, the
Plan Sponsor and the Plan from further liability on account thereof.
5.10 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the amount payable to a
Participant or his Beneficiary hereunder shall, at the expiration of five (5)
years after it shall become payable, remain unpaid solely by reason of the
inability of the Plan Committee, after sending a registered letter, return
receipt requested, to the last known address, and after further diligent
effort, to ascertain the whereabouts of such Participant or his Beneficiary,
the amount so distributable shall be treated as a Forfeiture. In the event a
Participant or Beneficiary is located subsequent to his benefit being
reallocated, such benefit shall be restored.
5.11 BENEFITS PAYABLE FROM GENERAL ASSETS
Amounts payable hereunder shall be from the Trust or the general
assets of the Plan Sponsor, and no person entitled to payment hereunder shall
have any claim, right, security interest, or other interest in any fund, trust,
account or other asset of the Plan Sponsor that may be looked to for payment.
The Plan Sponsor's liability for the payment of benefits hereunder shall be
evidenced only by this Plan.
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<PAGE> 24
ARTICLE VI
FORMER PARTICIPANTS
6.1 YEARS OF SERVICE
If any Inactive Participant is reemployed, Years of Service for
benefits credited after his reemployment date shall not include Years of
Service prior to his separation from service. An Inactive Participant shall
become an Active Participant on the date after his reemployment that he is an
Eligible Employee and executes a Salary Reduction Agreement. In the event an
Inactive Participant did not receive his Accounts upon termination of
employment, separate accounts shall be maintained for contributions credited
prior to his termination of employment and contributions credited on his behalf
after his later reemployment.
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<PAGE> 25
ARTICLE VIII
PLAN ADMINISTRATION
7.1 ADMINISTRATION
Subject to the provisions of this Article, the Plan Committee has
complete control of the administration of the Plan. The Plan Committee has all
the powers necessary for it to properly carry out its administrative duties.
Not in limitation, but in amplification of the foregoing, the Plan Committee
has the power to construe the Plan and to determine all questions that may
arise under the Plan, including all legal and factual questions relating to the
eligibility of Employees to participate in the Plan and the amount of benefit
to which any Participant, Beneficiary, or Spouse may become entitled. The Plan
Committee's decisions upon all matters within the scope of its authority shall
be final.
Unless otherwise set out in the Plan, the Plan Committee may delegate
recordkeeping and other duties that are necessary for the administration of the
Plan to any person or firm that agrees to accept such duties. The Plan
Committee shall be entitled to rely upon all tables, valuations, certificates
and reports furnished by the consultant or the actuary appointed by the Plan
Committee and upon all opinions given by any counsel selected or approved by
the Plan Committee.
The Plan Committee shall receive all claims for benefits by
Participants, former Participants, Beneficiaries and Spouses. The Plan
Committee shall determine all facts necessary to establish the right of any
Claimant to benefits and the amount of those benefits under the provisions of
the Plan. The Plan Committee may establish rules and procedures to be followed
by Claimants in filing claims for benefits, in furnishing and verifying proofs
necessary to determine age, and in any other matters required to administer the
Plan.
7.2 RECORDS
All acts and determinations of the Plan Committee shall be duly
recorded. All these records, together with other documents necessary for the
administration of the Plan, shall be preserved in the Plan Committee's custody.
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<PAGE> 26
Writing (handwriting, typing and printing), photostating,
photographing, microfilming, magnetic impulse, mechanical or electrical
recording or other forms of data compilation shall be acceptable means of
keeping records.
7.3 INFORMATION AVAILABLE
Any Participant in the Plan or any Beneficiary may examine copies of
the latest annual report, any bargaining agreement, this Plan or any other
instrument under which the Plan was established or is operated. The Plan
Committee shall maintain all of the items listed in this Section 7.3 in its
office, or in such other place or places as it may designate. These items may
be examined during reasonable business hours. Upon the written request of a
Participant or Beneficiary receiving benefits under the Plan, the Plan
Committee will furnish him with a copy of any of these items. The Plan
Committee may make a reasonable charge to the requesting person for the copy.
7.4 POWERS AND RESPONSIBILITIES
The Plan Committee shall periodically review the performance of any
person to whom duties have been delegated or allocated by it under the
provisions of the Plan or pursuant to procedures established hereunder. This
requirement may be satisfied by formal periodic review by the Plan Sponsor or
by a qualified person specifically designated by the Plan Sponsor, through day-
to-day conduct and evaluation, or through other appropriate means. The Plan
Committee shall have no responsibility to periodically review the performance
of any person to whom duties have been delegated or allocated by the Plan
Sponsor or an Employee or at the direction of the Plan Sponsor.
7.5 ASSIGNMENT AND DESIGNATION OF ADMINISTRATIVE AUTHORITY/COMPENSATION OF
PLAN COMMITTEE
The Board of Directors of the Plan Sponsor shall appoint one or more
individuals to the Plan Committee. The Plan Committee shall have authority to
assist in the administration of the Plan and shall be empowered to carry out
the duties of the Plan Sponsor.
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<PAGE> 27
Any person, including, but not limited to, the directors,
shareholders, officers, and Employees of the Plan Sponsor shall be eligible to
serve on the Plan Committee. A Participant shall not be eligible to be a
member of the Plan Committee. A member of the Plan Committee may resign by
delivering his written resignation to the Plan Sponsor or be removed by the
Plan Sponsor by delivery of written notice of removal, to take effect at a date
specified therein. The Plan Sponsor shall furnish the Trustee with proper
written evidence of the names and individuals on the Plan Committee and of any
resignations and replacements thereof. If at any time no person is acting as
the Plan Committee, then the Plan Sponsor shall act as the Plan Committee and
may appoint an officer of the Plan Sponsor to act on its behalf in such
capacity.
The Plan Committee shall select a Chairman from among its members. A
Secretary shall also be appointed by the Plan Committee who may or may not be a
member of the Plan Committee. The Chairman shall preside at all meetings of
the Plan Committee unless, in his absence, a Vice Chairman selected by the Plan
Committee presides. The Secretary shall keep all minutes of Plan Committee
proceedings and such records and documents as are necessary for the proper
administration of the Plan.
Plan Committee members may receive reasonable compensation for
services rendered, or for the reimbursement of expenses properly and actually
incurred in the performance of duties with the Plan; except that no person so
serving on the Plan Committee who already receives full-time pay from the Plan
Sponsor, shall receive compensation from the Plan, except for reimbursement of
expenses properly and actually incurred.
Any bond which may be required by applicable laws or regulations for
the performances of duties by members of the Plan Committee and all reasonable
and necessary costs, expenses and liabilities incurred by the Plan Committee in
the supervision and administration of the Plan shall be paid by the Plan
Sponsor.
7.6 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed to serve on the Plan Committee,
the responsibilities of each member may be specified by the Plan Sponsor and
accepted in writing by each member. In the event that no such delegation is
made by the Plan Sponsor, the Plan
21
<PAGE> 28
Committee members may, by written instrument, allocate the responsibilities
among themselves, in which event the Plan Committee shall notify the Plan
Sponsor and the Trustee in writing of such action and specify the
responsibilities of each member of the Plan Committee. The Trustee thereafter
shall accept and rely upon any documents executed by the appropriate member of
the Plan Committee until such time as the Plan Sponsor or the Plan Committee
files with the Trustee a written revocation of such designation.
7.7 POWERS, DUTIES AND RESPONSIBILITIES
The primary responsibility of the Plan Committee is to administer the
Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Plan Committee shall administer
the Plan in accordance with the terms hereof and shall have the power to
determine all questions arising in connection with the administration,
interpretation and application of the Plan. Any such determination by the Plan
Committee shall be conclusive and binding upon all persons. The Plan Committee
may correct any defect, supply any interpretation or omission, or reconcile any
inconsistency or ambiguity in such manner and to such extent as shall be deemed
necessary or advisable to carry out the purpose of the Plan. The Plan
Committee shall have all powers necessary or appropriate to accomplish its
duties under the Plan.
The Plan Committee shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) Determining all questions relating to the eligibility of
Employees to participate or remain Participants hereunder;
(b) Computing, certifying and directing the Plan Sponsor with
respect to the amount and the kind of benefits to which any
Participant shall be entitled hereunder;
(c) Authorizing and directing the Plan Sponsor with respect to all
nondiscretionary or otherwise directed disbursements;
22
<PAGE> 29
(d) Maintaining all necessary records for the administration of
the Plan;
(e) Interpreting the provisions of the Plan and making and
publishing such rules for regulation of the Plan as are
consistent with the terms hereof; and
(f) Providing information to any Participant regarding his rights,
benefits or elections available under the Plan.
7.8 APPOINTMENT OF ADVISORS
The Plan Committee may appoint counsel, specialists, advisors and
other persons as the Plan Committee deems necessary or desirable in connection
with the administration of the Plan.
7.9 INFORMATION FROM PLAN SPONSOR
To enable the Plan Committee to perform its functions, the Plan
Sponsor shall supply full and timely information to the Plan Committee on all
matters relating to the Compensation of all Participants, Years of Service,
occurrences of retirement, death, Disability, or termination of employment, and
such other pertinent facts and data as the Plan Committee may require. The
Plan Committee may rely upon such information as is supplied by the Plan
Sponsor and shall have no duty or responsibility to verify such information.
7.10 PAYMENT OF EXPENSES
All expenses of administration shall be paid by the Plan Sponsor. The
Plan Sponsor may direct the Plan Committee to reduce each Participant's Account
for the expenses paid in the same proportion that the account bears to the
aggregate of all Accounts. Such expenses shall include any expenses incident
to the functioning of the Plan Committee, including, but not limited to, fees
of accountants, counsel, and other specialists, and other costs of
administering the Plan.
7.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 7.6 hereof, if there shall be more
than one member of the Plan Committee, they shall act
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<PAGE> 30
by a majority of their number, but may authorize one or more of them to sign
all papers on their behalf.
7.12 INDEMNIFICATION
The Plan Sponsor shall indemnify each member of the Plan Committee
from and against any and all liabilities, costs, or expenses incurred as a
result of any act or omission to act in connection with the performance of
fiduciary duties or responsibilities, if any, under this Plan and applicable
laws and regulations, but not for liabilities and claims arising from such
person's willful misconduct.
7.13 INTERPRETATION
So far as possible, the Plan shall be interpreted and administered in
a manner consistent with the intent and with the intention of the Employer that
the Plan shall at all times fully comply with the requirements of applicable
laws and regulations. Neither the Plan Sponsor nor the Plan Committee shall
exercise any power or right to do or perform any act which is in conflict with
or violates such laws and regulations. Any power or right granted under the
Plan or retained by the Plan Sponsor shall be void to the extent that its
exercise or retention shall violate laws or regulations.
7.14 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed with the Plan
Committee on forms supplied by the Plan Sponsor. Written notice of the
disposition of claim shall be furnished to the Claimant within ninety (90) days
after the application thereof is filed. In the event the claim is denied, the
reasons for the denial shall be specifically set forth in the notice in
language calculated to be understood by the Claimant, pertinent provisions of
the Plan shall be cited, and, where appropriate, an explanation as to how the
Claimant can perfect the claim will be provided. In addition, the Claimant
shall be furnished with an explanation of the Plan's claims review procedure.
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<PAGE> 31
7.15 CLAIMS REVIEW PROCEDURE
Any Participant, former Participant, or Beneficiary of either, who has
been denied a benefit by a decision of the Plan Committee pursuant to Section
7.14 hereof shall be entitled to appeal such denial by filing with the Plan
Committee a request for a hearing. Such appeal, together with a written
statement of the reasons why the Claimant believes his claim should be allowed,
shall be filed with the Plan Committee no later than sixty (60) days after
receipt of the written notification provided for in Section 7.14 hereof. The
Plan Committee shall then conduct a hearing within fifty (50) days after the
timely filing of such appeal, at which time the Claimant may be represented by
an attorney or any other representative of his choosing and at which time the
Claimant shall have an opportunity to submit written and oral evidence and
arguments in support of his claim. At the hearing (or prior thereto upon five
(5) business days written notice to the Plan Committee) the Claimant and his
representative shall have an opportunity to review all documents in the
possession of the Plan Committee which are pertinent to the claim at issue and
its disallowance. Either the Claimant or the Plan Committee may cause a court
reporter to attend the hearing and record the proceedings. In such event, a
complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance or disallowance of
the claim shall be made by the Plan Committee within sixty (60) days of receipt
of the appeal unless, prior to the expiration thereof, the Plan Committee
notifies the Claimant in writing that it requires an extension of not more than
sixty (60) days. Such final decision shall be communicated in writing to the
Claimant, shall be written in a manner calculated to be understood by the
Claimant, and shall include specific reasons for the decision and specific
references to the pertinent Plan provisions on which the decision is based.
25
<PAGE> 32
ARTICLE VIII
AMENDMENT, TERMINATION AND MERGER
8.1 AMENDMENT
The Plan Sponsor shall have the right at any time to amend the Plan,
including any remedial retroactive changes to comply with the requirements of
any law. No such amendment that affects the rights, duties or responsibilities
of the Plan Committee may be made without the Plan Committee's written consent.
Any such amendment shall become effective as provided therein upon its
execution.
8.2 TERMINATION
The Plan Sponsor shall have the right at any time to terminate the
Plan by delivering to the Plan Committee written notice of such termination.
All amounts credited to the affected Participants' Accounts shall become 100%
vested and shall not thereafter be subject to Forfeiture and all unallocated
amounts shall be allocated to the accounts of all Participants in accordance
with the provisions hereof. Upon termination of the Plan, the Plan Sponsor may
direct that all benefits hereunder be paid to Participants or may direct that
benefits be paid in accordance with Article V. If benefits are not distributed
as a result of the termination of the Plan, the Accounts of Participants shall
continue to be adjusted for earnings and losses as provided in Article IV until
distributed.
8.3 SUCCESSOR PLAN SPONSOR
In the event of the dissolution, merger, consolidation or
reorganization of the Plan Sponsor, provisions may be made by which the Plan
will be continued by the successor; and, in that event, such successor shall be
substituted for the Plan Sponsor under the Plan. The substitution of the
successor shall constitute an assumption of Plan liabilities by the successor
and the successor shall have all the powers, duties and responsibilities of the
Plan Sponsor under the Plan.
26
<PAGE> 33
ARTICLE IX
MISCELLANEOUS
9.1 PARTICIPANT'S RIGHTS
The Plan shall not be deemed to constitute a contract between the Plan
Sponsor and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in the Plan shall
be deemed to give any Participant or Employee the right to be retained in the
service of the Plan Sponsor or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect that
such discharge shall have upon him as a Participant of the Plan. Nothing
contained in the Plan or Trust Agreement shall be deemed to give any
Participant, Employee, or Beneficiary any right to or claim against any assets
acquired by the Trust.
Participants and Beneficiaries hereunder shall be unsecured creditors
of the Plan Sponsor.
9.2 ALIENATION
Subject to the exceptions provided below, no benefit of any person
(including a Participant or his Beneficiary) shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or
charge, and any attempt to anticipate, alienate, sell, transfer, assign,
pledge, encumber, or charge the same shall be null and void; and no such
benefit shall in any manner be liable for, or subject to, the debts, contracts,
liabilities, engagements, or torts of any such person, nor shall it be subject
to attachment or legal process for or against such person, and the same shall
not be recognized by the Trustee, except to such extent as may be required by
law.
9.3 CONSTRUCTION
(a) Controlling Law. The Plan shall be construed and enforced
according to laws of the State of Texas.
(b) Headings. Headings of Articles and Sections hereof are
included solely for convenience and if there is any conflict
between such headings and the text of the Plan, the text shall
control.
27
<PAGE> 34
(c) Number and Gender. Words used in the singular herein shall be
considered to include the plural and the plural to include the
singular. The masculine gender, when appearing in the Plan,
shall be deemed to include the feminine gender.
(d) Words of Reference. The terms "hereof," "herein," "hereby,"
and derivative or similar words refer to the entire Plan.
(e) Articles and Sections. The terms "Article" or "Section" refer
to the specified Article or Section of the Plan, unless
otherwise specified.
(f) Illegal or Invalid Provisions. In case any provision of this
Plan is held illegal or invalid for any reason, such
determination shall not affect the remaining provisions of
this Plan, and this Plan shall be construed and enforced as if
the illegal or invalid provision had never been included.
(g) Plan Control. In the event of any conflict between the
provisions of the Plan and the terms of any document,
agreement, contract or policy related to this Plan, the
provisions of the Plan shall control.
9.4 LEGAL ACTION
In the event any claim, suit or proceeding is brought regarding the
Plan established hereunder to which the Plan Committee may be a party, any and
all costs, attorney's fees and other expenses pertaining thereto shall be paid
by the Plan Sponsor, unless a trier of fact finds that the Plan Committee acted
with willful misconduct and such findings form a part of a final judgment.
The Plan, the Plan Committee and the Plan Sponsor are the necessary
parties to any action or proceeding involving the Plan or administration of the
Plan. No person employed by the Employer, no Participant, former Participant
or their Beneficiaries or any other
28
<PAGE> 35
person having or claiming to have an interest in the Plan is entitled to any
notice of process. A final judgment entered in any such action or proceeding
shall be binding and conclusive on all persons having or claiming to have an
interest in the Plan.
9.5 RECEIPT AND RELEASE FOR PAYMENTS.
Any payment to any Participant, his legal representative, Beneficiary,
Spouse, or to any guardian or committee appointed for such Participant or
Beneficiary in accordance with the provisions of the Plan, shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the Plan
Sponsor, the Employer, and the Plan Committee, any of whom may require such
Participant, legal representative, Beneficiary, guardian or committee, as a
condition precedent to such payment, to execute a receipt and release thereof
in such form as shall be determined by the Plan Sponsor, the Employer or the
Plan Committee.
Any final payment or distribution to a Participant or his legal
representative or to any Beneficiaries, or Spouse of such Participant under the
Plan provisions shall be in full satisfaction of all claims against the Plan,
the Plan Sponsor, the Plan Committee and the Employer arising under or by
virtue of the Plan.
9.6 ACTION BY THE PLAN SPONSOR EMPLOYER
Whenever the Plan Sponsor or Employer under the terms of the Plan is
permitted or required to do or perform any act or matter or thing, it shall be
done and performed by a person duly authorized by its legally constituted
authority.
9.7 PROVISIONS RELATING TO OTHER PARTIES
Any issuer or distributor of investment contracts or securities is
governed solely by the terms of its policies, written investment contract,
prospectuses, security instruments and any other written agreements entered
into with the Plan Sponsor.
Such issuer or distributor is not a party to the Plan, nor bound in
any way by the Plan provisions. Such parties shall not be required to look to
the terms of this Plan, nor to determine whether the Employer, or the Plan
Committee have the authority to act in any particular manner or to make any
contract or agreement.
29
<PAGE> 36
Until notice of any amendment or termination of this Plan has been
received by an issuer or distributor at their principal address, they are and
shall be fully protected in assuming that the Plan has not been amended or
terminated.
9.8 UNIFORMITY
All provisions of the Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner.
9.9 NO GUARANTEE OF INTERESTS
Neither the Plan Committee nor any of its members guarantees the
payment of any amounts which may be or becomes due to a Participant or
Beneficiary. The liability of the Plan Sponsor to make any such payment under
the Plan is limited to the then available assets of the Plan Sponsor.
30
<PAGE> 37
IN WITNESS WHEREOF, this Plan has been executed this 8th day of
December, 1992.
PLAN SPONSOR:
CHIEF AUTO PARTS INC.
By: /s/ THOMAS BOLGER
Name: Thomas Bolger
Title: Vice President
31
<PAGE> 38
FIRST AMENDMENT TO THE CHIEF AUTO PARTS INC. NONQUALIFIED
EXECUTIVE RETIREMENT PLAN
This First Amendment is hereby adopted, made, and entered into by
Chief Auto Parts Inc. (the "Plan Sponsor") in accordance with the terms and
provisions of the Chief Auto Parts Inc. Nonqualified Executive Retirement Plan
(the "Plan").
1. Effective January 1, 1994, Section 3.2 of Article III of the
Plan is hereby amended by amending and restating Section 3.2, which shall read
in its entirety as follows:
3.2 MATCHING CONTRIBUTIONS
The Employer may, for each Plan Year, credit the Matching
Contributions Accounts of the Participants with an amount determined
by the Board of Directors of the Employer in the sole discretion of
the Board. The Matching Contributions for the Plan Year shall be
credited to each Participant as follows:
(a) Matching Contributions. The Matching Contribution
for the Plan Year, if any, shall be credited to the
Matching Contributions Account of each Participant
eligible to share in such contribution pursuant to
Section 3.2(b) hereof by June 30 following the end of
the Plan Year, in the same proportion that such
Participant's Salary Deferral Contributions for the
Plan Year bears to the Salary Deferral Contributions
of all such Participants made to the Plan for such
Plan Year. Provided, however, that Salary Deferral
Contributions in excess of 10% of such Participant's
Compensation for the Plan Year will not be considered
for purposes of this Subsection (a).
(b) Requirements for Sharing in Matching Contributions.
The Matching Contributions shall be credited to: (1)
Participants who made Salary Deferral Contributions
during the Plan Year and who are still employed by
the Employer at the end of the Plan Year; and (2)
Inactive Participants who were Participants in the
Plan during the Plan Year, who made Salary Deferral
Contributions during the Plan Year, and who have
terminated employment with the Employer due to
retirement on or after Normal Retirement Age, death
or Disability.
2. All other terms and provisions of the Plan remain unchanged.
<PAGE> 39
IN WITNESS WHEREOF, the Plan Sponsor has caused this First
Amendment to be executed by a duly authorized officer as of December
30, 1993.
CHIEF AUTO PARTS INC.
By: /s/ DAVID H. EISENBERG
-----------------------------
President and Chief Executive
Officer
<PAGE> 1
EXHIBIT 12.1
CHIEF AUTO PARTS INC.
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Dollars in thousands
<TABLE>
<CAPTION>
Predecessor
---------------------------------
Six Months Pro forma
Years Ended Ended Year Ended
Dec. 27, Dec. 26, June 26, Dec. 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) $ 19,643 $ 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 *
======== ======== ======== ========
</TABLE>
* Earnings were insufficent to cover fixed charges and accordingly, such
ratios are not presented
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
NONE
<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
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 1,140
<SECURITIES> 0
<RECEIVABLES> 5,484
<ALLOWANCES> 300
<INVENTORY> 140,418
<CURRENT-ASSETS> 154,140
<PP&E> 109,728
<DEPRECIATION> 22,018
<TOTAL-ASSETS> 298,348
<CURRENT-LIABILITIES> 106,153
<BONDS> 62,400
0
0
<COMMON> 1
<OTHER-SE> 71,479
<TOTAL-LIABILITY-AND-EQUITY> 298,348
<SALES> 438,182
<TOTAL-REVENUES> 438,182
<CGS> 251,764
<TOTAL-COSTS> 251,764
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,203
<INCOME-PRETAX> 1,463
<INCOME-TAX> 359
<INCOME-CONTINUING> 1,104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,104
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
