<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1997
REGISTRATION NO. 333-24029
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CHIEF AUTO PARTS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C> <C>
DELAWARE
(State or other jurisdiction 5531 13-3440178
of incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code Number) Identification No.)
</TABLE>
---------------------
<TABLE>
<C> <C>
DAVID H. EISENBERG
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ONE LINCOLN CENTRE, SUITE 200 ONE LINCOLN CENTRE, SUITE 200
5400 LBJ FREEWAY 5400 LBJ FREEWAY
DALLAS, TEXAS 75240-6223 DALLAS, TEXAS 75240-6223
(972) 341-2000 (972) 341-2000
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number, including area code, of agent
principal executive offices) for service)
</TABLE>
With copies to:
<TABLE>
<C> <C>
CONOR D. REILLY, ESQUIRE JAMES J. CLARK, ESQUIRE
GIBSON, DUNN & CRUTCHER LLP CAHILL GORDON & REINDEL
200 PARK AVENUE 80 PINE STREET
NEW YORK, NEW YORK 10166-0193 NEW YORK, NEW YORK 10005
(212) 351-4000 (212) 701-3000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practical after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
==================================================================================================================
PROPOSED
MAXIMUM PROPOSED
AGGREGATE MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT PRICE FEE(1)
- ------------------------------------------------------------------------------------------------------------------
% Senior Notes Due 2005........ $130,000,000 100% $130,000,000 $39,394
==================================================================================================================
</TABLE>
(1) Of the $39,394 registration fee, $1,515 was paid upon this filing and
$37,879 was paid upon the original filing of this Registration Statement on
March 27, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to change, completion or amendment.
A registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This Prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of such State.
SUBJECT TO COMPLETION, DATED MAY 22, 1997
<TABLE>
<C> <C> <C>
$130,000,000
[CHIEF AUTO PARTS LOGO] CHIEF AUTO PARTS INC.
% Senior Notes Due 2005
</TABLE>
Interest Payable and Due , 2005
------------------
The % Senior Notes Due 2005 (the "Notes") of Chief Auto Parts Inc. (the
"Company") being offered pursuant to this Prospectus (the "Offering") will
mature on , 2005. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after , 2001 at the
redemption prices set forth herein plus accrued interest, if any, to the date of
redemption. In addition, up to an aggregate of 36% of the principal amount of
the Notes may be redeemed from time to time prior to , 2000 at the
redemption price set forth herein plus accrued interest, if any, to the date of
redemption with the net proceeds of one or more Public Equity Offerings (as
defined), provided that at least 64% of the original principal amount of the
Notes remains outstanding after each such redemption. Upon a Change of Control
(as defined), each holder of Notes may require the Company to repurchase such
Notes at 101% of the principal amount thereof plus accrued interest, if any, to
the date of repurchase.
The Notes will be unsecured senior obligations of the Company and will rank pari
passu with all existing and future unsecured senior indebtedness of the Company
and senior to any subordinated indebtedness of the Company. As of March 30,
1997, after giving pro forma effect to the Recapitalization (as defined) as if
it had occurred on such date, the aggregate amount of secured indebtedness of
the Company, to which the Notes would be effectively subordinated, would have
been $9.2 million and the Company would have had $74.7 outstanding indebtedness
ranking pari passu with the Notes (consisting of trade accounts payable).
Contemporaneously with the consummation of the Offering, the Company will effect
the Recapitalization, including entering into a credit facility (the "New Credit
Facility") with a group of banks providing for up to $100.0 million of revolving
credit loans and paying an aggregate of approximately $79.0 million to
controlling stockholders and management of the Company, a portion of which will
be a partial return of capital and a portion of which will be used by management
to fund option exercises and to pay for prior purchases of the Company's Common
Stock. The Offering is conditioned upon the concurrent consummation of each of
the other elements of the Recapitalization. See "Description of the Notes,"
"Description of New Credit Facility," "The Recapitalization," "Use of Proceeds"
and "Benefits to Related Parties."
There is no established trading market for the Notes, and the Company does not
intend to apply for listing of the Notes on any securities exchange or for
quotation on the Nasdaq National Market.
Settlement of the Notes will be made in immediately available funds. The Notes
will trade in the Same-Day Funds Settlement System of The Depository Trust
Company (the "Depositary"), and, to the extent that secondary market trading
activity in the Notes is effected through the facilities of the Depositary, such
trades will be settled in immediately available funds. All payments of principal
and interest will be made by the Company in immediately available funds.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE 9.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE COMPANY(3)
--------- -------------- --------------
<S> <C> <C> <C>
Per Note................... % % %
Total...................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deduction of expenses payable by the Company estimated at $670,000.
------------------
The Notes are offered by the Underwriters when, as and if issued by the Company,
delivered to and accepted by the Underwriters, and subject to their right to
reject orders, in whole or in part. It is expected that delivery of the Notes,
in book-entry form through the facilities of the Depositary, will be made on or
about , 1997, against payment in immediately available funds.
------------------
CREDIT SUISSE FIRST BOSTON SALOMON BROTHERS INC
------------------
Prospectus dated , 1997.
<PAGE> 3
[ARTWORK]
Photograph of Chief Auto Parts store; map of states where Chief stores are
located; text: "Chief Auto Parts -- Dedicated to Quality Products and Service.
547 Stores and Growing."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
i
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. As used
herein and except as the context otherwise may require, the "Company" or "Chief"
means Chief Auto Parts Inc. and references to a certain fiscal year of the
Company mean the fiscal year ended on the last Sunday of that calendar year
(e.g., fiscal 1996 means the fiscal year ended December 29, 1996). This
Prospectus contains, in addition to historical information, forward-looking
statements that include risks and other uncertainties. The Company's actual
results may differ materially from those anticipated in these forward-looking
statements. Factors that might cause such a difference include those discussed
under "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as general economic
and business conditions, competition and other factors discussed elsewhere in
this Prospectus. The Company undertakes no obligation to release publicly any
revisions to these forward-looking statements that may reflect events or
circumstances after the date hereof or the occurrence of anticipated or
unanticipated events.
THE COMPANY
Chief is one of the nation's largest auto parts and accessories retail
chains, both in number of stores and annual revenue, with 547 retail stores as
of March 30, 1997 located in six states, primarily concentrated in Southern
California and Texas. The Company's research indicates that it 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 in note (f) to
the Summary Financial and Other Data table) 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, although net income decreased by approximately
88.4% from fiscal 1995 to 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 through the merger of a shell corporation with the Company.
Pursuant to a subadvisory agreement, Oaktree Capital Management LLC ("Oaktree")
manages The Principal Fund. The acquisition significantly deleveraged the
Company, providing it with access to growth capital and allowing management to
focus on operational improvements and growth. The support and flexibility
afforded by this change in Chief's capital structure enabled management to
reposition the Company from a chain of smaller automotive parts convenience
stores to a full-line auto parts and accessories chain. Since June 1994, the
Company has invested approximately $45.1 million in total capital expenditures
in connection with its program to reposition Chief in the automotive aftermarket
marketplace and has doubled the average number of SKUs in its stores. During
this period, the Company remodeled 292 of its stores, opened 99 new stores,
relocated 19 stores to larger, more favorable locations averaging 5,390 square
feet (an increase from approximately 2,740 square feet for such stores prior to
relocation), closed 45 small or underperforming stores and introduced Chief's
commercial sales program into 32 existing stores (as of April 30, 1997, 16 of
which were opened in the last 60 days). The Company has substantially completed
its program of repositioning Chief as a full-line auto parts and accessories
chain.
<PAGE> 5
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 (as defined in note (g) to the Summary Financial and Other
Data table) from 37.9% and 6.3%, respectively, in fiscal 1994 to 42.5% and 7.6%,
respectively, in fiscal 1996.
Management believes that the automotive aftermarket parts industry is
growing as a result of: (i) increases in the size and age of the country's
automotive fleet; (ii) increases in the number of miles driven annually per
vehicle; (iii) the higher cost of new cars as compared to historical costs; (iv)
the higher cost of replacement parts as a result of technological changes in
recent models of vehicles; and (v) the increasing labor costs associated with
parts, installation and maintenance. Management further believes that the retail
auto parts industry displays certain recession-resistant characteristics
resulting from a shift from professional repairs to DIY repairs during economic
downturns and sales increases in automobile enhancement products during better
economic conditions.
OPERATING STRENGTHS AND BUSINESS STRATEGIES
Chief attributes its present success and significant opportunities for
continued growth to the following operating strengths and business strategies:
- Leading position in favorable markets. The Company's research indicates
that it is a market leader based on number of stores in its six primary
markets -- Los Angeles, Dallas/Fort Worth, Sacramento, San Diego, Las
Vegas and Fresno -- with more than twice as many stores as its nearest
competitor in the Los Angeles market. California and Texas are the two
largest states in the country in terms of vehicle registration and
population, and both have climates suited for year-round outdoor auto
repair activities. The Company has achieved a high level of name
recognition with its customers in these markets as a result of
consistently providing high quality products and customer service.
- Investments in store relocation, expansion and remodeling. Chief has
focused on relocating and expanding existing stores to larger locations
with more customer-friendly layouts and identifying desirable locations
for opening new stores, primarily in existing markets. The Company also
significantly redesigned its store layout and remodeled 292 of its stores
from June 1994 through March 1997. Seventy-four percent of the Company's
existing store base is either new or has been remodeled since June 1994.
Chief plans to open 40 new stores, to relocate or expand at least 25
stores and to complete 80 remodels in 1997 at an aggregate estimated cost
of $11.1 million. The Company plans to remodel 15 stores each year for
the four year period beginning January 1, 1998 at an estimated total cost
of $10.7 million. The Company expects to finance such activity with a
combination of funds generated from operations and borrowings under the
New Credit Facility.
- Enhancement of management information systems. Management has adopted a
strategy of enhancing Chief's customer service, productivity, inventory
and merchandising management through the implementation of new and
improved technology-based systems, including (i) the integration of its
point-of-sale system and electronic parts catalog, (ii) the introduction
and continued roll-out of perpetual inventory systems in its stores and
(iii) the installation of portable, hand-held radio frequency computer
devices to automate price management, receiving, shipping and ordering
functions in each store and distribution center and to facilitate the
management of the perpetual inventory system. Management believes these
systems should contribute to improved profitability.
- Commercial sales program. The Company recently initiated its commercial
sales program, marketed towards the commercial segment of the automotive
aftermarket industry, which the Company believes constitutes
approximately $40-$45 billion of the total estimated $75 billion annual
sales for the automotive aftermarket industry. In stores with commercial
sales capabilities, Chief offers commercial customers over 20,000 SKUs
delivered within 30 minutes from time of order. As of April 30, 1997, the
Company has introduced commercial sales capabilities into 32 of its
existing stores, 16 of which were opened within the last 60 days at an
estimated cost of $500,000. Chief believes that a successful
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<PAGE> 6
commercial sales program will complement the Company's existing retail
business. The Company will evaluate the performance of its existing
commercial sales program before planning any expansion of the program
into additional stores.
- 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.
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......... $130,000,000 aggregate principal amount of %
Senior Notes due 2005 of the Company.
Maturity Date.............. , 2005.
Interest Payment Dates..... and of each year, commencing
, 1997.
Optional Redemption........ The Notes may be redeemed at the option of the
Company, in whole or in part, at any time on or
after , 2001 at the redemption prices
set forth herein, plus accrued interest, if any, to
the date of redemption. Up to an aggregate of 36%
of the principal amount of the Notes may be
redeemed from time to time prior to ,
2000 at the option of the Company at the redemption
prices set forth herein plus accrued interest, if
any, to the date of redemption, with the net cash
proceeds of one or more Public Equity Offerings
provided that at least 64% of the original
aggregate principal amount of the Notes remains
outstanding immediately after each such redemption.
See "Description of the Notes -- Optional
Redemption."
Change of Control.......... Upon a Change of Control, each holder of Notes may
require the Company to make an offer to repurchase
such holder's outstanding Notes at a price equal to
101% of the principal amount thereof plus accrued
interest, if any, to the date of repurchase. The
New Credit Facility will prohibit the purchase of
Notes by the Company in the event of a Change of
Control unless and until any indebtedness under the
New Credit Facility is paid in full. The Company's
failure to purchase the Notes would result in a
default under the Indenture. The remedy available
to holders of the Notes in the event of a default
under the Indenture is the acceleration of
indebtedness under the Indenture. If the Company
should fail to pay amounts due upon acceleration of
the Notes, the holders of the Notes would be
entitled to seek legal or equitable remedies
against the Company. A default or
3
<PAGE> 7
acceleration of Indebtedness under the Indenture
would result in a default under and could result in
an acceleration of amounts due under the New Credit
Facility. The restrictions which the New Credit
Facility places on the Company's ability to
repurchase the Notes do not affect the ability of
the holders of the Notes to cause the acceleration
of the Notes if the Company defaults in its
obligations under the Indenture or their ability to
seek legal or equitable remedies against the
Company if the Company is unable to pay such
accelerated amounts. A Change of Control has the
same definition in the Indenture and the New Credit
Facility, and therefore, a Change of Control which
would trigger a default under the New Credit
Facility would trigger the Company's repurchase
obligations under the Indenture. The failure of the
Company to pay any other Indebtedness which exceeds
$10.0 million will also cause a default under the
Indenture. The Change of Control provisions of the
Indenture may be amended with the consent of the
holders of a majority in principal amount of the
Notes then outstanding. The Company may not be able
to fund the repurchase of all the Notes in the
event of a Change of Control. See "Risk Factors --
Change of Control," "Description of the
Notes -- Change of Control," "-- Certain Covenants"
and "-- Defaults."
Ranking.................... The Notes will be unsecured senior obligations of
the Company and will rank pari passu in right of
payment with all existing and future senior
unsecured indebtedness of the Company, if any, and
will rank senior in right of payment to any
subordinated indebtedness of the Company. As of
March 30, 1997, after giving pro forma effect to
the Recapitalization as if it had occurred on such
date, the aggregate amount of the Company's
outstanding secured indebtedness, to which the
Notes would be effectively subordinated, would have
been approximately $9.2 million and the Company
would have had $74.7 million of outstanding
indebtedness ranking pari passu with the Notes
(consisting of trade accounts payable). In
connection with the Recapitalization, the Company
will enter into the New Credit Facility, which will
mature on May , 2002. See "Description of the
Notes -- Ranking."
Restrictive Covenants...... The indenture under which the Notes will be issued
(the "Indenture") will contain certain covenants
that, among other things, will limit the ability of
the Company and/or its Restricted Subsidiaries (as
defined) to (i) incur additional indebtedness, (ii)
pay dividends or make certain other restricted
payments, (iii) make investments, (iv) enter into
transactions with affiliates, (v) make certain
asset dispositions and (vi) merge or consolidate
with, or transfer substantially all of its assets
to, another person. The Indenture also will limit
the ability of the Company's Restricted
Subsidiaries to issue Capital Stock (as defined)
and to create restrictions on the ability of such
Restricted Subsidiaries to pay dividends or make
any other distributions. In addition, the Company
will be obligated to offer to repurchase Notes at a
purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase, with the net
cash proceeds of certain sales or other
dispositions of assets only to the extent that an
excess of cash is available after application of
such net cash proceeds pursuant to the terms of the
Indenture. However, all of these limitations and
prohibitions are subject to a number of important
qualifications. A default under certain of the
Company's other financial obligations could result
in a default under the Indenture. See "Description
of the Notes -- Certain Covenants" and
"-- Defaults."
4
<PAGE> 8
Limitation on Liability.... No director, officer, employee, incorporator,
controlling person or stockholder of the Company,
as such, shall have any liability for any
obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of,
or by reason of, such obligations or their
creation. Each holder of Notes by accepting a Note
waives and releases all such liability. The waiver
may not be effective to waive liabilities under the
federal securities laws and it is the view of the
Commission (as defined) that such waiver is against
public policy.
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 $125.4 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," "Benefits
to Related Parties," "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 $125.4 million (after deduction of discounts to the Underwriters
and other expenses). The Company intends to use the aggregate net proceeds from
the Recapitalization (i) to repay all outstanding indebtedness (approximately
$65.0 million) under its existing credit facility (the "Existing Credit
Facility"), (ii) to pay certain employees of the Company an aggregate of $4.0
million for previously accrued employee incentive compensation and (iii) to
distribute approximately $75.0 million to the stockholders of the Company
(consisting of approximately $64.2 million to The Principal Fund and its
affiliates and $10.8 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," "Use of Proceeds" and "Benefits to Related Parties."
BENEFITS TO RELATED PARTIES
The Principal Fund, its affiliates and certain management stockholders will
receive an aggregate of $75.0 million in the Recapitalization. Approximately
$6.9 million of such $75.0 million will be used by management stockholders to
exercise their outstanding options to purchase 4,839.97 shares of the Common
Stock of the Company. Approximately $910,000 of such $75.0 million will be used
by management stockholders to repay a portion of amounts owed the Company under
certain promissory notes. Approximately $64.2 million and approximately $3.0
million will be distributed to The Principal Fund and to management
stockholders, respectively, as a partial return of such stockholders' investment
in Chief. These payments are the first dividend or return of investment that the
stockholders have received since the time of The Principal Fund's investment in
the Company in June 1994. The Principal Fund's investment significantly
deleveraged the Company at a time when management needed a flexible capital
structure in order to implement its plan to reposition Chief as a full-line auto
parts and accessories chain. Because the Company has substantially completed its
program of repositioning Chief, the Company has decided to provide its
stockholders with a partial return of their initial investment in Chief.
RISK FACTORS
Prospective purchasers of the Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, the information set
forth under "Risk Factors" before making an investment in the Notes.
5
<PAGE> 9
SUMMARY FINANCIAL AND OTHER DATA
The following summary financial and other data have been derived from, and
should be read in conjunction with, the Financial Statements and related notes
thereto included elsewhere in this Prospectus. The Company's fiscal year is the
52- or 53-week period ending on the last Sunday in December. All fiscal years
presented are 52 weeks, except fiscal 1995, which is 53 weeks. In addition, the
Company was a party to a merger effective June 27, 1994 (the "Merger") which was
accounted for using the purchase method. The results of operations subsequent to
the Merger are not comparable to the results prior to the Merger due to certain
purchase accounting adjustments. See "Selected Financial and Other Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
PREDECESSOR(A) SUCCESSOR(A)
---------------------------------------- ------------------------------------------
YEARS ENDED SIX MONTHS SIX MONTHS YEARS ENDED
--------------------------- ENDED ENDED ---------------------------
DECEMBER 27, DECEMBER 26, JUNE 26, DECEMBER 25, DECEMBER 31, DECEMBER 29,
1992 1993 1994 1994 1995 1996
------------ ------------ ---------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<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
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
Operating income
(loss)(b)(c)............ (22,590) 11,427 8,566 (5,032) 21,193 7,732
Net income (loss)(b)(c)... (32,220) 226 1,417 (8,098) 9,479 1,104
<CAPTION>
SUCCESSOR(A)
---------------------
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 30,
1996 1997
--------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................. $102,260 $109,854
Gross profit(b)........... 43,681 46,573
Selling, general and
administrative
expenses(c)............. 36,485 41,017
Operating income
(loss)(b)(c)............ 4,530 2,305
Net income (loss)(b)(c)... 1,672 170
</TABLE>
<TABLE>
<CAPTION>
MARCH 30, 1997
-----------------------
ACTUAL ADJUSTED(D)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................... $ 1,138 $ 1,138
Working capital............................................. 47,843 48,245
Total assets................................................ 299,472 303,103
Total debt, including current maturities(e)................. 81,622 157,808
Stockholders' equity........................................ 71,650 3,492
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR(A) SUCCESSOR(A)
---------------------------------------- ------------------------------------------
YEARS ENDED SIX MONTHS SIX MONTHS YEARS ENDED
--------------------------- ENDED ENDED ---------------------------
DECEMBER 27, DECEMBER 26, JUNE 26, DECEMBER 25, DECEMBER 31, DECEMBER 29,
1992 1993 1994 1994 1995 1996
------------ ------------ ---------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER STORE SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(f)................. $ (1,407) $ 20,133 $12,233 $ 12,869 $ 31,385 $ 33,288
EBITDA margin(g).......... (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(h).............. (h) 1.0x 1.3x (h) 2.0x 1.1x
SELECTED ADDITIONAL
OPERATING DATA:
Average net sales per
store(i)................ $ 727 $ 759 $ 397 $ 413 $ 845 $ 824
Average net sales per
store square foot(i).... 220 229 118 121 242 223
Percentage change in
comparable store net
sales(j)................ 4.5% 1.8% 6.0% 3.9% 1.8% (2.6)%
PRO FORMA DATA:
Interest expense, net
(historical)............ $ 6,203
Interest expense, net..... 17,723
Cash interest
expense(k).............. 16,752
Ratio of total debt to
EBITDA(e)(l)............ 4.8x
Ratio of EBITDA to cash
interest
expense(k)(l)........... 2.0x
Ratio of earnings to fixed
charges(h).............. (h)
<CAPTION>
SUCCESSOR(A)
---------------------
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 30,
1996 1997
--------- ---------
<S> <C> <C>
OTHER DATA:
EBITDA(f)................. $ 7,131 $ 5,546
EBITDA margin(g).......... 7.0% 5.0%
Gross margin.............. 42.7% 42.4%
Capital expenditures...... $ 4,398 $ 3,536
Ratio of earnings to fixed
charges(h).............. 1.8x 1.1x
SELECTED ADDITIONAL
OPERATING DATA:
Average net sales per
store(i)................ $ 195 $ 201
Average net sales per
store square foot(i).... 54 52
Percentage change in
comparable store net
sales(j)................ (2.7)% 2.0%
PRO FORMA DATA:
Interest expense, net
(historical)............ $ 1,784
Interest expense, net..... 4,567
Cash interest
expense(k).............. 4,324
Ratio of total debt to
EBITDA(e)(l)............ (m)
Ratio of EBITDA to cash
interest
expense(k)(l)........... 1.3x
Ratio of earnings to fixed
charges(h).............. (h)
</TABLE>
6
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED STORE DATA:
Beginning stores.......... 526 495 492 493 495 520 520 544
New stores................ 2 14 9 9 34 51 12 5
Relocated stores.......... 2 1 4 2 3 12 2 2
Closed stores (including
relocated stores)....... (35) (18) (12) (9) (12) (39) (4) (4)
--------- --------- --------- --------- --------- --------- --------- ---------
Ending stores........... 495 492 493 495 520 544 530 547
========= ========= ========= ========= ========= ========= ========= =========
Remodeled stores.......... 25 29 13 25 90 159 91 18
Average square footage per
store(i)................ 3,312 3,321 3,362 3,408 3,489 3,695 3,589 3,853
Total square footage at
period end (in
thousands)(i)........... 1,639 1,639 1,673 1,694 1,848 2,084 1,921 2,120
</TABLE>
- ---------------
(a) "Successor" refers to Chief Auto Parts Inc. subsequent to the Merger.
"Predecessor" refers to Chief Auto Parts Inc. prior to the Merger. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Pro Forma 1994 Information" for further information regarding
the Merger.
(b) Year ended December 27, 1992 includes a $6.7 million non-cash provision
related to discontinued inventory. Six months ended December 25, 1994
includes a $12.9 million Merger-related inventory charge.
(c) Year ended December 27, 1992 includes a $7.5 million non-cash provision
primarily related to the Company's exit from the Nashville and Phoenix
markets and a $3.5 million non-cash provision related to various insurance
reserves. Year ended December 29, 1996 includes a $14.0 million non-cash
provision for (i) store closings primarily related to the Company's exit
from the Little Rock market and (ii) legal reserves.
(d) The adjusted balance sheet data as of March 30, 1997 give effect to the
Recapitalization as if it had occurred on March 30, 1997.
(e) Total debt comprises long-term borrowings and capital leases.
(f) EBITDA represents income (loss) before interest expense (net), income
taxes, depreciation and amortization and, (i) in year ended December 27,
1992, excludes a $7.5 million non-cash provision primarily related to the
Company's exit from the Nashville and Phoenix markets, (ii) in six months
ended December 25, 1994, excludes a $12.9 million Merger-related inventory
charge, (iii) in year ended December 29, 1996, excludes a $14.0 million
non-cash provision for (A) store closings primarily related to the
Company's exit from the Little Rock market and (B) legal reserves and (iv)
in the three months ended March 30, 1997 includes $1.9 million of expenses
related to the launch of "The All New Chief" campaign in the Los Angeles,
California market (excluding such expenses, EBITDA for such period would
have been $7.4 million). EBITDA is used by the Company for the purpose of
analyzing operating performance, leverage and liquidity. EBITDA is not a
measure of financial performance under generally accepted accounting
principles and should not be considered as an alternative to net income as
an indicator of the Company's operating performance or as an alternative to
cash flows as a measure of liquidity.
(g) EBITDA margin represents EBITDA as a percentage of net sales. EBITDA margin
for the three months ended March 30, 1997 includes $1.9 million of expenses
related to the launch of "The All New Chief" campaign in the Los Angeles,
California market. Excluding such expenses, EBITDA margin for such period
would have been 6.7%.
(h) The ratio of earnings to fixed charges is computed by aggregating income
before income taxes and fixed charges and dividing the total by fixed
charges. Fixed charges comprise interest on all indebtedness including
capital leases and amortization of debt expense, and one-third of rental
expense (being that portion of rental expense representative of an interest
factor). During the year ended December 27, 1992 and the six months ended
December 25, 1994, earnings were insufficient to cover fixed charges by
$32.7 million and $7.6 million, respectively, and accordingly such ratios
are not presented. The pro forma ratio of earnings to fixed charges gives
effect to the Recapitalization as if it had occurred on January 1, 1996. On
a pro forma basis, during the year ended December 29, 1996, earnings were
insufficient to cover fixed charges by $10.2 million, and accordingly such
ratio is not presented. On a pro forma basis, during the three months ended
March 30, 1997, earnings were insufficient to cover fixed charges by $2.3
million, and accordingly such ratio is not presented.
(i) Average net sales per store, average square footage per store and average
net sales per store square foot are based on the average of the beginning
and ending number of stores and store square footage, and are not weighted
to take into consideration the actual dates of store openings, closings or
expansions. Total square footage at period end is based on the Company's
actual store formats and includes normal selling, office, stockroom and
receiving space.
(j) The percentage change in comparable store net sales is calculated as the
net change in sales for each comparable store for the equivalent period in
the prior year. Comparable stores are stores that have been operating for
more than 12 months since first opening. During the 13th month of
operations, new stores are considered comparable stores. Stores which have
been relocated are treated as comparable stores. Closed stores are not
categorized as comparable stores.
(k) Pro forma cash interest expense for the year ended December 29, 1996 and the
three months ended March 30, 1997 is pro forma interest expense, excluding
amortization of deferred financing costs, and gives effect to the
Recapitalization as if it had occurred on January 1, 1996 and December 30,
1996, respectively, assuming an interest rate on the Notes of 10.5% and a
composite interest rate of 7.5% on the New Credit Facility. No interest
income has been assumed on average excess cash invested of approximately
$5.2 million during year ended December 29, 1996.
7
<PAGE> 11
(l) Ratios concerning EBITDA are included as they are generally recognized as
providing useful information regarding a company's ability to service
and/or incur debt. Such ratios are also relevant for covenant analysis
under the Indenture.
(m) This ratio is not presented for the three months ended March 30, 1997
because the Company believes the ratio of total debt to EBITDA, in which
total debt is compared to quarterly EBITDA, is not an accurate or meaningful
representation of full year results.
8
<PAGE> 12
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the following
risk factors, as well as the other information set forth elsewhere in this
Prospectus. This Prospectus contains, in addition to historical information,
forward-looking statements that include risks and other uncertainties. The
Company's actual results may differ materially from those anticipated in these
forward-looking statements. Factors that might cause such a difference include
those discussed below, as well as general economic and business conditions,
competition and other factors discussed elsewhere in this Prospectus.
LITIGATION
The Company is the defendant in two lawsuits alleging that the Company
failed to pay store managers and associate store managers in California for
overtime compensation as required by California law. On September 21, 1993, a
lawsuit was filed in the Superior Court of California, County of Alameda by
Stephen Cooper, a manager, on his own behalf and on behalf of all persons
similarly situated. Mr. Cooper is alleging that the Company's store managers and
associate store managers in California are not exempt employees under California
law, and that the Company failed to compensate its store managers and associate
store managers for overtime compensation as required by California law. In
December 1994, the court denied class certification to Mr. Cooper. However,
since the date this lawsuit was filed, approximately 242 current and former
employees have joined Mr. Cooper's lawsuit. In addition to the claims filed in
Alameda County, 15 current and former employees filed a lawsuit based on the
same claims against the Company on March 5, 1996 in the Superior Court of
California, County of San Joaquin. The Company is vigorously defending against
the claims of all plaintiffs.
In September 1996, at the recommendation of the Alameda court, the parties
submitted to binding arbitration with respect to eight of the Cooper plaintiffs.
On March 10, 1997, the arbitrator ruled in favor of the eight plaintiffs
involved in the arbitration with respect to liability, finding that these eight
plaintiffs are entitled to (i) compensation for the overtime hours they worked,
(ii) an additional amount equal to 30 days' compensation (in the case of the
seven plaintiffs no longer employed by the Company) as waiting time penalties
for the Company's "willful" failure to pay overtime compensation, (iii) interest
on such unpaid compensation and (iv) reasonable attorneys' fees and costs of
arbitration. The arbitrator has not yet made any determination with respect to
calculation of damages. This arbitration decision has no binding precedential or
stare decisis effect on the remaining 235 plaintiffs' cases. However, regardless
of the outcome of the damage phase of the arbitration, the Company may have to
litigate, arbitrate or settle the remaining cases and may incur significant
legal expenses in connection therewith, and the Company could be subject to
significant compensatory damages or settlement costs. In addition, there are
approximately 700 store managers and associate store managers previously or
currently employed by the Company in California who have not brought or joined
in the suit against the Company as of the date hereof. Following the Alameda
court's denial of class certification to the plaintiffs, the court required the
Company to send notice in October 1995 to all potential plaintiffs (current and
former managers as of that date) notifying them of this action and providing
them the opportunity to contact the plaintiffs' attorney. The Company is
currently conducting settlement discussions with the 243 plaintiffs. Management
is unable to predict the outcome of the damage phase of the arbitration, the
remaining lawsuits or the settlement discussions, or the probability of
additional lawsuits, at this time. However, if a significant number of
plaintiffs were to prevail on all elements of their claims against the Company
or if a significant number of additional current or former managers were to
bring suit and prevail as noted above, it could have a material adverse effect
on the Company. See "Business -- Legal Proceedings."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
In connection with the Offering, the Company will incur a significant
amount of indebtedness. As a result, following the completion of the Offering,
the Company will be highly leveraged and will have substantial repayment
obligations, as well as significantly increased interest expense. As of March
30, 1997, after giving effect to the Recapitalization as if it had occurred on
such date, the Company's total indebtedness would have been approximately $157.8
million. In addition, subject to the restrictions in the New Credit Facility and
the Indenture, the Company may incur additional indebtedness from time to time
to finance acquisitions or capital expenditures or for other purposes.
9
<PAGE> 13
The Company's ability to make scheduled payments of principal or interest
on, or to refinance, its indebtedness will depend on future operating
performance and cash flow, which are subject to prevailing economic conditions,
prevailing interest rate levels and financial, competitive, business and other
factors beyond its control. The degree to which the Company is leveraged could
have important consequences to holders of the Notes, including the following:
(i) the Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of interest on the Notes and interest on its
other existing indebtedness, thereby reducing the funds available to the Company
for other purposes; (iii) the agreements governing the Company's long-term
indebtedness contain certain restrictive financial and operating covenants; (iv)
all of the indebtedness under the New Credit Facility will be at variable rates
of interest, ranging from 0.5% to 1.0% above the Base Rate (as defined on page
48) or, at the Company's option, from 1.5% to 2.5% above the Eurodollar Rate (as
defined on page 48), which would cause the Company to be vulnerable to increases
in interest rates; (v) all of the indebtedness outstanding under the New Credit
Facility will be secured by all inventory and accounts receivable of the Company
and will become due prior to the time the principal on the Notes will become
due; (vi) the Company is substantially more leveraged than certain of its
competitors, which might place the Company at a competitive disadvantage; (vii)
the Company may be hindered in its ability to adjust rapidly to changing market
conditions; (viii) the Company's substantial degree of leverage may negatively
affect certain vendors' willingness to give the Company favorable payment terms;
and (ix) the Company's substantial degree of leverage could make it more
vulnerable in the event of a downturn in general economic conditions or in its
business. See "Description of New Credit Facility."
The Company believes that, based upon anticipated levels of operations, it
should be able to meet its debt service obligations, including interest payments
on the Notes, when due. If, however, the Company cannot generate sufficient cash
flow from operations to meet its obligations, the Company might be required to
refinance its debt or to dispose of assets to obtain funds for such purpose.
There is no assurance that refinancings or asset dispositions could be effected
on satisfactory terms, if at all, or would be permitted by the terms of the New
Credit Facility or the Indenture pursuant to which the Notes will be issued. In
the event that the Company is unable to refinance the New Credit Facility or
raise funds through asset sales, sales of equity or otherwise, its ability to
pay principal of and interest on the Notes would be adversely affected. Pro
forma for the Recapitalization as if it had occurred on January 1, 1996,
earnings were insufficient to cover fixed charges during the year ended December
29, 1996 by $10.2 million and during the three months ended March 30, 1997 by
$2.3 million.
RANKING
The Indenture permits the Company to incur additional senior indebtedness,
provided certain financial or other conditions are met. The Notes will be senior
unsecured obligations and will rank pari passu in right of payment with all
existing and future senior unsecured indebtedness. As of March 30, 1997, after
giving pro forma effect to the Recapitalization as if it had occurred on such
date, the aggregate amount of secured indebtedness of the Company, to which the
Notes would be effectively subordinated, would have been $9.2 million and the
Company would have had $74.7 million of outstanding indebtedness ranking pari
passu with the Notes, (consisting of trade accounts payable). Holders of
existing or future secured indebtedness of the Company permitted under the
Indenture, including the New Credit Facility, will have claims with respect to
the assets constituting collateral that are prior to the claims of holders of
the Notes. See "Description of the Notes -- Ranking."
RESTRICTIVE LOAN COVENANTS
The New Credit Facility will include certain covenants that, among other
things, restrict: (i) the making of investments, loans and advances and the
paying of dividends and other restricted payments; (ii) the incurrence of
additional indebtedness; (iii) the granting of liens, other than liens created
pursuant to the New Credit Facility and certain permitted liens; (iv)
consolidations and sales of all or a substantial part of the Company's business
or property; and (v) the sale of assets. The New Credit Facility will also
require the Company to maintain certain financial ratios including: (a) minimum
EBITDA (as defined in the New Credit Facility) of $22.5 million in each of 1997
and 1998, $25.5 million in each of 1999 and 2000 and $28.0 million in 2001; and
(b) under certain
10
<PAGE> 14
circumstances, a minimum fixed charge coverage ratio. All of these restrictive
covenants may restrict the Company's ability to expand or to pursue its business
strategies. The ability of the Company to comply with these and other provisions
of the New Credit Facility may be affected by changes in economic or business
conditions, results of operations or other events beyond the Company's control.
The breach of any of these covenants could result in a default under the New
Credit Facility, in which case, depending on the actions taken by the lenders
thereunder or their successors or assignees, such lenders could elect to declare
all amounts borrowed under the New Credit Facility, together with accrued
interest, to be due and payable, and the Company could be prohibited from making
payments of interest and principal on the Notes until the default is cured or
all such indebtedness is paid or satisfied in full. If the Company were unable
to repay such borrowings, such lenders could proceed against the collateral
granted to them to secure that indebtedness, which indebtedness will be secured
by liens on substantially all the inventory and accounts receivable of the
Company. In addition, the New Credit Facility contains certain events of default
which are substantially similar to the events of default under the Indenture
except as follows: (i) the Company's failure to pay other indebtedness or
judgments entered against the Company will trigger a cross-default under the New
Credit Facility at lower dollar amounts than in the Indenture; (ii) the creation
of liens on or failure of any security interest in collateral securing the New
Credit Facility will trigger a default under the New Credit Facility; (iii) the
insolvency or dissolution of the Company will trigger a default under the New
Credit Facility; (iv) a Change of Control that triggers the Company's repurchase
obligations under the Indenture will trigger a default under the New Credit
Facility; and (v) the occurrence of certain events (such as damage or loss of
property, labor strikes or acts of God) causing a material adverse change in the
Company's business could trigger a default under the New Credit Facility. If the
indebtedness under the New Credit Facility were to be accelerated, there can be
no assurance that the assets of the Company would be sufficient to repay in full
such indebtedness and the other indebtedness of the Company, including the
Notes. See "Description of New Credit Facility" and "Description of the
Notes -- Ranking." The Company anticipates that a combination of funds generated
from operations and significant additional borrowings under the New Credit
Facility will be required to finance the planned program of upgrading Chief's
store network by opening new stores and relocating or expanding certain existing
stores. The Company is unable at this time to determine the dollar amount to be
borrowed under the New Credit Facility for such purposes. If for any reason the
Company were unable to satisfy the conditions to borrowing under the New Credit
Facility and to make additional borrowings thereunder, the Company would not
have sufficient funds to continue such upgrade of the store network and to meet
its other payment obligations. See "-- Ability to Continue Company Growth."
CONCENTRATION OF OWNERSHIP
Following the Recapitalization, The Principal Fund and its affiliates, TCW
Special Credits Fund IV, TCW Special Credits Plus Fund, TCW Special Credits
Trust IV and TCW Special Credits Trust IVA, all of which are affiliates of The
TCW Group, Inc., will control the power to vote approximately 86.2% of the
outstanding Common Stock of the Company. Accordingly, The Principal Fund and its
affiliates are entitled to elect all directors of the Company, approve all
amendments to the Company's Certificate of Incorporation and effect fundamental
corporate transactions such as mergers and asset sales. See "Principal
Stockholders."
CHANGE OF CONTROL
A Change of Control could require the Company to refinance substantial
amounts of indebtedness. Upon the occurrence of a Change of Control, the holders
of the Notes would be entitled to require the Company to purchase the Notes at a
purchase price equal to 101% of the principal amount of such Notes, plus accrued
and unpaid interest, if any, to the date of repurchase. However, the New Credit
Facility will prohibit the purchase of the Notes by the Company in the event of
a Change of Control, unless and until such time as the indebtedness under the
New Credit Facility is repaid in full. The Company's failure to purchase the
Notes would result in a default under the Indenture and the New Credit Facility
which could permit the trustee under the Indenture, the holders of at least 25%
in principal amount of the outstanding Notes or the lenders under the New Credit
Facility to declare the principal and accrued but unpaid interest to be due and
payable. The inability to repay the indebtedness under the New Credit Facility,
if accelerated, would also constitute an event of default under the Indenture,
which could have adverse consequences to the Company and the holders of the
Notes because such a default could cause an acceleration of the indebtedness
under the Indenture. In the event of a Change of Control, there can be no
assurance that the Company would have either (i) the ability to refinance the
New Credit Facility
11
<PAGE> 15
or (ii) sufficient assets to satisfy all of its obligations under the New Credit
Facility and the Notes. See "Description of New Credit Facility" and
"Description of the Notes -- Change of Control."
DECLINE IN COMPARABLE STORE SALES
The Company's comparable store sales declined 2.6% in fiscal 1996. Although
the Company believes that comparable store sales declines resulted primarily
from disruptions caused by the Company's intensive remodeling efforts and the
opening of additional Company stores in close proximity to existing store
locations in an effort to further penetrate certain markets, there can be no
assurance that comparable store sales will not continue to decline in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success is largely dependent upon the
abilities and experience of its senior management team, particularly David H.
Eisenberg, the President and Chief Executive Officer of the Company. The loss of
the services of Mr. Eisenberg without a suitable replacement could have a
material adverse effect on the Company's business and future operations. The
Company does not maintain key man life insurance with respect to any of its
executive officers. The Company has employment agreements with Mr. Eisenberg and
Larry L. Buresh, the Vice President -- Information Systems of the Company, that
extend through 1999 and 1998, respectively. See "Management -- Employment
Arrangements."
DEPENDENCE ON VENDOR RELATIONSHIPS
The Company's business is dependent upon developing and maintaining close
relationships with its vendors and its ability to purchase products from these
vendors on favorable price and other terms, including obtaining financial
incentives, such as cooperative advertising arrangements and other marketing
incentive programs, and non-financial benefits such as improved packaging and
distribution accommodations. In fiscal 1996, the Company purchased approximately
13.7% of its products from Echlin, Inc., a supplier of ignition parts, fuel
pumps, brakes and brake parts and purchased approximately 10.5% of its products
from GNB Incorporated, a supplier of batteries. The Company does not have
written agreements with either Echlin, Inc. or GNB Incorporated. A disruption of
these or other vendor relationships, or a material reduction in any of the
advertising, incentive or other programs, could have a material adverse effect
on the Company's business. The Company believes that alternative sources of
supply could be obtained for all of its products, if necessary, on generally
comparable terms, but no assurance can be given in this regard. See
"Business -- Purchasing."
COMPETITION
The market for the retail sale of automotive parts and accessories is
highly fragmented and highly competitive. The Company competes primarily with
national and regional automotive parts chains, wholesalers or jobber stores
(some of which are associated with national automotive parts distributors or
associations), automobile dealers that supply manufacturer parts and mass
merchandisers that carry automotive replacement parts and accessories. As the
Company enters the commercial market, it faces additional competition from
wholesalers and jobber stores in particular. Furthermore, in light of the trend
in the automotive parts industry toward increasing consolidation at the
warehouse and jobber levels, the Company's financial performance may be
significantly affected by the Company's ability to compete successfully for
associated commercial customers, and otherwise take advantage of consolidation
opportunities and other industry trends. Many of the Company's competitors are
larger in terms of sales volume and have greater financial resources. See
"Business -- Competition."
DEMAND; ECONOMIC AND WEATHER CONDITIONS; GEOGRAPHIC CONCENTRATION
The demand for automotive products is affected by a number of factors
beyond the Company's control, including improvement of vehicle quality, U.S.
economic conditions and weather conditions. In recent years, there have been,
and in the future there are likely to continue to be, significant improvements
in the quality and complexity of new vehicles and vehicle parts, which may
reduce the demand for DIY repair parts. In addition,
12
<PAGE> 16
approximately 24% of the Company's stores are located in Texas and 70% 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 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 within one
year after any payment to any insider of the Company, (which will include the
distribution made in the Recapitalization), or if the Company anticipated
becoming insolvent at the time of any such payment, all or a portion of the
payment could be avoided as a preferential transfer and the recipient of such
payment could be required to return such payment. In rendering its opinion on
the validity of the Notes, neither counsel for the Company, nor counsel for the
Underwriters, nor any other counsel, will express any opinion as to federal or
state laws relating to fraudulent transfers, which means the holders of the
Notes have no independent legal verification that the Notes or payments on the
Notes will not be treated as a fraudulent conveyance or preferential transfers,
respectively, by a court if the Company were to become insolvent.
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
13
<PAGE> 17
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 continue to be
able to maintain or expand its market presence in its current locations or to
successfully enter other markets. The ability of the Company to continue to grow
in the future will depend on a number of factors including existing and emerging
competition, the availability of working capital to support such growth, the
Company's ability to manage costs and maintain margins in the face of pricing
pressures and the ability to recruit and train additional qualified personnel.
Failure by the Company to maintain its growth could have an adverse effect on
its ability to make payments of interest and principal on the Notes.
IMPLEMENTATION AND INTEGRATION OF MANAGEMENT INFORMATION SYSTEMS
The Company is in the process of implementing new information systems which
management believes will assist the Company in reducing labor costs, enhancing
productivity and improving inventory and merchandising management. The Company's
future success may be dependent to a significant degree upon the implementation,
accuracy and proper utilization of its management information systems. For
example, the Company's ability to manage its inventories and to price its
products appropriately depends upon the quality and effective use of the
information generated by its management information systems. The Company
estimates that the planned implementation and integration of its management
information systems will cost approximately $1.6 million during 1997 and an
aggregate of approximately $19.6 million over the next five years. The failure
of the Company's management information systems to adapt to business needs
resulting from, among other things, expansion of its store network, introduction
of new products and the continued growth of its business, or the failure of the
Company to successfully finance or implement these systems, could have a
material adverse effect on the Company.
LACK OF PUBLIC MARKET FOR THE NOTES
There is no existing trading market for the Notes, and there can be no
assurance regarding the future development of a market for the Notes or the
ability of holders of the Notes to sell their Notes or the price at which such
holders may be able to sell their Notes. If such a market were to develop, the
Notes could trade at prices that may be higher or lower than the initial
offering price depending on many factors, including prevailing interest rates,
the Company's operating results and the market for similar securities. The
Underwriters have advised the Company that they currently intend to make a
market in the Notes. The Underwriters are not
14
<PAGE> 18
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 $125.4 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, $10.8 million of which will initially be
borrowed by the Company, and (v) the application of the aggregate net proceeds
from the foregoing as described under "Use of Proceeds." Consummation of each of
the foregoing transactions is subject to the simultaneous consummation or
effectiveness, as applicable, of each of the other elements of the
Recapitalization. See "Use of Proceeds," "Benefits to Related Parties," "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 $125.4 million (after deduction of discounts to the Underwriters
and other expenses). The Company intends to use the aggregate net proceeds from
the Recapitalization (i) to repay all outstanding indebtedness (approximately
$65.0 million) under the Existing Credit Facility which bears interest at a
variable rate, which was 6.7% at March 30, 1997, and expires in June 1999, (ii)
to pay certain employees of the Company an aggregate of $4.0 million for
previously accrued employee incentive compensation and (iii) to distribute
approximately $75.0 million to the stockholders of the Company (consisting of
approximately $64.2 million to The Principal Fund and its affiliates as a
partial return of their investment and $10.8 million to management stockholders,
of which approximately $7.8 million will be used by certain management
stockholders to exercise options and repay certain loans made in connection with
prior purchases of Common Stock and the remainder of which will be a partial
return of their initial investment).
BENEFITS TO RELATED PARTIES
The Principal Fund, its affiliates and certain management stockholders will
receive an aggregate of $75.0 million in the Recapitalization. Approximately
$6.9 million of such $75.0 million will be used by management stockholders to
exercise their outstanding options to purchase 4,839.97 shares of the Common
Stock of the Company. Approximately $910,000 of such $75.0 million will be used
by management stockholders to repay a portion of amounts owed to the Company
under certain promissory notes. Approximately $64.2 million and approximately
$3.0 million will be distributed to The Principal Fund and to management
stockholders, respectively, as a partial return of such stockholders' investment
in Chief. These payments are the first dividend or return of investment that the
stockholders have received since the time of The Principal Fund's investment in
the Company in June 1994. The Principal Fund's investment significantly
deleveraged the Company at a time when management needed a flexible capital
structure in order to implement its plan to reposition Chief as a full-line auto
parts and accessories chain. Because the Company has substantially completed its
program of repositioning Chief, the Company has decided to provide its
stockholders with a partial return of their initial investment in Chief.
15
<PAGE> 19
The estimated sources and uses of funds expected as of the closing of the
Recapitalization are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Sources of funds:
Gross proceeds from the Offering.......................... $130,000
Exercise of options....................................... 6,871
Repayment of management promissory notes.................. 910
Borrowings under New Credit Facility...................... 10,789
--------
Total............................................. $148,570
--------
Uses of funds:
Repayment of Existing Credit Facility..................... $ 65,000
Employee incentive compensation........................... 4,000
Distribution to stockholders as partial return of
investment............................................. 67,219
Distribution to stockholders to be used to exercise
options................................................ 6,871
Distribution to stockholders to be used to repay
management promissory notes............................ 910
Fees and expenses of the Offering......................... 4,570
--------
Total............................................. $148,570
--------
</TABLE>
CAPITALIZATION
The following table sets forth the unaudited cash and cash equivalents and
the capitalization of the Company at March 30, 1997 and as adjusted for the
Recapitalization, as described under "The Recapitalization," "Use of Proceeds"
and "Benefits to Related Parties." This table should be read in conjunction with
the "Selected Financial and Other Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Financial Statements
and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 30, 1997
----------------------
AS
ACTUAL ADJUSTED
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 1,138 $ 1,138
======== ========
Long-term debt (including current portion):
Existing Credit Facility.................................. $ 61,100 $ --
New Credit Facility....................................... -- 7,286
Industrial development bonds.............................. 1,870 1,870
Senior Notes Due 2005..................................... -- 130,000
Capital lease obligations................................. 18,652 18,652
-------- --------
Total debt.................................................. 81,622 157,808
-------- --------
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 4,402
Less: management notes receivable......................... (1,821) (911)
Retained earnings......................................... 2,655 --
-------- --------
Total stockholders' equity.................................. 71,650 3,492
-------- --------
Total capitalization........................................ $153,272 $161,300
======== ========
</TABLE>
16
<PAGE> 20
SELECTED FINANCIAL AND OTHER DATA
The following table sets forth selected financial and other data of the
Company for the five fiscal years ended December 29, 1996 and for the three
months ended March 31, 1996 and March 30, 1997. The historical financial data
for the five fiscal years ended December 29, 1996 were derived from the
Company's audited Financial Statements, appearing elsewhere in this Prospectus.
The historical financial data for the three months ended March 31, 1996 and
March 30, 1997 were derived from the Company's unaudited Financial Statements
that have been prepared on the same basis as the audited Financial Statements
and include all adjustments, consisting of normal recurring accruals, that the
Company considers necessary for a fair presentation of the financial position
and results of operations for such periods. Operating results for the three
months ended March 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 28, 1997. The Company's fiscal year
is the 52- or 53-week period ending on the last Sunday in December. All fiscal
years presented are 52 weeks, except fiscal 1995, which is 53 weeks. In
addition, the results of operations subsequent to the Merger are not comparable
to the results prior to the Merger due to certain purchase accounting
adjustments. The following table should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Financial Statements appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR (A) SUCCESSOR (A)
------------------------------ ----------------------------------------------------
SIX SIX THREE MONTHS
YEARS ENDED MONTHS MONTHS YEARS ENDED ENDED
------------------- ENDED ENDED ------------------- -------------------
DEC. 27, DEC. 26, JUNE 26, DEC. 25, DEC. 31, DEC. 29, MAR. 31, MAR. 30,
1992 1993 1994 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER STORE SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $371,347 $374,618 $195,286 $203,878 $429,047 $438,182 $102,260 $109,854
Cost of goods sold, warehousing and
distribution(b).................... 233,696 224,543 114,452 133,390 251,628 251,764 58,579 63,281
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit(b)...................... 137,651 150,075 80,834 70,488 177,419 186,418 43,681 46,573
Selling, general and administrative
expenses(c)........................ 148,498 131,125 68,642 70,500 145,829 167,064 36,485 41,017
Depreciation and amortization........ 11,743 7,523 3,626 5,020 10,397 11,622 2,666 3,251
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)(b)(c)........ (22,590) 11,427 8,566 (5,032) 21,193 7,732 4,530 2,305
Interest expense, net................ 12,024 12,014 5,807 2,533 6,009 6,203 1,440 1,784
Other (expense) income, net.......... 1,956 1,183 41 4 (205) (66) (65) (10)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes.... (32,658) 596 2,800 (7,561) 14,979 1,463 3,025 511
Income tax expense (benefit)......... (438) 370 1,383 537 5,500 359 1,353 341
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)(b)(c).............. $(32,220) $ 226 $ 1,417 $ (8,098) $ 9,479 $ 1,104 $ 1,672 $ 170
======== ======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents............ $ 885 $ 1,095 $ 1,116 $ 1,133 $ 1,202 $ 1,140 $ 1,224 $ 1,138
Working capital (deficit)............ (20,088) (21,705) (26,075) 17,484 23,961 47,987 26,820 47,843
Total assets......................... 147,863 148,189 151,414 229,659 254,419 298,348 269,592 299,472
Total debt, including current
maturities(d)...................... 117,876 117,935 108,422 61,130 63,471 81,986 66,549 81,622
Stockholders' equity (deficit)(e).... (49,395) (48,820) (47,303) 60,646 70,275 71,480 71,948 71,650
SELECTED ADDITIONAL OPERATING DATA:
Average net sales per store(i)....... $ 727 $ 759 $ 397 $ 413 $ 845 $ 824 $ 195 $ 201
Average net sales per store square
foot(i)............................ $ 220 $ 229 $ 118 $ 121 $ 242 $ 223 $ 54 $ 52
Percentage change in comparable store
net sales(j)....................... 4.5% 1.8% 6.0% 3.9% 1.8% (2.6)% (2.7)% 2.0%
OTHER DATA:
EBITDA(f)............................ $ (1,407) $ 20,133 $ 12,233 $ 12,869 $ 31,385 $ 33,288 $ 7,131 $ 5,546
EBITDA margin(g)..................... (0.4)% 5.4% 6.3% 6.3% 7.3% 7.6% 7.0% 5.0%
Gross margin......................... 37.1% 40.1% 41.4% 34.6% 41.3% 42.5% 42.7% 42.4%
Capital expenditures................. $ 6,100 $ 6,178 $ 5,885 $ 6,512 $ 11,822 $ 23,275 $ 4,398 $ 3,536
Ratio of earnings to fixed
charges(h)......................... (h) 1.0x 1.3x (h) 2.0x 1.1x 1.8x 1.1x
Cash provided by (used in):
Operating activities............... $ 2,976 $ 5,205 $ 13,241 $ 9,854 $ 9,089 $ 1,864 $ 1,354 $ 3,609
Investing activities............... (2,101) (4,579) (3,663) (25,172) (11,673) (22,405) (4,271) (3,193)
Financing activities............... (984) (416) (9,557) 12,812 2,653 20,479 2,939 (418)
PRO FORMA DATA:
Interest expense, net (historical)... $ 6,203 $ 1,784
Interest expense, net................ 17,723 4,567
Cash interest expense(k)............. 16,752 4,324
Ratio of total debt to
EBITDA(k)(l)....................... 4.8x (m)
Ratio of EBITDA to cash interest
expense(k)(l)...................... 2.0x 1.3x
Ratio of earnings to fixed
charges(h)......................... (h) (h)
</TABLE>
17
<PAGE> 21
<TABLE>
<CAPTION>
PREDECESSOR (A) SUCCESSOR (A)
------------------------------ ----------------------------------------------------
SIX SIX THREE MONTHS
YEARS ENDED MONTHS MONTHS YEARS ENDED ENDED
------------------- ENDED ENDED ------------------- -------------------
DEC. 27, DEC. 26, JUNE 26, DEC. 25, DEC. 31, DEC. 29, MAR. 31, MAR. 30,
1992 1993 1994 1994 (B) 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER STORE SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED STORE DATA:
Beginning stores..................... 526 495 492 493 495 520 520 544
New stores........................... 2 14 9 9 34 51 12 5
Relocated stores..................... 2 1 4 2 3 12 2 2
Closed stores (including
relocated)......................... (35) (18) (12) (9) (12) (39) (4) (4)
-------- -------- -------- -------- -------- -------- -------- --------
Ending stores.................. 495 492 493 495 520 544 530 547
======== ======== ======== ======== ======== ======== ======== ========
Remodeled stores..................... 25 29 13 25 90 159 91 18
Average square footage per
store(i)........................... 3,312 3,321 3,362 3,408 3,489 3,695 3,589 3,853
Total square footage at period end
(in thousands)(i).................. 1,639 1,639 1,673 1,694 1,848 2,084 1,921 2,120
</TABLE>
- ---------------
(a) "Successor" refers to Chief Auto Parts Inc. subsequent to the Merger;
"Predecessor" refers to Chief Auto Parts Inc. prior to the Merger. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Pro Forma 1994 Information" for further information regarding
the Merger.
(b) Year ended December 27, 1992 includes a $6.7 million non-cash provision
related to discontinued inventory. Six months ended December 25, 1994
includes a $12.9 million Merger-related inventory charge.
(c) Year ended December 27, 1992 includes a $7.5 million non-cash provision
primarily related to the Company's exit from the Nashville and Phoenix
markets and a $3.5 million non-cash provision related to various insurance
reserves. Year ended December 29, 1996 includes a $14.0 million non-cash
provision for (i) store closings primarily related to the Company's exit
from the Little Rock market and (ii) legal reserves.
(d) Total debt comprises long-term borrowings and capital leases.
(e) No cash dividends have been paid during the presented periods.
(f) EBITDA represents income (loss) before interest expense (net), income
taxes, depreciation and amortization and, (i) in year ended December 27,
1992, excludes a $7.5 million non-cash provision primarily related to the
Company's exit from the Nashville and Phoenix markets, (ii) in six months
ended December 25, 1994, excludes a $12.9 million Merger-related inventory
charge, (iii) in year ended December 29, 1996, excludes a $14.0 million
non-cash provision for (A) store closings primarily related to the
Company's exit from the Little Rock market and (B) legal reserves and (iv)
in the three months ended March 30, 1997 includes $1.9 million of expenses
related to the launch of "The All New Chief" campaign in the Los Angeles,
California market (excluding such expenses, EBITDA for such period would
have been $7.4 million). EBITDA is used by the Company for the purpose of
analyzing operating performance, leverage and liquidity. Such data are not
a measure of financial performance under generally accepted accounting
principles and should not be considered as an alternative to net income as
an indicator of the Company's operating performance or as an alternative to
cash flows as a measure of liquidity.
(g) EBITDA margin represents EBITDA as a percentage of net sales. EBITDA margin
for the three months ended March 30, 1997 includes expenses related to the
launch of "The All New Chief" campaign in the Los Angeles, California
market. Excluding such expenses, EBITDA margin for such period would have
been 6.7%.
(h) The ratio of earnings to fixed charges is computed by aggregating income
before income taxes and fixed charges and dividing the total by fixed
charges. Fixed charges comprise interest on all indebtedness including
capital leases and amortization of debt expense, and one-third of rental
expense (being that portion of rental expense representative of an interest
factor). During the year ended December 27, 1992 and the six months ended
December 25, 1994, earnings were insufficient to cover fixed charges by
$32.7 million and $7.6 million, respectively, and accordingly such ratios
are not presented. The pro forma ratio of earnings to fixed charges gives
effect to the Recapitalization as if it had occurred on January 1, 1996. On
a pro forma basis, during the year ended December 29, 1996, earnings were
insufficient to cover fixed charges by $10.2 million, and accordingly such
ratio is not presented. On a pro forma basis, during the three months
18
<PAGE> 22
ended March 30, 1997, earnings were insufficient to cover fixed charges by
$2.3 million, and accordingly such ratio is not presented.
(i) Average net sales per store, average square footage per store and average
net sales per store square foot are based on the average of the beginning
and ending number of stores and store square footage, and are not weighted
to take into consideration the actual dates of store openings, closings or
expansions. Total square footage at period end is based on the Company's
actual store formats and includes normal selling, office, stockroom and
receiving space.
(j) The percentage change in comparable store net sales is calculated as the
net change in sales for each comparable store for the equivalent period in
the prior year. Comparable stores are stores that have been operating for
more than 12 months since first opening. During the 13th month of
operations, new stores are considered comparable stores. Stores which have
been relocated are treated as comparable stores. Closed stores are not
categorized as comparable stores.
(k) Pro forma cash interest expense for the year ended December 29, 1996 and
the three months ended March 30, 1997 is pro forma interest expense, net of
amortization of deferred financing costs, and gives effect to the
Recapitalization as if it had occurred on January 1, 1996 and December 30,
1996, respectively, assuming an interest rate on the Notes of 10.5% and a
composite interest rate of 7.5% on the New Credit Facility. No interest
income has been assumed on average excess cash invested of approximately
$5.2 million during year ended December 29, 1996.
(l) Ratios concerning EBITDA are included as they are generally recognized as
providing useful information regarding a company's ability to service
and/or incur debt. Such ratios are also relevant for covenant analysis
under the Indenture.
(m) This ratio is not presented for the three months ended March 30, 1997
because the Company believes the ratio of total debt to EBITDA, in which
total debt is compared to quarterly EBITDA, is not an accurate or meaningful
representation of full year results.
19
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial and Other Data" and the Financial Statements of the Company and the
related notes thereto included elsewhere in this Prospectus. This Prospectus
contains, in addition to historical information, forward-looking statements that
include risks and other uncertainties. The Company's actual results may differ
materially from those anticipated in these forward-looking statements. Factors
that might cause such a difference include those discussed below, as well as
general economic and business conditions, competition and other factors
discussed elsewhere in this Prospectus.
GENERAL
Management has repositioned Chief from a chain of smaller automotive parts
convenience stores to a full-line auto parts and accessories chain through a
number of initiatives designed to promote the Company's image as a premier
retailer for the DIY market. Since the Merger, the Company has invested
approximately $45.1 million in total capital expenditures, doubled the average
number of SKUs in its stores and either remodeled or opened as new stores 74% of
its current stores:
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED MARCH
------------------ -------------
1994 1995 1996 1996 1997
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Stores at beginning of period............................... 492 495 520 520 544
New stores.................................................. 18 34 51 12 5
Relocated stores............................................ 6 3 12 2 2
Closed stores (including relocated stores).................. (21) (12) (39) (4) (4)
--- --- --- ---- ----
Stores at end of period................................... 495 520 544 530 547
=== === === ==== ====
Remodeled or expanded stores................................ 38 90 159 91 18
=== === === ==== ====
</TABLE>
Newly-opened stores are categorized as new stores during the first full
year of operations. During the 13th month of operations, new stores are
considered comparable stores. Stores that have been relocated are treated as
comparable stores. Closed stores (including those closed during the current
year) are not categorized as comparable stores. The percentage change in
comparable store sales is calculated as the net change in sales for each
comparable store for the equivalent period in the prior year.
As described in Notes 1 and 2 to the Financial Statements, the Company was
the surviving corporation of the Merger effective June 27, 1994. The Merger was
accounted for by the purchase method of accounting, and accordingly, the assets
and liabilities of the Predecessor were revalued and significant adjustments to
the assets acquired and liabilities assumed were made to reflect their estimated
fair values at the date of the Merger. As a result of these factors, management
does not believe the financial statements of the Company are comparable to those
of the Predecessor. A comparison follows between the Company's results for the
years ended December 29, 1996 and December 31, 1995, and the pro forma combined
results of the Company and the Predecessor for the year ended December 25, 1994
(which assumes that the Merger occurred on December 27, 1993). The pro forma
results for 1994 combine the results of operations of the Company for the six
months ended December 25, 1994 and of the Predecessor for the six months ended
June 26, 1994 (as derived from the Financial Statements of the Company and the
Predecessor, included elsewhere in this Prospectus), and pro forma Merger
adjustments.
In order to make the following comparisons meaningful, it should be noted
that fiscal 1996 included 52 weeks, fiscal 1995 included 53 weeks and pro forma
fiscal 1994 included 52 weeks.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in Chief's Financial
Statements.
20
<PAGE> 24
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------------------------------------------------------
PRO
FORMA THREE MONTHS ENDED THREE MONTHS ENDED
1994 1995 1996 MARCH 31, 1996 MARCH 30, 1997
--------- ----- ----- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales........... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold,
warehousing and
distribution..... 62.1 58.7 57.5 57.3 57.6
----- ----- ----- ------ ------
Gross profit........ 37.9 41.3 42.5 42.7 42.4
Selling, general and
administrative... 34.8 34.0 38.1 35.7 37.3
Depreciation and
amortization..... 2.3 2.4 2.6 2.6 3.0
----- ----- ----- ------ ------
Operating income.... 0.8 4.9 1.8 4.4 2.1
===== ===== ===== ====== ======
OTHER DATA:
EBITDA(a)........... 6.3 7.3 7.6 7.0 5.0
===== ===== ===== ====== ======
</TABLE>
- ---------------
(a) As defined in note (f) to the Summary Financial and Other Data table.
Three Months Ended March 30, 1997 vs. Three Months Ended March 31, 1996
Net sales. Net sales increased by $7.6 million, or 7.4%, to $109.9 million
in the first quarter of 1997 from $102.3 million in the first quarter of 1996.
The increase was due primarily to growth in the Company's store base, as well as
a 2.0% increase in comparable store sales.
Gross profit. Gross profit increased by $2.9 million, or 6.6%, to $46.6
million in the first quarter of 1997 from $43.7 million in the first quarter of
1996, primarily as a result of sales volume increases. Gross profit margin
decreased slightly due to higher markdowns and sales discounts in the first
quarter of 1997 compared to the first quarter of 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $4.5 million, or 12.4%, to $41.0 million in
the first quarter of 1997 from $36.5 million in the first quarter of 1996. This
increase was primarily due to (i) higher occupancy costs resulting from an
increase in the number of stores open and (ii) additional advertising costs of
$1.4 million, or 1.3% of net sales, and additional labor costs of $500,000, or
0.5% of net sales, associated with the launch of "The All New Chief" program in
the Los Angeles, California market. Excluding $1.9 million of expenses
associated with "The All New Chief" program, selling, general and administrative
expenses as a percentage of net sales decreased to 35.5% in the first quarter of
1997 from 35.7% in the first quarter of 1996.
The "All New Chief" program is comprised of an institutional advertising
program broadcast in the Los Angeles market and additional staffing at stores in
that market. The program is designed to emphasize the extensive remodeling of
stores in that market, the related additional inventory and additional store
staffing to better serve customers.
EBITDA. EBITDA decreased by $1.6 million, or 22.2%, to $5.5 million in the
first quarter of 1997 from $7.1 million in the first quarter of 1996. Excluding
expenses associated with "The All New Chief" program, EBITDA increased by
$315,000, or 4.4%, to $7.4 million in the first quarter of 1997 from $7.1
million in the first quarter of 1996 and the EBITDA margin decreased to 6.7% in
the first quarter of 1997 from 7.0% in the first quarter of 1996.
Depreciation and amortization expense. Depreciation and amortization
expense increased by $585,000, or 21.9%, to $3.3 million in the first quarter of
1997 from $2.7 million in the first quarter of 1996. This increase was primarily
due to an increase in the depreciable asset base, including leasehold
improvements and furniture and
21
<PAGE> 25
equipment, resulting from extensive store remodeling throughout fiscal 1996, as
well as to an increase in the number of stores open.
Interest expense. Interest expense increased by $344,000, or 23.9%, to $1.8
million in the first quarter of 1997 from $1.4 million in the first quarter of
1996. This increase was due to higher average outstanding balances under the
Existing Credit Facility in the first quarter of 1997 compared to the first
quarter of 1996.
Net income. Net income decreased by $1.5 million, or 89.8%, to $170,000 in
the first quarter of 1997 from $1.7 million in the first quarter of 1996. This
decrease was primarily due to higher occupancy costs resulting from an increase
in the number of stores open and to additional advertising and labor costs
associated with the launch of "The All New Chief" program in the Los Angeles,
California market.
Fiscal Year Ended December 29, 1996 vs. Fiscal Year Ended December 31, 1995
Net sales. Net sales increased by $9.1 million, or 2.1%, to $438.2 million
in fiscal 1996 from $429.0 million in fiscal 1995. The increase was primarily
attributable to higher new store sales in fiscal 1996 compared to fiscal 1995
(63 stores were opened in fiscal 1996 compared to 37 in fiscal 1995). The
increase in new store sales offset a decrease in comparable store sales during
fiscal 1996. Additionally, fiscal 1995 consisted of 53 weeks compared to 52
weeks in fiscal 1996; the additional one week's sales of $7.4 million in fiscal
1995 had no equivalent in fiscal 1996. On a comparable basis (52 weeks compared
to 52 weeks), comparable store sales during fiscal 1996 decreased by $10.6
million, or 2.6%, to $394.3 million in fiscal 1996 from $404.9 million in fiscal
1995. The comparable store sales decrease resulted from a lower average number
of customer transactions per store, which was partially offset by a higher
average value of customer transaction size (as measured in dollars). Management
believes that the reduction in customer transactions was attributable to
disruptions caused by extensive remodeling efforts during fiscal 1996 (159
stores were remodeled in fiscal 1996 compared to 90 in fiscal 1995), as well as
to the opening of new stores in close proximity to existing stores in an effort
to extend market penetration.
Gross profit. Gross profit increased by $9.0 million, or 5.1%, to $186.4
million in fiscal 1996 from $177.4 million in fiscal 1995 due to the increased
sales volume and a higher gross profit margin (42.5% in fiscal 1996 compared to
41.3% in fiscal 1995). The gross profit margin increase resulted from product
mix enhancements, improved purchasing terms from primary vendors and additional
purchasing incentives provided by vendors due to remodeling and new store
openings.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $21.2 million, or 14.6%, to $167.1 million
in fiscal 1996 from $145.8 million in fiscal 1995. This increase was primarily
due to an unusual $14.0 million non-cash provision for (i) store closings
primarily related to the Company's exit from the Little Rock market and (ii)
legal reserves. The remainder of the increase was due to an increase in sales
volume and a corresponding increase in related expenses such as store labor,
advertising, and occupancy costs. As a percentage of net sales, excluding the
unusual $14.0 million non-cash provision, selling, general and administrative
expenses increased to 34.9% in fiscal 1996 from 34.0% in fiscal 1995. This 0.9%
increase was primarily attributable to expenses associated with new store
openings, additional store labor entailed in remerchandising the remodeled
stores, higher store supply expense and additional advertising promotions.
EBITDA. EBITDA increased by $1.9 million, or 6.1%, to $33.3 million in
fiscal 1996 (52 weeks) from $31.4 million in fiscal 1995 (53 weeks). The
increase was principally the result of the increased sales volume and gross
profit.
Depreciation and amortization expense. Depreciation and amortization
expense increased by $1.2 million, or 11.8%, to $11.6 million in fiscal 1996
from $10.4 million in fiscal 1995. The increase was primarily attributable to a
higher depreciable asset base in fiscal 1996 compared to fiscal 1995, most
notably in leasehold improvements and furniture and equipment. The asset base
increased due to capital improvements made during the year (such as the
remodeling of stores to accommodate the expanded hard parts merchandise
assortment and new store systems) and to the opening of new stores.
Interest expense. Interest expense increased by $194,000, or 3.2%, to $6.2
million in fiscal 1996 from $6.0 million in fiscal 1995. The increase was due
primarily to a higher average outstanding balance under the Existing Credit
Facility in fiscal 1996 compared to fiscal 1995, offset partially by lower
average interest rates during fiscal 1996 compared to fiscal 1995.
22
<PAGE> 26
Income taxes. The Company's effective income tax rate decreased to 24.5% in
fiscal 1996 from 36.7% in fiscal 1995, primarily due to the benefit of
previously unrecognized tax assets and lower state taxes.
Net income. Net income decreased by $8.4 million, or 88.4%, to $1.1 million
in fiscal 1996 from $9.5 million in fiscal 1995 due to the factors discussed
above.
Fiscal Year Ended December 31, 1995 vs. Pro Forma Fiscal Year Ended December
25, 1994
Net sales. Net sales increased by $29.9 million, or 7.5%, to $429.0 million
in fiscal 1995 from $399.2 million in fiscal 1994. The increase was attributable
to an additional week's sales of $7.4 million in fiscal 1995, which consisted of
53 weeks compared to 52 weeks in fiscal 1994, and to new store sales due to 37
new store openings in fiscal 1995 compared to 24 in fiscal 1994. On a comparable
basis (53 weeks compared to 53 weeks), comparable store sales increased by $7.2
million, or 1.8%, to $405.7 million in fiscal 1995 from $398.4 million in fiscal
1994. The increase in comparable store sales resulted from a higher average
customer transaction size (as measured in dollars), which offset a slight
decrease in the average number of customer transactions per store. The Company
believes the reduction in customer transactions was due to disruptions caused by
extensive remodeling efforts during fiscal 1995 (90 stores were remodeled during
fiscal 1995 compared to 38 in fiscal 1994).
Gross profit. Gross profit increased by $26.1 million, or 17.2%, to $177.4
million in fiscal 1995 from $151.3 million in fiscal 1994, due to the increased
sales volume. During fiscal 1994, a non-recurring Merger-related write-up of
merchandise inventory of $12.9 million was charged to cost of goods sold, for
which there was no comparable charge during fiscal 1995. Excluding this
non-recurring charge, gross profit increased by $13.2 million or 8.1%. Gross
profit margin increased to 41.3% in fiscal 1995 from 37.9% in fiscal 1994, due
in part to the non-recurring Merger-related charge in fiscal 1994 described
above, excluding which the gross profit margin in fiscal 1994 was 41.1%.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $6.7 million, or 4.9%, to $145.8 million in
fiscal 1995 from $139.1 million in fiscal 1994 due principally to the increased
sales volume. As a percentage of net sales, selling, general and administrative
expenses decreased to 34.0% in fiscal 1995 from 34.8% in fiscal 1994. This
decrease was primarily attributable to improved expense control.
EBITDA. EBITDA increased by $6.2 million, or 24.7%, to $31.4 million in
fiscal 1995 from $25.2 million in fiscal 1994 principally as a result of the
increased sales volume, better gross margins and lower operating expenses.
Depreciation and amortization expense. Depreciation and amortization
expense increased by $1.2 million, or 12.7%, to $10.4 million in fiscal 1995
from $9.2 million in fiscal 1994. The increase was due to a higher depreciable
asset base in fiscal 1995 compared to fiscal 1994, most notably in leasehold
improvements and furniture and equipment. The asset base increased due to
capital improvements made during the year (such as the remodeling of stores to
the expanded hard parts merchandise assortment), and to the opening of new
stores.
Interest expense. Interest expense increased by $910,000, or 17.8%, to $6.0
million in fiscal 1995 from $5.1 million in fiscal 1994. The increase was due
primarily to a higher average outstanding balance under the Existing Credit
Facility in fiscal 1995 compared to fiscal 1994.
Income taxes. The Company's effective income tax rate during fiscal 1995
differed from that in fiscal 1994 as no tax benefits were provided in fiscal
1994 for the Company's losses during that period.
Net income. Net income increased by $14.1 million to $9.5 million in fiscal
1995 from a net loss of $4.7 million in fiscal 1994 due to the factors discussed
above.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Since the Merger, the Company has utilized funds generated from operations
and borrowings under the Existing Credit Facility to meet working capital
requirements (principally merchandise inventory) and to fund capital
expenditures (principally the opening of new stores, remodeling and expansion of
existing stores,
23
<PAGE> 27
information systems improvements and distribution center improvements). At March
30, 1997, the Company had net working capital of $47.8 million and $18.4 million
available for borrowing under the Existing Credit Facility. In connection with
the Recapitalization, the Company will enter into the New Credit Facility.
During fiscal 1996, the Company's principal sources of cash were $1.9
million from operations and $22.5 million from borrowings under the Existing
Credit Facility, which were used primarily to fund capital expenditures of $23.3
million. During fiscal 1995, the Company's principal sources of cash were $9.1
million from operations and $4.0 million from borrowings under the Existing
Credit Facility, which were used primarily to fund capital expenditures of $11.8
million. During the six months ended December 25, 1994, the Company's principal
sources of cash were $9.9 million from operations, $68.7 million from the
issuance of stock, and $34.5 million from borrowings under the Existing Credit
Facility, which were used primarily to fund capital expenditures of $6.5
million, to purchase the Predecessor for $67.6 million and to pay Predecessor
debt of $88.5 million. During the six months ended June 26, 1994 (Predecessor),
the principal sources of cash were $13.2 million from operations and $2.2
million from the sale of property and equipment, which were used primarily to
fund capital expenditures of $5.9 million and to repay debt of $9.5 million.
As a result of the Company's new store growth and major remodeling program,
the Company's capital expenditures and related investments in property, plant
and equipment and merchandise inventories have increased significantly. Capital
expenditures increased by $11.5 million, or 96.9%, to $23.3 million in fiscal
1996 from $11.8 million in fiscal 1995. The increase was due primarily to the
new store growth and the remodeling program, as well as to distribution center
improvements and store-related information systems. Merchandise inventories
increased by $32.8 million, or 30.5%, to $140.4 million in fiscal 1996 from
$107.6 million in fiscal 1995, due to the new store growth, the remodeling
program, the deliberate expansion of Chief's SKU count in a typical store, which
has doubled to an average of 16,000, since 1994, and other changes to product
mix. The Company plans to reduce inventory maintained in each store in the
future through improved inventory management.
During fiscal 1997, the Company plans to open approximately 40 new stores
and to relocate or expand approximately 25 existing stores. Additionally, the
Company plans to complete 80 remodels during fiscal 1997, and to improve
significantly its distribution systems. The total estimated cost of such new
store openings and existing store relocations and remodelings is approximately
$11.1 million.
The Company anticipates that substantially all of its new and relocated
stores during fiscal 1997 will be financed by arrangements structured as
operating leases that require no net capital expenditures by the Company except
for fixtures and store equipment. Merchandise inventories and related capital
expenditures for the new stores and remodeling are expected to be funded by
operations, working capital and credit facilities. The Existing Credit Facility
was increased from $50.0 million to $65.0 million effective January 26, 1996,
and then to $80.0 million effective November 4, 1996. The New Credit Facility
will provide for revolving credit borrowings up to $100.0 million, available
subject to a borrowing base formula. Under such formula, approximately $77.0
million is expected to be available under the commitment upon completion of the
Recapitalization, of which approximately $71.0 million is expected to be
available for additional borrowings on such date.
The Company believes that funds provided from operations and from credit
facilities currently in place will be sufficient to meet planned financial
commitments.
EFFECT OF INFLATION AND CHANGING PRICES
Inflation has not had a material effect on the Company's results of
operations. Chief has offset the effect of inflation by maintaining profit
margins through product mix enhancements and securing favorable purchase terms
from primary suppliers.
Substantially all of the Company's indebtedness (other than capitalized
leases) bears stated interest at rates that are subject to fluctuation. The
weighted average interest rate in effect on the Existing Credit Facility was
6.7% at March 30, 1997, 6.4% at December 29, 1996 and 8.5% at December 31, 1995.
24
<PAGE> 28
NEW ACCOUNTING STANDARDS
During fiscal 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of" ("SFAS 121"). SFAS 121 requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. SFAS 121
had no impact on the Company's financial position or results of operations.
Additionally, during fiscal 1996 the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). SFAS 123 requires expanded disclosures of stock-based compensation
arrangements with employees, and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument. As more
fully described in Note 7 to the Financial Statements, the Company has opted to
continue the application of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and accordingly, the adoption of
SFAS 123 was for disclosure purposes only and had no effect on the Company's
financial position or results of operations.
PRO FORMA 1994 INFORMATION
In the table shown below, a pro forma statement of operations for the year
ended December 25, 1994 is presented, which gives effect to the Merger as if it
had occurred on December 27, 1993 in order to illustrate how the Merger might
have affected the historical Financial Statements of the Company.
The pro forma data do not purport to represent what the Company's financial
position or results of operations would actually have been had the Merger in
fact occurred on the assumed date or to project the Company's financial position
or results of operations for any future date or period.
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 might 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 -- Reduced expense of $734,000 relating
to leaseholds, primarily arising from unfavorable leasehold obligations
which resulted from the purchase price allocation, additional deferred
compensation expense of $779,000 incurred in connection with a deferred
compensation plan entered into in connection with the Merger and a
reduction of $104,000 of other merger-related adjustments.
25
<PAGE> 29
Depreciation and amortization -- additional annual amortization of $715,000
arising from goodwill resulting from the Merger, an increase of $508,000 in
depreciation resulting from the increased basis of assets under capitalized
leases acquired in the Merger and a decrease in depreciation of $640,000
related to other fixed assets acquired in the Merger.
Interest expense, net -- principally a net reduction of interest expense of
$3.0 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 $241,000
relating to obligations under capital leases.
Income tax expense -- increase in federal income taxes relating to the net
effect of the above items, excluding goodwill, presented on the same basis
(alternative minimum tax) as reflected in both the Predecessor's and the
Successor's separate historical results.
No adjustment is made to cost of goods sold, warehousing and distribution
in the Predecessor's results, as the non-recurring charge arising from the
write up of merchandise inventories by $12.9 million from the historical
cost as carried by the Predecessor at the time of the Merger is reflected
in the Successor's results for the six months ended December 25, 1994.
26
<PAGE> 30
BUSINESS
GENERAL
Chief is one of the nation's largest auto parts and accessories retail
chains, both in number of stores and annual revenue, with 547 retail stores as
of March 30, 1997 located in six states, primarily concentrated in Southern
California and Texas. The Company's research indicates that it 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 (as defined in note (f) to
the Summary Financial and Other Data table) have increased an average of 5.4%
and 18.6% per year (based on the average of the percentage change from one year
to the next for 1993, pro forma 1994, 1995 and 1996), 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 through the merger of a shell corporation into the Company. Prior to the
Merger, certain third party investors owned warrants to purchase approximately
93.4% of the Common Stock on a fully diluted basis and certain current and
former employees of Chief owned shares of, and options to purchase shares of
Common Stock, representing an aggregate of approximately 6.6% of the Common
Stock on a fully diluted basis. In connection with the Merger, The Principal
Fund and its affiliates contributed $67.0 million to the Company and received
shares representing approximately 88.6% of the Common Stock on a fully diluted
basis. The third party investors received cash and warrants representing
approximately 10.7% of the Common Stock on a fully diluted basis and the
employee investors received cash and warrants representing approximately 0.7% of
the Common Stock on fully diluted basis, as well as the reservation of certain
shares for issuance either pursuant to stock purchase agreements or upon
exercise of options representing an aggregate of an additional 12.43% of the
Common Stock on a fully diluted basis after giving effect thereto. Pursuant to a
subadvisory agreement, Oaktree manages The Principal Fund. The acquisition
significantly deleveraged the Company, providing it with access to growth
capital and enabling management to focus on operational improvements and growth.
The support and flexibility afforded by this change in Chief's capital structure
enabled management to reposition the Company from a chain of smaller automotive
parts convenience stores to a full-line auto parts and accessories chain. Since
June 1994, the Company has invested approximately $45.1 million in total capital
expenditures in connection with its program to reposition Chief in the
automotive aftermarket marketplace and has doubled the average number of SKUs in
its stores. During this period, the Company remodeled 292 of its stores, opened
99 new stores, relocated 19 stores to larger, more favorable locations averaging
5,390 square feet (an increase from approximately 2,740 square feet for such
stores prior to relocation), closed 45 small or underperforming stores and
introduced Chief's commercial sales program into 32 existing stores (as of April
30, 1997, 16 of which were opened in the last 60 days). The Company has
substantially completed its program of repositioning Chief as a full-line auto
parts and accessories chain.
Chief's redesigned store layouts and enhanced product offerings enable the
Company to merchandise store product lines to target more effectively the needs
of the DIY customer, resulting in increased sales of "hard parts" (such as
alternators and starters) which carry higher margins and higher average
transaction prices than many of the Company's other products, such as motor oil.
These improvements also have contributed to an increase in gross profit margins
and EBITDA margins (as defined in note (g) to the Summary Financial and Other
Data table) from 37.9% and 6.3%, respectively, in fiscal 1994 to 42.5% and 7.6%,
respectively, in fiscal 1996.
27
<PAGE> 31
Management believes that the automotive aftermarket parts industry is
growing as a result of: (i) increases in the size and age of the country's
automotive fleet; (ii) increases in the number of miles driven annually per
vehicle; (iii) the higher cost of new cars as compared to historical costs; (iv)
the higher cost of replacement parts as a result of technological changes in
recent models of vehicles; and (v) the increasing labor costs associated with
parts, installation and maintenance. Management further believes that the retail
auto parts industry displays certain recession-resistant characteristics
resulting from a shift from professional repairs to DIY repairs during economic
downturns and sales increases in automobile enhancement products during better
economic conditions.
OPERATING STRENGTHS AND BUSINESS STRATEGIES
Chief attributes its present success and significant opportunities for
continued growth to the following operating strengths and business strategies:
- Leading position in favorable markets.The Company's research indicates
that it is a market leader based on number of stores in its six primary
markets -- Los Angeles, Dallas/Fort Worth, Sacramento, San Diego, Las
Vegas and Fresno -- with more than twice as many stores as its nearest
competitor in the Los Angeles market. California and Texas are the two
largest states in the country in terms of vehicle registration and
population, and both have climates suited for year-round outdoor auto
repair activities. The Company has achieved a high level of name
recognition with its customers in these markets as a result of
consistently providing high quality products and customer service.
- Investments in store relocation, expansion and remodeling. Chief has
focused on relocating and expanding existing stores to larger locations
with more customer-friendly layouts and identifying desirable locations
for opening new stores, primarily in existing markets. The Company also
significantly redesigned its store layout and remodeled 292 of its stores
from June 1994 through March 1997. Seventy-four percent of the Company's
existing store base is either new or has been remodeled since June 1994.
Chief plans to open 40 new stores, to relocate or expand at least 25
stores and to complete 80 remodels in 1997 at an aggregate estimated
cost of $11.1 million. The Company plans to remodel approximately 15
stores each year for the four year period beginning January 1, 1998 at
an estimated total cost of $10.7 million. The Company expects to finance
such activity with a combination of funds generated from operations and
borrowings under the New Credit Facility.
- Enhancement of management information systems. Management has adopted a
strategy of enhancing Chief's customer service, productivity, inventory
and merchandising management through the implementation of new and
improved technology-based systems, including (i) the integration of its
point-of-sale system and electronic parts catalog, (ii) the introduction
and continued roll-out of perpetual inventory systems in its stores and
(iii) the installation of portable, hand-held radio frequency computer
devices to automate price management, receiving, shipping and ordering
functions in each store and distribution center and to facilitate the
management of the perpetual inventory system. Management believes these
systems should contribute to improved profitability.
- Commercial sales program. The Company recently initiated its commercial
sales program, marketed towards the commercial segment of the automotive
aftermarket industry, which the Company believes
constitutes approximately $40-$45 billion of the total estimated $75
billion annual sales for the automotive
aftermarket industry. In stores with commercial sales capabilities, Chief
offers commercial customers over 20,000 SKUs delivered within 30 minutes
from time of order. As of April 30, 1997, the Company has introduced
commercial sales capabilities into 32 of its existing stores, 16 of which
were opened within the last 60 days at an estimated cost of $500,000.
Chief believes that a successful commercial sales program will complement
the Company's existing retail business. The Company will evaluate the
performance of its existing commercial sales program before planning any
further expansion of the program into additional stores.
- 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.
28
<PAGE> 32
- 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.
HISTORY OF THE COMPANY
The original "Chief" automotive retail business began in September 1955
with one store in Norwalk, California near Los Angeles and had grown to 119
retail stores located in the greater Los Angeles area by the time Southland
purchased this business in December 1978; Southland grew the business by opening
new stores and by acquiring existing operations. In February 1985, Southland
acquired 86 Checker Auto Parts and Honey's Auto Parts stores, located
principally in the Dallas-Fort Worth area, from Lucky Stores, Inc. Also in
February 1985, Southland acquired 13 "2002" Auto Parts stores located in
Houston. Southland sold the business to a group of investors and prior
management in a leveraged buyout in 1988. In 1992 and 1993, a new management
team joined the Company and began to reposition Chief as a full-line retail auto
parts and accessories chain. When The Principal Fund and its affiliates
purchased the Company in June 1994, the Company operated 493 stores under the
name Chief Auto Parts. As of March 30, 1997, the Company operated 547 stores in
the states of California, Texas, Nevada, Tennessee, Arizona and Arkansas.
AUTOMOTIVE AFTERMARKET INDUSTRY
According to industry estimates, the size of the automotive aftermarket for
replacement parts, maintenance items and accessories was approximately $75
billion in sales in 1995. The retail portion of this market is estimated at $35
billion of this total market. The Company believes that the automotive
aftermarket for parts, maintenance items and accessories is growing due to
several factors, including: (i) increases in the size and age of the country's
automotive fleet; (ii) increases in the number of miles driven annually per
vehicle; (iii) the higher cost of new cars as compared to historical costs; (iv)
the higher cost of replacement parts as a result of technological changes in
recent models of vehicles; and (v) the increasing labor costs associated with
parts, installation and maintenance. Industry sources indicate that average
annual sales in the retail automotive parts market in the United States have
increased at a compound annual growth rate of 2.4% from 1990 to 1995.
The automotive aftermarket distribution channels currently are highly
fragmented in both the commercial and DIY segments. The Company believes that
consolidation of the industry is occurring as national and regional specialty
retail chains gain market share at the expense of smaller independent operators
and less specialized mass merchandisers. Automotive specialty retailing chains
with multiple locations in given market areas, such as the Company, enjoy
competitive advantages in purchasing, distribution, advertising and marketing
compared to most small independent retailers. In addition, the increase in the
number of automotive replacement parts caused by the significant increase in
recent years in the variety of domestic and imported vehicle makes and models
has made it difficult for smaller independent retailers and less specialized
mass merchandise chains to maintain inventory selection broad enough to meet
customer demands. The Company believes that automotive specialty retailing
chains, such as the Company, are in a favorable competitive position because
they have the distribution capacity and sophisticated information systems to
stock, advertise and deliver a broad inventory selection.
PRODUCTS
Product Selection. The Company offers a broad selection of nationally
recognized name brand and private label automotive products. The product mix of
approximately 16,000 SKUs in the Company's typical store includes new and
remanufactured hard parts such as alternators, starters, water pumps, brake
parts, clutches and shock absorbers; maintenance items such as oil and
lubrication products, antifreeze, chemicals, filters and waxes and protectants;
and various other products such as lighting systems, electrical components,
ignition parts, batteries, spark plugs, belts, hoses, gaskets, tools, equipment,
supplies and accessories. The Company also offers certain other parts, such as
engines, as special order items. The Company's broad selection of national brand
name products includes Monroe shocks, Borg-Warner clutches and clutch parts,
Fram air and oil filters,
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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 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. The Company
does not have written agreements with either Echlin, Inc. or GNB Incorporated.
Substantially all of the Company's suppliers ship products to the Company's
distribution centers, from which products are delivered to stores once a week.
With its continuing program to upgrade the technological capabilities of its
stores, the Company currently orders over 90% of its products electronically.
Pricing. The Company's pricing policy focuses on providing customers with
high-quality products at competitive prices in each of its markets. The Company
conducts regular price checks to ensure that its prices remain competitive,
particularly with respect to high profile items, and offers to match
competitors' prices on certain of its products such as motor oil. In
particularly price sensitive markets, the Company offers a one-year warranty on
its products, as an alternative to a more costly lifetime warranty.
STORE OPERATIONS
Store Formats
Chief's current store prototype is 5,400-6,000 square feet in size, and the
Company is aggressively expanding or relocating its smaller stores into larger
facilities at better locations. Since June 1994, the Company has remodeled,
relocated or expanded 311 stores. Chief has increased the average size of its
stores to 3,853 square feet at March 30, 1997 from 3,312 square feet at year-end
1992.
The following table sets forth certain information regarding the Company's
stores by size as of March 30, 1997.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE
STORE SIZE OF STORES OF STORES
- ---------- --------- ----------
<S> <C> <C>
5,000 sq. ft. or greater.................................... 91 17%
4,000 -- 5,000 sq. ft. ..................................... 106 19
3,500 -- 4,000 sq. ft. ..................................... 171 31
3,000 -- 3,500 sq. ft. ..................................... 39 7
Less than 3,000 sq. ft...................................... 140 26
--- ---
Total............................................. 547 100%
--- ---
</TABLE>
The Company emphasizes customer service and convenience with its store
size, hours of operation and locations. The Company's stores range from 1,840 to
10,640 square feet, with newer stores averaging 5,400 to 6,000 square feet, and
are generally located in neighborhood shopping centers, shopping center pads or
other high
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<PAGE> 34
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 accessories in
self-service shelves and aisles and stocks "hard" parts, which generally demand
a higher level of employee assistance, behind a "high steel" parts counter,
attended by a parts-knowledgeable salesperson.
Geographic Distribution
The Company's 547 stores are organized into five geographic regions, each
administered by a Regional Vice-President who oversees from four to 12 District
Managers. District Managers are responsible for nine to 20 stores. The Company's
headquarters are located in Dallas, Texas, and the Company operates two
warehouse and distribution centers: one near Dallas in Seagoville, Texas and one
near Los Angeles in Cerritos, California. The table below shows the location and
number of the Company's 547 operating stores, eight principal offices and two
warehouses by state as of March 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF
OPERATING NUMBER OF OFFICES
STATE STORES AND WAREHOUSES
- ----- --------- -----------------------
<S> <C> <C>
California.......................................... 381 4 offices, 1 warehouse
Texas............................................... 129 4 offices, 1 warehouse
Nevada.............................................. 25 --
Tennessee........................................... 8 --
Arizona............................................. 3 --
Arkansas............................................ 1 --
--- -----------------------
Total..................................... 547 8 offices, 2 warehouses
--- -----------------------
</TABLE>
STORE DEVELOPMENT AND EXPANSION STRATEGY
The Company operates as a neighborhood store, and promotes this image by
generally selecting store sites in high density, high visibility areas such as
shopping centers and high traffic street corners. Chief's management continually
reevaluates the competitive position and profitability of its stores to
determine which stores would benefit from relocation or remodeling and in which
areas it should open new stores. The Company has begun to seek locations in
smaller communities near cities it currently serves, and which the Company
believes are not currently being served by automotive retail chains. The Company
is seeking to penetrate further its existing markets in the Western United
States by (i) expanding successful stores at existing locations and, where
necessary, by relocating stores in the same market to maximize sales volume and
profitability at proven sites and (ii) adding new stores in markets contiguous
to those currently served by the Company in order to increase market
penetration, while benefiting from economies of scale in advertising,
distribution and management costs.
The Company plans to open approximately 40 new stores and to relocate or
expand approximately 25 stores in fiscal 1997, primarily in its existing
markets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." As a result of its
new, relocated and remodeled stores, the Company expects that by the end of
1997, only 19% of its stores will be less than 3,000 square feet. Substantially
all of Chief's remodeled, expanded and new stores have the capacity to carry
approximately 16,000 SKUs and Chief stores with commercial sales capabilities
carry a minimum of 20,000 SKUs.
The Company routinely evaluates existing locations to determine which
stores could increase sales, market share and profitability by remodeling.
Remodeling may consist of one or more of the following: (i) enlarging the store,
usually by leasing adjacent premises; (ii) creating a parts counter and high
steel sales area; and (iii) image enhancement through cosmetic changes to the
store to update signage, fixtures, store frontage, lighting and/or
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<PAGE> 35
floor covering. The Company has remodeled 292 stores since June 1994, at an
approximate total cost of $15.4 million and expects to complete 80 remodels in
1997, at an approximate total cost of $2.5 million.
The Company performs new store site analysis using internally developed
methods, procedures and models which incorporate trade area demographics (such
as population density, growth patterns, age, per capita income and vehicle
traffic counts), competitive aspects (such as the number and type of existing
automotive-related facilities, including automotive parts stores and other
competitors, within a specified radius of the potential new location) and prior
experience from similar types of locations. The Company's real estate
representatives perform initial site sourcing and analysis with assistance from
local real estate brokerage firms. Appropriate managers within the Company
perform further review and approvals and compare potential locations to existing
store locations to determine opportunities for relocating or expanding existing
stores and opening new stores. The Company's new stores typically become
profitable during the first year of operation.
The following table sets forth the Company's store development activities
during the period indicated.
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED MARCH
-------------------------------- -------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Stores at beginning of period................... 526 495 492 495 520 520 544
New stores...................................... 2 14 18 34 51 12 5
Relocated stores................................ 2 1 6 3 12 2 2
Closed stores (including relocated stores)...... (35) (18) (21) (12) (39) (4) (4)
--- --- --- --- --- ---- ----
Stores at end of period............... 495 492 495 520 544 530 547
=== === === === === ==== ====
Remodeled or expanded stores.................... 25 29 38 90 159 91 18
=== === === === === ==== ====
</TABLE>
WAREHOUSE AND DISTRIBUTION
The Company services all its stores from two warehouse distribution
centers, one located in Cerritos, California, near Los Angeles and one in
Seagoville, Texas, near Dallas. Substantially all of the Company's merchandise
is shipped by vendors to the Company's distribution centers with deliveries
being made to each of the Company's stores once per week, with the exception of
batteries, which are shipped directly to stores by the vendor. In order to
improve the efficiency and accuracy of its distribution operations, the Company
has installed portable radio frequency computer terminals in its stores and its
distribution centers. These terminals automate inventory management, as well as
store merchandise returns and shipment quality assurance.
The following table sets forth certain information relating to the
Company's two main distribution centers as of March 30, 1997:
<TABLE>
<CAPTION>
NUMBER
APPROXIMATE OF
DISTRIBUTION TOTAL STORES
CENTER AREA SERVED SIZE (SQ. FT.) SERVED
- -------------- ----------- -------------- ------
<S> <C> <C> <C>
Seagoville, TX Texas, Tennessee, Arkansas............................ 245,000 138
Cerritos, CA California, Nevada, Arizona........................... 304,000 409
------- ---
Total................................................. 549,000 547
======= ===
</TABLE>
COMMERCIAL SALES PROGRAM
Although Chief's primary focus is the DIY customer, the Company believes
that a successful commercial sales program will complement the Company's
existing retail business. The commercial segment of the automotive aftermarket
parts market constitutes approximately $40-$45 billion of annual sales (57% of
the total automotive aftermarket parts market). In 1995, the Company began to
develop its commercial sales program, called the Professional Parts Warehouse
("PPW"), by providing service to commercial customers from existing Company
stores. The PPW program is targeted to professional mechanics, auto repair
shops, auto dealers, fleet owners, mass and general merchandisers with auto
repair facilities and other commercial repair outlets located near the Company's
stores. As of April 30, 1997, the Company has implemented the PPW program in 32
existing
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<PAGE> 36
retail stores, including 20 in California, ten in Texas and two in Nevada. 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 two centralized commercial call centers, one in Texas, and one in
California. Commercial customers call a toll-free number and are automatically
routed to their preferred specialist, one member of a two-person team
responsible for that commercial customer.
In addition, in three of its commercial stores, the Company is testing a
program in which it will stock an additional 6,000 SKUs of Beck-Arnley products,
a quality name brand of import replacement parts. The Company believes that the
Beck-Arnley products will appeal to commercial customers that repair foreign
automobiles which could potentially create a broader commercial customer base
for the PPW program.
In fiscal 1996, the Company's sales to commercial customers were $3.9
million. The Company believes that its selective roll-out of this PPW program
will lead to further growth in sales to commercial customers in 1997.
INFORMATION SYSTEMS
Management has adopted a strategy of enhancing Chief's customer service,
productivity and its inventory and merchandising management through selected
implementation of new and improved technology-based systems. The Company's
management information systems constitute an important part of the Company's
operations and growth strategy. The Company has increased the capabilities of
its staff through accelerated employee training programs and the hiring of
additional information systems staff. The Company estimates that the planned
implementation and enhancement of its information systems will cost an aggregate
of approximately $1.6 million in 1997 and an aggregate of $19.6 million over the
next five years, which the Company intends to finance with a combination of
funds generated from operations and borrowings under the New Credit Facility.
Point of Sale System. Each of the Company's stores has a point-of-sale
system that is linked to the Company's IBM AS400 central mainframe computer
located in Seagoville, Texas. Chief expanded the capabilities of this system in
1994 with the integration of its electronic parts catalog ("EPC") with its point
of sale system.
Electronic Parts Catalog. The Company has installed an electronics parts
catalog in all of its stores which has been designed to improve the Company's
competitiveness by offering improved service to customers and which has been
integrated with the Company's point of sale system. The EPC is a user-friendly
tool which catalogs over one million parts and which enables the Company's
employees to assist customers in parts selection and ordering. The integration
of the point of sale system and the EPC allows employees to ascertain whether
Chief carries any particular item listed in the EPC, and speeds the check-out
process. The EPC displays related parts that store employees can recommend to
the customer for purchase and can be used as a selling tool. The EPC enables a
faster, more accurate search for customer parts requirements, improves special
order capabilities, quickens the pace of new employee training, improves
employee confidence in making parts recommendations and can increase sales of
related items and reduce returns.
Perpetual Inventory System. The Company has developed and is currently
installing a store level perpetual inventory system that electronically monitors
inventory, allowing employees to determine which products are in stock, on order
or overstocked. The Company has currently installed the perpetual inventory
system in 97 stores, and it expects to install the system in all of its stores
by the end of 1997.
Radio Frequency Terminals. The Company is installing portable radio
frequency ("RF") computer terminals in all stores to reduce labor, increase
productivity and facilitate management of the perpetual inventory system. The RF
terminals validate the inventory in stock in each store and will match such
information with the perpetual inventory system. The Company plans to implement
additional RF capabilities during the next 12 months in order to automate price
management as well as receiving, shipping and ordering. Using the RF terminals,
the Company expects that each store will be able to tailor ordering to its
particular needs instead of automatically reordering inventory.
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<PAGE> 37
In-Store Printing System. The Company expects that by the end of 1997 each
store will have updated laser printers with the capacity to produce signs and
shelf labels that automatically reflect local market pricing. In-store printing
will automate price changes, improve price integrity and reduce store labor
costs associated with price changes. Such signs and shelf labels are currently
produced by local advertising firms and delivered to store locations, which is
more costly and less responsive than in-store printing.
Merchandising Systems. The Company recently installed the Chief Auto
Reporting System, a graphical information system for sales and inventory
analysis. The system provides information to the level of a specific item in a
specific store for a specific day. During the third quarter of 1996, the Company
installed a client server in order to automate the creation of plan-o-grams,
facilitate product movement and maximize product placement on store shelves.
Electronic Vendor Communication Systems. As a result of a focused effort to
establish electronic data imaging communications with its vendors, the Company
currently orders over 90% of its purchases electronically. The Company also is
beginning to introduce other enhanced electronic vendor communication
techniques, such as Vendor Managed Inventory and an Automated Invoice Matching
System.
CUSTOMER SERVICE
The Company believes that a distinct understanding of its customer base is
important to providing superior customer service. The Company has conducted
extensive market research to characterize its customers and analyze their
awareness of the Company. Customer feedback has indicated that Chief customers
value five principal qualities in Chief stores -- convenience, value, service,
selection and dependability. The Company has focused on enhancing these
qualities in order to attract existing and future Chief customers and to improve
the quality of the service which the Company can offer to its customers.
As part of its overall operating strategy to position Chief as a premier
retailer for the DIY customer and to satisfy customer expectations, the Company
has made significant investments in training service personnel and improving
store-level systems. This strategy enables the Company's in-store personnel to
serve effectively their customers' automotive needs. The Company has made a
concerted effort to attract and retain "parts knowledgeable" people who can
provide technical assistance to the customer. In order better to serve its
customers, the Company has adopted several service initiatives, including: free
testing of starters, alternators and batteries; free charging of batteries;
installation assistance for batteries, windshield wipers, headlights and other
selected products; flexible return policies; and lifetime warranties.
The Company believes that recruiting, training and retaining high quality
employees is an important ingredient of successful customer service. The Company
has implemented structured on-the-job training programs and incentives to
encourage the development of technical expertise of its store personnel that
enables them to effectively advise customers on product selection and use. The
Company's employees go through "Fast Start" video and in-store training,
followed by seminars with some of the Company's principal vendors. At the
beginning of 1997, the Company announced a new incentive program designed to
encourage its employees to become ASE certified parts specialists, a designation
awarded by the National Institute for Automotive Service Excellence and a symbol
of technical expertise recognized throughout the automotive industry. The
Company also provides continuing training programs for store managers and
district managers designed to assist them in increasing store-level efficiency
and improving their potential for promotion. A majority of the Company's store
managers have completed an internal Store Management Certification Program. The
Company believes that its training programs enable store employees to provide a
high level of service to a wide variety of customers ranging from less-informed
DIY consumers to more sophisticated purchasers requiring diagnostic advice.
ADVERTISING
The Company has pursued an aggressive advertising campaign designed to
enhance the name recognition of the Company and to increase awareness of Chief's
key strengths, such as customer service, competitive pricing, quality
merchandise, product selection, convenient locations and extended hours. The
Company has commenced an "All New Chief" advertising campaign in its six primary
market areas, most recently in the Los Angeles, California market, which
emphasizes the Company's significantly improved merchandising strategy. The
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<PAGE> 38
Company's advertising strategy includes television, radio and newspaper
advertising. The Company also utilizes an in-store radio advertising and music
program and in-store promotional displays that are intended to provide a more
pleasant shopping environment, as well as increase product movement. The
Company's bright, contemporary logo and supporting outdoor signage are designed
to be visible and legible to consumers day and night. The Company's in-store
signs and displays are used to promote products and identify departments, as
well as to announce store specials. Much of the Company's advertising is
co-sponsored by product vendors.
In 1996, Troy Aikman agreed to act as a spokesman for the Company. As the
quarterback for the Dallas Cowboys and a former quarterback for UCLA, Mr. Aikman
has strong appeal in the Company's two largest markets. Mr. Aikman is a
nationally recognized sports figure, and the Company believes that his high
visibility and popularity will be valuable to the Company's advertising efforts.
Mr. Aikman is featured in the Company's television and radio advertisements, as
well as in print advertising. In addition, to further its image with the car
enthusiast, the Company has sponsored National Hot Rod Association car racing
events. These events have given the Company national exposure via live ESPN
television coverage.
COMPETITION
The Company competes principally in the DIY segment of the automotive
aftermarket. Although the number of competitors and the level of competition
vary by market area, the DIY market is highly fragmented and generally very
competitive. The Company faces competition primarily from similar auto parts
retail chains and, to a lesser extent, tire stores, mass merchandisers, car
dealerships, gas stations and jobber retailers.
The Company competes primarily with national and regional automotive
aftermarket retailers such as AutoZone, Inc., CSK Auto, Inc.
(Checker/Schuck's/Kragen), Grand Auto, Hi-Lo Automotive, Inc. and The Pep
Boys -- Manny, Moe and Jack, Inc. The Company's competitors also include (i)
certain "conglomerate retailers" such as Dart Group Corp. (Trak Auto), (ii)
automobile dealers and mass merchandisers that carry automotive replacement
parts, maintenance items and accessories such as K mart Corporation, the Target
Stores division of Dayton Hudson Corp., Wal-Mart Stores, Inc. and Sears Roebuck
& Co. (Western Auto), and (iii) wholesalers or traditional jobber retail stores
(some of which are associated with national automotive parts distributors or
associations such as National Auto Parts Association ("NAPA")) such as Green
Light, Automotive Parts Systems, Big "A" Auto Parts, Bumper to Bumper and
Carquest. Traditional wholesalers or jobber retailers, such as NAPA, also
provide significant competition for the Company's commercial business.
The principal competitive factors that affect the Company's business are
store location, customer service, quality of employees and product selection,
availability, quality and price. While the Company believes that it competes
effectively in its various geographic areas, many competitors are larger in
terms of sales volume and have greater financial resources.
EMPLOYEES
As of April 30, 1997, the Company employed a total of 5,862 employees,
consisting of 3,337 full-time employees and 2,525 part-time employees.
Approximately 87% of these employees were employed in store operations, 8% in
administrative or corporate positions and 5% in distribution. On February 13,
1997, the Company entered into a collective bargaining agreement with respect to
approximately 20 truck drivers and yard employees at the Company's Cerritos,
California distribution center. The Company has had no labor-related work
stoppages and believes that its labor relations are good.
PROPERTIES
As of March 30, 1997, the Company owned 53 of its 547 operating stores and
leased or subleased the remaining 494 stores from third parties under leases
expiring between 1997 and 2028. Eighteen of the Company-owned buildings are
located on property which is ground leased from third parties under leases
expiring between 1997 and 2007. In most cases, such leases are subject to
customary renewal options. The Company owns 245,000 square-foot distribution
center in Seagoville, Texas, leases its 304,000 square-foot distribution center
in Cerritos, California, and leases its 27,000 square-foot executive offices in
Dallas, Texas. The Company believes that additional facilities, if needed, would
be readily available on a timely basis on commercially reasonable terms. In
addition, the Company believes that the leased space that houses its existing
office, warehouse and distribution facilities is not unique and could be readily
replaced, if necessary, at the end of the terms of its
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<PAGE> 39
existing leases on commercially reasonable terms. The minimum lease term on 74
of the Company's stores under 3,500 square feet will expire before the year 2000
and 25 of the Company's stores under 3,500 square feet are Company-owned. See
Note 5 to Notes to Financial Statements.
TRADENAMES AND TRADEMARKS
The Company owns and has registered the trademarks "Chief Auto Parts,"
"America's Chief Auto Parts Stores" and "Chief" with the United States Patent
and Trademark Office for use in connection with the automotive parts retailing
business throughout the United States. The Company owns and has registered the
trademark "Professional Parts Warehouse" and "PPW" in connection with its
commercial sales program. In addition, the Company owns and has registered
numerous trademarks, such as "Ultra Last," for use in connection with many of
its private label products including alternators, starters, brake pads and hand
tools. The Company believes that its various tradenames and trademarks are
important to its merchandising strategy, but that its business is not dependent
on any particular service mark, tradename or trademark.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local laws and
governmental regulations relating to the operation of its business, including
those governing battery recycling and used oil and oil filters, and regarding
ownership and operation of real property. The Company handles hazardous
materials during its operations, and its customers may also bring or use
hazardous materials or used oil onto the Company's properties. The Company also
currently provides a recycling program for the collection of used oil and oil
filters at certain of its stores as a service to its customers pursuant to
agreements with third party vendors. In addition, the Company collects and
temporarily holds battery cores pursuant to an agreement with the Company's
battery vendor. Pursuant to these agreements, the used oil and oil filters and
battery cores are collected by Company employees, deposited into vendor-supplied
containers/pallets and then disposed of by the third-party vendors. To date,
compliance with applicable laws and regulations has not had a material effect on
the Company's results of operations and financial condition. However,
environmental laws have changed rapidly in recent years, and the Company may be
subject to more stringent environmental laws in the future. There can be no
assurance that more stringent environmental laws would not have an adverse
effect on the Company's results of operations.
In addition, under environmental laws, a current or previous owner or
operator of real property may be liable for the cost of removal or remediation
of hazardous or toxic substances on, under, or in such property. Such laws often
impose joint and several liability and may be imposed without regard to whether
the owner or operator knew of, or was responsible for, the release of such
hazardous or toxic substances. Compliance with such laws and regulations has not
had a material impact on the Company's operations to date, but there can be no
assurance that future compliance with such laws and regulations will not have a
material adverse effect on the Company or its operations. The Company is also
indemnified by Southland against losses associated with any environmental
contamination existing on the date of the sale of the Company by Southland.
LEGAL PROCEEDINGS
The Company is the defendant in two lawsuits alleging that the Company
failed to pay store managers and associate store managers in California for
overtime compensation as required by California law. On September 21, 1993, a
lawsuit was filed in the Superior Court of California, County of Alameda by
Stephen Cooper, a manager, on his own behalf and on behalf of all persons
similarly situated. Mr. Cooper is alleging that the Company's store managers and
associate store managers in California are not exempt employees under California
law, and that the Company failed to compensate its store managers and associate
store managers for overtime compensation as required by California law. In
December 1994, the court denied class certification to Mr. Cooper. However,
since the date this lawsuit was filed, approximately 242 current and former
employees have joined Mr. Cooper's lawsuit. In addition to the claims filed in
Alameda County, 15 current and former employees filed a lawsuit based on the
same claims against the Company on March 5, 1996 in the Superior Court of
California, County of San Joaquin. The Company is vigorously defending against
the claims of all plaintiffs.
In September 1996, at the recommendation of the Alameda court, the parties
submitted to binding arbitration with respect to eight of the Cooper plaintiffs.
On March 10, 1997, the arbitrator ruled in favor of the eight plaintiffs
involved in the arbitration with respect to liability, finding that these eight
plaintiffs are entitled to
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<PAGE> 40
(i) compensation for the overtime hours they worked, (ii) an additional amount
equal to 30 days' compensation (in the case of the seven plaintiffs no longer
employed by the Company) as waiting time penalties for the Company's "willful"
failure to pay overtime compensation, (iii) interest on such unpaid compensation
and (iv) reasonable attorneys' fees and costs of arbitration. The arbitrator has
not yet made any determination with respect to calculation of damages. This
arbitration decision has no binding precedential or stare decisis effect on the
remaining 235 plaintiffs' cases. However, regardless of the outcome of the
damage phase of the arbitration, the Company may have to litigate, arbitrate or
settle the remaining cases and may incur significant legal expenses in
connection therewith, and the Company could be subject to significant
compensatory damages or settlement costs. In addition, there are approximately
700 store managers and associate store managers previously or currently employed
by the Company in California who have not brought or joined in the suit against
the Company as of the date hereof. Following the Alameda court's denial of class
certification to the plaintiffs, the court required the Company to send notice
in October 1995 to all potential plaintiffs (current and former managers as of
that date) notifying them of this action and providing them the opportunity to
contact the plaintiffs' attorney. The Company is currently conducting settlement
discussions with the 243 plaintiffs. Management is unable to predict the outcome
of the damage phase of the arbitration, the remaining lawsuits or the settlement
discussions, or the probability of additional lawsuits, at this time. However,
if a significant number of plaintiffs were to prevail on all elements of their
claims against the Company or if a significant number of additional current or
former managers were to bring suit and prevail as noted above, it could have a
material adverse effect on the Company.
From time to time, the Company has been and is involved in various other
legal proceedings. Management believes that such other litigation is routine in
nature and incidental to the conduct of its business, and that none of such
other litigation, if determined adversely to the Company, would have a material
adverse effect, individually or in the aggregate, on the Company.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of the Company. Each director of the Company
will hold office until the next annual meeting of stockholders of the Company or
until his successor has been elected and qualified. Officers of the Company are
elected by the Board of Directors of the Company and serve at the discretion of
the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
David H. Eisenberg........ 60 President, Chief Executive Officer and Chairman of the Board
Larry L. Buresh........... 52 Vice President -- Information Systems
Thomas A. Hough........... 44 Vice President -- Finance, Treasurer and Chief Financial
Officer
Mary M. Mahon............. 43 Vice President, General Counsel and Secretary
William V. Pantuso........ 45 Vice President -- Merchandising and Distribution
Paul F. Stevenson......... 47 Vice President -- Operations
Harold S. Eastman......... 57 Director
Stephen A. Kaplan......... 37 Director
Richard Masson............ 38 Director
</TABLE>
Officers are appointed to serve until the next annual meeting of the Board
of Directors, and until their successors have been appointed or elected and have
been qualified. They serve at the pleasure of the Board of Directors, subject to
any applicable employment agreements. Directors are elected to serve until the
next annual meeting of stockholders, and until their successors have been duly
elected and qualified.
David H. Eisenberg. Mr. Eisenberg joined the Company as President and Chief
Executive Officer in July 1992 and joined its Board of Directors as Chairman in
October 1992. Mr. Eisenberg was employed by Peoples Drug Stores Incorporated
from 1952 to 1991, holding various positions, most recently President and Chief
Operating Officer. From 1991 to July 1992, Mr. Eisenberg was President and Chief
Executive Officer of Eisenberg & Associates, Inc., a retail consulting firm.
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<PAGE> 41
Larry L. Buresh. Mr. Buresh joined the Company as Vice
President -- Information Systems in August 1995. From December 1994 to July
1995, Mr. Buresh was a Senior Director at Sears Roebuck and Company in the
information systems department. Mr. Buresh was the Vice President, Information
Services and Distribution at Frank's Nursery and Crafts, Inc. from 1986 to
December 1994, and was a Vice President at Ben Franklin Stores, Inc. from 1981
to 1986.
Thomas A. Hough. Mr. Hough has served as Vice President -- Finance,
Treasurer and Chief Financial Officer of the Company since August 1993. From
November 1991 to August 1993, he was the Chief Financial Officer of Roy Rogers
Restaurants, a subsidiary of Hardees Food Systems Inc. From 1988 to 1990, Mr.
Hough served as Vice President -- Controller and then, from 1990 to 1991, as
Vice President -- Chief Financial Officer and Treasurer of Peoples Drug Stores
Incorporated. From 1975 to 1988, Mr. Hough served in positions in the audit and
consulting departments of Deloitte & Touche in Washington, D.C. and Baltimore,
Maryland.
Mary M. Mahon. Ms. Mahon has served as the Vice President, General Counsel
and Secretary of the Company since January 1993. From 1991 to 1993, Ms. Mahon
was in the private practice of law, prior to which she worked for 13 years in
various positions in the Legal Department at Peoples Drug Stores Incorporated
beginning as a staff attorney in 1978. From 1988 to 1991, Ms. Mahon served as
Executive Vice President, General Counsel and Secretary of Peoples Drug Stores
Incorporated.
William V. Pantuso. Mr. Pantuso has served as Vice
President -- Merchandising and Distribution of the Company since April 1994. Mr.
Pantuso joined the Company in March 1993 as Director of Inventory Management and
was named Director of Distribution and Inventory Management in October 1993.
Prior to joining the Company, Mr. Pantuso spent 20 years with Peoples Drug
Stores Incorporated in positions in store operations and marketing control
(pricing department and allocation/distribution) including Director of Marketing
Services from 1985 to 1989, Vice President of Sales Promotion/Merchandising from
1989 to 1991 and Vice President of Marketing for Hillcrest Sales, a division of
Peoples Drug Stores Incorporated, from 1991 to March 1993.
Paul F. Stevenson. Prior to joining the Company as Vice
President -- Operations in 1988, Mr. Stevenson served as West Coast Division
Manager for the Chief Auto Parts Division of Southland. Mr. Stevenson began his
employment with Southland in 1974, holding various operations and human resource
positions within Southland's Retail Store Group, including District Manager,
Zone Manager, Group Personnel Manager and Corporate Store Group Personnel
Manager.
Harold S. Eastman. Mr. Eastman has served as a director of the Company
since July 1994. Mr. Eastman is President of Peregrine Capital Co., an
investment group. From June 1989 until April 1992, Mr. Eastman held various
positions with McCaw Cellular Communications, Inc., including Vice Chairman and
President. Mr. Eastman acts as an advisor to various affiliates of Trust Company
of the West ("TCW"), including The Principal Fund.
Stephen A. Kaplan. Mr. Kaplan has served as a director of the Company since
June 1994. Mr. Kaplan is a principal of Oaktree. Prior to joining Oaktree in
June 1995, Mr. Kaplan was a Managing Director of TCW. Prior to joining TCW in
1993, Mr. Kaplan was a partner in the law firm of Gibson, Dunn & Crutcher. Mr.
Kaplan serves as a director of Decorative Home Accents, Inc., KinderCare
Learning Centers, Inc., Vision Hardware Group, Inc. and various private
companies.
Richard Masson. Mr. Masson has served as a director of the Company since
June 1994. Mr. Masson has been a principal of Oaktree since May 1995. From 1988
to May 1995, Mr. Masson was a partner of TCW Special Credits and Managing
Director of TCW and TCW Asset Management Company ("TAMCO"). Prior to joining TCW
in 1988, Mr. Masson was with the valuation advisory firm of Houlihan, Lokey,
Howard & Zukin, Inc. Mr. Masson serves as a director of Aureal Semiconductor,
Inc.
DIRECTOR COMPENSATION
Currently, the Company's directors receive no cash compensation for serving
on the Board, but directors are reimbursed for expenses reasonably incurred in
connection with their services as directors.
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<PAGE> 42
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee (the "Audit Committee") and a
Compensation Committee (the "Compensation Committee"). The Audit Committee is
composed of Messrs. Eastman and Masson. The Audit Committee is responsible for
reviewing the scope of the independent auditors' examinations of the Company's
financial statements and receiving and reviewing their reports. The Audit
Committee also meets with the independent auditors, receives recommendations or
suggestions for changes in accounting procedures and initiates or supervises any
special investigations it may choose to undertake. The Compensation Committee is
composed of Messrs. Eastman, Eisenberg and Kaplan. The Compensation Committee
determines the Company's policy with respect to the nature and amount of all
compensation of the Company's executive officers, and administers the Company's
option plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Mr. Eisenberg, a member of the Company's Compensation Committee, also
serves as the President and Chief Executive Officer of the Company.
The Company financed the purchase of shares of Common Stock pursuant to the
Management Stock Agreement for several of the Management Stockholders, including
Mr. Eisenberg. Mr. Eisenberg executed two Promissory Notes in favor of the
Company and pledged his shares of Common Stock as collateral for such Promissory
Notes pursuant to a stock pledge agreement. His Promissory Notes bear interest
at a rate of 7.05% per annum and mature on October 31, 2002. The maximum
aggregate principal amount outstanding in fiscal 1996 and as of December 29,
1996 on Mr. Eisenberg's Promissory Notes was $681,026 and $638,838,
respectively.
In connection with the Recapitalization, Mr. Eisenberg will repay 50% of
the principal amount outstanding at the date of the Recapitalization under his
Promissory Notes, which payment will equal $319,419, Mr. Eisenberg's shares of
Common Stock will continue to serve as collateral for the amounts remaining
outstanding under his Promissory Notes, including shares of Common Stock
acquired pursuant to the exercise of his options to buy shares of the Common
Stock. Mr. Eisenberg, subject to deferral under certain circumstances, will make
additional annual payments on his Promissory Notes equal to 15% of any cash
bonus paid to him in such year, excluding amounts paid in connection with the
Recapitalization and payments made pursuant to the Bonus Plan.
In connection with the Recapitalization, the Company will pay the bonuses
accrued through fiscal 1996 pursuant to the Bonus Plan. Mr. Eisenberg will
receive a bonus payment of $1.4 million. In addition, Mr. Eisenberg will receive
approximately $3.4 million of the $75.0 million to be distributed to the
stockholders of the Company in the Recapitalization. Mr. Eisenberg will use
$319,419 of such $3.4 million to repay a portion of the principal amount
outstanding under his Promissory Notes and $2.26 million of such $3.4 million to
exercise his outstanding options to purchase shares of the Common Stock. The
remaining $864,406 of such $3.4 million is a partial return of Mr. Eisenberg's
original investment in the Company.
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
39
<PAGE> 43
$100,000 (the "Named Executive Officers"). The current compensation arrangements
for each of these officers are described in "Employment Arrangements" below.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND SALARY BONUS COMPENSATION COMPENSATION
PRINCIPAL POSITION ($) ($) ($)(1)(2) ($)
------------------ ------- ------- ------------ ------------
<S> <C> <C> <C> <C>
David H. Eisenberg, 406,458 781,178(3) 19,200 9,047(4)
President and Chief Executive
Officer
Larry L. Buresh, 145,500 61,713(5 -- 51,658(6)
Vice President -- Information
Systems
Thomas A. Hough, 175,500 214,958(7) 10,200 2,015(4)
Vice President -- Finance and Chief
Financial Officer
Mary M. Mahon, 145,531 169,573(8) 10,200 1,855(4)
Vice President, General Counsel and
Secretary
Paul F. Stevenson, 167,667 178,373(9) 10,200 1,224(4)
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 includes $451,178 earned pursuant to the Chief Auto Parts Inc.
1994 Nonqualified Executive Target Bonus Plan.
(4) Amount paid on behalf of such officer for a term life insurance policy.
(5) This amount includes $85,183 earned pursuant to the Chief Auto Parts Inc.
1994 Nonqualified Executive Target Bonus Plan.
(6) This amount includes $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.
(7) This amount includes $141,798 earned pursuant to the Chief Auto Parts Inc.
1994 Nonqualified Executive Target Bonus Plan.
(8) This amount includes $109,573 earned pursuant to the Chief Auto Parts Inc.
1994 Nonqualified Executive Target Bonus Plan.
(9) This amount represents $109,573 earned pursuant to the Chief Auto Parts Inc.
1994 Nonqualified Executive Target Bonus Plan.
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
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<PAGE> 44
Named Executive Officers are expected to exercise their options. See "Principal
Stockholders" and "The Recapitalization."
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AS OF IN-THE-MONEY OPTIONS AT
DECEMBER 29, 1996(#) DECEMBER 29, 1996(1)
---------------------------- ----------------------------
NAME EXERCISABLE NONEXERCISABLE EXERCISABLE NONEXERCISABLE
---- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
David H. Eisenberg................... 794.49 794.49 $0 $0
Larry L. Buresh...................... 75 225 0 0
Thomas A. Hough...................... 249.69 249.69 0 0
Mary M. Mahon........................ 192.95 192.95 0 0
Paul F. Stevenson.................... 192.95 192.95 0 0
</TABLE>
- ---------------
(1) The Common Stock of the Company is not publicly traded. As a result, the
Company has decided to use $1,419.71 per share as the value of the Common
Stock underlying the unexercised options for the purpose of these
calculations. The value of the unexercised options is equal to the net per
share value of such Common Stock as of December 29, 1996 ($1,419.71), less
the applicable per share exercise price of the option ($1,419.71). The
Company determined the fair market value of the underlying Common Stock
using the same formula used to calculate the value of the Common Stock in
the Management Stock Agreements (as defined) pursuant to which, under
certain circumstances, the Company may purchase and certain stockholders
may sell shares of Common Stock to the Company. Using this formula, fair
market value (as defined) is computed assuming that the value of the
Company's aggregate Common Stock is equal to the sum of (A) the product of
Adjusted EBITDA (as defined in the Management Stock Agreement) for the four
fiscal quarters most recently completed as of December 29, 1996 multiplied
by a multiple of 5.0, (B) cash as of December 29, 1996 and (C) an amount
equal to the aggregate exercise price of all options and warrants then
outstanding less amounts that would be payable under the Bonus Plan had all
options outstanding under the 1994 Stock Option Plan been exercised less
(D) total indebtedness including capitalized leases as of December 29,
1996. Adjusted EBITDA for purposes of this calculation for the four fiscal
quarters most recently completed as of December 29, 1996 was $33.3 million
which would result in a pre-discount valuation of approximately $1,749 per
share. Because such amount is payable only upon certain circumstances
including death, disability or termination of employment, a discount of at
least 10%-20% appears appropriate, providing a range in value from $1,312
to $1,487 per share. As the option exercise price is $1,420 and is within
this range, the Company believes the option exercise price is the
appropriate price to use as the value of the Common Stock underlying the
options for purposes of the table.
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
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<PAGE> 45
for yearly bonuses based on the Company's performance. The agreement provides
that if Mr. Buresh's employment is terminated for any reason other than for
cause (as defined in the agreement), the Company will pay Mr. Buresh's salary
for up to six months, relocation expenses or an additional month of base salary
(at Mr. Buresh's option), a prorated bonus and outplacement services.
Management Stock Purchases
In order to attract, retain and motivate selected employees, officers and
directors and to encourage such persons to devote their best efforts to the
business and financial success of the Company by providing for the purchase of
Common Stock, the Company implemented a management stock purchase plan. Pursuant
to certain stock purchase agreements (the "Management Stock Agreement"), the
Company granted each of the Company's executive officers and certain other
selected employees and Harold S. Eastman, a director of the Company
(collectively, the "Management Stockholders"), the right to purchase from the
Company up to an aggregate of 2,789.55 shares of Common Stock at a purchase
price of $1,419.71 per share. In addition, the Company agreed to finance each
Management Stockholder's, except for Mr. Eastman's, purchase of such Common
Stock to the extent desired by such Management Stockholder. Each Management
Stockholder who received financing from the Company executed one or more
promissory notes (the "Promissory Notes") to the Company and pledged his or her
shares of Common Stock as collateral for such Promissory Notes. In connection
with the Recapitalization, each Management Stockholder with amounts outstanding
under any Promissory Note will repay 50% of the principal amount outstanding on
the date of the Recapitalization under such Promissory Note. See "Certain
Transactions."
The Management Stock Agreement grants to each of the Company, The Principal
Fund and the Management Stockholders certain rights or obligations with respect
to the Common Stock upon the occurrence of particular events. The Management
Stock Agreement provides that, if a Management Stockholder ceases to be employed
by the Company or the Company is lawfully entitled to accelerate a Promissory
Note (a "Trigger Event"), the Company may elect to repurchase all of such
Management Stockholder's shares of Common Stock (a "Call Option"). If the
Company does not chose to exercise its Call Option, the Management Stockholder
may cause the Company to repurchase all of such Management Stockholder's shares
of Common Stock (a "Put Option"). The Management Stock Agreement also provides
for drag along/tag along rights, pursuant to which, in the event The Principal
Fund elects to sell its interest in the Company to an unaffiliated third party
(a "Purchaser"), (i) The Principal Fund may compel the Management Stockholders
to sell their shares of Common Stock to the Purchaser and (ii) the Management
Stockholders may require the Purchaser to purchase their shares of Common Stock,
in each case on the same terms and in the same fractional amount as The
Principal Fund proposes to sell its interest in the Company to such Purchaser.
In addition, the Management Stock Agreement provides the Management Stockholders
with the right, in certain situations, to require that the Company register a
number of the Management Stockholders' shares of Common Stock under the
Securities Act. Subject to certain conditions, Management Stockholders may, at
any time the Company proposes to register shares of the Common Stock under the
Securities Act, request that their shares of Common Stock be included in such
registration. In addition, subject to certain conditions, after the earlier of
an initial public offering of the Company's shares and August 1, 2002, the
holders of 50% of the aggregate number of shares of Common Stock subject to the
Management Stock Agreement may one time, upon written request, require that the
Company register their shares under the Securities Act.
1994 Executive Option Plan
The Company adopted the Chief Auto Parts Inc. 1994 Executive Option Plan
(the "1994 Option Plan") to attract, retain and motivate selected employees,
officers and directors and to encourage such persons to devote their best
efforts to the business and financial success of the Company by providing for
grants of options to purchase Common Stock. The 1994 Option Plan is administered
by the Compensation Committee of the Board of Directors. The Compensation
Committee determines the employees, officers and directors who will be granted
options, the number of options that each such person will be granted and the
terms, restrictions and conditions of such options (to the extent not
inconsistent with the 1994 Option Plan).
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<PAGE> 46
The maximum number of shares of Common Stock subject to options and awards
under the 1994 Option Plan is 5,488.30 shares, subject to certain adjustments.
The 1994 Option Plan provides that the exercise price of each option is
$1,419.71 per share (subject to certain adjustments). Options become exercisable
in 25% increments: (i) on each anniversary of the date of grant if the grantee
is an employee or director of the Company on such date; (ii) on the date of
involuntary termination of employment or other relationship with the Company if
such termination is other than for cause; (iii) on the date of termination of
employment or other relationship with the Company on account of death or
permanent disability; or (iv) upon a change of control of the Company. Any
unvested options remaining after termination of a participant's employment or
other relationship or a change of control are terminated subject to the
reissuance of such options in accordance with the 1994 Option Plan. All
installments that become exercisable are cumulative and may be exercised at any
time after they become exercisable until the option expires. Options are not
transferable (other than by will, by the laws of descent or distribution, or
pursuant to a valid qualified domestic relations order).
Full payment for shares purchased upon exercise of an option must be made
at the time of exercise. The 1994 Option Plan provides that in certain
circumstances, an optionee may tender shares of Common Stock held by such
optionee for at least six months prior to the tender, in partial or full payment
of shares to be purchased upon exercise of an option. The Company's ability to
accept a tender of Common Stock is conditional upon and subject to (i) the
Company having sufficient funds legally available to purchase shares of Common
Stock, (ii) the ability of the Company to effect a purchase of Common Stock
under applicable law and (iii) any restrictions contained in the Company's
credit facilities or other debt instruments.
In addition, the 1994 Option Plan also contains restrictions on transfer,
incidental registration rights, required registration rights, a lock-up
agreement, drag-along and tag-along rights and put and call rights. However,
with respect to the tag-along rights and the put rights, the 1994 Option Plan
requires the grantee to hold the shares of Common Stock acquired pursuant to his
or her options for a period of six months before he or she may exercise such
rights.
Subject to certain limitations, the Board of Directors may amend, modify or
terminate the 1994 Option Plan. If not previously terminated, the 1994 Option
Plan terminates on June 30, 2004.
In connection with the Recapitalization, the Company will accelerate the
vesting of all outstanding options and all holders of outstanding options,
except Mr. Eastman, are expected to exercise such options.
1997 Employee Option Plan
In connection with the Recapitalization, the Company plans to adopt the
Chief Auto Parts Inc. 1997 Employee Option Plan (the "1997 Option Plan") to
attract, retain and motivate selected employees and to encourage such persons to
devote their best efforts to the business and financial success of the Company
by providing for grants of options to purchase Common Stock. The Company expects
that the 1997 Option Plan will be administered by the Compensation Committee of
the Board of Directors and will contain terms substantially conforming to the
following description. The Compensation Committee will determine the employees
who will be granted options, the number of options that each such person will be
granted and the terms, restrictions and conditions of such options (to the
extent not inconsistent with the 1997 Option Plan).
The maximum number of shares of Common Stock subject to options and awards
under the 1997 Option Plan will be 1,000 shares, subject to certain adjustments.
The 1997 Option Plan will provide that the exercise price of each option will be
set by the Compensation Committee of the Board of Directors at the time of
granting of such option. Options will become exercisable in 25% increments (i)
on each anniversary of the date of grant if the grantee is an employee of the
Company on such date, (ii) on the date of involuntary termination of employment
with the Company if such termination is other than for cause, (iii) on the date
of termination of employment with the Company on account of death or permanent
disability or (iv) upon a change of control of the Company. Any unvested options
remaining after termination of a participant's employment or other relationship
or a change of control will be terminated subject to the reissuance of such
options in accordance with the 1997 Option Plan. All installments that become
exercisable will be cumulative and may be exercised at any time after they
become exercisable until the option expires. Options will not be transferable
(other than by will, by the laws of descent or distribution, or pursuant to a
valid qualified domestic relations order). The 1997 Option
43
<PAGE> 47
Plan will require that full payment for shares purchased upon exercise of an
option be made at the time of exercise.
Subject to certain limitations, the Board of Directors will have the power
to amend, modify or terminate the 1997 Option Plan. If not previously
terminated, the 1997 Option Plan is expected to terminate on May 31, 2007.
Executive Target Bonus Plan
The Company adopted the Chief Auto Parts Inc. 1994 Executive Target Bonus
Plan (the "Bonus Plan") to attract and maintain the services of quality
management talent by rewarding certain employees for the sustained creation of
stockholder value. The Bonus Plan is administered by the Compensation Committee,
which determines the participants in the Bonus Plan, all of whom are members of
management of the Company. The terms of the Bonus Plan specify that accrued
bonuses are payable when a participant exercises options to purchase shares of
Common Stock. As a result, the exercise of options by certain management
stockholders in connection with the Recapitalization will result in the payment
of $4.0 million in cash bonuses, all of which was 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
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<PAGE> 48
does not change a director's duty of care, it enables corporations to limit
available relief to equitable remedies such as injunction or rescission. The
Company's Fourth Restated Certificate of Incorporation and By-laws include
provisions which limit or eliminate the personal liability of its directors to
the fullest extent permitted by Section 102 of the DGCL. Consequently, a
director will not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for (i) any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases, redemptions, or other distributions and (iv) any transaction
from which the director derived an improper personal benefit.
The Company's Fourth Restated Certificate of Incorporation and By-laws also
provide, in effect, that, to the fullest extent and under the circumstances
permitted by Section 145 of the DGCL, the Company will indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he or she is or was a director,
officer, employee or agent of the Company or is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation or
enterprise. The inclusion of these indemnification provisions in the Company's
Fourth Restated Certificate of Incorporation and By-laws is intended to enable
the Company to attract qualified persons to serve as directors, officers,
employees and agents who might otherwise be reluctant to do so.
Depending upon the character of the proceeding, the Company may indemnify
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with any action,
suit or proceeding if the person indemnified acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interest of
the Company, and with respect to any criminal action or proceeding, had no cause
to believe his or her conduct was unlawful. To the extent that a director,
officer, employee or agent of the Company has been successful in the defense of
any action, suit or proceeding referred to above, the Company shall indemnify
him or her against expenses (including attorneys' fees) actually and reasonably
incurred in connection therewith.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock, as of the date hereof, after giving effect to the
Recapitalization, by (i) each person known by the Company to be the beneficial
owner of more than 5% of the outstanding shares of Common Stock, (ii) each
director and executive officer of the Company who beneficially owns Common Stock
and (iii) all directors and executive officers of the Company as a group. Unless
otherwise indicated, each of the stockholders shown in the table below has sole
voting and investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF PERCENT
NAME(1) SHARES(2) OF CLASS
------- ---------- --------
<S> <C> <C>
The TCW Group, Inc.(3)...................................... 47,210.45 86.2%
TAMCO(4).................................................... 45,605.30 83.3
Oaktree Capital Management LLC(5)........................... 42,489.41 77.6
The Principal Fund.......................................... 42,489.41 77.6
Trust Company of the West(6)................................ 1,605.15 2.9
General Electric Capital Corporation(7)..................... 5,689.50 9.4
David H. Eisenberg(8)....................................... 2,651.78 4.8
Larry L. Buresh(9).......................................... 400.00 *
Thomas A. Hough(10)......................................... 819.74 1.5
Mary M. Mahon(11)........................................... 626.48 1.1
William V. Pantuso(12)...................................... 511.70 *
Paul F. Stevenson(13)....................................... 596.83 1.1
Harold S. Eastman(14)....................................... 554.89 1.0
Stephen A. Kaplan(15)....................................... 42,489.41 77.6
Richard Masson(16).......................................... 47,210.45 86.2
All directors and executive officers as a group
(9 persons)(17)........................................... 53,371.87 95.6%
</TABLE>
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<PAGE> 49
- ---------------
* Less than 1%.
(1) The address of The TCW Group, Inc., TAMCO, Trust Company of the West and
The Principal Fund is 865 South Figueroa Street, Los Angeles, California
90017. The address of Oaktree, Mr. Kaplan and Mr. Masson is 550 South Hope
Street, 22nd Floor, Los Angeles, California 90071. The address of General
Electric Capital Corporation is 292 Long Ridge Road, Stamford, Connecticut
06927. The address of Messrs. Eisenberg, Buresh, Hough, Pantuso and
Stevenson and Ms. Mahon is c/o Chief Auto Parts Inc., One Lincoln Centre,
Suite 200, 5400 LBJ Freeway, Dallas, Texas 75240-6223. The address of Mr.
Eastman is c/o Peregrine Capital Co., 101 South Capitol Boulevard, Suite
1502, Boise, Idaho 83702.
(2) As used in the table above, a beneficial owner of a security includes any
person who, directly or indirectly, through contract, arrangement,
understanding, relationship, or otherwise has or shares (i) the power to
vote, or direct the voting, of such security or (ii) investment power which
includes the power to dispose, or to direct the disposition of, such
security. In addition, a person is deemed to be the beneficial owner of a
security if that person has the right to acquire beneficial ownership of
such security within 60 days.
(3) All such shares are owned by The Principal Fund (42,489.41 shares), TCW
Special Credits Fund IV (1,510.73 shares), TCW Special Credits Plus Fund
(1,605.16 shares), TCW Special Credits Trust IV (1,274.68 shares) and TCW
Special Credits Trust IVA (330.47 shares), all of which are managed by
affiliates of The TCW Group, Inc.
(4) All such shares are owned by The Principal Fund (42,489.41 shares), TCW
Special Credits Fund IV (1,510.73 shares) and TCW Special Credits Plus Fund
(1,605.16 shares). TAMCO, which is a wholly owned subsidiary of The TCW
Group, Inc., is the general partner of each of The Principal Fund, TCW
Special Credits Fund IV and TCW Special Credits Plus Fund and is managing
general partner of TCW Special Credits.
(5) All such shares are owned by The Principal Fund. Pursuant to a subadvisory
agreement with TAMCO, Oaktree manages the investments and assets of The
Principal Fund.
(6) All such shares are owned by TCW Special Credits Trust V (1,274.68 shares)
and TCW Special Credits IVA (330.47) shares. Trust Company of the West, a
wholly owned subsidiary of The TCW Group, Inc. is the trustee of TCW
Special Credits Trust IV and TCW Special Credits Trust IVA.
(7) All such shares represent shares subject to warrants that are currently
exercisable and are beneficially owned by the named stockholder.
(8) Includes (i) options to purchase 1,588.98 shares of Common Stock, all of
which will be exercised in connection with the Recapitalization and (ii)
warrants to purchase 125.3 shares of Common Stock.
(9) Includes options to purchase 300 shares of Common Stock, all of which will
be exercised in connection with the Recapitalization.
(10) Includes (i) options to purchase 499.39 shares of Common Stock, all of
which will be exercised in connection with the Recapitalization and (ii)
warrants to purchase 25.7 shares of Common Stock.
(11) Includes (i) options to purchase 385.90 shares of Common Stock, all of
which will be exercised in connection with the Recapitalization and (ii)
warrants to purchase 12.9 shares of Common Stock.
(12) Includes (i) options to purchase 317.80 shares of Common Stock, all of
which will be exercised in connection with the Recapitalization and (ii)
warrants to purchase 6.4 shares of Common Stock.
(13) Includes (i) options to purchase 385.90 shares of Common Stock, all of
which will be exercised in connection with the Recapitalization and (ii)
warrants to purchase 36.6 shares of Common Stock.
(14) Includes options to purchase 443.91 shares of Common Stock, none of which
will be exercised in connection with the Recapitalization.
(15) All such shares are owned by The Principal Fund and are also shown as
beneficially owned by Oaktree. To the extent Mr. Kaplan, on behalf of
Oaktree, participates in the process to vote or dispose of any such shares,
he may be deemed under such circumstances for the purpose of Section 13 of
the Exchange Act to be the beneficial owner of such shares. Mr. Kaplan
disclaims beneficial ownership of such shares.
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<PAGE> 50
(16) All such shares are also shown as beneficially owned by The TCW Group,
Inc., 42,489.41 of which are also shown as beneficially owned by Oaktree
and 45,605.30 of which are also shown as beneficially owned by TAMCO. To
the extent, Mr. Masson, on behalf of Oaktree or TAMCO, as applicable,
participates in the process to vote or dispose of any such shares, he may
be deemed under such circumstances for the purpose of Section 13 of the
Exchange Act to be the beneficial owner of such shares. Mr. Masson
disclaims beneficial ownership of such shares.
(17) See Notes (8)-(16).
CERTAIN TRANSACTIONS
During 1993, the Company entered into an escrow agreement with Mr. Hough in
connection with his employment agreement, pursuant to which the Company held
$100,000 in escrow for Mr. Hough, which he would be entitled to receive upon the
termination of his employment in certain circumstances. Mr. Hough's employment
agreement expired in August 1996 and the escrow agreement was terminated (and
the escrowed funds were returned to the Company) by mutual agreement of the
parties in April 1996.
The Company financed the purchase of shares of Common Stock pursuant to the
Management Stock Agreement for several of the Management Stockholders, including
each of the Named Executive Officers. Each Management Stockholder who received
financing from the Company (each a "Promissor") executed Promissory Notes in
favor of the Company and pledged his or her shares of Common Stock as collateral
for such Promissory Notes pursuant to a stock pledge agreement. All of the
Promissory Notes bear interest at a rate of 7.05% per annum and mature on
October 31, 2002, except for Mr. Buresh's Promissory Note, which bears interest
at the rate of 6.11% per annum and matures on November 14, 2003. The maximum
aggregate principal amount outstanding in fiscal 1996 on the Promissory Notes
for David H. Eisenberg, Larry L. Buresh, Thomas A. Hough, Mary M. Mahon, William
V. Pantuso and Paul F. Stevenson was $681,026, $94,647, $241,617, $181,755,
$151,734 and $114,251, respectively. As of December 29, 1996, the aggregate
principal amount outstanding on the Promissory Notes for Messrs. Eisenberg,
Buresh and Hough, Ms. Mahon, and Messrs. Pantuso and Stevenson was $638,838,
$88,347, $230,292, $173,185, $143,364 and $103,286, respectively.
In connection with the Recapitalization, each Promissor will repay 50% of
the principal amount outstanding at the date of the Recapitalization under his
or her respective Promissory Notes, which payments will equal $319,419, $44,174,
$115,146, $86,593, $71,682 and $51,643 for Messrs. Eisenberg, Buresh and Hough,
Ms. Mahon, and Messrs. Pantuso and Stevenson, respectively. Each Promissor's
shares of Common Stock will continue to serve as collateral for the amounts
remaining outstanding under his or her respective Promissory Notes, including
shares of Common Stock acquired pursuant to the exercise of such Promissor's
options to buy shares of the Common Stock. Each of Messrs. Eisenberg, Buresh,
Hough, Pantuso and Stevenson and Ms. Mahon, subject to deferral under certain
circumstances, will make additional annual payments on his or her Promissory
Notes equal to 15% of any cash bonus paid to such person in such year, excluding
amounts paid in connection with the Recapitalization and payments made pursuant
to the Bonus Plan. See "Management -- Management Stock Purchases."
In connection with the Recapitalization, the Company will pay the bonuses
accrued through fiscal 1996 pursuant to the Bonus Plan. This will result in the
payment of $4.0 million in cash bonuses, all of which was accrued on the
Company's audited financial statements as of December 29, 1996. In connection
with the Recapitalization, David H. Eisenberg, Larry L. Buresh, Thomas A. Hough,
Mary M. Mahon, William V. Pantuso and Paul F. Stevenson will receive bonus
payments of $1.4 million, $127,774, $425,393, $328,720, $270,710 and $328,720,
respectively. See "The Recapitalization" and "Management -- Executive Target
Bonus Plan."
Pursuant to the Recapitalization, Messrs. Eisenberg, Buresh and Hough, Ms.
Mahon and Messrs. Pantuso and Stevenson are estimated to receive, net of taxes
and amounts paid back to the Company in payment for the exercise of options or
amounts repaid under the Promissory Notes, an aggregate of approximately $1.3
million, $100,000, $400,000, $300,000, $300,000 and $300,000, respectively.
It is the policy of the Company to engage in transactions with affiliated
parties only on terms that, in the opinion of the Company, are no less favorable
to the Company than could be obtained with non-affiliated parties, and each of
the transactions described above conforms to that policy.
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<PAGE> 51
DESCRIPTION OF NEW CREDIT FACILITY
GENERAL
As part of the Recapitalization, the Company will enter into the New Credit
Facility with Heller Financial, Inc., as agent. The New Credit Facility will
consist of a revolving credit facility in an aggregate principal amount of
$100.0 million (the "Loans") and matures in May 2002.
Indebtedness under the New Credit Facility will be secured by a first
priority security interest upon (i) all of the Company's existing and
after-acquired inventory and accounts receivable and such inventory and accounts
of each of its direct and indirect material subsidiaries, if any, and proceeds
thereof and (ii) all general intangibles and other intangible assets (including,
without limitation, trademarks and tradenames but not including real property)
of the Company and such material subsidiaries, if any, and proceeds thereof.
REVOLVING CREDIT FACILITY
The New Credit Facility will consist of a revolving credit facility in an
aggregate principal amount of $100.0 million. The Company will be entitled to
draw amounts under the New Credit Facility, subject to availability pursuant to
a borrowing base formula based upon eligible inventory levels, in order to meet
the Company's working capital requirements and for general corporate purposes.
The New Credit Facility includes a $10.0 million sub-limit for Letters of Credit
and a $10.0 million sub-limit for swing line loans ("Swing Line Loans")
available on same-day notice.
INTEREST RATES
Interest will accrue on the Loans with reference to the base rate (the
"Base Rate") plus the applicable interest margin. The Company may elect that all
or a portion of the Loans, other than Swing Line Loans, bear interest at the
Eurodollar rate (the "Eurodollar Rate") plus the applicable interest margin. The
Base Rate is defined as, on any date, the higher of (i) the Federal Funds Rate,
as published by the Federal Reserve Bank of New York, plus 1/2 of 1% or (ii) the
prime commercial lending rate in effect from time to time as announced by Chase
Manhattan Bank, NA, and two other reference institutions. The Eurodollar Rate is
defined as an amount equal to (i) the rate posted on the Reuters Screen LIBO
Page (if only a single rate is posted by Reuters), (ii) the arithmetic mean of
offered rates on the Reuters Screen LIBO Page (if two or more such offered rates
are posted by Reuters) or (iii) the average of offered rates (only in the event
that Reuters ceases to provide LIBOR quotations). The applicable interest margin
during the first six months following the closing date of the New Credit
Facility will be 0.5% for Base Rate loans and 2.0% for Eurodollar Rate loans.
After such first six months, the applicable interest margin will fluctuate
between 0.0% and 1.0% for Base Rate loans and between 1.5% and 2.5% for the
Eurodollar Rate loans, based on the leverage ratio of the Company.
MANDATORY AND OPTIONAL PREPAYMENT
The New Credit Facility will not contain any mandatory prepayment
provisions as long as the aggregate amount of the Loans does not exceed the
level of availability under the New Credit Facility. The New Credit Facility
will provide that the Company may prepay Loans in whole or in part without
penalty, subject to reimbursement of the lender's breakage and redeployment
costs in the case of prepayment of Eurodollar Rate loans.
COVENANTS
The New Credit Facility will contain certain covenants and other
requirements of the Company and its subsidiaries. In general, the affirmative
covenants will provide for mandatory reporting by the Company of financial and
other information to the agent and notice by the Company to the agent upon the
occurrence of certain events.
48
<PAGE> 52
The New Credit Facility will also contain certain negative covenants and
restrictions on actions by the Company including, without limitation,
restrictions on indebtedness, liens, guarantee obligations, mergers, asset
dispositions not in the ordinary course of business, investments, loans,
advances, dividends and other restricted junior payments, transactions with
affiliates, sale and leaseback transactions and prepayment, entering other lines
of business and amendments of other indebtedness. The New Credit Facility will
require the Company to meet certain financial covenants including minimum EBITDA
(as defined in the New Credit Facility) and minimum fixed charge coverage ratio.
EVENTS OF DEFAULT
The New Credit Facility will specify certain customary events of default
including, without limitation, non-payment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties in any
material respect, cross default to certain other indebtedness and agreements,
bankruptcy and insolvency events, material judgments and liabilities, and
unenforceability of certain documents under the New Credit Facility. The events
of default under the New Credit Facility are substantially similar to the events
of default under the Indenture except as follows: (i) the Company's failure to
pay other indebtedness or judgments entered against the Company, including
failure to pay amounts due with respect to the Notes, will trigger a
cross-default under the New Credit Facility at lower dollar amounts than in the
Indenture; (ii) the creation of liens on or failure of any security interest in
collateral securing the New Credit Facility will trigger a default under the New
Credit Facility; (iii) the insolvency or dissolution of the Company will trigger
a default under the New Credit Facility, (iv) a Change of Control that triggers
the Company's repurchase obligations under the Indenture will trigger a default
under the New Credit Facility and (v) the occurrence of certain events (such as
damage or loss of property, labor strikes or acts of God) causing a material
adverse change in the Company's business could trigger a default under the New
Credit Facility. The definition of Change of Control is the same in the New
Credit Facility as in the Indenture.
The description of the New Credit Facility set forth above is qualified in
its entirety to the complete text of the documents entered into or to be entered
into therewith. A form of the New Credit Facility has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
DESCRIPTION OF THE NOTES
GENERAL
The Notes are to be issued under an Indenture, to be dated as of
, 1997 (the "Indenture"), between the Company and First Trust National
Association, as Trustee (the "Trustee").
The following is a summary of the material provisions of the Indenture and
the Notes, a copy of which Indenture is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following summary of certain
provisions of the Indenture and the Notes is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture and the Notes,
including the definitions of certain terms therein and those terms made a part
thereof by the Trust Indenture Act of 1939, as amended (the "TIA"). As used in
this "Description of the Notes" section, references to the "Company" include
only Chief Auto Parts Inc. and not its Subsidiaries. The definitions of certain
capitalized terms used in the following summary are set forth below under
"-- Certain Definitions."
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee's agent at First Trust New York,
100 Wall Street, 20th Floor, New York, NY 10005), except that, at the option of
the Company, payment of interest may be made by check mailed to the address of
the Holders as such address appears in the Note register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
shall be made for any registration or exchange of Notes, but the Company may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
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<PAGE> 53
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 36% of the principal amount of the
Notes with the proceeds of one or more Public Equity Offerings, at a redemption
price (expressed as a percentage of principal amount) of % plus accrued and
unpaid interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 64% of the original
aggregate principal amount of the Notes must remain outstanding after each such
redemption.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
RANKING
The indebtedness evidenced by the Notes will be senior unsecured
obligations of the Company ranking pari passu with other senior unsecured
Indebtedness of the Company and senior to all Subordinated Obligations. The
Notes will also be effectively subordinated to all senior secured Indebtedness
(including Indebtedness under the New Credit Facility) of the Company to the
extent of the value of the assets securing such indebtedness.
As of March 30, 1997, after giving pro forma effect to the Recapitalization
as if it had occurred on such date, the aggregate amount of senior Indebtedness
of the Company other than the Notes that would have been outstanding would have
been approximately $9.2 million (excluding unused commitments of approximately
$92.7 million under the New Credit Facility, of which approximately $75.0
million would have then been eligible for borrowing thereunder), all of which is
senior secured Indebtedness. As of March 30, 1997, after giving pro forma effect
to the Recapitalization as if it had occurred on such date, the aggregate amount
of secured indebtedness of the Company, to which the Notes would be effectively
subordinated, would have been $9.2 million and the Company would have had $74.7
million of outstanding indebtedness ranking pari passu
50
<PAGE> 54
with the Notes (consisting of trade accounts payable made in the ordinary course
of business). Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company may incur, under certain circumstances
the amount of such Indebtedness could be substantial and, in any case, such
Indebtedness may be senior Indebtedness and may be secured. See "-- Certain
Covenants -- Limitation on Indebtedness," "-- Limitation on Indebtedness and
Preferred Stock of Restricted Subsidiaries" and "-- Limitation on Liens."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date):
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (i) such person shall
be deemed to have "beneficial ownership" of all shares that such person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more than 50% of the
total voting power of the then outstanding Voting Stock of the Company;
(ii) during any period of two consecutive years commencing after the
Company's initial Public Equity Offering, individuals who at the beginning
of such period constituted the Board of Directors (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company was approved by a vote of
66 2/3% of the directors of the Company then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office; or
(iii) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person (in each case other than a Person that is controlled by the
Permitted Holders), and, in the case of any such merger or consolidation,
the securities of the Company that are outstanding immediately prior to
such transaction and which represent 100% of the aggregate voting power of
the Voting Stock of the Company are changed into or exchanged for cash,
securities or property, unless pursuant to such transaction such securities
are changed into or exchanged for, in addition to any other consideration,
securities of the surviving corporation or a parent corporation that owns
all of the capital stock of such corporation that represent immediately
after such transaction, at least 50% of the aggregate voting power of the
Voting Stock of the surviving corporation or such parent corporation, as
the case may be.
Within 30 days following any Change of Control, unless notice of redemption
of the Notes has been given pursuant to the provisions of the Indenture
described under "-- Optional Redemption" above, the Company shall mail a notice
to the Trustee and to each Holder stating: (1) that a Change of Control has
occurred and that such Holder has the right to require the Company to purchase
such Holder's Notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
repurchase (subject to the right of holders of record on the relevant record
date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts regarding such Change of Control; (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Notes repurchased.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the Change of
Control provisions of the Indenture. To the extent that the provisions of any
securities laws or regulations conflict with the Change of Control provisions of
the Indenture, the Company shall comply with the
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<PAGE> 55
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 "-- Defaults."
The existence of a Holder's right to require the Company to offer to
repurchase such Holder's Notes upon a Change of Control may deter a third party
from acquiring the Company in a transaction which constitutes a Change of
Control.
Future indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such indebtedness to be repaid or repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the Notes could cause a default under such indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
Holders following the occurrence of a Change of Control may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. The provisions under the Indenture relating to the Company's
obligation to make an offer to repurchase the Notes as a result of a Change of
Control may be waived or modified with the written consent of the Holders of a
majority in principal amount of the Notes.
SINKING FUND
There will be no mandatory sinking fund for the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not Incur, directly or
indirectly, any Indebtedness unless, on the date of such Incurrence, the
Consolidated Coverage Ratio exceeds 2.0 to 1.0 if such Indebtedness is Incurred
from the Issue Date through , 1999, and 2.25 to 1.0 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company may Incur any
or all of the following Indebtedness: (1) Indebtedness Incurred pursuant to the
New Credit Facility or any other credit facility in a principal amount which,
when taken together with all letters of credit and the principal amount of all
other Indebtedness Incurred pursuant to this clause (1) and then outstanding,
does not exceed the greater of (x) $100 million or (y) the sum of (A) 75% of the
net book value of the inventory of the Company and its Restricted Subsidiaries
and (B) 80% of the net book value of the accounts receivables of the Company and
its Restricted Subsidiaries; (2) Indebtedness owed to and held by a Wholly Owned
Subsidiary; provided, however, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly Owned Subsidiary
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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;
(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
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(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;
(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
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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 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
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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 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
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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, (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.
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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.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon acceleration or otherwise,
(iii) the failure by the Company to comply with its obligations under
"-- Certain Covenants -- Merger and Consolidation" above, (iv) the failure by
the Company to comply for 30 days after the Company receives written notice with
any of its obligations in the covenants described above under "Change of
Control" (other than a failure to purchase Notes) or under "-- Certain
Covenants -- Limitation on Indebtedness," "-- Limitation on Indebtedness and
Preferred Stock of Restricted Subsidiaries," "-- Limitation on Sale/Leaseback
Transactions," "-- Limitation on Restricted Payments," "-- Limitation on Sales
of Assets and Subsidiary Stock," or "-- Limitation on the Sale or Issuance of
Capital Stock of Restricted Subsidiaries," (v) the failure by the Company to
comply for 60 days after the Company receives written notice with its other
agreements contained in the Indenture, (vi) the failure by the Company or any
Significant Subsidiary to pay any Indebtedness within any applicable grace
period after final maturity or acceleration by the holders thereof because of a
default and the total amount of such Indebtedness
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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.
The Holders of a majority in aggregate principal amount of the outstanding Notes
by notice to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of acceleration. No such rescission
shall affect any subsequent Default or impair any right consequent thereto.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder of a Note may pursue
any remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee written notice that an Event of Default is
continuing, (ii) Holders of at least 25% in principal amount of the outstanding
Notes have requested in writing the Trustee to pursue the remedy, (iii) such
Holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the Holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the Holders of a majority
in principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note, the Trustee may withhold notice if and
so long as the board of directors, the executive committee or a committee of its
trust officers determines that withholding notice is not opposed to the interest
of the Holders. In addition, the Company is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Company also is required to deliver to the Trustee, within 30
days after the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action the Company is taking
or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the Holders of a majority in principal
amount of the Notes then outstanding.
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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 TIA.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment. However,
the failure to give such notice to all Holders, or any defect therein, will not
impair or affect the validity of the amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Company may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges. The Company is not required to transfer or exchange any Note selected
for redemption or repurchase or to transfer or exchange any Note for a period of
15 days prior to a selection of Notes to be redeemed or repurchased.
DEFEASANCE
The Company at its option at any time may terminate all of its obligations
under the Notes and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Notes, to replace mutilated, destroyed,
lost or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes. In addition, the Company at its option at any time may terminate its
obligations under "Change of Control" and under the covenants described under
"-- Certain Covenants" (other than the covenant described under "-- Merger and
Consolidation" except as described below) (and any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes), the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries and the judgment default
provision described under "-- Defaults" above and the limitations contained in
clauses (iii) and (iv) of the first paragraph under "-- Certain Covenants --
Merger and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default under the provisions described in the last sentence of the
foregoing paragraph.
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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. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the SEC that such waiver is against public policy.
CONCERNING THE TRUSTEE
First Trust National Association is to be the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with regard
to the Notes. Such bank may also act as a depository of funds for, or make loans
to and perform other services for, the Company or its affiliates in the ordinary
course of business in the future. The corporate trust office of the Trustee is
located at First Trust New York, 100 Wall Street, 20th Floor, New York, NY
10005.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture. The Trustee may resign at any
time or may be removed by the Company. If the Trustee resigns, is removed or
becomes incapable of acting as Trustee or if a vacancy occurs in the office of
the Trustee for any cause, a successor Trustee shall be appointed in accordance
with the provisions of the Indenture.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the TIA, the Trustee shall either eliminate such interest or resign,
to the extent and in the manner provided by, and subject to the provisions
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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).
"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.
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"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has (x) Incurred any Indebtedness (other than Indebtedness Incurred
for working capital purposes under the New Credit Facility) since the beginning
of such period that remains outstanding on such date of determination or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving effect on a pro forma
basis to such Indebtedness as if such Indebtedness had been Incurred on the
first day of such period and the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period
or (y) has repaid, repurchased, defeased or otherwise discharged any
Indebtedness since the beginning of the period that is no longer outstanding on
such date of determination, or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio involves a discharge of Indebtedness,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect to such discharge of such Indebtedness, including with the
proceeds of such new Indebtedness, as if such discharge had occurred on the
first day of such period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four quarter period),
(2) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such period
shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative)
directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with
respect to the Company and its continuing Restricted Subsidiaries in connection
with such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary to the
extent the Company and its continuing Restricted Subsidiaries are no longer
liable for such Indebtedness after such sale), (3) if since the beginning of
such period the Company or any Restricted Subsidiary (by merger or otherwise)
shall have made an Investment in any Restricted Subsidiary (or any Person which
becomes a Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring a
calculation to be made hereunder, which constitutes all or substantially all of
an operating unit of a business, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto (including
the Incurrence of any Indebtedness) as if such Investment or acquisition
occurred on the first day of such period, and (4) if since the beginning of such
period any Person (that subsequently became a Restricted Subsidiary or was
merged with or into the Company or any Restricted Subsidiary since the beginning
of such period) shall have made any Asset Disposition, Investment or acquisition
of assets that would have required an adjustment pursuant to clause (2) or (3)
above if made by the
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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 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.
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"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 into or
exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at
the option of the holder thereof, in whole or in part, in each case on or prior
to the Stated Maturity of the Notes; provided, however, that any Capital Stock
that would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the first anniversary of the Stated Maturity of the Notes
shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are not more favorable to
the holders of such Capital Stock than the provisions described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and
"-- Certain Covenants -- Change of Control."
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company, (b) depreciation expense, (c) amortization expense and (d) all other
non-cash items reducing such Consolidated Net Income less all non-cash items
increasing such Consolidated Net Income (such amount calculated pursuant to this
clause (d) not to be less than zero), in each case for such period; and minus
the amount of all cash payments made by the Company or any Restricted Subsidiary
during such period to the extent that such payments relate to non-cash items
that were added back in determining EBITDA for any period subsequent to the
Issue Date. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Subsidiary of
the Company shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Subsidiary
was included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) in statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) in the rules and regulations of the SEC
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such Person (whether arising by virtue of agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided, however, that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "Guarantee" used as a verb has a corresponding meaning.
The term "Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
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"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 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
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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 date
shall not be affected.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) in each case
net of (i) all legal, title and recording tax expenses, brokerage commissions,
underwriting discounts or commissions or sales commissions and other reasonable
fees and expenses (including, without limitation, fees and expenses of counsel,
accountants and investment bankers) related to such Asset Disposition or
converting to cash any other proceeds received, and any relocation and severance
expenses as a result thereof, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition or made in order to
obtain a necessary consent to such Asset Disposition or to comply with
applicable law, (iii) all distributions and other payments required to be made
to minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition and (iv) appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Disposition. Further,
with respect to an Asset Disposition by a Subsidiary which is not a Wholly Owned
Subsidiary, Net Available Cash shall be reduced pro rata for the portion of the
equity of such Subsidiary which is not owned by the Company.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof. In addition, for the purposes of the calculations described in
"Certain Covenants -- Limitation on Restricted Payments," Net Cash Proceeds
shall also mean any cash amounts paid to the Company by members of management of
the Company in respect of certain Promissory Notes described under "Certain
Transactions."
"New Credit Facility" means the Credit Agreement, dated as of ,
1997, among the Company, Heller Financial, Inc., as agent, and the lenders party
thereto, as such agreement, in whole or in part, may be amended, renewed,
extended, increased (but only so long as such increase is permitted under the
terms of the Indenture), substituted, refinanced, restructured, replaced
(including, without limitation, any successive renewals, extensions, increases,
substitutions, refinancings, restructurings, replacements, supplements or other
modifications of the foregoing). Subsequent to the date of the Indenture, there
may be multiple New Credit Facilities and the term "New Credit Facility" shall
mean all such New Credit Facilities.
"Permitted Holders" means (i) TCW Special Credits Fund V -- The Principal
Fund, Trust Company of the West or any of their respective Affiliates and (ii)
Oaktree Capital Management, LLC ("Oaktree") and its Affiliates, including any
partnerships, separate accounts, or other entities managed by Oaktree.
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"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 -- Limitation on
Affiliate Transactions;" (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments; (viii)
payments, including without limitation, security deposits, made to utilities or
landlords in the ordinary course of business; and (ix) any Person to the extent
such Investment represents the non-cash portion of the consideration received
for an Asset Disposition as permitted pursuant to the covenant described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock."
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workers' compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings; (c)
Liens arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other proceedings
for review or time for appeal has not yet expired; (d) Liens for taxes,
assessments or other governmental charges not yet subject to penalties for
non-payment or which are being contested in good faith by appropriate
proceedings; (e) Liens in favor of issuers of surety bonds or letters of credit
issued pursuant to the request of and for the account of such Person in the
ordinary course of its business; provided, however, that such letters of credit
do not constitute Indebtedness; (f) survey exceptions, encumbrances, easements
or reservations of or rights of others for licenses, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or Liens
incidental to the conduct of the business of such Person or to the ownership of
its properties which were not incurred in connection with Indebtedness and which
do not in the aggregate materially adversely affect the value of said properties
or materially impair their use in the operation of the business of such Person;
(g) Liens securing an Interest Rate Agreement so long as the related
Indebtedness is, and is permitted to be under the Indenture, secured by a Lien
on the same property securing the Interest Rate Agreement; and (h) leases and
subleases of real property which do not interfere with the ordinary conduct of
the business of such Person, and which are made on customary and usual terms
applicable to similar properties.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
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"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.
"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.
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"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
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.
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"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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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........................................
------------
$130,000,000
</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.
Until the distribution of the Notes is completed, the rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Notes. As an exception
to these rules, the Underwriters are permitted to engage in certain transactions
that stabilize the price of the Notes. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Notes.
If the Underwriters create a short position in the Notes in connection with
the Offering, i.e., if they sell more Notes than are set forth on the cover page
of this Prospectus, the Underwriters may reduce that short position by
purchasing Notes in the open market.
The Underwriters may also impose a penalty bid on certain selling group
members. This means that if the Underwriters purchase Notes in the open market
to reduce the Underwriters' short position or to stabilize the price of the
Notes, they may reclaim the amount of the selling concession from the selling
group members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above might have on the price of the Notes. In addition,
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<PAGE> 76
neither the Company nor any of the Underwriters makes any representation that
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Credit Suisse First Boston Corporation has performed certain financial
advisory services for the Company in the past and may continue to do so in the
future.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis, exempt from the requirement that the Company prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of Notes are effected. Accordingly, any resale of the Notes in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resales of the Notes.
REPRESENTATION OF PURCHASERS
Each purchaser of Notes in Canada who receives a purchase confirmation will
be deemed to represent to the Company and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such Notes without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent and (iii) such
purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or remission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
Company or such persons. All or a substantial portion of the assets of the
Company and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the Company or such persons in
Canada or to enforce a judgment obtained in Canadian courts against such Company
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Notes to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Notes acquired
by such purchaser pursuant to this Offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from the Company. Only one such report must be
filed in respect of Notes acquired on the same date and under the same
prospectus exemption.
73
<PAGE> 77
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Notes should consult their own legal and tax
advisers with respect to the tax consequences of an investment in the Notes in
their particular circumstances and with respect to the eligibility of the Notes
for investment by the purchaser under relevant Canadian legislation.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Gibson, Dunn & Crutcher LLP, New York, New York. Cahill Gordon &
Reindel (a partnership including a professional corporation), New York, New York
has acted as counsel for the Underwriters.
INDEPENDENT ACCOUNTANTS
The Financial Statements as of December 31, 1995 and December 29, 1996 and
for the six months ended June 26, 1994, the six months ended December 25, 1994
and for each of the two years in the period ended December 29, 1996 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Notes offered hereby
(herein, together with all amendments and exhibits thereto, referred to as the
"Registration Statement") on Form S-1 under the Securities Act. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information, reference is hereby made to the
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement, indenture or other document referred to are not
necessarily complete. With respect to each such contract, agreement, indenture
or other document filed as an exhibit to the Registration Statement, reference
is made to such exhibit for a more complete description thereof, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits and schedules thereto may be inspected
and copied (at prescribed rates) at the public reference facilities maintained
by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the Commissions regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, New York, New York 10048. The Commission also
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The Web site is located at http://www.sec.gov.
As a result of the Offering, the Company will become subject to the
information and reporting requirements of the Exchange Act, and in accordance
therewith will file periodic reports and other information with the Commission.
All such information may be inspected and copied at the public reference
facilities maintained by the Commission at the locations referred to above. The
Indenture pursuant to which the Notes will be issued will require the Company to
file with the Commission and to distribute to holders of the Notes annual
reports containing audited financial statements following the end of the fiscal
year as well as quarterly reports containing unaudited financial statements for
the first three quarters of each fiscal year following the end of each such
quarter.
74
<PAGE> 78
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Financial Statements:
Balance Sheets of December 31, 1995, December 29, 1996,
and March 30, 1997 (unaudited)......................... F-3
Statements of Operations for the six months ended June 26,
1994 (Predecessor) and December 25, 1994, for the two
years ended December 29, 1996 and for the three months
ended March 31, 1996 (unaudited) and March 30, 1997
(unaudited)............................................ F-4
Statements of Stockholders' Equity for the six months
ended June 26, 1994 (Predecessor), December 25, 1994,
for the two years ended December 29, 1996 and for the
three months ended March 30, 1997 (unaudited).......... F-5
Statements of Cash Flows for the six months ended June 26,
1994 (Predecessor) and December 25, 1994, for the two
years ended December 29, 1996 and for the three months
ended March 31, 1996 (unaudited) and March 30, 1997
(unaudited)............................................ F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Chief Auto Parts Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Chief Auto Parts Inc. at December
29, 1996 and December 31, 1995 and the results of its operations and its cash
flow for each of the two years in the period ended December 29, 1996, and for
the six months ended December 25, 1994, and the results of operations and cash
flows of the Company's predecessor, also known as Chief Auto Parts Inc., for the
six months ended June 26, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
March 24, 1997
F-2
<PAGE> 80
CHIEF AUTO PARTS INC.
BALANCE SHEETS -- DECEMBER 31, 1995, DECEMBER 29, 1996 AND
MARCH 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
MARCH 30, 1997
DECEMBER 31, DECEMBER 29, MARCH 30, LONG-TERM DEBT
1995 1996 1997 AND EQUITY
------------ ------------ ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and equivalents............................... $ 1,202 $ 1,140 $ 1,138
Accounts receivable, trade......................... 1,337 1,529 1,649
Accounts receivable, other, less allowances of
$480, $300 and $339.............................. 3,741 3,955 4,280
Merchandise inventories............................ 107,633 140,418 141,142
Deferred income taxes.............................. 2,959 6,084 6,084
Prepaid and other.................................. 709 1,014 1,239
-------- -------- --------
Total current assets...................... 117,581 154,140 155,532
PROPERTY AND EQUIPMENT, at cost:
Land............................................... 12,451 11,935 11,802
Buildings.......................................... 14,066 14,037 13,826
Leasehold improvements............................. 10,177 15,194 16,567
Furniture and equipment............................ 28,855 43,905 46,431
Assets under capital leases........................ 23,902 21,356 21,356
Equipment and construction in process.............. 1,155 3,301 2,208
-------- -------- --------
Total property and equipment.............. 90,606 109,728 112,190
Less accumulated depreciation and amortization..... 13,385 22,018 24,304
-------- -------- --------
Net property and equipment......................... 77,221 87,710 87,886
GOODWILL, less accumulated amortization of $2,144,
$3,574 and $3,854................................ 53,436 42,006 41,726
DEFERRED INCOME TAXES.............................. 4,791 13,018 13,018
OTHER ASSETS....................................... 1,390 1,474 1,310
-------- -------- --------
TOTAL..................................... $254,419 $298,348 $299,472
======== ======== ========
LIABILITIES
CURRENT LIABILITIES:
Current portion of long-term debt.................. $ 573 $ 622 $ 634
Current portion of obligations under capital
leases........................................... 1,223 1,318 1,359
Trade accounts payable............................. 55,696 71,928 74,742
Accrued salaries, benefits and related taxes....... 11,929 11,180 10,887
Accrued taxes (excluding payroll).................. 5,284 5,146 4,913
Other accrued liabilities.......................... 18,915 15,959 15,154
-------- -------- --------
Total current liabilities................. 93,620 106,153 107,689
LONG-TERM DEBT, less current portion............... 40,521 62,400 62,336 $138,522
OBLIGATIONS UNDER CAPITAL LEASES, less current
portion.......................................... 21,154 17,646 17,293
OTHER NONCURRENT LIABILITIES....................... 28,849 40,669 40,504
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par, 100,000 shares authorized,
shares issued and outstanding: 49,898............ $ 1 $ 1 $ 1 $ 1
Additional paid-in capital......................... 70,815 70,815 70,815 4,402
Less management notes receivable................... (1,922) (1,821) (1,821) (911)
Retained earnings.................................. 1,381 2,485 2,655 --
-------- -------- -------- --------
Total stockholders' equity................ 70,275 71,480 71,650 3,492
-------- -------- -------- --------
TOTAL..................................... $254,419 $298,348 $299,472
======== ======== ========
</TABLE>
See notes to financial statements
F-3
<PAGE> 81
CHIEF AUTO PARTS INC.
STATEMENTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 26, 1994 (PREDECESSOR) AND
DECEMBER 25, 1994, TWO YEARS ENDED DECEMBER 29, 1996 AND
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) AND MARCH 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEARS ENDED THREE MONTHS ENDED
------------------------ DECEMBER MARCH
JUNE DECEMBER ------------------- -------------------
1994 1994 1995 1996 1996 1997
------------- -------- -------- -------- -------- --------
PREDECESSOR (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET SALES.................... $195,286 $203,878 $429,047 $438,182 $102,260 $109,854
COSTS AND EXPENSES:
Cost of goods sold,
warehousing and
distribution............... 114,452 133,390 251,628 251,764 58,579 63,281
Selling, general and
administrative............. 68,642 70,500 145,829 167,064 36,485 41,017
Depreciation and
amortization............... 3,626 5,020 10,397 11,622 2,666 3,251
-------- -------- -------- -------- -------- --------
Operating income (loss)...... 8,566 (5,032) 21,193 7,732 4,530 2,305
Interest expense, net........ 5,807 2,533 6,009 6,203 1,440 1,784
Other (expense) income,
net........................ 41 4 (205) (66) (65) (10)
-------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES...................... 2,800 (7,561) 14,979 1,463 3,025 511
INCOME TAX EXPENSE........... 1,383 537 5,500 359 1,353 341
-------- -------- -------- -------- -------- --------
NET INCOME (LOSS)............ $ 1,417 $ (8,098) $ 9,479 $ 1,104 $ 1,672 $ 170
======== ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements
F-4
<PAGE> 82
CHIEF AUTO PARTS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY -- SIX MONTHS ENDED
JUNE 26, 1994 (PREDECESSOR) AND DECEMBER 25, 1994, TWO
YEARS ENDED DECEMBER 29, 1996
AND THREE MONTHS ENDED MARCH 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
PREDECESSOR
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCK RETAINED
---------------- NOTES PAID-IN PURCHASE EARNINGS
SHARES AMOUNT RECEIVABLE CAPITAL WARRANT (DEFICIT) TOTAL
------- ------ ---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 26, 1993.............. 135,933 $1 $(338) $10,605 $2,150 $(61,238) $(48,820)
Net income.............................. 1,417 1,417
Reduction of notes receivable........... 100 100
------- -- ----- ------- ------ -------- --------
Balance, June 26, 1994.................. 135,933 $1 $(238) $10,605 $2,150 $(59,821) $(47,303)
======= == ===== ======= ====== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
COMPANY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------- NOTES PAID-IN EARNINGS
SHARES AMOUNT RECEIVABLE CAPITAL (DEFICIT) TOTAL
------- ------ ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock:
To majority stockholders.............. 47,210 $1 $66,999 $67,000
To management and director............ 2,588 $(1,930) 3,674 1,744
Net loss for the six months ended
December 25, 1994..................... $(8,098) (8,098)
------- -- ------- ------- ------- -------
Balance, December 25, 1994.............. 49,798 1 (1,930) 70,673 (8,098) 60,646
Issuance of common stock to
management............................ 100 (95) 142 47
Payments on notes receivable............ 103 103
Net income.............................. 9,479 9,479
------- -- ------- ------- ------- -------
Balance, December 31, 1995.............. 49,898 1 (1,922) 70,815 1,381 70,275
Payments on notes receivable............ 101 101
Net income.............................. 1,104 1,104
------- -- ------- ------- ------- -------
Balance, December 29, 1996.............. 49,898 1 (1,821) 70,815 2,485 71,480
Net income (unaudited).................. 170 170
Balance, March 30, 1997
------- -- ------- ------- ------- -------
(unaudited)........................... 49,898 $1 $(1,821) $70,815 $ 2,655 $71,650
======= == ======= ======= ======= =======
</TABLE>
See notes to financial statements
F-5
<PAGE> 83
CHIEF AUTO PARTS INC.
STATEMENTS OF CASH FLOWS -- SIX MONTHS ENDED JUNE 26, 1994 (PREDECESSOR)
AND DECEMBER 25, 1994, TWO YEARS ENDED DECEMBER 29, 1996 AND
THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED) AND MARCH 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEARS ENDED THREE MONTHS ENDED
------------------------ DECEMBER MARCH
JUNE DECEMBER ------------------- -------------------------
1994 1994 1995 1996 1996 1997
------------- -------- -------- -------- ----------- -----------
(PREDECESSOR) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $ 1,417 $(8,098) $ 9,479 $ 1,104 $ 1,672 $ 170
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation and amortization............... 3,626 5,020 10,397 11,622 2,666 3,251
Amortization of deferred financing costs.... 34 133 266 319 67 101
Deferred compensation....................... -- 779 1,558 1,558 390 390
Provision for store closures and legal
reserves.................................. -- -- -- 14,000 -- --
Loss on sale of assets...................... 34 17 258 95 72 14
Provision for deferred income taxes......... -- -- 1,500 (1,352) -- --
Increase (decrease) from changes in:
Accounts receivable....................... 1,201 (630) (860) (406) (1,022) (445)
Merchandise inventories................... (4,660) 7,644 (17,565) (32,785) (12,106) (724)
Prepaid and other......................... 52 (412) 745 (305) (97) (225)
Other assets.............................. (238) (116) (101) (30) (32) 117
Accounts payable.......................... 9,987 (773) 5,879 16,232 8,472 2,814
Accrued salaries, benefits and related
taxes................................... 1,586 (1,026) (1,661) (749) (84) (293)
Accrued taxes............................. (1,347) 2,018 (1,458) (138) 433 (233)
Other accrued liabilities................. 1,419 (397) 2,770 (2,956) 1,500 (805)
Other noncurrent liabilities.............. 130 5,695 (2,118) (4,345) (577) (523)
------- -------- -------- -------- -------- --------
Net cash provided by operating activities..... 13,241 9,854 9,089 1,864 1,354 3,609
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment................................... 2,222 1,666 149 870 127 343
Additions to property and equipment........... (5,885) (6,512) (11,822) (23,275) (4,398) (3,536)
Purchase of Predecessor, net of cash
acquired.................................... -- (20,326) -- -- -- --
------- -------- -------- -------- -------- --------
Net cash used by investing activities......... (3,663) (25,172) (11,673) (22,405) (4,271) (3,193)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit loan........ 51,609 40,250 67,700 98,500 26,600 20,400
Payments against revolving credit loan........ (57,415) (40,750) (63,700) (76,000) (23,100) (20,300)
Initial funding of revolving credit loan...... -- 35,000 -- -- -- --
Deferred financing costs...................... -- (1,332) -- (372) (138) (54)
Issuance of stock, net of notes receivable.... -- 68,744 47 -- -- --
Principal payments on long-term debt.......... (3,713) (248) (532) (572) (139) (152)
Principal payments of obligations under
capital leases.............................. (138) (399) (965) (1,178) (284) (312)
Payments on management notes receivable for
common stock................................ 100 -- 103 101 -- --
Payment of Predecessor debt................... -- (88,453) -- -- -- --
------- -------- -------- -------- -------- --------
Net cash provided (used) by financing
activities.................................. (9,557) 12,812 2,653 20,479 2,939 (418)
------- -------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS................................. 21 (2,506) 69 (62) 22 (2)
CASH AND EQUIVALENTS, beginning of period..... 1,095 3,639 1,133 1,202 1,202 1,140
------- -------- -------- -------- -------- --------
CASH AND EQUIVALENTS, end of period........... $ 1,116 $ 1,133 $ 1,202 $ 1,140 $ 1,224 $ 1,138
======= ======== ======== ======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid................................. $ 5,904 $ 2,291 $ 6,199 $ 5,819 $ 1,228 $ 1,818
======= ======== ======== ======== ======== ========
Income taxes paid............................. $ 70 $ 1,338 $ 3,688 $ 1,700 $ 1 $ 853
======= ======== ======== ======== ======== ========
</TABLE>
See notes to financial statements
F-6
<PAGE> 84
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business -- Chief Auto Parts Inc. (the "Company" or "Chief")
is engaged in the sale and distribution of automotive parts to the retail and
wholesale aftermarket through a chain of 544 stores (located predominately in
California and Texas) at December 29, 1996.
Basis of Presentation -- The Company was party to a merger (as defined at
Note 2, the "Merger") in June 1994. Chief prior to the Merger is herein referred
to as the "Predecessor" or the "Predecessor Company."
The Merger was accounted for using the purchase method, in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16").
The assets and liabilities of the Predecessor were revalued and significant
adjustments to the assets acquired and liabilities assumed were made to reflect
their estimated fair values at the date of the Merger, and accordingly the
results of operations subsequent to the date of the Merger are on a different
basis than those of the Predecessor Company. In addition, certain prior year
amounts have been reclassified to conform to the current year presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results may differ from these estimates.
Fiscal Year -- The Company's fiscal year is the 52- or 53-week period
ending on the last Sunday in December. The first fiscal period following the
Merger ended on December 25, 1994 (six months). Fiscal 1995 ended on December
31, 1995 (53 weeks), and fiscal 1996 ended on December 29, 1996 (52 weeks).
Predecessor Company information included in the accompanying financial
statements pertains to the six months ended June 26, 1994.
Merchandise Inventories -- Inventories are valued at the lower of cost or
market. Cost is determined on the retail method for retail store inventories,
and the weighted average cost method for warehouse inventories.
Property and Equipment -- Property and equipment, exclusive of capital
leases, are stated at cost. Significant additions and improvements are
capitalized; expenditures for maintenance and repairs are expensed. Costs
incurred in the selection and development of new store sites are capitalized as
construction costs and amortized over the lesser of the estimated useful life or
the term of the lease. Gains and losses on the disposition of property and
equipment are recognized in the period incurred. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets, ranging
from three to twenty-five years. Assets under capital leases are stated at the
lower of the present value of the minimum lease payments to be made during the
term of the lease or the fair value of the leased asset. Amortization of such
property is provided using the straight-line method over the term of the lease.
Goodwill -- The Company has classified as goodwill the cost in excess of
fair value of the net assets acquired in the Merger. Goodwill is being amortized
on the straight-line method over 40 years. Amortization for the six months ended
December 25, 1994 was $715,000 and for the years ended December 31, 1995 and
December 29, 1996 was $1,430,000 each year.
The Company evaluates the realizability of goodwill at each balance sheet
date based upon expectations of undiscounted cash flows and operating income.
The Company believes that no impairment of goodwill exists at December 29, 1996.
Advertising Costs -- Advertising costs are expensed the first time the
advertising takes place. For the six months ended June 26, 1994 (Predecessor)
and December 25, 1994, advertising expense, net of reimbursements by vendors,
was $3,239,000 and $1,502,000, respectively, and for the years ended December
31, 1995 and December 29, 1996, was $2,771,000 and $3,842,000, respectively.
F-7
<PAGE> 85
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Income Taxes -- Income tax expense is based on the liability method.
Deferred income taxes are provided for differences between tax laws and
financial accounting standards regarding the recognition and measurement of
assets, liabilities, revenues and expenses using presently enacted tax rates.
Such differences result principally from different methods of purchase price
allocation for tax and financial accounting purposes, depreciation, lease
transactions, and provisions for store closings.
Store Closing Costs -- The costs associated with closing stores are accrued
when the decision is made to close a location, and include disposition of
property and equipment and associated other costs. In the event a store is
closed before its lease has expired, a provision is recorded for the estimated
remaining lease obligation, less estimated sublease income, if any.
New Accounting Pronouncements -- During 1996, the Company adopted Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of" ("SFAS 121").
This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. SFAS 121 had no impact on the Company's financial
position or results of operations.
Additionally, during 1996 the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). This statement requires expanded disclosures of stock-based compensation
arrangements with employees, and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument. As more
fully described at Note 7, the Company has opted to continue the application of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and accordingly, the adoption of SFAS 123 had no effect
on the Company's financial position or results of operations.
2. CHANGE IN CONTROL
On June 27, 1994, Chief was merged with a subsidiary of TCW Special Credits
Fund V -- The Principal Fund ("The Principal Fund"), and was the surviving
corporation (the "Merger").
The Principal Fund and its affiliates then acquired 100% of the issued and
outstanding common stock of the Company. The aggregate purchase consideration
given in the Merger was approximately $72 million, including fees and expenses.
Equityholders at the date of the Merger received both cash consideration
and stock purchase warrants. The stock purchase warrants are exercisable for an
aggregate of 10% of the outstanding shares of common stock of the Company on a
fully-diluted basis, after the issuance of stock and stock options to management
(as more fully described at Note 7). All stock, options and warrants outstanding
prior to the Merger were canceled. The Merger was a nontaxable transaction, and
accordingly, the tax basis of the Predecessor Company carried forward as that of
the Company's.
In conjunction with the Merger, Chief entered into a $50 million revolving
credit agreement (the "Credit Agreement") with a bank, as more fully described
at Note 3. All debt due the Predecessor's sole senior lender was repaid at the
date of the Merger.
F-8
<PAGE> 86
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 and December
29, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Revolving credit loan, due June 1999........................ $38,500 $61,000
$7.7 million industrial development bonds, interest at the
higher of 8% or 75% of prime (8% at December 29, 1996),
due monthly through December 1999......................... 2,594 2,022
------- -------
Total....................................................... 41,094 63,022
Less current portion........................................ 573 622
------- -------
Long-term debt.............................................. $40,521 $62,400
======= =======
</TABLE>
The commitment term of the Credit Agreement expires in June 1999.
Borrowings under the revolving credit facility are secured by the Company's
merchandise inventories. The maximum availability for borrowings ($80 million at
December 29, 1996, as amended November 4, 1996) is reduced by letter of credit
usage, which cannot exceed $10 million. At December 29, 1996, the Company had
outstanding a $500,000 letter of credit. A commitment fee ranging from 0.25% to
0.5% is payable on the unused portion.
At the Company's option, interest on the revolving credit loan is payable
either quarterly or on the last day of defined interest periods, based on either
(a) the higher of prime or the federal funds effective rate plus 0.5% (plus, in
either case, a defined margin rate ranging up to 0.75%), or (b) the one, three,
or six-month London Interbank Offered Rate ("LIBOR") plus a defined margin rate
ranging from 0.5% to 2.0%. The weighted average interest rate in effect at
December 29, 1996 was 6.37%.
Deferred financing costs relating to the credit facility are amortized over
the life of the commitment. Amortization is included as interest expense in the
accompanying statement of operations. Deferred financing costs, net of
accumulated amortization, were $932,000 and $985,000, at December 31, 1995 and
December 29, 1996, respectively.
Covenants contained in the Credit Agreement include, but are not limited
to, provisions for the maintenance of minimum cash flow levels and net worth,
and restrictions on additional indebtedness, liens, investments, and payment of
dividends. The Company is in compliance with these covenants at December 29,
1996.
The aggregate maturities of long-term debt for the years subsequent to
December 29, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal Year
1997...................................................... $ 622
1998...................................................... 674
1999...................................................... 61,726
Thereafter................................................ --
-------
Total payments.................................... $63,022
=======
</TABLE>
4. PROVISION FOR STORE CLOSURES
During the year ended December 29, 1996, the Company recorded a charge to
expense relating to stores identified for closing during 1996, primarily related
to the exit from the Little Rock, Arkansas market. The provision is based on the
Company's best estimate of the costs associated with closing the stores, and is
comprised primarily of the anticipated lease obligations for these stores, and
losses on the disposal of store-related assets.
F-9
<PAGE> 87
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASES
The Company leases facilities and equipment under noncancelable capital and
operating leases expiring in various years through 2028. The lease agreements
covering facilities generally require that the Company pay a pro rata share of
common area maintenance, insurance, utilities and ad valorem taxes, for which
provision has been made currently. Certain lease agreements covering facilities
require that the Company pay a percentage of sales over a specified minimum
level, for which provision has been made currently.
Future minimum lease payments under capital and operating leases at
December 29, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Fiscal year:
1997...................................................... $ 2,857 $ 30,181
1998...................................................... 2,705 27,966
1999...................................................... 2,649 25,490
2000...................................................... 2,702 22,848
2001...................................................... 2,631 19,587
Thereafter................................................ 16,693 78,389
------- --------
Total minimum lease payments...................... 30,237 $204,461
========
Less imputed interest..................................... 11,273
-------
Present value of lease payments........................... 18,964
Current portion........................................... 1,318
-------
Long-term portion......................................... $17,646
=======
</TABLE>
Rent expense under operating leases for the six months ended June 26, 1994
(Predecessor) and December 25, 1994 was $10,500,000 and $11,100,000,
respectively, and for the years ended December 31, 1995 and December 29, 1996
was $24,826,000 and $28,395,000, respectively. Contingent rentals were not
significant. Assets under capital leases consist of the following at December
31, 1995 and December 29, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Buildings................................................... $23,509 $20,963
Furniture and equipment..................................... 393 393
------- -------
Total............................................. 23,902 21,356
Less accumulated amortization............................... 3,268 4,945
------- -------
Net............................................... $20,634 $16,411
======= =======
</TABLE>
F-10
<PAGE> 88
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Components of income tax expense for the six months ended June 26, 1994
(Predecessor) and December 25, 1994 and for the years ended December 31, 1995
and December 29, 1996 were as follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED
-------------- DECEMBER
JUNE DEC. ----------------
1994 1994 1995 1996
------ ---- ------ ------
<S> <C> <C> <C> <C>
Current:
Federal........................................ $1,009 $434 $2,950 $1,261
State.......................................... 374 103 1,050 450
Deferred:
Federal........................................ -- -- 1,500 (1,352)
------ ---- ------ ------
Total.................................. $1,383 $537 $5,500 $ 359
====== ==== ====== ======
</TABLE>
Income tax expense differs from the amount computed by applying the U.S.
federal income tax rate (34%) because of the effect of the following items (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED
----------------- DECEMBER
JUNE DEC. ----------------
1994 1994 1995 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
Tax at U.S. federal rate....................... $ 952 $(2,571) $5,093 $ 497
State income taxes, net of U.S. federal
benefit...................................... 247 68 693 297
Goodwill amortization.......................... -- 243 486 486
Tax assets for which no benefit was
recognized................................... 157 2,767 -- --
Benefit of previously unrecognized tax
assets....................................... -- -- (1,144) (834)
Other, net..................................... 27 30 372 (87)
------ ------- ------ ------
Total................................ $1,383 $ 537 $5,500 $ 359
====== ======= ====== ======
</TABLE>
At December 29, 1996, the Company had an alternative minimum tax credit
carryforward of $1,762,000 which has no expiration.
The major deferred tax asset (liability) items at December 31, 1995 and
December 29, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Depreciation................................................ $ 2,574 $ 1,146
Provisions for merchandise realignment, store closures and
related dispositions...................................... 5,178 6,697
Capital leases.............................................. 743 995
Deferred gains from sale leasebacks......................... 1,131 1,021
Inventory cost capitalization............................... 1,503 1,956
Accruals not deducted for tax purposes...................... 14,606 15,845
Tax credit carryforwards.................................... 2,105 1,762
Unfavorable lease obligations............................... 1,317 908
Other....................................................... (983) (804)
-------- --------
Net before valuation allowance.................... 28,174 29,526
Valuation allowance......................................... (20,424) (10,424)
-------- --------
Net deferred tax assets........................... $ 7,750 $ 19,102
======== ========
</TABLE>
F-11
<PAGE> 89
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
At December 29, 1996, the Company had gross deferred tax assets of
$30,590,000, and gross deferred tax liabilities of $1,064,000. The net deferred
tax assets have been adjusted by a valuation allowance of $10,424,000. During
1996, in assessing the required valuation allowance against the deferred tax
asset, the Company concluded that it is more likely than not that a portion of
the deferred tax asset will be used to offset future tax. Accordingly, the
Company reduced the valuation allowance by $10,000,000 during the year ended
December 29, 1996, with a reduction in goodwill to reflect deferred tax assets
acquired in the Merger. Substantially all of the valuation allowance at December
29, 1996 relates to assets which were acquired in the Merger.
7. STOCKHOLDERS' EQUITY
Management Notes Receivable -- Several members of Company management have
purchased shares of Chief common stock, for which partial consideration is in
the form of notes made payable to Chief. The notes, which bear interest ranging
from 6.11% to 7.05% (payable annually), are due through 2003. Mandatory
prepayments of principal are due under certain circumstances.
Options -- In accordance with the Chief Auto Parts Inc. 1994 Executive
Option Plan (the "1994 Option Plan"), which became effective July 1, 1994,
options to purchase 5,488 shares of common stock can be granted to certain
employees and directors, at an exercise price of $1,420 per share. The options
become exercisable (vest) in 25% increments on each anniversary of the date of
grant, and may be exercised at any time after becoming exercisable until the
options expire. The 1994 Option Plan will terminate on June 30, 2004.
A summary of the options for the years ended December 31, 1995 and December
29, 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Outstanding at beginning of year............................ 4,984 5,284
Granted..................................................... 300 --
Exercised................................................... -- --
Forfeited................................................... -- --
----- -----
Outstanding at end of year.................................. 5,284 5,284
===== =====
Exercisable at end of year.................................. 1,246 2,567
===== =====
</TABLE>
The Company accounts for the 1994 Option Plan under APB 25, under which no
compensation expense has been recognized for the options granted because the
exercise price has equaled the fair value of the Company's common stock at the
date of grant.
The Company adopted SFAS 123 during 1996, for disclosure purposes only.
During the phase-in period of SFAS 123, the Company is required to disclose pro
forma information regarding the options granted in 1995. For SFAS 123 purposes,
the fair value of the options granted during 1995 was estimated using the
Black-Scholes options pricing model, and the pro forma effect on the Company's
net income for the years ended December 31, 1995 and December 29, 1996 was
insignificant.
Warrants -- In conjunction with the Merger, stock purchase warrants were
issued to the Predecessor's equityholders, exercisable for an aggregate of 10%
of the outstanding shares of common stock of the Company on a fully-diluted
basis, after the issuance of stock and stock options to management. At December
29, 1996, 6,090 shares may be purchased under the warrants, at an exercise price
of $1,655 per share. The exercise price is increased quarterly by an interest
factor. All of the warrants can be exercised in whole or in part, are
transferable under certain conditions, and contain provisions requiring the
Company to reserve a number of authorized and unissued shares sufficient to
exercise the warrants at any time. The number of shares issuable is subject to
adjustment under anti-dilution provisions contained in the warrants. The
warrants expire on June 27, 2004.
F-12
<PAGE> 90
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution benefit plan covering
substantially all employees with more than one year of service. Plan assets,
distributions and reporting are administered by a third party. The plan's assets
include, at the participant's choice, a guaranteed interest fund, a government
securities fund, a stock emphasis balanced fund, and a U.S. stock fund.
Employees may contribute to their individual accounts, and Chief may provide a
matching contribution. During the six months ended June 26, 1994 (Predecessor)
and December 25, 1994, Chief contributed approximately $200,000 on a combined
basis to the plan. During the years ended December 31, 1995 and December 29,
1996, Chief contributed approximately $200,000 and $300,000, respectively, to
the plan.
Chief provides health and other insurance benefits for employees and their
dependents through health maintenance organizations ("HMO"). Prior to January 1,
1996, the Company also offered an indemnity plan to employees, which has been
discontinued. For the six months ended June 26, 1994 (Predecessor) and December
25, 1994, Chief paid $600,000 and $441,000, respectively, through the indemnity
plan and for the year ended December 31, 1995, paid total claims of
approximately $843,000 through the indemnity plan.
In accordance with the Chief Auto Parts Inc. 1994 Executive Target Bonus
Plan (the "Bonus Plan"), which became effective July 1, 1994, key employees of
the Company may earn bonuses if targeted levels of income are obtained by Chief.
At their option, plan participants may elect to defer such bonuses to future
years. The Bonus Plan will terminate on June 30, 2004. The deferred compensation
expense for this plan during the six months ended December 25, 1994 was $779,000
and during the years ended December 31, 1995 and December 29, 1996 was
$1,558,000 each year.
9. SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or less
to be cash equivalents. During the stated periods below, noncash investing and
financing activities were as follows:
- Six months ended December 25, 1994: noncash assets of $13,300,000
(principally property and equipment) and noncash liabilities of
$20,600,000 (principally capital leases) were acquired or assumed in the
Merger.
- Year ended December 29, 1996: capital leases of $2,396,000 were retired.
10. RELATED PARTIES
At December 29, 1996, 94.6% of Chief's outstanding common stock was owned
collectively by The Principal Fund and four affiliates of The Principal Fund.
The remaining outstanding common stock is owned by members of Chief management
and a member of the Company's board of directors. As described at Note 7,
several members of Chief management made notes payable to Chief in conjunction
with their purchase of Chief common stock. Equityholders at the date of the
Merger received stock purchase warrants, as described at Notes 2 and 7. The
warrant holders are comprised of current and former employees of the Company, a
former member of the Predecessor's board of directors, and the Predecessor's
senior lender and major equityholder.
11. COMMITMENTS AND CONTINGENCIES
On March 30, 1994, an administrative proceeding was initiated by the United
States Equal Employment Opportunity Commission, alleging that certain of the
Predecessor Company's employment practices might have been discriminatory. On
December 20, 1996, this matter was settled, at amounts less than previously
accrued and $1.2 million was credited to expense.
F-13
<PAGE> 91
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company is the defendant in two lawsuits alleging that the Company
failed to pay store managers and associate store managers in California for
overtime compensation as required by California law. On September 21, 1993, a
lawsuit was filed in the Superior Court of California, County of Alameda, by a
former manager, alleging that the Company failed to pay store managers and
associate store managers in California overtime compensation. In December 1994,
the court denied class certification. Two hundred and forty two individual
claims have been added to the initial suit. In addition to the claims filed in
Alameda County, on March 5, 1996, 15 current and former employees filed a
lawsuit based on the same claims, in the Superior Court of California, County of
San Joaquin. The Company is vigorously defending against the claims of all
plaintiffs.
In September 1996, the Company submitted to binding arbitration with
respect to eight of the Alameda County plaintiffs. On March 10, 1997, the
arbitrator ruled in favor of the eight plaintiffs involved in the arbitration
with respect to liability and determined that these eight plaintiffs are
entitled to compensation for overtime hours worked, certain penalties and
interest and reasonable attorney's fees and costs of arbitration. However, the
arbitrator has not yet made a determination with respect to the amount of
damages. This arbitration decision has no binding precedential or stare decisis
effect on the remaining 235 plaintiffs' cases. However, regardless of the
outcome of the damage phase of the arbitration, the Company may have to litigate
or arbitrate the remaining cases and may incur significant legal expenses in
connection therewith, and the Company could be subject to significant
compensatory damages. In addition, there are approximately 700 store managers
and associate store managers previously or currently employed by the Company in
California who have not brought or joined in the suit against the Company.
Following the Alameda court's denial of class certification to the plaintiffs,
the court required the Company to send notice in October 1995 to all potential
plaintiffs (current and former managers as of that date) notifying them of this
action and providing them the opportunity to contact the plaintiffs' attorney.
The Company has recorded a provision for potential losses related to the
lawsuits, but management is unable to predict the outcome of the damage phase of
the arbitration or the remaining lawsuits, or the probability of additional
lawsuits, at this time. However, if a significant number of plaintiffs were to
prevail on all elements of their claims against the Company or if a significant
number of additional current or former managers were to bring suit and prevail
as noted above, it could have a material adverse effect on the Company.
The Company has been and is involved in various other legal proceedings.
Management believes that such other litigation is routine in nature and
incidental to the conduct of its business, and that none of such other
litigation, if determined adversely to the Company, would have a material
adverse effect, individually or in the aggregate, on the Company's financial
position or results of operations.
12. OTHER ACCRUED LIABILITIES
The following is a summary of other accrued liabilities at December 31,
1995 and December 29, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Store-closing provision..................................... $ 1,794 $ 2,065
Insurance reserves.......................................... 3,109 2,382
Other (including legal)..................................... 14,012 11,512
------- -------
Other accrued liabilities................................... $18,915 $15,959
======= =======
</TABLE>
F-14
<PAGE> 92
CHIEF AUTO PARTS INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER NONCURRENT LIABILITIES
The following is a summary of other noncurrent liabilities at December 31,
1995 and December 29, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Accrued average rent........................................ $12,031 $12,394
Store-closing provision..................................... 5,474 10,384
Unfavorable lease obligations, net.......................... 4,343 3,434
Deferred compensation....................................... 3,117 4,675
Deferred income from sale-leasebacks........................ 2,618 2,340
Other (including legal)..................................... 1,266 7,442
------- -------
Other noncurrent liabilities................................ $28,849 $40,669
======= =======
</TABLE>
14. PRO FORMA MARCH 30, 1997 LONG-TERM DEBT AND EQUITY (UNAUDITED)
The pro forma March 30, 1997 long-term debt and equity represent the March
30, 1997 long-term debt and equity as adjusted for the following items:
Long-term debt -- the sale of senior notes, the repayment of the Credit
Agreement and the initial borrowing under a new credit facility; Equity -- the
exercise of stock options, the repayment of a portion of the management notes
receivable, the write-off of the unamortized deferred financing costs relating
to the Credit Agreement, and a distribution to stockholders; all of the
foregoing as if done on March 30, 1997.
F-15
<PAGE> 93
[ARTWORK]
Photographs of interior of Chief stores and employees. Text "Quality
Products -- Nationally recognized name-brand products ensure that Chief's
customers always get the quality and value that they demand; Dedicated Service
- -- State-of-the-art testing equipment and well trained employees help Chief
Auto Parts deliver the finest in customer service."
<PAGE> 94
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 9
The Recapitalization.................. 15
Use of Proceeds....................... 15
Benefits to Related Parties........... 15
Capitalization........................ 16
Selected Financial and Other Data..... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 27
Management............................ 37
Principal Stockholders................ 45
Certain Transactions.................. 47
Description of New Credit Facility.... 48
Description of the Notes.............. 49
Underwriting.......................... 72
Notice to Canadian Residents.......... 73
Legal Matters......................... 74
Independent Accountants............... 74
Available Information................. 74
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[CHIEF AUTO PARTS LOGO]
CHIEF AUTO PARTS INC.
$130,000,000
% SENIOR NOTES DUE 2005
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
SALOMON BROTHERS INC
- --------------------------------------------------------------------------------
<PAGE> 95
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 96
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......... $ 39,394
National Association of Securities Dealers, Inc. filing
fee....................................................... 13,500
Legal fees and expenses..................................... 200,000
Accounting fees and expenses................................ 100,000
Printing and engraving fees and expenses.................... 200,000
Blue sky fees and expenses.................................. 8,000
Trustee's fees and expenses................................. 10,000
Miscellaneous expenses...................................... 99,106
--------
Total..................................................... $670,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director for violations of the
director's fiduciary duty, except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payments of dividends of unlawful stock purchase or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit.
Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any person, including an officer or director, who is,
or is threatened to be made, party to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the corporation's best interest and, for
criminal proceeding, had no reasonable cause to believe that his conduct was
unlawful. A Delaware corporation may indemnify any officer or director in any
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses that
such officer or director actually and reasonably incurred.
Article IX of the Bylaws of the Company (filed as Exhibit 3.2) provides for
indemnification of the officers and directors to the full extent permitted by
applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the purchase of the Company by The Principal Fund and
its affiliates in June 1994, the Company (i) issued warrants to purchase 5,689.5
shares of Common Stock to General Electric Capital Corporation at an exercise
price of $1,419.71 per share, subject to adjustments, (ii) issued warrants to
purchase an
II-1
<PAGE> 97
aggregate of 400.6 shares of Common Stock to certain members of the Company's
management at an exercise price of $1,419.71 per share, subject to adjustments,
and (iii) issued an aggregate of 47,210.45 shares of Common Stock to The
Principal Fund and its affiliates. The issuances to General Electric Capital
Corporation and to the members of the Company's management and Board of
Directors were in exchange for the previous equity ownership interests of such
persons in the Company. The issuance to The Principal Fund and its affiliates
was in exchange for its capital contribution to the Company. The issuance of the
warrants and the shares of Common Stock was exempt from registration under the
Securities Act by virtue of Section 4(2) thereof.
In October 1994, pursuant to the Company's 1994 Executive Option Plan, the
Company granted options to purchase an aggregate of 4,983.88 shares of Common
Stock to certain members of the Company's management at an exercise price of
$1,419.71 per share. The issuance of the options was exempt from registration
under the Securities Act by virtue of Section 4(2) thereof.
In October and November 1994, pursuant to the Management Stock Purchase
Agreement, the Company issued an aggregate of 2,587.86 shares of Common Stock to
certain members of the Company's management at a purchase price of $1,419.71 per
share. The issuance of the shares of Common Stock was exempt from registration
under the Securities Act by virtue of Section 4(2) thereof.
In August 1995, pursuant to the Company's 1994 Executive Option Plan, the
Company granted options to purchase an aggregate of 300.0 shares of Common Stock
to Larry L. Buresh, an officer of the Company, at an exercise price of $1,419.71
per share. The issuance of the options was exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder.
In November 1995, pursuant to the Management Stock Purchase Agreement, the
Company issued an aggregate of 100.0 shares of Common Stock to Larry L. Buresh,
an officer of the Company, at a purchase price of $1,419.71 per share. The
issuance of the shares of Common Stock was exempt from registration under the
Securities Act by virtue of Section 4(2) thereof.
In connection with the Offering and the Recapitalization, certain members
of management are expected to exercise options to purchase an aggregate of
4,839.97 shares of Common Stock at an exercise price of $1,419.71 per share. The
issuance of the shares of Common Stock upon exercise will be exempt from
registration under the Securities Act by virtue of Section 4(2) thereof.
ITEM 16. EXHIBITS.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement among Chief Auto Parts Inc.,
Credit Suisse First Boston and Salomon Brothers Inc
3.1 Fourth Restated Certificate of Incorporation of Chief Auto
Parts Inc.
+3.2 Bylaws of Chief Auto Parts Inc.
4.1 Form of Indenture between Chief Auto Parts Inc. and First
Trust National Association, as trustee
5.1 Opinion of Gibson, Dunn & Crutcher LLP regarding the
legality of the securities being issued
+10.1 1994 Executive Target Bonus Plan, as amended
+10.2 Form of Series I Promissory Note
+10.3 Form of Series II Promissory Note
+10.4 Form of Stock Pledge Agreement
+10.5 Employment Agreement between Chief Auto Parts Inc. and Larry
L. Buresh, effective as of August 10, 1995
+10.6 Employment Agreement between Chief Auto Parts Inc. and David
H. Eisenberg, effective as of June 27, 1994
+10.7 1994 Executive Option Plan of Chief Auto Parts Inc., as
amended
</TABLE>
II-2
<PAGE> 98
<TABLE>
<C> <S>
+10.8 Form of 1997 Employee Option Plan of Chief Auto Parts Inc.
+10.9 Nonqualified Executive Retirement Plan of Chief Auto Parts Inc., as amended
10.10 Form of 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>
- ---------------
+ Previously filed.
(b) Financial Statement Schedules
Schedule II
Valuation and Qualifying Accounts.
Six months ended December 25, 1994, years ended December 31, 1995 and
December 29, 1996 and three months ended March 30, 1997.
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Act, each
post-effective amendment that contains a form Prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 5 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the County of
Dallas, State of Texas on May 21, 1997.
CHIEF AUTO PARTS INC.
By: /s/ DAVID H. EISENBERG
----------------------------------
David H. Eisenberg
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 5 to the Registration Statement has been signed by the following persons in
the capacities indicated as of May 21, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ DAVID H. EISENBERG President, Chief Executive Officer
- ----------------------------------------------------- and Chairman of the Board
David H. Eisenberg
/s/ THOMAS A. HOUGH Vice-President -- Finance,
- ----------------------------------------------------- Treasurer and Chief Financial
Thomas A. Hough Officer
/s/ PATRICK J. CORBETT Director of Financial Reporting
- ----------------------------------------------------- and principal accounting officer
Patrick J. Corbett
* Director
- -----------------------------------------------------
Harold S. Eastman
* Director
- -----------------------------------------------------
Stephen A. Kaplan
* Director
- -----------------------------------------------------
Richard Masson
*By: /s/ THOMAS A. HOUGH
------------------------------------------------
Thomas A. Hough
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 100
SCHEDULE II
CHIEF AUTO PARTS INC.
VALUATION AND QUALIFYING ACCOUNTS
SIX MONTHS ENDED DECEMBER 25, 1994,
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 29, 1996 AND
THREE MONTHS ENDED MARCH 30, 1997 (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS DEDUCTIONS BALANCE
BEGINNING CHARGED TO FROM AT END
DESCRIPTION OF YEAR INCOME RESERVES(A) OF YEAR
----------- ---------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Six Months Ended December 25, 1994:
Inventory Reserve.............................. $5,424 $399 $1,139 $4,684
Store Closing Reserve.......................... 8,870 375 704 8,541
Year Ended December 31, 1995:
Inventory Reserve.............................. 4,684 506 757 4,433
Store Closing Reserve.......................... 8,541 500 1,773 7,268
Year Ended December 29, 1996:
Inventory Reserve.............................. 4,433 506 1,090 3,849
Store Closing Reserve.......................... 7,268 7,000 1,819 12,449
Three Months Ended March 30, 1997 (unaudited):
Inventory Reserve.............................. 3,849 -- 514 3,335
Store Closing Reserve.......................... 12,449 -- 418 12,031
</TABLE>
- ---------------
(a) Comprised of disposal of inventory, closed store assets and lease payments.
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement among Chief Auto Parts Inc.,
Credit Suisse First Boston and Salomon Brothers Inc
+3.1 Fourth Restated Certificate of Incorporation of Chief Auto
Parts Inc.
+3.2 Bylaws of Chief Auto Parts Inc.
4.1 Form of Indenture between Chief Auto Parts Inc. and First
Trust National Association, as trustee
5.1 Opinion of Gibson, Dunn & Crutcher LLP regarding the
legality of the securities being issued
+10.1 1994 Executive Target Bonus Plan, as amended
+10.2 Form of Series I Promissory Note
+10.3 Form of Series II Promissory Note
+10.4 Form of Stock Pledge Agreement
+10.5 Employment Agreement between Chief Auto Parts Inc. and Larry
L. Buresh, effective as of August 10, 1995
+10.6 Employment Agreement between Chief Auto Parts Inc. and David
H. Eisenberg, effective as of June 27, 1994
+10.7 1994 Executive Option Plan of Chief Auto Parts Inc., as
amended
+10.8 Form of 1997 Employee Option Plan of Chief Auto Parts Inc.
+10.9 Nonqualified Executive Retirement Plan of Chief Auto Parts
Inc., as amended
10.10 Form of 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>
- ---------------
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
$130,000,000
CHIEF AUTO PARTS INC.
___% Senior Notes Due 2005
UNDERWRITING AGREEMENT
_______ _, 1997
CREDIT SUISSE FIRST BOSTON CORPORATION
SALOMON BROTHERS INC
c/o Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, N.Y. 10010-3629
Ladies and Gentlemen:
1. Introductory. Chief Auto Parts Inc. , a Delaware corporation
("Company"), proposes to issue and sell $130,000,000 principal amount of its ___
% Senior Notes Due 2005 ("Securities") to be issued under an indenture, dated as
of __________, 1997 ("Indenture"), between the Company and First Trust National
Association, as Trustee. As described in the Prospectus (as defined below),
the offering of the Securities is part of a recapitalization (the
"Recapitalization") of the Company. The elements of the Recapitalization consist
of (i) the completion of the offering of the Securities, (ii) the exercise of
outstanding options to purchase 4,839.97 shares of common stock of the Company,
par value $.01 per share, by holders of such options, (iii) the repayment by
members of management of the Company of a portion of the amounts owed to the
Company under certain promissory notes, (iv) the establishment of a new credit
facility (the "New Credit Facility"), which will provide for a $100.0 million
revolving credit facility and (v) the application of the aggregate net proceeds
from the foregoing as set forth in the Prospectus under "Use of Proceeds."
The Company hereby agrees with the several Underwriters named in Schedule A
hereto ("Underwriters") as follows:
1
<PAGE> 2
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333-24029) relating to the
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (i) has
been declared effective under the Securities Act of 1933, as amended
("Act"), and is not proposed to be amended or (ii) is proposed to be
amended by amendment or post-effective amendment. If such registration
statement ("initial registration statement") has been declared
effective, either (i) an additional registration statement ("additional
registration statement") relating to the Securities may have been filed
with the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the
Act and, if so filed, has become effective upon filing pursuant to such
Rule and the Securities all have been duly registered under the Act
pursuant to the initial registration statement and, if applicable, the
additional registration statement or (ii) such an additional
registration statement is proposed to be filed with the Commission
pursuant to Rule 462(b) and will become effective upon filing pursuant
to such Rule and upon such filing the Securities will all have been
duly registered under the Act pursuant to the initial registration
statement and such additional registration statement. If the Company
does not propose to amend the initial registration statement or if an
additional registration statement has been filed and the Company does
not propose to amend it, and if any post-effective amendment to either
such registration statement has been filed with the Commission prior to
the execution and delivery of this Agreement, the most recent amendment
(if any) to each such registration statement has been declared
effective by the Commission or has become effective upon filing
pursuant to Rule 462(c) ("Rule 462(c)") under the Act or, in the case
of the additional registration statement, Rule 462(b). For purposes of
this Agreement, "Effective Time" with respect to the initial
registration statement or, if filed prior to the execution and delivery
of this Agreement, the additional registration statement means (i) if
the Company has advised the Underwriters that it does not propose to
amend such registration statement, the date and time as of which such
registration statement, or the most recent post-effective amendment
thereto (if any) filed prior to the execution and delivery of this
Agreement, was declared effective by the Commission or has become
effective upon filing pursuant to Rule 462(c), or (ii) if the Company
has advised the Underwriters that it proposes to file an amendment or
post-effective amendment to such registration statement, the date and
time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared
effective by the Commission. If an additional registration statement
has not been filed prior to the execution and delivery of this
Agreement but the Company has advised the Underwriters that it proposes
to file one, "Effective Time" with respect to such additional
registration statement means the date and time as of which such
registration statement is filed and becomes effective pursuant to Rule
462(b). "Effective Date" with respect to the initial registration
statement or the additional registration statement (if any) means the
date of the Effective Time thereof. The initial registration statement,
as amended at its Effective Time, including all information contained
in the additional registration statement (if any) and deemed to be a
part of the initial registration statement as of the Effective Time of
the additional registration statement pursuant to the General
Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("Rule
430A(b)") under the Act, is hereinafter referred to as the "Initial
Registration Statement". The additional registration statement, as
amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration
2
<PAGE> 3
Statements" and individually as a "Registration Statement". The form
of prospectus relating to the Securities, as first filed with the
Commission pursuant to and in accordance with Rule 424(b) ("Rule
424(b)") under the Act or (if no such filing is required) as included
in a Registration Statement, is hereinafter referred to as the
"Prospectus". No document has been or will be prepared or distributed
in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all material respects to the
applicable requirements of the Act, the Trust Indenture Act of 1939, as
amended ("Trust Indenture Act") and the rules and regulations of the
Commission promulgated thereunder ("Rules and Regulations") and did not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) on the Effective Date of the
Additional Registration Statement (if any), each Registration Statement
conformed, or will conform, in all material respects to the applicable
requirements of the Act, the Trust Indenture Act and the Rules and
Regulations and did not include, or will not include, any untrue
statement of a material fact and did not omit, or will not omit, to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading and (iii) on the date of
this Agreement, the Initial Registration Statement and, if the
Effective Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectus is included, each Registration Statement and the Prospectus
will conform, in all respects to the requirements of the Act, the Trust
Indenture Act and the Rules and Regulations, and neither of such
documents includes, or will include, any untrue statement of a material
fact or omit to state any material fact or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of
this Agreement: (i) as of its Effective Date, the Initial Registration
Statement will comply as to form in all material respects to the
applicable requirements of the Act, the Trust Indenture Act and the
Rules and Regulations, will not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
no Additional Registration Statement has been or will be filed and (ii)
The Prospectus, at the time of its filing pursuant to Rule 424(b) or
(if no such filing is required) at the Effective Date of the Additional
Registration Statement in which the Prospectus is included will not
include any untrue statement of material fact or omit to state any
material fact necessary, in the light of the circumstances under which
they were made, not misleading. The two preceding sentences do not
apply to (i) that part of a Registration Statement which shall
constitute the Statement of Eligibility and Qualification (Form T-1) of
the Trustee under the Trust Indenture Act or (ii) statements in or
omissions from a Registration Statement or the Prospectus based upon
written information furnished to the Company by any Underwriter
specifically for use therein, it being understood and agreed that the
only such information is that described as such in Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
has the power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus, and is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification, except where
the failure to have such power or authority or to be so qualified would
not have a Material Adverse Effect (as defined).
3
<PAGE> 4
(d) The Company has no subsidiaries other than CAP Acquisition
Corp., a Delaware corporation. CAP Acquisition Corp. is inactive and
has total assets less than $10,000. All of the issued and outstanding
capital stock of CAP Acquisition Corp. is owned directly by the
Company.
(e) The Indenture has been duly authorized by the Company and, if
the Effective Time of a Registration Statement is prior to the
execution and delivery of this Agreement, has been or otherwise upon
such Effective Time will be duly qualified under the Trust Indenture
Act with respect to the Securities registered thereby; the Securities
have been duly authorized by the Company; and when the Securities are
delivered, authenticated by the Trustee in accordance with the
provisions of the Indenture and paid for pursuant to this Agreement on
the Closing Date (as defined below), the Indenture will have been duly
executed and delivered by the Company, such Securities will have been
duly executed, issued and delivered and will conform in all material
respects to the description thereof contained in the Prospectus and
the Indenture, when duly executed and delivered by the Trustee, and
such Securities, when duly authenticated by the Trustee, will
constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and remedies generally and
to general equity principles (regardless of whether enforcement is
sought in a proceeding at law or in equity).
(f) Other than this Agreement, there are no contracts, agreements
or understandings between the Company and any person that would give
rise to a valid claim against the Company or any Underwriter for a
brokerage commission, finder's fee or other like payment in connection
with this offering of the Securities.
(g) There are no contracts, agreements or understandings between
the Company and any person granting such person the right to require
the Company to include securities of the Company owned or to be owned
by such person in the securities registered pursuant to the
Registration Statement and, except as disclosed in the Prospectus, and
except for the currently outstanding warrants to purchase 6,090.1
shares of the Company's Common Stock, no such person has the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company.
(h) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation by the Company of the transactions contemplated by this
Agreement in connection with the issuance and sale of the Securities
by the Company, except such as have been or, prior to the Closing
Date, will have been obtained and made under the Act and the Trust
Indenture Act and such as may be required under state securities or
"blue sky" laws.
(i) Each of the execution, delivery and performance by the
Company of the Indenture and this Agreement, the consummation by the
Company of each element of the Recapitalization and the issuance and
sale of the Securities and compliance by the Company with the terms
and provisions thereof will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under,
(assuming compliance with all applicable state securities or "blue sky
laws and, for purposes of this clause 2(i) only, the Act) any statute,
any rule, regulation or order of any governmental agency or body or
any court, domestic or foreign, having jurisdiction over the Company
or any of its properties, or any agreement or instrument to which the
Company is a party or by which the Company is bound or to which any of
the properties of the Company is subject, (except as would not have
Material Adverse Effect) or the charter or by-laws of the
4
<PAGE> 5
Company, and the Company has all requisite power and authority to
authorize, issue and sell the Securities as contemplated by this
Agreement.
(j) This Agreement has been duly authorized, executed and
delivered by the Company.
(k) The Company has good and marketable title to all real
properties and good title to all other properties and assets owned by
it, in each case free from liens, encumbrances and defects, except as
described in the Prospectus or to the extent the failure to have such
title or the existence of such liens, encumbrances or defects would
not have, individually or in the aggregate, a Material Adverse Effect,
other than liens granted to the Company's lender under the Existing
Credit Facility or to be granted under the New Credit Facility; and
the Company holds any leased real or personal property under valid and
enforceable leases with no exceptions, except as described in the
Prospectus or to the extent the failure to so hold or the existence of
such exceptions would not have, individually or in the aggregate, a
Material Adverse Effect.
(l) The Company possesses adequate certificates, authorities or
permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by it and has not
received any notice of proceedings relating to the revocation or
modification of any such certificate, authority or permit that, if
determined adversely to the Company, would individually or in the
aggregate have a material adverse effect on the condition (financial
or other), business, properties or results of operations of the
Company (a "Material Adverse Effect").
(m) No labor dispute with the employees of the Company exists or,
to the knowledge of the Company, is threatened that would reasonably
be expected to have a Material Adverse Effect.
(n) The Company owns, possesses or can acquire on reasonable
terms, adequate trademarks, trade names and other rights to
inventions, know-how, patents, copyrights, confidential information
and other intellectual property (collectively, "intellectual property
rights") necessary to conduct the business now operated by it and has
not received any notice of infringement of or conflict with asserted
rights of others with respect to any intellectual property rights
that, if determined adversely to the Company, would individually or in
the aggregate reasonably be expected to have a Material Adverse
Effect.
(o) The Company is not in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or
any court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection
or restoration of the environment or human exposure to hazardous or
toxic substances (collectively, "environmental laws"), does not own or
operate any real property contaminated with any substance that is
subject to any environmental laws, is not liable for any off-site
disposal or contamination pursuant to any environmental laws, or is
not subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in
the aggregate have a Material Adverse Effect, and the Company is not
aware of any pending investigation which might reasonably be expected
to lead to such a claim.
(p) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company or any
of its properties that, if determined adversely to the Company, would
individually or in the aggregate reasonably be expected to have a
Material Adverse Effect, or would materially and adversely affect the
ability of the Company to perform its obligations under the Indenture
or this Agreement, or which are otherwise material in the context of
the sale of the Securities; and no such actions, suits or proceedings
are, to the Company's knowledge, threatened or contemplated.
5
<PAGE> 6
(q) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of
the Company as of the dates shown and its results of operations and
cash flows for the periods shown, and such financial statements have
been prepared in conformity with the generally accepted accounting
principles in the United States applied on a consistent basis; the
schedules included in each Registration Statement present fairly the
information required to be stated therein; and the assumptions used in
preparing the pro forma financial statements (including the notes
thereto) included in each Registration Statement and the Prospectus
provide a reasonable basis for presenting the significant effects
directly attributable to the transactions or events described therein,
the related pro forma adjustments give appropriate effect to those
assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical
financial statement amounts. With respect to the Company, Price
Waterhouse LLP is an independent public accounting firm within the
meaning of the Act and the Rules and Regulations.
(r) The Company does not have any material liability for any
prohibited transaction or funding deficiency or any complete or
partial withdrawal liability with respect to any pension, profit
sharing or other plan which is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), to which it makes
or ever has made a contribution and in which any employee of it is or
has ever been a participant. With respect to such plans, the Company
is in compliance in all material respects with all applicable
provisions of ERISA.
(s) The Company has filed all necessary federal, state and
foreign income and franchise tax returns, except where the failure to
so file such returns would not, individually or in the aggregate, have
a Material Adverse Effect, and has paid all material taxes shown as
due thereon; and other than tax deficiencies which the Company is
contesting in good faith and for which the Company has provided
adequate reserves, there is no tax deficiency that has been asserted
against the Company that would have, individually or in the aggregate,
a Material Adverse Effect.
(t) Except as disclosed in the Prospectus, since the date of the
latest financial statements included in the Prospectus there has been
no material adverse change, nor any development or event involving a
prospective material adverse change, in the condition (financial or
other), business, properties or results of operations of the Company,
and, except as disclosed in or contemplated by the Prospectus, there
has been no dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock.
(u) The Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Prospectus, will not be required to register as an
"investment company" or an entity "controlled" by an investment
company, as such terms are defined in the Investment Company Act of
1940, as amended.
(v) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes and the
Company agrees to comply with such Section if prior to the completion
of the distribution of the Securities it commences doing such
business.
(w) A true and correct copy of the executed New Credit Facility
has been or will be delivered to the Underwriters and counsel to the
Underwriters on or prior to the Closing Time. The Company has the
corporate power to execute, deliver and perform the terms and
provisions of the New Credit Facility to be performed by it and has
taken all necessary corporate action to authorize the execution,
delivery and performance by it of the New Credit Facility. The New
Credit
6
<PAGE> 7
Facility, when executed and delivered by the Company (assuming due
authorization, execution and delivery thereof by the other parties
thereto) will be a valid and binding agreement of the Company,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or similar laws affecting the
enforceability or creditors' rights and remedies generally and by
equitable principles of general applicability (regardless of whether
such enforceability is considered in a proceeding in equity or at
law). If the New Credit Facility has already been executed, there have
been no amendments, alterations, modifications or waivers of the
provisions thereof. The New Credit Facility or will conform in all
material respects to the description thereof in the Prospectus.
(x) Immediately after the consummation of the Recapitalization,
the fair market value and present fair saleable value of the assets of
the Company will exceed the sum of its stated liabilities and
identified contingent liabilities; the Company is not, nor will it be,
after giving effect to the execution, delivery and performance of this
Agreement and the consummation of the Recapitalization, (a) left with
unreasonably small capital with which to carry on its business as it
is proposed to be conducted, (b) unable to pay its debts (contingent
or otherwise) as they mature or (c) otherwise insolvent.
3. Purchase, Sale and Delivery of Securities. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of ___% of the principal amount thereof
plus accrued interest from
to the Closing Date, the respective principal amounts of
Securities set forth opposite the names of the Underwriters in Schedule A
hereto.
The Company will deliver against payment of the purchase price the
Securities in the form of one or more permanent global Securities in definitive
form (the "Global Securities") deposited with the Trustee as custodian for The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee for DTC. Interests in any permanent global Securities will be held only
in book-entry form through DTC[, except in the limited circumstances provided
for by the procedures of DTC]. Payment for the Securities shall be made by the
Underwriters in Federal (same day) funds by official bank check or checks drawn
to the order of the Company or wire transfer to a bank account of the Company,
designated at least 2 business days prior to the Closing Date, at the office of
Cahill Gordon & Reindel at 9:00 A.M., (New York time), on or at such other time
not later than seven full business days thereafter as Credit Suisse First Boston
Corporation ("CSFB") and the Company determine, such time being herein referred
to as the "Closing Date", against delivery to the Trustee as custodian for DTC
of the Global Securities representing all of the Securities. The Global
Securities will be made available for checking at the office of Cahill Gordon &
Reindel at least 24 hours prior to the Closing Date.
4. Offering by Underwriters. It is understood that the several Underwriters
propose to offer the Securities for sale to the public as set forth in the
Prospectus.
5. Certain Agreements of the Company. The Company agrees with the several
Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance
with subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) within the time period prescribed in
such Rule. The Company will advise CSFBC promptly of any such filing
pursuant to Rule 424(b). If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement and an additional registration statement is necessary to
register a portion of the Securities under the Act
7
<PAGE> 8
but the Effective Time thereof has not occurred as of such execution
and delivery, the Companywill file the additional registration
statement or, if filed, will file a post-effective amendment thereto
with the Commission pursuant to and in accordance with Rule 462(b) on
or prior to 10:00 P.M., New York time, on the date of this Agreement
or, if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later
date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial
Registration Statement, the Additional Registration Statement (if any)
or the Prospectus and will not effect such amendment or supplementation
without CSFBC's consent; and the Company will also advise CSFBC
promptly of the effectiveness of each Registration Statement (if its
Effective Time is subsequent to the execution and delivery of this
Agreement) and of any amendment or supplementation of a Registration
Statement or the Prospectus and of the institution by the Commission of
any stop order proceedings in respect of a Registration Statement and
will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Securities
is required to be delivered under the Act in connection with sales by
any Underwriter or dealer, any event occurs as a result of which the
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any such time to amend or supplement the Prospectus to
comply with the Act, the Company will promptly notify CSFBC of such
event and will promptly prepare and file with the Commission, at its
own expense, an amendment or supplement which will correct such
statement or omission or an amendment which will effect such
compliance. Neither CSFBC's consent to, nor the Underwriters' delivery
of, any such amendment or supplement shall constitute a waiver of any
of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to
its securityholders an earnings statement (which need not be certified
by an independent public accountant) covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional
Registration Statement) which will satisfy the provisions of Section
11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the
90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Underwriters copies of each
Registration Statement (3 of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Securities is required to be delivered under
the Act in connection with sales by any Underwriter or dealer, the
Prospectus and all amendments and supplements to such documents, in
each case in such quantities as CSFBC reasonably requests. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other documents shall be so furnished as
soon as available. The Company will pay the expenses of printing and
distributing to the Underwriters all such documents.
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(f) The Company will take such action as the Underwriters may
reasonably request to qualify the Securities for offering and sale and
the determination of their eligibility for investment under the laws
of such jurisdictions as CSFBC designates and to comply with such laws
so as to permit the continuance of such qualifications in effect so
long as required for the distribution of the Securities, provided that
in connection therewith the Company shall not be required to qualify
as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not so qualified or so
subject.
(g) For and during the period ending on the date no Securities
are outstanding, the Company will furnish to the Underwriters copies
of all reports and other communications (financial or otherwise)
furnished by the Company to the Trustee or the holders of the
Securities and, as soon as available, copies of any reports or
financial statements furnished to or filed by the Company with the
Commission or any national securities exchange on which any class of
securities of the Company may be listed.
(h) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(i) The Company will pay all expenses incident to the performance
of its obligations under this Agreement, for any filing fees and other
expenses (including fees and disbursements of counsel) incurred in
connection with qualification of the Securities for sale under the
laws of such jurisdictions as CSFBC designates and the printing of
memoranda relating thereto, for any fees charged by investment rating
agencies for the rating of the Securities, for the filing fee incident
to the review by the National Association of Securities Dealers, Inc.
of the Securities, for any travel expenses of the Company's officers
and employees and any other expenses of the Company in connection with
attending or hosting meetings with prospective purchasers of the
Securities and for expenses incurred in distributing preliminary
prospectuses and the Prospectus (including any amendments and
supplements thereto) to the Underwriters.
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Securities on the
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Underwriters shall have received a letter, dated the
date of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if
the Effective Time of the Initial Registration Statement is subsequent
to the execution and delivery of this Agreement, shall be prior to the
filing of the amendment or post-effective amendment to the registration
statement to be filed shortly prior to such Effective Time), of Price
Waterhouse LLP confirming that, with respect to the Company, they are
independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating to
the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
Rules and Regulations;
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<PAGE> 10
(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company
who have responsibility for financial and accounting matters and
other procedures specified in such letter nothing came to their
attention that caused them to believe that:
(A) the unaudited financial statements included in the
Registration Statements do not comply as to form in all
material respects with the applicable accounting
requirements of the Act and the related published Rules and
Regulations or any material modifications should be made to
such unaudited financial statements for them to be in
conformity with generally accepted accounting principles;
(B) at the date of the latest available balance sheet read
by such accountants, or at a subsequent specified date not
more than three business days prior to the date of this
Agreement, there was any change in the capital stock or any
increase in short-term indebtedness or long-term debt of the
Company or, at the date of the latest available balance
sheet read by such accountants, there was any decrease in
consolidated net assets as compared with amounts shown on
the latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of the latest
income statement included in the Prospectus to the closing
date of the latest available income statement read by such
accountants there were any decreases, as compared with the
corresponding period of the previous year in consolidated
net sales or net operating income, income before
extraordinary items, net income or in the ratio of earnings
to fixed charges,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur; and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the extent
that such dollar amounts, percentages and other financial information
are derived from the general accounting records of the Company subject
to the internal controls of the Company's accounting system or are
derived directly from such records by analysis or computation) with
the results obtained from inquiries, a reading of such general
accounting records and other procedures specified in such letter and
have found such dollar amounts, percentages and other financial
information to be in agreement with such results.
For purposes of this subsection, (i) if the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of this
Agreement, "Registration Statements" shall mean the initial registration
statement as proposed to be amended by the amendment or post-effective
amendment to be filed shortly prior to its Effective Time, (ii) if the
Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement but the Effective Time of the
Additional Registration is subsequent to such execution and delivery,
"Registration
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<PAGE> 11
Statements" shall mean the Initial Registration Statement and the
additional registration statement as proposed to be filed or as proposed to
be amended by the post-effective amendment to be filed shortly prior to its
Effective Time, and (iii) "Prospectus" shall mean the prospectus included
in the Registration Statements.
(b) If the Effective Time of the Initial Registration Statement is not
prior to the execution and delivery of this Agreement, such Effective Time
shall have occurred not later than 10:00 P.M., New York time, on the date
of this Agreement or such later date as shall have been consented to by
CSFBC. If the Effective Time of the Additional Registration Statement (if
any) is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or, if earlier, the time the Prospectus
is printed and distributed to any Underwriter, or shall have occurred at
such later date as shall have been consented to by CSFBC. If the Effective
Time of the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with the
Commission in accordance with the Rules and Regulations and Section 5(a) of
this Agreement. Prior to the Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Underwriters, shall be contemplated by the
Commission.
(c) The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects on and as
of the date hereof and on and as of the Closing Date as if made on and as
of the Closing Date; the statements of the officers of the Company made
pursuant to any certificate delivered in accordance with the provisions
hereof shall be true and correct on and as of the date made and on and as
of the Closing Date; the Company shall have performed all covenants and
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date.
(d) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company which, in the
judgment of CSFBC is material and adverse and makes it impractical or
inadvisable to proceed with completion of the public offering or the sale
of and payment for the Securities; (ii) any downgrading in the rating of
any debt securities of the Company by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g)
under the Act), or any public announcement that any such organization has
under surveillance or review its rating of any debt securities of the
Company (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading, of such
rating); (iii) any suspension or limitation of trading in securities
generally on the New York Stock Exchange, or any setting of minimum prices
for trading on such exchange, or any suspension of trading of any
securities of the Company on any exchange or in the over-the-counter
market; (iv) any banking moratorium declared by U.S. Federal or New York
State authorities; or (v) any outbreak or escalation of major hostilities
in which the United States is involved, any declaration of war by Congress
or any other substantial national or international calamity or emergency
if, in the judgment of CSFBC, the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable to
proceed with completion of the public offering or the sale of and payment
for the Securities.
(e) The Underwriters shall have received an opinion, dated such
Closing Date, of Gibson Dunn & Crutcher LLP, counsel for the Company, to
the effect that:
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<PAGE> 12
(i) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
has the requisite corporate power and authority to own its properties
and conduct its business as described in the Prospectus and is duly
qualified to do business as a foreign corporation in good standing in
all other jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification, except where
the failure to have such power or authority or to be so qualified
would not have a Material Adverse Effect;
(ii) The Indenture has been duly authorized, executed and
delivered by the Company and has been duly qualified under the Trust
Indenture Act; the Securities delivered on the Closing Date have been
duly authorized, executed, and assuming due authentication thereof by
the Trustee, issued and delivered by the Company and conform in all
material respects to the description thereof contained in the
Prospectus; and the Indenture and the Securities (when paid for by the
Underwriters in accordance with this Agreement) delivered on the
Closing Date constitute valid and legally binding obligations of the
Company enforceable against the Company in accordance with their terms
(assuming due execution and delivery by the other parties thereto),
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and remedies generally and
to general equity principles (regardless of whether enforcement is
sought in a proceeding at law or in equity);
(iii) There are no contracts, agreements or understandings known
to such counsel between the Company and any person granting such
person the right to require the Company to include securities owned or
to be owned by such person in the securities registered pursuant to
the Registration Statement and, except as disclosed in the Prospectus
and except for the currently outstanding warrants to purchase 6,090.1
shares of the Company's common Stock, no such person has the right to
require the Company to file a registration statement under the Act
with respect to any securities of the Company.
(iv) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required for the
consummation by the Company of the transactions contemplated by this
Agreement in connection with the issuance or sale of the Securities by
the Company, except such as have been obtained and made under the Act
and the Trust Indenture Act and such as may be required under state
securities or "blue sky" laws;
(v) Each of the execution, delivery and performance by the
Company of the Indenture and this Agreement, the consummation by the
Company of each element of the Recapitalization and the issuance and
sale of the Securities and compliance by the Company with the terms
and provisions thereof will not result in a breach or violation of any
of the terms and provisions of, or constitute a default under
(assuming compliance with all applicable state securities or "blue
sky" laws and, for purposes of this clause (v) only, the Act), any
statute, any rule, regulation or order known to such counsel of any
governmental agency or body or any court having jurisdiction over the
Company or any of its properties, or any agreement or instrument
[identified to such counsel in a certificate of the Company as being a
material instrument] to which the Company is a party or by which the
Company is bound or to which any of the properties of the Company is
subject, or the charter or by-laws of the Company. The Company has the
requisite corporate authority to authorize, issue and sell the
Securities as contemplated by this Agreement;
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<PAGE> 13
(vi) The Initial Registration Statement was declared effective
under the Act as of the date and time specified in such opinion, the
Additional Registration Statement (if any) was filed and became
effective under the Act as of the date and time (if determinable)
specified in such opinion, the Prospectus either was filed with the
Commission pursuant to the subparagraph of Rule 424(b) specified in
such opinion on the date specified therein or was included in the
Initial Registration Statement or the Additional Registration
Statement (as the case may be). To the best of the knowledge of such
counsel, no stop order suspending the effectiveness of a Registration
Statement has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Act. Such
counsel does not have actual knowledge of any legal or governmental
proceedings required to be described in a Registration Statement or
the Prospectus which are not described as required or [(based solely
upon such counsel's review of the Company's corporate records, minute
books, charter documents and those contracts of the Company identified
to such counsel as material in a certificate of the Company)] of any
contracts or documents of a character required to be described in a
Registration Statement or the Prospectus or to be filed as exhibits to
a Registration Statement which are not described and filed as
required.
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) Except as disclosed in the Prospectus, to the best of such
counsel's knowledge, there are no pending actions, suits or
proceedings against or affecting the Company or its properties that,
if determined adversely to the Company, would individually or in the
aggregate reasonably be expected to have a Material Adverse Effect, or
would materially and adversely affect the ability of the Company to
perform its obligations under the Indenture or this Agreement, or
which are otherwise material in the context of the sale of the
Securities; and no such actions, suits or proceedings are to the
Company's knowledge, threatened or, contemplated;
(ix) The Company is not, nor immediately after the sale of the
Securities and the application of the proceeds from such sale as
described in the Prospectus will it be, required to register as an
"investment company" or an entity "controlled" by an "investment
company", as such terms are defined in the Investment Company Act of
1940, as amended;
(x) The Company has the corporate power to execute, deliver and
perform the terms and provisions of the New Credit Facility and has
taken all necessary corporate action to authorize the execution,
delivery and performance by it of the New Credit Facility. The Company
has duly executed and delivered the New Credit Facility. Assuming due
authorization, execution and delivery thereof by the other parties
thereto, the New Credit Facility is a valid and binding agreement of
the Company, enforceable against it in accordance with its terms,
except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforceability or creditors' rights and remedies generally and by
equitable principles of general applicability (regardless of whether
such enforceability is considered in a proceeding in equity or at
law); and
(xi) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization".
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Such counsel shall state that such counsel has participated in the
preparation of the Registration Statement and the Prospectus and in
conferences with officers and other representatives of the Company,
representatives of the independent auditors of the Company and
representatives of the Underwriters at which conferences the contents
of the Registration Statements and the Prospectus and related matters
were discussed. Such counsel may also state that because the purpose
of their professional engagement was not to establish or confirm
factual matters and because the scope of their examination of the
affairs of the Company did not permit them to verify the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or Prospectus, they are not passing upon and do
not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or
Prospectus, except to the extent set forth in the last sentence of
this paragraph. Such counsel also shall state that, on the basis of
the foregoing except for the financial statements and schedules and
other financial data included therein and the Form T-1, as to which
such counsel need express no opinion or belief (a) such counsel is of
the opinion that the Registration Statement at the time it became
effective complied as to form in al material respects with the
relevant requirements of the Act and the Rules and Regulations and (b)
nothing has come to such counsel's attention that would lead such
counsel to believe that the Registration Statement at the time it
became effective contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto, as of its date and
as of the date of such opinion, contained or contains any untrue
statement of a material fact or omitted or omits to state any material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. Such
counsel shall also state that, insofar as the statements contained in
the Registration Statement and the Prospectus under the caption
"Description of Notes" constitute a summary of documents and legal
matters referred to therein, such statements are accurate in all
material respects.
In rendering such opinion, such counsel may rely as to matters of
fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials.
(f) The Underwriters shall have received from Cahill Gordon & Reindel,
counsel for the Underwriters, such opinion or opinions, dated the Closing
Date, with respect to the validity of the Securities delivered on the
Closing Date, the Registration Statements, the Prospectus and other related
matters as the Underwriters may require, and the Company shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass upon such matters.
(g) The Underwriters shall have received a certificate, dated the
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Company in which such officers, to
the best of their knowledge after reasonable investigation, shall state
that: the representations and warranties of the Company in this Agreement
are true and correct; the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to the Closing Date; no stop order suspending the effectiveness
of any Registration Statement has been issued and no proceedings for that
purpose have been instituted or are contemplated by the Commission; the
Additional Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b),
including payment of the applicable filing fee in accordance with Rule
111(a) or (b) under
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<PAGE> 15
the Act, prior to the time the Prospectus was printed and distributed to
any Underwriter; and, subsequent to the date of the most recent financial
statements in the Prospectus, there has been no material adverse change,
nor any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of the Company except as set forth in or contemplated
by the Prospectus or as described in such certificate.
(h) The Underwriters shall have received a letter, dated such Closing
Date, of Price Waterhouse LLP which meets the requirements of subsection
(a) of this Section, except that the specified date referred to in such
subsection will be a date not more than three days prior to the Closing
Date for the purposes of this subsection.
(i) The Underwriters shall have received a true and correct copy of
the New Credit Facility, dated the Closing Date, and there shall have been
no material amendments, alterations, modifications or waivers of any
provisions of the New Credit Facility, and there exists on and as of the
Closing Date (after giving effect to the transactions contemplated by this
Agreement) no condition that would constitute a Default or an Event of
Default (each as defined in the New Credit Facility) under the New Credit
Facility.
(j) The Indenture shall have been duly executed and delivered by the
Company and the Trustee, and the Securities shall have been duly executed
and delivered by the Company and duly authenticated by the Trustee.
(k) On or prior to the Closing Date, the Underwriters shall have
received an opinion from Houlihan Lokey, Howard & Zukin, in form and
substance satisfactory to the Underwriters, regarding the solvency of the
Company.
(l) On or prior to the Closing Date, of the Company shall have
consummated each element of the Recapitalization as described in the
Prospectus.
(m) On the Closing Date, counsel for the Underwriters shall have been
furnished and documents as they may reasonably require in order to evidence
the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all opinions
and certificates mentioned above or elsewhere in this Agreement shall be
reasonably satisfactory in form and substance to the Underwriters and
counsel for the Underwriters.
The Company will furnish the Underwriters with such conformed copies of such
opinions, certificates, letters and documents as the Underwriters reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse such Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is
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based upon an untrue statement or alleged untrue statement in or omission or
alleged omission from any of such documents in reliance upon and in conformity
with written information furnished to the Company by any Underwriter through
CSFBC specifically for use therein, it being understood and agreed that the only
such information furnished by any Underwriter consists of the information
described as such in subsection (b) below and, provided, further, that as to any
preliminary prospectus, this Section 7(a) shall not inure to the benefit of any
Underwriter on account of any loss, claim, damage, liability or action from the
sale of the Securities, if that Underwriter failed to send or give a copy of the
Prospectus, as the same may be amended or supplemented, to that person if
required under the Act, and the untrue statement or alleged untrue statement or
omission or alleged omission in such preliminary prospectus was connected to the
Prospectus, unless, in either case, such failure to deliver the Prospectus was a
result of noncompliance by the Company with Section 5(c).
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company against any losses, claims, damages or liabilities, joint
or several, to which the Company may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Registration Statement, the
Prospectus, or any amendment or supplement thereto, or any related preliminary
prospectus, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through CSFBC specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Underwriter consists of the following information
in the Prospectus furnished on behalf of each Underwriter: the last paragraph at
the bottom of the cover page concerning the terms of the offering by the
Underwriters, the legend concerning over-allotments, stabilizing transactions,
syndicate short covering transactions and penalty bids on the inside front cover
page, the third paragraph under the caption "Underwriting" and the last two
paragraphs under the caption "Underwriting."
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party unless such settlement includes an
unconditional release of such indemnified party from all liability on any claims
that are the subject matter of such action. No indemnifying party shall be
liable for any settlement of any such claim or actin effected without its
written consent (which consent shall not be unreasonably withheld).
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(d) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a) or (b)
above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Securities
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section shall be in addition
to any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each director of the Company, to each officer of the Company who
has signed a Registration Statement and to each person, if any, who controls the
Company within the meaning of the Act.
8. Default of Underwriter. If any Underwriter or Underwriters default in
their obligations to purchase Securities hereunder on the Closing Date and the
aggregate principal amount of Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
principal amount of Securities that the Underwriters are obligated to purchase
on the Closing Date, CSFBC may make arrangements satisfactory to the Company for
the purchase of such Securities by other persons, including any of the
Underwriters, but if no such arrangements are made by the Closing Date, the
non-defaulting Underwriters shall be obligated severally, in proportion to their
respective commitments hereunder, to purchase the Securities that such
defaulting Underwriters agreed but failed to purchase on the Closing Date. If
any Underwriter or Underwriters so default and the aggregate principal amount of
Securities with respect to which such default or defaults occur exceeds 10% of
the total principal amount of Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Securities by other persons are not made within
36 hours after such default, this Agreement will terminate without liability on
the part of any non-
17
<PAGE> 18
defaulting Underwriter or the Company, except as provided in Section 9. As used
in this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default. The Company shall not be obligated
to deliver any of the Securities except upon payment for all the Securities to
be purchased as provided herein.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective Underwriters,
officers or directors or any controlling person, and will survive delivery of
and payment for the Securities. If this Agreement is terminated pursuant to
Section 8 or if for any reason the purchase of the Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Securities have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 5
shall also remain in effect. If the purchase of the Securities by the
Underwriters is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 8 or the occurrence of any
event specified in clause (iii), (iv) or (v) of Section 6(d), the Company will
reimburse the Underwriters for all out-of-pocket expenses (including fees and
disbursements of counsel) reasonably incurred by them in connection with the
offering of the Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered, faxed or telegraphed and
confirmed to the Underwriters, c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at One Lincoln Centre,
Suite 200, 5400 LBJ Freeway, Dallas, Texas 75240, Attention: Chief Executive
Officer. The Company shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
CSFBC.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers and
directors and controlling persons referred to in Section 7, and no other person
will have any right or obligation hereunder.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
13. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the Federal
and state courts in the Borough of Manhattan in The City of New York in any suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
18
<PAGE> 19
If the foregoing is in accordance with the Underwriters' understanding of
our agreement, kindly sign and return to the Company one of the counterparts
hereof, whereupon it will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
Very truly yours,
CHIEF AUTO PARTS INC.
By__________________________
Name:
Title:
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
By: ___________________________________
Name:
Title:
SALOMON BROTHERS INC
By: ___________________________________
Name:
Title:
19
<PAGE> 20
SCHEDULE A
Principal Amount
Underwriter of Securities
----------- -------------
Credit Suisse First Boston Corporation $
Salomon Brothers Inc
-----------
$130,000,000
------------
20
<PAGE> 1
EXHIBIT 4.1
CHIEF AUTO PARTS INC.
as Issuer
and
FIRST TRUST NATIONAL ASSOCIATION
as Trustee
INDENTURE
Dated as of , 1997
% Senior Notes Due 2005
<PAGE> 2
CROSS-REFERENCE TABLE
TIA Section Indenture Section
- ----------- -----------------
310(a)(1)........................... 7.10
(a)(2)........................... 7.10
(a)(3)........................... N.A.
(a)(4)........................... N.A.
(b).............................. 7.8; 7.10
(c).............................. N.A.
311(a).............................. 7.11
(b).............................. 7.11
312(a).............................. 2.5
(b).............................. 2.5; 10.3
(c).............................. 10.3
313(a).............................. 10.3
(b)(1)........................... 7.6
(b)(2)........................... N.A.
(c).............................. 10.2
(d).............................. 7.6
314(a).............................. 4.2; 4.10; 10.2
(b).............................. N.A.
(c)(1)........................... 10.4
(c)(2)........................... 10.4
(c)(3)........................... N.A.
(d).............................. N.A.
(e).............................. 10.5
(f).............................. 4.10
315(a).............................. 7.1
(b).............................. 7.5; 10.2
(c).............................. 7.1
(d).............................. 7.1
(e).............................. 6.11
316(a)(last sentence)............... 10.6
(a)(1)(A)........................ 6.5
(a)(1)(B)........................ 6.4
(a)(2)........................... N.A.
(b).............................. 6.7
317(a)(1)........................... 6.9
(a)(2)........................... 6.9
(b).............................. 2.4
318(a).............................. 10.1
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions .....................................................1
SECTION 1.2. Other Definitions...............................................20
SECTION 1.3. Incorporation By Reference Of Trust Indenture
Act..........................................................21
SECTION 1.4. Rules Of Construction...........................................21
ARTICLE 2
THE SECURITIES
SECTION 2.1. Form And Dating ................................................22
SECTION 2.2. Execution And Authentication....................................23
SECTION 2.3. Registrar and Payiny Agent......................................23
SECTION 2.4. Paying Agent to Hold Money in Trust.............................24
SECTION 2.5. Securityholder Lists............................................24
SECTION 2.6. Transfer and Exchange...........................................25
SECTION 2.7. Replacement Securities..........................................27
SECTION 2.8. Outstanding Securities..........................................28
SECTION 2.9. Temporary Securities............................................28
SECTION 2.10. Cancellation ...................................................29
SECTION 2.11. Defaulted Interest..............................................29
SECTION 2.12. CUSIP Numbers ..................................................29
ARTICLE 3
REDEMPTION
SECTION 3.1. Notices To Trustee..............................................30
SECTION 3.2. Selection of Securities to be Redeemed..........................30
SECTION 3.3. Notice of Redemption............................................30
SECTION 3.4. Effect of Notice of Redemption..................................31
SECTION 3.5. Deposit of Redemption Price.....................................31
SECTION 3.6. Securities Redeemed In Part.....................................32
ARTICLE 4
i
<PAGE> 4
COVENANTS
SECTION 4.1. Payment of Securities...........................................32
SECTION 4.2. SEC Reports ....................................................32
SECTION 4.3. Limitation on Indebtedness......................................33
SECTION 4.4. Limitation on Restricted Payments...............................35
SECTION 4.5. Limitation on Restrictions on
Distributions from Restricted
Subsidiaries.................................................37
SECTION 4.6. Limitation on Sales of Assets and
Subsidiary Stock.............................................38
SECTION 4.7. Limitation on Affiliate Transactions............................42
SECTION 4.8. Change of Control...............................................43
SECTION 4.9. Compliance Certificate..........................................45
SECTION 4.10. Further Instruments and Acts....................................45
SECTION 4.11. Limitation on Liens.............................................45
SECTION 4.12. Limitation on Sale/Leaseback
Transactions.................................................46
SECTION 4.13. Limitation on Sale or Issuance of
Capital Stock of Restricted
Subsidiaries.................................................47
SECTION 4.14. Limitation on Indebtedness and
Preferred Stock of Restricted
Subsidiaries................... .............................47
SECTION 4.15. Payment of Taxes and Other Claims...............................48
SECTION 4.16. Maintenance of Office or Agency.................................48
SECTION 4.17. Corporate Existence.............................................49
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.1. Merger, Consolidation and Sale of
Assets.......................................................50
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. Events of Default...............................................51
SECTION 6.2. Acceleration ...................................................53
SECTION 6.3. Other Remedies .................................................54
SECTION 6.4. Waiver of Past Defaults.........................................54
SECTION 6.5. Control by Majority.............................................54
SECTION 6.6. Limitation on Suits.............................................55
ii
<PAGE> 5
SECTION 6.7. Rights Of Holders to Receive Payment............................55
SECTION 6.8. Collection Suit by Trustee......................................55
SECTION 6.9. Trustee May File Proofs of Claim................................56
SECTION 6.10. Priorities .....................................................56
SECTION 6.11. Undertaking for Costs...........................................56
SECTION 6.12. Waiver of Stay or Extension Laws................................57
iii
<PAGE> 6
ARTICLE 7
TRUSTEE
SECTION 7.1. Duties of Trustee...............................................57
SECTION 7.2. Rights of Trustee...............................................58
SECTION 7.3. Individual Rights of Trustee....................................59
SECTION 7.4. Trustee's Disclaimer............................................59
SECTION 7.5. Notice of Defaults..............................................60
SECTION 7.6. Reports by Trustee to Holders...................................60
SECTION 7.7. Compensation and Indemnity......................................60
SECTION 7.8. Replacement of Trustee..........................................61
SECTION 7.9. Successor Trustee by Merger.....................................62
SECTION 7.10. Eligibility; Disqualification...................................63
SECTION 7.11. Preferential Collection of Claims
Against Company..............................................63
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.1. Discharge of Liability on
Securities; Defeasance.......................................63
SECTION 8.2. Conditions to Defeasance........................................64
SECTION 8.3. Application of Trust Money......................................66
SECTION 8.4. Repayment to Company............................................66
SECTION 8.5. Indemnity for Government Obligations............................67
SECTION 8.6. Reinstatement ..................................................67
ARTICLE 9
AMENDMENTS
SECTION 9.1. Without Consent of Holders......................................67
SECTION 9.2. With Consent of Holders.........................................68
SECTION 9.3. Compliance with Trust Indenture Act.............................69
SECTION 9.4. Revocation and Effect of Consents
and Waivers..................................................69
SECTION 9.5. Notation on or Exchange of
Securities...................................................70
SECTION 9.6. Trustee To Sign Amendments......................................70
iv
<PAGE> 7
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Trust Indenture Act Controls...................................70
SECTION 10.2. Notices .......................................................71
SECTION 10.3. Communication by Holders with Other
Holders.....................................................72
SECTION 10.4. Certificate and Opinion as to
Conditions Precedent........................................72
SECTION 10.5. Statements Required in Certificate
or Opinion..................................................72
SECTION 10.6. When Securities Disregarded....................................73
SECTION 10.7. Rules by Trustee, Paying Agent and
Registrar...................................................73
SECTION 10.8. Legal Holidays ................................................73
SECTION 10.9. Governing Law .................................................73
SECTION 10.10. No Recourse Against Others.....................................73
SECTION 10.11. Successors ....................................................74
SECTION 10.12. Multiple Originals.............................................74
SECTION 10.13. Table of Contents; Headings....................................74
SECTION 10.14. Severability Clause............................................74
Signatures....................................................................76
Exhibit A - Form of Security.................................................A-1
Note: This Table of Contents shall not, for any purpose, be deemed to be part of
the Indenture.
v
<PAGE> 8
INDENTURE dated as of , 1997, between CHIEF AUTO PARTS INC., a Delaware
corporation (the "Company"), and First Trust National Association, a banking
corporation , as trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Company's % Senior Notes Due
2005 (the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business, (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that, any such Restricted
Subsidiary described in clause (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means (i) any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any person who is a director or
officer (a) of such Person, (b) of any Subsidiary of such Person or (c) of any
Person described in clause (i) above. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger or
consolidation (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying
<PAGE> 9
2
shares or shares required by applicable law to be held by a Person other than
the Company or a Restricted Subsidiary), (ii) all or substantially all the
assets of any division or line of business of the Company or any Restricted
Subsidiary or (iii) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such Restricted
Subsidiary (other than, in the case of (i), (ii) and (iii) above, (x) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary and (y) for purposes of
Section 4.6 only, a disposition that constitutes a Restricted Payment permitted
by Section 4.4 or a disposition specifically excepted from the definition of
Restricted Payment) provided, however, that Asset Disposition shall not include
(a) a transaction or series of related transactions for which the Company or its
Restricted Subsidiaries receive aggregate consideration less than or equal to
$1.0 million or (b) the sale, lease, conveyance, disposition or other transfer
of all or substantially all of the assets of the Company as permitted by Section
5.1.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Securities, compounded annually) of the total minimum obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which such
lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation
<PAGE> 10
3
shall be the capitalized amount of such obligation determined in accordance with
GAAP; and the Stated Maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following events
with respect to the Company:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders,
is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that for purposes of this clause (i)
such person shall be deemed to have "beneficial ownership" of all
shares that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total voting power of the then
outstanding Voting Stock of the Company;
(ii) during any period of two consecutive years commencing
after the Company's initial Public Equity Offering, individuals who at
the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of 66 2/3% of the directors of the
Company then still in office who were either directors at the beginning
of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority
of the Board of Directors then in office; or
(iii) the merger or consolidation of the Company with or into
another Person or the merger of another Person with or into the
Company, or the sale of all or substantially all the assets of the
Company to another Person (in each case other than a Person that is
controlled by the Permitted Holders), and, in the case of any such
merger or consolidation, the securities of the Company that are out
<PAGE> 11
4
standing immediately prior to such transaction and which represent 100%
of the aggregate voting power of the Voting Stock of the Company are
changed into or exchanged for cash, securities or property, unless
pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of
the surviving corporation or a parent corporation that owns all of the
capital stock of such corporation that represent immediately after such
transaction, at least 50% of the aggregate voting power of the Voting
Stock of the surviving corporation or such parent corporation, as the
case may be.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has (x) Incurred any Indebtedness (other than Indebtedness Incurred
for working capital purposes under the New Credit Facility) since the beginning
of such period that remains outstanding on such date of determination or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Incurrence of Indebtedness, or both, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving effect on a pro forma
basis to such Indebtedness as if such Indebtedness had been Incurred on the
first day of such period and the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such new
Indebtedness as if such discharge had occurred on the first day of such period
or (y) has repaid, repurchased, defeased or otherwise discharged any
Indebtedness since the beginning of the period that is no longer outstanding on
such date of determination, or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio involves a discharge of Indebtedness,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect to such discharge of such Indebtedness, including with the
proceeds of such new Indebtedness, as if such discharge had occurred on the
first day of such period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such four quarter period),
(2) if since the
<PAGE> 12
5
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased by
an amount equal to the EBITDA (if negative) directly attributable thereto for
such period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary is sold,
the Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitute all or substantially all of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the first day of
such period and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, Investment or acquisition of assets that would
have required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition occurred
on the first day of such period. For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest expense on such In
<PAGE> 13
6
debtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount
and debt issuance costs, (iii) capitalized interest, (iv) non-cash interest
expense, (v) commissions, discounts and other fees and charges with respect to
letters of credit and bankers' acceptance financing, (vi) net costs associated
with Hedging Obligations (including amortization of fees), (vii) cash dividends
paid in respect of any Disqualified Stock of the Company or any Preferred Stock
of any Restricted Subsidiary of the Company held by Persons other than the
Company or a Wholly Owned Subsidiary (excluding the dividend paid in connection
with the Recapitalization), (viii) interest incurred in connection with
Investments in discontinued operations and (ix) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by the Company or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person if such Person is not a Restricted Subsidiary, except that subject to the
exclusion contained in clause (iv) below, the Company's equity in the net income
of any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such Person
during such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution
paid to a Restricted Subsidiary, to the limitations contained in clause (iii)
below); (ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary of the Company in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income of any Restricted
Subsidiary to the extent that such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that subject to the exclusion
<PAGE> 14
7
contained in clause (iv) below, the Company's equity in the net income of any
such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution paid to another Restricted Subsidiary, to
the limitation contained in this clause); (iv) any gain or loss realized upon
the sale or other disposition of any assets of the Company or its consolidated
Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale or other disposition of any Capital Stock of
any Person, (v) extraordinary gains or losses, and (vi) the cumulative effect of
a change in accounting principles.
"Consolidated Net Worth" means, as of any date, the total of the amounts
shown on the balance sheet of the Company and its Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of such date, as
(i) the par or stated value of all outstanding Capital Stock of the Company plus
(ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Depository" means The Depository Trust Company, its nominees and their
respective successors.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (other than
as a result of a Change of Control) (i) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is convertible into or
exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at
the option of the holder thereof, in whole or in part, in each case on or prior
to the Stated Maturity of the Securities; provided, however,
<PAGE> 15
8
that any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the first anniversary of the Stated
Maturity of the Securities shall not constitute Disqualified Stock if the "asset
sale" or "change of control" provisions applicable to such Capital Stock are not
more favorable to the holders of such Capital Stock than the provisions
described under Section 4.6 and Section 4.8.
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company, (b) depreciation expense, (c) amortization expense, and (d) all other
non-cash items reducing such Consolidated Net Income, less all non-cash items
increasing such Consolidated Net Income (such amount calculated pursuant to this
clause (d) not to be less than zero), in each case for such period; and minus
the amount of all cash payments made by the Company or any Restricted Subsidiary
during such period to the extent that such payments relate to non-cash items
that were added back in determining EBITDA for any period subsequent to the
Issue Date. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Subsidiary of
the Company shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Subsidiary
was included in calculating Consolidated Net Income and only if a corresponding
amount would be permitted at the date of determination to be dividended to the
Company by such Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) in statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and
<PAGE> 16
9
(iv) in the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and similar
written statements from the accounting staff of the SEC. For the purposes of
Section 4.2, "GAAP" shall mean GAAP as of the date of the relevant financial
statements.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such Person (whether arising by virtue of agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
of the payment thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided, however, that the term "Guarantee"
shall not include endorsements for collection or deposit in the ordinary course
of business. The term "Guarantee" used as a verb has a corresponding meaning.
The term "Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a Security is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for Indebtedness; provided, however, that any Indebtedness of a Person existing
at the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning. The accretion of principal in a non-interest
bearing or other discount security shall be deemed the Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of
<PAGE> 17
10
such Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which such
Person is responsible or liable; (ii) all Capital Lease Obligations of such
Person and all Attributable Debt in respect of Sale/Leaseback Transactions
entered into by such Person; (iii) all obligations of such Person issued or
assumed as the deferred purchase price of property (which purchase price is due
more than one year after taking title of such property), all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon, or, if and to
the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit); (v) the amount of all obligations of
such Person with respect to the redemption, repayment or other repurchase of any
Disqualified Stock or, with respect to any Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee; (vii) all
obligations of the type referred to in clauses (i) through (vi) of other Persons
secured by any Lien on any property or asset of such Person (whether or not such
obligation is assumed by other Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured; and (viii) to the extent not otherwise included in
this definition, Hedging Obligations of such Person. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon the
occurrence of the contingency giving rise to the obligation, of any contingent
obligations at such date. For purposes of clarification, Indebtedness shall not
include undrawn commitments on the New Credit Facility.
"Indenture" means this Indenture as amended or supplemented from time to
time by one or more supplemental inden-
<PAGE> 18
11
tures entered into pursuant to the applicable provisions hereof or otherwise in
accordance with the terms hereof.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed solely
to protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the Person making the
advance or loan) or other extensions of credit (including by way of Guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the definition of "Unrestricted Subsidiary," the definition of "Restricted
Payment" and Section 4.4, (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of any Subsidiary of the Company at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that if such designation is made in connection with the acquisition of such
Subsidiary or the assets owned by such Subsidiary, the "Investment" in such
Subsidiary shall be deemed to be the consideration paid in connection with such
acquisition; provided, further, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the time
of such redesignation less (y) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of such Subsidiary at the time of such redesignation, and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Issue Date" means the date of original issuance of the Securities.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any condi-
<PAGE> 19
12
tional sale or other title retention agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) in each case
net of (i) all legal, title and recording tax expenses, brokerage commissions,
underwriting discounts or commissions or sales commissions and other reasonable
fees and expenses (including, without limitation, fees and expenses of counsel,
accountants and investment bankers) related to such Asset Disposition or
converting to cash any other proceeds received, and any relocation and severence
expenses as a result thereof, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a consequence
of such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition or made in order to
obtain a necessary consent to such Asset Disposition or to comply with
applicable law, (iii) all distributions and other payments required to be made
to minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition and (iv) appropriate amounts provided by seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Disposition and retained by
the Company or any Restricted Subsidiary after such Asset Disposition,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Disposition. Further,
with respect to an Asset Disposition by a Subsidiary which is not a Wholly Owned
Subsidiary, Net Available Cash shall be reduced pro rata for the portion of the
equity of such Subsidiary which is not owned by the Company.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or
<PAGE> 20
13
payable as a result thereof. In addition, for the purposes of the calculations
described in Section 4.4, Net Cash Proceeds shall also mean any cash amounts
paid to the Company by members of management of the Company in respect of
certain Promissory Notes described under the caption "Certain Transactions" in
the Prospectus.
"New Credit Facility" means the Credit Agreement, dated as of , 1997, among
the Company, Heller Financial, Inc., as agent, and the lenders party thereto, as
such agreement, in whole or in part, may be amended, renewed, extended,
increased (but only so long as such increase is permitted under the terms of the
Indenture), substituted, refinanced, restructured, replaced (including, without
limitation, any successive renewals, extensions, increases, substitutions,
refinancings, restructurings, replacements, supplements or other modifications
of the foregoing). Subsequent to the date of the Indenture, there may be
multiple New Credit Facilities and the term "New Credit Facility" shall mean all
such New Credit Facilities.
"Officer" means the Chairman of the Board, any Vice Chairman, the Chief
Executive Officer, the Chief Financial Officer, the President, any Executive
Vice President, Vice President -- Finance (or any such other officer that
performs similar duties), or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers, one of
which is the Chairman of the Board, the Chief Executive Officer, the Chief
Financial Officer, the President, any Executive Vice President (or any such
other officer that performs similar duties).
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holders" means (i) TCW Special Credits Fund V --The Principal
Fund, Trust Company of the West or any of their respective Affiliates and (ii)
Oaktree Capital Management, LLC ("Oaktree") and its Affiliates, including any
partnerships, separate accounts, or other entities managed by Oaktree.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making
of such Invest-
<PAGE> 21
14
ment, become a Restricted Subsidiary; provided, however, that the primary
business of such Restricted Subsidiary is a Related Business; (ii) another
Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all of
its assets to, the Company or a Restricted Subsidiary; provided, however, that
such Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any Restricted Subsidiary
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as the Company or
any such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees permitted under Section 4.7; (vii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; (viii) payments, including without limitation,
security deposits, made to utilities or landlords in the ordinary course of
business; and (ix) any Person to the extent such Investment represents the
non-cash portion of the consideration received for an Asset Disposition as
permitted under Section 4.6.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workers' compensation laws, unemployment insurance
laws or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens, in each case for sums
not yet due or being contested in good faith by appropriate proceedings; (c)
Liens arising out of judgments or awards against such Person with respect to
which such Person shall then be proceeding with an appeal or other proceedings
for review or time for appeal has not yet expired; (d) Liens for taxes,
assessments or other governmental charges not yet subject to penalties for
non-payment or which are being contested in good faith by appropriate proceed-
<PAGE> 22
15
ings; (e) Liens in favor of issuers of surety bonds or letters of credit issued
pursuant to the request of and for the account of such Person in the ordinary
course of its business; provided, however, that such letters of credit do not
constitute Indebtedness; (f) survey exceptions, encumbrances, easements or
reservations of, or rights of others for licenses, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or Liens
incidental to the conduct of the business of such Person or to the ownership of
its properties which were not incurred in connection with Indebtedness and which
do not in the aggregate materially adversely affect the value of said properties
or materially impair their use in the operation of the business of such Person;
(g) Liens securing an Interest Rate Agreement so long as the related
Indebtedness is, and is permitted to be under this Indenture, secured by a Lien
on the same property securing the Interest Rate Agreement; and (h) leases and
subleases of real property which do not interfere with the ordinary conduct of
the business of such Person, and which are made on customary and usual terms
applicable to similar properties.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Security means the principal of the Security plus the
premium, if any, payable on the Security which is due or overdue or is to become
due at the relevant time.
"Prospectus" means the Prospectus dated [ ], 1997, prepared in connection
with the issuance of the Securities.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
<PAGE> 23
16
"Recapitalization" means the recapitalization of the Company as of the
Issue Date as described in the Prospectus.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with this Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being Refinanced, (ii) such Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being Refinanced and (iii)
such Refinancing Indebtedness has an aggregate principal amount (or if Incurred
with original issue discount, an aggregate issue price) that is equal to or less
than the aggregate principal amount (or if Incurred with original issue
discount, the aggregate accreted value) then outstanding (plus fees and
expenses, including any premium and defeasance costs) under the Indebtedness
being Refinanced (provided, however, that Refinancing Indebtedness with respect
to the Company's outstanding industrial revenue bonds may have an aggregate
principal amount in excess of the aggregate principal amount outstanding on the
Issue Date, such excess not to exceed the lesser of the value of the real
property that is subject to such Indebtedness being Refinanced and $3 million);
provided, further, however, that Refinancing Indebtedness shall not include (x)
Indebtedness of a Restricted Subsidiary that Refinances Indebtedness of the
Company or (y) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
to the businesses of the Company on the Issue Date.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person), other than dividends or distributions
payable solely in its Capital Stock (other than Dis-
<PAGE> 24
17
qualified Stock) and dividends or distributions payable solely to the Company or
a Restricted Subsidiary, and other than pro rata dividends or other
distributions made by a Restricted Subsidiary that is not a Wholly Owned
Subsidiary to minority stockholders (or owners of an equivalent interest in the
case of a Restricted Subsidiary that is an entity other than a corporation),
(ii) the purchase, redemption or other acquisition or retirement for value of
any Capital Stock of the Company held by any Person or of any Capital Stock of a
Restricted Subsidiary held by any Affiliate of the Company (other than a
Restricted Subsidiary), including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying of a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition) or (iv) the making of any Investment
in any Person (other than a Permitted Investment). For purposes of
clarification, Restricted Payment does not include any dividend, distribution or
payment made in connection with the Recapitalization.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Securities" has the meaning set forth in the second paragraph of this
Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due
<PAGE> 25
18
and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Securities pursuant to a written agreement to
that effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
limited liability company, limited or general partnership or other business
entity of which more than 50% of the total voting power of shares of Capital
Stock or other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person.
"S&P" means Standard and Poor's Ratings Service.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $10.0 million (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act) or any money-market fund sponsored by a registered broker, dealer or mutual
fund distributor, (iii) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) investments in commercial paper, maturing not more than six months
after the date of ac-
<PAGE> 26
19
quisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or higher) according
to Moody's or "A-1" (or higher) according to S&P and (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by S&P or "A" by Moody's.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 1
77aaa-77bbbb) as in effect on the date of this Indenture, except as provided in
Section 9.3.
"Trustee" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code as in
effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under Section 4.4. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) if such Unrestricted Subsidiary at
such time has Indebtedness, the Company could Incur $1.00 of additional
Indebtedness under Section 4.3(a) and (y) no Default
<PAGE> 27
20
shall have occurred and be continuing. Any such designation by the Board of
Directors shall be evidenced by the Company to the Trustee by promptly filing
with the Trustee a copy of the board resolution giving effect to such
designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act), as custodian with respect to any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
SECTION 1.2. Other Definitions.
Term Defined In Section
"Affiliate Transaction" 4.7
"Bankruptcy Law" 6.1
"covenant defeasance option" 8.1(b)
<PAGE> 28
21
"Custodian" 6.1
"Event of Default" 6.1
"Global Securities" 2.1(b)
"legal defeasance option" 8.1(b)
"Legal Holiday" 10.8
"Notice of Default" 6.1
"Offer" 4.6(b)
"Offer Amount" 4.6(d)
"Offer Period" 4.6(d)
"Participants" 2.6
"Paying Agent" 2.3
"Purchase Date" 4.6(c)
"Receipt Date" 4.6(a)
"Registrar" 2.3
"Securities Register" 2.3
"Successor Company" 5.1
SECTION 1.3. Incorporation By Reference Of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA, which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the Securities means the Company and any other obligor on the
indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.4. Rules Of Construction. Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
<PAGE> 29
22
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in
the plural include the singular;
(6) the principal amount of any non-interest-bearing or
other discount security at any date shall be the principal amount
thereof that would be shown on a balance sheet of the issuer
dated such date prepared in accordance with GAAP;
(7) all references to $, US$, dollars or United States
dollars shall refer to the lawful currency of the United States;
and
(8) "herein", "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
ARTICLE 2
THE SECURITIES
SECTION 2.1. Form and Dating. (a) The Securities and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A,
which is hereby incorporated in and expressly made a part of this Indenture. The
Securities may have notations, legends or endorsements required by law, stock
exchange rules, agreements to which the Company is subject, if any, or usage
(provided that any such notation, legend or endorsement is in a form acceptable
to the Company). Each Security shall be dated the date of its authentication.
The terms of the Securities set forth in Exhibit A are part of the terms of this
Indenture and, to the extent applicable, the Company and the trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and agree to be bound hereby.
(b) Global Securities. The Securities shall be issued initially in the form
of one or more permanent Global Securities ("Global Securities") in definitive,
fully registered form without interest coupons, in substantially the form of
Exhibit A, which shall be deposited on behalf of the purchasers
<PAGE> 30
23
of the Securities represented thereby with the Trustee, at its principal
corporate trust office in New York City, as custodian for the Depository, and
registered in the name of the Depository or a nominee of the Depository, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depository or its nominee in the limited circumstances
hereinafter provided.
(c) Certificated Securities. Except as provided in Section 2.6, owners of
beneficial interests in Global Securities will not be entitled to receive
physical delivery of certificated securities.
SECTION 2.2. Execution And Authentication. An Officer of the Company shall
sign the Securities for the Company by manual or facsimile signature. If an
Officer whose signature is on a Security no longer holds that office at the time
the Trustee authenticates the Security, the Security shall be valid
nevertheless. A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture. The Trustee shall authenticate and make available for
delivery Securities for original issue in an aggregate principal amount of
$125,000,000, upon a written order of the Company signed by an Officer of the
Company. Such order shall specify the amount of the Securities to be
authenticated and the date on which the original issue of Securities is to be
authenticated. The aggregate principal amount of Securities outstanding at any
time may not exceed that amount except as provided in Section 2.7. The Trustee
may appoint an authenticating agent acceptable to the Company to authenticate
the Securities, upon the consent of the Company to such appointment. Unless
limited by the terms of such appointment, an authenticating agent may
authenticate Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as any Registrar, Paying
Agent or agent for service of notices and demands.
SECTION 2.3. Registrar and Paying Agent. The Company shall maintain an
office or agency where Securities may be presented for registration of transfer
or for exchange (the "Registrar") and an office or agency where Securities may
be presented for payment (the "Paying Agent"). The Registrar, acting on behalf
of and as agent for the Company, shall keep a register (the "Securities
Register")
<PAGE> 31
24
of the Securities and of their transfer and exchange. The Company may have one
or more co-registrars and one or more additional paying agents.
The term "Paying Agent" includes any additional paying agent. The Company
shall enter into an appropriate agency agreement with any Registrar, Paying
Agent or co-registrar not a party to this Indenture, which shall incorporate the
terms of the TIA. The agreement shall implement the provisions of this Indenture
that relate to such agent. The Company shall notify the Trustee of the name and
address of any such agent. If the Company fails to maintain a Registrar or
Paying Agent, the Trustee shall act as such and shall be entitled to appropriate
compensation therefor pursuant to Section 7.7. The Company may act as Paying
Agent, Registrar, co-Registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying Agent in
connection with the Securities.
SECTION 2.4. Paying Agent to Hold Money in Trust. On or prior to each due
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal and interest when
so becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities and shall notify the
Trustee of any default by the Company in making any such payment. The Company at
any time may require a Paying Agent to pay all money held by it to the Trustee
and to account for any funds disbursed by the Paying Agent. Upon complying with
this Section, the Paying Agent shall have no further liability for the money
delivered to the Trustee.
SECTION 2.5. Securityholder Lists. The Trustee shall preserve in as current
a form as is reasonably practicable the most recent list available to it of the
names and addresses of Securityholders. If the Trustee is not the Registrar, the
Company shall furnish to the Trustee, in writing at least five Business Days
before each interest payment date and at such other times as the Trustee may
request in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Securityholders; provided that
as long as the Trustee is the Registrar, no such list need be furnished.
<PAGE> 32
25
SECTION 2.6. Transfer and Exchange. The Securities shall be issued in
registered form and shall be transferable only upon the surrender of a Security
for registration of transfer. When a Security is presented to the Registrar or a
co-registrar with a request to register a transfer, the Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and the Registrar shall record in the
Securities Register the transfer as requested if the requirements of Section
8-401(1) of the Uniform Commercial Code are met, and thereupon one or more new
Securities in the same aggregate principal amount shall be issued to the
designated assignee or transferee and the old Security will be returned to the
Company. When Securities are presented to the Registrar or a co-registrar with a
request to exchange them for an equal principal amount of Securities of other
denominations, the Registrar shall make the exchange as requested, in the same
manner, if the same requirements are met. To permit registration of transfers
and exchanges, the Company shall execute and the Trustee shall authenticate
Securities at the Registrar's or co-registrar's request. The Company may require
payment of a sum sufficient to pay all taxes, assessments or other governmental
charges in connection with any transfer or exchange pursuant to this Section.
The Company shall not be required to make and the Registrar need not register
transfers or exchanges of Securities selected for redemption (except, in the
case of Securities to be redeemed in part, the portion thereof not to be
redeemed) or any Securities for a period of 15 days before a selection of
Securities to be redeemed or 15 days before an interest payment date.
Prior to the due presentation for registration of transfer of any Security,
the Company, the Trustee, the Paying Agent, the Registrar or any co-registrar
may deem and treat the person in whose name a Security is registered as the
absolute owner of such Security for the purpose of receiving payment of
principal of and interest on such Security and for all other purposes
whatsoever, whether or not such Security is overdue, and none of the Company,
the Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
All Securities issued upon any transfer or exchange pursuant to the terms
of this Indenture will evidence the same debt and will be entitled to the same
benefits under this Indenture as the Securities surrendered upon such transfer
or exchange.
<PAGE> 33
26
With respect to Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depository designated for such Global
Security or a nominee thereof and deposited with such Depository or a
nominee thereof or custodian therefor, and each such Global Security shall
constitute a single Security for all purposes of this Indenture.
(2) A Global Security may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository
to the Depository. A Global Security is exchangeable for certificated
Securities only if (i) the Depository notifies the Company that it is
unwilling or unable to continue as a Depository for such Global Security or
if at any time the Depository ceases to be a clearing agency registered
under the Exchange Act,(ii) the Company executes and delivers to the
Trustee a notice that such Global Security shall be so transferable,
registrable, and exchangeable, and such transfers shall be registrable or
(iii) there shall have occurred and be continuing an Event of Default or an
event which, with the giving of notice or lapse of time or both, would
constitute an Event of Default with respect to the Securities represented
by such Global Security. Any Global Security that is exchangeable for
certificated Securities pursuant to the preceding sentence will be
transferred to, and registered and exchanged for, certificated Securities
in authorized denominations, without legends applicable to a Global
Security, and registered in such names as the Depository holding such
Global Security may direct. Subject to the foregoing, a Global Security is
not exchangeable, except for a Global Security of like denomination to be
registered in the name of the Depository or its nominee. In the event that
a Global Security becomes exchangeable for certificated Securities, (i)
certificated Securities will be issued only in fully registered form in
denominations of $1,000 or integral multiples thereof, (ii) payment of
principal, any repurchase price, and interest on the certificated
Securities will be payable, and the transfer of the certificated Securities
will be registrable, at the office or agency of the Company maintained for
such purposes, and (iii) no service charge will be made for any
registration or transfer or exchange of the certificated Securities,
although the Company may require payment of a sum sufficient to cover any
tax or governmental charge imposed in connection therewith.
<PAGE> 34
27
(3) Securities issued in exchange for a Global Security or any portion
thereof shall have an aggregate principal amount equal to that of such
Global Security or portion thereof to be so exchanged, shall be registered
in such names and be in such authorized denominations as the Depository
shall designate and shall bear the applicable legends provided for herein.
Any Global Security to be exchanged in whole shall be surrendered by the
Depository to the Trustee. With respect to any Global Security to be
exchanged in part, either such Global Security shall be so surrendered for
exchange or, if the Trustee is acting as custodian for the Depository or
its nominee with respect to such Global Security, the principal amount
thereof shall be reduced, by an amount equal to the portion thereof to be
so exchanged, by means of an appropriate adjustment made on the records of
the Trustee. Upon any such surrender or adjustment, the Trustee shall
authenticate and deliver the Security issuable on such exchange to or upon
the order of the Depository or an authorized representative thereof.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Section 2.6, Section 2.7 or 2.9
or otherwise, shall be authenticated and delivered in the form of, and
shall be, a Global Security, unless such Security is registered in the name
of a Person other than the Depository for such Global Security or a nominee
thereof. Members of, or participants in, the Depository ("Participants")
shall have no rights under this Indenture with respect to any Global
Security held on their behalf by the Depository or by the Trustee as the
custodian of the Depository or under such Global Security, and the
Depository may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Security for
all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the De pository or impair, as between the
Depository and its Participants, the operation of customary practices of
such Depository governing the exercise of the rights of a holder of a
beneficial interest in any Global Security.
SECTION 2.7. Replacement Securities. If a mutilated Security is surrendered
to the Trustee or Registrar or if the
<PAGE> 35
28
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the requirements of Section 8-405 of the Uniform
Commercial Code are met and the Holder satisfies any other reasonable
requirements of the Trustee and the Company. Such Holder shall furnish an
indemnity bond sufficient in the judgment of the Company and the Trustee to
protect the Company, the Trustee, the Paying Agent, the Registrar and any
co-registrar from any loss which any of them may suffer if a security is
replaced. The Company and the Trustee may charge the Holder for their expenses
in replacing a Security.
Every replacement Security issued pursuant to the terms of this Section is
an obligation of the Company under this Indenture.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.8. Outstanding Securities. Securities outstanding at any time are
all Securities authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation and those described in this Section as
not outstanding. Subject to the provisions of Section 10.6, a Security does not
cease to be outstanding because the Company or an Affiliate of the Company holds
the security.
If a Security is replaced pursuant to Section 2.7, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in accordance with this
Indenture, on a redemption date or maturity date or, pursuant to Section 8.1(a),
within 91 days prior thereto, money sufficient to pay all principal and interest
payable on that redemption or maturity date with respect to the Securities (or
portions thereof) to be redeemed or maturing, as the case may be, then on and
after such date such Securities (or portions thereof) cease to be outstanding
and on and after such redemption or maturity date interest on them ceases to
accrue.
SECTION 2.9. Temporary Securities. Until definitive Securities are ready
for delivery, the Company may prepare and
<PAGE> 36
29
the Trustee shall authenticate temporary Securities. Temporary Securities shall
be substantially in the form of definitive Securities but may have variations
that the Company considers appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee shall authenticate
definitive Securities and deliver them in exchange for temporary securities.
SECTION 2.10. Cancellation. The Company at any time may deliver Securities
to the Trustee for cancellation. The Registrar and the Paying Agent shall
forward to the Trustee any Securities surrendered to them for registration of
transfer, exchange or payment. The Trustee and no one else shall cancel all
Securities surrendered for registration of transfer, exchange, payment or
cancellation and deliver such canceled Securities to the Company. The Trustee
shall from time to time provide the Company a list of all Securities that have
been canceled as requested by the Company. The Company may not issue new
Securities to replace Securities it has redeemed, paid or delivered to the
Trustee for cancellation.
SECTION 2.11. Defaulted Interest. If the Company defaults in a payment of
interest on the Securities, the Company shall pay defaulted interest (plus
interest on such defaulted interest to the extent lawful) in any lawful manner.
The Company may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date. The Company shall fix or
cause to be fixed any such special record date and payment date to the
reasonable satisfaction of the Trustee and shall promptly mail to each
Securityholder a notice that states the special record date, the payment date
and the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities may use
"CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to Holders; provided
that any such notice may state that no representation is made as to the
correctness of such numbers either as printed on the Securities or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the CUSIP numbers.
<PAGE> 37
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ARTICLE 3
REDEMPTION
SECTION 3.1. Notices To Trustee. If the Company elects to redeem Securities
pursuant to paragraph 5 of the Securities, they shall notify the Trustee in
writing of the redemption date, the principal amount of Securities to be
redeemed and the paragraph of the Securities pursuant to which the redemption
will occur. The Company shall give each notice to the Trustee provided for in
this Section at least 45 days before the redemption date unless the Trustee
consents to a shorter period. Such notice shall be accompanied by an Officers'
Certificate from the Company to the effect that such redemption will comply with
the provisions herein.
SECTION 3.2. Selection of Securities to be Redeemed. If fewer than all the
Securities are to be redeemed, the Trustee shall select the Securities to be
redeemed pro rata or by lot or by a method that complies with applicable legal
and securities exchange requirements, if any, and that the Trustee considers
fair and appropriate and in accordance with methods generally used at the time
of selection by fiduciaries in similar circumstances. The Trustee shall make the
selection from outstanding Securities not previously called for redemption. The
Trustee may select for redemption portions of the principal of Securities that
have denominations larger than $1,000. Securities and portions of them the
Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000.
Provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption. The Trustee shall notify
the Company promptly of the Securities or portions of Securities to be redeemed.
In the event the Company is required to make an offer to repurchase Securities
pursuant to Sections 4.6 or 4.8 and the amount available for such offer is not
evenly divisible by $1,000, the Trustee shall promptly refund to the Company any
remaining funds, which in no event will exceed $1,000.
SECTION 3.3. Notice of Redemption. At least 30 days but not more than 60
days before a date for redemption of Securities, the Company shall mail a notice
of redemption by first-class mail to the registered address appearing in the
Security Register of each Holder of Securities to be redeemed. The notice shall
identify the Securities (including CUSIP numbers, if any) to be redeemed and
shall state:
(1) the redemption date;
<PAGE> 38
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(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to be
redeemed;
(6) that, unless the Company defaults in making such redemption
payment, interest on Securities (or portion thereof) called for redemption
ceases to accrue on and after the redemption date;
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed;
(8) the CUSIP number, if any, printed on the Securities being
redeemed; and
(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such
event, the Company shall provide the Trustee with the information required
by this Section.
SECTION 3.4. Effect of Notice of Redemption. Once notice of redemption is
mailed, Securities called for redemption become due and payable on the
redemption date and at the redemption price stated in the notice. Upon surrender
to the Paying Agent, such Securities shall be paid at the redemption price
stated in the notice, plus accrued interest to the redemption date. Such notice
if mailed in the manner herein provided shall be conclusively presumed to have
been given, whether or not the Holder receives such notice. Failure to give
notice or any defect in the notice to any Holder shall not affect the validity
of the notice to any other Holder.
SECTION 3.5. Deposit of Redemption Price. Prior to 11:00 a.m. (New York
City time) on the redemption date, the Company shall deposit with the Trustee or
Paying Agent (or, if
<PAGE> 39
32
the Company or a Subsidiary is the Paying Agent, shall segregate and hold in
trust) money sufficient to pay the redemption price of and accrued interest (if
any) on all Securities or portions thereof to be redeemed on that date other
than Securities or portions of Securities called for redemption which have been
delivered by the Company to the Trustee for cancellation.
SECTION 3.6. Securities Redeemed In Part. Upon surrender of a Security that
is redeemed in part (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered, except that
if a Global Security is so surrendered, the Company shall execute, and the
Trustee shall authenticate and deliver to the Depository for such Global
Security, without service charge, a new Global Security in denomination equal to
and in exchange for the unredeemed portion of the principal of the Global
Security so surrendered.
ARTICLE 4
COVENANTS
SECTION 4.1. Payment of Securities. The Company shall promptly pay the
principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due. The Company shall pay interest on overdue
principal at the rate specified therefor in the Securities, and it shall pay
interest on overdue installments of interest at the same rate to the extent
lawful.
SECTION 4.2. SEC Reports. The Company shall file with the Trustee and
provide Securityholders, as their names appear in the Security Register, within
15 days after it files them with the SEC, copies of the annual reports and the
information, documents and other reports which it is required to file with the
SEC pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that
the Company may not be re-
<PAGE> 40
33
quired to remain subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, the Company shall file with the SEC and provide the Trustee
and Securityholders with the annual reports and the information, documents and
other reports as are specified in Sections 13 and 15(d) of the Exchange Act. The
Company also shall comply with the other provisions of TIA ss. 314(a).
Delivery of such reports, information and documents to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.3. Limitation on Indebtedness. (a) The Company will not Incur,
directly or indirectly, any Indebtedness unless, on the date of such Incurrence,
the Consolidated Coverage Ratio exceeds 2.0 to 1.0 if such Indebtedness is
Incurred from the Issue Date through , 1999, and 2.25 to 1.0 if such
Indebtedness is Incurred thereafter.
(b) Notwithstanding Section 4.3(a), the Company may Incur any and all of
the following Indebtedness:
(i) Indebtedness Incurred pursuant to the New Credit Facility or any
other credit facility in a principal amount which, when taken together with
all letters of credit and the principal amount of all other Indebtedness
Incurred pursuant to this clause (i) and then outstanding, does not exceed
the greater of (x) $100 million or (y) the sum of (A) 75% of the net book
value of the inventory of the Company and its Restricted Subsidiaries and
(B) 80% of the net book value of the accounts receivables of the Company
and its Restricted Subsidiaries;
(ii) Indebtedness owed to and held by a Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital
Stock which results in any such Wholly Owned Subsidiary ceasing to be a
Wholly Owned Subsidiary or any subsequent transfer of such Indebtedness
(other than to another Wholly Owned Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the Company;
(iii) the Securities;
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34
(iv) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (i), (ii), or (iii) of this Section
4.3(b));
(v) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (iii) or (iv) or this
Section 4.3(b)(v) or pursuant to Section 4.14;
(vi) Hedging Obligations consisting of Interest Rate Agreements
directly related to Indebtedness permitted to be Incurred by the Company
hereunder;
(vii) Indebtedness of the Company consisting of obligations in respect
of purchase price adjustments in connection with the acquisition or
disposition of assets by the Company or any Restricted Subsidiary permitted
hereunder;
(viii) Capital Lease Obligations in an aggregate principal amount not
exceeding $15 million at any one time outstanding;
(ix) Attributable Debt of the Company with respect to Sale/Leaseback
Transactions in an aggregate principal amount not to exceed $5 million; and
(x) Indebtedness in an aggregate principal amount which, together with
all other Indebtedness of the Company outstanding on the date of such
Incurrence (other than Indebtedness permitted by clauses (i) through (ix)
above or Section 4.3(a)), does not exceed $15 million at any one time
outstanding.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing Section 4.3(b) if the proceeds thereof
are used, directly or indirectly, to Refinance any Subordinated Obligations
unless such Indebtedness shall be subordinated to the Securities to at least the
same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with this Section 4.3, (i) in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided
<PAGE> 42
35
and classified in more than one of the types of Indebtedness described above.
SECTION 4.4. Limitation on Restricted Payments. (a) The Company will
not, and will not permit any Restricted Subsidiary to, directly or
indirectly, make a Restricted Payment if at the time the Company or such
Restricted Subsidiary makes, after giving effect to, the proposed
Restricted Payment: (i) a Default will have occurred and be continuing (or
would result therefrom); (ii) the Company is not able to Incur an
additional $1.00 of Indebtedness under Section 4.3(a); or (iii) the
aggregate amount of such Restricted Payment and all other Restricted
Payments since the Issue Date would exceed the sum of:
(A) 75% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter during which the Securities are originally issued to the end
of the most recent fiscal quarter ending prior to the date of such
Restricted Payment for which consoli dated income statements of the
Company are available (or, in case such Consolidated Net Income shall
be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from
the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to
a Subsidiary of the Company);
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date, of any Indebtedness of the Company for
Capital Stock (other than Disqualified Stock) of the Company (less the
amount of any cash, or the fair market value of any other property,
distributed by the Company upon such conversion or exchange), whether
pursuant to the terms of such Indebtedness or pursuant to an agreement
with a creditor to engage in an equity for debt exchange; and
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
re-
<PAGE> 43
payments of loans or advances or other transfers of assets, in each
case to the Company or any Unrestricted Subsidiary from Unrestricted
Subsidiaries, and (ii) the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the
net assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however,
that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary subsequent to the date of
this Indenture.
(b) The provisions of Section 4.4(a) will not prohibit:
(i) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the
Company (other than (A) Disqualified Stock or (B) Capital Stock issued
or sold
<PAGE> 44
36
to a Subsidiary of the Company) or out of the proceeds of a
substantially concurrent capital contribution to the Company;
provided, however, that (x) such purchase, capital contribution or
redemption shall be excluded in the calculation of the amount of
Restricted Payments and (y) the Net Cash Proceeds from such sale of
Capital Stock or capital contribution shall be excluded from Section
4.4(a)(iii)(B);
(ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made
by exchange for, or out of the net proceeds of the substantially
concurrent sale of, Indebtedness of the Company which is permitted to
be Incurred pursuant to Section 4.3; provided, however, that such
purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value will be excluded in the calculation of the amount
of Restricted Payments;
(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have
complied with Section 4.4(a); provided, however, that such dividend
will be included in the calculation of the amount of Restricted
Payments;
<PAGE> 45
37
(iv) the repurchase of Capital Stock of the Company from
directors, officers or employees of the Company pursuant to the terms
of an employee benefit plan or employment or other agreement; provided
that the aggregate amount of all such repurchases shall not exceed
$3.5 million in any fiscal year, and $10.0 million in total; and
(v) Investments in Unrestricted Subsidiaries or joint ventures in
an amount not to exceed $5.0 million at any time outstanding.
SECTION 4.5. Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness or
obligations owed to the Company, (b) to make any loans or advances to the
Company or (c) to transfer any of its property or assets to the Company, except:
(i) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Issue Date;
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary on or prior to the date on
which such Restricted Subsidiary was acquired by the Company (other
than Indebtedness Incurred as consideration in, or to provide all or
any portion of funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired
by the Company) and outstanding on such date;
(iii) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (i) or (ii) of this Section 4.5 or
contained in any amendment to an agreement referred to in clause (i)
or (ii) of this Section 4.5 or this clause (iii); provided, however,
that the encumbrances and restrictions with respect to such Restricted
Subsidiary contained in any such refinancing agreement or amendment
are not materially less favorable to the Securityholders than
encumbrances and restrictions
<PAGE> 46
38
with respect to such Restricted Subsidiary contained in such
agreements;
(iv) any such encumbrance or restriction (A) consisting of
customary non-assignment provisions in leases to the extent such
provisions restrict the subletting, assignment or transfer of the
lease or the property leased thereunder or in purchase money financing
or (B) by virtue of any transfer, option or right with respect to, or
Lien on, any property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by this Indenture;
(v) in the case of Section 4.5(c), restrictions contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such restrictions restrict the transfer of
the property subject to such security agreements or mortgages;
(vi) encumbrances or restrictions imposed by operation of
applicable law; and
(vii) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or
disposition.
SECTION 4.6. Limitation on Sales of Assets and Subsidiary Stock. (a) The
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, consummate any Asset Disposition unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value (including the value of all
non-cash consideration), as determined in good faith by the Board of Directors,
of the shares and assets subject to such Asset Disposition, and at least 75% of
the consideration thereof received by the Company or such Restricted Subsidiary
is in the form of cash or cash equivalents and (ii) an amount equal to 100% of
the Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) first, to the extent the
Company elects (or is required by the terms of any Indebtedness), to prepay,
repay, redeem or purchase (and permanently reduce the commitments under)
Indebtedness of the Company or any Restricted Subsidiary (other than a
Subordinated Obligation and other than any Disqualified Stock) under the New
Credit Facility or that is otherwise secured by the assets sub-
<PAGE> 47
39
ject to the Asset Disposition within one year from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash (the "Receipt
Date"); (B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to the extent the Company
elects, to acquire Additional Assets; provided, however, that the Company shall
be required to commit such Net Available Cash to the acquisition of such
Additional Assets within one year from the later of the date of such Asset
Disposition or the Receipt Date and shall be required to consummate the
acquisition of such Additional Assets within 18 months from the Receipt Date;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer pursuant to
paragraph (b) below to the Holders to purchase Securities; and (D) fourth, to
the extent of the balance of such Net Available Cash after application in
accordance with clauses (A), (B) and (C) to any other application or use not
prohibited by this Indenture. Notwithstanding the foregoing provisions of this
paragraph, the Company and the Restricted Subsidiaries shall not be required to
apply the Net Available Cash in accordance with this paragraph except to the
extent that the aggregate Net Available Cash from all Asset Dispositions which
are not applied in accordance with this paragraph exceeds $5.0 million (at which
time, the entire unutilized Net Available Cash, and not just the amount in
excess of $5.0 million, shall be applied pursuant to this paragraph). Pending
application of Net Available Cash pursuant to this Section 4.6, such Net
Available Cash shall be invested in Permitted Investments.
For the purposes of this Section 4.6, the following are deemed to be cash
or cash equivalents: (x) the express assumption of Indebtedness of the Company
or any Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition, and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are converted by the Company or such
Restricted Subsidiary into cash within 90 days of closing the transaction.
(b) In the event of an Asset Disposition that requires the purchase of
Securities pursuant to Section 4.6(a)(iii)(C), the Company will be required to
purchase Securities tendered pursuant to an offer by the Company for the
Securities (the "Offer") at a purchase price of 100% of their principal amount
(without premium) plus accrued but unpaid interest in accordance with the
procedures (including prorating in the event of over subscription) set forth in
Section 4.6(c).
<PAGE> 48
40
If the aggregate purchase price of Securities tendered pursuant to the Offer is
less than the Net Available Cash allotted to the purchase of the Securities, the
Company will apply the remaining Net Available Cash in accordance with Section
4.6(a)(ii)(D) above. The Company shall not be required to make an Offer to
purchase Securities pursuant to this Section 4.6 if the Net Available Cash
available therefor after application of the proceeds as provided in Sections
4.6(a)(ii)(A) and 4.6(a)(ii)(B) is less than $5.0 million (which lesser amounts
shall be carried forward for purposes of determining whether such an Offer is
required with respect to any subsequent Asset Disposition).
(c) Promptly, and in any event within 30 days after the Company becomes
obligated to make an Offer, the Company shall be obligated to deliver to the
Trustee and send, by first-class mail to each Holder, at the address appearing
in the Security Register, a written notice stating that the Holder may elect to
have his Securities purchased by the Company either in whole or in part (subject
to prorationing as hereinafter described in the event the Offer is
oversubscribed) in in tegral multiples of $1,000 of principal amount, at the
applicable purchase price. The notice, which shall govern the terms of the
Offer, shall include such disclosures as are required by law and shall specify
(i) that the Offer is being made pursuant to this Section 4.6; (ii) the purchase
price (including the amount of accrued interest, if any) for each Security and
the purchase date not less than 30 days nor more than 60 days after the date of
such notice (the "Purchase Date"); (iii) that any Security not tendered or
accepted for payment will continue to accrue interest in accordance with the
terms thereof; (iv) that, unless the Company defaults on making the payment, any
Security accepted for payment pursuant to the Offer shall cease to accrue
interest on and after the Purchase Date; (v) that Securityholders electing to
have Securities purchased pursuant to an Offer will be required to surrender
their Securities to the Paying Agent at the address specified in the notice at
least three business days prior to the Purchase Date and must complete any form
letter of transmittal proposed by the Company and acceptable to the Trustee and
the Paying Agent; (vi) that Securityholders will be entitled to withdraw their
election if the Paying Agent receives, not later than one business day prior to
the Purchase Date, a tested telex, facsimile transmission or letter setting
forth the name of the Securityholder, the principal amount of Securities the
Securityholder delivered for purchase, the Security certificate number (if any)
and a statement that such Secuirty holder is withdrawing
<PAGE> 49
41
its election to have such Securities purchased; (vii) that if Securities in a
principal amount in excess of the aggregate principal amount which the Company
has offered to purchase are tendered pursuant to the Offer, the Company shall
purchase Securities on a pro rata basis among the Securities tendered (with such
adjustments as may be deemed appropriate by the Company so that only Securities
in denominations of $1,000 or integral multiples of $1,000 shall be acquired);
(viii) that Securityholders whose Securities are purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered; and (ix) the instructions that Security holders must
follow in order to tender their Securities.
(d) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided below, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the amount of the Offer (the "Offer
Amount"), (ii) the allocation of the Net Available Cash from the Asset
Dispositions pursuant to which such Offer is being made and (iii) the compliance
of such allocation with the provisions of Section 4.6(a). Upon the expiration of
the period for which the Offer remains open (the "Offer Period"), the Company
shall deliver to the Trustee for cancellation the Securities or portions thereof
which have been properly tendered to and are to be accepted by the Company. Not
later than 11:00 a.m. (New York City time) on the Purchase Date, the Company
shall irrevocably deposit with the Trustee or with a paying agent (or, if the
Company is acting as Paying Agent, segregate and hold in trust) an amount in
cash sufficient to pay the Offer Amount for all Securities properly tendered to
and accepted by the Company. The Trustee shall, on the Purchase Date, mail or
deliver payment to each tendering Holder in the amount of the purchase price.
(e) Holders electing to have a Security purchased will be required to
surrender the Security, together with all necessary endorsements and other
appropriate materials duly completed, to the Company at the address specified in
the notice at least three Business Days prior to the Purchase Date. Holders will
be entitled to withdraw their election in whole or in part if the Trustee or the
Company receives not later than one Business Day prior to the Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security (which shall be $1,000 or an integral multiple
thereof) which was delivered for purchase by the Holder, the aggregate principal
amount of such Security (if any) that remains subject to the original notice of
the Offer
<PAGE> 50
42
and that has been or will be delivered for purchase by the Company and a
statement that such Holder is withdrawing his election to have such Security
purchased. If at the expiration of the Offer Period the aggregate principal
amount of Securities surrendered by Holders exceeds the Offer Amount, the
Company shall select the Securities to be purchased on a pro rata basis (with
such adjustments as may be deemed appropriate by the Company so that only
securities in denominations of $1,000, or integral multiples thereof, shall be
purchased). Holders whose Securities are purchased only in part will be issued
new Securities equal in principal amount to the unpurchased portion of the
Securities surrendered.
(f) A Security shall be deemed to have been accepted for purchase at the
time the Trustee, directly or through an agent, mails or delivers payment
therefor to the surrendering Holder.
(g) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section 4.6. To the extent that the provisions of any securities laws or regu
lations conflict with provisions of this Section 4.6, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this Section by virtue thereof.
SECTION 4.7. Limitation on Affiliate Transactions. (a) The Company will
not, and will not permit any Restricted Subsidiary to, enter into any
transaction (including the purchase, sale, lease or exchange of any property, or
rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") unless the terms of such transaction (1) are no less favorable to
the Company or such Restricted Subsidiary than those that could be obtained at
the time of such transaction in a comparable transaction in arm's-length
dealings with a Person who is not such an Affiliate, (2) if such Affiliate
Transaction involves an amount in excess of $1.0 million, (i) are set forth in
writing and (ii) have been approved by a majority of the members of the Board of
Directors having no material personal financial stake in such Affiliate
Transaction, and (3) if such Affiliate Transaction involves an amount in excess
of $5.0 million, have been determined by a nationally recognized investment
banking firm to be fair, from a financial standpoint, to the Company or its
Restricted Subsidiary, as the case may be.
<PAGE> 51
43
(b) The foregoing provisions of Section 4.7(a) shall not prohibit (i) any
Permitted Investment or Restricted Payment permitted to be made pursuant to
Section 4.4, or any payment or transaction specifically excepted from the
definition of Restricted Payment, (ii) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise and the performance
of any other obligations of the Company or any Restricted Subsidiary pursuant
to, or the funding of, employment arrangements, collective bargaining
agreements, employee benefit plans, health and life insurance plans, deferred
compensation plans, directors' and officers' indemnification agreements,
retirement or savings plans, stock options and stock ownership plans or any
other similar arrangement heretofore or hereafter entered into in the ordinary
course of business or consistent with past practice, (iii) the grant of stock
options or similar rights to employees and directors pursuant to plans approved
by the Board of Directors or the board of directors of the relevant Restricted
Subsidiary (iv) loans or advances to officers, directors or employees heretofore
or hereafter entered into in the ordinary course of business or consistent with
past practice, (v) the payment of reasonable fees to directors of the Company
and its Restricted Subsidiaries who are not employees of the Company or its
Restricted Subsidiaries, (vi) any Affiliate Transaction between the Company and
a Wholly Owned Subsidiary or between Wholly Owned Subsidiaries, or (vii) the
purchase of or the payment of Indebtedness of or monies owed by the Company or
any of its Restricted Subsidiaries for goods or materials purchased, or services
received, in the ordinary course of business.
SECTION 4.8. Change of Control. (a) Upon a Change of Control, each Holder
shall have the right to require that the Company repurchase all or any part of
such Holder's Securities at a purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the related interest payment date), in
accordance with the terms contemplated in Section 4.8(b).
(b) Within 30 days following any Change of Control, unless notice of
redemption of the Securities has been given pursuant to paragraph 5 of Exhibit A
hereto, the Company shall mail a notice to each Holder with a copy to the
Trustee stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to pur-
<PAGE> 52
44
chase such Holder's Securities at a purchase price in cash equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of Holders of record on a
record date to receive interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control;
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
repurchased.
(c) Holders electing to have a Security purchased will be required to
surrender the Security, together with all necessary endorsements and other
appropriate materials duly completed, to the Company at the address specified in
the notice at least three Business Days prior to the purchase date. Holders will
be entitled to withdraw their election if the Trustee or the Company receives
not later than one Business Day prior to the purchase date, a facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Security which was delivered for purchase by the Holder as to
which such notice of withdrawal is being submitted and a statement that such
Holder is withdrawing his election to have such Security purchased.
(d) On the purchase date, all Securities purchased by the Company under
this Section shall be delivered to the Trustee for cancellation, and the Company
shall pay the purchase price plus accrued and unpaid interest, if any, to the
Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or regulations
conflict with provisions of this Section, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section by virtue thereof.
<PAGE> 53
45
(f) Notwithstanding the occurrence of a Change of Control, the Company
shall not be obligated to repurchase the Securities or otherwise comply with
this Section if the Company has irrevocably elected to redeem all the Securities
in accordance with Article Three; provided that the Company does not default in
its redemption obligations pursuant to such election.
SECTION 4.9. Compliance Certificate. The Company shall deliver to the
Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate, one of the signers of which shall be the principal
executive, financial or accounting officer of the Company, stating that in the
course of the performance by the signers of their duties as Officers of the
Company they would normally have knowledge of any Default and whether or not the
signers know of any Default that occurred during such period. If they do, the
certificate shall describe the Default, its status and what action the Company
is taking or proposes to take with respect thereto. The Company also shall
comply with TIA Section 314(a)(4).
SECTION 4.10. Further Instruments and Acts. Upon request of the Trustee,
the Company will execute and deliver such further instruments and do such
further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.11. Limitation on Liens. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create or permit to
exist any Lien on any of its property or assets, now owned or hereafter
acquired, securing any obligation unless concurrently with the creation of such
Lien effective provision is made to secure the Securities equally and ratably
with such obligation for so long as such obligation is so secured; provided,
that if such obligation is a Subordinated Obligation, the Lien securing such
obligation shall be subordinated and junior to the Lien securing the Securities
with the same or lesser relative priority as such Subordinated Obligation shall
have been with respect to the Securities. The preceding restriction shall not
require the Company or any Restricted Subsidiary to secure the Securities if the
Lien consists of the following:
(a) Liens created by the Indenture and Liens existing as of the Issue
Date, including under the New Credit Facility;
(b) Permitted Liens;
<PAGE> 54
46
(c) Liens to secure Indebtedness issued by the Company for the purpose
of financing all or a part of the purchase price of assets or property
acquired or constructed in the ordinary course of business after the Issue
Date; provided, however, that (a) the aggregate principal amount (or
accreted value in the case of Indebtedness issued at a discount) of
Indebtedness so issued shall not exceed the lesser of the cost or fair
market value, as determined in good faith by the Board of Directors of the
Company, of the assets or property so acquired or constructed, (b) the
Indebtedness secured by such Liens shall have been permitted to be Incurred
under Section 4.3 and (c) such Liens shall not encumber any other assets or
property of the Company or any of its Restricted Subsidiaries other than
such assets or property or any improvement on such assets or property and
shall attach to such assets or property within 90 days of the construction
or acquisition of such assets or property;
(d) Liens on the assets or property of a Restricted Subsidiary
existing at the time such Restricted Subsidiary becomes a Restricted
Subsidiary and not issued as a result of (or in connection with or in
anticipation of) such Restricted Subsidiary becoming a Restricted
Subsidiary; provided, however, that such Liens do not extend to or cover
any other property or assets of the Company or any of its other Restricted
Subsidiaries;
(e) Liens securing Capital Lease Obligations Incurred in accordance
with Section 4.3;
(f) Liens with respect to Sale/Leaseback Transactions permitted by
Section 4.3(b)(ix);
(g) Liens securing Indebtedness issued to Refinance Indebtedness which
has been secured by a Lien permitted under the Indenture and is permitted
to be Refinanced under the Indenture; provided, however, that such Liens do
not extend to or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced; or
(h) Liens on assets of the Company or any of its Restricted
Subsidiaries securing Indebtedness in an aggregate principal amount not to
exceed $5.0 million.
SECTION 4.12. Limitation on Sale/Leaseback Transactions. The Company will
not, and will not permit any Re-
<PAGE> 55
47
stricted Subsidiary to, enter into any Sale/Leaseback Transaction with respect
to any property unless (i) the Company or such Restricted Subsidiary would be
(A) in compliance with Section 4.3 or Section 4.14 immediately after giving
effect to such Sale/Leaseback Transaction and (B) entitled to create a Lien on
such property securing the Attributable Debt with respect to such Sale/Leaseback
Transaction without securing the Securities pursuant to Section 4.11, (ii) the
net cash proceeds received by the Company or any Restricted Subsidiary in
connection with such Sale/Leaseback Transaction are at least equal to the fair
market value (as determined by the Board of Directors of the Company) of such
property and (iii) the Company or such Restricted Subsidiary applies the
proceeds of such transaction in compliance with Section 4.6.
SECTION 4.13. Limitation on Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except (i) to the Company or a Wholly Owned
Subsidiary or (ii) if, immediately after giving effect to such issuance, sale or
other disposition, such Restricted Subsidiary remains a Restricted Subsidiary;
provided, however, that in connection with any such sale or disposition of
Capital Stock the Company or any such Restricted Subsidiary complies with
Section 4.6.
SECTION 4.14. Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries. The Company shall not permit any Restricted Subsidiary to Incur,
directly or indirectly, any Indebtedness or Preferred Stock except:
(a) Indebtedness or Preferred Stock issued to and held by the Company
or a Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results in any such Wholly
Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
transfer of such Indebtedness or Preferred Stock (other than to the Company
or a Wholly Owned Subsidiary) shall be deemed, in each case, to constitute
the issuance of such Indebtedness or Preferred Stock by the issuer thereof;
(b) Indebtedness or Preferred Stock of a Restricted Subsidiary
Incurred and outstanding on or prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Indebtedness or
Preferred Stock
<PAGE> 56
48
Incurred in connection with, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company); provided, however,
that on the date of such acquisition and after giving effect thereto, the
Company would have been able to Incur at least $1.00 of additional
Indebtedness pursuant to Section 4.3(a);
(c) Indebtedness or Preferred Stock outstanding on the Issue Date
(other than Indebtedness or Preferred Stock described in Section 4.14(a) or
(b);
(d) Indebtedness of any Restricted Subsidiary consisting of
obligations in respect of purchase price adjustments in connection with the
acquisition or disposition of assets by the Company or any Restricted
Subsidiary permitted under this Indenture;
(e) Preferred Stock which is not Disqualified Stock; provided,
however, that such Restricted Subsidiary shall not pay cash dividends on
such Preferred Stock; and
(f) Refinancing Indebtedness Incurred in respect of Indebtedness or
Preferred Stock referred to in Section 4.14(b) or (c) or this Section
4.14(f); provided, however, that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness or Preferred
Stock of a Restricted Subsidiary described in Section 4.14(b), such
Refinancing Indebtedness shall be Incurred only by such Restricted
Subsidiary.
SECTION 4.15 . Payment of Taxes and Other Claims. The Company shall, and
shall cause each of its Subsidiaries to, pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, all taxes, assessments and
governmental charges levied or imposed upon its or its Subsidiaries' income,
profits or property ; provided, however, that neither the Company nor any of its
Subsidiaries shall be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate negotiations or
proceedings and for which disputed amounts adequate reserves have been made in
accordance with GAAP.
SECTION 4.16. Maintenance of Office or Agency. The Company shall maintain
in the Borough of Manhattan, the City of New York, an office or agency (which
may be an office or agency of the Trustee, Registrar or co-Registrar), where
Securities may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company
<PAGE> 57
49
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the Trustee set
forth in Section 10.2.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York, for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby initially designates the corporate trust office of the
Trustee set forth in Section 10.2 as an agency of the Company in accordance with
Section 2.3.
SECTION 4.17. Corporate Existence. Subject to Article 5 and Section 4.6,
the Company shall do or cause to be done, at its own cost and expense, all
things necessary to, and will cause each of its Restricted Subsidiaries to,
preserve and keep in full force and effect the corporate or partnership
existence and rights (charter and statutory), licenses and/or franchises of the
Company and each of its Restricted Subsidiaries; provided, however, that the
Company or any of its Restricted Subsidiaries shall not be required to preserve
any such rights, licenses or franchises if the Board of Directors shall
reasonably determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and the Subsidiaries, taken as a whole.
ARTICLE 5
SUCCESSOR COMPANY
SECTION 5.1. Merger, Consolidation and Sale of Assets. The Company will not
consolidate with or merge with or into, or convey, transfer or lease, in one
transaction or a series of transactions, its assets substantially as an entirety
to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") will be a Person organized and
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50
existing under the laws of the United States of America, any State thereof
or the District of Columbia and the Suc cessor Company (if not the Company)
will expressly assume, by supplemental indenture, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the obligations of
the Company under the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of such Successor Company or
any Subsidiary as a result of such transaction as having been Incurred by
such Successor Company or such Subsidiary at the time of such transaction),
no Default will have occurred and be continuing;
(iii) immediately after giving effect to such transaction, the
Successor Company will have a Consolidated Net Worth in an amount that is
not less than the Consolidated Net Worth of the Company prior to such
transaction minus any costs incurred in connection with such transaction;
and
(iv) the Company will have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
Opinions of Counsel required to be delivered under this Section or
elsewhere in this Indenture may have qualifications customary for opinions of
the type required and counsel delivering such Opinions of Counsel may rely on
certificates of the Company or government or other officials customary for
opinions of the type required, including certificates certifying as to matters
of fact.
The Successor Company will be the successor to the Company and succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture, but the predecessor company, only in the case of a
conveyance, transfer or lease, will not be released from the obligation to pay
the principal of and interest on the Securities.
Notwithstanding the foregoing, (i) any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (ii) the Company may merge with an Affiliate
incorporated for the pur-
<PAGE> 59
51
pose of reincorporating the Company in another jurisdiction to realize tax or
other benefits.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.1. Events of Default. An "Event of Default" occurs if:
(i) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, and such default continues for a
period of 30 days;
(ii) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
optional redemption, upon required repurchase, upon acceleration or
otherwise;
(iii) the Company fails to comply with Section 5.1;
(iv) the Company fails to comply with Section 4.3, 4.4, 4.6, 4.8,
4.12, 4.13 or 4.14 (other than a failure to purchase Securities when
required under Section 4.8) and such failure continues for 30 days after
the notice specified below;
(v) the Company fails to comply with any of its agreements in the
Securities or this Indenture (other than those referred to in (i), (ii),
(iii) or (iv) above) and such failure continues for 60 days after the
notice specified below;
(vi) the Company or any Significant Subsidiary of the Company fails to
pay any Indebtedness within any applicable grace period after final
maturity or acceleration of any such Indebtedness by the holders thereof
because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10.0 million or its foreign currency equivalent at the
time;
(vii) the Company or any Significant Subsidiary of the Company
pursuant to or within the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
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52
(B) consents to the entry of an order for relief against it in an
involuntary case in which it is the debtor;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(viii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary of the Company in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary of the Company or for any substantial part of the property
of the Company or Significant Subsidiary; or
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary of the Company;
(or any similar relief is granted under any foreign laws) and the
order or decree remains unstayed and in effect for 60 days; or
(ix) the rendering of any judgment or decree for the payment of money
in excess of $10.0 million or its foreign currency equivalent at the time
against the Company or any Significant Subsidiary if such judgment or
decree remains unpaid and outstanding for a period of 60 days following
such judgment and is not discharged, waived or stayed within 30 days after
notice thereof.
The foregoing will constitute Events of Default whatever the reason for any such
Event of Default and whether it is voluntary or involuntary or is effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
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53
The term "Bankruptcy Law" means Title 11, United States Code, as amended,
or any similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A Default under clause (iv) or (v) of this Section 6.1 is not an Event of
Default until the Trustee or the Holders of at least 25% in aggregate principal
amount of the outstanding Securities notify the Company of the Default and the
Company does not cure such Default within the time specified after receipt of
such notice. Such notice must specify the Default, demand that it be remedied
and state that such notice is a "Notice of Default".
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (vi) of this Section 6.1 and any event which
with the giving of notice or the lapse of time would become an Event of Default
under clause (iv), (v) or (ix) of this Section 6.1, its status and what action
the Company is taking or proposes to take with respect thereto.
SECTION 6.2. Acceleration. If an Event of Default (other than an Event of
Default specified in Section 6.1(vii) or (viii) with respect to the Company)
occurs and is continuing, the Trustee by notice to the Company, or the Holders
of at least 25% in aggregate principal amount of the outstanding Securities by
notice to the Company and the Trustee, may declare the principal of and accrued
but unpaid interest on all the Securities to be due and payable. Upon such a
declaration, such principal and interest shall be due and payable immediately.
If an Event of Default specified in Section 6.1(vii) or (viii) with respect to
the Company occurs and is continuing, the principal of and interest on all the
Securities will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Securityholders. The
Holders of a majority in aggregate principal amount of the outstanding
Securities by notice to the Trustee may rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
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54
SECTION 6.3. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are, to the extent
permitted by law, cumulative.
SECTION 6.4. Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of the Securities then outstanding by notice to the
Trustee may waive any past or existing Default and its consequences except (i) a
Default in the payment of the principal of or interest on a Security or (ii) a
Default in respect of a provision that under Section 9.2 cannot be amended
without the consent of each Securityholder affected. When a Default is waived,
it is deemed cured, and any Event of Default arising therefrom shall be deemed
to have been cured, but no such waiver shall extend to any subsequent or other
Default or impair any consequent right.
SECTION 6.5. Control by Majority. The Holders of a majority in aggregate
principal amount of the Securities then outstanding may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture or, subject to Section 7.1, that the Trustee determines is unduly
prejudicial to the rights of other Securityholders or would involve the Trustee
in personal liability; provided, however, that the Trustee may take any other
action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification from the Securityholders satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
SECTION 6.6. Limitation on Suits. A Securityholder may not pursue any
remedy with respect to this Indenture or the Securities unless:
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55
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in aggregate principal amount of the
Securities then outstanding make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in aggregate principal amount of the
Securities then outstanding do not give the Trustee a direction
inconsistent with the request during such 60-day period.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.7. Rights Of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder to receive payment of
principal of and interest on the Securities held by such Holder, on or after the
respective due dates expressed in the Securities, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 6.8. Collection Suit by Trustee. If an Event of Default specified
in Section 6.1(i) or (ii) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the Company
for the whole amount then due and owing (together with interest on any unpaid
interest to the extent lawful) and the amounts provided for in Section 7.7.
SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may file such
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee and the Securityholders allowed in
any judicial proceedings relative to the Company, its creditors or its property
and, unless prohibited by law or applicable regulations, may vote on behalf of
the Holders in any election
<PAGE> 64
56
of a trustee in bankruptcy or other Person performing similar functions, and any
Custodian in any such judicial proceeding is hereby authorized by each Holder to
make payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and its counsel, and any other amounts due
the Trustee under Section 7.7.
SECTION 6.10. Priorities. If the Trustee collects any money or property
pursuant to this Article 6, it shall pay out the money or property in the
following order, subject to applicable law:
FIRST: to the Trustee for amounts due under Section 7.7;
SECOND: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
THIRD: to the Company.
The Trustee may, upon prior written notice to the Company, fix a record
date and payment date for any payment to Securityholders pursuant to this
Section. At least 15 days before such record date, the Company shall mail to
each Securityholder and the Trustee a notice that states the record date, the
payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any
right or remedy under this Indenture or in any suit against the Trustee for any
action taken or omitted by it as Trustee, a court in its discretion may require
the filing by any party litigant in the suit of an undertaking to pay the costs
of the suit, and the court in its discretion may assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
the suit, having due regard to the merits and good faith of the claims or
defenses made by the party litigant. This Section does not apply to a suit by
the Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of
more than 10% in aggregate principal amount of the outstanding Securities.
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SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the extent
it may lawfully do so) shall not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE 7
TRUSTEE
SECTION 7.1. Duties of Trustee. (a) If an Event of Default has occurred and
is continuing, the Trustee shall exercise the rights and powers vested in it by
this Indenture and use the same degree of care and skill in their exercise as a
prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct, except
that:
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(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.5.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section and to the
provisions of the TIA.
(e) Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law.
(f) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur financial liability in the performance of
any of its duties hereunder or in the exercise of any of its rights or powers,
if it shall have reasonable grounds to believe that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
(g) Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be subject to the
provisions of this Section and to the provisions of the TIA.
SECTION 7.2. Rights of Trustee. Subject to Section 7.1, (a) The Trustee may
rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
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59
(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute
willful misconduct or negligence.
(e) The Trustee may consult with counsel of its selection, and the advice
or opinion of counsel with respect to legal matters relating to this Indenture
and the Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder in
good faith and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction.
SECTION 7.3. Individual Rights of Trustee. The Trustee in its individual or
any other capacity may become the owner or pledgee of Securities and may
otherwise deal with the Company or its respective Affiliates with the same
rights it would have if it were not Trustee. Any Paying Agent, Registrar,
co-registrar or co-paying agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be responsible for
and makes no representation as to the validity or adequacy of this Indenture or
the Securities, it shall not be accountable for the Company's use of the
proceeds from the Securities, and it shall not be responsible for any statement
of the Company in this Indenture or in any document issued in connection with
the sale of the Securities or in the Securities other than the Trustee's
certificate of authentication.
SECTION 7.5. Notice of Defaults. If a Default occurs and is continuing and
if it is known to the Trustee, the Trustee
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shall mail to each Securityholder notice of the Default within the earlier of 90
days after it occurs or 30 days after it is known by a Trust Officer or written
notice is received by the Trustee. Except in the case of a Default in payment of
principal of or interest on any Security (including payments pursuant to the
mandatory redemption provisions of such Security, if any), the Trustee may
withhold the notice if and so long as a committee of its Trust Officers in good
faith determines that withholding the notice is in the interests of
Securityholders.
SECTION 7.6. Reports by Trustee to Holders. As promptly as practicable
after each May 15 beginning with the May 15 following the date of this
Indenture, and in any event prior to July 15 in each year, the Trustee shall
mail to each Securityholder a brief report dated as of May 15 that complies with
TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b). Prior to
delivery to the Holders, the Trustee shall deliver to the Company a copy of any
report it delivers to Holders pursuant to this Section 7.6.
A copy of each report at the time of its mailing to Securityholders shall
be filed with the SEC and each stock exchange (if any) on which the Securities
are listed. The Company agrees to notify promptly the Trustee whenever the
Securities become listed on any stock exchange and of any delisting thereof.
SECTION 7.7. Compensation and Indemnity. The Company shall pay to the
Trustee from time to time such reasonable compensation for its services as the
Company and the Trustee shall from time to time agree in writing. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to such compensation for its services, except any such
expense, disbursement or advance as may arise from its negligence, willful
misconduct or bad faith. Such expenses shall include the reasonable compensation
and expenses, disbursements and advances of the Trustee's agents, counsel,
accountants and experts. The Trustee shall provide the Company reasonable notice
of any expenditure not in the ordinary course of business; provided that prior
approval by the Company of any such expenditure shall not be a requirement for
the making of such expenditure nor for reimbursement by the Company thereof. The
Com pany shall indemnify each of the Trustee and any predecessor Trustees
against any and all loss, damage, claim, liability or expense
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(including attorneys' fees and expenses) (other than taxes applicable to the
Trustee's compensation hereunder) incurred by it in connection with the
acceptance or administration of this trust and the performance of its duties
hereunder. The Trustee shall notify the Company promptly of any claim for which
it may seek indemnity. Failure by the Trustee to so notify the Company shall not
relieve the Company of its obligations hereunder. The Company shall defend the
claim and the Trustee shall cooperate in the defense of such claim. The Trustee
may have separate counsel at its own expense. The Company need not reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Trustee through the Trustee's own willful misconduct, negligence or bad faith.
The Company need not pay for any settlement made without its written consent.
To secure the Company's payment obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall survive
the discharge of this Indenture. When the Trustee incurs expenses after the
occurrence of a Default specified in Section 6.1(vii) or (viii) with respect to
the Company, the expenses are intended to constitute expenses of administration
under the Bankruptcy Law.
SECTION 7.8. Replacement of Trustee. The Trustee may resign at any time
upon 30 days notice to the Company . The Holders of a majority in principal
amount of the Securities then outstanding may remove the Trustee by so notifying
the Trustee and may appoint a successor Trustee. The Company shall remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
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If the Trustee resigns, is removed by the Company or by the Holders of a
majority in principal amount of the Securities and such Holders do not
reasonably promptly appoint a successor Trustee, or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Company shall promptly appoint a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Securityholders. The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee, subject to the lien provided for in Section 7.7.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount of the Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section,
the Company's obligations under Section 7.7 shall continue for the benefit of
the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger. If the Trustee consolidates with,
merges or converts into, or transfers all or substantially all its corporate
trust business or assets to, another corporation or banking association, the
resulting, surviving or transferee corporation without any further act shall be
the successor Trustee, provided that such corporation shall be eligible under
this Article Seven and TIA ss. 3.10(a).
In case at the time such successor or successors by merger, conversion or
consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such
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successor to the Trustee may adopt the certificate of authentication of any
predecessor trustee, and deliver such Securities so authenticated; and in case
at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times
satisfy the requirements of TIA ss. 310(a). The Trustee shall have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA ss.
310(b); provided, however, that there shall be excluded from the operation of
TIA ss. 310(b)(1) any indenture or indentures under which other securities or
certificates of interest or participation in other securities of the Company are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
ARTICLE 8
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.1. Discharge of Liability on Securities; Defeasance. (a) When (i)
the Company delivers to the Trustee all outstanding Securities (other than
Securities replaced pursuant to Section 2.7) for cancellation or (ii) all
outstanding Securities have become due and payable, whether at maturity or as a
result of the mailing of a notice of redemption pursuant to Article 3 hereof ,
and, in each case of this clause (ii), the Company irrevocably deposits or
causes to be deposited with the Trustee United States dollars or U.S. Government
Obligations sufficient to pay and discharge the entire indebtedness on the
Securities not heretofore delivered to the Trustee for cancellation, for the
principal of, premium, if
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any, and interest to the date of deposit (other than Securities replaced
pursuant to Section 2.7), and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall, subject to Section
8.1(c), cease to be of further effect. The Trustee shall acknowledge
satisfaction and discharge of this Indenture on demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel from the
Company that all conditions precedent provided herein for relating to
satisfaction and discharge of this Indenture have been complied with and at the
cost and expense of the Company.
(b) Subject to Sections 8.1(c) and 8.2, the Company at any time may
terminate (i) all of its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Article 4 and the
operation of Sections 6.1(iv), 6.1(vi) and 6.1(vii) (but only with respect to a
Significant Subsidiary), 6.1(viii) (but only with respect to a Significant
Subsidiary), 6.1(ix) and 5.1(iii) and 5.1(iv) ("covenant defeasance option").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default with respect
thereto. If the Company exercises its covenant defeasance option, payment of the
Securities may not be accelerated due to a failure to comply with Article 4 or
the operation of Sections 6.1(vi) and 6.1(vii) (but only with respect to a
Significant Subsidiary), 6.1(viii) (but only with respect to a Significant
Subsidiary) or 6.1(ix) or because of the failure of the Company to comply with
5.1(iii) and 5.1(iv).
Upon satisfaction of the conditions set forth herein and upon request of
the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's obligations in
Sections 2.3, 2.4, 2.5, 2.6, 2.7, 7.7, 7.8, 8.4, 8.5 and 8.6 shall survive until
the Securities have been paid in full. Thereafter, the Company's obligations in
Sections 7.7, 8.4 and 8.5 shall survive.
SECTION 8.2. Conditions to Defeasance. The Company
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65
may exercise its legal defeasance option or its covenant defeasance option only
if:
(1) the Company irrevocably deposits or causes to be deposited in
trust with the Trustee money or U.S. Government Obligations which through
the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide cash at such times and in such
amounts as will be sufficient to pay principal and interest when due on all
outstanding Securities (except Securities replaced pursuant to Section 2.7)
to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent accountants expressing their
opinion that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment will provide cash at such times and in
such amounts as will be sufficient to pay principal and interest when due
on all outstanding Securities (except Securities replaced pursuant to
Section 2.7) to maturity or redemption, as the case may be;
(3) 91 days pass after the deposit is made and during the 91-day
period no Default specified in Section 6.1(vii) or (viii) with respect to
the Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other material
agreement binding on the Company;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
have received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Securityholders will not recognize income, gain or loss for federal
income tax purposes as a result of such de
<PAGE> 74
66
posit and defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for federal income
tax purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such deposit and covenant defeasance
had not occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with.
Opinions of Counsel required to be delivered under this Section may have
qualifications customary for opinions of the type required and counsel
delivering such Opinions of Counsel may rely on certificates of the Company or
government or other officials customary for opinions of the type required,
including certificates certifying as to matters of fact.
Before or after a deposit, the Company may make arrangements satisfactory
to the Trustee for the redemption of Securities at a future date in accordance
with Article 3.
SECTION 8.3. Application of Trust Money. The Trustee shall hold in trust
money or U.S. Government Obligations deposited with it pursuant to this Article
8. It shall apply the deposited money and the money from U.S. Government
Obligations either directly or through the Paying Agent (including the Company
acting as its own Paying Agent as the Trustee may determine) and in accordance
with this Indenture to the payment of principal of and interest on the
Securities.
SECTION 8.4. Repayment to Company. The Trustee and the Paying Agent shall
notify the Company of any excess money or Securities held by them at any time
and shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
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67
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal or interest that remains unclaimed for two
years, and, thereafter, Securityholders entitled to the money must look to the
Company for payment as general creditors.
SECTION 8.5. Indemnity for Government Obligations. The Company shall pay
and shall indemnify the Trustee against any tax, fee or other charge imposed on
or assessed against deposited U.S. Government Obligations or the principal and
interest received on such U.S. Government Obligations other than any such tax,
fee or other charge which by law is for the account of the Holders of the
defeased Securities; provided that the Trustee shall be entitled to charge any
such tax, fee or other charge to such Holder's account.
SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is unable to
apply any money or U.S. Government Obligations in accordance with this Article 8
by reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article 8 until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with this Article 8; provided, however, that, (a) if the Company has made any
payment of interest on or principal of any Securities following the
reinstatement of their obligations, the Company shall be subrogated to the
rights of the Holders of such Securities to receive such payment from the money
or U.S. Government Obligations held by the Trustee or Paying Agent and (b)
unless otherwise required by any legal proceeding or any order or judgment of
any court or governmental authority, the Trustee or Paying Agent shall return
all such money and U.S. Government Obligations to the Company promptly after
receiving a written request therefor at any time, if such reinstatement of the
Company's obligations has occurred and continues to be in effect.
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68
ARTICLE 9
AMENDMENTS
SECTION 9.1. Without Consent of Holders. The Company and the Trustee may
amend this Indenture or the Securities without notice to or consent of any
Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are as described in Section 163(f)(2)(B) of the Code;
(4) to add guarantees with respect to the Securities;
(5) to secure the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to make any change that does not adversely affect the rights of
any Securityholder; or
(8) to comply with any requirements of the SEC in connection with
qualifying this Indenture under the TIA.
After an amendment under this Section becomes effective, the Company shall
mail to Securityholders a notice briefly describing such amendment. The failure
to give such notice to all Securityholders, or any defect therein, shall not
impair or affect the validity of an amendment under this section.
SECTION 9.2. With Consent of Holders. The Company and the Trustee may amend
this Indenture or the Securities without notice to any Securityholder but with
the written consent of
<PAGE> 77
69
<PAGE> 78
the Holders of at least a majority in principal amount of the Securities then
outstanding. However, without the consent of each Securityholder affected, an
amendment may not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance with
Article 3;
(5) make any Security payable in money other than that stated in the
Security;
(6) impair the right of any Holder to receive payment of principal of
and interest on such Holder's Securities on or after the due dates therefor
or to institute suit for the enforcement of any payment on or with respect
to such Holder's Securities;
(7) make any change in Section 6.4 or 6.7 or the second sentence of
this Section; or
(8) affect the ranking of the Securities in any material respect.
It shall not be necessary for the consent of the Holders under this Section
to approve the particular form of any proposed amendment, but it shall be
sufficient if such consent approves the substance thereof.
After an amendment under this Section becomes effective, the Company shall
mail to Securityholders a notice briefly describing such amendment. The failure
to give such notice to all Securityholders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section.
SECTION 9.3. Compliance with Trust Indenture Act. Every amendment to this
Indenture or the Securities shall comply with the TIA as then in effect.
<PAGE> 79
70
SECTION 9.4. Revocation and Effect of Consents and Waivers. A consent to an
amendment or a waiver by a Holder of a Security shall bind the Holder and every
subsequent Holder of that Security or portion of the Security that evidences the
same debt as the consenting Holder's Security, even if notation of the consent
or waiver is not made on the Security. An amendment or waiver becomes effective
once the requisite number of consents are received by the Company or the
Trustee. After an amendment or waiver becomes effective, it shall bind every
Securityholder.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.5. Notation on or Exchange of Securities. If an amendment changes
the terms of a Security, the Trustee may require the Holder of the Security to
deliver it to the Trustee. The Trustee may place an appropriate notation on the
Security regarding the changed terms and return it to the Holder.
Alternatively, if the Company or the Trustee so determine, the Company in
exchange for the Security shall issue and the Trustee shall authenticate a new
Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.6. Trustee To Sign Amendments. The Trustee shall sign any
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
If it does, the Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity
<PAGE> 80
71
reasonably satisfactory to it and to receive, and (subject to Section 7.1) shall
be fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel stating that such amendment complies with the provisions of Article 9 of
this Indenture.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control. If this Indenture excludes any provision of the TIA that is
required to be included, such provision shall be deemed included herein.
SECTION 10.2. Notices. Any notice or communication shall be in writing and
delivered in person, by overnight courier or facsimile (if to the Company, with
receipt confirmed by an Officer) or mailed by first-class mail addressed as
follows:
If to the Company:
Chief Auto Parts Inc.
One Lincoln Centre
Suite 200
5400 LBJ Freeway
Dallas, Texas 75240-6223
Attention: General Counsel
With copies to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166-0193
Attention: Conor D. Reilly, Esq.
If to the Trustee:
<PAGE> 81
72
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication mailed or sent by overnight courier or
facsimile to a Securityholder shall be sent to the Securityholder at the
Securityholder's address as it appears on the registration books of the
Registrar and shall be sufficiently given if so sent within the time prescribed.
Failure to send a notice or communication to a Securityholder or any defect
in it shall not affect its sufficiency with respect to other Securityholders. If
a notice or communication is sent in the manner provided above, it is duly
given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
SECTION 10.3 Communication by Holders with Other Holders. Securityholders
may communicate pursuant to TIA ss. 312(b) with other Securityholders with
respect to their rights under this Indenture or the Securities. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA ss.
312(c).
SECTION 10.4. Certificate and Opinion as to Conditions Precedent. Upon any
request or application by the Company to the Trustee to take or refrain from
taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate (which in connection with the original
issuance of the Securities need only be executed by one Officer for the
Company) in form and substance reasonably satisfactory to the Trustee
stating that, in the opinion of the signers, all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have
been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
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73
SECTION 10.5. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with; provided,
that an Opinion of Counsel can rely as to matters of fact on an Officers'
Certificate or a certificate of a public official..
SECTION 10.6. When Securities Disregarded. In determining whether the
Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee actually knows are so owned shall be so
disregarded. Also, subject to the foregoing, only Securities outstanding at the
time shall be considered in any such determination.
SECTION 10.7. Rules by Trustee, Paying Agent and Registrar. The Trustee may
make reasonable rules for action by or a meeting of Securityholders. The Trustee
shall provide the Company reasonable notice of such rules. The Registrar and the
Paying Agent may make reasonable rules for their functions.
<PAGE> 83
74
SECTION 10.8. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or
a day on which banking institutions in the State of New York are authorized or
required by law to close. If a payment date is a Legal Holiday, payment shall be
made on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period. If a regular record date is a Legal
Holiday, the record date shall not be affected.
SECTION 10.9. Governing Law. This Indenture and the Securities shall be
governed by, and construed in accordance with, the laws of the State of New York
without giving effect to applicable principles of conflict of laws to the extent
that the application of the laws of another jurisdiction would be required
thereby.
SECTION 10.10. No Recourse Against Others. No recourse for the payment of
the principal of, premium, if any, or interest on any of the Securities or for
any claim based thereon or otherwise in respect thereof, and no recourse under
or upon any obligation, covenant or agreement of the Company in this Indenture,
or in any of the Securities or because of the creation of any Indebtedness
represented hereby and thereby, shall be had against any incorporator,
stockholder, officer, director, employee or controlling person of the Company or
any Successor Person thereof. Each Holder, by accepting a Security, waives and
releases all such liability. The waiver and release shall be part of the
consideration for the issuance of the Securities.
SECTION 10.11. Successors. All agreements of the Company in this Indenture
and the Securities shall bind the Company's successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 10.12. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement. One signed copy is enough to prove this
Indenture.
SECTION 10.13. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of
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75
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not intended to be considered a part hereof and shall not
modify or restrict any of the terms or provisions hereof.
SECTION 10.14. Severability Clause. In case any provision in this Indenture
or in the Securities shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
<PAGE> 85
76
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
CHIEF AUTO PARTS INC.
By: _______________________________________
Name:
Title:
FIRST TRUST NATIONAL ASSOCIATION, as Trustee
By: _______________________________________
Name:
Title:
<PAGE> 86
EXHIBIT A
FACE OF SECURITY
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY
SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR
TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON
THE REVERSE HEREOF.
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<PAGE> 87
No.
$130,000,000
% Senior Notes Due 2005
CUSIP No.
CHIEF AUTO PARTS INC., a Delaware corporation, promises to pay to Cede &
Co., or registered assigns, the principal sum of One Hundred Thirty Million
Dollars on , 2005.
Interest Payment Dates: and .
Record Dates: and .
Additional provisions of this Security are set forth on the reverse side of
this Security.
CHIEF AUTO PARTS INC.
By:_________________________________________
Name:
Title:
Dated: , 1997
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
[ ], as Trustee, certifies that this is one of the Securities
referred to in the within-mentioned Indenture.
By:
- ----------------------
Authorized Signatory
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<PAGE> 88
REVERSE OF SECURITY
% SENIOR NOTE DUE 2005
1. Interest
CHIEF AUTO PARTS INC., a Delaware corporation (such entity, and its
successors and assigns under the Indenture hereinafter referred to, and each
other entity which is required to become the Company pursuant to the Indenture,
and its successors and assigns under the Indenture, being herein called the
"Company"), promises to pay interest on the principal amount of this Security at
the rate per annum shown above. The Company will pay interest semiannually on
and of each year, commencing ,1997. Interest on the Securities will accrue from
the most recent date to which interest has been paid or, if no interest has been
paid, from, 1997. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. The Company shall pay interest on overdue principal at the
rate borne by the Securities, and it shall pay interest on overdue installments
of interest at the same rate to the extent lawful.
2. Method Of Payment
The Company will pay interest on the Securities (except defaulted interest)
to the Persons who are registered holders of Securities at the close of business
on the record date immediately preceding the interest payment date even if
Securities are canceled after the record date and on or before the interest
payment date. Holders must surrender Securities to a Paying Agent to collect
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. However, the Company, in the case of certificated Securities,
may pay principal and interest by check payable in such money and may mail an
interest check to a Holder's registered address. All payments of principal of,
premium, if any, and interest on the Securities will be made by the Company in
immediately available funds.
3. Paying Agent and Registrar
Initially, [ ], a [ ] banking corporation ("Trustee"), will act as Paying
Agent and Registrar. The Company may appoint and change any Paying Agent,
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<PAGE> 89
Registrar or co-registrar without notice. The Company may act as Paying Agent,
Registrar, co-Registrar or transfer agent.
4. Indenture
The Company issued the Securities under an Indenture dated as of , 1997
(the "Indenture"), among the Company and the Trustee. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.
77aaa-77bbbb) as in effect on the date of the Indenture (the "TIA"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Securityholders are referred to the Indenture and the TIA for a statement of
those terms. Any conflict between this Note and the Indenture will be governed
by the Indenture.
The Securities are general unsecured obligations of the Company limited to
$125,000,000 aggregate principal amount (subject to Section 2.7 of the
Indenture). The Indenture imposes certain limitations on the Incurrence of
Indebtedness by the Company and its Restricted Subsidiaries, the existence of
liens, the payment of dividends on, and redemption of, the Capital Stock of the
Company and its Subsidiaries, restricted payments, the sale or transfer of
assets and Subsidiary stock, the issuance or sale of Capital Stock of Restricted
Subsidiaries, sale and leaseback transactions, the investments of the Company
and its Restricted Subsidiaries, consolidations, mergers and transfers of all or
substantially all the assets of the Company, and transactions with Affiliates.
In addition, the Indenture limits the ability of the Company and certain of its
Subsidiaries to restrict distributions and dividends from Restricted
Subsidiaries.
5. Optional Redemption
Except as set forth in the next paragraph, the Securities may not be
redeemed prior to , 2001. On and after that date, the Company may redeem as
provided in, and subject to the terms of, the Indenture the Securities in whole
or in part, at any time or from time to time, at the following redemption prices
(expressed in percentages of principal amount), plus accrued interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the related interest payment date)
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<PAGE> 90
if redeemed during the 12-month period commencing on of the years set forth
below:
Period Percentage
------ ----------
2001 ................. %
2002 ................. %
2003 and thereafter .. 100.000%
In addition, at any time and from time to time prior to , 2000, the Company
may redeem in the aggregate up to 35% of the principal amount of the Securities
with the proceeds of one or more Public Equity Offerings, at a redemption price
(expressed as a percentage of principal amount) of % plus accrued and unpaid
interest to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date) as provided in, and subject to the terms of, the Indenture;
provided, however, that at least 65% of the original aggregate principal amount
of the Securities must remain outstanding after each such redemption.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail at least 30 days
but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his registered address. Securities in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000. If money sufficient to pay the redemption price of and accrued interest
on all Securities (or portions thereof) to be redeemed on the redemption date is
deposited with the Paying Agent on or before the redemption date and certain
other conditions are satisfied, on and after such date interest ceases to accrue
on such Securities (or such portions thereof) called for redemption. If a notice
or communication is sent in the manner provided in the Indenture, it is duly
given, whether or not the addressee receives it. Failure to send a notice or
communication to a Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders.
In addition, in the event of certain Asset Dispositions, the Company will
be required to make an offer to purchase Securities at a purchase price of 100%
of their principal amount plus accrued interest to the date of purchase (subject
to the rights of Holders of record on the relevant record date
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<PAGE> 91
to receive interest due on the relevant interest payment date) as provided in,
and subject to the terms of, the Indenture.
7. Change of Control
Upon a Change of Control, each Holder of Securities will have the right to
require the Company to repurchase all or any part of the Securities of such
Holder at a repurchase price in cash equal to 101% of the principal amount of
the Securities to be repurchased plus accrued and unpaid interest to the date of
repurchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the related interest payment date) as provided
in, and subject to the terms of, the Indenture.
8. Denominations; Transfer; Exchange
The Securities are in registered form without coupons in denominations of
$1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements or transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture,
including any transfer tax or other similar governmental charge payable in
connection therewith. The Registrar need not register the transfer of or
exchange any Securities selected for redemption (except, in the case of a
Security to be redeemed in part, the portion of the Security not to be redeemed)
or any Securities for a period of 15 days before a selection of Securities to be
redeemed or 15 days before an interest payment date.
9. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of it
for all purposes.
10. Unclaimed Money
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee or Paying Agent shall pay the money back to the Company at
its written request unless an abandoned property law designates another Person.
After any such payment, Holders entitled to the money must look only to the
Company and not to the Trustee for payment.
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11. Discharge And Defeasance
Subject to certain conditions, the Company at any time may terminate some
or all of its obligations under the Securities and the Indenture if the Company
deposits with the Trustee money or U.S. Government Obligations for the payment
of principal and interest on the Securities to redemption or maturity, as the
case may be.
12. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the Indenture
or the Securities may be amended with the consent of the Holders of at least a
majority in principal amount outstanding of the Securities and (ii) any past
default or compliance with any provision may be waived with the consent of the
Holders of a majority in principal amount outstanding of the Securities. Subject
to certain exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company and the Trustee may amend the Indenture or the
Securities to cure any ambiguity, omission, defect or inconsistency, to comply
with Article 5 of the Indenture, to provide for uncertificated Securities in
addition to or in place of certificated Securities, to add guarantees with
respect to the Securities, to secure the Securities, to add additional covenants
or surrender rights and powers conferred on the Company, to make any change that
does not adversely affect the rights of any Securityholder or to comply with any
request of the SEC in connection with qualifying the Indenture under the TIA.
13. Defaults And Remedies
Under the Indenture, Events of Default include (i) default for 30 days in
payment of interest on the Securities; (ii) default in payment of principal on
any Security when due at its Stated Maturity, upon redemption pursuant to
paragraphs 5 or 6 above, upon required repurchase, upon acceleration or
otherwise, (iii) failure by the Company to comply with Article 5 of the
Indenture; (iv) failure by the Company to comply with other agreements in the
Indenture or the Securities, in certain cases subject to notice and lapse of
time; (iv) failure by the Company or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or
acceleration by the Holders thereof because of a default and the total amount of
such Indebtedness unpaid or accelerated exceeds $10.0 million; (v) certain
events of bank-
A-7
<PAGE> 93
ruptcy, insolvency or reorganization of the Company or any Significant
Subsidiary; and (vi) the rendering of any judgments or decrees for the payment
of money in excess of $10.0 million.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the Securities then outstanding may
declare all the Securities to be due and payable. Certain events of bankruptcy
or insolvency are Events of Default which will result in the Securities being
due and payable immediately upon the occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Securities
may direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Securityholders notice of any continuing Default (except a Default
in payment of principal or interest) if it determines that withholding notice is
in the interest of the Holders.
14. Trustee Dealings with the Company
Subject to certain limitations imposed by the TIA, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or any of its Affiliates and may otherwise deal with the
Company or any of its Affiliates with the same rights it would have if it were
not Trustee.
15. No Recourse Against Others
No recourse for the payment of the principal of, premium, if any, or
interest on any of the Securities or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in the Indenture, or in any of the Securities or
because of the creation of any Indebtedness represented hereby and thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company or any Successor Person thereof. Each
Holder, by accepting a Security, waives and releases all such liability.
A-8
<PAGE> 94
16. Governing Law
The Indenture and the Securities shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflict of laws to the extent that the application of
the laws of another jurisdiction would be required thereby.
17. Authentication
This Security shall not be valid until an authorized signatory of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
18. Abbreviations
Customary abbreviations may be used in the name of a Securityholder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
19. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and have directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Securityholder upon written
request and without charge to the Securityholder a copy of the Indenture which
has in it the text of this Security in larger type. Requests may be made as
follows:
If to the Company:
Chief Auto Parts Inc.
One Lincoln Centre
Suite 200
A-9
<PAGE> 95
5400 LBJ Freeway
Dallas, Texas 75240-6223
Attention: General Counsel
If to the Trustee:
[
Attention: Corporate Trust Trustee
Administration]
A-10
<PAGE> 96
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
- -------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
Date: _______________ Your Signature: _______________
Sign exactly as your name
appears on the other side
of this Security.
Signature Guarantee: _______________
(Signature must be guaranteed)
A-11
<PAGE> 97
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.6 or 4.8 of the Indenture, check the box: /_/
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount: $
Date: ______________ Your Signature: _______________
(Sign exactly as your name
appears on the other side of the
Security)
Signature Guarantee:
(Signature must be guaranteed)
A-12
<PAGE> 1
EXHIBIT 5.1
May 21, 1997
(212) 351-4000 C 15368-00023
Chief Auto Parts Inc.
One Lincoln Center, Suite 200
5400 LBJ Freeway
Dallas, TX 75240-6223
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (the
"Registration Statement"), File No. 333- 24029, of Chief Auto Parts Inc., a
Delaware corporation (the "Company"), filed with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), in connection with the public offering by the
Company of up to $130,000,000 aggregate principal amount of % Senior Notes
Due 2005 (the "Notes"). The Notes are to be publicly offered and sold by
Credit Suisse First Boston Corporation and Salomon Brothers Inc (together, the
"Underwriters"). The Notes will be issued by the Company pursuant to an
indenture (the "Indenture") to be entered into between the Company and First
Trust National Association, as trustee (the "Trustee"). The Notes will be
acquired by the Underwriters pursuant to the terms of an Underwriting Agreement
(the "Underwriting Agreement") to be entered into between the Company and the
Underwriters. Forms of the Indenture and the Underwriting Agreement have been
filed as exhibits to the Registration Statement.
For the purposes of the opinion set forth below, we have
examined and are familiar with the proceedings taken and proposed to be taken
by the Company in connection with the issuance and sale of the Notes. In
arriving at the following opinions,
<PAGE> 2
Chief Auto Parts Inc.
May 21, 1997
Page 2
we have relied, among other things, upon our examination of such corporate
records of the Company and certificates of officers of the Company and of
public officials and such other documents as we have deemed appropriate. In
such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such copies.
Based upon the foregoing examination and in reliance thereon,
and subject to the assumptions stated and relying on statements of fact
contained in the documents that we have examined and subject to the completion
of the proceedings to be taken by the Company, the Trustee and the Underwriters
prior to the sale of the Notes and subject to the receipt from the Commission
of an order declaring the Registration Statement effective, it is our opinion
that the Notes, when executed, issued and delivered in accordance with the
terms of the Indenture and the Underwriting Agreement (assuming due execution
and delivery of the Indenture and authentication of the Notes by the Trustee
and payment for the Notes by the Underwriters), will be binding obligations of
the Company.
Our opinion is subject to: (i) the effect of applicable
bankruptcy, insolvency, reorganization, moratorium, arrangement and other laws
affecting creditor's rights, including, without limitation, the effect of
statutory or other laws regarding fraudulent conveyances, fraudulent transfers
and preferential transfers; (ii) the limitations imposed by general principles
of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity); and (iii) our assumption that there exist no
agreements, understandings or negotiations among the parties to the Indenture
or to the Underwriting Agreement that would modify the terms of either thereof
or the respective rights or obligations of the parties thereunder.
We render no opinion herein as to matters involving the laws
of any jurisdiction other than the laws of the United States of America, the
laws of the State of New York and the General Corporation Law of the State of
Delaware. In rendering this opinion, we assume no obligation to revise or
supplement this opinion should current laws, or the interpretations thereof, be
changed.
<PAGE> 3
Chief Auto Parts Inc.
May 21, 1997
Page 3
We consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Registration Statement and the Prospectus which
forms a part thereof. In giving these consents, we do not thereby admit that
we are within the category of persons whose consent is required under Section 7
of the Securities Act or the Rules and Regulations of the Commission.
Very truly yours,
/s/ GIBSON, DUNN & CRUTCHER LLP
<PAGE> 1
EXHIBIT 10.10
FORM OF
LOAN AND SECURITY AGREEMENT
DATED AS OF MAY __, 1997
AMONG
CHIEF AUTO PARTS INC.,
AS BORROWER,
THE LENDERS PARTY HERETO
AND
HELLER FINANCIAL, INC.,
AS AGENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . 19
1.3 Other Definitional Provisions . . . . . . . . . . . . . 19
SECTION 2. LOANS AND COLLATERAL. . . . . . . . . . . . . . . . . . . . . 20
2.1 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . 20
(A) Revolving Loan . . . . . . . . . . . . . . . . 20
(B) Swingline Loan . . . . . . . . . . . . . . . . 20
(C) Eligible Collateral . . . . . . . . . . . . . . 22
(D) Borrowing Mechanics . . . . . . . . . . . . . . 24
(E) Notes . . . . . . . . . . . . . . . . . . . . . 25
(F) Evidence of Revolving Loan Obligations and
Swingline Loan Obligations. . . . . . . . . . . 25
(G) Letters of Credit . . . . . . . . . . . . . . . 26
(1) Maximum Amount . . . . . . . . . . . . . 26
(2) Reimbursement . . . . . . . . . . . . . 26
(3) Conditions of Issuance . . . . . . . . . 27
(4) Request for Letters of Credit . . . . . 27
(H) Other Letter of Credit Provisions . . . . . . . 27
(1) Obligations Absolute . . . . . . . . . . 27
(2) Nature of Lender's Duties . . . . . . . 28
(3) Liability . . . . . . . . . . . . . . . 28
(I) Defaulting Lenders . . . . . . . . . . . . . . 29
2.2 Interest . . . . . . . . . . . . . . . . . . . . . . . . 30
(A) Rate of Interest. . . . . . . . . . . . . . . . 30
(B) Interest Periods. . . . . . . . . . . . . . . . 31
(C) Computation and Payment of Interest . . . . . . 31
(D) Interest Laws . . . . . . . . . . . . . . . . . 32
(E) Conversion or Continuation . . . . . . . . . . 32
2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 33
(A) Unused Line Fee . . . . . . . . . . . . . . . . 33
(B) Letter of Credit Fees . . . . . . . . . . . . . 34
(C) Audit Fees . . . . . . . . . . . . . . . . . . 34
(D) Other Fees and Expenses . . . . . . . . . . . . 34
2.4 Payments and Prepayments . . . . . . . . . . . . . . . . 34
(A) Manner and Time of Payment . . . . . . . . . . 34
(B) Mandatory Prepayments . . . . . . . . . . . . . 35
(1) Overadvance. . . . . . . . . . . . . . . 35
(2) Proceeds of Asset Dispositions . . . . . 35
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
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<S> <C>
(C) Voluntary Prepayments and Repayments . . . . . 36
(D) Payments on Business Days . . . . . . . . . . . 36
2.5 Term of this Agreement . . . . . . . . . . . . . . . . . 36
2.6 Statements . . . . . . . . . . . . . . . . . . . . . . . 36
2.7 Grant of Security Interest . . . . . . . . . . . . . . . 37
2.8 Capital Adequacy and Other Adjustments . . . . . . . . . 37
2.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 37
(A) No Deductions . . . . . . . . . . . . . . . . . 37
(B) Changes in Tax Laws . . . . . . . . . . . . . . 38
(C) Foreign Lenders . . . . . . . . . . . . . . . . 38
2.10 Required Termination and Prepayment . . . . . . . . . . 39
2.11 Optional Prepayment/Replacement of Agent or Lenders in
Respect of Increased Costs . . . . . . . . . . . . . . 39
2.12 Compensation . . . . . . . . . . . . . . . . . . . . . . 40
2.13 Booking of LIBOR Loans . . . . . . . . . . . . . . . . . 41
2.14 Assumptions Concerning Funding of LIBOR Loans . . . . . 41
SECTION 3. CONDITIONS TO LOANS . . . . . . . . . . . . . . . . . . . . . 41
3.1 Conditions to Loans . . . . . . . . . . . . . . . . . . 41
(A) Closing Deliveries . . . . . . . . . . . . . . 41
(B) Security Interests . . . . . . . . . . . . . . 41
(C) Closing Date Availability . . . . . . . . . . . 41
(D) Representations and Warranties . . . . . . . . 42
(E) Fees. . . . . . . . . . . . . . . . . . . . . . 42
(F) No Default . . . . . . . . . . . . . . . . . . 42
(G) Performance of Agreements . . . . . . . . . . . 42
(H) No Prohibition . . . . . . . . . . . . . . . . 42
(I) No Litigation . . . . . . . . . . . . . . . . . 42
(J) No Material Adverse Effect . . . . . . . . . . 42
(K) Opinions of Counsel . . . . . . . . . . . . . . 42
(L) Financial Information . . . . . . . . . . . . . 43
(M) Qualification . . . . . . . . . . . . . . . . . 43
(N) Consents and Terminations . . . . . . . . . . . 43
(O) Evidence of Insurance . . . . . . . . . . . . . 43
(P) Examination of Books. . . . . . . . . . . . . . 43
(Q) Recapitalization. . . . . . . . . . . . . . . . 43
(R) Senior Notes . . . . . . . . . . . . . . . . . 43
(S) Collateral Audit. . . . . . . . . . . . . . . . 44
(T) Environmental Matters . . . . . . . . . . . . . 44
(U) Cash Management . . . . . . . . . . . . . . . . 44
(V) Compliance with Law . . . . . . . . . . . . . . 44
(W) Proceedings; Receipt of Documents . . . . . . . 44
(X) Solvency . . . . . . . . . . . . . . . . . . . 45
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
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<S> <C>
(Y) Capital, Organization, Legal Structure, Taxes . . 45
(Z) Mortgagee WAIVER . . . . . . . . . . . . . . . . 46
(AA) Special Counsel Fees . . . . . . . . . . . . . . 46
(BB) Other Conditions Precedent . . . . . . . . . . . 46
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . 46
4.1 Organization, Powers, Capitalization . . . . . . . . . . . 46
(A) Organization and Powers . . . . . . . . . . . . . 46
(B) Capitalization. . . . . . . . . . . . . . . . . . 46
4.2 Authorization of Borrowing, No Conflict . . . . . . . . . 47
4.3 Financial Condition . . . . . . . . . . . . . . . . . . . 47
4.4 Indebtedness and Liabilities . . . . . . . 47
4.5 Account Warranties . . . . . . . . . . . . . . . . . . . . 48
4.6 Names. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.7 Locations; FEIN. . . . . . . . . . . . . . . . . . . . . . 48
4.8 Title to Properties; Liens . . . . . . . . . . . . . . . . 48
4.9 Litigation; Adverse Facts . . . . . . . . . . . . . . . . 48
4.10 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . 49
4.11 Performance of Agreements . . . . . . . . . . . . . . . . 49
4.12 Employee Benefit Plans . . . . . . . . . . . . . . . . . . 49
4.13 Intellectual Property. . . . . . . . . . . . . . . . . . . 49
4.14 Broker's Fees. . . . . . . . . . . . . . . . . . . . . . . 49
4.15 Environmental Matters . . . . . . . . . . . . . . . . . . 49
4.16 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . 51
4.17 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 51
4.18 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 52
4.19 Compliance with Laws . . . . . . . . . . . . . . . . . . . 52
4.20 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . 52
4.21 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 52
4.22 Employee Matters . . . . . . . . . . . . . . . . . . . . . 52
4.23 Governmental Regulation . . . . . . . . . . . . . . . . . 53
4.24 Capital Leases . . . . . . . . . . . . . . . . . . . . . . 53
4.25 Co-Op Contracts. . . . . . . . . . . . . . . . . . . . . . 53
4.26 INACTIVE SUBSIDIARY . . . . . . . . . . . . . . . . . . . 54
SECTION 5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 54
5.1 Financial Statements and Other Reports . . . . . . . . . . 54
(A) Monthly Financials . . . . . . . . . . . . . . . 54
(B) Quarterly Financials . . . . . . . . . . . . . . 54
(C) Year-End Financials . . . . . . . . . . . . . . . 55
(D) Accountants' Certification and Reports . . . . . 55
(E) Compliance Certificate . . . . . . . . . . . . . 55
(F) Borrowing Base Certificates, Registers and
Journals. . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
iii
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<TABLE>
<CAPTION>
Page
----
<S> <C>
(G) Reconciliation Reports, Inventory Reports and
Listings and Agings . . . . . . . . . . . . . . . . . 56
(H) Management Report . . . . . . . . . . . . . . . . . . 56
(I) Appraisals. . . . . . . . . . . . . . . . . . . . . . 56
(J) Government Notices . . . . . . . . . . . . . . . . . 57
(K) Events of Default, etc. . . . . . . . . . . . . . . . 57
(L) Trade Names . . . . . . . . . . . . . . . . . . . . . 57
(M) Locations . . . . . . . . . . . . . . . . . . . . . . 57
(N) Bank Accounts . . . . . . . . . . . . . . . . . . . . 57
(O) Litigation. . . . . . . . . . . . . . . . . . . . . . 57
(P) BUDGETS . . . . . . . . . . . . . . . . . . . . . . . 58
(Q) Senior Note Debt and Other Indebtedness Notices . . . 58
(R) SEC Filings and Press Releases . . . . . . . . . . . 58
(S) Insurance . . . . . . . . . . . . . . . . . . . . . . 58
(T) Other Information . . . . . . . . . . . . . . . . . . 58
5.2 Access to Accountants and Management . . . . . . . . . . . . . 59
5.3 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.4 Collateral Records . . . . . . . . . . . . . . . . . . . . . . 59
5.5 Account Covenants; Verification . . . . . . . . . . . . . . . 59
5.6 Collection of Accounts and Payments . . . . . . . . . . . . . 60
5.7 Endorsement. . . . . . . . . . . . . . . . . . . . . . . . . . 61
5.8 Corporate Existence . . . . . . . . . . . . . . . . . . . . . 61
5.9 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . 61
5.10 Maintenance of Properties; Insurance . . . . . . . . . . . . . 61
5.11 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 62
5.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 62
5.13 Collateral Locations . . . . . . . . . . . . . . . . . . . . . 63
5.14 Bailees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
5.15 Use of Proceeds and Margin Security . . . . . . . . . . . . . 63
SECTION 6. FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . 63
6.1 Minimum EBITDA . . . . . . . . . . . . . . . . . . . . . . . . 63
6.2 Fixed Charge Coverage . . . . . . . . . . . . . . . . . . . . 64
SECTION 7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . 64
7.1 Indebtedness and Liabilities . . . . . . . . . . . . . . . . . 64
7.2 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.3 Transfers, Liens and Related Matters . . . . . . . . . . . . . 66
(A) Transfers . . . . . . . . . . . . . . . . . . . . . . 66
(B) Liens . . . . . . . . . . . . . . . . . . . . . . . . 66
(C) No Negative Pledges . . . . . . . . . . . . . . . . . 66
(D) No Restrictions on Subsidiary transfers to Borrower . 66
7.4 Investments and Loans . . . . . . . . . . . . . . . . . . . . 67
7.5 Restricted Junior Payments . . . . . . . . . . . . . . . . . . 67
</TABLE>
iv
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<TABLE>
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<S> <C>
7.6 Restriction on Fundamental Changes . . . . . . . . . . . . . . 67
7.7 Changes Relating to Senior Note Debt . . . . . . . . . . . . . 68
7.8 Transactions with Affiliates . . . . . . . . . . . . . . . . . 69
7.9 Environmental Liabilities . . . . . . . . . . . . . . . . . . 69
7.10 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . 69
7.11 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . 69
7.12 Tax Consolidations . . . . . . . . . . . . . . . . . . . . . . 69
7.13 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 69
7.14 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . 70
7.15 Press Release; Public Offering Materials . . . . . . . . . . . 70
7.16 Certain Bank Accounts. . . . . . . . . . . . . . . . . . . . . 70
SECTION 8. DEFAULT, RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . 70
8.1 Event of Default . . . . . . . . . . . . . . . . . . . . . . . 70
(A) Payment . . . . . . . . . . . . . . . . . . . . . . . 70
(B) Default in Other Agreements . . . . . . . . . . . . . 70
(C) Breach of Certain Provisions . . . . . . . . . . . . 70
(D) Breach of Warranty . . . . . . . . . . . . . . . . . 70
(E) Other Defaults Under Loan Documents . . . . . . . . . 70
(F) Change in Control . . . . . . . . . . . . . . . . . . 71
(G) Involuntary Bankruptcy; Appointment of
Receiver, etc.. . . . . . . . . . . . . . . . . . . . 71
(H) Voluntary Bankruptcy; Appointment of
Receiver, etc . . . . . . . . . . . . . . . . . . . . 71
(I) Liens . . . . . . . . . . . . . . . . . . . . . . . . 71
(J) Judgment and Attachments . . . . . . . . . . . . . . 71
(K) Dissolution . . . . . . . . . . . . . . . . . . . . . 72
(L) Solvency . . . . . . . . . . . . . . . . . . . . . . 72
(M) Injunction. . . . . . . . . . . . . . . . . . . . . . 72
(N) Invalidity of Loan Documents . . . . . . . . . . . . 72
(O) Failure of Security . . . . . . . . . . . . . . . . . 72
(P) Damage, Strike, Casualty . . . . . . . . . . . . . . 72
(Q) Licenses and Permits . . . . . . . . . . . . . . . . 72
(R) Forfeiture. . . . . . . . . . . . . . . . . . . . . . 73
8.2 Suspension of Commitments . . . . . . . . . . . . . . . . . . 73
8.3 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.4 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.5 Appointment of Attorney-in-Fact . . . . . . . . . . . . . . . 74
8.6 Limitation on Duty of Agent with Respect to Collateral . . . . 74
8.7 Application of Proceeds . . . . . . . . . . . . . . . . . . . 74
8.8 License of Intellectual Property . . . . . . . . . . . . . . . 75
8.9 Waivers, Non-Exclusive Remedies. . . . . . . . . . . . . . . . 75
SECTION 9. ASSIGNMENT AND PARTICIPATION . . . . . . . . . . . . . . . . . 75
9.1 Assignments and Participations in Loans. . . . . . . . . . . . 75
</TABLE>
v
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C>
9.2 Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
(A) Appointment . . . . . . . . . . . . . . . . . . . . . 78
(B) Nature of Duties . . . . . . . . . . . . . . . . . . 78
(C) Rights, Exculpation, Etc. . . . . . . . . . . . . . . 79
(D) Reliance . . . . . . . . . . . . . . . . . . . . . . 79
(E) Indemnification . . . . . . . . . . . . . . . . . . . 80
(F) Heller Individually . . . . . . . . . . . . . . . . . 80
(G) Successor Agent . . . . . . . . . . . . . . . . . . . 80
(1) Resignation . . . . . . . . . . . . . . . . . 80
(2) Appointment of Successor . . . . . . . . . . . 80
(3) Successor Agent . . . . . . . . . . . . . . . 80
(H) Collateral Matters . . . . . . . . . . . . . . . . . 81
(1) Release of Collateral . . . . . . . . . . . . 81
(2) Confirmation of Authority; Execution of
Releases . . . . . . . . . . . . . . . . . . . 81
(3) Absence of Duty . . . . . . . . . . . . . . . 81
(I) Agency for Perfection . . . . . . . . . . . . . . . . 82
(J) Exercise of Remedies. . . . . . . . . . . . . . . . . 82
9.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
9.4 Set Off and Sharing of Payments . . . . . . . . . . . . . . . 82
9.5 Dissemination of Information . . . . . . . . . . . . . . . . . 83
9.6 Return of Payments . . . . . . . . . . . . . . . . . . . . . . 83
9.7 Discretionary Advances . . . . . . . . . . . . . . . . . . . . 83
SECTION 10. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 84
10.1 Expenses and Attorneys' Fees. . . . . . . . . . . . . . . . . . 84
10.2 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
10.3 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . . 85
10.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
10.5 Survival of Warranties and Certain Agreements . . . . . . . . . 87
10.6 Indulgence Not Waiver . . . . . . . . . . . . . . . . . . . . . 87
10.7 Marshaling; Payments Set Aside. . . . . . . . . . . . . . . . . 87
10.8 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . 87
10.9 Independence of Covenants . . . . . . . . . . . . . . . . . . . 88
10.10 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 88
10.11 Lenders' Obligations Several; Independent Nature of Lenders'
Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
10.12 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
10.13 APPLICABLE LAW. . . . . . . . . . . . . . . . . . . . . . . . . 88
10.14 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 88
10.15 No Fiduciary Relationship; Limitation of Liabilities. . . . . . 88
10.16 CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . 89
10.17 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . 89
10.18 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . 89
10.19 Counterparts; Effectiveness . . . . . . . . . . . . . . . . . . 89
</TABLE>
vi
<PAGE> 8
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
10.20 No Duty . . . . . . . . . . . . . . . . . . . . . 90
10.21 Confidentiality . . . . . . . . . . . . . . . . . . . . . 90
</TABLE>
SCHEDULES
Schedule 1.1(A) Other Liens
Schedule 1.1(B) Other Indebtedness
Schedule 1.1(C) Lien States
Schedule 3.1(A) List of Closing Documents
Schedule 4.1(B) Capitalization of Loan Parties
Schedule 4.6 Trade Names (Present and Past Five Years)
Schedule 4.7 Location of Principal Place of Business, Books and Records and
Collateral
Schedule 4.9 Litigation
Schedule 4.13 Intellectual Property
Schedule 4.15 Environmental Matters
Schedule 4.20 Bank Accounts
Schedule 4.21 Subsidiaries
Schedule 4.22 Employee Matters
SCHEDULE 7.4 OTHER INVESTMENTS, LOANS AND ADVANCES
EXHIBITS
Exhibit A Form of Borrowing Base Certificate
Exhibit B Form of Compliance Certificate
Exhibit C Form of Inventory Report
Exhibit D Form of Assignment and Acceptance
Exhibit E Pro Forma
Exhibit F Form of Reconciliation Report
Exhibit G Form of Notice of Borrowing
Exhibit H Form of Revolving Note
Exhibit I Form of Swingline Note
Exhibit J Form of Notice of Conversion/Continuation
EXHIBIT 2.1(C) INVENTORY RESERVES AS OF CLOSING DATE
EXHIBIT 5.1(D) FORM OF ACCOUNTANTS LETTER
vii
<PAGE> 9
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is dated as of May __, 1997
and entered into among CHIEF AUTO PARTS INC., a Delaware corporation
("Borrower"), with its principal place of business at One Lincoln Centre, Suite
200, 5400 LBJ Freeway, Dallas, Texas 75240-6223, the financial institution(s)
listed on the signature pages hereof and their respective successors and
assigns (each individually a "Lender" and collectively "Lenders") and HELLER
FINANCIAL, INC., a Delaware corporation (in its individual capacity, "Heller"),
with offices at 500 West Monroe, Chicago, Illinois 60661, for itself as a
Lender and as Agent. All capitalized terms used herein are defined in Section
1 of this Agreement.
WHEREAS, Borrower desires that Lenders extend a credit
facility to refinance Indebtedness and other amounts owing under the Existing
Credit Agreement, to provide working capital financing to Borrower and to
provide funds for other general corporate purposes of Borrower permitted
hereunder; and
WHEREAS, Borrower desires to secure its obligations under the
Loan Documents by granting to Agent, for benefit of Agent and Lenders, a
security interest in and lien upon certain of Borrower's property;
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, Borrower, Agent and
Lenders agree as follows:
SECTION 1. DEFINITIONS
1.1 Certain Defined Terms. The following terms used in
this Agreement shall have the following meanings:
"Accounts" means all "accounts" (as defined in the UCC),
accounts receivable, contract rights and general intangibles relating thereto,
notes, drafts and other forms of obligations owed to or owned by Borrower
arising or resulting from the sale of goods or the rendering of services.
"Adjusted EBITDA" means for any period [the sum of (a)
any increase (without giving effect to any decrease) on or after April ___,
1997 but on or prior to the last day of such period in Other Accrued
Liabilities plus (b) any increase (without giving effect to any decrease) on or
after April ___, 1997 but on or prior to the last day of such period in those
reserves and liabilities of Borrower and its Subsidiaries of the type included
in Other Noncurrent Liabilities under either or both of the categories
"Store-closing provision" and "Other (including legal)"] EBITDA.
"Affiliate" means any Person (other than Agent or a Lender):
(a) directly or indirectly controlling, controlled by, or under common control
with, any Loan Party; (b) directly or indirectly owning or holding ten percent
(10%) or more of any equity interest in Borrower; (c) ten percent (10%) or
more of whose stock or other equity interest having ordinary voting power for
the election of directors or the power to direct or cause the direction of
management, is directly or indirectly owned or held by Borrower; or (d) which
has a senior executive officer who is also a senior executive officer of
Borrower. For purposes of this definition, "control" (including with
correlative
<PAGE> 10
meanings, the terms "controlling", "controlled by" and "under common control
with") means the possession directly or indirectly of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities or other equity interest, or by contract or
otherwise.
"Agent" means Heller in its capacity as agent for the Lenders
under the Loan Documents and any successor in such capacity appointed pursuant
to subsection 9.2.
"Agent's Account" means ABA No. 0710-0001-3, Account No.
________ at First National Bank of Chicago, One First National Plaza, Chicago,
IL 60670, Reference: Heller Business Credit for the benefit of Chief Auto
Parts Inc.
"Agreement" means this Loan and Security Agreement as it may
be amended, restated, supplemented or otherwise modified from time to time.
"Applicable Margin" means initially one-half of one percent
(.50%) with respect to Base Rate Loans and two percent (2.00%) with respect to
LIBOR Loans, and from and after the first day of the month immediately
following the date of delivery by Borrower to Agent of the financial statements
with respect to the then most recently completed fiscal quarter (commencing
with the fiscal quarter ending June 29, 1998) of Borrower as required under
subsection 5.1(B) (the "Financials"), together with calculations in form and
substance satisfactory to Agent supporting the calculation of the Leverage
Ratio for the period of two consecutive fiscal quarters of Borrower ended with
such most recently completed fiscal quarter (such two fiscal quarter period,
the "Test Period") and a written certification from the chief financial officer
of Borrower to such effect, the Applicable Margin shall mean that amount set
forth below opposite the Leverage Ratio achieved for such Test Period:
<TABLE>
<CAPTION>
Applicable Margin Applicable Margin
Leverage Ratio For Base Rate Loans for LIBOR Loans
-------------- ------------------- ---------------
<S> <C> <C>
Equal to or greater than 6.00/1 1.00 2.50
Greater than 5.50/1 and less than 6.00/1 .75 2.25
Greater than 4.50/1 and less than or equal to .50 2.00
5.50/1
Equal to or greater than 4.00/1 and less than or .25 1.75
equal to 4.50/1
Less than 4.00/1 .00 1.50
</TABLE>
;provided, that notwithstanding the foregoing the Applicable Margin shall be
one percent (1.00%) with respect to Base Rate Loans and two and one-half
percent (2.50%) with respect to LIBOR Loans at all times (x) on and after the
occurrence and during the continuance of a Default or an Event of Default (and
the Default Rate payable on overdue Obligations as provided in the second
paragraph
2
<PAGE> 11
of subsection 2.2(A) shall be determined after giving effect to this proviso)
or (y) after the failure of Borrower to timely deliver the Financials for any
fiscal quarter of Borrower prior to and including the then most recently
completed fiscal quarter of Borrower when required by subsection 5.1(B)
(together with the related calculations and certification required above) and
until the first day of the month following the date of delivery to Agent of the
Financials for the then most recently completed fiscal quarter of Borrower
(together with the related calculations and certification).
"Asset Disposition" means the disposition, whether by sale,
lease, transfer, loss, damage, destruction, condemnation or otherwise, of any
or all of the assets of Borrower or any of its Subsidiaries other than sales of
Inventory in the ordinary course of business.
"Assignee" has the meaning assigned to that term in subsection
9.1(A).
"Assignment and Acceptance" has the meaning assigned to that
term in subsection 9.1(A).
"Availability" means, at any time, the excess of (A) the
lesser of (x) the Revolving Loan Commitments of all Lenders and (y) the
Borrowing Base over (B) the sum of (w) the Revolving Loan, (x) the Swingline
Loan, (y) the Letter of Credit Reserve and (z) with respect to subsections
3.1(C), 5.1(F), 5.6 and 7.6 only, the amount of those payables of Borrower and
its Subsidiaries which at such time remain unpaid beyond customary terms
therefor.
"Bank Letter of Credit" means each letter of credit issued by
a bank [REASONABLY] acceptable to and approved by Agent for the account of
Borrower and supported by a Risk Participation Agreement.
"Base Rate" means a variable rate of interest per annum equal
to the higher of (a) the highest of the "prime rate", "reference rate", "base
rate", or other similar rate announced from time to time by any of The Chase
Manhattan Bank, Citibank, N.A. or First National Bank of Chicago or their
successors (with the understanding that any such rate may merely be a reference
rate and may not necessarily represent the lowest or best rate actually charged
to any customer by any such bank), or (b) the Federal Funds Effective Rate plus
one-half of one percent (.50%).
"Base Rate Loans" means Loans bearing interest at rates
determined by reference to the Base Rate.
"Borrower" has the meaning assigned to that term in the
preamble to this Agreement.
"Borrowing Base" has the meaning assigned to that term in
subsection 2.1(A).
"Borrowing Base Certificate" means a certificate and
assignment schedule duly executed by A Financial Officer of Borrower
appropriately completed and in substantially the form of Exhibit A.
3
<PAGE> 12
"Budgets" means Borrower's forecasted consolidated and, with
respect to Borrower and each Restricted Subsidiary, consolidating: (a) balance
sheets; (b) profit and loss statements; (c) cash flow statements; and (d)
capitalization statements, all in such scope, detail and format acceptable to
Agent and the Requisite Lenders and consistent with Borrower's historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
"Business Day" means any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the States of Illinois or
New York, or is a day on which banking institutions located in any such state
are closed, or for the purposes of LIBOR Loans only, a day on which commercial
banks are open for dealings in Dollar deposits in the London, England (U.K.)
market.
"Capital Expenditures" means, with respect to any Person, all
expenditures (including deposits) for, or contracts for expenditures (excluding
contracts for expenditures under or with respect to Capital Leases, but
including cash down payments for assets acquired under Capital Leases)
capitalized on such Person's balance sheet in accordance with GAAP with respect
to any fixed assets or improvements, or for replacements, substitutions or
additions thereto, which have a useful life of more than one year, including
the direct or indirect acquisition of such assets by way of increased product
or service charges, offset items or otherwise.
"Capital Lease" means any lease of any property (whether real,
personal or mixed) 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 capital lease shall be the
capitalized amount of such obligation determined in accordance with GAAP.
"Cash Equivalents" means: (a) marketable direct obligations
issued or unconditionally guaranteed by the United States Government or issued
by any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of acquisition
thereof; (b) commercial paper maturing no more than one year from the date
issued and, at the time of acquisition, having a rating of at least A-1 from
Standard & Poor's Corporation or at least P-1 from Moody's Investors Service,
Inc.; (c) certificates of deposit or bankers' acceptances maturing within one
year from the date of issuance thereof issued by, or overnight reverse
repurchase agreements from, any commercial bank organized under the laws of the
United States of America or any state thereof or the District of Columbia
having combined capital and surplus of not less than $250,000,000 (a "Cash
Equivalent Bank"); (d) Eurodollar time deposits having a maturity of less than
one year purchased from a Cash Equivalent Bank (whether such deposit is with
such Cash Equivalent Bank or any other Cash Equivalent Bank); and (e)
investments in any mutual fund or money market fund that invests exculsively in
one or more of the foregoing.
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Section 9601 et seq.), as such law
has been and hereafter may be amended or supplemented.
4
<PAGE> 13
"Change of Control" means, [To be conformed to Senior Note Indenture]
"Closing Date" means May __, 1997.
"Collateral" means, collectively, (a) all property or interests in
property in which a Lien has purportedly been granted by Borrower to Agent
pursuant to subsection 2.7 and (b) all other property or interests in property
at any time purportedly granted by Borrower or any other Person in addition to
or in substitution for any of the foregoing as security for the payment of any
of the Obligations.
"Collateral Location" means each store, distribution center, warehouse
or other location, whether owned or leased by Borrower or any of the Restricted
Subsidiaries, at which any Collateral is situated at any time or from time to
time.
"Commitment" or "Commitments" means the commitment or commitments of
Lenders to make Loans as set forth in subsections 2.1(A) and/or 2.1(B) and to
provide Lender Letters of Credit as set forth in subsection 2.1(G).
"Commitment Percentage" means, as to any Lender, and whether or not the
Revolving Loan Commitments are then in effect, the percentage for such Lender
determined under clause (i) of the definition of "Pro Rata Share" (without
regard to the proviso to such definition).
"Compensation Claims" has the meaning assigned to that term in
subsection 4.22.
"Compliance Certificate" means a certificate duly executed by an
Executive Officer or a Financial Officer of Borrower appropriately completed
and in substantially the form of Exhibit B.
"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 a condition, act or event that, after notice or lapse of
time or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"Default Rate" means, with respect to any Obligations, a rate per annum equal
to two percent (2%) plus the applicable Interest Rate therefor (or with respect
to those Obligations for which no Interest Rate is specified, a rate per annum
equal to two percent (2%) plus the Interest Rate payable on Base Rate Loans).
"Defaulting Lender" has the meaning assigned to that term in subsection
2.1(I)(2).
"EBITDA" means, without duplication, for any period, the following,
each calculated for Borrower and its Subsidiaries on a consolidated basis, in
each instance determined in
5
<PAGE> 14
accordance with GAAP, for such period: (a) Net Income; plus (b) any provision
for income or franchise taxes included in the determination of Net Income; plus
(c) Interest Expense deducted in the determination of Net Income; plus (d)
amortization and depreciation expenses deducted in the determination of Net
Income; less (e) extraordinary gains, net of extraordinary losses; plus (f) any
cost attributable to changes in the value of Borrower's Inventory caused by
changes in Borrower's reserves (including purchase accounting inventory
writeups); less (g) any income attributable to changes in the value of
Borrower's Inventory caused by changes in Borrower's reserves (including
purchase accounting inventory writeups).
"Eligible Accounts" has the meaning assigned to that term in subsection
2.1(C).
"Eligible Institution" means (i) a commercial bank organized under the
laws of the United States of America or any state thereof or the District of
Columbia having combined capital and surplus in excess of $100,000,000 as of
the date such Person becomes a Lender, (ii) a savings and loan association or
savings bank organized under the laws of the United States of America or any
state thereof or the District of Columbia having combined capital and surplus
in excess of $100,000,000 as of the date such Person becomes a Lender, (iii) a
commercial bank, savings and loan association, savings bank or similar
financial institution organized under the laws of any other country or any
political subdivision thereof having combined capital and surplus (or the
equivalent) in excess of $100,000,000 (or the equivalent) as of the date such
Person becomes a Lender, provided, that (x) such foreign bank, association or
similar financial institution is acting through a branch or agency located in
the United States of America or (y) such foreign bank, association or similar
financial institution is organized under the laws of a country that is a member
of the Organization for Economic Cooperation and Development or a political
subdivision of such country, (iv) any mutual or other fund which regularly
purchases senior secured debt, (v) any financial institution having total
assets on a consolidated basis of not less than $1,000,000,000 or a net worth
of not less than $50,000,000 which is also an "accredited investor" (as defined
in Regulation D under the Securities Act of 1933) which extends credit or buys
loans as one of its businesses including, but not limited to, insurance
companies, mutual funds, commercial finance companies and lease financing
companies; provided that neither any Person which as of the date such Person
becomes a Lender is a competitor of Borrower in the automotive replacement
parts business nor any Person that as of the date such Person becomes a Lender
owns more than 10% of the issued and outstanding voting capital stock of any
such competitor shall be an Eligible Institution and (vi) any other financial
institution or other entity which is approved in writing by Agent and Borrower.
"Eligible Inventory" has the meaning assigned to that term in subsection
2.1(C).
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
Loan Party or any ERISA Affiliate or (b) has at any time within the preceding
six (6) years been maintained for the employees of any Loan Party or any
current or former ERISA Affiliate.
"Environmental Claims" means claims, liabilities, investigations,
litigation, administrative proceedings, judgments or orders relating to
Hazardous Materials.
6
<PAGE> 15
"Environmental Laws" means all present and future statutes, ordinances,
orders, rules, regulations or decrees and the like relating to (i)
environmental matters, including those relating to fines, injunctions,
penalties, damages, contribution, cost recovery compensation, losses or
injuries resulting from the release or threatened release of Hazardous
Materials, (ii) the generation, use, storage, transportation or disposal of
Hazardous Materials, or (iii) occupational safety and health, industrial
hygiene, land use or the protection of human , plant or animal health or
welfare, in any manner applicable to Borrower or any of its Restricted
Subsidiaries or any of their respective properties, including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C.Section 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C.
Section 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Section
2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7
U.S.C. Section 136 et seq.), the Occupational Safety and Health Act (29 U.S.C.
Section 651 et seq.) and the Emergency Planning and Community Right-to-Know
Act (42 U.S.C. Section 11001 et seq.), each as amended or supplemented from
time to time, and any analogous present or future local, state and federal
statutes and regulations promulgated pursuant thereto, each as in effect from
time to time.
"Equipment" means all "equipment" (as defined in the UCC), including,
without limitation, all furniture, furnishings, fixtures, machinery, motor
vehicles, trucks, trailers, vessels, aircraft and rolling stock and all parts
thereof and all additions and accessions thereto and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Loan Party, means any Person who is
a member of a group which is under common control with any Loan Party, who
together with any Loan Party is treated as a single employer within the meaning
of Section 414(b) and (c) of the IRC.
"Event of Default" means each of the events set forth in subsection 8.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means the chief executive officer, chief financial
officer or general counsel of Borrower.
"Existing Credit Agreement" means _________________.
"Federal Funds Effective Rate" means, for any day, the weighted average
of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
immediately following Business Day by the Federal Reserve Bank of New York or,
if such rate is not published for any Business Day, the average of the
7
<PAGE> 16
quotations for the day of the requested Loan received by Agent from three
Federal funds brokers of recognized standing selected by Agent.
"Financial Officer" means the chief financial officer, treasurer,
assistant treasurer, controller or principal accounting officer of Borrower.
"Fiscal Year" means the 52 or 53 week accounting period of Borrower and
its Subsidiaries ending on the Sunday closest to December 31 in each year.
"Fixed Charge Coverage" means, for any period, the quotient of (a)
Fixed Charge Adjusted EBITDA, less Unfinanced Capital Expenditures, less Other
Capitalized Costs, and less any income or franchise taxes of Borrower or any of
its Subsidiaries paid in cash (regardless when accrued) divided by (b) Fixed
Charges. [Fixed Charge Adjusted EBITDA" means, for any period, EBITDA less the
sum of (a) the aggregate amount of cash payments made by Borrower and its
Subsidiaries during such period against or with respect to reserves or
liabilities of the type which at any time were or are included in either or
both of Other Accrued Liabilities and Other Noncurrent Liabilities (other than
reserves and liabilities included therein under the category "Other (including
legal)") plus (b) the greater of (i) zero and (ii) the lesser of (1) the
aggregate amount of cash payments made by Borrower and its Subsidiares during
such period against or with respect to reserves or liabilities of the type
which at any time were or are included in either or both of Other Accrued
Liabilities and Other Noncurrent Liabilities under the category "Other
(including legal)" and (2) the aggregate amount of cash payments in excess of
$10,000,000 made by Borrower and its Subsidiaries on or after April __, 1997
but on or prior to the last day of such period against or with respect to
reserves or liabilities of the type which at any time were or are included in
either or both of Other Accrued Liabilities and Other Noncurrent Liabilities
under the category "Other (including legal)".]
"Fixed Charges" means, without duplication, for any period, the total of
the following for Borrower and its Subsidiaries on a consolidated basis in
accordance with GAAP, each calculated for such period: (a) Interest Expense;
plus (b) scheduled payments of principal with respect to all Indebtedness of
Borrower and its Subsidiaries on a consolidated basis (whether or not actually
made), including, but not limited to, the principal component of any scheduled
payments on Capital Leases, Synthetic Loans and Senior Note Debt (whether or
not actually made); but excluding any repayments of the Loans.
"Funded Debt" means the Senior Note Debt, any Indebtedness refinancing
or refunding any Senior Note Debt, the Loans, Capital Leases of Borrower and
its Subsidiaries and Indebtedness of Borrower and its Subsidiaries secured by a
mortgage, deed of trust or any similar Liens.
"Funding Date" means the date of each funding of a Loan or issuance of a
Lender Letter of Credit.
"GAAP" means generally accepted accounting principles in the United
States of America, 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. [This definition was
taken from the Senior Note Indenture]
"Guarantor" means each Restricted Subsidiary.
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<PAGE> 17
"Guarantor Security Agreement" means each guarantor security agreement
to be executed and delivered by one or more Guarantors, in a form acceptable to
Agent, as each such agreement may be amended, restated, supplemented or
otherwise modified from time to time.
"Guaranty" means each continuing guaranty by one or more Restricted
Subsidiaries of the payment of the Obligations in a form acceptable to Agent,
as each such agreement may be amended, restated, supplemented or otherwise
modified from time to time.
"Hazardous Material" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
Environmental Laws or regulations as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity, or
toxicity; (b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of
crude oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
polychlorinated biphenyls.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Heller" has the meaning assigned to that term in the preamble to this
Agreement.
"Inchoate Indemnity Obligations" means, at any time after the
termination of the Commitments, that portion, if any, of Borrower's Obligations
under subsection 10.2 consisting of indemnities of Borrower which are at such
time contingent, uncertain or unknown.
"Indebtedness", as applied to any Person, means without duplication: (a)
all indebtedness for borrowed money; (b) obligations under leases which in
accordance with GAAP constitute Capital Leases; (c) notes payable and drafts
accepted representing extensions of credit whether or not representing
obligations for borrowed money; (d) any obligation owed for all or any part of
the deferred purchase price of property or services if the purchase price is
due more than six months from the date the obligation is incurred or is
evidenced by a note or similar written instrument; (e) all indebtedness secured
by any Lien on any property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed by that Person
or is non recourse to the credit of that Person, (f) obligations in respect of
letters of credit (including in any event Lender Letters of Credit), (g) any
advances under any factoring arrangement and (h) all indebtedness and
obligations under any Synthetic Leases.
"Intangible Assets" means all intangible assets (determined in
conformity with GAAP) including, without limitation, goodwill, Intellectual
Property, licenses, organizational costs, deferred amounts, covenants not to
compete, unearned income and restricted funds.
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<PAGE> 18
"Intellectual Property" means all present and future designs, patents,
patent rights and applications therefor, trademarks and registrations or
applications therefor, trade names, inventions, copyrights and all applications
and registrations therefor, software or computer programs, license rights,
trade secrets, methods, processes, know-how, drawings, specifications,
descriptions, and all memoranda, notes and records with respect to any research
and development, whether now owned or hereafter acquired, all goodwill
associated with any of the foregoing, and proceeds of all of the foregoing,
including, without limitation, proceeds of insurance policies thereon.
"Intellectual Property Security Agreement" means each intellectual
property security agreement to be executed and delivered by one or more Loan
Parties, in a form acceptable to Agent, as each such agreement may be amended,
restated, supplemented or otherwise modified from time to time.
"Interest Expense" means, for any period, the total interest expense of
Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP,
plus, to the extent not included in such total interest expense, and to the
extent incurred by Borrower or its Subsidiaries, (i) interest, (ii) non-cash
interest expense, (iii) commissions, discounts and other fees and charges with
respect to letters of credit and bankers' acceptance financing and (iv) net
costs associated with Hedging Obligations (including amortization of fees) (v)
and interest expense attributable to Synthetic Leases.
"Interest Period" has the meaning assigned to that term in subsection
2.2(B).
"Interest Rate" has the meaning assigned to that term in subsection
2.2(A).
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement
designed solely to protect Borrower or any of its Subsidiaries against
fluctuations in interest rates.
"Inventory" means all "inventory" (as defined in the UCC), including,
without limitation, finished goods, raw materials, work in process and other
materials and supplies used or consumed in a Person's business, and goods which
are returned or repossessed.
"Inventory Report" means a report duly executed by a Financial Officer
appropriately completed and in substantially the form of Exhibit C.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute and all rules and regulations promulgated
thereunder.
"Lender" or "Lenders" has the meaning assigned to that term in the
preamble to this Agreement.
"Lender Letter of Credit" has the meaning assigned to that term in
subsection 2.1(G).
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<PAGE> 19
"Letter of Credit Liability" means, all reimbursement and other
liabilities of Borrower or any of its Subsidiaries with respect to each Lender
Letter of Credit, whether contingent or otherwise, including: (a) the amount
available to be drawn or which may become available to be drawn; (b) all
amounts which have been paid or made available by any Lender issuing a Lender
Letter of Credit or any bank issuing a Bank Letter of Credit to the extent not
reimbursed; and (c) all unpaid interest, fees and expenses related thereto.
"Leverage Ratio" means for any period of four consecutive fiscal
quarters of Borrower (such four fiscal quarter period, the "Test Period") the
ratio of (x) the average amount of Funded Debt outstanding during such period
to (y) Fixed Charge Adjusted EBITDA for such Test Period.
"Letter of Credit Reserve" means, at any time, an amount equal to (a)
the aggregate amount of Letter of Credit Liability with respect to all Lender
Letters of Credit outstanding at such time plus, without duplication, (b) the
aggregate amount theretofore paid by Agent or any Lender under Lender Letters
of Credit and not debited to Borrower's loan account pursuant to subsection
2.1(G)(2) or otherwise reimbursed by Borrower.
"Liabilities" shall have the meaning given that term in accordance with
GAAP and shall include Indebtedness.
"LIBOR" means, for each Interest Period, a rate of interest equal to:
(a) the rate of interest determined by Agent at which deposits
in Dollars for the relevant Interest Period are offered based on
information presented on the Reuters Screen LIBOR Page as of 11:00 A.M.
(London time) on the day which is two (2) Business Days prior to the
first day of such Interest Period; provided that if at least two such
offered rates appear on the Reuters Screen LIBOR Page in respect of such
Interest Period, the arithmetic mean of all such rates (as determined by
Agent) will be the rate used; provided further that if Reuters ceases to
provide LIBOR quotations, such rate shall be the average rate of
interest determined by Agent at which deposits in Dollars are offered
for the relevant Interest Period by The Chase Manhattan Bank, Citibank,
N.A. and First National Bank of Chicago or their successors to prime
banks in the London interbank market as of 11:00 A.M. (London time) on
the applicable interest rate determination date, divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) Business Days prior
to the beginning of such Interest Period (including, without limitation,
basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or
other governmental authority having jurisdiction with respect thereto,
as now and from time to time in effect) for Eurocurrency funding
(currently referred to as "Eurocurrency Liabilities" in Regulation D of
such Board) which are required to be maintained by a member bank of the
Federal Reserve System:
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<PAGE> 20
(such rate to be adjusted to the nearest one sixteenth of one percent (1/16 of
1%) or, if there is not a nearest one sixteenth of one percent (1/16 of 1%), to
the next higher one sixteenth of one percent (1/16 of 1%).
"LIBOR Loans" means at any time that portion of the Loans bearing
interest at rates determined by reference to LIBOR.
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Lien State" means all those States listed on Schedule 1.1(C) plus any
other State in which on or subsequent to the Closing Date a landlord's Lien for
unpaid rent or a warehouseman's lien for unpaid storage charges is recognized,
by statute or common law, as prior in right and claim to the rights and claims
of Agent as secured party on behalf of Agent and Lenders in respect of any
Inventory."Lien Waiver" means a written agreement, in form and substance
acceptable to Agent, pursuant to which a Person shall waive or subordinate its
rights and claims as landlord or public warehouseman, as the case may be, in
any Inventory of Borrower and/or any Restricted Subsidiary, as applicable, for
unpaid rents or unpaid storage charges, as appropriate, grant access to Agent
for the repossession and sale of such Inventory and make other agreements
relative thereto.
"Loan" or "Loans" means an advance or advances under the Swingline Loan
Commitment or the Revolving Loan Commitment.
"Loan Documents" means this Agreement, the Revolving Notes, the
Swingline Note, the Guaranties, the Guarantor Security Agreements, the Pledge
Agreements, the Intellectual Property Security Agreements and all other
instruments, documents and agreements executed by or on behalf of Borrower or
any Guarantor or other Loan Party and delivered concurrently herewith or at any
time hereafter to or for Agent or any Lender in connection with the Loans, any
Lender Letter of Credit, and other transactions contemplated by this Agreement,
all as amended, restated, supplemented or modified from time to time.
"Loan Party" means each of Borrower, the Guarantors and any other Person
(other than Agent or any Lender) which is or becomes a party to any Loan
Document.
"Loan Year" means each period of twelve (12) consecutive months
commencing on the Closing Date and on each anniversary thereof.
"Material Adverse Effect" means a material adverse effect upon (a) the
business, operations, prospects, properties, assets or condition (financial or
otherwise) of the Loan Parties taken as a whole or (b) the ability of the Loan
Parties taken as a whole to perform their obligations under the Loan Documents.
It is acknowledged and agreed that payment of Compensation Claims
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<PAGE> 21
shall be deemed not to have a Material Adverse Effect unless such payments
shall result in or constitute an Event of Default.
"Maximum Revolving Loan Amount" has the meaning assigned to that term in
subsection 2.1(A).
"Net Cash Proceeds" means, with respect to any Asset Disposition, cash
received by Borrower or any of its Subsidiaries from such Asset Disposition
(including cash received as consideration for the assumption or incurrence of
liabilities incurred in connection with or in anticipation of such Asset
Disposition, and cash proceeds received by means of deferred payment of
principal pursuant to a note, installment receivable or otherwise, but only as
and when received), after (a) provision for all income, title, recording or
other taxes measured by or resulting from such Asset Disposition, (b) payment
of all brokerage commissions, reasonable investment banking and legal fees and
other fees and expenses related to such Asset Disposition, (c) deduction of
appropriate amounts to be provided by Borrower or the applicable Subsidiary as
a reserve, in accordance with GAAP, against any liabilities associated with the
assets sold or disposed of in such Asset Disposition and retained by Borrower
or such Subsidiary after such Asset Disposition, including, without limitation,
pension and other post-employment benefit liabilities and liabilities related
to environmental matters or against any indemnification obligations associated
with the assets sold or disposed of in such Asset Disposition and (d) amounts
paid to satisfy Indebtedness (other than the Obligations and Senior Note Debt
or any refinancing or refunding thereof) which are required to be repaid in
connection with any such Asset Disposition.
"Net Income" means, for any period, the net income (or loss) of Borrower
and its Subsidiaries on a consolidated basis after provision for or benefit
from income and franchise taxes determined in accordance with GAAP.
"Notes" means the Revolving Notes and the Swingline Note.
"Notice of Borrowing" has the meaning assigned to that term in
subsection 2.1(D).
"Obligations" means all obligations, liabilities and indebtedness of
every nature of each Loan Party from time to time owed to Agent or to any
Lender under the Loan Documents including the principal amount of all debts,
claims and indebtedness (whether incurred before or after the Termination
Date), accrued and unpaid interest and all fees, costs and expenses, whether
primary, secondary, direct, contingent, fixed or otherwise, heretofore, now
and/or from time to time hereafter owing, due or payable including, without
limitation, all interest, fees, cost and expenses accrued or incurred after the
filing of any petition under any bankruptcy or insolvency law.
"Other Accrued Liabilities" means those accrued liabilities of Borrower
and its Subsidiaries which are of the type that would be included as part of
"Other accrued liabilities" on a Fiscal Year-end audited balance sheet of
Borrower.
"Other Capitalized Costs" for Borrower and its Subsidiaries means, to
the extent not included in Capital Expenditures, (i) all site selection costs,
(ii) all pre-opening expenses in excess of, in the aggregate, the percent of
new stores open year to date multiplied by $10,000 and (iii) all internal and
external software costs as they relate to projects outside the ordinary course
of business.
"Other Noncurrent Liabilities" mean those noncurrent liabilities of
Borrower and its Subsidiaries which are of the type that would be included as
part of "Other noncurrent liabilities" on a Fiscal Year-end audited balance
sheet of Borrower.
"Permitted Encumbrances" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Claims or ERISA) for taxes,
assessments or other governmental
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<PAGE> 22
charges (i) not yet delinquent or (ii) which are being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted for
which appropriate reserves in accordance with GAAP are established on the books
of Borrower or the appropriate Restricted Subsidiary and which do not in
Agent's judgment create a risk of foreclosure or sale of any property; (b)
statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen,
repairmen and other similar Liens imposed by law, which are incurred in the
ordinary course of business (i) for sums not more than thirty (30) days
delinquent or (ii) which are being diligently contested in good faith by
appropriate proceedings for which appropriate reserves in accordance with GAAP
are established on the books of Borrower or the appropriate Restricted
Subsidiary and which do not in Agent's judgment create a risk of foreclosure or
sale of any property and which secure amounts not to exceed $________ in the
aggregate at any time; provided that Agent may, in the reasonable exercise of
its credit judgment, or at the direction of the Requisite Lenders, acting in
the reasonable exercise of their collective judgment, Agent shall, establish a
reserve (including, as applicable, a Rent Reserve), bond or other appropriate
provision reasonably satisfactory to Agent or the Requisite Lenders, as
appropriate, therefor; (c) Liens (other than any Lien imposed by ERISA)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the payment of
borrowed money); (d) minor title defects, easements, licenses, zoning
restrictions, encroachments, rights-of-way, restrictions, and other similar
charges or encumbrances on real property not interfering in any material
respect with the ordinary conduct of the business of any Loan Party or any of
its Subsidiaries; (e) Liens for purchase money obligations, provided that (i)
the purchase of the asset subject to any such Lien is not prohibited under
this Agreement, (ii) the Indebtedness secured by any such Lien is permitted
under subsection 7.1, (iii) the principal amount secured by each such Lien does
not exceed the unpaid purchase price for such asset, (iv) such Lien secures the
obligation to pay the purchase price of such asset only and (v) such Lien
encumbers only the asset so purchased; (f) Liens in favor of Agent, on behalf
of Agent and Lenders, (g) Liens set forth on Schedule 1.1(A) (but not any
increase in the principal amount secured by any such Liens or the coverage to
other property or assets); (h) Liens to secure any refinancing of the
Indebtedness set forth on Schedule 1.1(B) relating to the Industrial Revenue
Bonds on the Seagoville, Texas facility, provided that (i) the Indebtedness
refinancing such bond Indebtedness is permitted under subsection 7.1 and (ii)
the Liens securing such new Indebtedness secure only such new Indebtedness and
do not extend to or cover any property or assets other than the property and
assets securing the refinanced bond Indebtedness; (i) Liens in favor of Agent
or the issuer of a Bank Letter of Credit encumbering documents of title and the
property covered thereby securing obligations in respect of letters of credit
permitted to be outstanding hereunder (it being understood that, so long as any
such Lien covers Inventory, in no event shall such Inventory be Eligible
Inventory); (j) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods in the ordinary course of business of Borrower or its
Restricted Subsidiaries (the aggregate amount of all such custom duties at any
one time not to exceed $_____); (k) condemnation, eminent domain or similar
proceedings affecting any real property which are not reasonably expected to
have a Material Adverse Effect; (l) any attachment or judgment Lien so long as
(i) no Event of Default is continuing as a result of or with respect to such
attachment or judgment
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<PAGE> 23
and (ii) the enforcement of such Lien is effectively stayed; (m) operating
leases or subleases of real property and Equipment, including restrictions,
subordinations and other encumbrances incidental thereto, granted to or by
others not interfering in any material respect with the ordinary conduct of the
business of Borrower or any of its Restricted Subsidiaries; (n) Liens arising
from filing precautionary UCC financing statements relating solely to operating
leases not prohibited hereby; and (o) other Liens on assets and properties not
constituting Collateral or capital stock of any of the Borrower's Subsidiaries
securing Indebtedness permitted hereunder (other than Subordinated Debt, the
Senior Note Debt or any replacement, refunding or refinancing thereof) in an
aggregate principal amount not exceeding $5,000,000 at any time outstanding.
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions
thereof.
"Pledge Agreement" means each equity pledge agreement executed and
delivered by Borrower or one or more Restricted Subsidiaries, in favor of
Agent, on behalf of Agent and Lenders, in form and substance satisfactory to
Agent.
"Pro Forma" means the unaudited consolidated balance sheet of Borrower
and its Subsidiaries as of the end of the monthly accounting period of Borrower
most recently closed prior to the Closing Date after giving effect to the
transactions contemplated by this Agreement. The Pro Forma is annexed hereto
as Exhibit E.
"Pro Rata Share" means with respect to any Lender the percentage
obtained by dividing (i) the Revolving Commitment of such Lender by (ii) the
Revolving Commitments of all Lenders, as such percentage may be adjusted by
assignments permitted pursuant to subsection 9.1; provided, however, if the
Revolving Commitments are terminated pursuant to the terms hereof, then "Pro
Rata Share" means the percentage obtained by dividing (x) the aggregate amount
of such Lender's portion of the Revolving Loan by (y) the aggregate amount of
the Revolving Loan.
"Purchase Money Indebtedness" means any Indebtedness of Borrower or any
Subsidiary of Borrower incurred in connection with its purchase, construction
or improvement of any machinery, equipment, or real property solely for the
purpose of financing such purchase, construction or improvement constituting
either the deferred purchase price of the property so purchased, constructed or
improved or money borrowed in respect thereof; but, expressly excluding
herefrom any Capital Leases or Loans.
"Recapitalization" means the recapitalization of Borrower as of the
Closing Date as described in the Form S-1 filed by Borrower with the SEC on May
5, 1997, prepared in connection with the issuance of the Senior Notes.
"Reconciliation Report" means a report duly executed by an Executive
Officer or Financial Officer appropriately completed and in substantially the
form of Exhibit F.
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<PAGE> 24
"Rent Reserve" means a reserve established by Agent, in the reasonable
exercise of its credit judgment, or the direction of the Requisite Lenders,
acting in the reasonable exercise of their collective judgment, of up to the
sum of three (3) months' rent at each affected leased Collateral Location and
three (3) months' average storage charges at each affected Collateral Location
which is a public warehouse, as determined in accordance with clauses (7) and
(8) of the definition of Eligible Inventory.
"Requisite Lenders" means Lenders holding or being responsible for
fifty-one percent (51%) or more of the Revolving Commitments (or if the
Revolving Commitments are terminated, of the Revolving Loan); provided that if
at any time there are only two Lenders, then "Requisite Lenders" means both
such Lenders.
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
stock of Borrower or any of its Subsidiaries now or hereafter outstanding,
except a dividend payable solely with shares of the class of stock on which
such dividend is declared; (b) any payment or prepayment of principal of,
premium, if any, or interest on, or any redemption, conversion, exchange,
retirement, defeasance, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any Senior Note Debt , any
Indebtedness refinancing or refunding any Senior Note Debt or any subordinated
debt or any shares of any class of stock of Borrower or any of its Subsidiaries
now or hereafter outstanding, or the issuance of a notice of an intention to do
any of the foregoing; (c) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of Borrower or any of its Subsidiaries now or
hereafter outstanding; and (d) any payment by Borrower or any of its
Subsidiaries of any management, consulting or similar fees to any Affiliate,
whether pursuant to a management agreement or otherwise.
"Restricted Subsidiary" means each Subsidiary of Borrower other than any
Subsidiary of Borrower created or acquired after the Closing Date which the
Requisite Lenders (in their sole discretion) agree in writing shall not
constitute a Restricted Subsidiary; provided that so long as CAP Merger Sub
Inc. shall not own any cash and other assets and properties with an aggregate
value in excess of $_______________, such Subsidiary shall not constitute a
Restricted Subsidiary.
"Retail Store Inventory" means at any time, with respect to Inventory of
Borrower, Inventory of Borrower which is located at any store of Borrower and,
with respect to any Restricted Subsidiary, Inventory of such Restricted
Subsidiary which is located at any store of such Restricted Subsidiary.
"Revolving Advance" means each advance made by Lender(s) pursuant to
subsection 2.1(A).
"Revolving Loan" means the outstanding balance of all Revolving Advances
and any amounts added to the principal balance of the Revolving Loan pursuant
to this Agreement.
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"Revolving Loan Commitment" means (a) as to any Lender, the commitment
of such Lender to make Revolving Advances pursuant to subsection 2.1(A), and to
purchase participations in Swingline Advances pursuant to subsection
2.1(B)(2)(ii) and in Lender Letters of Credit pursuant to subsection 2.1(G) in
the aggregate amount set forth on the signature page of this Agreement opposite
such Lender's signature or in the most recent Assignment and Acceptance (or
after giving effect thereto), if any, executed by such Lender and (b) as to all
Lenders, the aggregate commitment of all Lenders to make Revolving Advances and
to purchase participations in Swingline Advances and Lender Letters of Credit.
"Revolving Note" means each promissory note of Borrower in substantially
the form of Exhibit H, issued pursuant to subsection 2.1(E).
"Risk Participation Agreement" has the meaning assigned to that term in
subsection 2.1(G).
"SEC" means the Securities and Exchange Commission. "Senior Note Debt"
means all Indebtedness owing by Borrower and its Subsidiaries under the Senior
Notes and other Senior Note Documents.
"Senior Note Documents" mean the Senior Notes, the Senior Note Indenture
and all documents, instruments and agreements executed and delivered in
connection therewith, each as amended, modified, supplemented or restated from
time to time in accordance with the terms thereof and hereof.
"Senior Note Indenture" means the Indenture, dated as of May __, 1997,
between Borrower and First Trust National Association, as trustee, as amended,
modified, supplemented or restated from time to time in accordance with the
terms thereof and hereof.
"Senior Notes" means the ___% Senior Notes due 2005 to be issued by
Borrower pursuant to the Senior Note Indenture, as amended, modified,
supplemented, restated, replaced or substituted for from time to time in
accordance with the terms thereof and hereof.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) 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 that Person or
one or more of the other Subsidiaries of that Person or a combination thereof.
"Subordinated Debt" means any unsecured Indebtedness of Borrower which
(a) is junior in right of payment to the Obligations in a manner satisfactory
to the Requisite Lenders, (b) bears interest at no more than an amount
acceptable to, and approved in writing by, the Requisite Lenders and (c) is
governed by provisions (including subordination provisions, interest payment
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<PAGE> 26
provisions, amortization schedules, covenants, events of default and maturity
date) acceptable to the Requisite Lenders; provided, that in no event shall any
Subordinated Debt have any scheduled amortization prior to one year after the
earlier of (A) the Termination Date or (B) the repayment in full of the
Obligations and termination of the Commitments.
"Swingline Advance" means each advance made by Swingline Lender under
the Swingline Loan Commitment pursuant to subsection 2.1(B).
"Swingline Lender" means Heller, or if Heller shall resign as Swingline
Lender, another Lender selected by Agent and reasonably acceptable to Borrower
which is agreeable to make Swingline Advances under the Swingline Loan
Commitment.
"Swingline Loan" means the outstanding balance of all Swingline
Advances.
"Swingline Loan Commitment" means at any time the lesser of (i)
$[10,000,000], (ii) the Revolving Loan Commitments of all Lenders at such time
and (iii) that amount which is the Borrowing Base at such time less the sum of
(x) the Revolving Loan at such time, plus (y) the Letter of Credit Reserve at
such time.
"Swingline Note" means the promissory note of Borrower in substantially
the form of Exhibit I, issued pursuant to subsection 2.1(E).
"Synthetic Lease" means [definition to be determined].
"Termination Date" means the date this Agreement is terminated as set
forth in subsection 2.5.
"Transaction Documents" has the meaning assigned to that term in
subsection 4.1(A).
"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of New York, as amended from time to time, and any successor
statute.
"Unfinanced Capital Expenditures" means Capital Expenditures of Borrower
and its Subsidiaries which do not constitute Capital Leases and which were not
financed with Purchase Money Indebtedness.
"Valuation Method" means with respect to any Inventory of Borrower or a
Restricted Subsidiary in respect of which the value thereof is to be
determined for purposes of the defined term "Eligible Inventory", the following
method of valuation calculated in accordance with GAAP applied on a consistent
basis: (i) for Warehouse Inventory, cost (as reflected in the perpetual
inventory) as calculated on a weighted average cost basis and (ii) for Retail
Store Inventory, the lower of (a) cost (as reflected in Borrower's or the
Restricted Subsidiary's, as appropriate, general ledger) at such time or (b)
market value at such time, each as determined on the basis of the retail method
of accounting. It is understood and agreed that, for purposes of the
calculation in clause (ii) above, the cost of such
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Retail Store Inventory amount shall be calculated based on the total amount of
such inventory at retail multiplied by the Cost Complement as at any date of
determination, [where the Cost Complement shall mean the ratio of cost dollars
to retail dollars for the sum of the Retail Store Inventory balance as at any
date of determination plus year to date purchases and markups].
"Warehouse Inventory" means at any time, with respect to Inventory of
Borrower, Inventory of Borrower which is located at Borrower's Cerritos,
California or Seagoville, Texas warehouses or at any other warehouse owned or
leased by Borrower and, with respect to Inventory of any Restricted Subsidiary,
Inventory of such Restricted Subsidiary which is located at a warehouse owned
or leased by such Restricted Subsidiary.
1.2 Accounting Terms. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to such
terms in conformity with GAAP. Financial statements and other information
furnished to Agent or any Lender pursuant to subsection 5.1 shall be prepared
in accordance with GAAP (as in effect at the time of such preparation) on a
consistent basis. In the event any "Accounting Changes" (as defined below)
shall occur and such changes affect financial covenants, standards or terms in
this Agreement, then Borrower and Lenders agree to enter into negotiations in
order to amend such provisions of this Agreement so as to equitably reflect
such Accounting Changes with the desired result that the criteria for
evaluating the financial condition of Borrower and its Subsidiaries shall be
the same after such Accounting Changes as if such Accounting Changes had not
been made, and until such time as such an amendment shall have been executed
and delivered by Borrower and Requisite Lenders, (A) all financial covenants,
standards and terms in this Agreement shall be calculated and/or construed as
if such Accounting Changes had not been made, and (B) Borrower shall prepare
separate footnotes to accompany each Compliance Certificate and the financial
statements required to be delivered hereunder that show the differences between
the financial statements delivered (which reflect such Accounting Changes) and
the basis for calculating financial covenant compliance (without reflecting
such Accounting Changes). "Accounting Changes" means: (a) changes in
accounting principles required by GAAP and implemented by Borrower or any of
its Subsidiaries; (b) changes in accounting principles recommended by
Borrower's certified public accountants, or concurred in by such accountants,
and implemented by Borrower or any of its Subsidiaries; and (c) changes in
carrying value of Borrower's or any of its Subsidiaries' assets, liabilities or
equity accounts resulting from any adjustments that, in each case, were
applicable to, but not included in, the Pro Forma. All such adjustments
resulting from expenditures made subsequent to the Closing Date (including, but
not limited to, capitalization of costs and expenses or payment of pre-Closing
Date liabilities) shall be treated as expenses in the period the expenditures
are made and deducted as part of the calculation of EBITDA in such period.
1.3 Other Definitional Provisions. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. In this Agreement, words importing any gender include the
other genders; the words "including," "includes" and "include" shall be deemed
to be followed by the words "without
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limitation"; references to agreements and other contractual instruments shall
be deemed to include subsequent amendments, assignments, and other
modifications thereto, but only to the extent such amendments, assignments and
other modifications are not prohibited by the terms of this Agreement or any
other Loan Document; references to Persons include their respective permitted
successors and assigns or, in the case of governmental Persons, Persons
succeeding to the relevant functions of such Persons; and all references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations.
SECTION 2. LOANS AND COLLATERAL
2.1 Loans.
(A) Revolving Loan. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of
Borrower and the other Loan Parties set forth herein and in the other Loan
Documents, each Lender, severally, agrees to lend to Borrower from time to time
its Pro Rata Share of each Revolving Advance. The aggregate amount of all
Revolving Loan Commitments shall not exceed at any time $100,000,000 as reduced
by Section 2.4(B). Amounts borrowed under this subsection 2.1(A) may be repaid
and reborrowed at any time prior to the earlier of (i) the termination of the
Revolving Loan Commitment pursuant to subsection 8.3 or (ii) the Termination
Date. Except as otherwise provided herein (including, without limitation,
subsection 2.1(B)), no Lender shall have any obligation to make an advance
under this subsection 2.1(A) to the extent such advance would cause the
Revolving Loan (after giving effect to any immediate application of the
proceeds thereof) to exceed the Maximum Revolving Loan Amount.
(1) "Maximum Revolving Loan Amount" means, as of any
date of determination, the lesser of (a) the Revolving Loan Commitments of all
Lenders minus the Letter of Credit Reserve, and the Swingline Loan and (b) the
Borrowing Base minus the Letter of Credit Reserve and the Swingline Loan;
provided that for purposes of repayment to Swingline Lender of a Swingline
Advance with proceeds of a Revolving Advance pursuant to subsection
2.1(B)(2)(i)(III), "Maximum Revolving Loan Amount" means, after giving effect
to the concurrent repayment of such Swingline Advance with the proceeds of a
Revolving Advance under such subsection 2.1(B)(2)(i)(III), $100,000,000 minus
the Letter of Credit Reserve and the Swingline Loan.
(2) "Borrowing Base" means, as of any date of
determination, an amount equal to the sum of (a) from and after the date
Borrower and Agent agree in writing that this clause (a) shall become effective
(which agreement of Agent shall be in its absolute and sole discretion), up to
eighty percent (80%) of Eligible Accounts plus (b) subject to the last
sentence of subsection 2.1(C), sixty percent (60%) of Eligible Inventory, and
less in each case such reserves as Agent in its reasonable discretion may elect
to establish.
(B) Swingline Loan. (1) Subject to the terms and conditions
of this Agreement and in reliance upon the representations and warranties of
Borrower and the other Loan Parties set forth herein and in the other Loan
Documents, Swingline Lender, in its individual capacity, agrees
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to lend to Borrower, from time to time on and after the Closing Date and before
the earlier of (i) the termination of the Swingline Loan Commitment pursuant to
subsection 8.3 or (ii) the Termination Date, Swingline Advances, which
Swingline Advances (i) shall be solely Base Rate Loans, (ii) shall not exceed
in the aggregate at any time outstanding the Swingline Loan Commitment, (iii)
shall be payable as provided in subsection 2.1(B)(2) or as otherwise provided
herein, (iv) shall be in an amount not less than $100,000, and (v) shall be
made on the dates specified in the written or telephonic notice described in
subsection 2.1(D).
(2) (i) (I) Subject to subsection 2.1(B)(2)(ii) below, in the
event that on any Business Day Swingline Lender desires that all or any portion
of one or more Swingline Advances be paid (Swingline Lender agreeing that it
shall require that the Swingline Loan be paid down to $250,000 or less at least
once every week), Swingline Lender shall promptly notify Agent to that effect
and indicating the portion of the Swingline Advance(s) to be paid.
(II) Agent agrees to promptly transmit to Lenders the
information contained in each notice received by Agent under subsection
2.1(B)(2)(i)(I), and shall concurrently notify Lenders of each Lender's Pro
Rata Share of the obligation to make a Revolving Advance to pay the Swingline
Advance(s) (or portion thereof) to be paid.
(III) Each of the Lenders hereby unconditionally and irrevocably
agrees to fund to Agent for the benefit of Swingline Lender, in lawful money of
the United States and in same day funds, not later than 1:00 p.m. Central time
on the Business Day immediately following the Business Day of such Lender's
receipt of such notice from Agent (provided that if any Lender shall receive
such notice at or prior to 11:00 a.m. Central time on a Business Day, such
funding shall be made by such Lender on such Business Day), such Lender's Pro
Rata Share of a Revolving Advance (which Revolving Advance shall initially be a
Base Rate Loan and shall be deemed to be requested by Borrower) in the
principal amount of such portion of the Swingline Advances which are required
to be paid under subsection 2.1(B)(2)(i)(I) above pursuant to the terms of this
Agreement relating to the borrowing of Revolving Advances (regardless, however,
of whether the conditions precedent thereto set forth in Section 3 are then
satisfied and whether or not Borrower has provided a notice of borrowing under
subsection 2.1(D) and whether or not any Revolving Loan Commitment is then in
effect, any Default or Event of Default exists or all or any of the Loans have
been accelerated, but subject to subsection 2.1(B)(2)(ii) and subject to the
limitation contained in the definition of Maximum Revolving Loan Amount), and
the proceeds of such Revolving Advance shall be immediately paid over to Agent
for the benefit of Swingline Lender for application to the Swingline Loan.
(ii) In the event that an Event of Default of the type
described in subsection 8.1(G) or (H) hereof shall occur with respect to
Borrower, no further Revolving Advances of the type described in subsection
2.1(B)(2)(i) shall be made (so long as any such Event of Default shall be
continuing), and each of the Lenders (other than Swingline Lender) shall be
deemed to have irrevocably, unconditionally and immediately purchased from
Swingline Lender such Lender's pro rata share of the Swingline Loan outstanding
as of the date of the occurrence of such Event of Default. Each Lender shall
effect such purchase by making available an amount equal to its
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participation on the date of such purchase in U.S. dollars in immediately
available funds at the office of Swingline Lender located at 500 West Monroe,
Chicago, Illinois 60661 or such other office as Swingline Lender may from time
to time direct for the account of Swingline Lender. In the event any Lender
fails to make available to Swingline Lender when due the amount of such
Lender's participation in the Swingline Loan, Swingline Lender shall be
entitled to recover such amount on demand from such Lender together with
interest at the Federal Funds Effective Rate (unless such amount is not paid
within three Business Days of such demand, in which case such interest shall be
payable (both before and after such third Business Day) at the Base Rate).
(iii) Each purchase made pursuant to subsection
2.1(B)(2)(ii) by a Lender shall be made without recourse to Swingline Lender,
and, except as to the absence of liens created by Swingline Lender on the
Swingline Loan and Swingline Lender's right to effect such sale, without
representation or warranty of any kind, and shall be effected and evidenced
pursuant to documents reasonably acceptable to Swingline Lender.
(iv) The obligations of the Lenders under this
subsection 2.1(B)(2) shall be absolute, irrevocable and unconditional, shall be
made under all circumstances and shall not be affected, reduced or impaired for
any reason whatsoever, including (without limitation): (1) any Default, Event
of Default, misrepresentation, negligence, misconduct or other action or
inaction of any kind by any of the Loan Parties or any other Person, whether
in, under or in connection with this Agreement or any other of the Loan
Documents; (2) any extension, renewal, release or waiver of the time of
performance of or compliance with any of the obligations or other provisions
hereof or of any other Loan Document; (3) any settlement, compromise or
subordination of any or all of the Obligations to the claims of others, or any
failure by Agent, Swingline Lender or other Lenders to mitigate damages; (4)
any amendment, modification or other waiver of any one or more of the Loan
Documents; (5) the insolvency, bankruptcy, reorganization or cessation of
existence of any of the Loan Parties; (6) impossibility or illegality of
performance or the lack of genuineness, validity, legality or enforceability of
any of this Agreement or the other Loan Documents, or any term thereof or any
other agreement or instrument relating thereto for any reason, or the lack of
power or authority of any party to enter into any of the Loan Documents; (7)
any defect in the title to or lien on the Collateral in favor of Agent; (8) any
dispute, setoff, recoupment, counterclaim or other defense or right any Lender
may have at any time, whether against Agent, Swingline Lender, any other Lender
or any of the Loan Parties; (9) any merger or consolidation of any of the Loan
Parties or any Lender, or any sale, lease or transfer of any or all of the
assets of any such Person; or (10) any other circumstances whether similar or
dissimilar to any of the foregoing.
(C) Eligible Collateral. "Eligible Accounts" means, as at any
date of determination, the aggregate of all Accounts that Agent, in the
reasonable exercise of its credit judgment, deems to be eligible or, at the
direction of the Requisite Lenders, acting in the reasonable exercise of their
collective credit judgment, deems to be eligible, for borrowing purposes.
"Eligible Inventory" means, as at any date of determination, the
value (determined at the applicable Valuation Method) of all Inventory
consisting of goods held for sale in the ordinary course of Borrower's or a
Restricted Subsidiary's, as appropriate, business which have been
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scheduled to Agent in accordance with subsection 5.1(G) owned by and in the
possession of Borrower or such Restricted Subsidiary, respectively, and located
in the United States of America; except that the following Inventory shall not
be considered "Eligible Inventory":
(1) Inventory with respect to which Agent does not have
a valid, first priority (subject to Permitted Encumbrances) and fully perfected
security interest;
(2) Inventory with respect to which there exists any
Lien (other than Permitted Encumbrances) in favor of any Person other than
Agent on behalf of Agent and Lenders;
(3) Inventory produced in violation of the Fair Labor
Standards Act and subject to the so-called "hot goods" provisions contained in
Title 29 U.S.C. 215(a);
(4) Inventory which consists of supplies or warranty
returns, or which is obsolete, unmerchantable or otherwise not in good and
saleable condition;
(5) Inventory with respect to which any covenant,
representation or warranty contained in this Agreement or in any other Loan
Document has been breached (unless cured or waived in writing);
(6) Inventory which was purchased by Borrower or a
Restricted Subsidiary in or as part of a "bulk" transfer of assets of the
seller (unless (a) there are no "bulk" transfer laws applicable thereto or (b)
the seller and Borrower or such Restricted Subsidiary, as appropriate, have
complied with all applicable "bulk" transfer laws or Borrower or such
Restricted Subsidiary, as appropriate, has been provided an indemnity agreement
reasonably acceptable to, and assigned to, Agent);
(7) If declared to be an eligibility factor by Agent in
the reasonable exercise of its credit judgment or at the direction of the
Requisite Lenders in the reasonable exercise of their collective credit
judgment, Inventory located at any leased location or public warehouse that was
a Collateral Location on the Closing Date and is in a Lien State unless (A) a
Rent Reserve applies thereto or (B) Borrower has provided Agent with a Lien
Waiver with respect thereto;
(8) If declared to be an eligibility factor by Agent in
the reasonable exercise of its credit judgment or at the direction of the
Requisite Lenders in the reasonable exercise of their collective credit
judgment, Inventory located at any leased location or public warehouse that was
not a Collateral Location on the Closing Date, whether or not in a Lien State,
unless (A) a Rent Reserve applies thereto or (B) Borrower has provided Agent
with a Lien Waiver with respect thereto;
(9) Inventory which is consigned;
(10) Inventory which is subject to any purchase money
Lien other than in Agent's favor (including, in this respect, any Lien
otherwise constituting a Permitted Encumbrance); and
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(11) Any other Inventory which from time to time Agent,
in the reasonable exercise of its credit judgment, may declare to be ineligible
or, at the direction of the Requisite Lenders, acting in the reasonable
exercise of their collective credit judgment, shall declare to be ineligible,
for purposes hereof, in each instance after notice thereof by Agent to Borrower
delivered to Borrower not less than five (5) Business Days prior to the
effective date of such declaration;
less the Rent Reserve and any other reserves on the amount of Eligible
Inventory imposed by Agent, in the reasonable exercise of its credit judgment
or, at the direction of the Requisite Lenders, acting in the reasonable
exercise of their collective credit judgment, at any time or from time to time
(it being agreed that the reserves established by Agent on the Closing Date for
Eligible Inventory shall be as set forth on Exhibit 2.1(C)). Notwithstanding
anything in this Agreement to the contrary, in no event shall any Inventory of
a Restricted Subsidiary or any Inventory acquired by Borrower pursuant to a
Permitted Acquisition be considered for inclusion as part of the Borrowing Base
unless and until Agent shall have conducted such appraisals and other due
diligence with respect to any such Inventory as Agent shall deem necessary to
make with respect to the inclusion of such Inventory in the Borrowing Base,
including, without limitation, as to eligibility, borrowing base percentages
and reserves therefor, and then only upon such terms, including, without
limitation, as to eligibility, borrowing base percentages and reserves
therefor, as Agent shall determine in the reasonable exercise of its credit
judgment or the Requisite Lenders shall determine in the reasonable exercise of
their collective credit judgment; provided, that as a condition to providing
any financial accommodations based upon any Inventory of a Restricted
Subsidiary, Agent or the Requisite Lenders, in its or their sole discretion,
may require that (i) this Agreement be amended in a manner acceptable to Agent
and the Requisite Lenders to add such Restricted Subsidiary as a direct
borrower hereunder with a separate borrowing base for its Inventory available
solely to such Restricted Subsidiary and (ii) such other amendments to then
existing Loan Documents be made and such other Loan Documents, opinions,
certificates and other agreements be executed and/or delivered, each of the
foregoing to be in form, scope and substance satisfactory to Agent and the
Requisite Lenders, as Agent or the Requisite Lenders may request or deem
necessary with respect to such separate borrowing base arrangements, including,
without limitation, amending Guaranties to additionally guarantee all
obligations and liabilities of such Restricted Subsidiary under the Loan
Documents, causing Borrower to enter into a guaranty of such obligations and
liabilities of such Restricted Subsidiary and amending security documentation
to secure such additional guarantee obligations.
(D) Borrowing Mechanics. (1) LIBOR Loans made on any Funding
Date shall be in an aggregate minimum amount of $1,000,000 and integral
multiples of $250,000 in excess of such amount. (2) On any day when Borrower
desires an advance under subsection 2.1(A), Borrower shall give Agent written
or telephonic notice of the proposed borrowing by 11:00 a.m. Central time on
the Funding Date of a Base Rate Loan and three (3) Business Days in advance of
the Funding Date of a LIBOR Loan, which notice shall be substantially in the
form of Exhibit G (a "Notice of Borrowing") and shall also specify the proposed
Funding Date (which shall be a Business Day), whether such Loans shall consist
of Base Rate Loans or LIBOR Loans, and for LIBOR Loans the Interest Period
applicable thereto; provided, however, that if Borrower shall be deemed to
request a Revolving Advance under subsection 2.1(B)(2), no notice of a
borrowing by Borrower shall be
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necessary and any such Revolving Advance shall be in the amount of the
reimbursement obligation of Borrower for the Swingline Advance(s) (or portion
thereof) which shall have become due and payable. Any such telephonic notice
shall be confirmed in writing to Agent on or before the date and time notice
of the proposed borrowing is required to be delivered to Agent therefor as
provided above. (3) On any day when Borrower desires an advance under
subsection 2.1(B)(1), Borrower shall give Swingline Lender and Agent written or
telephonic notice of the proposed borrowing by 11:00 a.m. Central time on the
Funding Date, which notice shall be substantially similar to a Notice of
Borrowing and shall also specify the proposed Funding Date (which shall be a
Business Day). Any such telephonic notice shall be confirmed in writing to
Agent on or before the date and time notice of the proposed borrowing is
required to be delivered to Agent therefor as provided above. Unless Swingline
Lender receives notice by 11:00 a.m. Central time from Agent that the
conditions precedent to the making of the requested Swingline Advance have not
been satisfied, Swingline Lender may presume that all such conditions precedent
have been satisfied and all Lenders, Agent and Borrower shall be bound thereby.
(4) Neither Agent nor any Lender (including, without limitation, Swingline
Lender) shall incur any liability to Borrower for acting upon any telephonic
notice Agent or Swingline Lender believes in good faith to have been given by a
duly authorized officer or other person authorized to borrow on behalf of
Borrower or for otherwise acting in good faith under this subsection 2.1(D).
Neither Agent nor any Lender (including, without limitation, Swingline Lender)
will make any advance pursuant to any telephonic notice unless Agent has also
received the most recent Borrowing Base Certificate and all other documents
required under subsection 5.1(E) by 11:00 a.m. Central time on the date of the
making of such telephonic notice. Each Revolving Advance and each Swingline
Advance shall be deposited on the appropriate Funding Date requested by
Borrower by wire transfer in immediately available funds in such account as
Borrower may from time to time designate to Agent in writing, except that with
respect to a Revolving Advance to be used to repay all or a portion of a
Swingline Advance as provided in subsection 2.1(B)(2), such Revolving Advance
shall be paid to Agent on behalf of Swingline Lender. (5) The becoming due of
any amount required to be paid under this Agreement or any of the other Loan
Documents as principal, accrued interest and fees shall be deemed irrevocably
to be a request by Borrower for a Base Rate Revolving Loan on the due date of,
and in the amount required to pay, such principal, accrued interest and fees,
and the proceeds of each such Revolving Advance if made by Agent or any Lender
shall be disbursed by Agent or such Lender by way of direct payment of the
relevant obligation.
(E) Notes. Borrower shall execute and deliver to (i) each
Lender a Revolving Note to evidence such Lender's Revolving Loan Commitment and
(ii) Swingline Lender the Swingline Note to evidence Swingline Lender's
Swingline Loan Commitment. In the event of an assignment under subsection 9.1,
Borrower shall, upon surrender of the assigning Lender's Revolving Note or
Swingline Note, issue a new Revolving Note or Swingline Note, as appropriate,
to reflect the interest held by the assigning Lender and its assignee.
(F) Evidence of Revolving Loan Obligations and Swingline Loan
Obligations. Each Revolving Advance shall be evidenced by this Agreement, the
Revolving Notes and notations made from time to time by Agent in its books and
records, including computer records. Agent shall record in its books and
records, including computer records, the principal amount of the portion of
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the Revolving Loan owing to each Lender from time to time. Each Swingline
Advance shall be evidenced by this Agreement, the Swingline Note and notations
made from time to time by Swingline Lender in its books and records, including
computer records. Swingline Lender shall record in its books and records,
including computer records, the Swingline Loan owing to Swingline Lender from
time to time. Agent's and Swingline Lender's books and records shall
constitute presumptive evidence, absent manifest error, of the accuracy of the
information contained therein. Failure by Agent or Swingline Lender to make
any such notation or record shall not affect the obligations of Borrower to
Lenders or of Borrower or Lenders to Swingline Lender with respect to the
Revolving Loans or Swingline Loans.
(G) Letters of Credit. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of
Borrower and the other Loan Parties set forth herein and in the other Loan
Documents, the Revolving Loan Commitments may, in addition to Revolving
Advances be utilized, upon the request of Borrower, for (i) the issuance of
letters of credit by Agent; or with Agent's consent any Lender, or (ii) the
issuance by Agent of risk participations (a "Risk Participation Agreement") to
banks to induce such banks to issue letters of credit for the account of
Borrower (each of (i) and (ii) above a "Lender Letter of Credit"). Each Lender
shall be deemed to have purchased a participation in each Lender Letter of
Credit issued on behalf of Borrower in an amount equal to its Pro Rata Share
thereof. In no event shall any Lender Letter of Credit be issued to the extent
that the issuance of such Lender Letter of Credit would cause the sum of the
Letter of Credit Reserve (after giving effect to such issuance) plus the
Revolving Loan and the Swingline Loan to exceed the lesser of (x) the Borrowing
Base and (y) the Revolving Loan Commitments of all Lenders.
(1) Maximum Amount. The aggregate amount of Letter of
Credit Liability with respect to all Lender Letters of Credit outstanding at
any time shall not exceed $10,000,000.
(2) Reimbursement. Borrower shall be irrevocably and
unconditionally obligated forthwith without presentment, demand, protest or
other formalities of any kind, to reimburse Agent or the issuer for any amounts
paid with respect to a Lender Letter of Credit including all fees, costs and
expenses paid to any bank that issues a Bank Letter of Credit. Borrower hereby
authorizes and directs Agent, at Agent's option, to debit Borrower's account
(by increasing the Revolving Loan) in the amount of any payment made with
respect to any Lender Letter of Credit. Agent agrees to use reasonable efforts
to notify Borrower of any such debit made to Borrower's account; provided that
the failure of Agent to give such notice shall not affect the validity of such
debit or create any cause of action or liability against Agent or any Lender.
All amounts paid with respect to any Lender Letter of Credit that are not
immediately repaid by Borrower with the proceeds of a Revolving Advance or
otherwise shall bear interest at the Default Rate applicable to Base Rate
Revolving Loans. In the event that Borrower shall fail to reimburse Agent on
the date of any payment under a Lender Letter of Credit in an amount equal to
the amount of such payment, Agent shall promptly notify each Lender of the
unreimbursed amount of such payment together with accrued interest thereon and
each Lender, on the next Business Day, shall deliver to Agent an amount equal
to its respective participation in same day funds. The obligation of each
Lender to
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deliver to Agent an amount equal to its respective participation pursuant to
the foregoing sentence shall be absolute and unconditional and such remittance
shall be made notwithstanding the occurrence or continuation of an Event of
Default or Default or the failure to satisfy any condition set forth in Section
3. In the event any Lender fails to make available to Agent when due the
amount of such Lender's participation in such Lender Letter of Credit, Agent
shall be entitled to recover such amount on demand from such Lender together
with interest at the Federal Funds Effective Rate (unless such amount is not
paid within three Business Days of such demand, in which case such interest
shall be payable (both before and after such third Business Day) at the Base
Rate).
(3) Conditions of Issuance. In addition to all other
terms and conditions set forth in this Agreement, the issuance of any Lender
Letter of Credit shall be subject to the satisfaction of all conditions
applicable to Revolving Advances, and the conditions that the letter of credit
which Borrower requests be in such form, be for such amount, contain such terms
and support such transactions as are reasonably satisfactory to Agent. The
expiration date of each Lender Letter of Credit shall be on a date which is at
least thirty (30) days prior to the Termination Date.
(4) Request for Letters of Credit. Borrower shall give
Agent at least three (3) Business Days prior notice specifying the date a
Lender Letter of Credit is to be issued, identifying the beneficiary and
describing the nature of the transactions proposed to be supported thereby.
The notice shall be accompanied by the form of the letter of credit being
requested.
(H) Other Letter of Credit Provisions.
(1) Obligations Absolute. The obligation of Borrower
to reimburse Agent or any Lender for payments made under, and other amounts
payable in connection with, any Lender Letter of Credit shall be unconditional
and irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances including the following circumstances:
(a) any lack of validity or enforceability of
any Lender Letter of Credit, Bank Letter of Credit or any other agreement;
(b) the existence of any claim, set-off, defense
or other right which Borrower, any of its Affiliates, Agent or any Lender, on
the one hand, may at any time have against any beneficiary or transferee of any
Lender Letter of Credit or Bank Letter of Credit (or any Persons for whom any
such transferee may be acting), Agent, any Lender or any other Person, on the
other hand, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between Borrower or any of its Affiliates and the beneficiary of
the letter of credit);
(c) any draft, demand, certificate or any other
document presented under any Lender Letter of Credit or Bank Letter of Credit
is alleged to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
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(d) payment under any Lender Letter of Credit or
Bank Letter of Credit against presentation of a demand, draft or certificate or
other document which does not comply with the terms of such letter of credit;
provided that, in the case of any payment by Agent or a Lender under any Lender
Letter of Credit, Agent or such Lender has not acted with gross negligence or
willful misconduct (as determined by a court of competent jurisdiction) in
determining that the demand for payment under such Lender Letter of Credit
complies on its face with any applicable requirements for a demand for payment
under such Lender Letter of Credit;
(e) any other circumstance or happening
whatsoever, which is similar to any of the foregoing; or
(f) the fact that a Default or an Event of
Default shall have occurred and be continuing.
(2) Nature of Lender's Duties. As between Agent and
Lenders, on the one hand, and Borrower, on the other hand, Borrower assumes all
risks of the acts and omissions of, or misuse of any Lender Letter of Credit by
the beneficiary thereof. In furtherance and not in limitation of the
foregoing, neither Agent nor any Lender shall be responsible: (a) for the
form, validity, sufficiency, accuracy, genuineness or legal effect of any
document by any party in connection with the application for and issuance of
any Lender Letter of Credit, even if it should in fact prove to be in any or
all respects invalid, insufficient, inaccurate, fraudulent or forged; (b) for
the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Lender Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove
to be invalid or ineffective for any reason; (c) for failure of the beneficiary
of any Lender Letter of Credit to comply fully with conditions required in
order to demand payment thereunder; provided that, in the case of any payment
by Agent or any Lender under any Lender Letter of Credit, Agent or Lender has
not acted with gross negligence or willful misconduct (as determined by a court
of competent jurisdiction) in determining that the demand for payment under
such Lender Letter of Credit complies on its face with any applicable
requirements for a demand for payment thereunder; (d) for errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be in cipher; (e) for
errors in interpretation of technical terms; (f) for any loss or delay in the
transmission or otherwise of any document required in order to make a payment
under any Lender Letter of Credit; (g) for the credit of the proceeds of any
drawing under any Lender Letter of Credit; and (h) for any consequences arising
from causes beyond the control of Agent or any Lender as the case may be. None
of the above shall affect, impair, or prevent the vesting of any of Agent's or
any Lender's rights or powers hereunder.
(3) Liability. In furtherance and extension of and not
in limitation of, the specific provisions herein above set forth, any action
taken or omitted by Agent or any Lender under or in connection with any Lender
Letter of Credit, if taken or omitted without gross negligence or willful
misconduct (any gross negligence or willful misconduct to be determined by a
court of competent jurisdiction), shall not put Agent or any Lender under any
resulting liability to Borrower.
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(I) Defaulting Lenders.
(1) Unless Agent receives notice from a Lender on or
prior to the Closing Date or, with respect to any Revolving Advance after the
Closing Date, at least one Business Day prior to the date of such Loan, that
such Lender will not make available as and when required hereunder to Agent for
the account of Borrower the amount of that Lender's Commitment Percentage of
such Loan, Agent may assume that each Lender has made such amount available to
Agent in immediately available funds on the Funding Date and Agent may (but
shall not be so required), in reliance upon such assumption, make available to
Borrower (or Swingline Lender, if applicable) on such date a corresponding
amount.
(2) If and to the extent any Lender shall not have made
its full Commitment Percentage of any Revolving Advance available to Agent in
immediately available funds and Agent in such circumstances has made available
to Borrower such amount, that Lender shall on the Business Day following such
Funding Date make such amount available to Agent, together with interest at the
Federal Funds Effective Rate (unless such amount is not made available by that
Lender to Agent within three Business Days of when due, in which case such
interest shall be payable (both before and after such third Business Day) at
the Base Rate) for each day during the period commencing on such Funding Date
and ending on the date such Lender makes such amount available to Agent. A
notice of Agent submitted to any Lender with respect to amounts owing under
this subsection shall be conclusive, absent manifest error. If such amount is
so made available, such payment to Agent shall constitute such Lender's share
of such Revolving Advance on the Funding Date for all purposes of this
Agreement. If such amount is not made available to Agent on the Business Day
following the Funding Date, Agent will notify Borrower of such failure to fund
and, upon demand by Agent, Borrower shall pay such amount to Agent for Agent's
account, together with interest thereon for each day elapsed since the date of
such borrowing, at a rate per annum equal to the interest rate applicable at
the time to the Loan made by the other Lenders on such Funding Date. The
failure of any Lender to make available its Commitment Percentage of any
Revolving Advance on any Funding Date or to fund its participation in a
Swingline Advance under subsection 2.1(B)(ii) or to fund its participation in a
Lender Letter of Credit under subsection 2.2(G)(ii) (any such Lender, prior to
the cure of such failure, being hereinafter referred to as a "Defaulting
Lender") shall not relieve any other Lender of any obligation hereunder to fund
such Lender's Commitment Percentage of a Loan on such Funding Date or to fund
any such participation, but no Lender shall be responsible for the failure of
any other Lender to make such other Lender's Commitment Percentage of the Loan
to be made by such other Lender on any Funding Date or to fund any
participation to be funded by any other Lender.
(3) Agent shall not be obligated to transfer to a
Defaulting Lender any payment made by Borrower to Agent or any amount otherwise
received by Agent for application to the Obligations nor shall a Defaulting
Lender be entitled to the sharing of any payments hereunder (whether under
subsection 9.4 or otherwise). Amounts payable to a Defaulting Lender shall
instead be paid to or retained by Agent. Agent may hold and, in its
discretion, re-lend to Borrower the amount of all such payments received or
retained by it for the account of such Defaulting Lender. Any amounts so re-
lent to Borrower shall bear interest at the rate applicable to Base Rate Loans
and
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for all other purposes of this Agreement shall be treated as if they were
Revolving Advances. At any time, Agent may apply any such amounts to the
Obligations held by Lenders which are not Defaulting Lenders to the extent that
such Lenders (which are not Defaulting Lenders) hold Loans or participations in
Swingline Advances or Lender Letters of Credit in each case in excess of their
Commitment Percentages thereof. No Defaulting Lender shall acquire any
participation or other interest in any Obligations held by any other Lender by
virtue of any such application, the result of any such application being the
subordination of the interest of a Defaulting Lender with respect to the
Obligations to the interest therein of the Lenders which are not Defaulting
Lenders.
(4) For purposes of voting or consenting to matters
with respect to the Loan Documents and determining Pro Rata Shares and
Commitment Percentages, a Defaulting Lender shall be deemed not to be a
"Lender" and such Lender's Commitments shall be deemed to be zero (-0-). Until
a Defaulting Lender cures its failure to fund its Pro Rata Share of any Loan
and to fund its participation in any Swingline Advance or Lender Letter of
Credit (1) such Defaulting Lender shall not be entitled to any portion of the
Unused Line Fee or any Letter of Credit Fees referred to in subsection 2.3 and
(2) the Unused Line Fee and Letter of Credit Fees shall accrue in favor of
Lenders which are not Defaulting Lenders and shall be allocated among such
Lenders ratably based upon their relative Revolving Loan Commitments, and shall
be calculated based upon the average amount by which the aggregate Revolving
Loan Commitments of such Lenders exceeds the sum of outstanding Loans and the
Letter of Credit Reserve. The provisions of this subsection 2.1(I) shall
remain effective with respect to a Defaulting Lender until such time as the
Defaulting Lender shall no longer be in default of any of its obligations under
this Agreement. The terms of this subsection 2.1(I) shall not be construed to
increase or otherwise affect any Commitment of any Lender, or relieve or excuse
the performance by Borrower of its duties and obligations hereunder.
(5) At such time as there is a Defaulting Lender, any
one or more other Lenders may commit to make Loans or fund participations in
Swingline Advances or Lender Letters of Credit, in an amount necessary to
permit Borrower to repay in full the Defaulting Lender's defaulted obligations
hereunder. In such event, and upon Borrower making such repayment, the Default
Lender's Commitments shall be terminated, such Lender shall no longer be a
"Lender" hereunder and each such other Lender or Lenders shall acquire a
percentage of the Commitments of such Defaulting Lender equal to the percentage
of Loans and participations funded by such other Lender.
2.2 Interest.
(A) Rate of Interest. The Loans shall bear interest from the
date such Loans are made to the date paid at a rate per annum equal to (i) in
the case of Base Rate Loans , the Base Rate plus the Applicable Margin for Base
Rate Loans and (ii) in the case of LIBOR Loans, LIBOR plus the Applicable
Margin for LIBOR Loans (the "Interest Rate"). The applicable basis for
determining the rate of interest (other than with respect to Swingline
Advances, which shall be Base Rate Loans only) shall be selected by Borrower
initially at the time a Notice of Borrowing is given pursuant to subsection
2.1(D). The basis for determining the interest rate with respect to any Loan
(other than
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Swingline Advances) or a portion of any Loan (other than Swingline Advances)
may be changed from time to time pursuant to subsection 2.2(E). If on any day
a Loan or a portion of any Loan is outstanding with respect to which notice has
not been delivered to Agent in accordance with the terms of this Agreement
specifying the basis for determining the rate of interest, then for that day
that Loan or portion thereof shall bear interest determined by reference to the
Base Rate.
Any Loans, interest or fees not paid when due and payable and any
other Obligations not paid within 10 Business Days of when due and payable
shall, at the option of Requisite Lenders (or with respect to Swingline
Advances or interest thereon, at the option of Swingline Lender), bear interest
at the Default Rate. After the occurrence and during the continuance of an
Event of Default (i) each LIBOR Loan shall automatically convert to a Base Rate
Loan at the end of any applicable Interest Period and (ii) no Loans may be
converted to LIBOR Loans.
(B) Interest Periods. In connection with each LIBOR Loan,
Borrower shall elect an interest period (each an "Interest Period") to be
applicable to such Loan, which Interest Period shall be either a one, two,
three, six or (if and when available to all Lenders) nine month period;
provided that:
(1) the initial Interest Period for any LIBOR Loan
shall commence on the Funding Date of such Loan;
(2) in the case of successive Interest Periods, each
successive Interest Period shall commence on the day on which the immediately
preceding Interest Period expires;
(3) if an Interest Period expiration date is not a
Business Day, such Interest Period shall expire on the next succeeding Business
Day; provided that if any Interest Period expiration date is not a Business Day
but is a day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the immediately preceding Business
Day;
(4) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to part (5), below, end on the last Business Day of a calendar
month;
(5) no Interest Period shall extend beyond the
Termination Date; and
(6) there shall be no more than ten (10) Interest
Periods relating to LIBOR Loans outstanding at any time.
(C) Computation and Payment of Interest. Interest on the
Loans and all other Obligations shall be computed on the daily principal
balance on the basis of a 365 or 366 day year, as the case may be (360 day year
for LIBOR Loans), for the actual number of days elapsed in the period during
which it accrues. In computing interest on any Loan, the date of funding of
the Loan or the first day of an Interest Period applicable to such Loan or,
with respect to a Base Rate Loan being converted from a LIBOR Loan, the date of
conversion of such LIBOR Loan to such Base Rate Loan, shall be included; and
the date of payment of such Loan or the expiration date of an Interest Period
applicable to such Loan, or with respect to a Base Rate Loan
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being converted to a LIBOR Loan, the date of conversion of such Base Rate Loan
to such LIBOR Loan, shall be excluded; provided that if a Loan is repaid on the
same day on which it is made, one day's interest shall be paid on that Loan.
Interest on Base Rate Loans (including, without limitation, Swingline Advances)
and all other Obligations other than LIBOR Loans shall be payable to Agent for
benefit of Lenders monthly in arrears on the first day of each month, on the
date of any prepayment of Loans, and at maturity, whether by acceleration or
otherwise. Interest on LIBOR Loans shall be payable to Agent for benefit of
Lenders on the last day of the applicable Interest Period for such Loan, on the
date of any prepayment of the Loans, on the date of any prepayment of any
portion of the relevant LIBOR Loan (with respect to the portion of such LIBOR
Loan being prepaid), and at maturity, whether by acceleration or otherwise. In
addition, for each LIBOR Loan having an Interest Period longer than three (3)
months, interest accrued on such Loan shall also be payable on the last day of
each three (3) month interval during such Interest Period.
(D) Interest Laws. Notwithstanding any provision to the
contrary contained in this Agreement or any other Loan Document, Borrower shall
not be required to pay, and neither Agent nor any Lender shall be permitted to
collect, any amount of interest in excess of the maximum amount of interest
permitted by applicable law ("Excess Interest"). If any Excess Interest is
provided for or determined by a court of competent jurisdiction to have been
provided for in this Agreement or in any other Loan Document, then in such
event: (1) the provisions of this subsection shall govern and control; (2)
neither Borrower nor any other Loan Party shall be obligated to pay any Excess
Interest; (3) any Excess Interest that Agent or any Lender may have received
hereunder shall be, at such Lender's option, (a) applied as a credit against
the outstanding principal balance of the appropriate Obligations or accrued and
unpaid interest (not to exceed the maximum amount permitted by law), (b)
refunded to the payor thereof, or (c) any combination of the foregoing; (4) the
interest rate(s) provided for herein for the applicable Obligations shall be
automatically reduced to the maximum lawful rate allowed from time to time
under applicable law (the "Maximum Rate"), and this Agreement and the other
Loan Documents shall be deemed to have been and shall be, reformed and modified
to reflect such reduction; and (5) neither Borrower nor any Loan Party shall
have any action against Agent or any Lender for any damages arising out of the
payment or collection of any Excess Interest. Notwithstanding the foregoing,
if for any period of time interest on any Obligations is calculated at the
Maximum Rate rather than the applicable rate under this Agreement, and
thereafter such applicable rate becomes less than the Maximum Rate, the rate of
interest payable on such Obligations shall remain at the Maximum Rate until
each Lender or Swingline Lender, as appropriate, shall have received the amount
of interest which such Lender would have received during such period on such
Obligations had the rate of interest not been limited to the Maximum Rate
during such period.
(E) Conversion or Continuation. Subject to the provisions of
subsections 2.2(A) and (B), Borrower shall have the option to (1) convert at
any time all or any part of outstanding Loans (other than Swingline Advances,
which shall at all times be Base Rate Loans) equal to $1,000,000 and integral
multiples of $250,000 in excess of that amount from Base Rate Loans to
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LIBOR Loans or (2) upon the expiration of any Interest Period applicable to a
LIBOR Loan, to (a) continue all or any portion of such LIBOR Loan equal to
$1,000,000 and integral multiples of $250,000 in excess of that amount as a
LIBOR Loan or (b) convert all or any portion of such LIBOR Loan to a Base Rate
Loan. The succeeding Interest Period(s) of such continued or converted Loan
commence on the last day of the Interest Period of the Loan to be continued or
converted; provided that no outstanding Loan may be continued as, or be
converted into, a LIBOR Loan, when any Event of Default or Default has occurred
and is continuing.
Borrower shall deliver a notice of conversion/continuation
substantially in the form of Exhibit J ("Notice of Conversion/Continuation") to
Agent no later than 11:00 a.m. Central time at least one Business Day in
advance of the proposed date of conversion of all or any portion of a LIBOR
Loan to a Base Rate Loan and no later than 11:00 a.m Central time at least
three (3) Business Days in advance of the proposed date of the conversion to,
or continuation of, a LIBOR Loan. A Notice of Conversion/Continuation shall
certify: (1) the proposed conversion/continuation date (which shall be a
Business Day); (2) the amount of the Loan to be converted/continued; (3) the
nature of the proposed conversion/continuation (i.e. whether converting to a
Base Rate Loan or LIBOR Loan or continuing a LIBOR Loan); (4) in the case of
conversion to, or a continuation of, a LIBOR Loan, the requested Interest
Period; and (5) that no Default or Event of Default has occurred and is
continuing or would result from the proposed conversion/continuation.
In lieu of delivering the Notice of Conversion/Continuation,
Borrower may give Agent telephonic notice by the required time of any proposed
conversion/continuation under this subsection 2.2(E); provided that such notice
shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to Agent on or before the proposed
conversion/continuation date.
Neither Agent nor any Lender shall incur any liability to
Borrower in acting upon any telephonic notice referred to above that Agent
believes in good faith to have been given by a duly authorized officer or other
person authorized to act on behalf of Borrower or for otherwise acting in good
faith under this subsection 2.2(E) and upon conversion/continuation by Lenders
in accordance with this Agreement pursuant to any telephonic notice, Borrower
shall have effected such conversion or continuation, as the case may be,
hereunder.
2.3 Fees.
(A) Unused Line Fee. Borrower shall pay to Agent, for the
benefit of Lenders, a fee in an amount equal to the Revolving Loan Commitments
of all Lenders less the sum of the average daily balance of the Loans plus the
average daily face amount of the Letter of Credit Reserve during the preceding
calendar quarter (or shorter period) multiplied by three-eighths of one percent
(3/8%) per annum, such fee to be calculated on the basis of a 365 or 366 day
year, as the case may be, for the actual number of days elapsed and to be
payable quarterly in arrears on July 1, 1997 and the first day of each October,
January, April and July thereafter and on the Termination Date or such earlier
date of termination of the Revolving Loan Commitment.
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(B) Letter of Credit Fees. Borrower shall pay to Agent, for
the benefit of Lenders, a fee with respect to the Lender Letters of Credit in
the aggregate amount of the daily amount of Letter of Credit Liability
outstanding during each day in the preceding calendar quarter (or shorter
period) multiplied by for each such day a per annum rate equal to the
Applicable Margin (as adjusted from time to time pursuant to the definition
thereof) for LIBOR Loans for each such day during such preceding calendar
quarter (or shorter period). Such fees will be calculated on the basis of a
365 or 366 day year, as the case may be, for the actual number of days elapsed
and will be payable quarterly in arrears on the first day of each July,
October, January and April and on the Termination Date or such earlier date of
termination of the Revolving Loan Commitment. Borrower shall also reimburse
Agent for any and all fees and expenses, if any, paid by Agent or any Lender to
the issuer of any Bank Letter of Credit and, without duplication, shall pay
Agent for any and all administrative, issuance, amendment, payment and
negotiation fees, charges and expenses invoiced or charged by Agent in
connection with Lender Letter of Credit.
(C) Audit Fees. Borrower agrees to pay to Agent for its own
account an audit fee for each inspection equal to the customary fee per
auditor per day or any portion thereof then charged by Agent (which audit fee
on the date hereof is $650 per auditor per day or any portion thereof),
together with reasonable out of pocket costs and expenses incurred by Agent in
connection therewith (or with respect to any inspection as to which Agent
utilizes third party auditors, the reasonable out of pocket fees, costs and
expenses paid by Agent to such auditors therefor); provided that Borrower shall
pay for no more than two such inspections in any Loan Year (other than those
inspections which are ordered or commenced during the continuance of an Event
of Default, for which Borrower shall also be liable to pay such fees, costs and
expenses) and Borrower shall not be liable for more than $25,000 in fees in
respect of any such inspection.
(D) Other Fees and Expenses. Borrower shall pay to Agent, for
its own account, all charges for returned items and all other bank charges
incurred by Agent, as well as Agent's standard wire transfer charges for each
wire transfer made under this Agreement. Borrower shall pay to Heller when due
all fees referred to in a separate Fee Letter dated May __, 1997 between
Borrower and Heller, for Heller's own account or as otherwise specified
therein.
2.4 Payments and Prepayments.
(A) Manner and Time of Payment. In its sole discretion, Agent
may charge interest and other amounts payable hereunder to the Revolving Loan
(including, without limitation, amounts payable under subsection 10.1), all as
set forth on Agent's or Swingline Lender's books and records. Agent agrees to
use reasonable efforts to notify Borrower of any such charge made to the
Revolving Loan; provided that the failure of Agent to give such notice shall
not affect the validity of such charge or create any cause of action or
liability against Agent or any Lender. If Agent elects to bill Borrower for
any amount due hereunder, such amount shall be immediately due and payable with
interest thereon as provided herein. All payments made by Borrower with
respect to the Obligations shall be made without deduction, defense, setoff or
counterclaim. All payments to Agent hereunder shall, unless otherwise directed
by Agent, be made to Agent's Account. Proceeds remitted to Agent's Account by
wire transfer or otherwise in immediately available Federal funds
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shall be credited to the Obligations on the Business Day received and for the
purpose of calculating interest on the Obligations such funds shall be deemed
received on such Business Day received. Proceeds remitted to Agent's Account
in any other manner shall be credited to the Obligations on the second Business
Day following the day such proceeds were received in Agent's Account and for
the purpose of calculating interest on the Obligations, such funds shall be
deemed received on the second Business Day after such receipt in Agent's
Account. Unless otherwise provided herein (including, without limitation,
under subsections 2.1(B), 2.3, 2.4(B), 2.4(C), 2.8, 2.12 and 8.7) or in the
absence of a specific determination by Agent and Lenders with respect thereto,
all payments made to Agent with respect to the Obligations shall, when in the
form of immediately available funds, be applied in the following order: (i)
then due and payable fees and expenses owing under the Loan Documents; (ii)
then due and payable interest payments on the Obligations owing under the Loan
Documents; (iii) then due and payable principal payments on the Loans; (iv)
principal outstanding under the Swingline Loan until paid in full and then
principal outstanding under the Revolving Loan until paid in full; and (v)
other Obligations outstanding under the Loan Documents then due and payable.
(B) Mandatory Prepayments.
(1) Overadvance. At any time that the Revolving Loan
exceeds the Maximum Revolving Loan Amount, Borrower shall immediately repay the
Revolving Loan to the extent necessary to reduce the principal balance to an
amount equal to or less than the Maximum Revolving Loan Amount. At any time
that the Swingline Loan exceeds the Swingline Loan Commitment, Borrower shall
immediately repay the Swingline Loan to the extent necessary to reduce the
principal balance to an amount equal to or less than the Swingline Loan
Commitment. At any time the sum of the Letter of Credit Reserve plus the
Swingline Loan and Revolving Loan shall exceed the lesser of (x) the Borrowing
Base and (y) the Revolving Loan Commitments of all Lenders, Borrower shall
immediately eliminate such excess by first repaying the Swingline Loan until
the Swingline Loan is paid in full, then repaying the Revolving Loan until the
Revolving Loan is paid in full, and, to the extent then necessary to eliminate
any remaining excess, by depositing with Agent cash in an amount equal to the
remaining excess in a cash collateral account established by Agent on such
terms as are satisfactory to Agent.
(2) Proceeds of Asset Dispositions. Immediately upon
receipt by Borrower or any of its Subsidiaries of the Net Cash Proceeds of any
Asset Disposition (in one or a series of related transactions), which Net Cash
Proceeds exceed $1,000,000 (it being understood that if the Net Cash Proceeds
exceed $1,000,000, the entire amount and not just the portion above $1,000,000
shall be subject to this subsection 2.4(B)(2)), Borrower shall prepay the
Obligations in an amount equal to such Net Cash Proceeds. All such
prepayments shall first be applied in repayment of the Swingline Loan until
paid in full and then in repayment of the Revolving Loan. Notwithstanding
anything contained in this subsection 2.4(B) or any other provision of this
Agreement to the contrary, Borrower shall in any event make mandatory
prepayments on the Obligations (to be first applied in repayment of the
Revolving Loan until paid in full and then in repayment of the Swingline Loan)
with respect to Asset Dispositions within such time periods and in such amounts
so that Borrower shall not, with respect to any one or more Asset Dispositions,
have
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any obligation under the Senior Note Indenture or any documentation governing
any Indebtedness refinancing or refunding any Senior Note Debt to make an offer
to purchase any Senior Note Debt or any such refinancing or refunding
Indebtedness. Any prepayments of the Revolving Loan pursuant to the
immediately preceding sentence shall on the date of such prepayment permanently
reduce the Revolving Loan Commitments of the Lenders in an amount equal to such
prepayment (with the Revolving Loan Commitment of each Lender being permanently
reduced on the date of such prepayment by such Lender's Pro Rata Share of such
permanent reduction in the Revolving Loan Commitments of the Lenders).
(C) Voluntary Prepayments and Repayments. Borrower's
Obligations may at any time and from time to time be prepaid or repaid in full
or in part, without penalty or premium. Any prepayment of all or a portion of
a LIBOR Loan prior to the last day of the Interest Period therefor shall be
accompanied by those payments required therefor pursuant to subsection 2.12.
Borrower may, at any time upon not less than three Business Days' prior notice
to Agent, terminate (in full and not in part) the Revolving Loan Commitment (at
which time the Swingline Loan Commitment shall terminate automatically) or
terminate the Swingline Loan Commitment. Upon termination of the Revolving
Loan Commitment, Borrower shall cause Agent and each Lender to be released from
all liability under any Lender Letters of Credit or, at Agent's option,
Borrower will deposit cash collateral with Agent in an amount equal to 105% of
the Letter of Credit Liability that will remain outstanding after termination
of the Revolving Loan Commitment.
(D) Payments on Business Days. Whenever any payment to be
made hereunder (other than payment of principal or interest on a LIBOR Loan
which is due and payable on the last day of the Interest Period for such LIBOR
Loan) shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the amount of interest or fees due
hereunder.
2.5 Term of this Agreement. This Agreement shall be effective
until the fifth anniversary of the Closing Date (the "Termination Date"). The
Commitments shall (unless earlier terminated) terminate upon the earlier of (i)
the occurrence of an event specified in subsection 8.3 or (ii) the Termination
Date. Upon termination in accordance with subsection 8.3 or on the Termination
Date, all Obligations shall become immediately due and payable without notice
or demand. Notwithstanding any termination, until all Obligations (other than
Inchoate Indemnity Obligations) have been fully paid and satisfied, Agent, on
behalf of Agent and Lenders, shall be entitled to retain security interests in
and liens upon all Collateral, and even after payment of all Obligations
hereunder, Borrower's obligation to indemnify Agent and each Lender in
accordance with the terms hereof shall continue.
2.6 Statements. Agent and Swingline Lender (with respect to
Swingline Loans) shall each render a monthly statement of account to Borrower
within twenty (20) days after the end of each month. Each such statement of
account shall constitute an account stated unless Borrower makes written
objection thereto to Agent or Swingline Lender, as appropriate, within thirty
(30) days from the date such statement is mailed to Borrower. Borrower
promises to pay all of its Obligations as such amounts become due or are
declared due pursuant to the terms of this Agreement.
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2.7 Grant of Security Interest. To secure the payment and
performance of the Obligations, including all renewals, extensions,
restructurings and refinancings of any or all of the Obligations, Borrower
hereby grants to Agent, on behalf of Agent and Lenders, a continuing security
interest, lien and mortgage in and to all right, title and interest of Borrower
in the following property of Borrower, whether now owned or existing or
hereafter acquired or arising and regardless of where located: (A) Accounts,
and all guaranties and security therefor, and all goods and rights represented
thereby or arising therefrom including the rights of stoppage in transit,
replevin and reclamation; (B) Inventory; (C) general intangibles (as defined in
the UCC); (D) documents (as defined in the UCC) or other receipts covering,
evidencing or representing goods; (E) instruments (as defined in the UCC) and
investment property; (F) chattel paper (as defined in the UCC); (G)
Intellectual Property; (H) all deposit accounts of Borrower maintained with any
bank or financial institution; (I) all cash and other monies and property of
Borrower in the possession or under the control of Agent, any Lender or any
participant; (J) all books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing software that at
any time evidence or contain information relating to any of the property
described above or are otherwise necessary or helpful in the collection thereof
or realization thereon; and (K) proceeds of all or any of the property
described above, including, without limitation, the proceeds of any insurance
policies covering any of the above described property.
2.8 Capital Adequacy and Other Adjustments. In the event
Agent or any Lender shall have determined that the adoption after the date
hereof of any law, treaty, governmental (or quasi-governmental) rule,
regulation, guideline or order regarding capital adequacy, reserve requirements
or similar requirements or compliance by Agent or such Lender or any
corporation controlling Agent or such Lender with any request or directive
regarding capital adequacy, reserve requirements or similar requirements
(whether or not having the force of law and whether or not failure to comply
therewith would be unlawful) from any central bank or governmental agency or
body having jurisdiction does or shall have the effect of increasing the amount
of capital, reserves or other funds required to be maintained by Agent or such
Lender or any corporation controlling Agent or such Lender and thereby reducing
the rate of return on Agent's or such Lender's or such corporation's capital as
a consequence of its obligations hereunder, then Borrower shall from time to
time within fifteen (15) days after notice and demand from such Lender (with a
copy to Agent) or Agent (together with the certificate referred to in the next
sentence) pay to Agent or such Lender additional amounts sufficient to
compensate Agent or such Lender for such reduction. A certificate as to the
amount of such cost and showing the basis of the computation of such cost
submitted by Agent or any Lender to Borrower shall, absent manifest error, be
final, conclusive and binding for all purposes.
2.9 Taxes.
(A) No Deductions. Any and all payments or reimbursements
made hereunder or under any of the Notes shall be made free and clear of and
without deduction for any and all taxes, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto; excluding, however,
the following: income, franchise or similar taxes imposed on any Lender or
Agent by the jurisdiction under the laws of which Agent or such Lender, as
appropriate, is organized
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or doing business or any political subdivision thereof and income, franchise or
similar taxes imposed by the jurisdiction of Agent's or such Lender's
applicable lending office or any political subdivision thereof (all such taxes,
levies, imposts, deductions, charges or withholdings and all liabilities with
respect thereto excluding such income, franchise or similar taxes, herein "Tax
Liabilities"). If Borrower shall be required by law to deduct any such Tax
Liabilities from or in respect of any sum payable hereunder to Agent or any
Lender, then the sum payable hereunder shall be increased as may be necessary
so that, after making all required deductions, Agent or such Lender receives an
amount equal to the sum it would have received had no such deductions been
made.
(B) Changes in Tax Laws. In the event that, subsequent to the
Closing Date, (i) any changes in any existing law, regulation, treaty or
directive or in the interpretation or application thereof, (ii) any new law,
regulation, treaty or directive enacted or any interpretation or application
thereof, or (iii) compliance by any Lender with any request or directive
(whether or not having the force of law) from any governmental authority,
agency or instrumentality:
(1) does or shall subject Agent or any Lender to any
tax of any kind whatsoever with respect to this Agreement, the other Loan
Documents or any Loans made or Lender Letters of Credit issued hereunder, or
change the basis of taxation of payments to Agent or such Lender of principal,
fees, interest or any other amount payable hereunder (except for income taxes,
or franchise taxes imposed in lieu of income taxes, or similar taxes imposed
generally by federal, state or local taxing authorities with respect to
interest or commitment or other fees payable hereunder or changes in the rate
of such tax); or
(2) does or shall impose on Agent or any Lender any
other condition or increased cost in connection with the transactions
contemplated hereby or participations herein; and the result of any of the
foregoing is to increase the cost to Agent or such Lender of issuing any Lender
Letter of Credit or making or continuing any Loan hereunder, as the case may
be, or to reduce any amount receivable hereunder,
then, in any such case, Borrower shall promptly pay to Agent or such Lender,
upon its demand, any additional amounts necessary to compensate Agent or such
Lender, on an after-tax basis, for such additional cost or reduced amount
receivable, as determined by Agent or such Lender with respect to this
Agreement or the other Loan Documents. If Agent or any Lender becomes entitled
to claim any additional amounts pursuant to this subsection, it shall promptly
notify Borrower of the event by reason of which Agent or such Lender has become
so entitled. A certificate as to any additional amounts payable pursuant to
the foregoing sentence submitted by Agent or any Lender to Borrower shall,
absent manifest error, be final, conclusive and binding for all purposes.
(C) Foreign Lenders. Each Lender organized under the laws of
a jurisdiction outside the United States (a "Foreign Lender") as to which
payments to be made under this Agreement or under any of the Notes are exempt
from United States withholding tax or are subject to United States withholding
tax at a reduced rate under an applicable statute or tax treaty shall provide
to Borrower and Agent (i) a properly completed and executed Internal Revenue
Service Form 4224 or Form 1001 or other applicable form, certificate or
document prescribed by the Internal
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Revenue Service of the United States certifying as to such Foreign Lender's
entitlement to such exemption or reduced rate of withholding with respect to
payments to be made to such Foreign Lender under this Agreement and under the
Notes (a "Certificate of Exemption"), or (ii) a letter from any such Foreign
Lender stating that it is not entitled to any such exemption or reduced rate of
withholding (a "Letter of Non-Exemption"). Prior to becoming a Lender under
this Agreement and within fifteen (15) days after a reasonable written request
of Borrower or Agent from time to time thereafter, each Foreign Lender that
becomes a Lender under this Agreement shall provide a Certificate of Exemption
or a Letter of Non-Exemption to Borrower and Agent.
If a Foreign Lender is entitled to an exemption with respect to
payments to be made to such Foreign Lender under this Agreement (or to a
reduced rate of withholding) and does not provide a Certificate of Exemption to
Borrower and Agent within the time periods set forth in the preceding
paragraph, Borrower shall withhold taxes from payments to such Foreign Lender
at the applicable statutory rates and Borrower shall not be required to pay any
additional amounts as a result of such withholding; provided, however, that all
such withholding shall cease upon delivery by such Foreign Lender of a
Certificate of Exemption to Borrower and Agent.
2.10 Required Termination and Prepayment. If on any date any
Lender shall have reasonably determined (which determination shall be final and
conclusive and binding upon all parties) that the making or continuation of its
LIBOR Loans has become unlawful or impossible by compliance by such Lender in
good faith with any law, governmental rule, regulation or order (whether or not
having the force of law and whether or not failure to comply therewith would be
unlawful), then, and in any such event, that Lender shall promptly give notice
(by telephone confirmed in writing) to Borrower and Agent of that
determination. Subject to prior withdrawal of a Notice of Borrowing or a
Notice of Conversion/Continuation or prepayment of LIBOR Loans as contemplated
by the subsection 2.11, the obligation of such Lender to make or maintain its
LIBOR Loans during any such period shall be terminated at the earlier of the
termination of the Interest Period then in effect or when required by law and
Borrower shall no later than the termination of the Interest Period in effect
at the time any such determination pursuant to this subsection 2.10 is made or,
earlier when required by law, repay or prepay LIBOR Loans together with all
interest accrued thereon or convert LIBOR Loans to Base Rate Loans.
2.11 Optional Prepayment/Replacement of Agent or Lenders in
Respect of Increased Costs. Within fifteen (15) days after receipt by Borrower
of written notice and demand from Agent or any Lender (an "Affected Lender")
for payment of additional costs as provided in subsection 2.8 or subsection
2.9(B), Borrower may, at its option, notify Agent and such Affected Lender of
its intention to do one of the following:
(A) Borrower may obtain, at Borrower's expense, a replacement
Lender ("Replacement Lender") for such Affected Lender, which Replacement
Lender shall be reasonably satisfactory to Agent. In the event Borrower
obtains a Replacement Lender within ninety (90) days following notice of its
intention to do so, the Affected Lender shall sell and assign its Loans and
Commitments to such Replacement Lender without recourse to or warranty by, or
expense to, such Affected Lender for a purchase price equal to the outstanding
principal amount of the portion of the
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Loans owing to such Affected Lender plus any accrued but unpaid interest on its
portion of the Loans and accrued but unpaid fees and other Obligations accrued
or owing to such Affected Lender through the date of sale and assignment,
including, in any event, reimbursement to such Affected Lender for its
increased costs for which it is entitled to reimbursement under this Agreement
through the date of such sale and assignment. Upon such sale and assignment,
such Affected Lender shall no longer be a party hereto or have any rights or
benefits hereunder (except for rights or benefits that such Affected Lender
would retain hereunder and under the other Loan Documents upon payment in full
of all of the Obligations) and the Replacement Lender shall succeed to the
rights and benefits, and shall assume the obligations, of such Affected Lender
hereunder and thereunder. In no event may Borrower replace a Lender which is
also an issuer of a Lender Letter of Credit unless (x) all Lender Letters of
Credit issued by such Lender (whether as Agent, if applicable, or otherwise)
have expired or have been terminated or cancelled and such Lender shall have
been reimbursed for all payments made by it under the Lender Letters of Credit
issued by it or (y) such Lender shall have been indemnified in a manner
satisfactory to it for any outstanding Lender Letters of Credit issued by it
and other obligations, absolute or contingent, with respect to Lender Letters
of Credit issued by it.
(B) Borrower may prepay in full all outstanding Obligations
owed to such Affected Lender and terminate such Affected Lender's Commitments.
Borrower shall, within ninety (90) days following notice of its intention to do
so, prepay in full all outstanding Obligations owed to such Affected Lender
(including such Affected Lender's increased costs for which it is entitled to
reimbursement under this Agreement through the date of such prepayment) and
terminate such Affected Lender's Commitments. In no event may Borrower prepay
in full all outstanding Obligations owed to a Lender which is also an issuer of
a Lender Letter of Credit and terminate such Lender's Commitments unless (x)
all Lender Letters of Credit issued by such Lender (whether as Agent, if
applicable, or otherwise) have expired or have been terminated or cancelled and
such Lender shall have been reimbursed for all payments made by it under the
Lender Letters of Credit issued by it or (y) such Lender shall have been
indemnified in a manner satisfactory to it for any outstanding Lender Letters
of Credit issued by it and other obligations, absolute or contingent, with
respect to Lender Letters of Credit issued by it.
2.12 Compensation. Borrower shall compensate each Lender, upon
written request by such Lender (which request shall set forth in reasonable
detail the basis for requesting such amounts and which shall, absent manifest
error, be conclusive and binding upon all parties hereto), for all reasonable
losses, expenses and liabilities (other than lost profits) including, without
limitation, any loss sustained by such Lender in connection with the re-
employment of such funds: (i) if for any reason (other than a default by such
Lender) a borrowing or continuation or conversion of any LIBOR Loan does not
occur on a date specified therefor in a Notice of Borrowing, a Notice of
Conversion/Continuation or a telephonic request for borrowing or
Conversion/Continuation; (ii) if any prepayment of any of its LIBOR Loans
occurs on a date that is not the last day of an Interest Period applicable to
that Loan; (iii) if any prepayment of any of its LIBOR Loans is not made on any
date specified in a notice of prepayment given by Borrower; or (iv) as a
consequence of any other default by Borrower to repay its LIBOR Loans when
required by the terms of this Agreement; provided that during the period while
any such amounts have not been paid, such Lender shall
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reserve an equal amount from amounts otherwise available to be borrowed under
the Revolving Loan. In addition to and not in limitation of the foregoing, if
the credit facility provided under this Agreement has not been syndicated to
the satisfaction of Heller prior to the Closing Date, Borrower agrees to
immediately reimburse Heller upon demand for all breakage costs, charges or
fees incurred by Heller with respect to LIBOR Loans on account of Heller's
syndication of this credit facility made during the sixty (60) day period
immediately following the Closing Date.
2.13 Booking of LIBOR Loans. Each Lender may make, carry or
transfer LIBOR Loans at, to, or for the account of, any of its branch offices
or the office of an affiliate of such Lender.
2.14 Assumptions Concerning Funding of LIBOR Loans.
Calculation of all amounts payable to any Lender under subsection 2.12 shall be
made as though such Lender had actually funded its relevant LIBOR Loan through
the purchase of a LIBOR deposit bearing interest at LIBOR in an amount equal to
the amount of that LIBOR Loan and having maturity comparable to the relevant
Interest Period and through the transfer of such LIBOR deposit from an offshore
office to a domestic office in the United States of America; provided, however,
that each Lender may fund each of its LIBOR Loans in any manner it sees fit and
the foregoing assumption shall be utilized only for the calculation of amounts
payable under subsection 2.12.
SECTION 3. CONDITIONS TO LOANS
3.1 Conditions to Loans. The obligations of Agent and each
Lender to make Loans and the obligation of Agent or any Lender to issue Lender
Letters of Credit on the Closing Date and on each Funding Date are subject to
satisfaction of all of the conditions set forth below.
(A) Closing Deliveries. Agent shall have received, in form
and substance reasonably satisfactory to Agent, all documents, instruments and
information identified on Schedule 3.1(A) and all other agreements, notes,
certificates, orders, authorizations, financing statements and other documents
which Agent may at any time reasonably request.
(B) Security Interests. Agent shall have received
satisfactory evidence that all security interests and liens granted to Agent
for the benefit of Agent and Lenders pursuant to this Agreement or the other
Loan Documents have been duly perfected and constitute first priority liens on
the Collateral, subject only to Permitted Encumbrances.
(C) Closing Date Availability. After giving effect to the
consummation of the transactions contemplated herein on the Closing Date
(including, without limitation, the Recapitalization and the borrowings of
Loans on the Closing Date) and the payment by Borrower of all costs, fees and
expenses relating thereto, Availability on the Closing Date shall be no less
than $55,000,000.
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(D) Representations and Warranties. The representations and
warranties contained herein and in the other Loan Documents shall be true,
correct and complete in all material respects on and as of that Funding Date to
the same extent as though made on and as of that date, except for any
representation or warranty limited by its terms to a specific date and taking
into account any amendments to the Schedules or Exhibits as a result of any
disclosures made by Borrower to Agent after the Closing Date and approved by
Agent.
(E) Fees. With respect to Loans or Lender Letters of Credit
to be made or issued on the Closing Date, Borrower shall have paid the fees
payable on the Closing Date referred to in Fee Letter, dated May __, 1997
between Borrower and Heller.
(F) No Default. No event shall have occurred and be
continuing or would result from the consummation of the requested borrowing or
notice requesting issuance of a Lender Letter of Credit that would constitute
an Event of Default or a Default.
(G) Performance of Agreements. Each Loan Party shall have
performed in all material respects all agreements and satisfied all conditions
which any Loan Document provides shall be performed by it on or before that
Funding Date.
(H) No Prohibition. No order, judgment or decree of any
court, arbitrator or governmental authority shall purport to enjoin or restrain
Agent or any Lender from making any Loans or issuing any Lender Letters of
Credit.
(I) No Litigation. Agent shall be satisfied that there shall
not be pending, entered or threatened any action, charge, claim, demand, suit,
proceeding, petition, governmental investigation, arbitration, inquiry,
injunction or restraining order (i) with respect to the Recapitalization or any
other transactions contemplated herein or (ii) which, if there is a probability
of an adverse determination, is reasonably likely to have a Material Adverse
Effect or a material adverse effect on the Recapitalization or any other
transactions contemplated herein.
(J) No Material Adverse Effect. There shall not have been any
change or development or event which has or is reasonably likely to have a
Material Adverse Effect or a material adverse effect on the Recapitalization or
any other transactions contemplated herein.
(K) Opinions of Counsel. Agent shall have received favorable
opinions of Mary H. Mahon, general counsel of the Loan Parties, and Gibson,
Dunn & Crutcher LLP, special counsel to the Loan Parties, in form and substance
reasonably satisfactory to Agent (and such other opinions of counsel,
including, without limitation, of local counsel and of intellectual property
counsel, each in form and substance reasonably satisfactory to Agent, as Agent
may reasonably request); it being understood that to the extent that such
opinions of counsel shall rely upon any other opinion of counsel, each such
other opinion shall be in form and substance reasonably satisfactory to Agent
and shall provide that Agent and Lenders may rely thereon.
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(L) Financial Information. The quantity and quality of
current financial and other information provided to Lenders will be
satisfactory for the Lenders' evaluation of the creditworthiness of Borrower
and its Subsidiaries.
(M) Qualification. Each Loan Party shall be duly qualified
and in good standing in each jurisdiction in which it owns or leases property
or in which the conduct of its business requires it to so qualify, except where
the failure to so qualify could not be reasonably expected to have a Material
Adverse Effect.
(N) Consents and Terminations. Agent shall have received (i)
all necessary consents relating to the Loan Documents, the Recapitalization and
the other transactions contemplated herein from third parties so that the same
shall be valid and not result in any violation of any material agreement
running in favor of such third party, (ii) a payout and termination agreement
in form and substance reasonably satisfactory to Agent with respect to the
Existing Credit Agreement and all other Indebtedness of Borrower and the
Restricted Subsidiaries existing on the Closing Date which is not permitted
hereunder to survive the Closing Date and all satisfactions of mortgages,
termination statements under the UCC and other instruments releasing Liens as
may be necessary or desirable to release any Liens created under or securing
any of the foregoing, all in form and substance reasonably satisfactory to
Agent and (iii) evidence reasonably satisfactory to Agent that all the
Indebtedness referred to in clause (ii) above has been paid in full.
(O) Evidence of Insurance. Agent shall have received
evidence, in form, scope and substance and with such insurance carriers
reasonably satisfactory to Agent of all insurance policies required pursuant to
this Agreement and the other Loan Documents. Such insurance coverage shall
have been issued by responsible carriers reasonably acceptable to Agent and
shall include, without limitation, loss payee endorsements that name Agent as
loss payee and require at least thirty (30) days' prior written notice be
provided to Agent in the event of cancellation or material change thereof.
(P) Examination of Books. Agent shall have had the
opportunity to examine the governing documents, books, records, contracts,
leases, leases, pension plans, insurance coverage and properties of Borrower
and its Subsidiaries, and to perform such other due diligence regarding
Borrower and its Subsidiaries as Agent shall have requested, the results of all
of which shall have been satisfactory to Agent in all respects.
(Q) Recapitalization. Agent shall have approved the terms,
structure, effect, fees and expenses and all documentation and corporate
proceedings relating to the Recapitalization, the issuance of the Senior Notes
and the other transactions contemplated herein, and all charters, bylaws and
other corporate governance documents relating to Borrower and its Subsidiaries.
(R) Senior Notes. Borrower shall have issued the Senior Notes
in an aggregate principal amount of not less than $125,000,000 and shall have
received not less than $120,000,000 as net cash proceeds thereof. The Senior
Note Debt shall be unsecured and have terms and conditions pursuant to an
agreement which shall be in form and substance (including payment terms)
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reasonably acceptable to Agent. The proceeds of the Senior Note Debt shall be
used, among other things, to fund the entire amount of dividends or other
distributions contemplated under the Recapitalization. Borrower shall have
made available, in preliminary and final form, as and when created, all
documentation pertaining to the Senior Note Debt, which documentation would be
subject to Agent's review and approval.
(S) Collateral Audit. Agent shall have received a collateral
audit and valuation conducted by it or its representatives of Borrower's and
the Restricted Subsidiaries' (as applicable) business, operations, financial
condition, assets and liabilities and the systems of Borrower and the
Restricted Subsidiaries providing for the ordering and monitoring of inventory
(all of which shall be satisfactory in all respects to Agent). Additionally,
Agent or its representatives shall have had the opportunity to meet with
Borrower's management to discuss the results of such collateral audit and
valuation.
(T) Environmental Matters. Agent shall be reasonably
satisfied that there are no existing environmental liabilities which would have
a Material Adverse Effect. Agent shall have reviewed and found satisfactory
the indemnification by The Southland Corporation in favor of Borrower against
losses by Borrower associated with any environmental contamination existing on
the date of the sale of Borrower by The Southland Corporation.
(U) Cash Management. On or prior to the Closing Date,
Borrower and the Restricted Subsidiaries shall have established a cash
management and collection system complying with subsection 5.6. In any event,
Agent shall have received on or prior to the Closing Date [to be determined].
(V) Compliance with Law. Agent shall be satisfied that (a)
Borrower and each other Loan Party is in compliance with, and shall have
obtained appropriate approvals pertaining to, all applicable governmental,
environmental, labor, ERISA and other requirements, regulations and laws,
except to the extent noncompliance or the failure to obtain such approvals is
not reasonably likely to have a Material Adverse Effect; and (b) the credit
facilities herein provided, the issuance of the Senior Note Debt, the
Recapitalization and all other transactions contemplated herein shall be in
compliance in all material respects with all applicable laws and regulations
and shall not contravene any term or condition of any charter, bylaw, debt
instrument or other material agreement of Borrower or any of the other Loan
Parties.
(W) Proceedings; Receipt of Documents. All requisite
corporate action and proceedings in connection with the borrowings, the
issuance of Lender Letters of Credit and the execution and delivery of the Loan
Documents and the documents relating to the issuance of the Senior Note Debt
and the Recapitalization shall be satisfactory in form and substance to Agent
and Agent shall have received all information and copies of all documents,
including, without limitation, records of requisite corporate action and
proceedings, which Agent may have requested in connection therewith, such
documents where requested by Agent to be certified by appropriate corporate
Persons or governmental authorities. Without limiting the generality of the
foregoing, Agent shall have received on or before the Closing Date the
following, each dated such day (unless
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otherwise specified), in form and substance reasonably satisfactory to Agent
(unless otherwise specified):
(i) A copy of the certificate of incorporation of each Loan
Party, and all amendments thereto, certified (as of a date reasonably
near the date of the initial financial accommodation to be made
hereunder), by the Secretary of State of each of their respective states
as being a true and correct copy thereof.
(ii) Certified copies of the resolutions of the Board of
Directors of each Loan Party approving this Agreement, the Notes and the
other Loan Documents and documents with respect to the issuance of the
Senior Note Debt and the Recapitalization to which it is a party or by
which it is bound, and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to
this Agreement, the Notes and the other Loan Documents and documents
with respect to the issuance of the Senior Note Debt and the
Recapitalization.
(iii) A copy of a certificate of the Secretary of State of each
State where each Loan Party is doing business dated a date reasonably
near the date of the initial financial accommodations to be made
hereunder, stating that each Loan Party, as the case may be, is duly
qualified and in good standing as a foreign entity in such State.
(iv) A certificate of each Loan Party signed on behalf of such
Person by its vice president or secretary, certifying as to (A) the
absence of any amendments to the charter of such Person since the date
of the Secretary of State's certificate for such Person referred to
above and (B) a true and correct copy of the by-laws of such Person as
in effect on the date of the initial financial accommodations to be made
hereunder.
(v) A certificate of the Secretary or an Assistant Secretary
of each Loan Party certifying the names and true signatures of the
officers of such Person authorized to sign, on behalf of such Person,
this Agreement, the Notes and each other Loan Document to which such
Person is a party or by which it is bound.
(X) Solvency. Agent shall have received evidence satisfactory
to Agent that on the Closing Date after giving effect to the Recapitalization
and other transactions contemplated herein to occur on the Closing Date
Borrower and the Restricted Subsidiaries on a consolidated basis are solvent,
able to meet their obligations as they mature and have sufficient capital to
enable them to operate their business. Agent shall have received an opinion of
Houlihan, Lokey Howard & Zukin or another appraisal or valuation firm
reasonably satisfactory to Agent, in form and substance satisfactory to Agent,
which shall document the compliance of Borrower and the Restricted Subsidiaries
with the foregoing after giving effect to the consummation of Recapitalization
and other transactions contemplated herein to occur on the Closing Date.
(Y) Capital, Organization, Legal Structure, Taxes. Borrower's
tax assumptions, capital, organization, ownership and legal structure shall be
satisfactory to Agent and not impair the
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ability of Agent to enforce its claims against the Collateral. All Collateral
shall be freely pledgeable to Agent, for the benefit of Agent and Lenders, as
collateral security for the Obligations, subject to Permitted Encumbrances.
(Z) Mortgagee Waiver. Agent shall have received evidence
satisfactory to Agent that Borrower used commercially reasonable efforts to
obtain a mortgagee waiver, in form and substance satisfactory to Agent, duly
executed by the mortgagee with respect to Borrower's Seagoville, Texas
facility.
(AA) Special Counsel Fees. Messrs. Kaye, Scholer, Fierman,
Hays & Handler, LLP, special counsel to Agent, shall have received payment in
full of all fees, costs and expenses billed on or prior to the Closing Date
with respect to the transactions herein contemplated.
(BB) Other Conditions Precedent. Such other conditions
precedent requested by Agent as are customary in the view of Agent for secured
financings of this type.
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES
To induce Agent and each Lender to enter into this Agreement, and
to make Loans and to issue Lender Letters of Credit, Borrower represents and
warrants to Agent and each Lender that the following statements are , and on
each Funding Date shall (except for any representation or warranty limited by
its terms to a specific date, in which case such representation or warranty
shall be made as of such specific date) be, true, correct and complete:
4.1 Organization, Powers, Capitalization.
(A) Organization and Powers. Each of the Loan Parties is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and qualified to do business in all
states where such qualification is required except where failure to be so
qualified could not be reasonably expected to have a Material Adverse Effect.
Each of the Loan Parties has all requisite corporate power and authority to own
and operate its properties, to carry on its business as now conducted and
proposed to be conducted and to enter into and perform its obligations under
each of the Loan Documents, Senior Note Documents and documents with respect to
the Recapitalization (collectively, the "Transaction Documents") to which it is
a party.
(B) Capitalization. The authorized capital stock of each of
the Loan Parties is as set forth on Schedule 4.1(B) as updated from time to
time in a writing delivered by Borrower to Agent to reflect events, acts or
conditions permitted hereunder and which do not otherwise constitute or result
in a Default or Event of Default. All issued and outstanding shares of capital
stock of each of the Loan Parties are duly authorized and validly issued, fully
paid, nonassessable, free and clear of all Liens other than those in favor of
Agent for the benefit of Agent and Lenders, and such shares were issued in
compliance with all applicable state and federal laws concerning the issuance
of securities. The capital stock of each of the Loan Parties is owned by the
stockholders and in the
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amounts set forth on Schedule 4.1(B) as updated from time to time as aforesaid.
No shares of the capital stock of any Loan Party, other than those described
above, are issued and outstanding. Except as set forth on Schedule 4.1(B) as
updated from time to time as aforesaid, there are no preemptive or other
outstanding rights, options, warrants, conversion rights or similar agreements
or understandings for the purchase or acquisition from any Loan Party, of any
shares of capital stock or other securities of any such entity.
4.2 Authorization of Borrowing, No Conflict. Borrower has the
corporate power and authority to incur the Obligations and to grant security
interests in the Collateral. On the Closing Date, the execution, delivery and
performance of the Loan Documents and other Transaction Documents by each Loan
Party signatory thereto will have been duly authorized by all necessary
corporate and shareholder action. The execution, delivery and performance by
each Loan Party of each Loan Document and other Transaction Document to which
it is a party and the consummation of the transactions contemplated by this
Agreement and the other Loan Documents and Transaction Documents by each Loan
Party do not contravene and will not be in contravention of any applicable law,
the corporate charter or bylaws of any Loan Party or any material agreement or
order by which any Loan Party or any Loan Party's property is bound. This
Agreement is, and the other Loan Documents and Transaction Documents when
executed and delivered will be, the legally valid and binding obligations of
the applicable Loan Parties respectively, each enforceable against the Loan
Parties, as applicable, in accordance with their respective terms, subject, as
to enforceability, to the effect of any applicable bankruptcy, insolvency,
moratorium, reorganization or other similar law affecting creditors' rights
generally, and to the discretionary nature of specific performance, injunctive
relief and other equitable remedies, including the appointment of a receiver.
4.3 Financial Condition. All financial statements concerning
Borrower and its Subsidiaries which have been or will hereafter be furnished by
Borrower and its Subsidiaries to Agent or any Lender pursuant to this Agreement
have been or will be prepared in accordance with GAAP consistently applied
throughout the periods involved (except as disclosed therein) and do or will
present fairly in all material respects the financial condition of the
corporations covered thereby as at the dates thereof and the results of their
operations for the periods then ended, subject in the case of interim
statements, to normal year-end audit adjustments and the omission of footnote
disclosure. The Pro Forma was prepared by Borrower based on the unaudited
consolidated balance sheet of Borrower as of the end of the monthly accounting
period of Borrower most recently closed prior to the Closing Date. The Budgets
delivered and to be delivered have been and will be prepared by Borrower in
light of the past operations of the business of Borrower and its Subsidiaries,
and such Budgets represent and will represent the good faith estimate of
Borrower and its senior management concerning the most probable course of its
business as of the date such Budgets are prepared and delivered. There has
been no material adverse change in the business, operations, liabilities,
assets, properties, prospects, projected cash flows or condition (financial or
otherwise) of Borrower or Borrower and the Restricted Subsidiaries taken as a
whole since May 5, 1997.
4.4 Indebtedness and Liabilities. As of the Closing Date,
neither Borrower nor any of the Restricted Subsidiaries has (a) any
Indebtedness except as reflected on the Pro Forma or
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Schedule 1.1(B); or (b) any Liabilities other than as reflected on the Pro
Forma or as incurred in the ordinary course of business following the date of
the Pro Forma.
4.5 Account Warranties. Borrower represents, warrants and
covenants as to each Account that, at the time of its creation, the Account is
a valid, bona fide account, representing an undisputed indebtedness incurred by
the named account debtor for goods actually sold and delivered or for services
completely rendered; there are no setoffs, offsets or counterclaims, genuine or
otherwise, against the Account; the Account does not represent a sale to an
Affiliate or a consignment, sale or return or a bill and hold transaction; no
agreement exists permitting any deduction or discount (other than the discount
stated on the invoice); Borrower is the lawful owner of the Account and has the
right to assign the same to Agent, for the benefit of Agent and Lenders; the
Account is free of all security interests, liens and encumbrances other than
those in favor of Agent, on behalf of Agent and Lenders, and the Account is due
and payable in accordance with its terms.
4.6 Names. Schedule 4.6 sets forth all names, trade names,
fictitious names and business names under which Borrower currently conducts
business or has at any time during the past five years conducted business other
than those names for which written notice has been delivered to Agent pursuant
to and in accordance with subsection 5.1(L).
4.7 Locations; FEIN. Schedule 4.7 sets forth the location of
Borrower's principal place of business, the location of Borrower's books and
records, the location of all other offices of Borrower and all Collateral
locations other than those locations for which a written notice or report has
been delivered to Agent pursuant to and in accordance with subsection 5.1(M),
and such locations are Borrower's sole locations for its business and the
Collateral. Borrower's federal employer identification number is set forth on
the signature page hereof.
4.8 Title to Properties; Liens. Borrower and each of the
Restricted Subsidiaries has good, sufficient and legal title, subject to
Permitted Encumbrances, to all its respective material properties and assets.
Except for Permitted Encumbrances, all such properties and assets are free and
clear of Liens. To the knowledge of Borrower , there are no actual,
threatened or alleged defaults with respect to any leases of real property
under which Borrower or any of the Restricted Subsidiaries is lessee or lessor
which would have a Material Adverse Effect.
4.9 Litigation; Adverse Facts. Except as set forth on
Schedule 4.9, there are no judgments, injunctions or restraining orders
outstanding against any Loan Party or affecting any property of any Loan Party
or the Recapitalization or any of the other transactions contemplated herein
nor is there any action, charge, claim, demand, suit, proceeding, petition,
governmental investigation or arbitration now pending or, to the knowledge of
Borrower , threatened against any Loan Party or affecting any property of any
Loan Party or the Recapitalization or any of the other transactions
contemplated herein which could reasonably be expected to result in any
Material Adverse Effect or have a material adverse effect on the
Recapitalization or any of the other transactions contemplated herein.
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4.10 Payment of Taxes. All material tax returns and reports of
Borrower and each of the Restricted Subsidiaries required to be filed by any of
them have been timely filed, and all taxes, assessments, fees and other
governmental charges upon such Persons and upon their respective properties,
assets, income and franchises which are shown on such returns as due and
payable have been paid when due and payable. As of the Closing Date, none of
the United States income tax returns of Borrower or any of the Restricted
Subsidiaries are under audit. No tax liens have been filed and no claims
(except as otherwise permitted by Section 5.9) are being asserted with respect
to any such taxes. The charges, accruals and reserves on the books of Borrower
and each of the Restricted Subsidiaries in respect of any taxes or other
governmental charges are in accordance with GAAP.
4.11 Performance of Agreements. None of the Loan Parties and
none of their respective Subsidiaries is in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any material contractual obligation of any such Person, and no
condition exists that, with the giving of notice or the lapse of time or both,
would constitute such a default.
4.12 Employee Benefit Plans. Borrower, each of its
Subsidiaries and each ERISA Affiliate is in compliance in all material respects
with all applicable provisions of ERISA, the IRC and all other applicable laws
and the regulations and interpretations thereof with respect to all Employee
Benefit Plans. No material liability has been incurred by Borrower, any
Subsidiaries or any ERISA Affiliate which remains unsatisfied for any funding
obligation, taxes or penalties with respect to any Employee Benefit Plan.
4.13 Intellectual Property. Borrower and each of the
Restricted Subsidiaries owns, is licensed to use or otherwise has the right to
use, all material Intellectual Property used in or necessary for the conduct of
its business as currently conducted, and all such Intellectual Property is
identified on Schedule 4.13.
4.14 Broker's Fees. No broker's or finder's fee or commission
will be payable with respect to any of the transactions contemplated hereby.
4.15 Environmental Matters.
(a) Borrower and each of the Restricted Subsidiaries has
obtained all permits, licenses and other authorizations which are required
under all Environmental Laws, except to the extent failure to have any such
permit, license or authorization would not have a Material Adverse Effect.
Borrower and each of the Restricted Subsidiaries is in compliance with (i) the
terms and conditions of all such permits, licenses and authorizations, and (ii)
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any applicable
Environmental Law or in any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, except, in each case or in the aggregate, to the extent failure to
comply would not have a Material Adverse Effect.
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(b) Except as set forth in Schedule 4.15, no notice,
notification, demand, request for information, citation, summons or order has
been issued, no complaint has been filed, no penalty has been assessed and no
investigation or review is pending or, to the knowledge of Borrower,
threatened by any governmental body or authority or other Person with respect
to any alleged failure by Borrower or any Restricted Subsidiary to have any
permit, license or authorization required in connection with the conduct of its
business or with respect to any Environmental Laws, including, without
limitation, Environmental Laws relating to the generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous Materials,
except to the extent such notice, notification, demand, request for
information, citation, summons, order, complaint, penalty, investigation or
review would not have a Material Adverse Effect. Except as set forth on
Schedule 4.15, none of Borrower or any Restricted Subsidiary has been
identified as a potentially responsible party (as that term has been construed
pursuant to CERCLA, or any similar applicable Environmental Law), the effect of
which identification or anticipated or actual exposure of Borrower or any
Restricted Subsidiary is reasonably likely to result in material liability to
Borrower or any Restricted Subsidiary or otherwise have a Material Adverse
Effect.
(c) Except as set forth in Schedule 4.15, no material oral or
written notification of a release of a Hazardous Material has been filed by or
on behalf of Borrower or any Restricted Subsidiary, except to the extent such
notification would not have a Material Adverse Effect. No property now owned,
leased or used by Borrower or any Restricted Subsidiary is listed or proposed
for listing on the National Priorities List under CERCLA or on any similar
applicable foreign, federal or state list of sites requiring investigation or
clean-up, the effect of which listing or proposed listing or anticipated or
actual exposure of Borrower or any Restricted Subsidiary is reasonably likely
to result in material liability to Borrower or any Restricted Subsidiary or
otherwise have a Material Adverse Effect. To the knowledge of Borrower, no
property previously owned, leased, or used by Borrower or any Restricted
Subsidiary is listed or is proposed for listing on the National Priorities List
under CERCLA or on any similar applicable foreign, federal or state list of
sites requiring investigation or clean-up for any Hazardous Material, actually
or allegedly, generated, treated, stored, recycled, transported, disposed or
released on the property during the time of Borrower's or any Restricted
Subsidiary's ownership, lease or use, the effect of which listing or proposed
listing or anticipated or actual exposure of Borrower or any Restricted
Subsidiary is reasonably likely to result in material liability to Borrower or
any Restricted Subsidiary or otherwise have a Material Adverse Effect.
(d) Neither Borrower, any Restricted Subsidiary nor, to the
knowledge of Borrower, any previous owner, tenant, occupant or user of (1) any
property now owned, leased or used by Borrower or any Restricted Subsidiary or
(2) any property formerly owned, leased or used by Borrower or any Restricted
Subsidiary, during the time of Borrower's or any Restricted Subsidiary's
ownership, lease or use has (i) engaged in or permitted any operations or
activities upon or any use or occupancy of such property, or any portion
thereof, for the purpose of or in any way involving the handling, manufacture,
treatment, storage, use, generation, release, discharge, refining, dumping or
disposal (whether legal or illegal, accidental or intentional) of any Hazardous
Materials on, under, in or about such property, except to the extent commonly
used in day-to-day operations of such property or in the ordinary course of
business of Borrower or any Restricted Subsidiary and in such
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case, only in compliance with all Environmental Laws except to the extent
failure to comply would not have a Material Adverse Effect, or (ii) transported
any Hazardous Materials to, from or across such property except to the extent
commonly used in day-to-day operations of such property or in the ordinary
course of business of Borrower or any Restricted Subsidiary and, in such case,
in compliance with all Environmental Laws except to the extent failure to
comply would not have a Material Adverse Effect; nor, to the knowledge of
Borrower, have any Hazardous Materials migrated from other properties upon,
about or beneath such property, nor, to the knowledge of the Borrower, are any
Hazardous Materials presently constructed, deposited, stored or otherwise
located on, under, in or about such property except to the extent commonly used
in day-to-day operations of such property or in the ordinary course of business
of Borrower or any Restricted Subsidiary and, in such case, in compliance with
all Environmental Laws except to the extent failure to comply would not have a
Material Adverse Effect.
(e) There are no Liens arising under or pursuant to any
Environmental Laws on any of the real or personal property or properties now
owned, leased or used by Borrower or any Restricted Subsidiary and no
governmental actions have been taken or are in process which could subject any
of such properties to such Liens or, as a result of which Borrower or any
Restricted Subsidiary would be required to place any notice or restriction
relating to the presence of Hazardous Materials at any property owned by it in
any deed to such property, except for deed restrictions listed and described in
Schedule 4.15 and Permitted Encumbrances.
4.16 Solvency. After giving effect to the transactions
contemplated by the Loan Documents and other Transaction Documents, and as of
each of the date of this Agreement and the date of the consummation of each
Permitted Acquisition, Borrower: (a) owns and will own assets the fair salable
value of which are (i) greater than the total amount of its liabilities
(including contingent liabilities) and (ii) greater than the amount that will
be required to pay the probable liabilities of Borrower as they mature; (b) has
capital that is not unreasonably small in relation to its business as presently
conducted or any contemplated or undertaken transaction; and (c) does not
intend to incur and does not believe that it will incur debts beyond its
ability to pay such debts as they become due. There is no material fact known
to Borrower that is reasonably likely to have a Material Adverse Effect and
that has not been fully disclosed herein or in such other documents,
certificates and statements furnished to Agent or Lenders for use in connection
with the transactions contemplated hereby.
4.17 Disclosure. No representation or warranty of Borrower or
any other Loan Party contained in this Agreement, the financial statements, the
other Loan Documents, the other Transaction Documents or any other document,
certificate or written statement furnished to Agent or any Lender by or on
behalf of any such Person for use in connection with the Loan Documents
contains any untrue statement of a material fact or omitted, omits or will omit
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances in which the
same were made. The Budgets and pro forma financial information contained in
such materials are based upon good faith estimates and assumptions believed by
such Persons to be reasonable at the time made, it being recognized by Agent
and Lenders that such forecasts as to future events are not to be viewed as
facts and that actual results during the period or
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periods covered by any such or forecasts may differ from the forecasted
results. There is no material fact known to Borrower that has had or will have
a Material Adverse Effect or a material adverse effect with respect to the
Recapitalization or any of the other transactions contemplated herein and that
has not been disclosed herein or in such other documents, certificates and
statements furnished to Agent or any Lender for use in connection with the
transactions contemplated herein.
4.18 Insurance. Borrower and each of the Restricted
Subsidiaries maintains or has caused to be maintained adequate insurance
policies for public liability, property damage for its business and properties,
product liability, and business interruption, no notice of cancellation has
been received with respect to such policies and Borrower and each of the
Restricted Subsidiaries is in compliance in all material respects with all
conditions contained in such policies.
4.19 Compliance with Laws. Neither Borrower nor any of the
Restricted Subsidiaries is in violation of any law, ordinance, rule,
regulation, order, policy, guideline or other requirement of any domestic or
foreign government or any instrumentality or agency thereof, having
jurisdiction over the conduct of its business or the ownership of its
properties, including, without limitation, any violation relating to any use,
release, storage, transport or disposal of any Hazardous Material, which
violation would subject Borrower or any of the Restricted Subsidiaries, or any
of their respective officers to criminal liability or have a Material Adverse
Effect and no such violation has been alleged. The Recapitalization and the
other transactions contemplated herein have been consummated in all material
respects in accordance with all applicable laws.
4.20 Bank Accounts. Schedule 4.20 sets forth the account
numbers and locations of all bank accounts of Borrower and the Restricted
Subsidiaries other than those bank accounts for which Agent has received notice
pursuant to and in accordance with subsection 5.1(N).
4.21 Subsidiaries. Borrower has no Subsidiaries other than as
set forth on Schedule 4.21 or those permitted to be created or acquired under
Section 7.
4.22 Employee Matters. Except as set forth on Schedule 4.22,
(a) no Loan Party nor any of such Loan Party's employees is subject to any
collective bargaining agreement except those for which Agent has received
written notice thereof, (b) no petition for certification or union election is
pending with respect to the employees of any Loan Party, no union or collective
bargaining unit has sought such certification or recognition with respect to
the employees of any Loan Party, no union representation question exists with
respect to employees of any Loan Party and no union organizing activities are
taking place, in each instance, except those for which Agent has received
written notice thereof, (c) there are no labor disputes, strikes, slowdowns,
work stoppages or controversies pending or, to the knowledge of Borrower ,
threatened between any Loan Party and its respective employees, other than
employee grievances arising in the ordinary course of business which could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect and (d) no Loan Party is engaged in any unfair labor
practice and there is no unfair labor practice complaint pending or threatened
against any Loan Party before the National Labor Relations Board or other
governmental body or authority, and no grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is so pending
against any Loan Party or,
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to the knowledge of Borrower, threatened against any of them, in each instance,
which could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. Except as set forth on Schedule 4.22,
neither Borrower nor any of the Restricted Subsidiaries is subject to an
employment contract except those for which Agent has received written notice
thereof. The potential liability of Borrower with respect to all actual,
threatened and potential claims relating to the allegation that Borrower failed
to pay its store managers and associate store managers overtime compensation as
required by California (collectively, the "Compensation Claims") law would not,
if adversely determined to Borrower in excess of the amounts reserved therefor
by Borrower in accordance with GAAP, reasonably be expected to have a Material
Adverse Effect. None of the information and material with respect to
Compensation Claims furnished to Agent or any Lender by or on behalf of
Borrower contains any untrue statement of a material fact or omitted, omits or
will omit to state a material fact necessary in order to make the statements
therein contained not misleading in light of the circumstances in which the
same were made.
4.23 Governmental Regulation. None of the Loan Parties is, or
after giving effect to any loan will be, subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act or the Investment
Company Act of 1940 or to any federal or state statute or regulation limiting
its ability to incur indebtedness for borrowed money. No action of, or filing
with, any governmental or public body or authority (other than normal reporting
requirements or filing with respect to perfection of Liens in Collateral) is
required to authorize, or is otherwise required in connection with, the
execution, delivery or performance of any of this Agreement, the Notes, the
other Loan Documents and Transaction Documents or any of the instruments or
documents to be delivered pursuant hereto or thereto, except such as have been
made.
4.24 Capital Leases. Except as to future Capital Leases of
Borrower and the Restricted Subsidiaries permitted hereunder, Schedule 1.1(B)
contains a complete list as of the Closing Date of all Capital Leases of
Borrower and the Restricted Subsidiaries and all amendments thereto and all
other documents affecting rights and obligations thereunder, including without
limitation, assignments and subleases pursuant to which Borrower or any
Restricted Subsidiary leases equipment. The copies of the Capital Leases
heretofore delivered by Borrower to Agent are true, correct and complete copies
thereof and each of such Capital Leases is in full force and effect in
accordance with the terms thereof. None of Borrower nor any Restricted
Subsidiary nor, to the best knowledge of Borrower, the lessor, under any
Capital Lease is in default under the applicable Capital Lease or has given or
received any notice of cancellation or termination of such Capital Lease other
than the cancellation or termination of a Capital Lease by Borrower or
Restricted Subsidiary party thereto in the ordinary course of its business and
not due to or arising out of the occurrence of a default by Borrower or such
Restricted Subsidiary thereunder. Neither Borrower nor any Restricted
Subsidiary has assigned any of their interest in any of the Capital Leases, as
collateral or otherwise, or granted any license with respect thereto, except as
may be otherwise disclosed on Schedule 1.1(B).
[4.25 Co-Op Contracts. Neither Borrower nor any of its
Subsidiaries is party to any co-op advertising contracts or arrangements
requiring Borrower's performance of advertising or other marketing functions,
except as disclosed on
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Schedule 4.25; and, except as disclosed on Schedule 4.25, neither Borrower nor
any of its Subsidiaries is in default in the observance or performance of any
duties or obligations under any such contracts.]
4.26 Inactive Subsidiary. As of the Closing Date and at all
times thereafter so long as CAP Merger Sub Inc. is not a Restricted Subsidiary,
CAP Merger Sub Inc. does not own cash and other assets and properties with an
aggregate value in excess of $________________.
Borrower may, at any time and from time to time and subject to
subsection 5.13, amend any one or more of the Schedules referred in this
Section 4 and any representation or warranty contained herein which refers to
any such Schedule shall from and after the date of any such amendment refer to
such Schedule as so amended, provided, however, that in no event may the
Borrower amend any such Schedule if such amendment would reflect or evidence a
Default or Event of Default.
SECTION 5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, so long as any of the
Commitments hereunder shall be in effect and until payment in full of all
Obligations (other than Inchoate Indemnity Obligations) and termination of all
Lender Letters of Credit, unless Requisite Lenders shall otherwise give their
prior written consent, Borrower shall perform, and shall cause each of the
Restricted Subsidiaries to perform, all covenants in this Section 5.
5.1 Financial Statements and Other Reports. Borrower will
maintain, and cause each of the Restricted Subsidiaries to maintain, a system
of accounting established and administered in accordance with sound business
practices to permit preparation of financial statements in conformity with
GAAP. In any event and without limitation of the foregoing, each consolidated
balance sheet of Borrower and its Subsidiaries as at the end of any fiscal
quarter or Fiscal Year of Borrower required to be delivered pursuant to
subsection 5.1(B) or (C) shall classify and present those liabilities of the
type which are included within "Other accrued liabilities" and "Other
noncurrent liabilities" in the audited balance sheet of Borrower as at December
29, 1996 and the corresponding notes to the financial statements therefor in a
manner consistent with the classification and presentation of such liabilities
in such audited balance sheet and notes, including, without limitation, by
including the aggregate of such liabilities as of the relevant balance sheet
date as a line item in such balance sheet with a summary break-down of each
sub-category of liabilities (using the same categories as in the notes to such
audited financial statements, including, without limitation, "Store-closing
provision" and "Other (including legal)") included within each such line item
in notes which shall be delivered with or as part of each such balance sheet.
Borrower will deliver to Agent and each Lender (unless specified to be
delivered solely to Agent) the financial statements and other reports described
below.
(A) Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each monthly accounting period of
Borrower, Borrower will deliver the consolidated balance sheet of Borrower and
its Subsidiaries and the consolidating balance sheet of Borrower and the
Restricted Subsidiaries, in either instance, as at the end of such monthly
accounting period and the related consolidated and, with respect to Borrower
and the Restricted Subsidiaries, consolidating statements of operations,
stockholders' equity and cash flow for such monthly accounting period and for
the period from the beginning of the then current Fiscal Year to the end of
such monthly accounting period.
(B) Quarterly Financials. As soon as available and in any
event within forty-five (45) days after the end of each quarterly accounting
period of a Fiscal Year, Borrower will deliver the consolidated balance sheet
of Borrower and its Subsidiaries and the consolidating balance sheet of
Borrower and the Restricted Subsidiaries, in either instance, as at the end of
such quarterly accounting period and the related consolidated and, with respect
to Borrower and the Restricted Subsidiaries, consolidating statements of
operations, stockholders' equity and cash flow for such
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quarterly accounting period of a Fiscal Year and for the period from the
beginning of the then current Fiscal Year to the end of such quarterly
accounting period of a Fiscal Year.
(C) Year-End Financials. As soon as available and in any
event within ninety (90) days after the end of each Fiscal Year, Borrower will
deliver: (1) the consolidated balance sheet of Borrower and its Subsidiaries
as at the end of such year and the related consolidated statements of
operations, stockholders' equity and cash flow for such Fiscal Year; (2) a
schedule of the outstanding Indebtedness of Borrower and its Subsidiaries
describing in reasonable detail each such debt issue or loan outstanding and
the principal amount and amount of accrued and unpaid interest with respect to
each such debt issue or loan; (3) a report with respect to the financial
statements from a firm of independent certified public accountants selected by
Borrower and acceptable to Agent, which report shall be unqualified as to going
concern and scope of audit of Borrower and its Subsidiaries and shall state
that (a) such consolidated financial statements present fairly in all material
respects the consolidated financial position of Borrower and its Subsidiaries
as at the dates indicated and the results of their operations and cash flow for
the periods indicated in conformity with GAAP applied on a basis consistent
with prior years and (b) that the examination by such accountants in connection
with such consolidated financial statements has been made in accordance with
generally accepted auditing standards; (4) copies of the consolidating
financial statements of Borrower and its Subsidiaries, including (a)
consolidating balance sheets of Borrower and its Subsidiaries as at the end of
such Fiscal Year showing intercompany eliminations and (b) related
consolidating statements of earnings of Borrower and its Subsidiaries showing
intercompany eliminations; and (5) a schedule of the book and physical
inventory adjustments of Borrower and its Subsidiaries in reasonable detail.
(D) Accountants' Certification and Reports. Together with
each delivery of consolidated financial statements of Borrower and its
Subsidiaries pursuant to subsection 5.1(C), Borrower will deliver (1) a written
statement by its independent certified public accountants (a) stating that the
examination has included a review of the terms of this Agreement as same relate
to accounting matters and (b) stating whether, in connection with the
examination, any condition or event that constitutes a Default or an Event of
Default has come to their attention and, if such a condition or event has come
to their attention, specifying the nature and period of existence thereof and
(2) a copy of the letter sent by Borrower to its independent certified public
accountants, via certified mail return requested, in the form of Exhibit 5.1(D)
for such consolidated financial statements of Borrower and its Subsidiaries
(Borrower hereby agreeing to send such letter to its independent certified
public accountants upon each delivery to Borrower by such accountants of such
accountant's report under subsection 5.1(C)(3) with respect to the annual
financial statements of Borrower for each Fiscal Year). Concurrently with the
delivery required hereby of the financial statements involved, Borrower will
deliver copies of all management reports submitted to Borrower by independent
public accountants in connection with each annual, interim or special audit of
the financial statements of Borrower made by such accountants.
(E) Compliance Certificate. Together with the delivery of
each set of financial statements referenced in subparts (B) and (C) of this
subsection 5.1, Borrower will deliver a Compliance Certificate, together with
support in reasonable detail to determine Borrower's compliance or
noncompliance with the financial covenants set forth in Section 6.
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(F) Borrowing Base Certificates, Registers and Journals. As
soon as available and in any event within 10 days after the last day of each
monthly accounting period of Borrower, Borrower shall deliver to Agent a
Borrowing Base Certificate for the monthly accounting period of Borrower just
ended; provided that so long as Availability shall be less than or equal to
$15,000,000, Borrower shall deliver to Agent a Borrowing Base Certificate on a
weekly basis, such Borrowing Base Certificate to be delivered as soon as
available and in any event within 5 Business Days after the end of each week
for such week just ended.
(G) Reconciliation Reports, Inventory Reports and Listings and
Agings. On the Closing Date and within ten (10) days after the last day of
each monthly accounting period of Borrower (but with respect to clause (1),
only after Eligible Accounts are includable within the Borrowing Base as
provided in subsection 2.1(A)(2)(a)); and from time to time upon the request of
Agent, Borrower will deliver to Agent: (1) an aged trial balance of all then
existing Accounts; and (2) an Inventory Report as of the last day of such
monthly accounting period. As soon as available and in any event within ten
(10) days after the last day of each monthly accounting period of Borrower,
and from time to time upon the request of Agent, Borrower will deliver to
Agent: (1) a Reconciliation Report as at the last day of such monthly
accounting period; (2) an aged trial balance of all then existing accounts
payable; and (3) a detailed inventory listing and cover summary report. All
such reports shall be in form and substance reasonably satisfactory to Agent.
(H) Management Report. Together with each delivery of
financial statements of Borrower and its Subsidiaries pursuant to subdivisions
(B) and (C) of this subsection 5.1, Borrower will deliver a management
discussion and analysis report: (1) describing the operations and financial
condition of Borrower and its Subsidiaries for the quarterly accounting period
of Borrower then ended and the portion of the current Fiscal Year then elapsed
(or for the Fiscal Year then ended in the case of year-end financials); (2)
setting forth in comparative form the corresponding figures for the
corresponding periods of the previous Fiscal Year and the corresponding figures
from the most recent Budgets for the current Fiscal Year delivered to Lenders
pursuant to 5.1(P); (3) discussing the reasons for any significant variations;
(4) [including a report on sales revenue and contribution to profits on a
regional basis (including comparisons of same store revenue activity month-to-
month)]; and (5) including a report on new stores, closed stores and relocated
stores of Borrower and its Subsidiaries in such detail as Agent may reasonably
request. The information above shall be presented in reasonable detail and
shall be certified by a Financial Officer to the effect that such information
fairly presents the results of operations and financial condition of Borrower
and its Subsidiaries as at the dates and for the periods indicated. Together
with each delivery of the financial statements of Borrower and its Subsidiaries
pursuant to subdivision (B) of this subsection 5.1, Borrower will deliver cycle
counts and shrink performance data with respect to Borrower and its
Subsidiaries in such form, scope and detail as Agent shall request.
(I) Appraisals. From time to time, upon the request of Agent,
Borrower will obtain and deliver to Agent, at Borrower's expense, appraisal
reports in form and substance and from appraisers satisfactory to Agent,
stating the then current fair market and orderly liquidation values of all or
any portion of the Collateral; provided, however, so long as no Event of
Default is
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continuing, Agent shall not request an appraisal as to any particular category
of Collateral to be performed more than once every Loan Year at Borrower's
expense.
(J) Government Notices. Borrower will deliver to Agent
promptly after receipt (but in any event within five (5) Business Days after
such receipt) copies of all notices, requests, subpoenas, inquiries or other
demands received from any governmental agency concerning any Employee Benefit
Plan, the violation or alleged violation of any Environmental Laws, the
storage, use or disposal of any Hazardous Material, the violation or alleged
violation of the Fair Labor Standards Act or Borrower's payment or non-payment
of any taxes including any tax audit.
(K) Events of Default, etc. Promptly upon any Executive
Officer or Financial Officer obtaining knowledge of any of the following events
or conditions (but in any event within five (5) Business Days after any such
officer obtains any such knowledge), Borrower shall deliver a certificate of an
Executive Officer or Financial Officer specifying the nature and period of
existence of such condition or event and what action Borrower has taken, is
taking and proposes to take with respect thereto: (1) any condition or event
that constitutes an Event of Default or Default; (2) any notice of material
default that any Person has given to Borrower or any of its Subsidiaries or any
other action taken with respect to a claimed material default; or (3) any
Material Adverse Effect or material adverse effect with respect to the
Recapitalization or any of the other transactions contemplated herein.
(L) Trade Names. Borrower and each of the Restricted
Subsidiaries will give Agent at least thirty (30) days advance written notice
of any change of name or of any new trade name or fictitious business name.
Borrower's use of any trade name or fictitious business name will be in
compliance in all material respects with all laws regarding the use of such
names.
(M) Locations. Borrower will give Agent at least thirty (30)
days advance written notice of any change in Borrower's principal place of
business or any change in the location of its books and records or any new
location for its books and records . Borrower will give Agent at least thirty
(30) days advance written notice of the opening of any new store or warehouse
or of any other new Collateral Location in which Agent's Lien on the Collateral
at such store, warehouse or other location has not been perfected by the filing
of a financing statement, and Borrower will give Agent within ten (10) Business
Days after the end of each fiscal quarter of Borrower, a report in reasonable
detail setting forth all changes in the location of the Collateral and each new
location of Collateral.
(N) Bank Accounts. Borrower will give Agent prompt notice of
any new bank accounts Borrower or any of the Restricted Subsidiaries intends to
establish prior to its opening same; provided that Borrower shall be required
to give Agent notice of any new store operating account only within ten (10)
Business Days after the end of the fiscal quarter of Borrower in which such
account was opened.
(O) Litigation. Promptly upon any Executive Officer or
Financial Officer obtaining knowledge (but in any event within five (5)
Business Days of any such officer obtaining such knowledge) of (1) any action,
suit, proceeding, governmental investigation or arbitration against
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or affecting any Loan Party, any property of any Loan Party, the
Recapitalization or any of the other transactions contemplated herein, in each
instance, not previously disclosed by Borrower to Agent or (2) any material
development in any action, suit, proceeding, governmental investigation or
arbitration at any time pending against or affecting any Loan Party, any
property of any Loan Party, the Recapitalization or any of the other
transactions contemplated herein, in each instance, which, if (i) not fully
covered by insurance (except for customary deductibles) for which the insurer
admits liability and has assumed the defense thereof and (ii) adversely
determined, could reasonably be expected to have a Material Adverse Effect or a
material adverse effect on the Recapitalization or any of the other
transactions contemplated herein, Borrower will promptly give notice thereof to
Agent and provide such other information as may be reasonably available to them
to enable Agent and its counsel to evaluate such matter.
(P) Budgets. As soon as available and in any event no later
than thirty (30) days after the commencement of each Fiscal Year of Borrower,
Borrower will deliver a Budget for such Fiscal Year.
(Q) Senior Note Debt and Other Indebtedness Notices. Borrower
shall promptly deliver copies of all notices given or received by Borrower and
any of the Restricted Subsidiaries with respect to noncompliance with any term
or condition related to any Senior Note Debt or other Indebtedness outstanding
in the principal amount of $1,000,000 or more, and shall promptly notify
Lenders and Agent of any potential or actual event of default with respect to
any Senior Note Debt or any such other Indebtedness.
(R) SEC Filings and Press Releases. Promptly but in any event
within five (5) Business Days after their becoming available, Borrower will
deliver copies of: (1) all financial statements, reports, notices and proxy
statements sent or made available by Borrower or any of its Subsidiaries to
their security holders generally; (2) all regular and periodic reports and all
registration statements and prospectuses, if any, filed by Borrower or any of
its Subsidiaries with any securities exchange or with the SEC or any
governmental or private regulatory authority; and (3) all press releases and
other statements made generally available by Borrower or any of its
Subsidiaries to the public concerning material developments in the business of
any such Person.
(S) Insurance. As soon as available, but in any event not
later than ten (10) Business Days prior to the end of each Fiscal Year of
Borrower, Borrower will deliver a report in form and substance reasonably
satisfactory to Agent outlining all material insurance coverage maintained as
of the date of such report by Borrower and its Subsidiaries .
(T) Other Information. With reasonable promptness, Borrower
will deliver such other information and data with respect to any Loan Party,
any Subsidiary of any Loan Party or the Collateral as Agent or any Lender may
reasonably request from time to time.
[OTHER REPORTING AND INFORMATIONAL REQUIREMENTS TO BE ADDED]
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5.2 Access to Accountants and Management. Borrower authorizes
Agent and Lenders to discuss the financial condition and financial statements
of Borrower and its Subsidiaries with Borrower's independent public accountants
upon reasonable notice to Borrower of its intention to do so, and authorizes
such accountants to respond to all of Agent's and Lenders' inquiries. Each
Lender may with the consent of Agent, which will not be unreasonably denied,
confer with Borrower's management directly regarding Borrower's and its
Subsidiaries' business, operations and financial condition.
5.3 Inspection. Upon reasonable notice from Agent (provided
that no such notice is necessary during the continuance of an Event of
Default), Borrower shall permit Agent and any authorized representatives
designated by Agent to visit and inspect any of the properties of Borrower or
any of its Subsidiaries, including its financial and accounting records, and in
conjunction with such inspection, to make copies and take extracts therefrom,
and to discuss its affairs, finances and business with its officers and
independent public accountants, at such reasonable times during normal business
hours and as often as may be reasonably requested. Borrower acknowledges that
Agent intends to make such inspections on at least a quarterly basis. Each
Lender may with the consent of Agent, which will not be unreasonably denied,
accompany Agent on any such visit or inspection. Without in any way limiting
the foregoing, Borrower will participate and will cause its key management
personnel to participate in a meeting of Agent and Lenders at least once during
each Fiscal Year to be held at such time and at such place as may be agreed to
by Borrower and Agent. In addition, Agent shall have the right (whether
through its own or third party auditors selected by Agent) to conduct periodic
audits (which, unless the Requisite Lenders otherwise approve, shall be done at
least twice each Loan Year) of the Collateral and the financial and accounting
records relating thereto; and the audit fees referred to in subsection 2.3(C)
and the reasonable out-of-pocket costs and expenses of Agent in regard to two
such audits in any Loan Year (and such other audits ordered or commenced during
the continuance of an Event of Default), including, without limitation, travel,
meals and lodging, shall be paid or reimbursed to Agent by Borrower provided
that Borrower shall not be liable for more than $25,000 in fees in respect of
any such audit.
5.4 Collateral Records. Borrower shall, and shall cause the
Restricted Subsidiaries to, keep full and accurate books and records relating
to the Collateral.
5.5 Account Covenants; Verification. Borrower shall, at its
own expense: (a) cause all invoices evidencing Accounts and all copies thereof
to bear a notice that such invoices are payable to the bank accounts
established in accordance with subsection 5.6 and (b) use its best efforts to
assure prompt payment of all amounts due or to become due under the Accounts.
No discounts, credits or allowances will be issued, granted or allowed by
Borrower to customers and no returns will be accepted outside Borrower's
ordinary course of business without Agent's prior written consent; provided,
that until Agent notifies Borrower to the contrary, Borrower may presume
consent. Borrower will immediately notify Agent in the event that a customer
alleges any dispute or claim with respect to an Account as to which the amount
due is more than $250,000 or of any other circumstances known to Borrower that
may impair the validity or collectibility of such an Account. Agent shall have
the right, at any time or times hereafter, to verify the validity, amount
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or any other matter relating to an Account, by mail, telephone or in person.
After the occurrence and during the continuance of a Default or an Event of
Default, Borrower shall not, without the prior consent of Agent, adjust, settle
or compromise the amount or payment of any Account, or release wholly or partly
any customer or obligor thereof, or allow any credit or discount thereon, other
than in the ordinary course of business (unless Agent shall otherwise direct).
5.6 Collection of Accounts and Payments. Borrower will, at
its own cost and expense, cause all payments received by or on behalf of
Borrower and the Restricted Subsidiaries on account of Accounts, Inventory and
other Collateral and all other payments received by or on behalf of Borrower or
any Restricted Subsidiary from whatever source (other than cash needed to
operate Borrower's or any such Restricted Subsidiary's stores in the ordinary
course of business consistent with past practice), whether in the form of cash,
checks, notes, drafts, bills of exchange, money orders or otherwise (referred
to herein as "Payments"), (i) to be deposited not less often than once each
business day in one or more bank accounts maintained by Borrower or such
Restricted Subsidiary and which meet criteria reasonably acceptable to Agent
and (ii) to be transferred on each business day (to the extent practicable but
in any event by no later than the immediately succeeding business day) from the
accounts referred to in clause (i) to one or more concentration accounts
designated by Borrower or such Restricted Subsidiary with a bank which meets
criteria reasonably acceptable to Agent. Each bank reasonably requested by
Agent at which an account referred to in clause (i) of the first sentence of
this subsection 5.6 is maintained and each bank at which a concentration
account referred to in clause (ii) of such sentence is maintained shall execute
and deliver to Agent such agreements, in form and substance reasonably
satisfactory to Agent, as Agent shall reasonably request with respect to such
accounts, including, without limitation, with respect to prohibitions on
Borrower or such Restricted Subsidiary, upon notice from Agent to the bank (it
being agreed that Agent may give such notice after the occurrence of a
Triggering Event), withdrawing funds from such accounts or otherwise directing
or modifying actions with respect to such accounts. Each agreement with a bank
at which a concentration account is established shall provide, among other
things, that (i) all payments made to the concentration account are pledged to
Agent, for benefit of Agent and Lenders, (ii) such bank shall have no right of
setoff against such concentration account except as agreed to by Agent and
(iii) upon notice from Agent to such bank, all funds deposited into such
account shall be transferred directly to the Agent's Account on a daily basis
(it being agreed that Agent may give such notice if a Triggering Event (as
defined below) is continuing). Agent or Agent's designee may, at any time
after the occurrence and during the continuance of a Triggering Event, notify
account debtors that Accounts and other accounts receivable of Loan Parties
have been assigned to Agent and of Agent's security interest therein, and may
collect them directly and charge the collection costs and expenses to
Borrower's loan account as a Revolving Advance. Borrower hereby agrees that
all payments received by Agent, whether by cash, check, wire transfer, ACH
transfer or any other instrument, made to such concentration accounts or
otherwise received by Agent and whether on the Accounts or as proceeds of other
Collateral or otherwise and whether or not a Triggering Event has occurred are
and will be pledged to Agent, for the benefit of Agent and Lenders. Whether
or not a Triggering Event has occurred, Borrower and any of its Affiliates,
employees, agents or other Persons acting for or in concert with Borrower or
any Restricted Subsidiary, shall, acting as trustee for Agent, receive, in
trust for Agent and Lenders, any monies, checks, notes, drafts, any other
payments relating to and/or proceeds of
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Accounts or other Collateral or any other Payments which come into the
possession or under the control of Borrower or any of Borrower's Affiliates,
employees, agents or other Persons acting for or in concert with Borrower or
any Restricted Subsidiary, and immediately upon receipt thereof, Borrower or
such Persons shall remit the same or cause the same to be remitted, in kind, to
the above bank accounts or to Agent at its address set forth in subsection 10.4
below. For purposes of this subsection 5.6, a "Triggering Event" means any of
(i) an Event of Default under any of subsections shall
have occurred and be continuing, (ii) Availability shall be less than
$15,000,000 or (iii) the Obligations shall have been declared immediately due
and payable. [NOTE: To the extent an existing bank is unwilling to provide a
bank account agreement satisfactory to Agent, ample time will be given for
Borrower to replace bank and get bank account agreement executed with new
bank.]
5.7 Endorsement. Borrower hereby constitutes and appoints,
while a Triggering Event is continuing, Agent and all Persons designated by
Agent for that purpose as Borrower's true and lawful attorney-in-fact, with
power to endorse Borrower's name to any of the items of payment or proceeds
described in subsection 5.6 above and all proceeds of Collateral that come into
Agent's possession or under Agent's control. Both the appointment of Agent as
Borrower's attorney and Agent's rights and powers are coupled with an interest
and are irrevocable until payment in full and complete performance of all of
the Obligations (other than Inchoate Indemnity Obligations) and termination of
the Revolving Loan Commitment.
5.8 Corporate Existence. Borrower will, and will cause each
of the Restricted Subsidiaries to, at all times preserve and keep in full force
and effect its corporate existence and all rights and franchises material to
its business. Borrower will promptly notify Agent of any change in its or any
Restricted Subsidiary's ownership or corporate structure.
5.9 Payment of Taxes. Borrower will, and will cause each of
the Restricted Subsidiaries to, pay all taxes, assessments and other
governmental charges imposed upon it or any of its properties or assets or with
respect to any of its franchises, business, income or property before any
penalty accrues thereon provided that no such tax need be paid if Borrower or
one of the Restricted Subsidiaries is contesting same in good faith by
appropriate proceedings promptly instituted and diligently conducted , Borrower
or such Subsidiary, as appropriate, has established appropriate reserves as
shall be required in conformity with GAAP and in Agent's judgment the failure
to pay same will not create a risk of foreclosure or sale of any property.
5.10 Maintenance of Properties; Insurance. Borrower will
maintain or cause to be maintained in good repair, working order and condition,
ordinary wear and tear excepted, all material properties used in the business
of Borrower and the Restricted Subsidiaries and will make or cause to be made
all appropriate repairs, renewals and replacements thereof. Borrower will and
will cause the Restricted Subsidiaries to (i) keep its insurable properties
adequately insured at all times by financially sound and reputable insurers
having an A.M. Best rating of "B+" or higher and being in a financial size
category of XII or larger, (ii) maintain or cause to be maintained in full
force and effect with financially sound and reputable insurers casualty
insurance, to such extent and against such risks (including fire and other
risks insured against by extended coverage), as is customary with
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companies similarly situated and in the same or similar businesses, provided,
however, that in any event such insurance shall insure the property (including,
without limitation, Inventory and books and records) of Borrower and each
Restricted Subsidiary against all risk of physical damage, including, without
limitation, loss by fire, explosion and such other casualties as may be
reasonably requested by Agent, and all individual and aggregate limits of
coverage under such insurance shall be acceptable to Agent in its sole
discretion, (iii) maintain in full force and effect with financially sound and
reputable insurers having an A.M. Best rating of "B+" or higher and being in a
financial size category of XII or larger public liability insurance against
claims for personal injury or death or property damage occurring upon, in,
about or in connection with the use of any properties owned, occupied or
controlled by Borrower or any Restricted Subsidiary, in such amount as Agent
shall reasonably deem necessary and request, but in no event shall the minimum
limit of such liability insurance be less than $1,000,000 per occurrence with
excess coverage under umbrella liability insurance policies with a minimum
limit of $1,000,000 per occurrence and $10,000,000 in the aggregate, (iv)
maintain in full force and effect with financially sound and reputable insurers
having an A.M. Best rating of "B+" or higher and being in a financial size
category of XII or larger business interruption insurance covering each of
Borrower and the Restricted Subsidiaries with policy limits that are reasonably
acceptable to Agent (and such policies shall be collaterally assigned to Agent,
for the benefit of Agent and Lenders, pursuant to one or more assignment
agreements acceptable in form and substance to Agent), (v) maintain such other
insurance as may be required by law or as may be reasonably requested by Agent
for purposes of assuring compliance with this subsection 5.10 and (vi) furnish
to each Lender, upon request, full information as to all insurance carried
(including, without limitation, full copies of all policies). All casualty
insurance, credit insurance and other insurance covering tangible personal
property subject to a Lien in favor of Agent for the benefit of Agent and the
Lenders granted pursuant to the Loan Documents shall provide that Heller, as
agent of the Lenders, is a loss payee and in the case of each separate loss the
full amount of insurance proceeds shall be payable to Agent and Borrower as
their interests may appear (which proceeds shall be applied to the Obligations
in accordance with the provisions of this Agreement) and shall further provide
for at least 30 days' prior written notice by certified mail to Agent of the
cancellation or substantial modification thereof. All liability insurance
shall provide that Agent shall be an additional insured thereunder.
Notwithstanding the foregoing, Borrower and its Subsidiaries may carry such
deductibles and self-insurance as is customary with companies similarly
situated and in the same or similar businesses.
5.11 Compliance with Laws. Borrower will, and will cause each
of the Restricted Subsidiaries to, comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority as
now in effect and which may be imposed in the future in all jurisdictions in
which Borrower or any of the Restricted Subsidiaries is now doing business or
may hereafter be doing business, other than those laws the noncompliance with
which would not have a Material Adverse Effect.
5.12 Further Assurances. Borrower shall, and shall cause each
of the Restricted Subsidiaries to, from time to time, execute such guaranties,
financing or continuation statements, documents, security agreements, reports
and other documents or deliver to Agent such instruments, certificates of title
or other documents as Agent at any time may reasonably request to evidence,
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perfect or otherwise implement the guaranties and security for repayment of the
Obligations provided for in the Loan Documents. At Agent's request, Borrower
shall cause any Restricted Subsidiaries promptly to guaranty the Obligations
pursuant to a Guaranty and to grant pursuant to a Guarantor Security Agreement
and such other security agreements in a form acceptable to Agent to Agent, on
behalf of Agent and Lenders, security interests in the personal property of
such Subsidiary of the same type granted by Borrower to Agent under subsection
2.7 to secure the Obligations.
5.13 Collateral Locations. Borrower will keep (or cause to be
kept) the Collateral at the locations specified on Schedule 4.7 or in the
notices delivered pursuant to subsection 5.1(M). With respect to any new
location, Borrower will and will cause the Restricted Subsidiaries to execute
such documents and take such actions as Agent deems necessary to perfect and
protect the security interests of the Agent, on behalf of Agent and Lenders, in
the Collateral prior to the transfer or removal of any Collateral to such new
location.
5.14 Bailees. If any Collateral is at any time in the
possession or control of any warehouseman, bailee or any of Borrower's or any
Subsidiary's agents or processors, Borrower shall, upon the request of Agent or
Lenders, notify or cause to be notified such warehouseman, bailee, agent or
processor of the security interests in favor of Agent, for the benefit of Agent
and Lenders, created hereby or by the other Loan Documents and shall instruct
such Person to hold all such Collateral for Agent's account subject to Agent's
instructions.
5.15 Use of Proceeds and Margin Security. Borrower shall use
the proceeds of all Loans for proper business purposes (as described in the
recitals to this Agreement) consistent with all applicable laws, statutes,
rules and regulations. No portion of the proceeds of any Loan shall be used by
Borrower or any of its Subsidiaries for the purpose of purchasing or carrying
margin stock within the meaning of Regulation G or Regulation U, or in any
manner that might cause the borrowing or the application of such proceeds to
violate Regulation T or Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Exchange Act.
SECTION 6. FINANCIAL COVENANTS
Borrower covenants and agrees that so long as any of the
Commitments remain in effect and until payment in full of all Obligations
(other than Inchoate Indemnity Obligations) and termination of all Lender
Letters of Credit, unless Borrower has received the prior written consent of
Requisite Lenders, Borrower shall comply with and shall cause each of its
Subsidiaries to comply with all covenants in this Section 6.
6.1 Minimum EBITDA. Borrower shall maintain EBITDA for each
period of four consecutive fiscal quarters of Borrower ending in any of
Borrower's Fiscal Years set forth below of at least the amount set forth
opposite the Fiscal Year set forth below in which such four fiscal quarter
period ends.
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<TABLE>
<CAPTION>
Fiscal Year Amount
----------- -----------
<S> <C>
1997 $22,500,000
1998 22,500,000
1999 25,500,000
2000 25,500,000
2001 28,000,000
</TABLE>
6.2 Fixed Charge Coverage. If at any time Availability shall
be less than $20,000,000 (and until such time thereafter that Availability
shall be equal to or greater than $30,000,000) Borrower shall not permit its
Fixed Charge Coverage for any period of four consecutive fiscal quarters of
Borrower to be less than 1.0/1.0 for such period.
SECTION 7. NEGATIVE COVENANTS
Borrower covenants and agrees that so long as any of the
Commitments remain in effect and until payment in full of all Obligations
(other than Inchoate Indemnity Obligations) and termination of all Lender
Letters of Credit, unless Borrower has received the prior written consent of
Requisite Lenders, Borrower shall not and will not permit any of the Restricted
Subsidiaries to:
7.1 Indebtedness and Liabilities. Directly or indirectly
create, incur, assume, guaranty, or otherwise become or remain directly or
indirectly liable, on a fixed or contingent basis, with respect to any
Indebtedness except: (a) the Obligations and Indebtedness in respect of Bank
Letters of Credit; (b) unsecured intercompany Indebtedness among Borrower and
the Restricted Subsidiaries; provided that such Indebtedness is subordinated in
right of payment to the Obligations on terms reasonably satisfactory to Agent;
(c) Indebtedness (excluding Capital Leases) not to exceed $15,000,000 in the
aggregate principal amount at any time outstanding secured by purchase money
Liens on Equipment and real estate; (d) Indebtedness under Capital Leases with
respect to Equipment and real estate not to exceed $30,000,000 outstanding at
any time in the aggregate; (e) the Senior Note Debt and any unsecured
refinancing or refunding thereof; provided that (1) the terms and conditions of
such new Indebtedness are satisfactory to the Requisite Lenders (it being
agreed that such terms and conditions shall be deemed satisfactory to the
Requisite Lenders if (A) the principal amount of such new Indebtedness is not
greater than that of the Senior Note Debt (at the time of such refinancing or
refunding) plus any premiums payable at such time on the Senior Note Debt as a
result of such refinancing or refunding as stated and as provided in the Senior
Note Documents and any customary fees and expenses required to be paid at such
time with respect to the
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new Indebtedness, (B) the terms and conditions of such new Indebtedness,
including each of the effective cash interest rate, the amortization schedule,
the covenants and the events of default, are no less favorable to Borrower or
its Subsidiaries or to the Lenders' interests under the Loan Documents, and
(C) the maturity of the new Indebtedness does not occur prior to the maturity
of the Senior Note Debt) and (2) upon the refinancing or refunding of any
Senior Note Debt, such new Indebtedness and the documents governing or
evidencing same shall be subject to the same restrictions in subsections 7.5
and 7.7 as if such new Indebtedness were Senior Note Debt; (f) [Indebtedness
under Synthetic Leases not to exceed $30,000,000 outstanding at any one time],
(g) unsecured Hedging Obligations; (h) Indebtedness existing on the Closing
Date and identified on Schedule 1.1(B) (but not any increase in any of the
amounts thereof) and any refinancing or refunding thereof; provided that in any
event (A) the principal amount of such new Indebtedness is not greater than
that of the Indebtedness being refinanced or refunded (at the time of such
refinancing or refunding) plus any premiums payable at such time on such
refinanced or refunded Indebtedness as a result of such refinancing or
refunding as stated and as provided in the documents governing same and any
customary fees and expenses required to be paid at such time with respect to
the new Indebtedness (except that with respect to the refinancing or refunding
of the Indebtedness relating to the Industrial Revenue Bonds on the Seagoville,
Texas facility, if such new Indebtedness is unsecured the principal amount
thereof shall not exceed $10,000,000), (B) the terms and conditions of such new
Indebtedness, including each of the effective cash interest rate, the
amortization schedule, the covenants and the events of default, are not less
favorable to Borrower or its Subsidiaries or to the Lenders' interests under
the Loan Documents, (C) the maturity of the new Indebtedness does not occur
prior to the maturity of the Indebtedness being refinanced or refunded, (D) to
the extent the Indebtedness being refinanced or refunded is subordinated to
other Indebtedness, the new Indebtedness is likewise subordinated to such other
Indebtedness and the terms of subordination with respect to such new
Indebtedness are no less favorable to the beneficiaries of such other
Indebtedness than were the terms of subordination under the Indebtedness being
refinanced or refunded and (E) with respect to the refinancing or refunding of
the Indebtedness relating to the Industrial Revenue Bonds on the Seagoville,
Texas facility, Agent shall have received a mortgagee waiver, in form and
substance satisfactory to Agent, with respect to the Seagoville, Texas facility
duly executed by the mortgagee , if any, of such facility; and (i) unsecured
Subordinated Debt not to exceed $[40,000,000] in principal amount at any time
outstanding. Except for Indebtedness described permitted in the preceding
sentence, Borrower will not, and will not permit any of the Restricted
Subsidiaries to, incur any Liabilities except for trade payables and normal
accruals in the ordinary course of business not yet due and payable or with
respect to which Borrower or any of the Restricted Subsidiaries is contesting
in good faith the amount or validity thereof by appropriate proceedings and
then only to the extent that Borrower or any of the Restricted Subsidiaries has
established adequate reserves therefor, if appropriate under GAAP.
7.2 Guaranties. Except for endorsements of instruments or
items of payment for collection in the ordinary course of business, except for
unsecured guarantees in the ordinary course of business of the obligations of
suppliers, customers, franchisers and licensers of Borrower and its
Subsidiaries in an aggregate amount not exceeding at any time $2,000,000 and
except for the Guaranties, guaranty, endorse or otherwise in any way become or
be responsible for any obligations of any other Person, whether directly or
indirectly by agreement to purchase the indebtedness of any
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other Person or through the purchase of goods, supplies or services, or
maintenance of working capital or other balance sheet covenants or conditions,
or by way of stock purchase, capital contribution, advance or loan for the
purpose of paying or discharging any indebtedness or obligation of such other
Person or otherwise.
7.3 Transfers, Liens and Related Matters.
(A) Transfers. Sell, assign (by operation of law or
otherwise) or otherwise dispose of, or grant any option with respect to, any of
the Collateral or any of the other assets of any Restricted Subsidiary except
that Borrower and the Restricted Subsidiaries may (i) sell inventory in the
ordinary course of business and effect other Asset Dispositions in the ordinary
course of business to Persons who are not Affiliates of Borrower or any of its
Subsidiaries, including sales and other dispositions of owned or leased real
property and the improvements thereon and retail stores in the ordinary course
of business, provided that the consideration for sales or other dispositions of
real property, improvements thereon or retail stores shall be not less than the
fair market value thereof, (ii) sell and lease-back owned real property and
improvements thereon in sale-leaseback transactions with Persons who are not
Affiliates of Borrower or any of its Subsidiaries, provided that (1) the Net
Cash Proceeds thereof are applied as required by subsection 2.4(B) and (2) no
Default or Event of Default shall then exist or result from such disposition;
and (iii) make Asset Dispositions outside the ordinary course of business if
all of the following conditions are met: (1) the market value of assets sold
or otherwise disposed of in any single transaction or series of related
transactions does not exceed $1,000,000 and the aggregate market value of
assets sold or otherwise disposed of in any Fiscal Year does not exceed
$10,000,000; (2) the consideration received is at least equal to the fair
market value of such assets; (3) 75% of the consideration received is cash and
Cash Equivalents; (4) the Net Cash Proceeds of such Asset Disposition are
applied as required by subsection 2.4(B); (5) after giving effect to the sale
or other disposition of the assets included within the Asset Disposition and
the repayment of the Obligations with the proceeds thereof, Borrower is in
compliance on a pro forma basis with the covenants set forth in Section 6
recomputed for the most recently ended month for which information is available
and is in compliance with all other terms and conditions contained in this
Agreement; and (6) no Default or Event of Default shall then exist or result
from such sale or other disposition.
(B) Liens. Except for Permitted Encumbrances, directly or
indirectly create, incur, assume or permit to exist any Lien on or with respect
to any of the Collateral or any of the other assets of any Restricted
Subsidiary or any proceeds, income or profits therefrom.
(C) No Negative Pledges. Enter into or assume any agreement
(other than the Loan Documents , the Senior Note Documents and any documents
governing Indebtedness permitted hereunder which refinances or refunds the
Senior Note Debt) prohibiting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired.
(D) No Restrictions on Subsidiary Transfers to Borrower.
Except as provided herein, directly or indirectly create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction
of any kind on the ability of any such Subsidiary to: (1) pay
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dividends or make any other distribution on any of such Subsidiary's capital
stock owned by Borrower or any Subsidiary of Borrower; (2) subject to
subordination provisions, pay any indebtedness owed to Borrower or any other
Subsidiary; (3) make loans or advances to Borrower or any other Subsidiary; or
(4) transfer any of its property or assets to Borrower or any other Subsidiary;
except with respect to this clause (4), (i) encumbrances or restrictions
consisting of Permitted Encumbrances granted by the applicable Subsidiary of
Borrower, (ii) encumbrances or restrictions (A) consisting of customary
non-assignment provisions in leases or subleases with respect to the lease or
sublease of the property leased or subleased, (B) relating to property financed
with purchase money Indebtedness permitted by subsection 7.1 or (C) in
documentation granting a Permitted Encumbrance, restricting the transfer of
property subject to such Permitted Encumbrance, and (iii) any restriction
imposed by an agreement for the sale or other disposition of property or
securities permitted hereunder pending the closing of such sale or other
disposition.
7.4 Investments and Loans. Make or permit to exist
investments in or loans to any other Person, except: (a) Cash Equivalents; (b)
loans and advances to employees for moving, entertainment, travel and other
expenses in the ordinary course of business ; (c) investments permitted by
subsection 7.6(d); (d) investments in and loans or advances to any Restricted
Subsidiary in order to effectuate a Permitted Acquisition and additionally
after such Permitted Acquisition for such Restricted Subsidiary's working
capital needs, but only if such Restricted Subsidiary shall have executed and
delivered or caused to be executed and delivered to Agent such documentation as
is required hereunder with respect to such Restricted Subsidiary (including,
without limitation, under subsections 5.12 and 7.6); (e) investments in and
loans and advances to Subsidiaries that are not Restricted Subsidiaries and
Persons that are not Subsidiaries in an aggregate amount, net of all returns of
capital and other distributions, not exceeding $5,000,000 at any time
outstanding, provided that no Default or Event of Default shall then exist or
result therefrom; (f) extensions of trade credit in the ordinary course of
business; (g) loans to employees, officers or directors in connection with
stock option plans or other stock plans not in excess of $5,000,000 as to all
employees, officers and directors at any one time outstanding, but only so long
as no cash is transferred to any such Person as part of any such loan; and (h)
investments, loans and advances outstanding on the Closing Date and identified
on Schedule 7.4 (but not any increase in any of the amounts thereof) and all
refinancings or refundings thereof (but no increases in any of the amounts
thereof).
7.5 Restricted Junior Payments. Directly or indirectly
declare, order, pay, make or set apart any sum for any Restricted Junior
Payment, except that: (a) Restricted Subsidiaries of Borrower may make
Restricted Junior Payments to Borrower or other Restricted Subsidiaries; (b)
Borrower may make scheduled interest payments on the Senior Note Debt in
accordance with the express terms of the Senior Notes ; (c) Borrower may on the
Closing Date make Restricted Junior Payments constituting part of the
Recapitalization with the proceeds of the Senior Notes; and (d) Borrower may
repay, purchase or redeem Subordinated Debt or capital stock of Borrower out of
proceeds of a substantially concurrent sale of Subordinated Debt or common
stock of Borrower.
7.6 Restriction on Fundamental Changes. (a) Enter into any
transaction of merger or consolidation, except as permitted by subsection (d)
below or into Borrower or any Restricted
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Subsidiary; (b) liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution), except the liquidation, winding-up or dissolution
of any Restricted Subsidiary, as a result of which Borrower or another
Restricted Subsidiary acquires all the assets thereof; (c) convey, sell, lease,
sublease, transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any substantial part of its business or assets, or the
capital stock of any of its Subsidiaries, whether now owned or hereafter
acquired; or (d) acquire by purchase or otherwise all or any substantial part
of the business or assets of, or stock or other evidence of beneficial
ownership of, any Person, except that Borrower may effect the purchase (each, a
"Permitted Acquisition") of (x) assets of any Person which constitute an
operating unit or business of such Person or (y) the capital stock or other
beneficial ownership interests in another Person, so long as (A) no Default or
Event of Default shall have occurred and be continuing on the date of any such
Permitted Acquisition or would occur after giving effect thereto, (B)
immediately after giving effect thereto, Availability (as modified as provided
below) shall be greater than or equal to $20,000,000, (C) Borrower shall have
notified Agent thereof not less than 10 days prior to the proposed closing date
for any such acquisition, (D) the business to be acquired by such Permitted
Acquisition shall be substantially similar to a business of Borrower permitted
by subsection 7.10, (E) Borrower shall cause such assets, capital stock or
other ownership interests to be purchased by, or concurrently with the purchase
of such assets, capital stock or other ownership interests shall cause such
assets, capital stock or other ownership interests to be transferred to,
Borrower or any Restricted Subsidiary, (F) the terms of such Permitted
Acquisition involving consideration (other than common stock of Borrower) in
excess of $10,000,000 shall be reasonably acceptable to Agent, and (G) Borrower
shall take or cause to be taken such actions as Agent shall reasonably request
in order that Agent be granted a first priority perfected security interest
(free and clear of any and all other Liens) in all assets of the type granted
by Borrower to Agent under subsection 2.7 of any Person whose stock or other
ownership interest is acquired through the Permitted Acquisition, and a
Guaranty of the Obligations shall be issued by any new Subsidiary (it being
understood and agreed, notwithstanding the foregoing, that the inclusion of
any assets of a new Restricted Subsidiary in the Borrowing Base shall be
subject in all respects to the last sentence of subsection 2.1(C)). For
purposes of this subsection 7.6, clause (z) of the defined term "Availability"
shall be modified to be the sum of (i) the amount of those payables of Borrower
and its Subsidiaries (after giving effect to the consummation of the Permitted
Acquisition) which shall, immediately after giving effect to the consummation
of the Permitted Acquisition, remain unpaid beyond customary terms therefor and
(ii) all accrued interest owing on the Senior Notes (and, if any of the Senior
Notes are refinanced or refunded with new Indebtedness permitted hereunder,
such new Indebtedness) and all payments made by Borrower or any of its
Subsidiaries with respect to any Compensation Claims.
7.7 Changes Relating to Senior Note Debt. Change or amend the
terms of the Senior Note Debt or any Senior Note Documents if the effect of
such amendment is to: (a) increase the interest rate on such Indebtedness; (b)
change the dates upon which payments of principal or interest are due on such
Indebtedness; (c) change any event of default or add any covenant with respect
to such Indebtedness; (d) change the payment provisions of such Indebtedness;
or (e) change or amend any other term if such change or amendment would
materially increase the obligations of the obligor or confer additional
material rights on the holder of such Indebtedness in a manner adverse to
Borrower, any of its Subsidiaries, Agent or any Lender.
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7.8 Transactions with Affiliates. Directly or indirectly,
enter into or permit to exist any transaction (including the purchase, sale or
exchange of property or the rendering of any service) with any Affiliate or
with any officer, director or employee of any Loan Party, except for
transactions in the ordinary course of and pursuant to the reasonable
requirements of Borrower's or such Restricted Subsidiary's business and upon
fair and reasonable terms which are fully disclosed to Agent and Lenders and
which are no less favorable to Borrower or the relevant Restricted Subsidiary,
as appropriate, than it would obtain in a comparable arm's length transaction
with an unaffiliated Person; provided that nothing set forth in this subsection
7.8 shall prohibit (i) (A) the purchase of any capital stock of Borrower or any
Subordinated Debt by any Affiliate of Borrower that controls Borrower or (B)
any Restricted Junior Payment permitted by subsection 7.5(d), (ii) the payment
of reasonable compensation or fees to officers or directors of Borrower and its
Subsidiaries, (iii) loans to employees, officers or directors in connection
with stock option plans or other stock plans not in excess of $5,000,000 as to
all employees, officers and directors at any one time outstanding so long as no
cash is transferred to any such Person as part of any such loan, (iv) loans and
advances to employees for moving, entertainment, travel and other expenses in
the ordinary course of business, (v) indemnification of officers and directors
to the full extent permitted by applicable law or (vi) any transaction between
Borrower and any of its Restricted Subsidiaries or between Restricted
Subsidiaries which is permitted by other sections of this Agreement.
7.9 Environmental Liabilities. (a) Violate any applicable
Environmental Law, except to the extent the same is not reasonably likely to
result in a material liability to Borrower or any of its Subsidiaries; (b)
dispose of any Hazardous Materials (except in accordance with applicable law)
into or onto or from, any real property owned, leased or operated by any Loan
Party, except to the extent the same is not reasonably likely to result in a
material liability to Borrower or any of its Subsidiaries; or (c) permit any
Lien imposed pursuant to any Environmental Law to be imposed or to remain on
any real property owned, leased or operated by any Loan Party.
7.10 Conduct of Business. From and after the Closing Date,
engage in any business other than businesses of the type engaged in by Borrower
on the Closing Date or related or incidental thereto, including oil change,
lubrication, brake repair and similar businesses relating to the maintenance or
repair of cars, trucks and other vehicles.
7.11 Compliance with ERISA. Establish any new Employee Benefit
Plan or amend any existing Employee Benefit Plan if the liability or increased
liability resulting from such establishment or amendment is reasonably likely
to have a Material Adverse Effect. Neither Borrower nor any Subsidiary shall
fail to establish, maintain and operate each Employee Benefit Plan in
compliance in all material respects with the provisions of ERISA, the IRC and
all other applicable laws and the regulations and interpretations thereof.
7.12 Tax Consolidations. File or consent to the filing of any
consolidated income tax return with any Person other than Borrower or any of
its Subsidiaries.
7.13 Subsidiaries. Establish, create or acquire any new
Subsidiaries, except as permitted under subsection 7.6(d).
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7.14 Fiscal Year. Change its Fiscal Year.
7.15 Press Release; Public Offering Materials. Disclose the
name of Agent or any Lender in any press release or in any prospectus, proxy
statement or other materials filed with any governmental entity relating to a
public offering of the capital stock of any Loan Party except as may be
required by law or with the prior written consent of Agent or such Lender, as
applicable.
7.16 Certain Bank Accounts. Establish , amend or terminate any
blocked account or concentration account or lockbox agreement without Agent's
prior written consent, which consent shall not be unreasonably withheld so long
as subsection 5.6 shall be complied with.
SECTION 8. DEFAULT, RIGHTS AND REMEDIES
8.1 Event of Default. "Event of Default" shall mean the
occurrence or existence of any one or more of the following:
(A) Payment. Failure to make payment of any of the
Obligations when due and , in the case of any payment (other than on account of
principal on any Loan or reimbursement with respect to any Lender Letter of
Credit), such failure shall not be cured within five (5) days of the applicable
due date; or
(B) Default in Other Agreements. (1) Failure of Borrower, any
of the Restricted Subsidiaries or any other Loan Party to pay when due any
principal or interest on any Indebtedness (other than the Obligations) or (2)
breach or default of Borrower, any of the Restricted Subsidiaries or any other
Loan Party with respect to any Indebtedness (other than the Obligations); if
such failure to pay, breach or default entitles the holder or holders (or
trustee or agent on behalf of such holder or holders) to cause such
Indebtedness having an individual or aggregate principal amount in excess of
$1,000,000 to become or be declared due prior to its stated maturity; or
(C) Breach of Certain Provisions. Failure of Borrower to
perform or comply with any term or condition contained in subsections 5.1 (B)
and (C), 5.3, 5.5 or 5.6 or contained in Section 6 or Section 7; or
(D) Breach of Warranty. Any representation, warranty,
certification or other statement made by any Loan Party in any Loan Document or
other Transaction Document or in any statement or certificate at any time given
by such Person in writing pursuant or in connection with any Loan Document or
other Transaction Document is false in any material respect on the date made;
or
(E) Other Defaults Under Loan Documents. Borrower or any
other Loan Party defaults in the performance of or compliance with any term
contained in this Agreement or the other Loan Documents and such default is not
remedied or waived within twenty (20) days after the earlier of (x) Borrower or
any other Loan Party obtaining knowledge of such default or (y) receipt by
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Borrower of notice from Agent or Requisite Lenders of such default (other than
occurrences described in other provisions of this subsection 8.1 for which a
different grace or cure period is specified or which constitute immediate
Events of Default); or
(F) Change in Control. A Change of Control shall occur; or
(G) Involuntary Bankruptcy; Appointment of Receiver, etc. (1)
A court enters a decree or order for relief with respect Borrower, any of the
Restricted Subsidiaries or any other Loan Party in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, which decree or order is not stayed or other similar relief is not
granted under any applicable federal or state law; or (2) the continuance of
any of the following events for sixty (60) days unless dismissed, bonded or
discharged: (a) an involuntary case is commenced against Borrower, any of the
Restricted Subsidiaries or any other Loan Party under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect; or (b)
a decree or order of a court for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers over
Borrower, any of the Restricted Subsidiaries or any other Loan Party or over
all or a substantial part of their respective property is entered; or (c) an
interim receiver, trustee or other custodian is appointed without the consent
of Borrower, any of the Restricted Subsidiaries or any other Loan Party for all
or a substantial part of the property of Borrower, any such Subsidiary or any
other Loan Party; or
(H) Voluntary Bankruptcy; Appointment of Receiver, etc. (1)
An order for relief is entered with respect to Borrower, any of the Restricted
Subsidiaries or any other Loan Party or Borrower, any of the Restricted
Subsidiaries or any other Loan Party commences a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an involuntary case
or to the conversion of an involuntary case to a voluntary case under any such
law or consents to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its property; or
(2) Borrower, any of the Restricted Subsidiaries or any other Loan Party makes
any assignment for the benefit of creditors; or (3) the board of directors of
Borrower, any of the Restricted Subsidiaries or any other Loan Party adopts any
resolution or otherwise authorizes action to approve any of the actions
referred to in this subsection 8.1(H); or
(I) Liens. Any lien, levy or assessment is filed or recorded
with respect to or otherwise imposed upon all or any part of the Collateral or
the assets of Borrower, any of the Restricted Subsidiaries or any other Loan
Party by the United States or any department or instrumentality thereof or by
any state, county, municipality or other governmental agency (other than
Permitted Encumbrances) and such lien, levy or assessment is not stayed,
vacated, paid or discharged within thirty (30) days; or
(J) Judgment and Attachments. (x) Any money judgment, writ or
warrant of attachment, or similar process involving (1) an amount in any
individual case in excess of $2,500,000 or (2) an amount in the aggregate at
any time in excess of $5,000,000 (in either case not adequately covered by
insurance as to which the insurance company has acknowledged coverage)
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is entered or filed against Borrower, any of the Restricted Subsidiaries or any
other Loan Party or any of their respective assets and remains undischarged,
unvacated, unbonded , unstayed or unpaid for a period of thirty (30) days or in
any event later than five (5) days prior to the date of any proposed sale
thereunder; or (y) the aggregate amount of payments (whether relating to
judgments, settlements or otherwise) made by Borrower and its Subsidiaries with
respect to Compensation Claims (including, without limitation, any claims which
may be raised after the Closing Date) shall exceed the aggregate amount of
reserves established therefor by Borrower in accordance with GAAP.
(K) Dissolution. Any order, judgment or decree is entered
against Borrower, any of the Restricted Subsidiaries or any other Loan Party
decreeing the dissolution or split up of Borrower, that Subsidiary or any other
Loan Party and such order remains undischarged or unstayed for a period in
excess of twenty (20) days; or
(L) Solvency. Borrower ceases to be solvent (as represented
by Borrower in subsection 4.17) or admits in writing its present or prospective
inability to pay its debts as they become due; or
(M) Injunction. Borrower, any of the Restricted Subsidiaries
or any other Loan Party is enjoined, restrained or in any way prevented by the
order of any court or any administrative or regulatory agency from conducting
all or any material part of its business and such order continues for more than
thirty (30) days; or
(N) Invalidity of Loan Documents. Any of the Loan Documents
for any reason, other than a partial or full release in accordance with the
terms thereof, ceases to be in full force and effect or is declared to be null
and void, or any Loan Party denies that it has any further liability under any
Loan Documents to which it is party, or gives notice to such effect; or
(O) Failure of Security. Agent, on behalf of Agent and
Lenders, does not have or ceases to have a valid and perfected first priority
security interest in the Collateral (subject to Permitted Encumbrances), in
each case, for any reason other than the failure of Agent or any Lender to take
any action within its control; or
(P) Damage, Strike, Casualty. Any material damage to, or
loss, theft or destruction of, any Collateral, whether or not insured, or any
strike, lockout, labor dispute, embargo, condemnation, act of God or public
enemy, or other casualty which causes, for more than fifteen (15) consecutive
days, the cessation or substantial curtailment of revenue producing activities
at any facility of Borrower, any of the Restricted Subsidiaries or any other
Loan Party if any such event or circumstance could reasonably be expected to
have a Material Adverse Effect.
(Q) Licenses and Permits. The loss, suspension or revocation
of, or failure to renew, any license or permit now held or hereafter acquired
by Borrower, any of the Restricted Subsidiaries or any other Loan Party, if
such loss, suspension, revocation or failure to renew could reasonably be
expected to have a Material Adverse Effect.
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(R) Forfeiture. There is filed against Borrower, any
Restricted Subsidiary or any other Loan Party any criminal action, suit or
proceeding under any federal or state racketeering statute (including, without
limitation, the Racketeer Influenced and Corrupt Organization Act of 1970),
which action, suit or proceeding (1) is not dismissed within one hundred twenty
(120) days; and (2) could result in the confiscation or forfeiture of any
material portion of the Collateral.
8.2 Suspension of Commitments. Upon the occurrence of any
Default or Event of Default, notwithstanding any grace period or right to cure,
Agent and/or Swingline Lender may or upon demand by Requisite Lenders shall,
without notice or demand, immediately cease making additional Loans and the
Commitments shall be suspended; provided that, in the case of a Default, if the
subject condition or event is waived or cured within any applicable grace or
cure period, the Commitments shall be reinstated.
8.3 Acceleration. Upon the occurrence of any Event of Default
described in the foregoing subsections 8.1(G) or 8.1(H), all Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Borrower, and the Commitments shall thereupon terminate. Upon the
occurrence and during the continuance of any other Event of Default, Agent may,
and upon demand by Requisite Lenders shall, by written notice to Borrower, (a)
declare all or any portion of the Obligations to be, and the same shall
forthwith become, immediately due and payable and the Commitments shall
thereupon terminate and (b) demand that Borrower immediately deposit with Agent
an amount equal to one hundred five percent (105%) of the Letter of Credit
Reserve to enable Agent and Lenders to make payments under the Lender Letters
of Credit when required and such amount shall become immediately due and
payable.
8.4 Remedies. If any Event of Default shall have occurred and
be continuing, in addition to and not in limitation of any other rights or
remedies available to Agent and Lenders at law or in equity, Agent may and
shall upon the request of Requisite Lenders exercise in respect of the
Collateral, in addition to all other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral) and may also (a) notify any or all obligors on the Accounts to make
all payments directly to Agent; (b) require Borrower to, and Borrower hereby
agrees that it will, at its expense and upon request of Agent forthwith,
assemble all or part of the Collateral as directed by Agent and make it
available to Agent at a place to be designated by Agent which is reasonably
convenient to both parties; (c) withdraw all cash in the local bank accounts
and concentration accounts referred to in subsection 5.6 and apply such monies
in payment of the Obligations in the manner provided in subsection 8.7; (d)
without notice or demand or legal process, enter upon any premises of Borrower
and take possession of the Collateral; and (e) without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any of the Agent's offices or elsewhere, at such
time or times, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as are commercially reasonable. Borrower
agrees that, to the extent notice of sale shall be required by law, at least
ten (10) days notice to Borrower of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification. At any sale of the Collateral, if
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permitted by law, Agent or any Lender may bid (which bid may be, in whole or in
part, in the form of cancellation of indebtedness) for the purchase of the
Collateral or any portion thereof for the account of Agent or such Lender.
Agent shall not be obligated to make any sale of Collateral regardless of
notice of sale having been given. Borrower shall remain liable for any
deficiency. Agent 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. To
the extent permitted by law, Borrower hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any law now
existing or hereafter enacted. Agent shall not be required to proceed against
any Collateral but may proceed against Borrower directly.
8.5 Appointment of Attorney-in-Fact. Borrower hereby
constitutes and appoints Agent as Borrower's attorney-in-fact with full
authority in the place and stead of Borrower and in the name of Borrower, Agent
or otherwise, from time to time in Agent's discretion while an Event of Default
is continuing to take any action and to execute any instrument that Agent may
deem necessary or advisable to accomplish the purposes of this Agreement,
including: (a) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral; (b) to adjust, settle or compromise the
amount or payment of any Account, or release wholly or partly any customer or
obligor thereunder or allow any credit or discount thereon; (c) to receive,
endorse, and collect any drafts or other instruments, documents and chattel
paper, in connection with clause (a) above; (d) to file any claims or take any
action or institute any proceedings that Agent may deem necessary or desirable
for the collection of any of the Collateral or otherwise to enforce the rights
of Agent and Lenders with respect to any of the Collateral; and (e) to sign and
endorse any invoices, freight or express bills, bills of lading, storage or
warehouse receipts, assignments, verifications and notices in connection with
Accounts and other documents relating to the Collateral. The appointment of
Agent as Borrower's attorney and Agent's rights and powers are coupled with an
interest and are irrevocable until payment in full and complete performance of
all of the Obligations and termination of the Revolving Loan Commitment.
8.6 Limitation on Duty of Agent with Respect to Collateral.
Beyond the safe custody thereof, Agent and each Lender shall have no duty with
respect to any Collateral in its possession or control (or in the possession or
control of any agent or bailee) or with respect to any income thereon or the
preservation of rights against prior parties or any other rights pertaining
thereto. Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equal to that which Agent accords its own
property. Neither Agent nor any Lender shall be liable or responsible for any
loss or damage to any of the Collateral, or for any diminution in the value
thereof, by reason of the act or omission of any warehouseman, carrier,
forwarding agency, consignee or other agent or bailee selected by Agent in good
faith.
8.7 Application of Proceeds. Upon the occurrence and during
the continuance of an Event of Default, (a) Borrower irrevocably waives the
right to direct the application of any and all payments at any time or times
thereafter received by Agent from or on behalf of Borrower, and
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Borrower hereby irrevocably agrees that Agent shall have the continuing
exclusive right to apply and to reapply any and all payments received at any
time or times after the occurrence and during the continuance of an Event of
Default against the Obligations in such manner as Agent may deem advisable
notwithstanding any previous entry by Agent upon any books and records and (b)
the proceeds of any sale of, or other realization upon, all or any part of the
Collateral shall be applied: first, to all fees, costs and expenses incurred by
Agent or any Lender with respect to this Agreement, the other Loan Documents or
the Collateral; second, to all fees due and owing to Agent and Lenders; third,
to accrued and unpaid interest on the Obligations; fourth, to the principal
amounts of the Obligations outstanding; and fifth, to any other Obligations
owing to Agent or any Lender.
8.8 License of Intellectual Property. Borrower hereby
assigns, transfers and conveys to Agent, for the benefit of Agent and Lenders,
effective both (i) upon the occurrence and during the continuance of any Event
of Default hereunder or (ii) after the acceleration of the Obligations, the
non-exclusive right and license to use all Intellectual Property owned or used
by Borrower together with any goodwill associated therewith, all to the extent
necessary to enable Agent to realize on the Collateral and any successor or
assign to enjoy the benefits of the Collateral. This right and license shall
inure to the benefit of all successors, assigns and transferees of Agent and
its successors, assigns and transferees, whether by voluntary conveyance,
operation of law, assignment, transfer, foreclosure, deed in lieu of
foreclosure or otherwise. Such right and license is granted free of charge,
without requirement that any monetary payment whatsoever be made to Borrower by
Agent.
8.9 Waivers, Non-Exclusive Remedies. No failure on the part
of Agent or any Lender to exercise, and no delay in exercising and no course of
dealing with respect to, any right, power or privilege under this Agreement or
the other Loan Documents shall operate as a waiver thereof; nor shall any
single or partial exercise by Agent or any Lender of any right, power or
privilege under this Agreement or any other Loan Document preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege. The rights, powers and privileges in this Agreement and the other
Loan Documents are cumulative and are not exclusive of any other remedies
provided by law.
SECTION 9. ASSIGNMENT AND PARTICIPATION
9.1 Assignments and Participations in Loans.
(A) Any Lender may, with the written consent of Agent , assign
and delegate to one or more assignees (each an "Assignee") (provided that no
written consent of Agent shall be required in connection with any assignment
and delegation by a Lender to an Affiliate of such Lender) that, in the case
of an Assignee which is not an Affiliate of the assigning Lender, is an
Eligible Institution all, or any ratable part of all, of its share of the
Revolving Loan, the Revolving Loan Commitment and the other rights and
obligations of such Lender hereunder related thereto, in a minimum amount of
$5,000,000 or if less the entire amount of such Lender's share of the Revolving
Loan and Revolving Loan Commitment; provided, however, that Borrower and the
Agent
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may continue to deal solely and directly with such Lender in connection with
the interest so assigned to an Assignee until (i) written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to Borrower and
Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall
have delivered to Borrower and Agent an Assignment and Acceptance substantially
in the form of Exhibit D ("Assignment and Acceptance") together with any Note
or Notes subject to such assignment and (iii) the assignor Lender or Assignee
has paid to Agent a processing fee in the amount of $3,500.
(B) From and after the date that Agent notifies the assignor
Lender that it has received an executed Assignment and Acceptance and payment
of the above-referenced processing fee, (i) the Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations, including, but not
limited to, the obligation to participate in Swingline Advances and Lender
Letters of Credit, have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of a Lender under the Loan
Documents, and (ii) the assignor Lender shall, to the extent that rights and
obligations hereunder and under the other Loan Documents have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall cease
to be a party hereto; provided, that such Lender shall continue to be entitled
to the benefits of subsections 2.8, 2.9 and 10.1).
(C) By executing and delivering an Assignment and Acceptance,
the assigning Lender thereunder and the Assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (1) other than
as provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or any
other Loan Document; (2) such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of Borrower or any of its Subsidiaries or the performance or observance by
Borrower or any of its Subsidiaries of any of its obligations under this
Agreement or any other Loan Document; (3) such Assignee confirms that it has
received a copy of this Agreement, together with such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (4) such Assignee will,
independently and without reliance upon Agent, such assigning Lender or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents; (5) such
Assignee appoints and authorizes Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement and the other Loan
Documents as are delegated to Agent by the terms hereof, together with such
powers as are reasonably incidental thereto; (6) such Assignee agrees that it
will perform in accordance with their terms all of the obligations which by the
terms of this Agreement are required to be performed by it as a Lender and (7)
such Assignee (unless an Affiliate of the assigning Lender) represents and
warrants that it is an Eligible Institution.
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(D) Within five Business Days after its receipt of notice by
Agent that it has received an executed Assignment and Acceptance and payment of
the processing fee, Borrower shall execute and deliver to Agent a new Revolving
Note evidencing such Assignee's assigned Loans and Revolving Loan Commitment
and, if the assigning Lender has retained a portion of the Revolving Loan and
its Revolving Commitment, a replacement Revolving Note in the principal amount
of the portion of the Revolving Loan Commitment retained by the assignor Lender
(such Notes to be in exchange for, but not in payment of, the Notes held by
such Lender). Immediately upon each Assignee's making its processing fee
payment under the Assignment and Acceptance, this Agreement shall be deemed to
be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments
arising therefrom. The Revolving Loan Commitment allocated to each Assignee
shall reduce the Revolving Loan Commitment of the assigning Lender pro tanto.
(E) Any Lender may at any time, without consent of Agent or
Borrower, sell to one or more commercial banks, financial institutions or
other Persons not Affiliates of the Borrower (a "Participant") participating
interests in any Loans, the Commitments of that Lender and the other interests
of that Lender (the "originating Lender") hereunder and under the other Loan
Documents; provided, however, that (i) the originating Lender's obligations
under this Agreement shall remain unchanged, provided, that the Participant
shall be treated as a Lender for the purposes of subsections 2.8, 2.9, 9.4 and
10.2, (ii) the originating Lender shall remain solely responsible for the
performance of such obligations, (iii) Borrower and the Agent shall continue to
deal solely and directly with the originating Lender in connection with the
originating Lender's rights and obligations under this Agreement and the other
Loan Documents, (iv) such participation shall be in a minimum principal amount
of $5,000,000 and (v) no Lender shall transfer or grant any participating
interest under which the Participant has rights to approve any amendment to, or
any consent or waiver with respect to, this Agreement or any other Loan
Document which amendment, consent or waiver requires the consent of all
Lenders, other than Defaulting Lenders, and all amounts payable by Borrower
hereunder shall be determined as if such Lender had not sold such
participation; except that, if amounts outstanding under this Agreement are due
and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of set-off in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement.
(F) Notwithstanding any other provision in this Agreement, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and the Notes held
by it in favor of any Federal Reserve Bank in accordance with Regulation A of
the FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal
Reserve Bank may enforce such pledge or security interest in any manner
permitted under applicable law.
(G) Agent, acting for this purpose as an agent of Borrower,
shall maintain at one of its offices in The City of New York a copy of each
Assignment and Acceptance delivered to Agent and a register for the recordation
of the names and addresses of the Lenders, and the Commitments of, and
principal amount of the portions of the Loans owing to, each Lender pursuant to
the terms hereof from time to time (the "Register"). The entries in the
Register shall be conclusive and Borrower, Agent and Lenders may treat each
person whose name is recorded in the Register pursuant
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to the terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for
inspection by Borrower and each Lender at any reasonable time and from time to
time upon reasonable prior notice to Agent.
(H) Any Lender or originating Lender may, in connection with
any assignment or participation or proposed assignment or participation
pursuant to this subsection 9.1, disclose to the Assignee or Participant or
proposed Assignee or proposed Participant any information relating to Borrower
and its Subsidiaries furnished to such Lender or originating Lender by or on
behalf of Borrower; provided, that, prior to any such disclosure of information
designated by Borrower as confidential, each such Assignee or Participant or
proposed Assignee or proposed Participant shall execute an agreement whereby
such Assignee or Participant or proposed Assignee or proposed Participant shall
agree (subject to customary exceptions) to preserve the confidentiality of such
confidential information on terms no less restrictive than those applicable to
the Lenders under subsection 10.21.
(I) Borrower will assist Agent and Heller in effectuating any
such assignments, sales or participations by Heller in whatever manner Heller
deems reasonably necessary, including, but not limited to, the preparation of
offering memoranda and the participation of members of Borrower's management in
meetings with prospective assignees and participants.
9.2 Agent.
(A) Appointment. Each Lender hereby designates and appoints
Heller as its agent under this Agreement and the other Loan Documents, and each
Lender hereby irrevocably authorizes Agent to take such action or to refrain
from taking such action on its behalf under the provisions of this Agreement
and the other Loan Documents and to exercise such powers as are set forth
herein or therein, together with such other powers as are reasonably incidental
thereto. Agent is authorized and empowered to amend, modify, or waive any
provisions of this Agreement or the other Loan Documents on behalf of Lenders
subject to the requirement that certain of Lenders' consent be obtained in
certain instances as provided in this Agreement (including, without limitation,
subsection 10.3). Agent agrees to act as such on the express conditions
contained in this subsection 9.2. The provisions of this subsection 9.2 are
solely for the benefit of Agent and Lenders and neither Borrower nor any other
Loan Party shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this
Agreement, Agent shall act solely as an administrative representative of
Lenders and does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust with or for Lenders,
Borrower or any other Loan Party. Agent may perform any of its duties
hereunder or under the other Loan Documents, by or through its agents or
employees.
(B) Nature of Duties. Agent shall have no duties, obligations
or responsibilities except those expressly set forth in this Agreement or in
the other Loan Documents. The duties of Agent shall be mechanical and
administrative in nature. Agent shall not have by reason of this
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Agreement a fiduciary relationship in respect of any Lender. Each Lender shall
make its own independent investigation of the financial condition and affairs
of Borrower and its Subsidiaries in connection with the extension of credit
hereunder and shall make its own appraisal of the credit worthiness of Borrower
and its Subsidiaries, and Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Lender with any credit or
other information with respect thereto, whether coming into its possession
before the Closing Date or at any time or times thereafter. If Agent seeks the
consent or approval of any Lenders to the taking or refraining from taking any
action hereunder, then Agent shall send notice thereof to each Lender. Agent
shall promptly notify each Lender any time that the applicable percentage of
Lenders have instructed Agent to act or refrain from acting pursuant hereto.
(C) Rights, Exculpation, Etc. Neither Agent nor any of its
officers, directors, employees or agents shall be liable to any Lender for any
action taken or omitted by them hereunder or under any of the other Loan
Documents, or in connection herewith or therewith, except that Agent shall be
obligated on the terms set forth herein for performance of its express
obligations hereunder, and except that Agent shall be liable with respect to
its own gross negligence or willful misconduct. Agent shall not be liable for
any apportionment or distribution of payments made by it in good faith and if
any such apportionment or distribution is subsequently determined to have been
made in error the sole recourse of any Lender to whom payment was due but not
made, shall be to recover from other Lenders any payment in excess of the
amount to which they are determined to be entitled (and such other Lenders
hereby agree to return to such Lender any such erroneous payments received by
them). In performing its functions and duties hereunder, Agent shall exercise
the same care which it would in dealing with loans for its own account, but
Agent shall not be responsible to any Lender for any recitals, statements,
representations or warranties herein or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility, or sufficiency of this
Agreement or any of the other Loan Documents or the transactions contemplated
thereby, or for the financial condition of any Loan Party. Agent shall not be
required to make any inquiry concerning either the performance or observance of
any of the terms, provisions or conditions of this Agreement or any of the
other Loan Documents or the financial condition of any Loan Party, or the
existence or possible existence of any Default or Event of Default. Agent may
at any time request instructions from Lenders with respect to any actions or
approvals which by the terms of this Agreement or of any of the other Loan
Documents Agent is permitted or required to take or to grant, and Agent shall
be absolutely entitled to refrain from taking any action or to withhold any
approval and shall not be under any liability whatsoever to any Person for
refraining from any action or withholding any approval under any of the other
Loan Documents until it shall have received such instructions from the
applicable percentage of the Lenders. Without limiting the foregoing, no
Lender shall have any right of action whatsoever against Agent as a result of
Agent acting or refraining from acting under this Agreement or any of the other
Loan Documents in accordance with the instructions of the applicable percentage
of the Lenders and notwithstanding the instructions of Lenders, Agent shall
have no obligation to take any action if it, in good faith believes that such
action exposes Agent to any liability.
(D) Reliance. Agent shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message or other communication (including any writing, telex,
telecopy or telegram) believed by it in good faith to be genuine and correct
and
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to have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the other Loan Documents and its
duties hereunder or thereunder, upon advice of counsel selected by it. Agent
shall be entitled to rely upon the advice of legal counsel, independent
accountants, and other experts selected by Agent in its sole discretion.
(E) Indemnification. Each Lender, severally, agrees to
reimburse and indemnify Agent for and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, advances or disbursements of any kind or nature whatsoever which may
be imposed on, incurred by, or asserted against Agent in any way relating to or
arising out of this Agreement or any of the other Loan Documents or any action
taken or omitted by Agent under this Agreement or any of the other Loan
Documents, in proportion to each Lender's Pro Rata Share; provided, however,
that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, advances or disbursements resulting from Agent's gross negligence or
willful misconduct. The obligations of Lenders under this subsection 9.2(E)
shall survive the payment in full of the Obligations and the termination of
this Agreement.
(F) Heller Individually. With respect to its Commitments and
the Loans made by it, and the Notes issued to it, Heller shall have and may
exercise the same rights and powers hereunder and is subject to the same
obligations and liabilities as and to the extent set forth herein for any other
Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms shall,
unless the context clearly otherwise indicates, include Heller in its
individual capacity as a Lender or one of the Requisite Lenders. Heller may
lend money to, and generally engage in any kind of banking, trust or other
business with any Loan Party as if it were not acting as Agent pursuant hereto.
(G) Successor Agent.
(1) Resignation. Agent may resign from the performance
of all its functions and duties hereunder at any time by giving at least thirty
(30) Business Days' prior written notice to Borrower and the Lenders. Such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clause (2) below or as otherwise provided below.
(2) Appointment of Successor. Upon any such notice of
resignation pursuant to clause (G)(1) above, Requisite Lenders shall, upon
receipt of Borrower's prior consent which shall not unreasonably be withheld,
appoint a successor Agent. If a successor Agent shall not have been so
appointed within said thirty (30) Business Day period, the retiring Agent, upon
notice to Borrower, shall then appoint a successor Agent from among the Lenders
(or if no Lenders shall accept such appointment, such successor Agent may be
any other Person appointed by the retiring Agent) who shall serve as Agent
until such time, as Requisite Lenders, upon receipt of Borrower's prior written
consent which shall not be unreasonably withheld, appoint a successor Agent as
provided above.
(3) Successor Agent. Upon the acceptance of any
appointment as Agent under the Loan Documents by a successor Agent, such
successor Agent shall thereupon succeed to
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and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under the Loan Documents. After any retiring Agent's resignation
as Agent under the Loan Documents, the provisions of this subsection 9.2 shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under the Loan Documents.
(H) Collateral Matters.
(1) Release of Collateral. Lenders hereby irrevocably
authorize Agent, at its option and in its discretion, to release any Lien
granted to or held by Agent upon any property covered by this Agreement or the
Loan Documents (i) upon termination of the Commitments and in connection
therewith, the termination of all Lender Letters of Credit (or the provision of
cash collateral in regard thereto, if required by subsection 2.4(C)) and the
full payment and satisfaction of all Obligations; (ii) constituting property
being sold or disposed of if Borrower certifies to Agent that the sale or
disposition is made in compliance with the provisions of this Agreement (and
Agent may rely in good faith conclusively on any such certificate, without
further inquiry); or (iii) constituting property leased to Borrower under a
lease which has expired or been terminated in a transaction permitted under
this Agreement or is about to expire and which has not been, and is not
intended by Borrower to be, renewed or extended. In addition, Agent may
release Collateral as to which the applicable percentage of Lenders have
consented to or otherwise authorized the release of the Lien of Agent in such
property pursuant to subsection 10.3(A).
(2) Confirmation of Authority; Execution of Releases.
Without in any manner limiting Agent's authority to act without any specific or
further authorization or consent by Lenders (as set forth in subsection
9.2(H)(1)), each Lender agrees to confirm in writing, upon request by Borrower,
the authority to release any property covered by this Agreement or the other
Loan Documents conferred upon Agent under subsection 9.2(H)(1). So long as no
Event of Default is then continuing, upon receipt by Agent of confirmation from
the requisite percentage of Lenders, of its authority to release any particular
item or types of property covered by this Agreement or the other Loan
Documents, and upon at least five (5) Business Days prior written request by
Borrower, Agent shall (and is hereby irrevocably authorized by Lenders to)
execute such documents as may be necessary to evidence the release of the Liens
granted to Agent for the benefit of Agent and Lenders herein or pursuant hereto
upon such Collateral; provided, however, that (i) Agent shall not be required
to execute any such document on terms which, in Agent's opinion, would expose
Agent to liability or create any obligation or entail any consequence other
than the release of such Liens without recourse or warranty, and (ii) such
release shall not in any manner discharge, affect or impair the Obligations or
any Liens upon (or obligations of any Loan Party, in respect of), all interests
retained by any Loan Party, including, without limitation, the proceeds of any
sale, all of which shall continue to constitute part of the property covered by
this Agreement or the Loan Documents.
(3) Absence of Duty. Agent shall have no obligation
whatsoever to any Lender or any other Person to assure that the property
covered by this Agreement or the other Loan Documents exists or is owned by
Borrower or any other Loan Party or is cared for, protected or insured or has
been encumbered or that the Liens granted to Agent on behalf of Agent and
Lenders
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herein or pursuant hereto have been properly or sufficiently or lawfully
created, perfected, protected or enforced or are entitled to any particular
priority, or to exercise at all or in any particular manner or under any duty
of care, disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent in this subsection 9.2(H)
or in any of the other Loan Documents, it being understood and agreed that in
respect of the property covered by this Agreement or the other Loan Documents
or any act, omission or event related thereto, Agent may act in any manner it
may deem appropriate, in its discretion, given Agent's own interest in property
covered by this Agreement or the other Loan Documents as one of the Lenders and
that Agent shall have no duty or liability whatsoever to any of the other
Lenders; provided, that Agent shall exercise the same care which it would in
dealing with loans for its own account.
(I) Agency for Perfection. Each Lender hereby appoints each
other Lender as agent for the purpose of perfecting Lenders' security interest
in Collateral which, in accordance with Article 9 of the Uniform Commercial
Code in any applicable jurisdiction, can be perfected only by possession.
Should any Lender (other than Agent) obtain possession of any such Collateral,
such Lender shall notify Agent thereof, and, promptly upon Agent's request
therefor, shall deliver such Collateral to Agent or in accordance with Agent's
instructions.
(J) Exercise of Remedies. Each Lender agrees that it will not
have any right individually to enforce or seek to enforce this Agreement or any
other Loan Document or to realize upon any collateral security for the Loans,
it being understood and agreed that such rights and remedies may be exercised
only by Agent.
9.3 Consents.
(A) In the event Agent requests the consent of a Lender and
does not receive a written denial thereof within five (5) Business Days after
such Lender's receipt of such request, then such Lender will be deemed to have
given such consent.
(B) In the event Agent requests the consent of a Lender and
such consent is denied, then Agent may, at its option, require such Lender to
assign its interest in the Loans to another Lender willing to accept such
assignment for a price equal to the then outstanding principal amount thereof
plus accrued and unpaid interest and fees due such Lender, which interest and
fees will be paid when collected from Borrower. In the event that Agent elects
to require any Lender to assign its interest to such other Lender, Agent will
so notify such Lender in writing within forty-five (45) days following such
Lender's denial, and such Lender will assign its interest to such other Lender
no later than five (5) days following receipt of such notice.
9.4 Set Off and Sharing of Payments. In addition to any
rights now or hereafter granted under applicable law and not by way of
limitation of any such rights, upon the occurrence and during the continuance
of any Event of Default, each Lender is hereby authorized by Borrower at any
time or from time to time, with reasonably prompt subsequent notice to Borrower
or to any other Person (any prior or contemporaneous notice being hereby
expressly waived) to set off and to appropriate and to apply any and all (A)
balances held by such Lender or such holder at any of its
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offices for the account of Borrower or any of its Subsidiaries (regardless of
whether such balances are then due to Borrower or its Subsidiaries), and (B)
other property at any time held or owing by such Lender or such holder to or
for the credit or for the account of Borrower or any of its Subsidiaries,
against and on account of any of the Obligations which are not paid when due;
except that no Lender or any such holder shall exercise any such right without
the prior written consent of Agent. Any Lender which has exercised its right
to set off shall, to the extent the amount of any such set off exceeds its Pro
Rata Share of the Obligations, purchase for cash (and the other Lenders or
holders shall sell) participations in each such other Lender's or holder's Pro
Rata Share of the Obligations as would be necessary to cause such Lender to
share such excess with each other Lender or holder in accordance with their
respective Pro Rata Shares. Borrower agrees, to the fullest extent permitted
by law, that (a) any Lender or holder may exercise its right to set off with
respect to amounts in excess of its Pro Rata Share of the Obligations and may
sell participations in such excess to other Lenders and holders, and (b) any
Lender or holder so purchasing a participation in the Loans made or other
Obligations held by other Lenders or holders may exercise all rights of set-
off, bankers' Lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender or holder were a direct holder of
Loans and other Obligations in the amount of such participation.
9.5 Dissemination of Information. Agent will provide Lenders
with any information received by Agent from Borrower which is required to be
provided to a Lender hereunder; provided, however, that Agent shall not be
liable to Lenders for any failure to do so, except to the extent that such
failure is attributable to Agent's gross negligence or willful misconduct.
9.6 Return of Payments.
(1) If Agent pays an amount to a Lender under this Agreement
in the belief or expectation that a related payment has been or will be
received by Agent from Borrower and such related payment is not received by
Agent, then Agent will be entitled to recover such amount from such Lender
without set-off, counterclaim or deduction of any kind.
(2) If Agent determines at any time that any amount received
by Agent under this Agreement must be returned to Borrower or paid to any other
Person pursuant to any solvency law or otherwise, then, notwithstanding any
other term or condition of this Agreement, Agent will not be required to
distribute any portion thereof to any Lender. In addition, each Lender will
repay to Agent on demand any portion of such amount that Agent has distributed
to such Lender, together with interest at such rate, if any, as Agent is
required to pay to Borrower or such other Person, without set-off, counterclaim
or deduction of any kind.
9.7 Discretionary Advances. Agent may, in its sole
discretion, make Revolving Advances on behalf of Lenders in an aggregate amount
of not more than $________ in excess of the limitations set forth in subsection
2.1 (A)(1)(b) (but not in excess of the limitations set forth in subsection
2.1(A)(1)(a)) for the purpose of preserving, protecting, collecting or
enforcing the Collateral (including, without limitation, the preservation of
the perfection and priority of the Agent's Lien therein) and/or rights and
remedies of Agent and Lenders under the Loan Documents
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or applicable law (any advances described in this subsection 9.7 being herein
referred to as "Agent Advances"). The Agent Advances shall be repayable on
demand and secured by the Collateral, shall constitute Revolving Advances and
Obligations hereunder, and shall bear interest at the rate applicable to the
Revolving Advances from time to time. Agent shall require settlement by
Lenders of Agent Advances upon demand by Agent. Notwithstanding the foregoing,
not more than one (1) Business Day after demand is made by Agent (whether
before or after the occurrence of a Default or an Event of Default), each other
Lender shall irrevocably and unconditionally purchase and receive from Agent,
without recourse or warranty, an undivided interest and participation in such
Agent Advance to the extent of such Lender's Pro Rata Share thereof by paying
to Agent, in same day funds, an amount equal to such Lender's Pro Rata Share of
such Agent Advance. From and after the date, if any, on which any Lender
purchases an undivided interest and participation in any Agent Advance as
provided above, Agent shall promptly distribute to such Lender such Lender's
Pro Rata Share of all payments of principal and interest and all proceeds of
Collateral received by Agent in respect of such Agent Advance.
SECTION 10. MISCELLANEOUS
10.1 Expenses and Attorneys' Fees. Whether or not the
transactions contemplated hereby shall be consummated, Borrower agrees to
promptly pay all reasonable fees, costs and expenses incurred by Agent (and
Lenders to the extent herein provided) in connection with any matters
contemplated by or arising out of this Agreement or the other Loan Documents
including the following, and all such fees, costs and expenses shall be part of
the Obligations, payable on demand and secured by the Collateral: (a)
reasonable fees, costs and expenses (including reasonable attorneys' fees,
allocated costs of internal counsel and fees of accountants, auditors and
other professionals retained by Agent) incurred by Agent in connection with the
examination, review, due diligence investigation, documentation and closing of
the financing arrangements evidenced by the Loan Documents; (b) reasonable
fees, costs and expenses (including reasonable attorneys' fees, allocated costs
of internal counsel and fees of accountants, auditors and other professionals
retained by Agent) incurred by Agent in connection with the review,
negotiation, preparation, documentation, execution, syndication and
administration of the Loan Documents, the Loans, and any amendments, waivers,
consents, forbearances and other modifications relating thereto or any
subordination or intercreditor agreements; (c) reasonable fees, costs and
expenses incurred by Agent in creating, perfecting and maintaining perfection
of Liens in favor of Agent, on behalf of Agent and Lenders; (d) reasonable
fees, costs and expenses incurred by Agent in connection with forwarding to
Borrower the proceeds of Loans including Agent's or any Lenders' standard wire
transfer fee; (e) reasonable fees, costs, expenses and bank charges, including
bank charges for returned checks, incurred by Agent or any Lender in
establishing, maintaining and handling lock box accounts, blocked accounts or
other accounts for collection of the Collateral; (f) reasonable fees, costs,
expenses (including reasonable attorneys' fees and allocated costs of internal
counsel) of Agent or any Lender and costs of settlement incurred in collecting
upon or enforcing rights against the Collateral or incurred in any action to
enforce this Agreement or the other Loan Documents or to collect any payments
due from Borrower or any other Loan Party under this Agreement or any other
Loan Document or incurred in connection with any refinancing or restructuring
of the credit
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<PAGE> 93
arrangements provided under this Agreement, whether in the nature of a
"workout" or in connection with any insolvency or bankruptcy proceedings or
otherwise.
10.2 Indemnity. In addition to the payment of expenses
pursuant to subsection 10.1, whether or not the transactions contemplated
hereby shall be consummated, Borrower agrees to indemnify, pay and hold Agent
and each Lender and any holder of any Notes and the officers, directors,
employees, agents, consultants, accountants, auditors, persons engaged by Agent
or any Lender or holder of any Note to evaluate or monitor the Collateral,
affiliates and attorneys of Agent, Lender and such holders (collectively called
the "Indemnitees") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including
the reasonable fees and disbursements of counsel for such Indemnitees in
connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnitee shall be designated a
party thereto) that may be imposed on, incurred by, or asserted against that
Indemnitee, in any manner relating to or arising out of this Agreement or the
other Loan Documents, the consummation of the Recapitalization or the other
transactions contemplated by this Agreement, the statements contained in the
commitment letters, if any, delivered by Agent or any Lender, Agent's and each
Lender's agreement to make the Loans hereunder, the use or intended use of the
proceeds of any of the Loans or the exercise of any right or remedy hereunder
or under the other Loan Documents (the "Indemnified Liabilities"); provided
that Borrower shall have no obligation to an Indemnitee hereunder with respect
to Indemnified Liabilities arising from the gross negligence or willful
misconduct of that Indemnitee as determined by a court of competent
jurisdiction.
10.3 Amendments and Waivers.
(A) Except as otherwise provided herein, no amendment,
modification, termination or waiver of any provision of this Agreement or any
other Loan Document, or consent to any departure by any Loan Party therefrom,
shall in any event be effective unless the same shall be in writing and signed
by Requisite Lenders or Agent, as applicable; provided, that no amendment,
modification, termination or waiver shall, unless in writing and signed by all
Lenders, do any of the following: (i) increase the Commitment of any Lender;
(ii) reduce the principal of, rate of interest on or fees payable with respect
to any Loan or Lender Letter of Credit; (iii) extend the scheduled due date of
all or any portion of principal of the Loans; (iv) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Loans, or the
percentage of Lenders which shall be required for Lenders or any of them to
take any action hereunder; (v) amend or waive this subsection 10.3 or the
definitions of the terms used in this subsection 10.3 insofar as the
definitions affect the substance of this subsection 10.3; (vi) consent to the
assignment or other transfer by any Loan Party of any of its rights and
obligations under any Loan Document; (vii) increase the percentages contained
in the definition of Borrowing Base (viii) change the definition of Maximum
Revolving Loan Amount or (ix) release all or substantially all of the
Collateral or all or substantially all of the Guaranties, provided, further,
that no amendment, modification, termination or waiver affecting the rights or
duties of Agent under any Loan Document shall in any event be effective, unless
in writing and signed by Agent, in addition to the Lenders required herein
above to take such action, and provided, even further, that no amendment,
modification, termination or waiver of
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<PAGE> 94
subsections 2.1(B), 2.1(F) (with respect to the Swingline Note), any provision
expressly relating to application of payments to the Swingline Loan or the
definition of Swingline Loan Commitment shall in any event be effective unless
in writing and signed by Swingline Lender.
(B) Each amendment, modification, termination or waiver shall
be effective only in the specific instance and for the specific purpose for
which it was given. No amendment, modification, termination or waiver shall be
required for Agent to take additional Collateral pursuant to any Loan Document.
(C) No amendment, modification or waiver of any provision of
any Lender Letter of Credit shall be applicable without the written concurrence
of the issuer of such Lender Letter of Credit. No notice to or demand on
Borrower or any other Loan Party in any case shall entitle Borrower or any
other Loan Party to any other or further notice or demand in similar or other
circumstances. Any amendment, modification, termination, waiver or consent
effected in accordance with this subsection 10.3 shall be binding upon each
Lender, and, if signed by a Loan Party, on such Loan Party.
10.4 Notices. Unless otherwise specifically provided herein,
all notices shall be in writing addressed to the respective party as set forth
below and may be personally served, telecopied or sent by overnight courier
service or United States mail and shall be deemed to have been given: (a) if
delivered in person, when delivered; (b) if delivered by telecopy, on the date
of transmission if transmitted on a Business Day before 4:00 p.m. Central time
or, if not, on the next succeeding Business Day; (c) if delivered by overnight
courier, two (2) days after delivery to such courier properly addressed; or (d)
if by U.S. Mail, four (4) Business Days after depositing in the United States
mail, with postage prepaid and properly addressed.
If to Borrower: CHIEF AUTO PARTS INC. One Lincoln
Centre, Suite 200 5400 LBJ Freeway Dallas, Texas
75240-6223 Attn: Chief Financial Officer Telecopy
No.: (972) 341-2310
With a copy to: Gibson, Dunne & Crutcher LLP 1717
Main St., Suite 5400 Dallas, Texas 75201 Attn:
Irwin F. Sentilles, III Telecopy No.: (214)
698-3400
If to Agent or to Heller: HELLER FINANCIAL, INC.
500 West Monroe
Chicago, Illinois, 60661
Attn: HBC Portfolio Manager
Telecopy No.: (___) ___-____
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<PAGE> 95
With a copy to: HELLER FINANCIAL, INC.
500 West Monroe
Chicago, Illinois 60661
Attn: Legal Department/HBC
Telecopy No.: (___) ___-____
If to any Lender: Its address indicated on the signature page hereto, in an
Assignment and Acceptance or in a notice to Agent and Borrower or to such other
address as the party addressed shall have previously designated by written
notice to the serving party, given in accordance with this subsection 10.4.
10.5 Survival of Warranties and Certain Agreements. All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement and the making of the Loans hereunder.
Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrower set forth in subsections 10.1 and 10.2 shall survive
the payment of the Loans and the termination of this Agreement.
10.6 Indulgence Not Waiver. No failure or delay on the part of
Agent, any Lender or any holder of any Note in the exercise of any power, right
or privilege hereunder or under Note shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.
10.7 Marshaling; Payments Set Aside. Neither Agent nor any
Lender shall be under any obligation to marshal any assets in favor of any Loan
Party or any other party or against or in payment of any or all of the
Obligations. To the extent that any Loan Party makes a payment or payments to
Agent and/or any Lender or Agent and/or any Lender enforces its security
interests or exercise its rights of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to
the extent of such recovery, the Obligations or part thereof originally
intended to be satisfied, and all Liens, rights and remedies therefor, shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
10.8 Entire Agreement. This Agreement, the Notes and the other
Loan Documents referred to herein embody the final, entire agreement among the
parties hereto and supersede any and all prior commitments, agreements,
representations, and understandings, whether written or oral, relating to the
subject matter hereof and may not be contradicted or varied by evidence of
prior, contemporaneous, or subsequent oral agreements or discussions of the
parties hereto. There are no oral agreements among the parties hereto.
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<PAGE> 96
10.9 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default or an Event of Default if such action is
taken or condition exists.
10.10 Severability. The invalidity, illegality or
unenforceability in any jurisdiction of any provision in or obligation under
this Agreement or the other Loan Documents shall not affect or impair the
validity, legality or enforceability of the remaining provisions or obligations
under this Agreement or the other Loan Documents or of such provision or
obligation in any other jurisdiction.
10.11 Lenders' Obligations Several; Independent Nature of
Lenders' Rights. The obligation of each Lender hereunder is several and not
joint and neither Agent nor any Lender shall be responsible for the obligation
or commitment of any other Lender hereunder. In the event that any Lender at
any time should fail to make a Loan as herein provided, the Lenders, or any of
them, at their sole option, may make the Loan that was to have been made by the
Lender so failing to make such Loan. Nothing contained in any Loan Document
and no action taken by Agent or any Lender pursuant hereto or thereto shall be
deemed to constitute Lenders to be a partnership, an association, a joint
venture or any other kind of entity. The amounts payable at any time hereunder
to each Lender shall be a separate and independent debt, and, provided Agent
fails or refuses to exercise any remedies against Borrower after receiving the
direction of the Requisite Lenders, each Lender shall be entitled to protect
and enforce its rights arising out of this Agreement and it shall not be
necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.
10.12 Headings. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
10.13 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.14 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns except that Borrower may not assign its rights or
obligations hereunder without the written consent of Lenders.
10.15 No Fiduciary Relationship; Limitation of Liabilities.
(A) No provision in this Agreement or in any of the other Loan
Documents and no course of dealing between the parties shall be deemed to
create any fiduciary duty by Agent or any Lender to Borrower.
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<PAGE> 97
(B) Neither Agent nor any Lender, nor any affiliate, officer,
director, shareholder, employee, attorney, or agent of Agent or any Lender
shall have any liability with respect to, and Borrower hereby waives, releases,
and agrees not to sue any of them upon, any claim for any special, indirect,
incidental, or consequential damages suffered or incurred by Borrower in
connection with, arising out of, or in any way related to, this Agreement or
any of the other Loan Documents, or any of the transactions contemplated by
this Agreement or any of the other Loan Documents. Borrower hereby waives,
releases, and agrees not to sue Agent or any Lender or any of Agent's or any
Lender's affiliates, officers, directors, employees, attorneys, or agents for
punitive damages in respect of any claim in connection with, arising out of, or
in any way related to, this Agreement or any of the other Loan Documents, or
any of the transactions contemplated by this Agreement or any of the
transactions contemplated hereby.
10.16 CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW
YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO AGENT'S
ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH
COURTS. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES
TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT,
THE NOTES, THE OTHER LOAN DOCUMENTS OR THE OBLIGATIONS.
10.17 WAIVER OF JURY TRIAL. BORROWER, AGENT AND EACH LENDER
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE NOTES OR THE OTHER LOAN
DOCUMENTS. BORROWER, AGENT AND EACH LENDER ACKNOWLEDGE THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS
ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT, THE NOTES AND THE
OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR
RELATED FUTURE DEALINGS. BORROWER, AGENT AND EACH LENDER FURTHER WARRANT AND
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.
10.18 Construction. Borrower, Agent and each Lender each
acknowledge that it has had the benefit of legal counsel of its own choice and
has been afforded an opportunity to review this Agreement and the other Loan
Documents with its legal counsel and that this Agreement and the other Loan
Documents shall be construed as if jointly drafted by Borrower, Agent and each
Lender.
10.19 Counterparts; Effectiveness. This Agreement and any
amendments, waivers, consents, or supplements may be executed in any number of
counterparts and by different parties
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<PAGE> 98
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all of which counterparts together shall
constitute but one and the same instrument. This Agreement shall become
effective upon the execution of a counterpart hereof by each of the parties
hereto. Delivery of an executed counterpart of a signature page to this
Agreement, any amendments, waivers, consents or supplements, or to any other
Loan Document by telecopier shall be as effective as delivery of a manually
executed counterpart thereof.
10.20 No Duty. All attorneys, accountants, appraisers, and
other professional Persons and consultants retained by Agent or any Lender
shall have the right to act exclusively in the interest of Agent or such Lender
and shall have no duty of disclosure, duty of loyalty, duty of care, or other
duty or obligation of any type or nature whatsoever to Borrower or any of
Borrower's shareholders or any other Person.
10.21 Confidentiality. Agent and Lenders shall hold all
nonpublic information obtained in connection herewith in accordance with such
Person's customary procedures for handling confidential information of this
nature and in accordance with safe and sound business practices and in any
event may make disclosure to such of its respective Affiliates, officers,
directors, employees, agents and representatives as need to know such
information in connection with the Loans. If any Lender is otherwise a
creditor of a Borrower, such Lender may use the information in connection with
its other credits. Agent and Lenders may also make disclosure reasonably
required by a bona fide offeree or assignee (or participation), or as required
or requested by any Governmental Authority or representative thereof, or
pursuant to legal process, or to its accountants, lawyers and other advisors,
and shall require any such offeree or assignee (or participant) to agree (and
require any of its offerees, assignees or participants to agree) to comply with
this Section 10.21. In no event shall Agent or any Lender be obligated or
required to return any materials furnished by Borrower;
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<PAGE> 99
provided, however, each Offeree shall be required to agree that if it does not
become a assignee (or participant) it shall return all materials furnished to
it by Borrower in connection herewith.
Witness the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
"BORROWER"
CHIEF AUTO PARTS INC.
By:
------------------------------------------------
Name:
-----------------------------------------------
Title:
----------------------------------------------
FEIN:
-----------------------------------------------
"LENDERS"
HELLER FINANCIAL, INC.
By:
------------------------------------------------
Name:
-----------------------------------------------
Title:
----------------------------------------------
Revolving Loan Commitment:
$
------------------------------------------------
Swing Loan Commitment
$
------------------------------------------------
[Add other Lenders]
Address:
"AGENT"
HELLER FINANCIAL, INC., as Agent
By:
-------------------------------------------------
Name:
-----------------------------------------------
Title:
----------------------------------------------
91
<PAGE> 100
EXHIBIT 5.1(D)
[TO BE RETYPED ON THE LETTERHEAD OF BORROWER]
, 199 [200 ]
----------------- -- -
[Name and Address of
Borrower's Accountant]
- ----------------------------
- ----------------------------
Dear :
-----------------------
Reference is made to the Loan and Security Agreement dated as of
May __, 1997 (as the same may hereafter be amended, supplemented or otherwise
modified, the "Loan Agreement") among the undersigned ("Borrower"), the lenders
party thereto from time to time (the "Lenders") and Heller Financial, Inc., as
agent for the Lenders (in such capacity, the "Agent"). In connection with the
Loan Agreement and other credit facilities which may from time to time be
extended by Agent or any Lender to Borrower, Borrower hereby authorizes and
directs you (i) to communicate directly with Agent and each Lender with respect
to all matters pertaining to the financial condition, business and affairs of
Borrower or any of its subsidiaries, if any, and (ii) to release to Agent and
each Lender all management letters and internal control reports and, where the
same are given orally, to advise Agent and each Lender of the substance
thereof.
Furthermore, Borrower acknowledges and hereby notifies you that
(i) a primary intent of Borrower is for your professional services, in
preparing the audit report for Borrower's financial statements, to benefit and
influence Agent and each Lender and its successors and assigns, and (ii) Agent
and each Lender has relied on past financial statements, and will rely on
future financial statements, of Borrower and its subsidiaries, and your audit
report thereon, in making the loans and other credit accommodations under the
Loan Agreement.
Very truly yours,
CHIEF AUTO PARTS INC.
By
------------------------------
Its
-----------------------------
cc: Heller Financial, Inc.
92
<PAGE> 1
EXHIBIT 12.1
<TABLE>
<CAPTION>
Predecessor
--------------------------------------------------
Six Months
Years Ended Ended
Dec. 27, Dec. 26, June 26,
1992 1993 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Net income (loss) $ (32,220) $ 226 $ 1,417
Plus provision (benefit) for income taxes (438) 370 1,383
-------------- -------------- --------------
Income (loss) before income taxes (32,658) 596 2,800
Adjustments:
Fixed charges, as below 18,579 19,090 9,318
Interest income, as below (55) (43) (11)
-------------- -------------- --------------
Earnings (loss), as adjusted $ (14,134) $ 19,643 $ 12,107
============== ============== ==============
Fixed charges:
Interest expense, net $ 12,024 $ 12,014 $ 5,807
Remove effect of interest income 55 43 11
Portion of rent expense representative
of interest factor (one-third) 6,500 7,033 3,500
-------------- -------------- --------------
Total fixed charges $ 18,579 $ 19,090 $ 9,318
============== ============== ==============
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 $ (5,808)
Plus provision (benefit) for income taxes 537 5,500 359 (4,249)
-------------- -------------- -------------- --------------
Income (loss) before income taxes (7,561) 14,979 1,463 (10,057)
Adjustments:
Fixed charges, as below 6,255 14,426 15,808 27,328
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 $ 17,723
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 $ 27,328
============== ============== ============== ==============
Ratio of earnings to fixed charges * 2.03 1.08 *
============== ============== ============== ==============
<CAPTION>
Pro Forma
Three Months
Three Months Ended Ended
-------------------------------- --------------
March 31, March 30, March 30,
1996 1997 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net income (loss) $ 1,672 $ 170 $ (1,500)
Plus provision (benefit) for income taxes 1,353 341 (772)
-------------- -------------- --------------
Income (loss) before income taxes 3,025 511 (2,272)
Adjustments:
Fixed charges, as below 3,625 4,448 7,231
Interest income, as below (36) (34) (34)
-------------- -------------- --------------
Earnings (loss), as adjusted $ 6,614 $ 4,925 $ 4,925
============== ============== ==============
Fixed charges:
Interest expense, net $ 1,440 $ 1,784 $ 4,567
Remove effect of interest income 36 34 34
Portion of rent expense representative
of interest factor (one-third) 2,149 2,630 2,630
-------------- -------------- --------------
Total fixed charges $ 3,625 $ 4,448 $ 7,231
============== ============== ==============
Ratio of earnings to fixed charges 1.82 1.11 *
============== ============== ==============
</TABLE>
*Earnings were insufficent to cover fixed charges and accordingly, such ratios
are not presented.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 24, 1997
relating to the financial statements of Chief Auto Parts Inc., which appears in
such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the two years ended December 29, 1996 and for
the six months ended December 25, 1994 listed under Item 16(b) of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the reference to us
under the heading "Independent Accountants" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Dallas Texas
May 21, 1997
